Tariff Shock
The long-anticipated tariff announcements have finally landed, and markets wasted no time in responding. Framed as the Trump administration’s first major shift in trade policy, the move aims to bring manufacturing back to the US, but not without ruffling feathers among key trading partners.
While a flat 10% tariff was expected, the sweeping scope of the measures caught even seasoned observers off guard. In response, US equities had their worst day since the pandemic, while bonds posted one of their strongest rallies in years. That said, global shares (ex U.S.)—including the ASX200—have only slipped back to levels seen a few weeks ago.
The big question now is how much bad news is already priced in? If recession fears take hold, markets could slide further. But any easing in US policy could help steady sentiment—or even trigger a rebound.
So, what does it all mean for markets and investors?
While the general move was widely expected, the sweeping, indiscriminate nature of the rollout has caught many off guard. If tariffs persist, US consumers are likely to feel the impact first, with higher prices putting pressure on household budgets.
Major economies like China, the EU, and Japan were slapped with even higher tariffs—up to 34%—well above what most had forecast. That adds another layer of uncertainty to an already complex global outlook.
Australia, by comparison, received the standard 10% rate. While the direct hit might seem modest, the indirect effects—especially through our close ties with China and Japan—will take time to fully play out. Still, we’ve been here before. During the 2020–2024 China trade tensions, Australia adapted quickly and maintained strong export demand.
The tough stance may also be part of a broader negotiating play. We’re likely to see more noise in the short term, including the potential for retaliatory measures, legal challenges, or a walk-back on some of the policy.
What are we doing about it?
We’re staying calm—and sticking with our diversified approach. It’s a proven strategy that’s delivered through more than 50 years of market ups and downs, and we see no reason to change course now.
Importantly, our portfolios remain underweight US equities by around 15% relative to the global index, a position we’ve held for some time, given valuation concerns. That’s helped in the current environment—our balanced portfolios are down just 2% this year, supported by the strength of defensive assets like alternatives and fixed income.
We’re also prepared to act. If markets fall further, we’ll look to add high-quality assets at better prices. In fact, we recently increased equity exposure by 1–2% near the March lows for many clients.
And we’re watching the data closely. Early signs suggest US manufacturers were stockpiling in anticipation of these changes, which could soften some of the short-term blow.
While policy noise may persist, a softer US stance—such as extended tax cuts or reduced regulation—could set the stage for US equities to rebound later in 2025.
There’s no doubt this is a messy and uncertain time, but history has shown that well-constructed portfolios don’t just survive these periods; they often come out stronger on the other side.
General Advice Warning: Any comments in this communication do not consider your objectives, financial situation or needs. Before acting on any general advice, consider whether it is appropriate for you.
