They have four years until the next election, and they want to change the way the United States of America is managed.

They are off to a sizzling start.

It is hard to keep up as they ‘flood the zone’ with announcement after announcement.

Tariffs

Trump’s tariffs will have an impact on a wide range of economic factors including:

• US share market
• US interest rates
• World trade and international share markets
• Investment returns for Kiwi investors

Some impacts are becoming apparent, and we can discuss those below, but mostly it is not clear who the end winners and losers will be. Obviously US industries that don’t rely on imports like healthcare and power companies could be winners, and US companies that won’t have to compete with imported electric cars from China on an even playing field could be winners, like Tesla. But there are always secondary effects, and unintended consequences that are impossible to factor in with any certainty ahead of time.

On-again, off-again, on-again announcements create confusion and a loss of trust in the announcements themselves, so it will take time for patterns to develop and stabilize.

Overall, the Trump administration is serious about promoting US manufacturing, smaller government, less government debt, and reducing the reliance on the US for military security around the world and they say they are prepared for the disruption their ‘medicine’ causes.

These might be laudable objectives in themselves, but what turmoil will it take to achieve them in four short years?

The immediate impact on US markets

Financial markets don’t like uncertainty, and they don’t like increased costs as businesses re-jig their manufacturing supply chains around the world. The latest word from Trump is that he can’t rule out a recession in the US as a result of their actions. The US share market has fallen -8.6% since its high on 19 February 2025 and is down -4.3% since 1 January 2025.

Trump wants jobs back in America.

Take steel production. The jobs left America and went to the cheaper manufacturing areas of China, India, and Japan. If steel manufacturing is to return to America the mills will need to be state-of-the-art, in which case there are no ‘normal’ steel workers’ jobs to be had. Modern steel mills are run by technicians in white coats monitoring computers and robots.

Sorry Pittsburgh. No ‘silver bullet’ there.

Experts agree on one thing though – tariffs increase costs for consumers. They are a tax levied by the government on importers before they on-sell to local businesses and consumers. Local importers can absorb some of the tariff cost themselves, or foreign manufacturers can offer reduced prices to maintain their market share, but eventually consumers will pay more for goods and services as some or all of the tariffs become included in prices.

A secondary effect follows as local businesses raise their prices to match the imported prices creating more pressure on inflation.

Higher prices of goods and services in the US are an “acceptable trade-off” for the new administration. In Trump’s words “There is going to be “a little disturbance, but we’re okay with that.”

The US Treasury Secretary, Scott Bessent, the equivalent of our Minister of Finance, told us that “Access to cheap goods is not the essence of the American dream.” Amazing. What about the hot topic of the price of eggs, that everyone is talking about in the US lately.

Letting the inflation genie out of the bottle doesn’t sound to me like a ‘little disturbance’.

The Trump administration recently referred to the key 10-year Treasury bill rate coming back nearly half a percent. This could reduce the cost of interest on the national debt, which is enticing. However, experts agree, a drop in the 10-year Treasury bill rate at this time is more likely a prediction of lower economic growth in the US, and an increased expectation of a recession. At the same time, both consumer and business confidence is down, and employment is down.

On the brighter side, tariffs are traditionally short-lived as the parties bargain it out in trade agreements over the medium term. At least that was how it used to work. And there is the AI revolution creating efficiencies which should help business profits looking ahead.

Reciprocal tariffs

The Trump administration is telling us that ‘reciprocal tariffs’ are coming. This subject is a bit more difficult to navigate.

What are examples of reciprocal tariffs?

• Uneven regulations. The Canadian banking industry, as an example, is a bit like ours in New Zealand and very different to the banking industry in the US. Canada does most of its banking through six big banks which are highly regulated by their Reserve Bank, while the US has more like 4,000 banks which are comparatively un-regulated. US banks don’t like the Canadian banking regulations and see them as restrictive and anti-competitive, like a tariff. Trump doesn’t think the Canadian banking environment is fair to the US and the Canadians can expect a reciprocal tariff on banking coming their way from the US side to even things up. Seems more like a difference in philosophy between the two countries rather than an attempt to get one over on the yanks.
• Value added taxes, like our GST, are considered to be tariff-like by the US administration and they say they will place reciprocal tariffs on countries with value-added taxes on a like-for-like basis. For instance, when we import a car from the US we put 15% GST on the price of the car and this acts like a tariff as far as the US is concerned. Trump may want to make sure that there is a similar tax on goods exported from New Zealand to the US.

We will have to wait until 2 April 2025 for the initial announcement around reciprocal tariffs from the US.

The impact on New Zealand investment portfolios

Since the 1 January 2025 a typical 80% growth portfolio is down -1.3% before tax. The best return has come from Emerging Markets up 2.2% while the worst performer has come from New Zealand shares with a loss of nearly -3.2% over that time.

If we take it from the recent high point just before the announcement of tariffs on 13 February 2025, less than 4 weeks ago, a typical 80% growth portfolio is down -2.7% before tax. The best share return has come from Emerging Markets again at positive 0.9% while the worst performer has come from Australian Value shares with a loss of -7%.

International bonds produced a 0.5% increase over that time.

Compare those returns with the loss in the US share market of -8.6% over that same four week.

Although these figures are over a very short period of time, the answer is clear, diversification during periods of growth or periods of uncertainty is a lifesaver.

Winners

During this period of tariff announcements coming from the Trump administration a handful of winners are appearing. Some emerging share markets including China have performed very well since 1 January 2025, as have a number of European share markets. International shares minus the US have performed very well, see below.

Within the international shares sector, German shares produced 21.9% over this time as they reorientate their economy towards defence. China produced 21.5% for that period on the back of their AI successes.

As always, diversification is producing a way through the unpredictable and the unfathomable. It is comforting to know that our/your portfolios are robust and designed to cope with disturbances such as those coming from the US at the moment.

Diversification is a clear winner on the day.

Keep asking great questions ...