Global share markets, which had initially been optimistic about the United States’ economic prospects under President Donald Trump, have reversed course and weakened significantly over the last two months on the back of announced changes to US trade policy.

At the time of writing, accumulated blows have resulted in the global share market, as measured by the MSCI All Country World ex Australia Index, falling 9.9% (in local currency) and 6.7% (in Australian dollars) since 1 January 2025.

Over the same time, the US share market, as measured by the S&P 500 Index, slid 13.4% (in US dollars), while the Australian share market, as measured by the S&P/ASX 200 Index, lost 9.0% of its value.

The first knock to share markets came on the heels of tariffs (tariffs are taxes placed on imports) imposed on the US’ closest trade partners Canada and Mexico.

This was followed last Thursday, 3 April (Australia time), by sweeping tariffs of at least 10% on practically all goods coming into the United States, plus even higher rates on dozens of countries with high trade surpluses with the United States.

Australia has been hit with a 10% tariff while China was hit with an additional 34% across-the-board tariff, the European Union an additional 20%, South Korea 25%, and Japan 24%. Ahead of the announcement, the European Union, Mexico, Canada, China, Japan, and South Korea pledged to respond to US tariffs.

In effect, the United States has set off a trade war in which there are unlikely to be any winners. Instead, a lot of sand is being thrown into the global trading system, which will slow economic growth, threaten jobs, while raising prices.
 

Economic and share market impacts

It will take some time for the full implications of the changes set off by President Trump to flow through to economies and investment markets, and it’s not yet known the degree to which he may negotiate on the level of tariffs ultimately imposed, but they are already proving to be disruptive.

Here’s one example. Prestigious carmaker Jaguar Land Rover will pause shipments of its Britain-made vehicles to the United States for a month, as it considers how to deal with the cost of the 25% tariffs on car imports.

If non-US carmakers, like Jaguar Land Rover, choose to pass on the full 25% tariff to US buyers, all things being equal, imported car prices would rise by 25%. Furthermore, as the US car industry is part of a global industry, the price of US made cars would rise too.

It’s not just the price of cars that are at risk of rising. Given that President Trump policy’s is in effect to tariff the world, the price of many goods and products in the US, and elsewhere, would likely also rise.

Rising prices squeeze households’ spending, which typically sets off a chain of harmful effects that can cause business to freeze hiring plans, reduce investment and cut jobs.

Financial markets have been rattled because investors are looking ahead to the negative knock-on impact of tariffs on household spending, business behaviour, and employment.
 

US not a major Australian trade partner

The US is not a major destination for Australian exports, which means the direct trade impact of US tariffs is not likely to be significant for the broader Australian economy (although specific sectors, such as beef exporters will be hit).

Of more significance is likely to be the impact on global growth and investor moods. Anything that is a handbrake on global trade, risks capital flows, and adds greater uncertainty to business decision-making is bad for countries’ economic wellbeing and investment markets.

Australia’s largest trade partner, China, has a heavily export driven economy and has benefited greatly from the liberal trading system. The US policy changes could materially dent the country’s economic growth and employment, which would be a headwind particularly for Australian commodity exporters.

Recent events also raise the possibility of compelling the Reserve Bank of Australia, and the US Federal Reserve, to cut interest rates by more than they may otherwise have planned to support the Australian and US economies, respectively.

Our thinking, judgment and portfolio positioning

Government policy, and relationships between countries, are a fact of life that investment professionals, like us, deal with every day, and so dramatic as they can be, they are also business-as-usual. That said, current events are weighing more on markets than usual.

We can’t change what governments and political leaders do and instead focus on controlling the controllables. As ever, we are leaning on our deep experience of managing through past market events like the COVID-19 period, and the 2008/09 Global Financial Crisis.

We navigated our clients’ investments through these highly disruptive episodes and are confident that the skills, knowledge, and judgment across our investment team will again prove to be up to the challenge this time.

Diversification remains a cornerstone of our investment approach. By spreading investments across various asset classes, it means that our clients’ portfolios are not overdependent on strong returns from a handful of assets for performance. Instead, returns are accumulated from multiple sources.

Furthermore, in volatile periods, better returns from some parts of portfolios, can potentially offset weaker returns from other parts, which helps to smooth returns.

We have had an ‘underweight’ position to the US share market for some time and instead put more of our clients’ funds to non-US markets, which we judge as being better valued.

We have also maintained our exposure to alternative investments, like insurance related investments, which provide an attractive source of diversification given that their performance is not related to share market performance.

We also allocate to real assets via unlisted infrastructure, and unlisted property investments, which provide diversification benefits, along with long-term, stable and predictable cashflows often linked to movements in inflation.

We are strong active management advocates because markets move and change, and psychological factors can drive knee-jerk actions, by some market participants. This creates opportunities for those who can look through events and buy good assets at attractive prices.

Positions like those discussed in this note provide high levels of diversification, and, in our view, form important parts of well-managed portfolios and are especially relevant during the current market climate.

¹ UK's Jaguar Land Rover to pause shipments to US over tariffs, 6 April 2025, https://www.reuters.com/business/autos-transportation/uks-jaguar-land-rover-pause-shipments-us-over-tariffs-times-says-2025-04-05/