President Donald Trump has announced a new round of tariffs set to take effect on 2 April 2025 that could reshape global trade dynamics, potentially rattling financial markets and raising inflation risks. Aimed at protecting U.S. industries, reducing trade deficits, and securing more favourable trade agreements, these measures could trigger widespread economic consequences. But what exactly should investors expect, and how will markets respond?
President Trump is expected to announce a range of reciprocal tariffs on countries that levy fees on U.S. exports, by matching value-added taxes abroad.
The specific details of the Trump tariffs are not yet known, however, are likely to include tariffs on:
Foreign-made automobiles and auto parts – aimed at boosting domestic manufacturing.
Pharmaceuticals, copper, and lumber – designed to encourage U.S. production of these key materials.
Imports from countries that purchase Venezuelan oil – a measure intended to exert economic pressure on Venezuela.
The new tariffs will primarily impact major U.S. trade partners, including:
China and Mexico: Both countries are key exporters of auto parts to the U.S.
European Union and Japan: European and Japanese automakers will face higher costs when selling vehicles in the U.S.
Canada: Given Canada’s significant trade in lumber and oil, these tariffs may affect its economic outlook.
Latin American nations: Countries that import Venezuelan oil may face secondary economic consequences.
If the U.S. imposes new tariffs, its key trade partners like China, the EU, Japan, and Mexico may retaliate with tariffs on American goods, impacting agriculture, manufacturing, and technology exports. This could escalate trade tensions, disrupt supply chains, impact growth forecasts and increase market volatility, raising recession risks.
The Trump tariffs are unlikely to have a large direct impact on Australian trade, as Australia’s biggest export markets are China, Japan, and South Korea, not the US. However, the indirect effects could be significant, especially if US-China trade tensions escalate. If China retaliates by reducing imports from U.S. allies, Australian exports like iron ore and coal could suffer. While some sectors, like agriculture, might benefit from U.S. tariffs on competitors, overall economic uncertainty could lead to market volatility and potential downside risks for Australian trade and investment.
Higher tariffs are expected to drive up consumer prices in the U.S. raising concerns about a potential resurgence of inflation, especially in those industries most directly impacted by tariffs. There is also a risk that these cost increases could lead to broader inflation across the U.S. economy, potentially prompting the Federal Reserve to tighten monetary policy by raising interest rates. This comes at a time when U.S. consumer spending and savings levels are already weakening, along with consumer confidence which has fallen to multi-year lows over tariff and cost-of-living concerns.
As consumers find it increasingly difficult to absorb higher prices, their consumption levels will decline and ultimately weigh on economic growth and corporate earnings. Furthermore, high levels of uncertainty surrounding Trump’s tariff program may cause businesses to defer capital expenditure plans, placing further pressure on corporate and economic growth.
Our asset consultant, BCA Research have reaffirmed their views that a U.S. recession is now likely as economic growth slows due to cuts in fiscal spending and an ongoing trade war with foreign trading partners. In recent weeks, major global investment firms such as Goldman Sachs and JP Morgan have also revised down their U.S. growth estimates and increased their probabilities of a U.S. recession.
Findex continues to take a cautious stance with our investment strategy and portfolio positioning considering ongoing market volatility and the potential risks associated with President Trump’s tariff announcements. Findex portfolios retain an underweight allocation to both Australian and International shares and an overweight allocation to defensive investments such as cash and fixed interest. We retain a high level of conviction in our current asset allocation and believe that portfolios are well constructed to navigate the current period of market instability.
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