Given the major global equity market correction, we considered it necessary to provide a brief commentary. 

Tariffs and global markets

For many years now we have been writing about the breakdown of the world order. The introduction of the US “Liberation Day” tariffs is a further step in this breakdown. 

With respect to US tariffs as we outlined in the newsletter dated 31 March 2025, President Trump says he is seeking symmetry in tariffs for all countries, except China and those 34 countries under US sanctions, e.g. Russia. This is important to understand. 

History is a guide

Some history will help in understanding the impact of the Liberation Day tariffs by examining what happened to Australian trade with the UK after it joined the European Union (EU) on 1 January 1973. Australia’s special trade relationship with the UK dated back to imperial times with the UK preferring products from Commonwealth countries. When the UK joined the European Common Market, this comfortable trading arrangement ended abruptly for Australia. Our major exports to the UK of wool, wheat, beef and veal came crashing down. For example, Danish butter replaced Australian in Britain’s supermarkets with Australian butter exports to the UK dropping by more than 90 per cent. There are many more examples. 

In response to losing the UK as a valuable trading partner Australia looked to Asia and over the years Australia’s major trading partners shifted to Japan, Korea and China following the Whitlam Government’s recognition of China. In more recent times China through the mining sector has become our largest trading partner. As the US tariffs are being applied across the globe the overall impact is unknown because of the multi-faceted trade interrelationships. It is the unknown financial impact that is driving the correction, as occurred with the 2007/08 crash.

Winners and losers

The Australian dollar has fallen by about 3 cents against the US dollar which roughly equates to the value of the tariffs. This is the exact opposite to what President Trump wants, i.e., he seeks a fall in the value of the US dollar to make it more competitive, i.e. cheaper exports and help in the process of inflating away the value of the US national debt.

Canada and Mexico are the major trading partners with the US that will be most affected. China not so, because as outlined in newsletter dated 26 February 2025, the US is disengaging across the board with China through actions like the America 1st Investment policy. China has been reducing its holdings of US treasuries from USD3 trillion a few years ago to around USD700 billion now. Chinese companies listed on US exchanges have been delisted, and companies have been compulsorily acquired, e.g., Tik Tok. As part of this disconnection China’s exports to the US now represent just 15% of its trade and the downward trend continues. Despite this disengagement, as also reported in newsletter dated 20 September 2024, the US relies heavily on China for many products as China controls many global supply chains. China rather ironically is embracing free trade and as reported in newsletter dated 26 February 2025, has reduced to zero tariffs on all African countries’ products. 

On a micro and macro level, those companies where America is their primary market may fail, while those that have greater diversity of trading partners in other countries will probably survive while they seek out new markets as Australia did after the UK joined the EU. As fate has it with BREXIT the UK is now exposed to EU tariffs and is seeking trading deals with Australia. 

In conclusion, there will be some individual investor pain with unrealised losses, however, over time markets will recover, as it did in 2007/8 and with earlier corrections, so it is important not to panic and sell unnecessarily, thereby converting unrealised losses into realised losses. The timing of the recovery will depend on the when the economic impacts are better understood, as equity markets trade on future earnings, not historical. Buying opportunities will arise and we saw this on Monday 7 April 2025 when the Australian All Ordinaries index initially fell by about 6% and then recovered to finishing down by approximately 4%. A lot of this buying/selling is algorithmic trades which trigger automatically buy/sell orders based on pre-determined market levels. 

If you have any queries or wish to discuss opportunities or concerns, please feel free to contact us.

General Advice Warning: Any advice or information provided is general advice only and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any General Advice provided, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If you wish to discuss the contents of this newsletter, please do not hesitate to contact us.