Share markets are selling off due to the new Trump Tariffs.

Key points:

1. A universal tariff of 10% was imposed as well as reciprocal tariffs charged on those exporting countries which had trade surpluses with the US.
2. There is a growing belief that these tariffs will NOT be implemented, and they are the start of negotiations with countries.

Impact:

1. The impact on the economy has been estimated at between -1.5-2.0% of gross domestic product (GDP).
2. Australia was given the minimum tariff and might be insulated somewhat given China could be forced to drive more stimulus.
3. Global trade has been a large driver of wealth creation over the last 80 years. The US has seen its manufacturing base move to lower cost Asia over the last 40 years and is seeking to re-establish that back in the US.

Where to from here?

1. Markets normally price the worst case and reasonably quickly. This is what the market appears to be doing at present. The market will anticipate a reasonable economic slowdown and attempt to price that into the market over the next few weeks.
2. Incremental news-flow should improve (from a political perspective) from there. Negotiations will allow some improvement (e.g. Trump is talking to China about tariff relief in exchange for the sale of Tik Tok). The more positive aspects of Trump’s agenda including deregulation and tax cuts for domestic production will play out over the course of this year.
3. Political responses from other countries will be key to watch. This likely works against the US over the long run by forcing other countries to form alliances and strengthen competitiveness. The US consumer will see higher priced goods and businesses will face difficult decisions regarding whether to spend capital moving to the US.

Market opportunities

• This is a human made crisis. The policies are subject to negotiation and revision, central banks can and will start cutting rates. However, in the meantime the market will price in the worst case scenario. This is likely to be a difficult period for investors who have enjoyed a good run in markets since COVID-19. As always, investors need to think longer term when investing in equities.
  Periods like this come with heightened volatility and active investment management provides opportunities to invest in high-quality businesses at compelling prices, often laying the foundations for strong future active returns.

Now?

We continue to monitor the future negotiations, expect volatility (which can go up or down) to persist for the coming week and maintain our long term risk adjusted portfolios.