The market may be too complacent about the risks of more tariffs, UniSuper’s head of fixed interest warned this week, pointing to Donald Trump’s recent steel-related announcement and a seeming breakdown in negotiations with China.
Speaking on the fund’s latest podcast, David Colosimo said that while President Trump scaled back tariffs in May, he expects trade barriers to remain a key focus moving forward.
“Just over this weekend, President Trump announced the doubling of steel tariffs from 25 per cent to 50 per cent. He also posted accusing China of violating their initial agreement,” Colosimo said.
“So, it does feel like there’s still a lot to play out, and if anything, the market’s probably a little too complacent about the risks of more tariffs here.”
Moreover, the head of fixed interest said that negotiations surrounding the so-called ‘Big Beautiful Bill’ remain critical, particularly given a version of the bill passed by just a single vote.
“Trump’s signature ‘Big Beautiful Bill’… that’s leaning towards bigger, rather than smaller, deficits. So, you put those few things together and it does suggest the ‘fiscal hawks’ haven’t had as much influence on policy settings,” Colosimo said.
“That additional budget spending actually did contribute to a bit of a hiccup in the bond market during the month [May], and that was a temporary pause on the share market rally. But in the end, I think most people see that if the budget’s going to stay quite supportive, then the economy’s likely to stay resilient, and that’s been an overall positive for the market.”
Last month, just ahead of the US-China 90-day tariff truce, Colosimo said that even if the US administrator were to cancel all tariffs, “it’s still not clear that the damage can be undone”.
“I think the prospect of a recession will probably stay with us until proven otherwise, and so there’s a lot of uncertainty,” he said at the time.
In a market note this week, Lukasz de Pourbaix, cross-asset specialist at Fidelity International, said there is still a level of uncertainty in markets around whether tariffs will be imposed and at what level, especially given events around the trade court in the US and the subsequent appeal.
“If we do get a scenario where US tariffs settle higher, we could certainly see a stagflationary environment where we see rising price and a reduction in economic growth if US tariffs remain high,” said de Pourbaix.
“However, if tariffs do moderate, then inflation may settle down and we enter a period of reflation. A lot will depend on where US tariffs settle.”
Where US tariffs ultimately settle will be a key determinant of market direction and, by extension, superannuation fund returns.
In April, following the imposition of Trump’s tariff pause – preceded by the so-called ‘Liberation Day’ – the median balanced super option posted a 0.6 per cent return for the month, marking modest gains as markets rebounded.
Despite the bounce back, last month, UniSuper’s CIO John Pearce cautioned investors to temper expectations for the year ahead, pointing to ongoing US-China trade tensions as a key drag on growth.
“Since Liberation Day, we pretty much have a backtracking of Trump’s original position,” he said.
“Most importantly, Trump recently announced a reduction in tariffs on China from 145 per cent to 30 per cent. This is only a 90-day truce, and within that period, it’s hoped that both countries can negotiate an acceptable outcome.”
On returns, Pearce maintained a cautious base case: “My base case is that we are going to muddle through.
“In February, I made the point that we have had two really strong years, anything above a flat return would be a bonus, and it’s pretty much my thinking still.”
