Trump’s policymaking has triggered significant volatility in share markets - reaching record highs in February before plunging 14–19% amid tariff concerns following his Liberation Day “reciprocal tariff” announcement. Markets have since rebounded, recovering about three-quarters of their losses. Currently, US shares are down just 4% from their peak, and Australian shares are down 3%.

While tariffs have been the primary catalyst, market jitters were compounded by disruptive statements concerning the US government, legal system, immigration, the Federal Reserve, allies, DEI, and the media. These have clearly impacted short-term investment sentiment. But what about the long-term implications? This note explores the good, the bad, and the ugly of Trump’s key policies from an investment perspective.

Tariff turmoil - and a tactical retreat…

Following Trump’s Liberation Day announcement, a tit-for-tat trade war with China pushed average tariffs on US imports to over 30%, up from just 2.7% - levels not seen since the late 1800s.

Fortunately, tensions have since eased. While sector-specific tariffs (on steel, aluminum, autos) remain, the US has slashed retaliatory tariffs on China from 125% to 10%, dropping the overall average to about 14%. Tariffs on Canada and Mexico have been relaxed, exemptions granted, and broad reciprocal tariffs scaled back to 10%.

The Good…

Markets welcomed Trump’s backdown, with gains across equities, the US dollar, and Bitcoin. Key positives include:

Reduced Recession Risk: Lower tariffs ease pressure on global trade and growth. US recession risk has receded from 50% to 35 - 40%.
Front-loaded Pain: Early policy shocks allow time for economic recovery ahead of mid-terms.
Deal-making Signal: The retreat suggests tariffs are leverage for negotiation - not a blueprint for de-globalization. Treasury Secretary Bessent’s remark that “neither side wants to decouple” is reassuring.
Market Constraints Matter: Despite tough talk, falling markets, a dysfunctional bond market, and public backlash forced a recalibration.
Supply-side Pivot: Trump may now focus on pro-growth policies like tax cuts and deregulation. Congressional progress on tax reform supports this view.

Together, these factors support hopes that, after a 15% correction, markets could recover through the year—though likely with more modest gains than recent years.

The Bad…

However, the outlook remains uncertain:

Temporary Pause: Reciprocal tariffs are only suspended for 90 days. Talks could fail by July/August, especially with deficit countries like Japan and the EU.
Higher Tariff Baseline: A 10% tariff may become the new norm - higher if negotiations falter. New tariffs on pharmaceuticals and movies are being floated.
Limited Relief for Australia: While steel and aluminum duties may ease, the broader 10% tariff will likely persist.
Structural Disruption: Even the current 14% tariff is five times pre-war levels, implying ongoing economic strain.
Delayed Data Impact: Confidence may bounce, but hard indicators like retail sales and investment are still at risk of softening during this uncertain period.

In short, recent market gains could prove fragile in the months ahead.

The Ugly…

More fundamentally, Trump’s policy style raises deeper concerns:

Strategic Uncertainty: Erratic announcements followed by reversals create policy instability, undermining confidence in spending and investment decisions.
Dollar Doubts: Ambiguity over the dollar’s reserve status and mounting deficits (exacerbated by weaker tariff revenue and modest DOGE savings) could spark capital flight and rising yields.
Geopolitical Risk: Alienating allies questions the US’s defense commitments, increasing geopolitical uncertainty and reversing the 'peace dividend.'
Institutional Erosion: Attacks on the judiciary, universities, Fed independence, DEI, press, and data credibility threaten the very institutions underpinning US innovation, stability, and inflation control.
Reversing Globalization: Protectionism is already driving a retreat from globalization, curbing competition, stalling innovation, and dragging on real GDP growth.

Together, these trends could mean lower productivity, weaker growth, and higher inflation - ultimately suppressing long-term investment returns. This raises the question: are US shares at risk?

Striking a balance…

Despite the risks, some Trump policies - like tax cuts and deregulation - remain pro-growth. If these prevail and technological innovation (especially in AI) continues, they could offset broader negatives. Thus, it’s premature to revise long-term return expectations based on four months of Trump 2.0.

A final thought: Investors who fled to cash amid April’s plunge likely missed the rebound. This underlines the perils of market timing and the value of sticking to a long-term strategy.

Rick Maggi, Financial Advisor, Westmount Financial

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Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.