The latest announcement came on Saturday May 24, NZ time.

“Trump threatens 50 per cent EU tariff as talks hit wall” screamed the Fox News headline, quickly echoed on all major news networks in the US and around the world.

It’s the latest in a blizzard of announcements from President Trump in his second term, all creating a deep sense of uncertainty for investors and disruption across investment markets.

Of course, it wasn’t the “latest” announcement. That actually came late yesterday (May 25) as Trump announced a reprieve, to allow time for further negotiations.

Trump’s tariff rollercoaster

Trump’s tariff playlist is a bit like a tour of my personal Spotify account – eclectic, random and difficult to keep track of. But just like any good music playlist, there is a common theme to it all – Trump has believed in the value of interventionist economics, in the form of tariffs, for a long time. In fact, US trade actions implemented during his first term as president (2017-2021) acted as a clear warning of his likely actions during his second term.

In late January 2018, Trump slapped duties on large residential washing machines and on imported solar panels.

Just over a month later (March), steel and aluminium were hit with 25 per cent and 10 cent tariffs respectively, with a later announcement of a detailed probe into China’s trade practices.

By June 2018, this had led to a 25 per cent duty on US$50 billion of Chinese goods, later increased to an additional 10 per cent spanning US$200 billion.

During 2019, Trump’s focus swung back to Canada and Mexico – with the threat of a 5 per cent tariff. This was never implemented, in favour of a security investigation into the supply of car parts.

While this was an interesting backdrop for New Zealand investors, our lack of exposure to those tariffs mean that they never captured the imagination of local investors. Nonetheless, the moves offered a directional signal for the global economy – reflecting increasing policy shifts to protectionism and even economic isolationism, bucking the prevailing economic wisdom of the last 40-odd years.

Fast-forward to 2025

Three months after his election, Trump made his intentions plain.

On February 10, 2025, steel and aluminium tariffs were re-imposed at a flat 25 per cent on all countries—no more exemptions. This was a mere appetiser to the main course, however, with “Liberation Day” on April 2 unveiling a 10 per cent universal tariff on virtually everything across all countries and territories around the world, plus bespoke “reciprocal rates” for some 60 trading partners.

Sadly, these “reciprocal rates” appear to have been based on some unusual calculations.

Rather than tariff rates, the objects of Trump’s ire appeared to be those nations who operated a trade surplus with the US.

This is significant for New Zealand; our little nation recorded a $7.8 billion trade surplus with the United States in the year to April 2025, including a record monthly surplus of $1.4 billion in April itself.

As consumers, we make similar decisions. I maintain a significant trade deficit with my dentist; given his capability at dentistry compared with my own, it’s a trade imbalance I am happy to encourage. There is no “tariff” levied by my dentist, other than the cost of his time and materials.

However, there is GST. Fair enough – at a macro level, it diversifies New Zealand’s tax base away from a sole reliance on income tax and also means that those who spend more, pay more. The benefits of different forms of tax are indeed a whole different conversation.

Unless you are President Trump. His view appears to hold out that New Zealand’s GST is indeed a “tariff” unfairly levied on US companies.

Tariffs crank up

Shortly after “Liberation Day”, Trump cranked up China-specific duties to 145 per cent in response to Beijing’s counter-measures. On May 12, Trump removed all “reciprocal rates” for the next 90 days.

While offering a short-term reprieve, eventual outcomes will be dependent on what can be negotiated by August 12.

New Zealand has unashamedly embraced the core tenets of economic liberalism since the mid 1980s.

While controversial at the time, the reforms started by the fourth Labour government, and followed by subsequent governments, formed a core foundation for our economy in the decades that followed.

Free-market principles mean that New Zealand imports products that it cannot produce efficiently – most products are imported duty-free to New Zealand. Conversely, we export the goods and services that we are really good at producing, which include primary sector goods (ie, agriculture).

A free market-led economy is now the cultural norm in New Zealand. New Zealand punched above its weight in global free-trade leadership, with a leading position in the interminable General Agreement on Tariffs and Trade (GATT) rounds that concluded in 1993.

It is telling that much of the local business commentary that has covered the events of the last 60 days has relied on anecdote and evidence dating back to the 1970s. If the world continues down a path of economic isolationism, New Zealand will be forced to reshape its own economic identity to adapt to the new reality.

Which Kiwi companies might be impacted?

From a local investor perspective, as an export-led economy, many of our companies are likely to be directly affected, either by reduced demand or increased costs.

The examples of direct impacts below are just that – examples. Investors will be looking for evidence that their management teams are minimising the impact.

Note that companies operating solely within New Zealand (or with limited US exposure) may also be indirectly affected, as companies domiciled in other countries affected by the US tariff regime compete more vigorously in other markets.

Fisher & Paykel Healthcare (NZX: FPH) With around 45 per cent of its manufacturing in Mexico (of which 60 per cent heads to the United States), FPH has warned that while FY25 profits will dodge a “material impact”, its path to a 65 per cent gross margin could be delayed by up to three years as tariffs bite into costs.

Mainfreight (NZX: MFT) In its May 2 “Trading Conditions Update”, Mainfreight noted a slowdown in forward sea-freight bookings on the Transpacific lane as customers adopt a “wait-and-see” posture until tariff talk turns to action.

Tourism Holdings (NZX: THL) THL’s April trading updates flagged uncertainty in North America’s RV market – don’t forget Canada’s tit-for-tat potential – and by mid-April warned FY 2025 net profit would undershoot consensus amid a US travel slump and tariff headwinds, with the share price subsequently falling to near five-year lows.

Factors to consider

Capital markets are famous for valuing certainty, with relative economic stability reflected in share price valuations and investor sentiment following the global financial crisis right up until the onset of Covid-19. Things have been more volatile since then – a slew of factors including government monetary policy, increasing interest rates, inflation and lower global economic growth have made for a complex investing landscape.

Risk: The on-again, off-again nature of Trump’s proclamations on tariffs are not helping create certainty in the market.

While global markets reacted negatively to “Liberation Day” and have (mostly) recovered following Trump’s May 12 announcements, it is clear that short-term market movements are being determined by both the pace and volatility of Trump’s tariff policy.

While it’s the long-term that matters for most investors, increasing volatility in share price movements should make investors pause for thought.

Increasing volatility in share price movements is a reflection of increasing risk for asset values and operations – leading to an increase in structural risk. An investment strategy may aim to generate a defined level of long-term return for the lowest possible risk. In this situation, an investor is likely to be taking on an increase in risk, with no commensurate increase in return.

Pricing power: Tariffs imposed on goods coming into the US are paid by the consumer or the importer. For goods manufactured in NZ and exported to the US, consumers may be willing to bear a 10 per cent increase in price if a product commands strong pricing power. However, where a NZ product has to compete with many other products, the company may choose to absorb the tariff, thereby reducing its gross margins. Both scenarios have negative impacts for shareholders: if the consumer price increases, the company may sell less, while a company taking a haircut on its margins will likely have a profitability impact. The same applies for investors in US companies – to what extent are they able to pass on tariffs to their domestic customers?

Regulatory whiplash: We’ve already seen investment markets react to Trump’s announcements. Regardless of the day-to-day announcements, there are a few key dates that investors should be aware of. August 12 is looming large, as the expiry of the 90-day stay of execution for the reciprocal tariffs. Keep on expecting the unexpected – and think hard about the level of risk you are prepared to accept.

Conscious decisions: Investors who have a long-term outlook may decide that the best move is to sit this out. Others will take advantage of “peak prices” in the volatility cycle to crystallise long-term gains and maintain an oversize cash position. Yet others will decide to trim their long-term allocation to US-exposed companies. All actions might be valid for different styles of investor. Whatever you do, however, make conscious decisions that make sense for your investment strategy and reflect your own risk profile.

In the short-term, navigating Trump’s tariff rollercoaster requires vigilance and agility – because in this trade war, the only thing you can count on is that nothing will stay the same for long.

Longer-term, there is nervousness surrounding global investor appetite for US-based investments.

A stable, certain and rational market environment with quality companies underpins investor confidence in any stock market. Depending on what happens later this year, it may be that investor confidence in US equities will be further shaken.

This content contains general information only and should not be construed as financial advice. Prior to making any investment decision, you should seek professional advice from a licensed financial advice provider. To the maximum extent permitted by law, New Zealand Shareholders’ Association Inc. will not be liable (whether in tort, including negligence, or otherwise) to you or any other person for the information provided in this commentary.