Many of the tariffs announced by President Donald Trump in the past week are expected to have a substantial impact on the US economy and reduce growth, according to AMP and asset managers.
President Trump announced further tariffs on Friday (11 July) including a a 35 per cent tariff on imports from Canada next month and blanket tariffs of either 15 per cent or 20 per cent on most other trading partners.
This followed a raft of announcements made earlier in the week including a 25 per cent tariff on Japan and South Korea, a 50 per cent tariff on Brazil and tariffs on copper and pharmaceuticals.
AMP head of investment strategy and chief economist Shane Oliver explained that the US will likely be “the big loser” of Tump’s evolving tariff policies, with the tariffs set to drive up costs for consumers and businesses in the US without necessarily increasing US-based production.
Oliver gave the example of the recent 50 per cent tariff on copper, which President Trump confirmed earlier this week in a post on Truth Social.
The main supplier of copper to the US is Chile and while the US does have high reserves of copper and could potentially produce more, Oliver explained that their ability to ramp up supply may be limited due to restrictions and other issues.
“So in the interim, they’ll pay higher prices for it and if it has to be produced in America, then it’s going to be more expensive than the copper coming out of Chile even with the tariffs applied,” he said.
“So with all of this, I think the big loser here is America.”
The problem with many of the announced tariff policies is that wages have not been taken into consideration, he said.
“With Vietnamese products [for example], Vietnamese wages are about one-twelfth of US wages. If you impose a 20 per cent tariff on products coming from Vietnam, they’re still going to be cheaper than anything you can produce in the US once you factor in US wages being 12 times higher than Vietnamese levels,” Oliver said.
Oliver noted that the proposed tariffs on pharmaceuticals and some of the higher tariffs that were previously announced would be more prohibitive.
“[However], once you ramp up your prices with that amount of tariffs, there’s a much bigger blow to US consumers or US businesses that have to pay those higher costs to get raw materials,” he said.
"You’ll then have a negative impact on the US economy. That’s where the main impact will be – not so much around the tariff announcements which the market is currently looking through – but the economic impact, particularly on the US that will be entailed by these high rates.”
Oliver said the erratic rhetoric from Trump regarding trade and tariff policy has also added to uncertainty, particularly in relation to the recently announced plans to impose a 50 per cent tariff on Brazil.
In a letter to Brazilian President Luiz Inácio Lula da Silva, Trump linked the introduction of the 50 per cent tariff in part to Brazil’s treatment of former president Jair Bolsonaro.
In a post to Truth Social, Trump labelled the investigation into Bolsonaro regarding the 2022 election coup plot a “witch hunt” and called for it to end immediately.
“Brazil has a trade deficit with the US. America sells more to Brazil than it imports from Brazil,” Oliver said.
Applying the logic of the commentary used by Trump on Liberation Day, Oliver said this should mean the tariff is at the baseline 10 per cent tariff.
“It’s all erratic and noise doesn’t do the US cause any good in the longer term. Trying to make sense of Trump’s comments is next to impossible,” Oliver said.
Oliver also noted that many of the tariffs have moved substantially from where they originally were on Liberation day.
Payden & Rygel portfolio manager Eric Souders also expect tariff and fiscal policies in the US to weigh on growth in the US, with the asset manager projecting a decrease in growth over the next two quarters of 2025.
“US economic growth is forecast to be about a one to one and a half per cent over the coming quarters. This is below the growth rate trend, indicating a slowdown,” Souders said.
Souders said US equity and bond markets have yet to price this in.
“Forward 12-month price-to-earnings valuations in the US equity market are running above 23 and higher bond spreads are in the bottom decile going back 25 years. We just don’t think that pricing reflects any sort of market recognition of a likely slowdown,” he said.
Given the outlook for the US economy, Souders said investors should be positioning their portfolios to be more defensive.
“Given the backdrop of the US economy, investors should be positioning more defensively today on the credit side. This contrasts with where we were in the third and fourth quarter of last year, where we felt like the market was overpricing in the risk of a slowdown,” Souders said.
“In the current environment, investors should reposition to less credit and more on interest rate exposure in their portfolios, to take advantage of the market not pricing in enough rate cut expectations from the Federal Reserve.
While the market is only pricing in around two cuts by the Federal Reserve, Payden & Rygel is forecasting three or four cuts by the end of the year.
Souders said while overseas investors won’t necessarily start selling US assets, its likely they’ll start to buy more of them or will demand more competition.
“This will likely lead to higher yields in the long end of the US yield curve, and could serve to gradually weaken the dollar further,” he said.
Aubrey Capital Management investment manager Anna Macdonald said despite the muted response from markets towards recent tariff announcements, capital is already beginning to move out of the US.
Macdonald said this is evident from the US dollar’s weakness this year, which has fallen around 10 per cent against a basket of currencies.
“Investor concerns are mounting around the long-term implications of Trump’s ‘Big Beautiful Bill’, which passed just after quarter-end and was signed into law on Independence Day. The bill is expected to add over $3 trillion to US debt, pushing the deficit toward 7 per cent of GDP by the end of the decade,” she said.
“This fiscal outlook is raising questions about the sustainability of US exceptionalism. At the same time, investors are increasingly recognising that compelling opportunities exist elsewhere.”
Modelling on US trade policy by the Productivity Commission released earlier this week found that while the measures will have only a marginal impact on the Australian economy, the risk and uncertainty they've created may have far reaching costs.
The Productivity Commission's Trade and Assistance Review stated that the proposed tariffs were likely to have a relatively small direct effect on Australia, but the global uncertainty they’ve brought about could affect living standards in Australia and around the world.
“Uncertainty is a handbrake on investment – when businesses are uncertain about the future, they are less likely to invest,” said deputy chair Dr Alex Robson.
The changes in tariff policy also carry broader risks, the review said.
“Further retaliatory escalation could spiral into a broader trade war, which would bring serious consequences for Australia and the world,” said Dr Robson.
However, the modelling also indicated that the proposed US tariff changes could have a small, positive effect on Australia’s economy.
The modelling suggested that cheaper imports from the rest of the world, and an outflow of productive capital from the US and highly tariffed economies, would slightly increase Australian production.
"For example, US ‘Liberation Day’ tariffs and tariffs on aluminium, steel and automobiles and parts could lead to an increase in Australian real GDP of 0.37 per cent," the review said.
