The cash rate stayed where it was, but the political temperature rose sharply. As the Reserve Bank held firm at 3.85 per cent on 9 July, surprising markets and unsettling households, Donald Trump lit another fire, this time with a proposed 200 per cent tariff on imported pharmaceuticals. For Australia, it was a reminder that even when inflation cools, the world can still throw a punch.
Treasurer Jim Chalmers was left to do the heavy lifting. In a radio interview on the morning after the RBA decision, he struck a deliberately careful tone. No complaints about the central bank, no speculation, no pressure. “I don’t pre-empt them. I don’t second-guess decisions once they are taken,” he told ABC’s Steve Cannane. But he did acknowledge the mood. “There were millions of people who were hoping for more rate relief yesterday and didn’t get it. That’s self-evident.”
What followed was a lesson in measured messaging. On rates, on tariffs, on relations with both the US and China, Chalmers offered calm over theatrics. Yet the challenges are growing sharper by the day.
Expectations for a rate cut had been rising, especially as inflation slid back into the RBA’s target range. The figure had sat above 6 per cent when Labor came to office. It is now in the low 2s, helped by both central bank tightening and government cost-of-living measures that kicked in on 1 July. These include energy rebates, cheaper medicines, and fee-free vocational education. Chalmers made the point that the government had taken “the most responsible” route, aiming to ease pressure without reigniting inflation.
What caught markets off-guard was not just the rate hold, but that the decision was not unanimous. Behind the closed doors of the RBA board, the debate appears to have been lively. The concern is that while inflation is falling, tight labour markets and weak productivity could undo the gains. Chalmers flagged the same, admitting productivity “hasn’t just shown up in the last couple of years… it’s been a feature for the last couple of decades.”
The government plans to convene a productivity roundtable in August. Chalmers said it would bring together business, unions, and economists to “work out the next steps”. But expectations for quick progress remain low. Australia’s productivity growth has lagged since the early 2000s. While recent policies have focused on competition reform and skills development, these are slow-burn efforts. Still, Chalmers pointed out that inflation has come down “without seeing a spike in unemployment”, unlike in other developed economies. For now, that’s the result he wants to defend.
Then came Trump.
The US president announced new tariffs on copper imports and flagged a possible 200 per cent tariff on pharmaceuticals. Copper, Chalmers said, is not a major concern, less than 1 per cent of Australia’s exports in that category go to the US. But pharmaceuticals are different. Australia’s industry, led by firms like CSL, exports billions worth of vaccines and biologics to the US. Those exports are now facing serious risk.
“These are obviously very concerning developments,” Chalmers said. His concern was not just about the trade hit. It was also about the pressure being placed on Australia’s Pharmaceutical Benefits Scheme. The PBS, which ensures affordable access to medicine for Australians, has drawn US criticism for undercutting American prices. But the Treasurer was clear: “Our PBS is not something we’re willing to trade away or do deals on.”
The pharmaceutical dispute is only one part of a wider shift in tone from Washington. In a recent Senate hearing, US trade officials accused Australia of barriers to beef and pork exports, and highlighted the news media bargaining code as another friction point. Chalmers noted that the code—requiring tech giants to pay for news content—was introduced by the previous government. “It’s about making sure that there’s a level playing field in our media,” he said.
Trump’s trade rhetoric may be aimed at domestic audiences, but the unpredictability is making allies nervous. South Korea, despite a free trade agreement, was recently hit with a 25 per cent tariff. That deal was renegotiated by Trump himself in 2018. Canberra has taken note. “There’s been an element of volatility and uncertainty injected into the global economy,” said Chalmers. “These developments… are sometimes unpredictable.”
Against that backdrop, Prime Minister Anthony Albanese is preparing for a high-stakes visit to China. It comes as relations, which soured dramatically in 2020 over issues ranging from COVID-19 to barley exports, have begun to stabilise. Trade bans are easing, diplomatic channels are re-opening, and the tone has shifted.
Chalmers called the trip “a very, very important opportunity.” China remains Australia’s largest export market by some distance, taking in iron ore, gas, and agricultural goods worth over $150 billion annually. But even this engagement is shadowed by friction. The Port of Darwin, leased in 2015 to Chinese firm Landbridge, has become a flashpoint. Labor has committed to bringing it back under Australian control.
“We think the Port of Darwin should never have been sold off,” Chalmers said. “We’ve made it very clear that we will see the Port of Darwin return to Australian hands.” China is expected to raise the issue during the Prime Minister’s visit. The Treasurer said the matter would be handled “methodically and in a considered way.”
Australia now finds itself trying to balance two relationships that are pulling in opposite directions. The US remains its key security partner, through agreements like ANZUS and AUKUS. China is its economic engine room. Managing that tension is increasingly difficult.
The picture that emerges from Chalmers’ interview is not one of triumph or crisis. It is steadiness under pressure. Whether on rates, tariffs or diplomatic strategy, the Treasurer is framing the moment as one that requires consistency, not theatrics.
There are risks on every front: that inflation might return, that trade wars might deepen, that global demand might soften, and that China’s goodwill might fray again. But for now, the line from Canberra is calm. “We’ll work through it,” said Chalmers, more than once.
The challenge will be doing so while everyone else is raising their voice.
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