How Australian investors can navigate the tariff landscape

_{This article was developed in collaboration between IG's editorial team and AI technology}

Market impact and short-term pain

Global markets have plunged amid trade tensions: US 500 (-17%), global indices (-16%), and Australia 200 (-15%) as recession fears grow. Safe havens like bonds and gold have rallied, while the Australian dollar and bitcoin face downward pressure.

The Reserve Bank of Australia (RBA) is expected to implement 4-5 interest rate cuts by 2026 (up from 3 previously forecast), offering cheaper borrowing but signaling concerns about economic headwinds.

Silver linings: potential upsides for Australia

Despite the challenging outlook, several factors may work in Australia's favour:

• Cheaper imports: Chinese goods diverted from the US could flood Australia with competitively priced EVs, electronics, and consumer products, lowering domestic inflation and boosting household spending. This may enhance earnings for ASX-listed retailers and consumer companies

• Green energy tailwinds: Copenhagen Infrastructure Partners' (CIP) $21 billion green fund exemplifies how Australia's offshore wind and hydrogen initiatives benefit from redirected investment. Australia's natural resources and regulatory stability make it an attractive green energy alternative

• Trade diversification opportunities: disrupted trade patterns allow Australia to negotiate better deals with partners, especially where US-China barriers exist

Sector-specific winners and losers

Winners

• Gold and consumer staples: traditionally defensive sectors have outperformed during this period of uncertainty, with gold miners like Newcrest showing resilience (+1.7% after the tariff announcement). Consumer staples have also demonstrated their value as a hedge against volatility

• Renewable energy: beyond CIP's significant green fund, numerous renewable projects across Australia are gaining traction as global capital seeks stable investment environments outside the increasingly volatile US-China corridor

• Domestic-focused stocks: companies with primarily Australian operations face lower direct exposure to trade tensions. Healthcare, utilities, and select retail segments have shown greater stability compared to export-dependent sectors

• Agriculture: some agricultural producers are finding opportunities in the disruption. Select Harvests and other almond producers are capitalising on China's retaliatory tariffs against US nuts, potentially opening new export channels

Losers

• Exporters: Australian beef ($3.3 billion to US), metals, wine, and pharmaceuticals face challenges from 10% tariffs. Companies must diversify toward South Korean, Japanese, and other regional markets

• Tech and financial sectors: tech's global supply chains are vulnerable to disruptions, while financials face economic uncertainty and reduced deal flow

• China-linked mining: resource companies dependent on Chinese demand face uncertainty with iron ore around $100/tonne and weak lithium demand. Miners must watch for China's retaliatory measures affecting commodity markets

Key triggers to monitor

Several developments could signal market stabilisation:

• Federal Reserve (Fed) rate cuts in response to economic slowdown
• Potential pivot in Trump's policy focus from tariffs to tax cuts
• Resolution mechanisms through bilateral negotiations
• China's specific retaliatory measures and their impact on Australian exports

Calculated trading moves

• Quality companies: businesses with strong balance sheets, minimal debt and predominantly domestic revenue streams typically withstand significant pullbacks better

• Staggered entry: deploying capital gradually across multiple weeks or months helps average in during volatility

• Position adjustment: reducing exposure to companies with significant US export dependencies, particularly those lacking pricing power or facing direct tariff impacts, may mitigate risk

Advanced trading techniques

• Options strategies: protective puts on highly volatile holdings limit downside, while cash-secured puts help establish positions in quality companies at more favourable prices

• Pairs trading: shorting vulnerable exporters while going long on domestic-focused alternatives within the same sector may create more market-neutral exposure

• Dividend focus: high-quality dividend payers with sustainable payout ratios, particularly those that have maintained or increased dividends through previous economic challenges, often provide stability

Liquidity strategy for maximum flexibility

A higher-than-usual cash position (15-20% for balanced portfolios) provides both protection against further declines and ammunition to deploy during particularly attractive entry points. Staging cash across different time horizons (example: 30/60/90 day term deposits) may maximise interest while maintaining flexibility.

Outlook and conclusion

The bottom line: volatility is inevitable, but Australia's economic resilience—cushioned by anticipated rate cuts, potential import deflation and green energy opportunities—offers significant silver linings. A balanced approach combining defensive positioning with selective exposure to tariff-insulated sectors provides the most prudent path forward.

• _{This article is intended for general informational purposes only and does not constitute financial advice. The content provides analysis of current market conditions and potential strategies that investors might consider, but these should not be taken as recommendations to buy, sell, or hold any specific investment. Market conditions are inherently unpredictable, and all investments carry risk.}
• _{Past performance is not indicative of future results. Any investment decisions should be made in consultation with a qualified financial advisor who understands your personal circumstances, financial goals, and risk tolerance. The authors and publishers of this content accept no liability for any losses or damages arising from investment decisions made based on the information contained herein.}