Rapid executive orders, sudden reversals and bureaucratic roadblocks are creating uncertainty across industries – from car prices and food costs to government staffing and international trade.
In the past couple of days, the newly minted US President has enforced exorbitant tariffs on two neighbouring countries and China, sending markets tumbling – only to pause a couple in a move compatible with his business-style approach to political manoeuvring.
Namely, Trump followed through on his threats from last November, imposing a 25 per cent tariff on imports from Canada (except for energy, which faces a 10 per cent tariff) and Mexico, alongside a 10 per cent tariff on China.
Originally set to take effect on 4 February, tariffs aimed at Canada and Mexico were delayed by a month on Monday, contingent on border and drug policy conditions – leaving the door open for potential negotiation.
Trump’s tariffs on China, however, came into effect at 4pm (AEDT) on Tuesday, with China announcing just minutes later that it would implement tariffs against the US, including a 15 per cent tariff on coal and LNG products, and a 10 per cent tariff on crude oil, agricultural machinery, and large displacement cars.
The persistent threat of further tariffs has kept markets on edge, with volatility expected to remain high, AMP’s Shane Oliver said on Tuesday.
“It looks like we have further to go on the trade war front with likely more tariff announcements on other countries and products ahead. Which means ongoing uncertainty for a while yet,” the chief economist said.
“And with shares expensive – US shares offer no risk premium over bonds – we could be in for a volatile period, a bit like we saw in Trump’s 2018 trade war! Our view remains that a 15 per cent or so correction is likely at some point this year. But trying to time this – down and up – will be hard.”
As for whether the tariffs will stick, Oliver said that remains uncertain.
He pointed to Trump’s history of using tariffs as leverage in negotiations, as seen with Colombia and Mexico in 2019, where swift policy reversals followed diplomatic concessions.
His recent delay on Canada and Mexico adds weight to the theory that these tariffs serve more as bargaining chips than firm policy, Oliver said; however, Trump’s use of the International Economic Emergency Powers Act to justify the tariffs opens the door for legal challenges.
At the same time, the administration has positioned tariffs as a tool to reduce the US trade deficit, incentivise domestic production and generate tax revenue to fund corporate and personal tax cuts.
On the latter, Oliver said: “If this is the case, tariffs may be more of an end point rather than a case of ‘escalate to de-escalate’ and we may have a long way to go yet.”
Stephen Miller, GSFM’s investment strategy consultant, shared a similar sentiment to Oliver, noting also that Trump’s tariffs are causing significant global instability.
He likened the ensuing situation – retaliatory threats from Canada, Mexico and China – to children fighting in a sandbox with no adults in sight, highlighting a concerning decline in the economic wisdom of today’s political leaders.
“The whole episode is emblematic of a decline in the economic literacy (and broader sagacity) of the 21st century political class,” Miller said.
Like Oliver, he cautioned that volatility triggered by tariffs is likely to keep global markets on edge, with the added risk of damaging US equity markets and putting pressure on the Federal Reserve.
Beyond the economic and market impacts, the seemingly chaotic nature of Trump’s leadership is creating widespread instability for businesses and leaders worldwide who are grappling with the unpredictability of US trade and regulatory changes.
“We were worried that the Trump operation would be more professional this time in implementing his agenda. While it is more professional, they are still coming up against basic government roadblocks, such as budget, constitutional rights, states’ rights, legal concerns, staffing concerns and other countries retaliating. This has resulted in a yo-yo of half-baked executive orders being put into place for 24 hours before being rescinded as they are not practical,” associate professor Nathan Eva from Monash Business School told InvestorDaily.
“This style of fly-by-the-seat-of-your-pants leadership is leaving consumers, businesses and countries having to react on an hourly basis,” he added.
From a scholarly perspective, Eva assessed that the instability created by Trump, and other disruptive leaders, lets them control the narrative and keep the world focused on their next move.
“One of the best courses of action for all governments, organisations and consumers is to look outside of the US for business as it will be much more stable,” Eva said.
As of Tuesday, the tariffs announced on China are expected to be permanent, with Oxford Economics noting that this will subtract 40 bps from China’s gross domestic product (GDP) and generate modest downward pressure on China’s inflation and currency.
“We will therefore revise our 2025 GDP growth forecast for China modestly downwards in the upcoming forecast round,” the global economic advisory firm said.
Trump is said to be meeting with Chinese President Xi Jinping in the next few days.
