The Roundup – April 2025
From Liberation to Deliberation
April began with “Liberation Day” in which President Trump unveiled reciprocal tariff rates on almost all of America’s trade partners. However, only hours after the duties went into effect, a 90-day pause was announced, enabling trade negotiations between Washington and its counterparts on the higher levies, while the baseline 10% tariff remained in force.
The controversial import taxes spiked volatility levels to an almost 5-year-high, while the swift suspension of the tariffs resulted in a rapid drop. Volatility further receded over the remainder of the month but still ended higher than it started. Conversely, share markets immediately sold off, before regaining some ground to finish April slightly underwater.
The potential broader implications of sharp tariff increases and a trade war were considered by the US Federal Reserve Chairman in his speech at the Economic Club of Chicago. Warning that lingering uncertainty could inflict lasting economic damage - weaker growth, higher unemployment and inflation – a scenario which would prove challenging for the Bank.
Irrespective of the fact that the Federal Reserve operates independently of the White House, President Trump’s subsequent criticism of Chairman Powell, dented investor confidence over the month. The US dollar sold off and equity markets reacted accordingly, while gold reached a new high, as market participants retreated from US assets amid the tensions.
The end of April marked President Trump’s first 100 days in office. This coincided with polls showing his popularity had fallen to its lowest in his second term, with voters unhappy on the progress in areas such as inflation and the economy, which he campaigned on addressing. Following 11 quarters of positive growth, GDP for Q1 2025 came in at -0.3%.
International Impact
In addition to their domestic implications, Trump’s protectionist trade policies have also had an impact overseas with both Canadian and Australian election results a clear example. At the beginning of the year Canada’s conservative party held a significant lead, however the ruling Liberals were rewarded a comeback victory, amid strong support for multilateralism.
Similarly in Australia, the conservative coalition looked likely to unseat the Labour government. However, parallels between Trump and the opposition leader, on immigration and criticism of China, combined with a reciprocal tariff (the US enjoys a trade surplus with Australia) saw voters deliver a second consecutive term for the incumbent party.
Taking a firm retaliatory approach to the levies issued on Chinese imports, Beijing responded with its own tariffs and countermeasures on US goods, and found itself the exception to the pause on reciprocal tariffs while its tariff rate intensified to 145%. De-escalation between the two powerhouse economies remains elusive for now.
Heightened uncertainty around US-Sino trade activity, has seen Chinese manufactures pivoting to ‘sympathy purchases’ where goods intended for overseas markets are sold domestically. Whether this can sustainably ignite domestic consumption (historically a weak area of the economy) is unclear. However, Q1 growth came in at 5.4% vs estimates of 5.1%.
How New Zealand is faring in the current environment won’t be known with certainty for a while yet (GDP numbers are released in June), however, March’s inflation number provided a gauge on the economy. Inflation for the month ticked up to 2.5%, up 0.3% from February, as domestic factors, primarily rent and rates, drove the increase.