Extract from ABC News
The Australian share market fell close to 1 per cent by the close, recovering from steeper early losses. (ABC News: John Gunn)
In short:
Australian and Asian stocks fell as investors digested the economic implications of so-called Liberation Day.
US President Donald Trump has announced sweeping tariffs on all nations, potentially hurting global economic growth.
What's next?
Analysts suggest inflation may initially rise but then fall as the tariff hikes crimp global economic growth.
Analysts are warning of the growing risk of a global recession as Donald Trump's tariff announcement is seen as "at the destructive end" of the possible scenarios.
The Australian share market suffered sharp falls on Thursday. The benchmark ASX 200 index closed down 74 points, or 0.9 per cent, at 7,859, but was down almost twice that much early in the session.
The bottom performing stocks in this index were Ansell Limited and Liontown Resources, down 13.9 per cent and 8.5 per cent respectively.
Losses would have been far steeper, though, if not for buying in one of the largest stocks on the market, the Commonwealth Bank, which rose 1 per cent.
Analysts told the ABC it took on the form of a "defensive" stock on Thursday, or an investment that provided safety for traders, especially with bets rising on more Reserve Bank interest rate cuts sooner.
The share market now is 159 points from a technical correction — or a fall of at least 10 per cent from a recent peak.
Indirect tariff impact the main risk for Australia
Thursday's sell-off was in response to the Trump administration's so-called Liberation Day — President Donald Trump unveiling sweeping new tariffs on all goods coming into the United States, including from Australia.
"The direct macro impact on Australia from the 10 per cent tariffs is small," the NAB economics team wrote in a note.
"The global and Asian growth implications will be more material."
Other analysts agree with this point.
The suggestion is that Australia's economy will be hurt more by the indirect affects of US President Donald Trump's tariffs, as BetaShares chief economist David Bassanese explained.
"Australia has gotten off relatively lightly, yet will still face the minimum 10 per cent tariff that all countries with low barriers to US exports will face," he said.
"For Australia, the main impact of Trump's new set of tariffs will be indirect — specifically the likely negative impact on global economic growth and that of China especially."
But, David Bassanese argued, China's policymakers are in the process of ring-fencing the world's second largest economy from trade barriers.
"Importantly, China's exposure to US trade has been reduced in recent years, which should limit some of the economic impact," he continued.
"What's more, one way or another, Chinese economic growth is likely to hold up — as the authority of the Chinese communist party depends on it.
"Accordingly, the Chinese government will likely boost domestic growth initiatives to the extent that trade tensions pose as undue risk to the economy."
AMP's head of investment strategy, Shane Oliver, is not as optimistic about the outlook for global economic growth.
"It's all a bit confusing given the way it's been presented, e.g. China at 34 per cent in the big table but it's really 54 per cent based on comments by Treasury Secretary Scott Bessent," he noted.
In fact, Capital Economics China specialist Julian Evans-Pritchard believes the average US tariff rate on Chinese goods is now approaching 70 per cent, due to tariffs in force before the second Trump administration took office.
"Overall it looks worse than markets expected, with 10 per cent on all countries and much higher rates on many," Dr Oliver observed.
"While some countries may be able to negotiate the reciprocal tariffs down many won't, e.g. if they cover things like VATs/GSTs which are not protectionist or valid biosecurity laws.
"And there is still more sectoral tariffs to come, including on pharmaceuticals."
Asian shares sink, US set to follow
It's all rattled global financial markets.
Japan's main stock market index sold-off sharply, down more than 3 per cent, as did Hong Kong's Hang Seng, down nearly 2 per cent, although Shanghai's 0.4 per cent fall was much more modest.
In Touch Capital Markets senior FX analyst Sean Callow told ABC News that investors have been negatively surprised by the depth and breadth of the sell-off.
"Sentiment soured quickly as the listed rates were revealed to be very high, some combination of tariffs and an adjustment for currency manipulation and non-tariff barriers," Sean Callow said.
"The full market response will take some time to play out, but this is clearly at the destructive end of the possible policy decisions."
Investment website FNArena commentator Danielle Ecuyer said the tariffs are an impost on companies across the globe.
"At this stage, the tariffs are not positive for markets or earnings growth," she observed.
"Uncertainty will create ongoing paralysis for CEOs.
"President Trump's reciprocal tariffs have failed to create increased certainty or clarity for impacted economies and companies.
"Initial commentary suggests the announcements were much worse than anticipated, but it will take time for the full tariff imposition to become clear.
"Uncertainty is extremely bad for business and consumer confidence, particularly when a large market sell-off may prompt Trump to back-pedal.
"Whatever the outcome, which will only become clear over the following days, weeks, and months, history shows us tariffs are a tax and an impediment to economic growth."
Rate cut bets rise after tariff announcement
There has also been a question around whether or not the tariffs, which raise the prices of imported goods coming into the United States, would be inflationary.
"For Australia, the net effect of today's announcement is that it poses much more downside risk to economic growth than upside risk to inflation," David Bassanese said.
In other words, the hit to economic growth in the US and, potentially, the global economy could ultimately bring inflation down, at least outside the US.
Mr Bassanese said the financial market reaction to the tariffs adds to the case for a Reserve Bank interest rate cut as early as May.
There is now a better than 90 per cent chance, according to money markets, of a 0.25 percentage point RBA interest rate cut in May.
"The reason for the dramatic shift is this morning's tariff announcements went far beyond what was expected, and have increased the chances of a trade war and recession in the US," IG market analyst Tony Sycamore said.
Bond market trader Angus Coote also sees the risk of both a US and Australian recession as a result of an escalating tariff war.
"I think there's every chance [Donald Trump] wants a recession," he argued.
"[The US has] obviously got deficit problems.
"If he has a recession now, like a CEO who comes into a new business, clean all the dead wood out from the previous administration, and then reset the place so that when he comes out of his term he's got his legacy intact and that the economy's firing.
"But it's a dangerous game," Mr Coote warned.
He says so-called Liberation Day has set up the potential for US, Australian and global economic recessions, and a major share market downturn or bear market.
Meanwhile veteran stock broker Marcus Padley told ABC News he believes this economic malaise will eventually create opportunities for share investors.
"You know we are in 100 per cent cash, this outcome couldn't be better as far as we're concerned," he said.
"It is going to turn into a fabulous buying opportunity at some point, but it's not today."
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