Tariffs are back… bigger and better than ever
In 2025, the U.S. enacted the most significant trade policy shift in decades, with average tariffs rising from roughly 2.4 per cent in January to approximately 18–20 per cent by August, levels not seen since the 1930s.
In some cases, duties on Chinese imports have exceeded 50 per cent, marking a sharp departure from the stable global trade arrangements of recent decades.
This week, on 11 August, 2025, the U.S. president signed an executive order delaying the implementation of sharply increased tariffs on Chinese goods for 90 days, extending the current trade truce to mid-November. The move – announced just hours before new measures were to take effect – keeps existing tariffs in place (about 30 per cent on Chinese imports and 10 per cent on U.S. exports to China) but pauses further escalation. As they’re prone to do, markets welcomed the delay, with Asian equities rallying and U.S. indices showing selective gains.
History doesn’t look kindly on tariffs
What hasn’t changed is that these tariffs evoke comparisons to the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression by reducing global trade by two-thirds. While today’s global economy is more interconnected and has greater policy tools at its disposal, the speed and scope of 2025’s measures introduce risks that have yet to fully ripple through supply chains, corporate earnings, and broader economic growth.
Current impacts
Tariffs on U.S. auto imports, apparel, and select consumer goods have already translated into higher prices – vehicles are up an estimated 12–14 per cent, apparel is up nearly 38 per cent in some categories, and fresh produce is rising around seven per cent.
As we have previously reported, Yale’s Budget Lab estimates the 2025 measures will raise U.S. consumer prices by 1.8 per cent, equivalent to US$2,300 annually for the average household.
For businesses, higher input costs and disrupted supply chains are expected to erode margins. And retaliation from key trading partners – including China, the EU, and Canada – is targeting politically and economically sensitive industries, from agricultural exports to advanced manufacturing components.
While financial markets would be expected to respond with heightened volatility, markets are near all-time highs. That’s understandable when one realises that a slowing economy usually prompts central banks to inject liquidity and lower rates. Which, in aggregate, they’ve been doing around the world. Meanwhile, J.P. Morgan has cut global Gross Domestic Product (GDP) growth forecasts for Q4 2025 from 2.1 per cent to 1.4 per cent, with the U.S. already posting an annualised three per cent growth in the second quarter.
Buffett and key risks for investors
The 90-day deferment (or ‘TACO’ – Trump Always Chickens Out) is a temporary reprieve, not a resolution. Tariff policy could re-escalate quickly, introducing sharp swings in equity, currency, and commodity markets. Meanwhile, U.S. companies with high import contents or export reliance may see margin compression and earnings downgrades if tariffs persist or expand. And this is happening at a time when market valuations are stretched.
And don’t forget Warren Buffett, when explaining why he now holds more T-bills than the Federal Reserve (US$314 billion versus US$195 billion and double Berkshire Hathaway’s position a year earlier), told Berkshire Hathaway shareholders, “Every now and then, you come across something… We will be inundated with opportunities that we will be grateful we have the cash for.”.
With tariffs yet to feed through supply chains, disruptions to complex global production networks may still cause shortages, delays, and cost inflation in sectors from electronics to autos. At the same time, retaliatory measures and reduced trade flows could weigh on GDP growth, affecting cyclical sectors and smaller companies unable to defray the additional imposts.
While equities have demonstrated resilience, one tactical decision worth considering is your allocation to private credit, cash and other liquid alternatives to cash with reasonable yields. Maintain liquidity given policy uncertainty could be a powerful option allowing you to take advantage of any market dislocations.
Cash as an option over lower prices becomes an even more compelling proposition when one considers the unpredictability and potentially destructive impacts of Trump’s yet-to-be announced foreign and domestic policy declarations.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
