Investor guide to tariffs and the Aussie election

you know it's going to happen again. Dollar cost averaging for the winds. Buying shares on sales is what we all think we want to do, except when they're on sale. We pain.

Full Scott Phillips. We're going to chat about all things US tariffs and the upcoming election and how this is impacting Australia.

then surpass a previous high. So here's the thing. If that holds true, now it may not. I can't give a promise or a guarantee. If it does hold true, that means it upside from here to get back to the last high and then more upside again. Shares, relatively where they have been, are on special. So do I know what's going to happen next? No? Do I know which companies know. And by the way, when I say shares, when you ask the question, shares, I'm talking about generically

generally across the market. Not every company will go up, not every company is worth buying, not every company is going to survive and thrive, But shares in general are very likely in my opinion, because history tells us to go much higher from here over the long term, and that's the only timeframe that people should be worried about.

And just because if identified a problem correctly, which is hoy, there's some problems with the US manufacturing, doesn't mean the answer, any answer is always going to be necessarily correct. I'm sorry for the hardcore Trump finds that fans out that it's not true. Again, it's not a personal view it's not even a political view, it's just an economic view. So what's happening is Donald Trumps announced tariffs on much of the rest of the world. And I'll get back

to Australia and New Zealand by extension a minute. But the impact of those tariffs are going to be almost certainly higher prices for US consumers. Why because when we say we're putting tariffs on Chinese products, we're not really say we're paying putting traffs on tarifts on China. We're saying American consumers or Donald Trump saying American consumer is

going to pay more for Chinese imports. Or by the way, the newly competitive US made stuff that's more expensive than it used to be but can now compete at those higher prices. In other words, no matter which way you cut the sausage, you're paying a higher price for those goods. Higher prices mean inflation. Now, I don't have to explain that we've been through five years of it over the last half decade right around the world. High inflation is bad.

High inflation may also lead to and most economists, and frankly, even the Atlanta branch of the US Federal Reserve are expecting the US to enter a recession this year. If the US enters a recession, the other world's largest economy are the world's largest consumer economy by miles. If the US has a recession, it's going to put meaningful downward pressure on economic growth right around the rest of the world, including down here at the bottom end of the globe

in Australia, in New Zealand. So that's the setup. But it's important set up because when you say, what's going to happen to companies here in Australia, Yeah, there's three ways to think about it. The first is that global story, the global recession risk. If the US demands less, Australian companies may produce less. If Australian's companies produced less, their profits are probably going to fall. Now that's a modest outcome. It is a lot less. We may well see companies far,

we may well see job losses. And I'm an optimist by the way, but I would also want to tell it straight. So that is the possible outcome. That is the worst case scenario probably if this does get to that intergre So that's the first order impact. The second order impact is, of course the impact on Australian companies directly. We know there's twenty five percent on Australian aluminium and steel. There is ten percent now and everything else going to

the US. If you have a meaningful proportion of your sales that go to the US, they are going to be harder sales to make. Maybe you absorb the increase and make lower margins. Maybe you pass on the increase and have lower sales. There'll be a few companies that can pass on the increase and still sell the same amount. That's the best case scenario, but it's probably a small group. Because price elasticity matters. If you put prices up, people buy less. So that's the second order for all those

businesses that are exporting to the US. And by the way, those companies reliant on those other companies. If you're supplying a company that's exporting to the US and they buy less, are going to buy less from you, so that matters. Further impact really quickly is China. Australia is China's so China's Astralia's largest trading partner by heaps. There are ongoing tit for tat reciprocal tariffs of the bullies, Bass each

other over the head. Trump said overnight recently a couple of days ago, they are going to maybe put fifty percent tariffs on Chinese goods on top or they've already announced why because China had the too ready to basically bash back at the US putting tariffs on at the first place. And this is the silliness of what's going on. But if China's economy slows and Chinese steel production slows, guess what that's going to hurt austrain and own or

exports meaningfully. That's not a big economic impact, by the way, because iron or impact. It doesn't employ a whole lot of people, but big impact for share prices for those iron or exporters they own shares and four descu for full disclosure, bad news for those miners, bad news for

government revenues, and for gross domestic economic output. So there's three kind of concentric circles, if you like, of potential outcomes from the tariff or when it comes to what's going to hit us here at home, are there.

from that? No, If you are in an ASX listed company that happens to a business only in the US and somehow it is able to make more money because it could prices up because inputs are more expensive, maybe it's a little bit somewhere there in the nooks and crannies. It's a really really small sliver of potential upside. And frankly, even then, those companies are more likely to be hit

by US economic pain more broadly rather than tariffs. Particularly, that is, if inflation goes up, if economic growth falls, if unemployment rises, those companies that are based there are probably going to hurt. And by the way, that's why we're seeing US share markets fall. You kind of think in the way that the simplistic version that Trump and others like to present this tariffs go up, US business gets better. US companies make a lot of money, US

people get employed. Therefore, it's all wine and roses. The reality is the US market is absolutely tanked for a couple of straight days late last week, earlier this week. Why because those investor are worried about the profits of those companies because of the economic harm that these tarifts will do domestically. I'm looking long term, which, by the way, is still why you go back to your first question.

Why I'm still massively optimistic. So if I think five, if I investment prises five years plus out it is that's post Trump's term. So again, thinking about what's happening now, this week, this month, that's scary. It hurts your portfolio falls,

It just sucks because no one likes the uncertainty. But if I'm a long term investor, and I am, I'm looking at five years and going ah, if companies are bigger and better than five years than they are now, despite what they go through in the meantime, they're worth buying. And so that's the lens I really want to impress on people. Think about what's happening in those number of years out there. Don'try about just the short term stuff between.

What if the economy's ground or hopeful longer? What if? What if I get all those concerns right? Except in hindsight we know it was the fastest bear market in history and then the fastest recovery in history. So when you think about people cautious, yes, absolutely, I'm seeing exactly the same thing, mate, Just like I got to get out of here. This is scary. One thing I want to remind people is remember for every seller, for every so called panic seller, there's a buyer. You can't sell

shares unless someone buys them from you. And so while we say, oh, everyone's selling, well, it can't be because everyone's also buying. There's always two sides to a trade. So while we focus on the declines, and yes, there's more panic in the sellers than there is excitement in the buyers, otherwise the prices go back up. That's why we get it with price falls, right, that the sellers

are keener than the buyers are. Everything finds its market, finds its price, and someone ever a lot, millions and minuses and millions of shares are changing hands, being bought by people who are saying, hey, this is okay. So, yes, there's cautiousness out there. There is fear out there is uncertainly. I get why people are worried about it. So I want to validate that because it's really really important, the

active investing through COVID. This is what I've told this story before, son, you and I may have told anything to you, guys, I hope I didn't. During COVID, there's two sides of the investor's brain, right, there's a bit that says, oh my god, what's happening out there? This is ridiculous. And a policy perspective, I have very strong views, as you've already heard, from an investment perspective, though, I've got to have two parts of my brain. Half of

my brain is like, I'm losing money. This sucks so much, red I'm down again. Maybe the market's right. What if this is the time that it's different freaking out here? What if it keeps falling? Maybe now is not the time. Maybe I should wait till the coast is cleared. All those fear emotions, all those uncertainty, all those worries they're going to be there. What if I'm investing too early? What if I'm wasting money? All that things through my head.

The other part of my brain, and this is the important bit, is the bit that says, but hang on, you knew this was going to happen. You know what's happened before, you know what's going to happen again. Dollar cost averaging for the wind. If you've got some money to invest, if you can find great companies you think they're going to better in five years time, then now what that is a great thing to be able to do.

Buying shares on sale is what we all think we want to do, except when they're on sale, we panic. And so two parts of your brain acknowledge the fear, acknowledge the uncertain, acknowledge the concern, and then say, but I'm investing anyway, because I just have to confront it, ignore it, do what if you need to do with the fear, But invest anyway, because long term that's proven over and over and over and over again to be

the right approach. Again, not in any company. Quality companies, diversified companies, across currencies, across exchanges, across the industries, businesses with good balance sheets, all the good things that we've talked about before about good investing, keep doing that stuff. Don't buy indiscriminately, but keep buying anyway.

go down. If you're looking for the recovery to happen, by the time of the recovery happens, that's too late. I've told the story before about some really really smart, wealthy investors who sold everything at the beginning of COVID and said, I'm not going to buy back in until the pandemic is over. Now, the pandemic took two years to be over, and in fact got worse before it got better. But as lockdowns happened, one tomy shrank. As

that happened, the stock market recovered. So if you're looking out the rest of the world, this is way the economy in the stock market up. The same thing. If you're looking around the world, you're saying, well, tragically, deaths have increased, illnesses have increased, hospitalizations have increased, lockdowns have happened. People are barred from entering and leaving countries. Economic activity has stalled. Governments are keeping US afloat with welfare money.

This feel it's getting worse, and yet the market recovered and recovered and recovered up into the right. Not in a straight line and not without doubts and concerns, but it did. If you waited until a vaccine, you missed out. If you waited until a pandemic was declared over, you missed out even more. So I'm going to politely not answer your question, because honestly, the only metrics you need to be thinking about are I guess there are, but they're not really metrics in terms of what data I'm

seeing happen. I'm trying to, as an investor, look forward and say, in a pick a year in twenty thirty, I'm going to pick a business in twenty thirty. Are they going to have more stores? Are they going to sell to more people? Are they going to find new ways to add categories? They're going to keep their costs under control? Probably yes, And if that's the case, they're going to be mostly more profitable in twenty thirty than they were. I'll say last year. Let's not include this

year because what happened the last year. Yeah, probably they will. Okay, Well, if that's true, how much should I pay for that business? And I can no matter what you've preached to evaluation is you can pick a rough price or rough multiple or rough whatever you want to base your evaluation one to say worth buying or not buying now based on

where I think it'll be in twenty thirty. Let's say think a year long recession that's says really bad year long, and it goes from middle of twenty twenty five to middle of twenty twenty six and sales four by fifty percent. Now is the company going to survive that? If it's got a good enough balance sheet, Yes, it's got good enough cash flows. Yes, okay, if I'm comfortable they will, And you shouldn't assume, by the way, do do the

work for yourself. In the middle of twenty twenty six, they come out of recession and sales suck and they're losing money, but they start to improve over time, and over that period of time from twenty to twenty seven, twenty eight, twenty nine, things get back to normal. And again I look at it and go roight well by twenty thirty, even if they've gone through a recession, even if sales and profits did get really ugly for a while, but they survived and then come out the other d

I think going to be bigger and better. Okay, what's a fair price to pay for those businesses now? So don't wait? Is my opinion? My us for the metrics to come through start by saying, what do I think about the business? Do I like it has got a good brand, has got a good future? Will it have those in five years time? Yes? Okay, what's it worth paying today to get that benefit of five years time? That's the entire lens I use for my investing.

The tax and spend settings are misaligned, and how that nets out does actually have an impact on the economy. We're supposed to run service in the good times definit at the bad time is supposed to offset each other. The taxes, spen serting is actually really matter for long term prosperity. So I'm keeping an eye on how much they're spending. Really honestly, what is interesting too is the

focus on the short term. So we've got one side, the incumbent government putting cost of living relief through extension of energy subsidies. Electricity subsidies effectively a discount on your energy bill. The oppositions promising a reduction of fuel excise for six months twelve months. Sorry, these are really short

term solutions. So I got to say, from an economic perspective, my view has always been that as an investor, I care far more about the long term settings of the country than about the short term opportunities or risks to the individual businesses. Now I want to say risks, I don't mean existential risks. If something's going to go broke, I really care if it's like well, tax rates for companies are slightly higher a lower, or tax rates to

individuals slightly hire a lower. But if I'm a long term investor, what I care most about is my companies had the opportunity to operate in a really really solid, healthy, growing economy, and so I honestly want to look at the election. I'm not looking at who's going to give more money to this industry five bucks for that, ten bucks for that. By the way, I'm not top that investor.

I do' a macro investor at all. But policy wise, I would like to think the government that comes into power post election is going to fix the budget bottom line. They probably won't, but I'd like to think that, and they're really genuinely thinking long term about setting the country up for the best long term success so that we can all thrive. And if we all do, companies have well people to sell goods too, they have richer people to sell goods to, and people on low incomes have

more money to spend on. I mean, it's a really beautiful virtual circle if they get it right. The sugar hit is exactly what it sounds like. It's good for a little while and then goes away. So those are kind of things I've been kind of focusing on. There's not a lot specifically for individual companies or industries. I'll have to wait and see kind of what comes from that. What is interesting at the moment is both sides have been reasonably restrained in terms of new spending announcements. I

think because they realize where the budget is. But there also a lot of cost of living pre sure as they call it, and the Polley's a laser focus on make us feel better about ourselves so we'll vote for them.

cost of living pressures. I have to say in the last kind of couple of weeks, and again I make no predictions, I no election analysts, but it's been what's been really interesting is the government's clawed back some ground, whether it's because the RBA started cutting rates, whether it's because we've got used to inflation, frankly, whether it's because the Trump stuff is so scary, we just want the

better the devil we know, I don't really know. And again this could change between now and the election date. But we've seen some meaningful swings back to the government on a bit of a. It's gone from pure cost of living to yes cost of living with a bit of a. This feels a bit scary. Is it time for a change? So if you asked people, I suspect they would still say it's all about cost of living. We know Australian real waves are actually really really poor.

They've they've fallen more than I think any other OECD country, certainly much lower than the US, the UK and the average for the OECD. I don't know the New Zealand numbers that the moment I have to say, I should know them, but I don't. So we've seen that kind of happen, and the cost of living press are probably worse in terms of real incomes, real being what you get. Les's the increase for inflation. If I pay rose a five percent flashes up six I've gone back as by

one percent of my real wages fallen one percent. That's what that term means I know, you know that sony bitch just fear listeners of yours. So yeah, we've gone backwards in real terms more than almost any other country. And that was really I think playing in the opposition's hands cost of living, fix it for me, make it better,

I have say. In the last couple of weeks we've also seen Peter Dutton the Opposition Letter, reverse his view on working from home, for example, and sucking public servants. They are two things that ordinarily would have played really strongly to a right wing conservative voter base rightly wrong. I make no value judgment, just an observation they've reversed

course on those because they're losing votes on them. And I do wonder whether there's a bit more of a band together in the circums sense we find ourselves is kind of tough economic and geopolitical circumstances, rather than the divide on partying policy lines. Again, I don't mean the lymp's being devisive, both groups just kind of you know, the tribes reverting to their corners. It does feel like there's more of a considered middle to be won by

the major parties. And I suspect cost of living is first and foremost, but also that idea of who is best place to whether the storm that's coming from the US.

So the things that we know are already priced in, at least in theory. The tar that were surprise announcements are why the market fell because we all kind of thought, well, Trump might do some cares. Maybe possibly, we'll see and

that's why we've seen it. At four. The election will move markets only when either a party wins who is expected to win, or a party unveils a policy or set of policies the market's not expecting and so generally speaking, we don't tend to see much movement in markets or even individual industries most of the time if there is either a change of government or a return of the incumbent government because the things that differentiate those two parties.

There's also numbers from one of the big economists, Christ original Shanelevel or can't remember who was, I think it was Chris said ninety some of the ninety nine percent of the spending of both parties exactly the same, ether as they differ only a one percent of the government budget. Now, those differences a matter if you a company is going to get some money or you know individual is going to get a tax cut or something, so it matters. But most of the spending is the same across the board.

So unless you're in an industry specific or a company that's going to benefit or be hurt by a policy that's announced, and even then it's already probably priced in unless the party is not expected to win and they

do so not much. The last thing I'll leave you with, Sony is in the US have worked done by Morgan House or like a great writer and expotly full employee for the record is basically the over the life of the US stock market nineteen hundred or so onwards, there's been literally no significant difference between the party in power and the average returns of the stock market during that period in power. And so that's really important to think of because we have plenty of if Trump's elected, he'll

do this. If doesn't selected, he'll do that. If Albo's liketed, he'll do this. They'll do those things. But statistically, at least the odds that the party in power make a meaningful difference to the stock market subsequently, it's yeah, it's lie ball. There is no meaningful difference. There's a lot of people who have this view of if Party X wins, then the market marke will do well, so I'll buy, or they're going to wreck the party. Why I was

going to wrect the economy, so I'll sell everything. It just isn't the case very often, and so I really would encourage people separate your politics and your your you're investing anything else.

mean boring history. I've ever mean economic history. I just mean history history. Things improve over time despite stuff. So the Australians share market's gone up nine percent a year on average, eight nine percent since about nineteen oh six. Credit Squiz put some numbers out. By the way, the ASEX was the best performing stock market over that period of time, which is pretty good, but only by a hairsbreadth against the US now roughly nine percent a year.

They say six pp in a year, six point something six point four. I think it was before inflation, so you aduflation back, you're roughly nine, give or take. And

that happened despite all these things. Two World wars, the Korean War, the Vietnam War, two Iraq War was the war in Afghanistan, the Great Depression, recessions before the Great Depressions, right after the Great Depression before the Baby Boom, and then for every seven or ten years after oil shocks in the seventies, the GFC, the dot com crash, the eighty seven stock market crash, stagflation in the early eighties. If I feel like I'm giving a laundry list, I

haven't bet a live that long. But I've done the history. My point is that over time things go on to do better and big at Why because human ingenuity you mentioned this before, Sonya. Unless we've hit peak ingenuity, unless we've hit peak human development, human capacity, human potential. I haven't even talked about AI. We won't. But man, I mean, think about the opportunities that are coming for companies and for people in a world where computer power is just

phenomenally large than it ever has been. If you're a brave person to say, yeah, we hit peak capitalists, we hit peak ingenuity, we hit peak development in twenty twenty four, it's gonna be rubbish ever after. I mean, maybe it will be, but jeers, there's a much chance of that not really, So really, please please please look through the tariffs, invest well, investing quality business. We talked about that, but please do that. That's the point of the biggest takeaway

of the TARFFS. I hope so all the time we spent on it is in hindsight they will think not be as consequential to your wealth as you might think fear looking forward because you can't see through them yet right, so dot com crash, natact like eighty five percent. It was an enormous wipeout right huge, and yet NAS it went on a new Hives. The now the es people in New Highs Yx went on New Hives. It wasn't the Bill and end all. Now don't I don't like them,

I don't want them. I'm not saying we shouldn't have them. If we didn't could avoid them, of course we shouldn't. But if you can't avoid them, the nextperst thing is to say they're here. What's the best way to make the best of them? And there's likely to invest anyway. I think on the lecture, I've probably cover enough of that. Mate. The best thing, as I said, is to separate your policy or your political brain from your investing brain. Don't

overthink it, don't extrapolate too much. I've seen plenty of commentary on Twitter. Ah, this this, this party will kill the economy, this party will kill it, and that, by the way, both say about each other, because that's just what we do. It's not going to happen. Right. Are some better or worse than the economy? Maybe? Probably? Do we know that yet? I don't even know if we

know that yet. But you know, more more broadly, despite governments, despite crashes, despite tariffs, despite all this stuff, human engineering works right. Churchill said, democracy is the worst system except for every other system that's been tried. My versionay, is democratic capitalism right for all of its flaws, for all of its problems, and I would fix them if I had the choice. Maybe treasurer for six months is all

they'd need. But despite all those things, it still goes on to create enormous wealth for people if you are part of the system. Why, because it harnesses all that human capacity and potential.

amount of money. The A six has hit another high, probably another two or three on the way through. Maybe it's even fallen out of ten percent on that journey and come back up again. Vanguard have a great chart. I've banged on about it before. It's called their thirty year Index chart. Ten thousand dollars invested in nineteen ninety four was one hundred and thirty thousand dollars. Hypothetical amount

ten grand became one hundred and thirty thousand dollars. Despite all these things I talked about, it happened over that thirty year period, right, a thirty fold increase. It's about the wars and the terrorisms and the recessions and the Covids and the all this stuff. Now, if you're added money regularly, you're going to have even more than that. Now I'm not saying that'll be the next thirty years,

who knows. But also that average radar of that thirty year period not dis similar to thirty years and the thirties and thirty years before that. So the future is bright. Optimism wins. Look through the clouds and make sure you can see the long term value being built by companies and people right across the world and particularly on our stock exchanges.

but I know what the future can bring. If you're a young person, I get By the way, why do you feel Why do you feel bad? Housing is ridiculously expensive? You've just seen the superannuation of fall. You haven't been through these market cycles before, and you're like, oh my god, this is investing. What are you people mad? Why would I do this thing right? Why would I feel good

about this? So I get that. I absolutely get it, because you know, again, the one benefit of age other than dodgy knees and less hair is is you kind of have been there before and you see it saying to happen. So yeah, I'm incredibly envious with young people because they've got all the time in the world, whether it's through superannuational, compulsory savings, whether I said, their ownly investing, just the passing of time, right, I am. I am

so optimistic. I've got a twenty nine year old, an eleven year old, twelve year old now, and I am so jealous of their future because they have got an amazing future ahead. And think about the technological changes. What's going to happen in the world. Man, can you imagine it, and yet they've got the time to actually enjoy that and invest now. So what I want to say to young people is retirement feels a very long time away.

That's why super is so great, because it makes you say, when you're nineteen, you don't want to And I'm yet to hear someone who's retired who hates superannuation. Please, people working new, I want to have to put this money away. If this is terrible, as horrible, I don't. I would rather spend it. They get the hirement and go, oh man, I am so glad there's superannuation. So if you're a young person listening, please say the course. Please believe that

the future is bright. Please believe that we have a system of democratic capitalism for all its failings, and we're failing you on house prices right now, and change that if I was in the Treasurer's chair for a while. But investing will work for you. It will build wealth over time. I can't give your carriage and allowed to give you promises because otherwise the regulator will yell at me. Let me just say, in my very very very very very strong opinion, the future is very bright. You have

so much time on your hands. The last message is please keep contributing, whether it's adding to your own super or tributing, investing in your own name through chases or otherwise. Please keep investing because the compound returns you get over time. If you're listening to your twenty five now, you're probably gonna live to your ninety five. And no retirement's at the end. The retirement date is not the end of your investing, right, it's about two thirds of the way

through your life. So you've got seventy five years to compound. That is, do the mats on that, by the way, it will blow your mind. And so yes, please be positive, Please be optimistic. I know it feels like it sucks. Take it for an old person. Things will get better. They will deliver plenty of returns. Your compound returns will be spectacular. Stay the course, keep investing. It'd be absolutely

worth it. Your retired self, well, thank you, and maybe you might have been think of me when I'm long dead and in the grove.