Challenger’s chief economist expects the US economy will see a prolonged recovery with President Donald Trump’s policies unlikely to have a lasting effect on equities and investments.
Investors should avoid letting their opinions about the Trump administration cloud their investment choices, with any impact of Trump’s policies on the US economy likely to be minimal, according to Challenger’s chief economist, Dr Jonathan Kearns.
During a webinar on Monday, the chief economist advised investors not to panic despite the current “dip” in the US economy, with the long-term outlook still positive.
“If you look at those forecasts for 2027, there is a pickup in US growth – so it is a temporary dip,” he said.
Kearns said that structurally, President Trump’s policies won’t have as much of an enduring impact on private companies – and therefore on equity markets and other investments – as some predict.
“Their performance is perhaps [in] the near term as a result of some of what we’re seeing, but more forward-looking, the impact is less,” he said.
President Trump’s policies stem from various motivations, such as an effort to reindustrialise the economy and curb the impact of imports and international competitiveness on the domestic economy.
While acknowledging legitimate concerns regarding President Trump’s decisions, particularly citing apprehension about US security and the nation’s diminished capacity to produce certain goods, Kearns advised investors to not let these opinions affect their investment decisions.
“So, I think when lots of people have strong views about the politics in the United States, we do need to try to separate ourselves from that as investors, to think, structurally, how much does this actually mean?” he said.
Looking at the state of the US economy as a whole, the chief economist observed mixed effects despite an overall downward trend.
Despite some movement away from the US dollar, which has depreciated this year, he said that this movement was not significant enough to be called a “wholesale shift”.
He also identified a surprising trend of resilience among world economies so far in their responses to tariffs.
Notably, the Chinese economy – despite being arguably the biggest target of President Trump’s tariffs – is exceeding initial expectations by successfully identifying new export markets.
“Their exports outside of the United States, and therefore, in aggregate, have actually been growing really quite well. There is a strength in the Chinese economy that I think most people hadn’t really quite expected,” Kearns said.
At the same time, he clarified that although American consumers are yet to feel the pinch, someone is bearing the cost of increased tariffs. Tariff revenue has already become a vital source of US government income, with projections indicating an annual revenue of approximately $300 billion for this year.
As Kearns explained, this holds true even with an initial dip in revenue caused by a rush of imports before tariffs were put in place. And, as this inventory depletes, more expensive imports will be necessary, further increasing tariff revenue.
However, while this revenue is significant, Kearns said it’s still insufficient to cover income tax cuts, contributing to a deteriorating fiscal position going forward.
“The US government will likely need to maintain this tariff revenue without a major rebalancing of its revenue collection,” Kearns said.
Meanwhile, he pointed to some clear indicators of a slowdown in the US investment sector, where corporate investment intentions are sharply down.
Kearns explained that if this continues, capital expenditure could drop to levels seen during the COVID-19 pandemic, the global financial crisis, and the early 2000s recession. This significant reduction in investment will be a key factor in major US economic weakness, with gross domestic product growth expected to fall from 2 per cent to 1.3 per cent later this year.
As Kearns explained, the true indicator of a weakening US economy lies in job data. In the latest month, payrolls employment rose by 73,000.
However, the more significant news, which garnered considerable media attention, was the Bureau of Labor Statistics’ worrying downward revision of payrolls numbers for the preceding two months by 250,000.
But interestingly, Kearns pointed out that the unemployment rate has remained stable at approximately 4.2 per cent – despite the weakening labour market. This figure is derived from a household survey, rather than a business survey.
Overall, he maintained that within the global economy, he expects a pickup in global growth from 2026.
“The effects of this imposition of tariffs and the impact that’s having on global trade is relatively short-lived,” he said.
