US President Donald Trump’s "liberation day" tariffs have rattled global markets. Since the pronouncement, the Australia Market Index is down almost 3%. The US Market Index has sold off more, down 5%. The scope and magnitude of the tariffs are more severe than we, and the market, expected.

In this report, we share our initial impressions on how tariffs may affect our Australian equity research coverage. We provide a sector-by-sector analysis and highlight the businesses we think are most and least exposed to this global trade upheaval.

➤ The US accounts for a small share of Australia’s total goods exports, so the direct economic impact of tariffs is limited. However, the indirect effects—how tariffs affect global growth, consumer and business confidence, and demand for Australia’s commodity exports—could be much more severe.

➤ Many ASX-listed companies own US businesses, so the equity market is more exposed to tariffs than the broader economy. Australia’s 20 largest public companies generate approximately 10% of their revenue in North America, despite the region accounting for only 6% of Australia’s total exports.

➤ Cyclical, globally oriented sectors, including basic materials, consumer cyclical, and industrials, look most vulnerable. Some healthcare companies also manufacture in tariff-affected jurisdictions.

➤ Defensive, domestically focused sectors – utilities, consumer defensive, and real estate – look most protected.

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Tariffs can affect Australia’s economy in two ways. First, directly—Australia’s exports to the US are now less competitive relative to domestic alternatives, which has implications for US demand for Australian goods and services. The second is the indirect effect. Australia is a small, open economy. If the global economy slows, it could reduce demand for our exports across the board, not just in the US. Consumer confidence and business investment may also fall, weighing on domestic activity.

The direct effect of tariffs on our economy should be limited. In 2023, the United States was Australia’s sixth-largest goods export market, accounting for AUD 22 billion, approximately 4% of total goods exports (Exhibit 1). Beef is the largest category, at just under AUD 3 billion. Gold and pharmaceuticals were next, at roughly AUD 1.5 billion, though both appear to be exempt from tariffs. Although localized pain may be present, the direct impact on GDP is expected to be modest in relation to the overall economy.

However, many ASX-listed companies own US businesses, so the equity market is more exposed to tariffs than the broader economy. Australia’s 20 largest public companies generate approximately 10% of revenue in North America, even though the region only accounts for 6% of Australia’s total exports (Exhibit 2).

The indirect effect of tariffs looks more serious. Although the US is not a big trading partner for Australia, it is the world’s largest economy, accounting for about 25% of global GDP. If maintained, we think these tariffs could cause serious damage to the US economy. We haven’t finalised our estimate of the drag on GDP, but we expect to reduce our US real GDP growth forecasts for 2025 and 2026. The upward impact on inflation is likely to be of a similar magnitude.

The big wildcard is how China responds. China is Australia’s largest trading partner by a wide margin—importing over AUD 200 billion worth of goods in 2023, nearly 10 times the value of our exports to the US. The bulk of these exports consists of resources, particularly iron ore and coal. We think vastly higher tariffs imposed on China increases the chance of China stimulus, and this could insulate Australia from some of the economic shock.

Let’s walk through the impact, sector by sector.

Gold is likely to benefit from the increased uncertainty and market volatility and the ensuing flight to safety on worries over reduced trade flows and a potential recession. There are no direct tariffs on US imports of bullion. Northern Star, Evolution, and Perseus are well-placed to benefit.

As for other commodities such as iron ore, base metals (copper, aluminum, nickel, and so on), and coal, the potential impact is more indirect, via potentially slower economic growth, especially in China, and hence demand for commodities. BHP, Rio Tinto, and Fortescue are likely affected. Although we think vastly higher tariffs imposed on China increase the chance of a China stimulus and, in particular, a commodity-intensive stimulus such as increased infrastructure spending along with more support for the country’s struggling residential real estate sector.

For Australian explosives companies Orica and Dyno Nobel (formerly known as Incitec Pivot), the US accounts for approximately 20% and 45% of their earnings, respectively. The majority of their US product is locally sourced, meaning limited direct implication from tariffs. These companies have few competitors in the US, and customer alternatives are limited. They could certainly feel the impact if Trump’s heavy 54% tariff on China dampens demand for bulk commodities.

US earnings for crop protection company Nufarm comprise around 30% of the total. Some crop chemicals and chemical inputs are made in China and will be subject to a 54% tariff. But we see limited impact as costs are likely to be largely passed on to farmers.

Alcoa Corp has Canadian aluminium production, which goes into the US and is now subject to a 25% tariff. Canada comprises around a third of Alcoa’s global aluminium smelting capacity. Alcoa is a global business, and product flows can, in part, be redirected to best suit the prevailing cost circumstances. Tariffs may also be passed on to US customers, which risks shut-downs and layoffs given the lack of domestic production.

The telecommunications sector is relatively unaffected, with almost all revenue generated within Australia (Telstra, Macquarie Technology, TPG Telecom) or New Zealand (Chorus, Spark NZ). Furthermore, it is largely shielded from the tariff's negative first-order impact on the US or the domestic economies as revenue drivers are mostly staple services. We view Spark NZ and TPG Telecom as the most undervalued names.

The media sector is relatively unaffected at face value from tariffs. But advertising, subscription, circulation, and consumer spending activities in media and entertainment are all hostage to corporate confidence and consumer sentiment, factors that may weaken as the tariffs ripple through the US and Australian economies. There are downside risks to all media names with News Corp shares particularly vulnerable, as it’s overvalued and almost half of group revenue is from the US.

US tariffs on Chinese-manufactured goods can go elsewhere, including to Australia. An increased supply of Chinese goods should deflate prices for consumer goods globally, outside the US. In this scenario, Australian consumers would benefit from lower prices in the short term. We don’t expect earnings to be materially affected for retailers, with increased buying power and demand offsetting some of the headwinds.

Breville is a clear loser. US tariffs on Chinese-manufactured goods affect about 40% of Breville’s revenue. But Breville has been here before. Tariffs of up to 25% in fiscal 2019, affecting about 10% of Breville’s goods, were largely offset by price increases. In the short term, Breville has pulled forward inventory and can increase prices. Longer term, it is diversifying manufacturing to countries like Mexico. In our cyclical retailer coverage, jewellery retailer Lovisa is exposed, but gross margins of 80% soften the blow of increases in the cost of sales in the US, even absent price rises or supplier assistance.

Consumer defensives are a safe haven from first-order effects, and we see earnings as largely unimpacted. Liquor retailer Endeavour, while suffering from a weak domestic consumer, doesn’t export into the US. Shares screen as attractive. Similarly, earnings at supermarkets and supermarket suppliers are virtually all generated in Australia. On valuation grounds, we prefer Woolworths to Coles for exposure to the Australian supermarket sector.

Treasury Wine Estates is somewhat exposed. The Americas division is about a third of earnings, with 15% imported from Australia and New Zealand—subject to 10% tariffs. Conversely, 85% of US-produced wine, notably luxury brands like DAOU and Frank Family Vineyards, is now better-positioned against competing luxury imports.

Markets for energy are deep and global, and Australian hydrocarbon producers and explorers like Woodside and Santos don’t export materially to the US. Barring an adverse impact on the global economy overall and indirectly energy prices, we see limited tariff consequences for Australian energy names. The same applies to sellers of refined fuel products, such as Ampol and Viva Energy.

Australian banks won’t take any direct hit but are leveraged to Australian economic growth, which could slow. Ignoring the potential for fiscal and monetary stimulus to counter this headwind, lower economic growth generally dampens demand for new loans. Slower credit growth could also heighten price competition for a smaller pool of new loans. Margins could also be affected in the short term if the Reserve Bank of Australia cuts rates materially to stimulate growth, as rates on transaction account balances, which pay little to no interest, can’t be cut. But, provided rates don’t go back to zero, which seems highly unlikely, we expect banks to adjust loan and deposit pricing to generate adequate profits.

The impact on insurers is unlikely material, with any short-term impact likely to be countered by changes to premiums over time. For example, if auto part suppliers are looking for markets outside the US, it could get cheaper for Australian insurers to repair cars. This would lift profits across the industry, and its likely competition would drive down premium rates over time. Central banks lowering rates in response to slower economic growth would hit returns insurers make on large investment pools of policyholder and shareholder funds, but only possible if inflation is not running too high.

Asset managers and wealth platforms are affected by tariff-induced volatility. Share prices fell ahead of the trade tariffs, as uncertainty around Trump and weakening US consumer sentiment dampened investor risk appetite, reducing portfolio returns and potentially slowing future fund flows globally. The impact on asset managers and wealth platforms is broadly negative, although firms with greater exposure to overseas investors, such as Pinnacle, are more vulnerable to tariff-induced flow setbacks. Firms trading at higher valuation multiples, such as Netwealth and Hub24, face derating risks given lofty expectations for future flows and margins. Payments that companies tied to consumer spending may also struggle if the consumer takes a hit, with Humm and Tyro positioned negatively.

We see moats as offering some offsetting benefit. We expect wide-moat Fineos to grow with insurers, which can offset short-term tariff pressures through premium adjustments. Another moatworthy firm, Iress, should see resilient earnings as it recovers from prior disruptions and benefits from organic adviser growth and new product cross-sells.

Out of 12 names in our Australian healthcare coverage with revenue exposure to the US, we see reciprocal tariffs directly affecting five. We estimate Ansell will bear the brunt and total operating costs to go up roughly 10%, while Resmed’s, Polynovo’s, Nanosonics’, and Fisher & Paykel’s, to go up more modestly between 1% and 3%.

While medical devices are affected by reciprocal tariffs, pharmaceuticals are exempt, and software and pathology are unaffected. As such, CSL, Telix, Pro Medicus, and Sonic should not suffer. All Clinuvel’s and Avita’s US volumes are manufactured in the US and are unaffected. Almost all Cochlear’s US volumes are sourced from Australia, subject to a 10% tariff, but are imported under a chapter of the Harmonized Tariff Schedule that provides duty-free importation from Australia for hearing implants, assuming this is honoured.

We anticipate Resmed, Polynovo, Nanosonics, and Fisher & Paykel Healthcare to mitigate the modest tariff impact on its cost of production through price increases and adjusting supply chains. Since Ansell manufactures most of its US volumes in the heavily affected region of Southeast Asia, we estimate that 43% of its costs of goods sold go up by an average tariff rate of 34%. While Ansell is not alone, with most manufacturing in the industry sourced from Southeast Asia and the industry likely to raise prices, price increases that fully offset tariffs will likely dampen demand.

Many industrial stocks are manufactured in the US, but inputs may be sourced globally. We expect companies to switch to domestically sourced inputs where possible. The secondary effect of a weaker economy due to tariffs may reduce discretionary spending. This mostly affects our construction and packaging-exposed stocks. Aside from our steel-exposed stocks, BlueScope Steel and Sims Group, where we think US operations are likely to benefit from a move to local production, we do not anticipate other benefits to our Australian industrial coverage.

We expect the tariff impact on Brambles to be neutral as the main lumber importer, Canada, is exempt from additional tariffs. Additionally, overall timber spending is down on greater efficiency of usage and longer pallet life. Brambles’ pallets mostly carry consumer goods where volumes are relatively stable, even if a trading down trend emerges.

We think packaging companies Orora and Amcor are likely to be negatively affected by tariffs. Orora is a global producer of beverage containers, with its main US sales being premium alcoholic spirit bottles, which are discretionary. Amcor has suffered downturns, particularly in its US beverage sales, mostly soft drinks and plastic packaging. Here, we expect a weaker economy to result in customers reducing their consumption of higher-end products in favor of cheaper items with lower-cost packaging, which will weigh on Amcor’s margins.

As local urban services providers, Ventia and Downer are likely to be well-insulated from tariffs, particularly given their preponderance of CPI-linked government contracts. Engineering contractor Monadelphous provides vital maintenance to resource infrastructure and is well-placed. Seven Group’s heavy equipment sales and servicing could feel some impact if Trump’s heavy 54% tariff on China dampens ore demand. But otherwise, it is a diversified conglomerate with exposure to building materials, energy, and public infrastructure, in addition to mining.

For Worley, a more recent targeted focus on the energy transition maybe somewhat stymied given Trump’s predilection for oil and gas, though not materially. ALS' materials testing labs are located in the markets they serve and are not directly tariff-exposed.

We think the real estate sector is relatively unscathed. While tariffs could impair business confidence and thus weigh on leasing decisions for office, retail, and industrial space, most property portfolios have lease expiries of at least three years to ride out transitory volatility. Australia’s consumer confidence and inflation could also play a role in the Reserve Bank of Australia’s rate-cut decisions in the near term, but our long-term cost of debt assumptions are unchanged.

Audinate is most affected by first-order consequences, as the US audio-visual sector will likely slow, given most of the equipment is produced in highly tariffed countries. Over the long term though, we don’t see Audinate’s competitive position affected, and we see it with the resources to withstand a downturn.

Online marketplaces REA Group, CAR Group, Seek, and Domain are cyclically sensitive and could be affected if tariffs drive an economic downturn. However, for most of them, the long-term effects are likely limited, given their competitive position isn’t affected. The exception is Seek, which could suffer in Southeast Asia if a slowdown in Australia reduces available cash flows to invest overseas versus competitor Indeed with cash flows from geographies that appear less affected.

Most Australian software companies won’t take a direct hit. They typically have high-quality customers and recurring revenue. Exceptions include Xero and SiteMinder, which have more economic sensitivity.

US tariffs have no material impact on Australian utilities. If the economy weakens, electricity demand and wholesale prices could soften to the detriment of profits. In this scenario, interest rates would also likely fall, a partial offset. Additionally, cheaper imports from China as it looks for new markets could reduce the cost of planned wind farms, solar farms, and large-scale batteries.

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