Tariffs, Turmoil, and the Global Ripple Effect: What Trump’s Latest Move Means for Markets

“Uncertainty” and “Ruination” – just some of the terms that have been used to describe the global markets over the past week. The sweeping tariffs announced by Trump have sent shockwaves through financial markets, leaving everyone grappling with the potential fallout. Optimistically dubbed "Liberation Day" by Trump but labelled "Obliteration Day" by JP Morgan, these aggressive trade demands threaten to shake recent economic stability and reshape global supply chains in ways we’re only beginning to understand.

Here at Naked Finance, we’re keeping a close eye on how these developments impact global markets - and importantly, what they mean for investors and businesses right here in New Zealand. In this blog, we’ll break down the key implications of these tariffs, explore the potential long-term consequences, and discuss how you can stay ahead in an increasingly volatile economic landscape.

Because when the world’s largest economy makes a move this dramatic, no market - no matter how distant - remains untouched.

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So, what are tariffs and why is Trump using them?

Tariffs are taxes placed on goods imported into a country. In the case of America and Trump, it was initially misunderstood that these taxes would be paid by the ‘origin’ country, but this is not the case. American companies bringing in goods from other countries would have to pay these additional tariff taxes to the US government the moment these products passed customs. These companies have the option to pass some or all of this additional cost to its customers.

For example, if a US based company is importing a product for $100 from a country that has had a 25% tariff placed on it, an additional $25 in taxes will have to be paid for it to clear customs.

This is driving up the cost of foreign goods in America so why is Trump brandishing this as a good thing? Because he predicts that the higher prices will mean importing products will no longer be economically viable which will subsequently stimulate companies to source American made products instead. While this theory could have some legs, it is easy to see why a downturn is expected before any potential benefits, if any, can be realised for Americans and the rest of the globe.

Since the tariff announcement, what has happened in the markets?

The ripple effects of the U.S. tariff announcements have been immediate and far-reaching, destabilising everything from equity markets to supply chains. Wall Street faced steep declines as investors continued to react to the dramatic shift in U.S. trade policy. The Dow Jones Industrial Average plunged 5.5%, shedding 1,679 points to close at 38,314 - marking the first time in history the index has dropped more than 1,500 points in two consecutive sessions. The Nasdaq dropped 5.8%, officially entering bear market territory after falling 22% from its December peak. Meanwhile, the S&P 500 suffered its worst single-day drop since March 2020, plummeting 6% to an 11-month low. So, is this foreshadowing the end of a healthy, recovering economy following on from the Covid downturn? Not necessarily. One thing that we can guarantee is that market stability doesn’t last forever, and these shake ups and resets have been experienced before. As have the recoveries that have, to date, always followed. It seems there has been some damage limitation causing some of the markets to bounce back significantly with the 90 easing of tariffs, though maintaining a rather unhealthy dose of posturing in the direction of China.

How are we fairing in New Zealand?

The markets here in New Zealand have fared better than most and the direct economic fallout from the new US tariffs appears manageable at this stage. The last week has seen a degree of volatility but not to the extent of the US, EU and Asian markets. New Zealand was slapped with a 10% tariff and with roughly $9 billion tied up in annual exports to USA, $900 million is our worst case scenario and this is a very small percentage of GDP. The red meat sector is the most exposed, and the key question now is whether exporters will absorb the tariff, pass it on to US buyers, or divert shipments to other markets. Despite this relatively tame response to the global disturbances, we would be naive to not prepare for more uncertainty as the situation in America unfolds. And my goodness, is there not a situation unfolding?! Kiwis woke up this morning (10th April 25 at time of writing this) to find markets rebounding after Trump announced a 90 day pause on many tariffs. What Trump pulls out of his bag of tricks next is anyone’s guess.

How should we respond?

The proverb ‘more haste, less speed’ comes to mind during these turbulent times. As we have stated during other market disturbances, sudden and extreme responses are not recommended. Harsh market sell-offs have been seen before and although they are not a regular occurrence, they have occurred periodically throughout history. We have experienced this quite recently with Covid destabilising global markets and just as it was then, we keenly discourage our clients making any moves to sell while fear is ruling the markets, at least, not without consulting with an adviser first.

Our recommendations

There are several strategies that we would recommend during turbulent times such as these and although everyone is unique in their portfolios and risk tolerances, it is worth considering these approaches to offer a rudder in stormy waters.

Diversifying your portfolio. Diversifying across different regions, sectors and asset classes can help reduce risk during rocky times but also positions you to take advantage of up-and-coming opportunities.
Stay the course and don’t let a fear ruled market influence sudden responses. Market volatility can be unsettling, but history shows that staying invested pays off. And remember, markets to date, have always recovered.
Consider dollar cost averaging. This is where you invest a fixed amount of money at regular intervals regardless of market conditions. Instead of trying to time the market, dollar cost averaging spreads out purchases over time, reducing the impact of volatility.

If you want to discuss your situation more, reach out to our team based right here in New Zealand. And remember, keep calm and carry on with your financial planning because there will be a lot more drama on the horizon.