President Donald Trump has delayed the 25 per cent tariffs on imports from Mexico and Canada once again, reversing his decision just days after announcing it to Congress and the public. The tariff exemptions are due to expire on 2 April, when he plans to implement a global system of reciprocal tariffs on all US trading partners.
Speaking to InvestorDaily on Friday, AMP’s Shane Oliver said the “ongoing back and forth” over Trump’s tariffs, with more to come on 2 April, is making it impossible to determine their motivation or where the situation will ultimately end up.
“This, in turn, is driving increased consumer and business uncertainty which, along with uncertainty flowing from similarly erratic DOGE cuts to the public sector, will likely lead to a further weakening in US economic data. This was again evident overnight in increased lay-offs in the US,” Oliver said.
“It’s in turn denting investor confidence and resulting in increased share market volatility with shares down again overnight despite Trump’s decision to delay more of the tariffs on Canada and Mexico.”
The S&P 500 dropped nearly 2 per cent in the immediate aftermath of Trump’s announcement, while the tech-heavy Nasdaq Composite plunged more than 2.6 per cent, now over 10 per cent below its December record high and officially entering correction territory.
Australian shares, too, fell around another 2.7 per cent, taking the ASX 200 back below the 8,000 level, led by energy, financial and consumer shares.
With the growing confusion expected to persist as Trump both imposes and lifts tariffs, Oliver said “it’s likely to remain a rough ride for a while yet”.
In a market note on Friday afternoon, the chief economist added that 2 April is looking like a “big day”, with the possibility Canadian and Mexican tariffs will get rolled into broader announcements around “reciprocal tariffs” and various industry tariffs.
"Trying to make sense of all this and work out the end point for the tariffs is guesswork as Trump’s motivation seems to vary wildly,” Oliver added.
He warned that if the tariffs on Mexico and Canada take effect on 2 April, coupled with those on China and steel and aluminium next week, the average effective tariff rate on US imports will rise to around 11.5 per cent, up from 3 per cent in January, marking the highest level since the early 1940s.
“And Trump isn’t finished yet,” Oliver said, adding that rough estimates suggest that tariffs could directly reduce US and Chinese gross domestic product by around 0.5 per cent, with a larger impact on Canada and Mexico.
Moreover, they may also add about 0.7 per cent to US inflation this year, prompting the Fed to maintain higher interest rates for a longer period.
Shares could drop lower
Oliver cautioned that rising uncertainty could push shares even lower. So far, US shares have dropped 6.6 per cent from their recent record highs, global shares have fallen 5.1 per cent and Australian shares are down 7 per cent.
“The problem is that price to earnings multiples for US and, to a lesser extent, global and Australian shares remain high and the risk premium shares offer over bonds – as proxied by the gap between the earnings yield and bond yield – is low. In the face of ongoing Trump-driven policy uncertainty with a flow-on to economic conditions, this means a high risk of a further likely volatile correction in shares,” Oliver said.
“Of course, at some point, economic weakness and its impact on poll support for Trump and Republican politicians along with share market falls – with Trump seeing share gains as a key performance indicator – will put pressure on Trump to reverse course and focus on more positive policies.”
AMP, Oliver noted, continues to see a high likelihood of a 15 per cent plus correction in shares before more positive forces around Trump’s tax cuts and deregulation and more Fed rate cuts get the upper hand.
Gold shines bright
While shares and the US dollar have borne the brunt of tariff uncertainty, gold has risen some 10 per cent year-to-date and hit a record high of $2,956.15 on 24 February.
In a report on Friday, the Gold Council said gold continued its upward trend in February, closing at US$2,835/oz, up 0.8 per cent month-over-month, on the back of US dollar weakness driven by ongoing tariff uncertainty.
The council acknowledged that the “Trump trade” has taken a back seat amid growing concerns about tariffs and hawkish foreign policies.
It also pointed to potential inflation risks, noting that worsening economic conditions could keep interest rates low, while US consumer sentiment falters, with the University of Michigan’s consumer and expectation surveys at their lowest since 2023.
Moreover, the council also highlighted geopolitical tensions, with recent events reinforcing the need for greater military spending, which, it said, is expected to result in even higher deficits.
“Uncertainty appears to be the undertone across markets,” the Gold Council said. “Historically, each of these drivers has individually been positive for gold.”
The council, however, warned that while the fundamental case for gold remains strong, it faces the challenge of a temporarily stretched price.
“A retracement may create short-term headwinds but could also provide a welcome respite for uninitiated investors, as well as for consumer gold demand. In all, we expect gold to remain in the limelight given the current market conditions,” it said.
