Trump's Tariffs: How it's going in Australia, 5 days in

Sooooo. We all know about the tariff situation, right, unless we have been living under rocks (which, frankly, doesn't sound unappealing right about now). The Trump administration has imposed a wide swathe of tariffs are variable levels on trading partners both large and small, ranging from what seems to be the baseline (10%) up to much higher levels. Australia has been put on the baseline level, with a 10% across the board tariff imposed.

Many people more economically versed than me have written about the tariffs and their possible broad impact on trade, markets and the global economy, so I am not going to try to reinvent that particular dreary wheel. Instead, I wanted to reflect on one significant impact that is already starting in Australia and is likely to get much worse quickly unless this situation is resolved - the absolute fire and destruction it is raining down on Australian superannuation investment.

For the non-locals, superannuation is Australia's answer to self-funding of one's retirement. Employers make an annual contribution to a superannuation fund on the employee's behalf., equal to a set percentage of the employee's salary, and people can also self-contribute to top up the amount. At retirement, the savings (which have been tax sheltered after first investment) are paid out as a pension amount, or can be taken in lump sums in some circumstances.

Generally, this has been a stable and successful system for Australia, but as this article in the Australian Financial Review points out, we are now entering a time of great danger, thanks to the tariffs and their huge impact on investment earnings. Super is diving at an alarming rate as markets flail about trying to make sense of the tariffs and what they mean.

As anyone of working age who looks at their super fund will know, all super investments are copping a shellacking at the moment. American investments are the worst hit, but even the domestic ones are getting kicked in the head. Assuming things stabilise at some point, which they usually do (although, caveat - this behaviour from the US is so unprecedented that who really knows whether "usually" will apply), this is less of a concern for those of us who are 5-7 years or more away from possible retirement, as we can wait it out. It is a much more worrying issue for folk already retired and living on their super, especially anyone who is a renter rather than a home-owner.

Thus, the warning klaxons are blaring for Australian superannuation pension retirees, and those others who have benefited from the "bank of Mum and Dad" created by relatively high and stable superannuation incomes (children and grandchildren of well-funded superannuation retirees, primarily). This has broader impacts for our economy at large, with a contraction of money available to be spent and therefore circulating, and the likely pushing of a sizeable number of adults who rely on assistance from superannuated parents / grandparents away from home ownership (given that assistance with home deposits is one of the most common forms of assistance) into new levels of financial stress and disaster.

Time alone will tell how this shakes out. If the tariffs are quickly reversed or moderated, and more "normal" trade discussions resumed, it will likely all settle down, and super investments regain ground. But the longer the five-alarm fire situation continues, the worse it will be - primarily for the US itself, it must be said, but also for the rest of us, who never got a vote and didn't choose this and yet are still stuck with it.

(An aside, but I also appreciated the bafflement expressed by the analyst in trying to make sense of the tariffs, which make no conventional economic sense:

"“If the objective is to raise revenue to pay for tax cuts, then this is in conflict with the desire to re-shore as much as possible ... If the objective is to force down global tariffs, then persistent and chaotic threats (intertwined with other issues, such as Greenland, Canada, Russia) are likely to lead to an opposite outcome. If the objective is to resurrect manufacturing employment, higher intermediate costs, long lead times and technological replacement, are likely to undermine it. If the objective is to force global re-alignment of savings and investments, threatening a de facto US default and forcing others to change their private sector behaviour, is unhelpful.”)

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