Reaction, snapshot and outlook on Trump’s tariffs – A different kind of wall

The reaction to recent tariff developments in global financial markets has been significant, with sharp share market declines around the world following President Trump’s announcements—and the inevitable responses, particularly from China.

FX and interest rate markets have also moved materially, with the AUD weakening and central banks caught between balancing the price and growth consequences of a tariff war. Growth concerns are prevailing, and global interest rates have fallen. This will impact manufacturers in Australia and New Zealand, as well as local sectors exposed to a tariff-restricted US market.

Economic data is taking a back seat for now, with tariff developments, responses from other countries, and central bank decisions dominating sentiment. We are leaning toward the prospect of a weaker global growth environment, as uncertainty impairs investment decisions, global trade is disrupted, and supply chains seek to build certainty—or at least reduce uncertainty—in an increasingly volatile world.

Key Sectors Likely to Be Impacted:

• Manufacturing – beverage, FMCG, automotive parts, clothing, consumer goods, homewares, pharmaceuticals  
• Wholesale/Distribution – similar to above, plus cold chain transport/warehousing (impacted on both import and export fronts)  
• Retail – grocery, alcohol, clothing  

Snapshot of Developments Over the Past Week

April 2nd was dubbed “Liberation Day” by the Trump administration, marked by the announcement of widespread tariffs. A 10% tariff on all imported goods took effect on April 5th. Higher tariffs for specific countries began rolling out this week (April 9th).

Australian exports to the US are now subject to this 10% tariff. In relative terms, Australia, New Zealand, and the UK were spared the steepest penalties, receiving the lowest tier rate. This presents a comparative advantage over other nations such as China and members of the EU, which face significantly higher tariffs.

In stark contrast, developing economies in Asia are now burdened with some of the highest tariff rates (see appendix for country-specific rates).

As of this morning (April 10th), President Trump has escalated his trade strategy significantly by announcing a 125% tariff on all Chinese imports into the United States. However, in a surprise move, the administration also announced a 90-day pause on most “reciprocal” tariffs, during which they will be held at 10% to allow time for negotiations and industry adjustment.

China has yet to formally respond to the latest 125% tariff escalation, but expectations are for a measured reply, potentially keeping within the 10% reciprocal tariff window to avoid further escalation.

European Union exports to the US are still subject to a 20% tariff, though official EU retaliation is still pending at the time of writing. Japanese exports are now under a 24% tariff.

Canada and Mexico have so far avoided additional tariffs but remain under threat of future action.

Sectoral tariffs on steel, aluminium, and automobiles will be reviewed separately from last week’s announcements. Additional sectors may also be subject to targeted tariffs in the coming weeks.

How Were the Tariffs Calculated?

These tariffs are not tied to the rates imposed by other countries on US exports. Instead, they are linked to the size of trade surpluses these countries run with the US. The US has sought to calculate what tariff rate would be required to balance trade flows on a bilateral basis.

Here is the link to the calculation method published by the Office of the United States Trade Representative:  

👉 [USTR Tariff Calculation Method] (https://ustr.gov/issue-areas/reciprocal-tariff-calculations)

Despite running a trade deficit with the US, Australia still received the baseline 10% tariff. Unsurprisingly, in the current “Make America Great Again” environment, there appears to be no advantage for countries that import more from the US than they export.

Market Reactions

The global share market response to the tariffs has been sharply negative, with significant declines continuing across most Asian markets into this week. The AUD has weakened significantly, falling below 0.6000 against the USD. The currency remains extremely sensitive to tariff-related news and global outlook concerns.

Commodity prices have come under pressure as fears of a weaker global economy escalate. Oil, base metals, and agricultural products have all been impacted by rising uncertainty.

Financial markets are now pricing in further RBA rate cuts, with wholesale interest rate markets implying a sub-3% cash rate.

Once again, traditional economic data is being overshadowed by tariff news, geopolitical responses, and central bank interpretations of how these dynamics affect growth and inflation. Locally, attention is on the RBNZ’s Official Cash Rate which was reduced yesterday by 25p to 3.50% and RBA Governor Michele Bullock’s speech today may shed some light. Markets will closely watch both for insight into how Antipodean central banks are weighing inflation versus growth amid tariff-induced volatility. In the meantime, global political and central bank commentary will likely outweigh hard data as the primary influence on market direction.

As we’ve learned from both recent weeks and Trump’s previous presidency, conditions can shift rapidly. Reports suggest over fifty countries have requested negotiations with the US. If the goal was to force countries to the negotiating table, Trump may consider this “mission accomplished”—though case-by-case talks could take significant time. Conversely, Trump has also shown a willingness to delay or reverse tariffs quickly, as seen this year with Canada and Mexico.

US Fed Chair Jerome Powell hinted at a more hawkish stance, stating the new tariffs are “significantly larger than expected” and their inflationary impact “could be more persistent.” Nonetheless, he described the US economy as “still in a good place,” with growth data showing a “slower but still solid” trend. Powell noted inflation’s progress toward the 2% target “has slowed,” underscoring the difficult balancing act now faced by central banks.

Source: Bloomberg

Are There Positives for Australasian Businesses?

One potential positive from the US stance is renewed appetite to explore or strengthen trade relationships with Asia-Pacific partners. Additionally, firms from countries facing higher tariffs may look to redirect exports to Australasia, which could enhance product diversity or competitiveness in local markets. Australasian exporters to the US, facing a comparatively modest 10% tariff, may benefit relative to exporters from other regions.

The recent fall in the AUD and wholesale interest rates may also provide some cushion, particularly for exporters. However, this also increases costs for importers. All firms—whether or not they trade directly with the US—should consider how Trump’s tariff strategy could impact their operations. In the absence of a reversal from the US, global trade flows will adjust. Those who adapt early will fare best.

Supply Chain Impacts

The return of aggressive, unilateral tariff strategies has the potential to reshape global supply chains in significant ways. For companies, this may mean revisiting sourcing strategies, restructuring supplier networks, or accelerating nearshoring or reshoring initiatives. Multinational firms may seek to reduce their exposure to tariff-affected trade lanes, increasing reliance on partners in regions with favourable trade status or low-tariff access to the US. Inventory strategies may also shift toward holding more buffer stock to navigate customs delays and mitigate cost volatility. Supply chains that were optimised for cost and efficiency may need to pivot toward agility and resilience, and cross-border compliance will take on renewed importance. For the broader global economy, expect to see a reshuffling of trade routes, the creation of alternative supplier hubs, and continued disruption to container and airfreight availability in high-demand corridors.

What to Watch in the Coming Weeks

Trump-related developments:

Expect further announcements and responses that could come at any time.

China and US tit-for-tat moves: 

These will remain a key source of uncertainty.

Confidence indicators:

Next month’s Westpac and NAB consumer/business confidence surveys (due 13 May) will offer insight into sentiment.

Central Bank commentary:

Key speeches from RBNZ (Wednesday 9 April) and RBA (Thursday 10 April) will be closely monitored. The next RBA rate decision is 20 May.

EU response:

Discussions continue, and Trump has already rejected an EU proposal to drop all industrial tariffs, clearing the way for a 20% tariff on EU goods entering the US this week.