Investor Q&A: Key Market Questions Answered…
How long will Trump’s tariff threats last?
Trump has announced various tariffs, including 25% on Canada and Mexico (delayed a month), 10% on China (subject to change), and 25% on steel and aluminium, which “may go higher.” He is also threatening tariffs on the EU and industries like automobiles, pharmaceuticals, and semiconductors, with more likely after April 1 when trade reviews are complete.
The motivations behind these tariffs vary—some serve geopolitical aims, others address trade deficits, and some focus on revenue generation and reshoring production. While some tariffs may be negotiated away (e.g., Canada and Mexico), others could become permanent (e.g., steel, aluminium, China, and Europe). This unpredictability fuels market uncertainty.
Tariffs will raise U.S. prices, disrupt global supply chains, and dampen economic growth, leading to ongoing stock market volatility. However, markets have remained resilient, which may encourage Trump to push further. Ultimately, U.S. tariffs are likely to settle around 9% (up from 3% in 2023), though reaching this level could take 6-9 months or longer.
What do tariffs mean for Australia’s economy?
Australia faces the risk of being impacted by Trump’s 25% steel and aluminium tariffs. While the country secured an exemption in 2018, its justification—importing more from the U.S. than it exports—may not hold this time if Trump prioritizes tax revenue and domestic production.
Even if Australia is not exempted, the broader economic impact would be minor. Steel and aluminium exports to the U.S. total only $800 million, or 0.03% of Australian GDP. More significant risks stem from reduced global trade, weaker Chinese demand, and slower economic growth, which could dampen Australian exports and GDP.
What is the risk of recession?
While Trump’s trade war increases recession risks, if U.S. tariffs remain below 10%, the estimated impact on global and Australian growth would be around 0.5%—not enough to trigger a recession. Additionally, factors such as U.S. tax cuts, deregulation, and central bank rate cuts should help offset these effects.
Will the RBA cut rates in February?
A rate cut is highly likely, with a 0.25% reduction expected on February 18, bringing the cash rate to 4.1%. The RBA has indicated it will ease policy if economic conditions weaken further. Supporting this case:
Inflation slowdown: Core inflation dropped more than expected to 3.2% year-over-year, within the target range.
Slower economic growth: Consumer spending is picking up but remains below expectations.
Stable labor market: Unemployment is low at 4%, but wage growth is slowing.
Currency impact: The Australian dollar has fallen, but trade-weighted value remains stable.
Although Trump’s trade war adds uncertainty, it poses a downside risk to growth rather than an upside inflation threat. A second cut is expected in May, with rates potentially reaching 3.6% in the second half of the year.
Does this mean the “cost-of-living” crisis is over?
No. While wages (3.5% YoY) are now growing faster than inflation (2.4% YoY), the cumulative price rise over the past four years (19%) still outpaces wage growth (14%). At current rates, real wages won’t recover to 2020 levels until 2032.
A faster recovery would require productivity-enhancing policies like tax and labor market reforms. However, with no major policy shifts expected in the upcoming election, significant improvement remains unlikely.
What’s the outlook for China?
China faces long-term challenges, including a declining population, transitioning to consumer-driven growth, and ongoing tensions with the West. Trump 2.0 tariffs could further pressure China’s economy, but if kept below 20% (rather than the 50-60% initially proposed), China can mitigate the impact (~0.9% of GDP) through policy stimulus.
China’s growth is expected to hover just below 5% this year. Despite last year’s rally, Chinese equities remain undervalued, with a price-to-earnings (P/E) ratio of around 15. However, geopolitical and economic risks persist.
How significant are geopolitical risks?
Geopolitical tensions remain high:
Trump and Israel may escalate actions against Iran’s nuclear program, potentially disrupting oil markets.
Trump is likely to push for an end to the Ukraine war.
U.S.-China tensions are expected to remain elevated.
Geopolitical risks contribute to market volatility but are difficult to predict or quantify.
What’s driving the Australian dollar ($A)?
The $A has fallen 10% against the U.S. dollar since September, driven by:
Expectations of Trump’s return and new tariffs
Reduced Fed rate cut expectations
Market anticipation of RBA rate cuts
The $A is likely to fluctuate between $0.60-$0.70, with downside risks if Trump escalates tariffs further.
Why is the gold price at record levels?
Gold has surged 44% in the past year due to:
Central banks diversifying away from the U.S. dollar
Safe-haven demand (outperforming Bitcoin in this role)
Positive momentum driving more investors in
With central banks expected to continue cutting rates, liquidity conditions remain favorable for gold, particularly if the U.S. dollar weakens.
Taken from Dr Shane Oliver’s (AMP) ‘Olivers Insights’ published 11/02/25 (refined for easier reading)
Rick Maggi CFP, Financial Advisor Perth, Westmount Financial
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Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.