Markets

How will Trump's tariffs affect the market?

Mon 03 Feb 25, 4:45pm (AEDT)
Trump (2)
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Key Points

  • The ASX 200 slumped 1.79% on Monday as Trump's new tariffs on Canada, Mexico, and China rattled global equity markets
  • Citi expects tariffs to slow global growth, with Canada’s GDP forecast cut to 0% in 2025, while gold and silver prices could surge amid ongoing economic uncertainty
  • Fisher & Paykel warned of higher costs from FY26 due to tariffs, sending its shares 7.4% lower, while iron ore giants Fortescue and Rio Tinto fell on China growth concerns

The Australian sharemarket logged its worst session since September after President Donald Trump announced sweeping tariffs on Canada, Mexico, and China over the weekend.

The S&P/ASX 200 fell 152.9 points (-1.79%) to 8,379, with Healthcare, Consumer Discretionary and Materials leading the decline. Market breadth was extremely weak, with every sector closing lower and 172 of the ASX 200 constituents finishing in the red.

Trump's Tariffs in a Nutshell

On February 1, Trump signed an executive order imposing a 25% tariff on all non-energy imports from Canada and a 10% tariff on energy imports.

In a separate executive order, a 25% tariff was levied on all imports from Mexico and a 10% tariff on all imports from China. These rates are in addition to any existing tariff.

Trump also hinted at further tensions with Europe. When asked about tariffs on the European Union, he responded: “Am I going to impose tariffs on the European Union? Do you want the truthful answer, or should I give you a political answer? Absolutely, absolutely.”

The tariffed countries have all pledged to respond. Canada immediately imposed a 25% tariff (starting Wednesday) on a wide range of US exports, including fruits and vegetables, dairy products, furniture and alcohol. While China's Commerce Ministry issued a statement vowing "corresponding countermeasures," pending details and Mexican leader Claudia Sheinbaum pledged retaliatory levies.

Economic Impact

"Canada, China, and Mexico make up ~42% of US imports and are important components of both S&P 500 company supply chains and revenues," Citi said in a note on Monday.

"Tariffs act as a stagflationary shock for the US economy — lowering economic growth and at least initially boosting inflation," Citi analysts wrote. The key economic risks include:

  • A 10% across-the-board tariff (plus retaliatory tariffs) could shave 1.5 percentage points off US real GDP

  • The global economy would face a similar, albeit lagged, growth slowdown

  • For China, a 15% tariff hike could cut exports by 6.0% and GDP by 1.0%

In Canada, BMO economists revised their forecasts:

  • 0% GDP growth in 2025 (the Bank of Canada recently forecasted 1.8%)

  • 8% unemployment rate (from 6.7% in December 2024)

  • 25 basis point cut at every Bank of Canada meeting until October 2025 (current cash rate rate: 3.0%)

Market Impact

Most analyst reports have focused on how these tariffs will impact the S&P 500. Citi's research explored multiple tariff scenarios and how they impact S&P 500 earnings.

  • Narrow tariffs plus 15% corporate tax cut: EPS up 4.8%

  • Narrow tariffs plus domestic producer tax cuts: EPS up 1.3%

  • Broad tariffs plus 15% corporate tax cut: EPS down 1.4%

  • Broad tariffs plus domestic producer tax cut: EPS down 4.7%

Markets responded negatively to the economic risks, including:

  • US futures: S&P 500, Nasdaq, and Dow futures are down -2.1%, -2.7%, and -1.5%, respectively

  • Commodities: Copper, an economic bellwether, fell 2.6% to a one-month low

  • Crypto: Bitcoin tumbled 10.8% since last Friday to US$93,530

Meanwhile, Citi analysts predict that the moderating US economic backdrop, likelihood of more tariff-related volatility and sustained strong central bank demand will drive gold and silver prices to US$3,000 an ounce and US$36 an ounce over the next 6-12 months.

Impact on ASX-listed Companies

The impact of tariffs on ASX-listed stocks varies by company, with some already flagging risks. Several companies provided updates on Monday detailing how tariffs could affect their operations and earnings.

Fisher & Paykel, which manufactures approximately 45% of its volume in Mexico, noted that around 43% of its first-half FY25 revenue came from the US. While the company does not expect a material impact on FY25 net profit, it anticipates higher costs from FY26 onwards.

"The company continues to expect to reach its gross margin target of 65% through its long-standing continuous improvement activities across the entire business, coupled with efficient growth into existing infrastructure. The US tariffs announced yesterday may have added two to three years to that expectation," the company said in a statement.

The prospect of delayed margin targets and rising costs saw Fisher & Paykel shares drop 7.4% on Monday, hitting a fresh four-month low.

Austin Engineering shares eased 3% despite providing a relatively positive update on US tariff impacts. "In the last nine months, Austin repositioned its US business to ensure it would not be directly affected by tariffs imposed on goods imported from Mexico or exports from the US to Canada," the company said.

Elsewhere, iron ore stocks faced broad losses, with Fortescue and Rio Tinto down 4.4% and 2.1%, respectively. While the tariffs do not directly impact these companies, the weakness may reflect broader concerns about China's economic growth.

The Bottom Line

The global economy is under pressure amid a Trump-led trade war. The economic impact appears particularly steep for Canada and challenging for China, which is already dealing with deflationary pressures and a struggling real estate sector.

Following the tariff announcement, Goldman Sachs noted, "While the outlook is unclear, we think the Canada-and-Mexico-focused tariffs are likely to be short-lived."

Regardless of how this plays out, uncertainty remains a defining feature of Trump’s presidency. Market volatility will continue to test investors, but those who stay nimble and focused on the long term may find opportunities.

 

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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