Our Investment Response to Trump Tariffs
We see the recent market correction as a market coming off record highs that needs to digest the new US tariffs.
Why are we still buying while the market drops in value?
Trump is doing exactly what he said he would do if elected President: place reciprocal tariffs on countries that currently charge tariffs on American imports. High tariffs have been charged around the world for decades without crippling their economies. Please see the chart below.
He placed tariffs on major trading partners in his first term. This did not cause inflation, a recession, or a depression. Historically, the consumer does not pay the 10% or 35% tariff. The importer does. The importer then negotiates to pay the exporter less, or reduces their profit margin and absorbs the tariff rather than passing on the full price increase. Therefore, tariffs are not inflationary.
The American Government is reducing expenditure and waste.
$2 trillion is set to be invested in manufacturing in the American economy over the next two years. An economic boom will follow.
We expect dividends to continue offering excellent returns from Australian shares.
The 10-year bond rate was heading to 5% but has now dropped to 4.2%. This is very important, as the US Government has $10 trillion to refinance within the next six months. This also suggests that US Government policies should not be inflationary.
China will dump low-cost surplus goods into Australia and Europe, having a deflationary effect on many imported goods into Australia.
Unemployment is low at 4.1%, inflation has fallen from 2.8% to 2.3%, and we expect interest rates to drop an additional three times this year.
What are the risks and why so much volatility?
If the US Government reduces expenditure by $1 trillion, it could cause a 6–12-month recession. Note: Government in Washington represents 34% of US GDP.
We expect a supply chain shock while importers and manufacturers work out the tariff impacts on their supply chains. In my previous portfolio review, I said that a supply-side shock could cause a recession in America.
Unemployment will rise in the US for government workers.
Economists and media commentators are spruiking recession and depression risks.
China has placed reciprocal tariffs on US imported goods. This also occurred last term, and US farmers and exporters successfully managed to find alternative markets for their products.
Our investment strategy going forward
We will continue to buy good blue-chip companies while the market is down and live off the dividends.
Now that the US market has had its much-needed correction, we will start to add additional top 100 Nasdaq stocks and S&P 500 stocks to your portfolios. Tim Farrelly and I have been calling the US share market overpriced for the last three years.
Henry, Darcy and I have completed your portfolio reviews and will be sending these out over the next three weeks.
We are very bullish on the US economy. For the first time in many years, we have highly intelligent, very successful business leaders who are now cabinet ministers running US Government economic policy.
Continue to seek facts and not rely on the news. There is too much noise in world news today to make well-informed decisions. Jonathon Pain, Tim Farrelly, Chris Watling and I rely on facts and data from the original source to ensure our investment strategies continue to manage your portfolios successfully, as we have done over the last 25 years.
If you have any questions or concerns, please give me a call on 0428 746 114.
Yours sincerely,
Andrew Badgery
Certified Financial Planner
Solutions 2 Retirement Pty Ltd
| Country | Trade Surplus (Deficit) in Goods | US Exports in Goods | US Imports in Goods | Alleged Tariff Rate | US Response |
|---|---|---|---|---|---|
| China | -295,401.6 | 143,545.7 | 438,947.4 | 67% | 34% |
| European Union | -235,571.2 | 370,189.2 | 605,760.4 | 39% | 20% |
| Japan | -68,467.7 | 79,740.8 | 148,208.6 | 46% | 24% |
| Vietnam | -123,463.0 | 13,098.2 | 136,561.2 | 90% | 46% |
| South Korea | -66,007.4 | 65,541.8 | 131,549.2 | 50% | 25% |
| Taiwan | -73,927.2 | 42,336.9 | 116,264.0 | 64% | 32% |
| India | -45,663.8 | 41,752.7 | 87,416.4 | 52% | 26% |
| United Kingdom | 11,856.9 | 79,941.3 | 68,084.5 | 10% | 10% |
| Australia | – | – | – | 10% GST | 10% |
| Brazil | 7,350.7 | 49,667.0 | 42,316.3 | 10% | 10% |
