Walking the tariff tightrope

Walking the tariff tightrope

A great deal has already been written about President Trump’s tariff policies, which have ignited a fierce debate among global investors and reshaped the landscape of international trade and economic strategy.

If every nation played fair, laid down their weapons, worked in harmony, peace and unity for a global common good, there would be no need for tariffs. But of course, such a world doesn’t exist on this side of Armageddon. In a world shaped by competition, dishonesty and insecurity, Trump sees tariffs as a way of resetting the compass.

Nobody, however, including Donald Trump, knows what the final trade/tariff landscape will look like. Therefore, anything written about tariffs with a predictive element is of little value.

It may be more valuable to outline Trump’s stated objectives, assess whether and when they are likely to be met, make a few assumptions about that, and finally consider the implications.

Think of this blog post as covering the strategic intent, potential outcomes, and broader implications. Whether any of it aids us in navigating the market’s typically unpredictable responses is another matter entirely.

Trump’s tariff measures are designed to bolster domestic industries and recalibrate perceived international trade imbalances. Indeed, the rationale behind Trump’s tariffs is multifaceted, aiming to achieve several ambitious objectives:

• Revitalise U.S. manufacturing: by increasing the cost of imported goods, tariffs incentivise domestic production, potentially restoring jobs and industrial capacity.

• Boost treasury revenue: increased import duties generate additional funds for federal coffers, which will likely be hit by an estimated US$4.6 trillion over ten years due to Trump’s desire to reduce taxes for individuals and businesses massively.

• Secure supply chains: encouraging onshoring reduces reliance on foreign suppliers, enhancing national security and economic resilience.

• Strengthen negotiating leverage: tariffs pressure trading partners to renegotiate agreements, potentially yielding more favourable terms.

Each of these goals is a compelling economic aspiration in isolation. However, the path to achieving them is fraught with complexities, especially because the costs and adverse impacts are front-loaded, and the benefits are likely to be appreciated only in the distant future.

Unintended consequences

While the objectives are clear, the results and responses (as Trump is already discovering) create second – and third-order effects that not only undermine the intended benefits but may prevent their delivery entirely or leave the U.S. in a worse-than-original position.

The following list represents just a handful of those effects:

• Demand destruction: higher prices erode consumer confidence and purchasing power, potentially reducing unit sales and corporate margins. Economist Conrad DeQuadros notes that declining profit margins are a leading indicator of recessions, as firms cut investments and jobs.

• Supply chain disruptions: as is already being reported, onshoring manufacturing faces significant hurdles, including insufficient domestic capacity, regulatory hurdles and skilled labour. Building a U.S.-based manufacturing plant could take up to a decade (think about the council or state approvals required, the labour, the expertise and then the often-imported raw materials and machinery), leading to shortages and price surges in the interim.

• Retaliatory trade barriers: some trading partners have already imposed retaliatory tariffs, escalating tensions and disrupting global supply chains. The tariffs have upended the logistics industry, with U.S. imports from China plummeting by 10 per cent in the week of April 7 and nearly 30 per cent by April 14 compared to the previous year, according to supply-chain platform Project44. And don’t forget, the tariff conflict between the U.S. and China in 2018 reportedly caused a 0.3 per cent reduction in global GDP by 2020.

• Inflationary pressures: tariffs act like a tax on imports, raising costs for consumers. According to several reports, low-cost imports in the 25 years between 1995 and 2020 helped keep U.S. consumer durable prices almost 40 per cent lower in real terms. That contributed to an average annual inflation rate of just 1.8 per cent. Restricting these imports by raising their price reverses the trend, causing inflation to spike.

• Global economic realignment: tariffs risk fracturing the post-World War II global trade framework, which has arguably driven unprecedented prosperity through comparative advantage. If Australia were required to make high-quality motor vehicles and Germany were required to produce the world’s iron ore, we would all experience a lower quality of life, thanks to much higher prices and the other obvious poor outcomes. This underscores the power of comparative advantage: nations thrive by specialising in what they do best, not by erecting barriers to shield less competitive industries.

The investor’s dilemma

There are always winners and losers. On one hand, sectors like U.S. manufacturing, steel, and agriculture may see short-term gains as domestic production ramps up. Conversely, the broader economic fallout – recession risks, inflation, and geopolitical tensions – could overwhelm the narrow benefits and weigh heavily on equity and bond portfolios. Even if the U.S. walks away with a so-called win, the adverse impact on other nations’ economies and global growth reminds me of the frog in a pot of gradually heating water.

Despite the impossibly high levels of uncertainty, investors and sell-side analysts have variously noted some of the following portfolio responses and considerations.

Domestic manufacturers and companies in industries like automotive parts or machinery may benefit from reduced import competition. Whether firms can scale production swiftly enough to capitalise on opportunities, however, is another matter entirely.

Elsewhere, tariff-inspired onshoring could spur demand for factory construction, benefiting engineering, labour hire, and materials firms. But don’t forget the long approval timelines and the very high possibility that new facilities will be automated, tempering the upside in terms of volume and scale.

Meanwhile, firms with pricing power in essential goods – those that enjoy inelastic demand for their products – may better withstand demand shocks, offering investors defensive exposure. In my experience, however, the baby is usually thrown out with the bath water when markets correct. Only afterwards, when the dust settles, are the possible benefits of investing in defensive stocks. And even then, investors can prefer high-growth, riskier opportunities, leaving so-called defensive plays in the dust.

Investors may also benefit from seeking exposure to companies and markets that are less reliant on trade with the U.S., for example, those companies that are European and only sell to European markets or those in Asia that do likewise. Trying to mitigate the impact on portfolios by avoiding companies with exposure to U.S. trade may, however, be too precise and logical in a world where markets respond immediately to the latest Trump tweet, remembering even the U.S. president doesn’t know what he will tweet tomorrow.

One possibility I put a higher probability on is that tariffs, if they are delivered and maintained at any significant level, could accelerate investments by downstream companies in automation and related technologies, which would benefit upstream tech firms specialising in robotics and Artificial Intelligence (AI). I note Elon Musk’s xAI Holdings is in talks to raise US$20 billion in fresh funding, potentially valuing the AI and social media combo at over US$120 billion.

Finally, what of the possibility that in response to tariffs on China, U.S. and other companies don’t onshore at all but turn to countries like Vietnam or India when redirecting supply chains? I have provided a list below of companies that have announced plans for U.S. manufacturing, but one would expect any tariff back-peddling by Trump might also see these companies change direction.

The post-World War II era, underpinned by U.S.-led globalisation, has delivered unparalleled prosperity. Initiatives like the Marshall Plan and Japan’s reconstruction fostered stable trading partners and democratic allies, cementing U.S. economic dominance. Some have referred to this as “enlightened self-interest”, but it has produced demand for the U.S. dollar and treasury bonds, which in turn has enabled the U.S. to sustain US$36 trillion in national debt, cementing its economic superiority and funding its military superiority. Tariffs, however, risk unravelling this delicate balance by alienating allies, eroding treasury demand (by reducing foreign investment in U.S. debt, which could force higher interest rates), and challenging the dollar’s dominance, which would have profound implications for global markets.

Trump’s tariffs aim to reshape U.S. economic destiny, but their success hinges on navigating a labyrinth of trade-offs. While a domestic manufacturing renaissance and supply chain security are noble goals, the risks of inflation, recession, and global discord loom larger and more immediately. My view is that left to run their course, tariffs would result in the U.S. and the world entering a deep and wide recession. On the other side of that might be a massive investment and construction boom, but many may not survive the recalibration.

Companies that have announced plans for U.S. manufacturing:

Many household names have announced plans to expand or shift manufacturing to the U.S., with some explicitly citing President Trump’s tariffs as a motivating factor. Below is a list of notable examples based on available information:

• Apple: announced a US$500 billion investment over four years to expand U.S.-based manufacturing and infrastructure, including facilities in states like Arizona, California, and Texas. While some of these plans predate the latest tariffs, the White House has highlighted them as aligning with Trump’s trade policies.


• Honda: shifted production of its Civic Hybrid Hatchback from Japan to Indiana, directly in response to a 25 per cent tariff on vehicles and auto parts imported into the U.S.


• Hyundai: committed US$21 billion from 2025 to 2028 to expand U.S. manufacturing, including US$9 billion to increase automobile production to 1.2 million vehicles annually. The company cited alignment with Trump’s industrial leadership goals.

• Abbott Laboratories: planned a US$500 million investment in manufacturing, research, and development at facilities in Illinois and Texas, with up to 300 new jobs. The announcement coincided with looming tariffs on medical devices.

• Nvidia: committed to a US$500 billion investment in AI infrastructure in the U.S., partnering with companies like TSMC and Foxconn. While prior plans existed, the scale was emphasised as a response to Trump’s tariff-driven push for domestic production.

• TSMC: announced a US$100 billion investment in U.S.-based semiconductor chip manufacturing, spurred by tariff pressures and Trump’s focus on critical technology sectors.

• Eli Lilly and Company: planned a US$27 billion investment in U.S.-based manufacturing, highlighted by the White House as part of the tariff-driven manufacturing resurgence.

• Samsung and LG: reported to be considering moving plants from Mexico to the U.S. to avoid tariffs, particularly the 25 per centy duties on Mexican imports.

• Nissan: exploring a shift in production from Mexico to the U.S. to mitigate tariff costs, though specific plans remain under consideration.

• Volkswagen, Rolls-Royce, Volvo, Stellantis: posts on X say these companies are investing or moving production to the U.S., and have attributed the moves to Trump’s tariffs, though detailed commitments are less documented.

• Hyundai Steel: announced a US$5.8 billion steel mill in Louisiana, praised by the Steel Manufacturers Association as a direct outcome of Trump’s reinvigorated steel tariffs.

• Clarios: a Wisconsin-based company announced a US$6 billion plan to expand U.S. manufacturing of low-voltage energy storage, aligned with tariff incentives.

While tariffs are a significant factor, some of the announcements (e.g., Apple, Nvidia) merely build on existing plans or are driven by broader strategic goals, such as national security or political favour, while others aren’t fully committed.


As I noted earlier, high U.S. labour costs and long lead times for factory construction may limit the extent of reshoring. And as I also noted, tariffs alone may not sustain large-scale manufacturing returns due to automation, high costs, and the need for skilled labour. Indeed, according to a survey reported by CNBC, 57 per cent of companies see cost as the most significant barrier to U.S. relocation, and 21 per cent cite a lack of skilled labour.

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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.