Liberation day or ‘T-day’ (Tariffs not Trump) was 2 April 2025. And it was a big day.
History of tariffs - Why is the US is raising tariffs?
Since the end of WW2, the US has significantly dropped tariffs to allow the world to recover, and then grow, based on the US economy and consumer engine. The proposed tariffs could take effective rates back to the start of the 1900s. This would be the most painful for countries that have large exports to the US. Plus, for many of these countries, they have not contributed their fair share to NATO while relying on the US to defend them. Now, they have to increase their defense spend and face tariffs, and the combination of those two things has the potential to make a significant negative impact. On the other hand, the US government would look to benefit from these tariffs and be able to pay back some of their debt. However, this will have an impact on inflation and global growth, which will in turn impact markets. With that being said, the impacts will differ by country, sector and company, and that is where active management can uncover opportunity.
Existing US effective tariff rates (custom duty/total imports)
What was announced on 2 April 2025
The tariff announcements were a lot higher than the market anticipated. The good thing is that there should be more clarity, especially around what could be the worst-case scenario, which is what was recently announced in the reciprocal tariffs. This is shown in the list below of recently announced reciprocal tariffs.
Now the stage is set for bilateral negotiations. If those aren’t successful, it will lead to current tariff levels. If successful, it could lead to some lower tariff levels than what is now in market. Given we are unlikely to see the end of this news cycle and policy developments, investors should expect market volatility to remain elevated in the coming days and weeks.
Impacts on different countries
There are clearly both winners and losers emerging, which makes careful stock selection critical to navigating this challenging environment. Our global platform gives us a clear advantage in gathering real-time on-the-ground information and enables us to assess potential opportunities by region with analysts in our offices across the globe. Approximate impact on regions can be seen in the chart below showing imports and exports from the US to various countries across the world.
US liberation day - reciprocal tariffs in focus
Approximately 15 trade partners account for nearly all the trade deficit in the US
As we can see from these illustrations, Australia will only have a 10% tariff with about USD$20bn of exports to the US. And that is before any negotiation. India with 26% on USD$88bn. Pharma, which is a big export, is exempted. IT will be impacted, but the volatility has created opportunities for investment in the sector. Notably for India, as compared to China and other Asian countries, it has fared better and provides them with a competitive advantage over many other Asian countries. These new tariffs could have the biggest impact on China, EU, Mexico, and Canada given the significant amount they export to the US.
Australia: Relatively low impact given lower level of exports to the US and lower tariffs
As we better understand the tariffs, we see that there are different levels of impact. For example, pharmaceuticals are exempted from tariffs so this could have a positive impact for our big pharma manufacturers. For those companies with US based manufacturing, we see this as a net positive, but for those manufacturing in high tariff countries and exporting to the US, this could hurt. Retailers importing from China could potentially get better rates as capacity frees up if we see China exports to the US fall. Added complexity in the global supply chain could benefit those with systems that help ease the additional complexity. The impact on banks could come from lower growth or higher defaults for companies exporting to the US, but no first order impacts from the tariffs. For metals and mining, the impact is more around 2nd order impacts on Chinese growth, based on what impacts the tariff could have. We believe REITS and infrastructure should benefit in a volatile environment. We have an Australian election coming up, which will be a big driver on growth and markets. The election result could also impact outcomes from negotiations with the US government on tariffs. In Australia, we view tariff and election uncertainty as a driver for higher volatility, for now.