This week’s dramatic tariff announcement by former US President Donald Trump has shaken global markets, wiping trillions off share values worldwide. The US markets were hit hardest, suffering their biggest fall since the pandemic began—Nasdaq dropped 6%, the S&P500 fell 4.8%, and the Dow Jones declined 4%. The US dollar also weakened, a concerning signal for Australian investors as global uncertainty takes hold.
There’s a well-known saying in markets: “Sell the rumour, buy the fact.” But this time, the reality has proven worse than expected. The scale and surprise nature of the announcement triggered a wave of volatility, with equities sliding and bond markets swinging in response. While unsettling, these periods of uncertainty can also present opportunities—especially for long-term investors who focus on quality and fundamentals.
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What We Know About the Tariffs
The US has introduced a sweeping set of “reciprocal tariffs” aimed at countries it believes are benefiting from unfair trade practices. These tariffs are based not only on official tax rates but also factors like sales taxes and alleged currency manipulation.
Australia, despite having a trade deficit with the US (we import more from them than we export), has been hit with a 10% tariff—the minimum rate imposed. That’s confusing, economically speaking, as it doesn’t align with typical trade logic. Thankfully, there are some exemptions—for example, goods already covered under Section 232 (like steel and autos), as well as pharmaceuticals, copper, semiconductors, and some natural resources.
Important clarification: The tariffs apply to goods imported into the US, not exports. So it’s US consumers and businesses who will likely face higher prices—especially for imported components and consumer goods.
What We Don’t Know
This announcement leaves more questions than answers. There’s no clear timeline for how long the tariffs will last. Trump hinted they could be indefinite, but they may also face legal challenges—or be reversed if political leadership changes in the upcoming US elections.
Other nations haven’t yet announced how they’ll respond. We could see retaliatory tariffs, trade negotiations, or even escalated trade tensions, particularly with China. Countries like Vietnam and Taiwan, who rely heavily on US exports, are now in a difficult position and may look to redirect trade—likely to China, which could shift the balance of global supply chains.
Initial Market Reactions
The market reaction was swift and sharp. In after-hours trading:
- US giants like Apple (-7%), Nike (-6%), Amazon (-6%) and Gap (-12%) dropped significantly, given their reliance on imported goods.
- Chinese firms with US exposure like Alibaba (-6.5%) and JD.com (-5.5%) also fell.
- Major indices dropped across the board: S&P500 down over 3%, Nasdaq more than 4%.
The broader concern now is whether this will change the US Federal Reserve’s stance. If tariffs begin to drag on economic growth, we could see a pivot toward rate cuts sooner than previously expected—shifting the focus from inflation to economic support.
What Could This Mean for the Economy?
For the US, tariffs usually mean higher prices for consumers, adding to inflation pressures. For the rest of the world, there’s concern about weaker global growth and tighter margins for exporters.
But it’s not all doom and gloom. The US could introduce fiscal stimulus (like tax cuts) to soften the blow. Tariffs might also encourage more domestic manufacturing—something Trump has long advocated for. That said, reshoring is complex and costly. Most US companies manufacture overseas because of cost efficiencies, and reversing that isn’t as simple as flipping a switch.
What Does This Mean for Australian Investors?
We’re not immune. Australia being hit with even the lowest tariff tier is still unwelcome news. Our government is likely to negotiate to improve our trade position, but right now, there’s a lot of uncertainty.
These tariffs could impact demand for Australian exports, especially if they distort global trade flows. Meanwhile, we also face volatility in share markets, currency shifts, and the knock-on effects of global economic slowdown.
What Should You Do Now?
With markets down, it might be tempting to sell—but we need to tread carefully. Selling now may lock in losses and, for some, even trigger capital gains tax unexpectedly.
The alternative? Stay invested and ride the wave. Volatility is a natural part of the investing cycle. Markets have always recovered over time, though we can’t predict exactly how long this bout will last.
Diversification is key. A well-diversified portfolio spreads risk and helps cushion against shocks like this. If you’re invested for the medium to long term, these dips can also be opportunities to pick up quality assets at lower prices.
Final Thoughts
In 30 years of working in financial markets, I’ve seen plenty—but even I find this particular move baffling. Economically, it doesn’t seem to add up. There’s still so much uncertainty about how this will play out, both for Australia and the global economy.
We’ll be monitoring the situation closely and will continue to keep you informed as things evolve. In the meantime, please don’t hesitate to reach out if you have questions about your portfolio or if you’re feeling unsure about the current market conditions.
