Treasurer Josh Frydenberg has attempted to allay current fears of a China and US trade war by saying that the government will “continue to take the necessary action domestically, including the tax cuts, to ensure that the economy continues to grow”.

“We shouldn’t overreact to these developments, but we should recognise that China’s currency moves and the increase in US tariffs are an unwanted escalation,” he outlined.

“We also need to be realistic that there is greater uncertainty in the global economic outlook,” Mr Frydenberg conceded, which is playing a negative role domestically.

“Our message is to continue to encourage cool heads to prevail and for differences between China and the US to be negotiated between the parties,” he said.

Predicting that the Chinese economy will continue to grow, the Treasurer noted that Australia does “need to be realistic about these recent developments and understand that the world is not always as we want it to be and the world is as it is”.

Noting that Reserve Bank governor Philip Lowe “has made it very clear that the fundamentals of the Australian economy are strong”, Mr Frydenberg said that they will be watching what happens globally “very closely”.

“But we think we have got the settings right.”