Trade tensions escalated this week as President Donald Trump appealed a US Trade Court decision that blocked a swathe of tariffs. The US Court of Appeals promptly stayed the lower court’s ruling, keeping the tariffs in place pending the outcome of the appeal – a move AMP chief economist Shane Oliver said will only prolong the uncertainty.
“This is not the end of the tariff issue, but rather just extends it,” he said on Friday.
Legal observers say the appellate court may take a more favourable view of the tariffs, and the case could eventually reach the US Supreme Court. But even if the appeal fails, Trump could revive the measures using alternative legal authorities, Oliver said.
In the meantime, fresh tariffs are being prepared across key sectors including pharmaceuticals, semiconductors and smartphones.
“Basically [this] means the Trump trade war is far from over. In other words, while the trend in US tariffs has been back down in the last month, they still look likely to go back up,” Oliver said.
Reflecting on how this is impacting sharemarkets, the chief economist said while the rebound in sharemarkets has continued, Trump policies pose an ongoing macroeconomic risk.
“The mayhem around the tariffs is causing immense uncertainty which will particularly impact business investment which likely still means weaker economic conditions ahead,” Oliver said.
Outside of trade policies, he noted that Trump’s attacks on US universities are a key threat to America’s ongoing technological advantage, while taxes on foreign investments contained in a section in the One Big Beautiful Bill Act will threaten foreign investment in the US, while the bills will also worsen the US public debt outlook.
All of this, Oliver said, is driving a loss of faith in the US as a safe haven and in US exceptionalism and could see global investors demand a higher risk premium to invest in US shares, bonds and the US dollar.
“I suspect it’s likely to be a slow burn and US tech and particularly AI dominance will serve as a powerful offset for some time to come. But it means ongoing bouts of high uncertainty and volatility,” he said.
Ultimately, Oliver continues to see Trump pivoting from the focus on tariffs to tax cuts and deregulation, which, along with rate cuts from the Fed in the third quarter and other central banks, should help shares stage a more sustainable recovery.
Regarding local shares in particular, the chief economist noted that with the ASX 200 just 1.6 per cent below its record high, it may break to record highs in the near term.
But he warned, while macroeconomic risk flowing from Trump’s policies remains high, “the ride is likely to remain volatile”.
