Trump’s Trade War: Implications for Investors and Australia

Donald Trump’s latest push for tariffs on Canada, Mexico, and China marks a significant escalation in his trade policies, with potential global consequences. While the delay in tariffs on Canada and Mexico suggests negotiations may prevent their full implementation, market volatility remains a key concern.

If enacted, these tariffs would be far larger than those in 2018, impacting 42% of U.S. imports and pushing average tariffs to their highest level since 1946. Trump has also hinted at further increases, including a general tariff of 10–20% on all goods and a staggering 50–60% on Chinese imports. Such aggressive measures risk significant economic disruptions, including a possible U.S. recession and retaliatory actions from affected countries.

Will These Tariffs Hold?

Trump has a history of using tariffs as a bargaining tool, as seen in previous negotiations with Colombia and Mexico. However, his administration has also positioned tariffs as a means to reduce America’s trade deficit, bring production back to the U.S., and generate tax revenue. If this strategy is truly about economic protectionism rather than negotiation, tariffs may remain in place for an extended period.

Despite these risks, some believe that a sharp stock market decline—similar to the 2018 market drop triggered by trade tensions—could pressure Trump to scale back his approach. If the economic pain becomes severe enough, public and political backlash may force a reconsideration of his policies.

Impact on the Global Economy

If fully implemented, these tariffs could cut U.S. GDP by 0.4–0.9% this year, likely pushing Canada and Mexico into recession. China’s GDP could take a 0.5% hit, potentially prompting further policy stimulus. The U.S. Federal Reserve may hesitate to cut interest rates if inflation rises due to higher import costs, while other countries could respond with rate cuts to counter weaker growth.

What This Means for Australia

Australia’s direct exposure to U.S. tariffs is minimal, as only 4% of its exports go to the U.S. However, indirect effects could be significant if a global trade slowdown weakens demand for Australian raw materials, particularly from China. While some estimates suggest Australia’s GDP could fall by 1.2% in a worst-case scenario, others predict a milder impact due to the resilience of the resources sector and the potential for currency depreciation to offset trade losses.

From a monetary policy perspective, these tariffs could strengthen the case for an interest rate cut by the Reserve Bank of Australia (RBA), as the primary risk is slower economic growth rather than inflation. However, the RBA may adopt a cautious approach to avoid further weakening the Australian dollar.

Investment Market Implications

Trump’s tariffs create a complex outlook for investors:

• Negative for shares, particularly outside the U.S.
• Better for U.S. small companies than large multinational firms.
• Ambiguous for bonds, as weaker growth could lower yields, but inflationary risks may offset this.
• Stronger U.S. dollar, which could hurt other currencies, including the Australian dollar.
• Potential boost for gold, as investors seek safe-haven assets.

While these trade tensions add uncertainty, and add to market volatility in 2025,  long-term investors are encouraged to stay focused on their investment strategy rather than reacting to short-term market noise. Market corrections may occur, but a strong economic rebound remains possible, especially if talk around tariffs are eventually scaled back as occurred in his first term of office.

Times like these can be stressful, for superannuation members and most investors, the best approach is to turn down the noise around economies and investing (and particularly Donald Trump!) and stick to an appropriate long term investment strategy to take advantage of the rising long-term trend in share markets given the difficulty in trying to time short-term swings

Weathering the Storm: How Diversification Protects Investors

A recent email from a Fund Manager reminded me about the importance of diversification. Whether it’s a natural event such as a Fire In Los Angeles, a Cyclone in Far North Queensland or Donald Trump introducing Tariffs, the recent Fire Storms in the US highlights the benefits of diversification. In January 2025, Los Angeles was once again thrust into the global spotlight, but for all the wrong reasons. A series of devastating wildfires swept across the city’s outer regions, destroying homes, displacing thousands, and leaving a trail of economic disruption. While the human impact was immeasurable, investors with diversified portfolios saw firsthand how strategic allocation can mitigate financial risk in times of crisis.

For those having any exposure to Global Property,  the fires posed an immediate question—how would this disaster impact real estate holdings in Los Angeles? The answer, much to the relief of investors, was reassuring. One Manager, that emailed me their exposure, reported despite the widespread destruction, the Portfolio’s exposure to the broader Los Angeles market was limited to approximately 5%, spanning multiple real estate sectors including residential, office, self-storage, industrial, and healthcare. More importantly, less than 2% of its holdings were located in wildfire-affected areas, ensuring that the direct financial impact remained minimal.   A typical investor with a well-diversified portfolio spread across local and overseas shares, property and bonds and cash means it was a very small exposure overall.

The Strength of Diversification

Diversification, often likened to not putting all one’s eggs in a single basket, is a fundamental principle of sound investing. The email from an Investment Manager was  timely reminder for me and the Los Angeles wildfires serve as a real-world example of how a well-diversified portfolio can withstand localized economic shocks. The Portfolio’s geographical and sectoral spread meant that while certain properties faced risk, the overall financial health of the investment remained intact.

Real estate investment trusts (REITs), particularly those with global exposure, offer resilience against region-specific calamities. In this case, the Portfolio’s holdings extended far beyond Los Angeles, with investments in stable markets across the U.S., Europe, and Asia. This diversification ensured that a localized event did not disproportionately impact overall returns.

Lessons for Investors

The fires underscored the importance of diversification not just within a real estate portfolio, but across all asset classes. Whether investing in equities, bonds, property, or alternative assets, spreading risk reduces vulnerability to unforeseen events. Natural disasters, economic downturns, and political and geopolitical instability are all unpredictable, but a thoughtfully diversified portfolio provides stability amidst uncertainty.

While the rebuilding process in Los Angeles will take time, investors can take solace in knowing that strategic planning and diversification continue to be the best defence against market volatility. The ability to weather financial storms—just as communities rally to recover from natural ones—highlights the enduring value of a well-structured investment approach.

Work and Retirement – Do they mix?

By Mark Teale – Retirement Strategies and Solutions Specialist

The terms “work” and “retirement” at first appear to be at extreme ends of the spectrum, but for a portion of the population this is certainly not the case. 

The need for some retirees to work to supplement an age pension is now a necessity. The extra income not only helps with normal weekly expenses but allows a person to fund their travel, eat out or play golf on a more regular basis, if so inclined. Working, whether for payment or volunteering, may help some to feel they are still contributing to society; it allows them to broaden their social circle and can provide purpose and self-respect.

For some, retiring can mean going from an active to a much more sedentary existence. And if the only excitement for the day is walking to the shop for the paper and a coffee, this lifestyle will lose its attraction very quickly. I should make the point that the work a person may undertake in retirement does not need to be a continuation of their previous working career.

As you would not be looking to start a new career, but rather looking for ways to contribute, stimulate your senses and pick up some extra cash, menial or what appear to be menial jobs, should not be looked at as below a person’s abilities. These jobs could include shelf packing, sign operators, headstone restorer, barista, or even becoming an Uber driver. For the person in receipt of an age pension there is an extra incentive to find work – the Work Bonus.

What is the work bonus?

The “Work Bonus” allows a pensioner to earn $300 over a 14-day period without any impact on their age pension. It also allows them to build a bank of $7,800 in credit over a 12-month period if they have not been working – $300 multiplied by 26 fortnights.

So, what does this all mean?

For example, an Age Pensioner working for 4 weeks as Santa at the local shopping mall is paid $4,000 for that period. As they have accumulated a work bonus bank for the year of $7,800, the $4,000 will have no effect on their age pension. (I should point out that I have no idea of Santa’s hourly rate!) For a pensioner who is working on a part-time basis throughout the year, the calculation is different. If, for example, the pensioner was earning $600 every fortnight, the first $300 of income is exempt and the remaining $300 would reduce their age pension by $150 per fortnight – leaving the pensioner $450 per fortnight better off.

An age pension couple can access $300 per fortnight work bonus each, meaning they could earn an extra $15,600 per annum without it affecting their age pension. The good news is that since the 1 July 2019 the work bonus is now also available for those age pensioners who are self-employed.

If you are still unsure as to how the Work Bonus operates or if you may qualify, talk to an expert who can help you decipher the complexities of the legislation. Note that the examples provided do not consider a person’s tax position or any other investment income they may have.