What could reciprocal tarrifs mean for my investments?

Investors are holding their breath for 'liberation day'…

| More on:
Three colleagues stare at a computer screen with serious looks on their faces.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Well, this is the week that Donald Trump's much-hyped 'liberation day' will happen. This is when the US President has promised to simultaneously unveil and implement the next stage of his tariff plans. He has called these latest taxes 'reciprocal tariffs'.

Over the past two months or so, the Trump administration has ratcheted up its policy of implementing tariffs – or import taxes – on a number of imports into the US economy. First, it was those 25% tax hikes on Mexican and Canadian imports, as well as additional taxes on Chinese imports. Then, it was steel and aluminium tariffs.

Well, things are about to get a whole lot more interesting. As we covered last week, Trump has named 2 April 'liberation day. This will involve imposing a series of additional, wide-ranging tariffs on dozens of other countries' imports into the US economy.

These new 'reciprocal tariffs' will be determined on a country-by-country basis and will be influenced by a range of factors. These include whether a country has a trade surplus with the United States and what taxes it imposes on American exports.

Australia, as well as other major trading economies like South Korea, Japan, and the European Union, are expected to be included, although we don't know exactly what tariffs will be imposed yet.

So, what does all this mean for an ASX investor's share portfolio?

How will 'reciprocal tariffs' hit ASX shares?

Well, it's quite tricky to put the finger on right now, as we don't yet know how severe Trump's new tariffs will be.

However, it's hard to see the new tariff regime as beneficial to most ASX investors. On the surface, relatively few Australian companies derive a majority of their revenue from exports to the United States.

Any new import taxes are unlikely to directly impact the profits of most blue-chip ASX shares. That includes the big four banks, Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES).

However, it's these tariffs' effects on the health of the global economy that are arguably a clearer and more present danger. There is a real risk that if Trump's new tariffs are as harsh as some fear, they could spark a serious downturn in global growth.

Our economy might not feel too much of an immediate impact if Trump levies a tariff on Australian exports. However, if European, Japanese, South Korean and, in particular, Chinese economic activity slows, it will be bad news (to say the least) for our economy and thus for many ASX stocks.

Let's see what Trump comes up with later this week. The market's reaction will probably tell you all you need to know. Brace yourself.

Motley Fool contributor Sebastian Bowen has positions in Telstra Group and Wesfarmers. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Economy

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
Economy

How likely is NAB's 50 basis point rate cut forecast?

The RBA will next meet on 19-20 May.

Read more »

A happy shopper lifts her bags high, indicating a rising share price in ASX retail companies
Economy

The latest retail sales data is out: What did it reveal about the Australian economy?

Retail sales data is a closely watched metric by investors and economists.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Economy

1 month on from Trump's Liberation Day. What's the latest with Trump's tariffs?

A lot has changed in one month.

Read more »

Man putting a ballot into a voting box in Australia.
Economy

Federal Election Eve: How does Macquarie expect markets to respond to the result?

Will the market go on a tear like the recent US Presidential election?

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

US economy reports negative GDP growth in Q1. What does this mean?

The US is now halfway to a recession.

Read more »

A young man goes over his finances and investment portfolio at home.
Economy

Is Australia's AAA credit rating at risk?

S&P Global Ratings issued a statement earlier this week.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Market News

What the latest inflation data means for ASX 200 investors and RBA interest rate cuts

Will ASX 200 investors enjoy a May RBA interest rate cut following the latest inflation print?

Read more »

Magnifying glass on a rising interest rate graph.
Economy

How likely is a 50 basis point interest rate cut next month?

What are experts tipping for next month's RBA meeting?

Read more »