Although the legislation passed the House of Representatives in 2023, it stalled in the Senate in February 2025 and has not progressed since.
While this is a difficult situation, the alternatives to paying the additional 15% tax on super, compared to withdrawing all funds out of super in excess of $3m, and then that is taxed at normal marginal tax rates, is a comparison of a 30% tax rate in super (15% usual tax rate plus the extra 15%), compared to those in marginal tax rates at 45% + Medicare of 2%.

The company tax rate is also at 25% for base rate entities, or 30% for those that are not – which is likely to apply to those wanting a company to hold investments such as shares or property.

Despite the legislative delay, the government remains committed to implementing the tax from July 1, 2025. Treasurer Jim Chalmers has reaffirmed the government’s intention to proceed with the measure, and the Greens have indicated their support, which could potentially facilitate its passage through the Senate. (The Australian)

Key Features of the Proposed Division 296 Tax:

Controversies and Criticisms:

The Greens – Borrowing in Super:

The Greens have further also announced an attack on borrowing in super. Many clients have self-managed superannuation funds (SMSFs) that hold property against which they have borrowed. Those properties are often rented to their business, as the SMSF has enabled the client to secure their own business premises, eliminating the need to worry about landlords.

There is already rigid regulation for borrowing for superannuation funds, and many clients have sought to utilise the flexibility of their own Self-Managed Super Fund (SMSF) to gain more exposure to property, using lower loan-to-value ratios to do so.

Unfortunately, the Greens and Labor did not communicate in the recent Federal Election that a vote for Labor is a vote for the Greens, and a vote for the Greens is also a vote for Labor. The Greens also were not forthcoming with many of their policies at the time.

The Liberals — Their take on this:

The opposition is prepared to work with the government on superannuation reforms, but will not back a tax on unrealised capital gains.

The lack of indexation is also a problem that needs to be addressed before the opposition can support any of this proposed legislation. (SMS Magazine)

Current Status:

While the Division 296 tax has not yet been enacted, the government’s determination to implement it by July 1, 2025, suggests that affected individuals should prepare for its potential introduction.

Our concern is the uncertainty, and we are now in a state of limbo. Many clients hold property assets in their superannuation and cannot simply sell the property or other assets, which then forces the sale of assets at potentially lower prices in order to pay this tax.

In our view, the proposal is un-Australian. To be taxed on paper gains or losses, and being forced to sell property or other assets, which may not have ready markets.

We continue to monitor the situation and review superannuation balances for clients, and we are formulating strategies to mitigate potential tax liabilities.

October 2025 — See the proposed update here.

How do they work?

If a $100 good faces a 25% tariff, it now costs $125 before it hits the shelves.

So, the US government collects $25 (the tariff), and the US consumer now pays $125 for the same good that previously cost $100.

Consumers usually pay the extra cost, but sometimes the importer will absorb some of it. So, they may pass $20 onto the consumer & absorb the $5 themselves, which will lower their profit.

But you get the idea….

Most studies of Trump’s tariff increases during his first administration conclude that the tariffs were entirely borne by either U.S. households through increased consumer prices or corporate profits.

Currently, there is an opportunity for companies to pass the full $25 to the consumer and attribute any price increase solely to the tariff.

The point is…. The country exporting to the US does not pay the tariff. The US government collects the tariff & the cost is borne mainly by the US consumer.

Do tariffs work?

1. To protect domestic industries?

Yes, in the short term – they can shield local industries from cheaper imports and temporarily boost local production.
But – without long-term innovation and investment, protected industries can become stagnant and rely solely on tariff protection to be viable.

So, inefficient industries are propped up instead of being improved.

2. Reduce trade deficits

Not reliably – trade often shifts to other countries instead of shrinking overall.

US-China tariffs lead to trade rerouting, not elimination.

3. Create local jobs

Mixed – jobs are supported in protected sectors (e.g. steel), but other industries that rely on those goods (e.g. car manufacturing) may lose jobs due to higher costs.

4. Generate government revenue

Yes – tariffs do raise billions in revenue. However, this cost is ultimately borne by local businesses and consumers.

5. Leverage in trade deals

Sometimes – tariffs can push other countries to negotiate. However, retaliation and global instability are common side effects.

6. Support long-term economic growth

Rarely – tariffs usually reduce trade, slow growth & increase costs. Historically, prolonged use has harmed economies more than benefited them.

Conclusion

Tariffs may achieve short-term policy goals or provide leverage, but they carry long-term risks & unintended consequences.

They work best as a temporary measure, not a permanent economic solution.

Further Reading: The expected impact of Trump’s tariffs

Important information & disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd (AFSL License No 229454).

In writing this report, we have sourced information from:
Antipodes, ABC News, AMP Capital Markets (including Dr Shane Oliver, Chief Economist & Head of Investment Strategy), AP Reuters, Australian Bureau of Statistics, BetaShares, Bloomberg, Business Insider, Carl Richards, Central Banks, CitiGroup, Commonwealth Bank, CoreLogic, First Sentier, Global X, IMF, Investopedia, IRESS, JP Morgan Asset Management, K2 Asset Management, Livewire, Macquarie, Macroeconomics, MarketWatch, Mercer, Morgan Stanley, Morningstar, Refinitiv, Reserve Bank of Australia, Russell Investments, Stockhead, The Wall Street Journal, TradingEconomics, VanEck, Vanguard, & Zurich.

Any advice in this publication is general only & has not been tailored to your circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance, or other decision. Please seek personal advice before acting on this information.

Information in this publication is accurate as of the date of writing. Some of the information may have been provided to us by third parties. While it is believed the information is correct & reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgment at the time of issue & are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors, give any warranty of accuracy, nor accepts any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only & is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, & we recommend you consult with a registered tax agent.

Where can I see what my cap is?

Your superannuation fund reports the value of your superannuation interests to the Australian Taxation Office (ATO). You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.

How to make sure your super goes to the right place

Death benefits are a complex area.  If you don’t make a formal nomination (or let it lapse), the trustee has the discretion to decide who receives your super. Without clear instructions, the process can be delayed, and funds might not go to the intended beneficiaries.

Four Types of Super Death Benefit Nominations

There are four types of death nominations:

1. Binding death benefit nomination
   Directs your super to your nominated eligible beneficiary, the trustee is bound by law to pay your super to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.
2. Non-lapsing binding death benefit nomination
   If your trust deed permits, a non-lapsing binding death benefit nomination will remain in place unless you cancel or replace it. When you die, your super is directed to the person you nominate.
3. Non-binding death nomination
   A guide for trustees as to who should receive your super when you die, but the trustee retains control over who the benefits are paid to. This might be the person you nominate, but the trustees can use their discretion to pay your super to someone else or your estate.
4. Reversionary beneficiary
   Suppose you are taking an income stream from your superannuation at the time of your death (pension). In that case, the payments can be reverted to your nominated beneficiary at the time of your death, and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.

Who is eligible to receive your super?

Your super can be paid to:

• A dependant (spouse, child, or someone financially dependent on you).
• Your legal representative (executor of your will).
• Someone with an interdependent relationship (someone who relies on you for financial support or personal care).

What happens if I don’t make a nomination?

According to state or territory laws, if you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to. This will be a superannuation dependent or the legal representative of your estate, and it will then be distributed according to your will.

Scenario	Outcome
Did the deceased have a valid death nomination?	Super is paid as directed.
No valid nomination?	Trustee decides who receives the benefits.
Multiple claimants?	Trustee must review all claims, causing potential delays.
Was the nomination correctly signed and witnessed?	Yes → Process continues. No → Risk of invalidation. Risk of invalidation—the trustee will determine distribution.

Common Issues That Cause Delays

There have been several court cases over the years that have successfully contested the validity of death nominations. Here are scenarios where it can go wrong:

• Invalid nominations – A death benefit nomination must be legally valid (written, signed, dated, and witnessed).
• Expired nominations – Many binding nominations lapse after 3 years. You need to renew them.
• Unclear beneficiary details – Avoid vague descriptions (e.g., “partner” instead of their legal name).
• Complex family situations – Multiple claimants or family disputes can delay trustee decision-making.

So what should you do?

If you have an SMSF, these problems are less likely to be an issue, as the delays mainly occur with retail or industry super funds.

We can help.

Whether you are young or old, we recommend that you check or update your nominations with your superannuation fund and ensure you have the correct type of nomination in place and that it is valid and accurate. While there still might be a delay in getting your super where it needs to go if you die, the process will be a lot quicker and less onerous for your loved ones.

Perhaps changing from a retail or industry super fund to a self-managed super fund is right for you? Contact us, and we will assist you in making informed decisions on what is right for you.

Further Reading:

Estate Planning

What is a Binding Death Benefit Nomination?

When Industry/Retail Superfunds are not so super…

Updating your SMSF Deed

The Enduring Role of Fossil Fuels

Despite global initiatives to transition to renewable energy, fossil fuels—namely coal, oil, and natural gas—continue to dominate global energy production.

In addition, global fossil fuel consumption has continued to rise. In 2023, global primary energy consumption grew by 2%, totalling 620 exajoules (EJ). Fossil fuels contributed 505 EJ, marking a 1.5% increase from the previous year. Oil consumption surpassed 100 million barrels per day for the first time, and fossil fuel demand is expected to reach new record highs in 2025.

Australia’s Need for Economic Diversification

While Australia has made significant commitments to green energy, it must also recognise the limitations of renewables and prioritise economic diversification. A singular focus on renewables risks missing out on more significant opportunities in other sectors, such as:

• Downstream Processing of Resources: – Australia is rich in raw materials like lithium, iron ore, and rare earth elements. Instead of merely exporting these materials, we should invest in refining and manufacturing capabilities to create higher-value products domestically. Exporting steel sheet metal and steel profiles, rather than just iron ore, would significantly enhance Australia’s economic position.
  Labour constraints are the primary reason Australia has not been able to establish sustainable manufacturing industries. However, with the investment in technologies and AI-assisted robotics, Australia is likely to find cost-effective solutions to establish and build more downstream processing capabilities.

• Advanced Manufacturing and Economic Complexity: – According to the Harvard Atlas of Economic Complexity, Australia’s ranking has dropped from 57th in 1995 to 102nd in 2022—placing it just above Ethiopia and below Bangladesh. This decline highlights the urgent need to shift from being a commodity-exporting nation to one that produces and exports more complex goods. Manufacturing nuclear power station fuel rods instead of just exporting yellowcake uranium is one example of how Australia could add value to its exports.
  The only way to achieve this is for Australian Governments (both Federal and State) to promote the use of uranium. The fear of another nuclear disaster has continued to inhibit the use of uranium and nuclear energy usage in Australia.

• Traditional and Emerging Energy Sectors: – Rather than dismissing fossil fuels, Australia should leverage its expertise in energy production while exploring cleaner methods, such as carbon capture and storage (CCS) and natural gas as a transition fuel.

• Technology and Infrastructure Investment: – Investing in infrastructure to support multiple industries—including transportation, logistics, and digital technologies—will strengthen Australia’s economy far more than a single-minded approach to renewables.

A Balanced Approach for a Stronger Future

The reality is that the world will not abandon fossil fuels anytime soon, and Australia must be pragmatic in its economic strategy. While supporting renewable energy development is important, it should not come at the cost of other industries that could secure long-term economic growth. By focusing on downstream processing, advanced manufacturing, and a balanced energy policy, Australia can position itself as a leader in the global economy without placing all its bets on green energy.

Instead of following a one-track agenda, Australia should recognise that true economic and environmental sustainability comes from diversification, innovation, and strategic investment across multiple industries. Strengthening the country’s economic complexity is key to ensuring long-term prosperity and resilience in a rapidly evolving global landscape.

We are here to help

If you’d like to discuss how these changes could impact your financial strategy, feel free to reach out —we’re here to help!

Why Use Super to Save?

• Tax Benefits: Super contributions are taxed at a lower rate (15%) compared to savings in a regular bank account, which may be taxed at your marginal tax rate (up to 47%). Also, depending on the type of contributions you make, these amounts may reduce your assessable income for the year and therefore reduce tax payable.
• Boost Your Savings: The tax advantages may allow you to save more money faster than traditional savings methods.
• Flexible contributions – You can adjust your contributions according to your financial situation and take advantage of employer bonus contributions if available.
• Joint applications – If you are purchasing a property with your partner, both of you can use the FHSS scheme to maximise your saving

Who Can Use the FHSS Scheme?

To be eligible, you must:

Be at least 18 years old when applying to withdraw your savings.
Have never owned property in Australia (exceptions apply for financial hardship cases).
Make voluntary contributions to your super fund.

How Much Can You Save?

• You can contribute up to $15,000 per year (within super contribution caps please review and ensure you don’t exceed your concessional contribution cap currently $30k annually + any unused concessional contribution caps see more here).
• The maximum amount you can contribute under the scheme is $50,000.

What is the Tax on The Money Withdrawn?

Some of the amounts withdrawn from your super under the FHSSS are subject to tax (known as the assessable amount). This includes any concessional contributions that are released to you, plus any associated earnings that have accrued on any of the contributions released to you (either concessional or non-concessional).

The assessable amounts are taxed at your MTR less a 30% tax offset. The ATO will estimate your income for the year in which you withdraw the funds and will withhold tax from the amount paid to you at your estimated tax rate.

What is the Maximum release amount?

The FHSS maximum release amount is the sum of your eligible contributions, taking into account the yearly and total limits as listed above, as well as associated earnings. This amount includes:

• 100% of your eligible personal voluntary super contributions you haven’t claimed a tax deduction for (non-concessional contributions)
• 85% of your eligible salary sacrifice contributions (concessional contributions)
• 85% of eligible personal voluntary super contributions you’ve claimed a tax deduction for (concessional contributions)
• Deemed earnings associated with these contributions (this will be different from actual earnings in your super fund).

What is the deemed earnings rate applied by the ATO?

Associated earnings are calculated on these contributions using a deemed rate of return – this is based on the 90-day Bank Bill rate plus three percentage points.
This is similar to the ATO quoted SIC rates, as seen here.

Steps to Use the FHSS Scheme

1. Check eligibility – before diving into the scheme, ensure you meet all the eligibility criteria outlined earlier.
2. Determine Savings Goal – Assess how much you need to save for your first home purchase and how long it might take to reach that goal. This will help you plan your contributions accordingly.
3. Make Voluntary Contributions to your super fund (e.g., salary sacrifice or personal contributions).
4. Request an FHSS Determination from the ATO to determine how much you can withdraw.
5. Apply to Withdraw Funds through the ATO before signing a contract.
6. Buy or Build Your First Home within 12 months of receiving the funds.
7. Live in the Property for at least 6 months within the first 12 months of ownership.

Example: Sarah’s Savings Plan

Sarah earns $70,000 annually and decides to contribute $10,000 annually to her super through salary sacrifice. Over five years, she saves $50,000, plus earnings.

• Tax Savings: Since concessional super contributions are taxed at 15% instead of her marginal tax rate (32% including Medicare levy), she saves $1,700 per year in tax, totalling $8,500 over five years.
• Withdrawable Amount: The FHSS scheme allows her to withdraw 85% of $50,000 plus earnings after tax adjustments, helping her significantly boost her deposit savings compared to a standard savings account.

Under FHSS

Assessable Amount by the ATO

Amount withdrawn

Not Under FHSS — Save in an interest-earning savings account.

Assume earnings is Term Deposit Rate so as not to risk the funds, assume 4.5%

As you can see, this is an increase of $8,959 to save towards Sarah’s first home.

Key Considerations

• Voluntary contributions do not include:
  • Mandatory employer contributions (Super Guarantee).
  • Spouse contributions.
  • Government co-contributions.
  • Contributions made for you by another person.

• Once contributed, you can’t access your super savings for other purposes unless they meet a condition of release.
• If you don’t buy a home within the required timeframe, you must either return the funds to super or pay additional tax.
• Getting financial advice is essential to determine if this scheme is right for you.

Assumptions:

Investment earnings within superannuation

The deemed rate of return is the “shortfall interest charge”, an interest rate used by the ATO. The shortfall interest charge is the 90-day Bank Accepted Bill rate published by the RBA plus 3%.

The deemed rate used in this calculator is currently 7.42%, which is the shortfall interest charge for January 2024 – March 2025. This is considered an after-tax return for FHSSS purposes; the calculator does not explicitly deduct tax on investment earnings. Rates of returns are assumed to be constant every year.

Gross investment return outside of superannuation

By default, the calculator assumes that Sarah will place her savings outside of superannuation, in an interest-bearing bank account that earns 4.50% pa. This default interest rate reflects the average retail term deposit rate in June 2024.

If the default earning return is changed, this may be intended to reflect a more aggressive investment strategy, such as investing in equities. This calculator does not consider any franking credits attached to dividend income or any discounts associated with capital gains. This should be considered before editing the default return outside of superannuation.

Conclusion

The FHSS scheme can be a great way to save for your first home, but you could face significant financial losses if you need to reinvest the funds back into super. Before withdrawing funds under the FHSS scheme, it’s crucial to have a solid home purchase plan within the required timeframe. If you’re unsure, you can consider requesting an extension to avoid reinvestment and the associated costs. For more information, please don’t hesitate to contact our super team.

Key Points

• The return of Donald Trump to the US presidency brings the prospect of more US tax cuts & deregulation but also more tariff hikes, trade wars & policy uncertainty.
• His win was not the surprise it was in 2016, & markets have moved to adjust – but it means higher US bond yields (as interest rates won’t fall as quickly), a higher $US & a knee-jerk rise in shares.
• Shares could be threatened, though, by the higher bond yields & tariffs.
• Australia is vulnerable to an intensification of trade wars.
• While the US election is important, investors should bear in mind that many other things influence investment markets.

Trump’s key policies

US Federal Budget Deficit & Debt

Source: Bloomberg, AMP

Key implications, risks & uncertainties

Source: ASX, AMP

Likely market implications

Trump’s policies point to:

• Upward pressure on US bond yields – via a bigger budget deficit & higher inflation & less rate cuts from the Fed.
• Upward pressure on the $US – via higher tariffs, higher than otherwise Fed interest rates & increased global uncertainty.
• Upward pressure on Bitcoin & other cryptos as Trump is seen as more favourable towards crypto.
  It’s likely that crypto markets have further to go in the short term, but this win for Trump is very different to 2016, where his win surprised markets, resulting in big market moves.
• Ambiguity for the US share market with tax cuts & deregulation being positive (driving a short-term boost), but trade wars & higher bond yields being negative (on a cyclical view).
  At the time of Trump’s victory in 2016, shares were relatively undervalued & soared 38% into January 2018 as the focus in his first year was on business-friendly tax cuts & deregulation, but they fell in 2018 as the focus shifted to trade wars.
  This time around, shares are already expensive, so the upside may be more limited.
  That said, shares may still see further post-election gains on relief that it’s out of the way & hope that he focuses more on tax cuts & deregulation, but this could be reversed if he starts focussing on tariffs & as higher bond yields are bad news for shares.
• Upward pressure on US financial & energy shares (less regulation) relative to clean energy shares (as climate measures are reversed).

Source: Bloomberg, AMP

How will it effect Australia?

Australians have reason to be concerned as we are vulnerable to a new Trump trade war!

Exports to the US are only 4% of Australia’s total exports & may be spared from Trump’s tariffs as Australia has a trade deficit with the US.

But, as an open economy with high trade exposure to China, Australia is vulnerable to global trade wars, particularly as it weighs on demand for Chinese exports.

An OECD study showed that Australia could suffer a 1.2% reduction in GDP as a result of a 10% reduction in global trade between major countries.

Resources shares would be most at risk & the $A would likely fall (and we have already seen a bit of that). More on the energy sector later.

Of course, similar fears existed during the last Trump trade war, & it didn’t turn out so bad (although the $A fell 10% in 2018 with US tariff hikes & Fed rate hikes).

And there would still be demand for iron ore somewhere – it just may switch from China to elsewhere.

Much will depend on how other countries respond & how hard Trump goes.

There is also the risk that if Trump’s policies boost US inflation there could be a global flow on, including to Australia, resulting in higher than otherwise RBA interest rates.

This is a risk, but we suspect it would be offset by the growth dampening impact of an intensified global trade war.

From a policy point of view, if Trump cuts the US corporate tax rate to 15% on domestic profits it could renew pressure on Australia to cut its corporate tax rate.

Trump’s reversal of US climate policies will again add to confusion & may increase pressure for Australia to slow its net zero commitment.

Anecdotally, a recent survey found that 30% of Australians would have voted for Trump.

Final thought before we delve deeper

So far, equity markets have focused on the positives, helped by the fact the Fed is still talking rate cuts despite the potential upward pressure on inflation from Trump’s trade & tax policies.

Here comes the detail

Donald Trump delivered a resounding victory, sweeping the battleground states & winning the popular vote in a stunning political comeback that promises to reshape the US economy for decades to come.

What is the Red Wave?

The Republicans control both the upper & lower houses of government, which is called the Red Wave.
He only has four years, so we expect an aggressive & decisive presidency, with swift & sweeping changes to the way the US does business.

US citizens may not have known what they would get in his first term, but they certainly knew what they would get in a second term & that’s the way they voted.

The breadth of Executive Orders has never been fully tested.

He will try to push through his agenda, so we expect many curve balls.

While immediate inflation risks seem manageable, Trump’s likely extension of tax cuts, coupled with the prospect of tariff measures, raises a clear risk of resurgent domestic inflationary pressures.

Wave of deregulation

US policy changes will unlock a global wave of deregulation.

Deregulation in one market eventually will bleed into the rest of the world.

Banking could be the first industry to benefit.

Let’s hope we’ve learned our lessons from the Global Financial Crisis, though….

US energy independence

Another important shift will be the new US intention to achieve “oil independence” which has the potential to provide a competitive advantage to American industry & allow for a re-industrialisation of the US economy.

The US holds major reserves of oil & gas.

They’re going for a system of energy which is self-dependent & low cost, which allows them to invest in other industrial assets & petrochemicals.

Lowering the cost of energy could offset inflationary pressures from tariffs.

But it’s not as simple as drill baby drill (the slogan that his campaign borrowed from former Alaskan governor Sarah Palin).

Flooding the global economy with cheap energy offers an inflation-busting strategy (greater supply of oil & gas).

But new supply can’t be turned on with the flick of a switch.

Whether it’s a new mine or an O&G field, finding, developing, & activating a new operation takes years. Often more than a decade.

Even if you know where it is & have commenced developing it, it still takes years before oil or gas flow through the pipe to industry & consumers.

And new sources are becoming harder to find.

They’re also getting deeper, more difficult, & more expensive to develop!

Add to this that there has been years of underinvestment in exploration.

The shift to energy independence will also likely lead to a recalibration of the previous administration’s emphasis on climate change & environmental issues & dampen enthusiasm for electric vehicles.

This means there could be less demand for the minerals associated with clean energy technologies which will have implications for Australia.

But we still think the best energy investment out there is Woodside. Gas remains a solid investment theme, here’s why.

The Political Masterclass

Share of voters saying each issue was the most important

Source: SP VoteCast survey

Policies that require Congressional approval

• Fiscal policy requires congressional approval, i.e. government spending & tax
  However, with a Republican sweep, Trump will largely have an unfiltered ability to enact fiscal policy as he sees fit.
  Expectations are that the tax cuts passed in 2017, due to expire at the end of 2025, will be extended.
  Broad tax cuts, including corporate tax, are likely to increase the budget deficit; however, this will be partially offset by the revenue raised from increased tariffs.
  Elon Musk will co-lead a new agency to bring efficiencies in government & has proposed cutting spending materially, but this is going to be tough as cutting spending can be kryptonite.
  Fiscal deficits, which are already wide, are likely to get wider over the next few years.
  So, tax cuts are likely to be modest, although there is a potential upside to tax revenue if AI boosts GDP materially.
• Trump has also expressed a desire to repeal parts of Biden’s Inflation Reduction Act (IRA).
  However, Republican states have been big beneficiaries of the spending from the IRA, so policy changes around it are expected to be marginal.
• Trump has also promised to slash regulation, which is likely with the Republicans controlling the House & the Senate.

No Congressional approval required

• Trump has broad authority to impose tariffs, although this needs to go through a lengthy process, which means the time between decision & implementation can be prolonged.
  He has already announced some tariffs (that are far greater than his first presidency) & negotiate a “better deal”.
  The “better deal” may result in some of the tariffs not being applied depending on what he can negotiate. He certainly has started the negotiation process with some rather brutal tariffs, especially on China.
  But the $US will strengthen further on tariffs, especially against the Chinese Renminbi, which may be devalued by 20-30% vs the $US if 60% tariffs are applied.
  For China, a Trump administration is bearish for exports to the US & inbound investment.

US average tariff rate on total imports

Source: Barclays, Mercer

• Trump has promised to slash immigration, including deporting millions of illegal migrants.
  Immigration surged over 2022 & 2023 but has already fallen notably this year.
• Separately, Trump has expressed that he wants to be involved in monetary policy (i.e. setting interest rates), which would impact the Fed’s ability to act independently.
  It’s not clear what this means in practice & Trump’s room for manoeuvre is likely to be small.
  Further, the Fed Head Jerome Powell has said that he will not resign if Trump asks him to.
• Trump has also said he wants a weaker $US. With tariffs having the opposite effect, it is unclear what this goal will mean in practice.

What does this mean for US growth & financial markets

For GDP growth there is a big increase in uncertainty.

Government spending & less regulation are broadly good for growth, although bigger deficits & possibly higher yields may crowd out the private sector investment, thus offsetting the boost from extra spending.

Tariffs are negative for growth & hugely disruptive for businesses.

Many believe this will hit growth not only in the US but elsewhere.

Also, we cannot be certain that all the mooted tariffs will actually be implemented or whether they will be postured & then withdrawn.

Tariffs are unlikely to cause an improvement in US competitiveness as the $US will rise to offset what on the face of it seems to be a competitive boost.

Higher tariffs & wider deficits are inflationary in the year the changes are made, but not necessarily thereafter. If
expectations remain anchored & monetary policy steers the economy well, then inflation could fall back to target.

In the near term, the Fed is likely to continue to cut interest rates & will not want to be seen as overly political. Many FOMC members will have the view that the neutral point of Fed Funds Rate is well below where it currently is, so further cuts remain a sensible course of action.

The Fed will also not want to front-run policies which may not actually happen (i.e. tariffs).

Let wrap this up

The consensus view is that there will be a return to normal.

Normal in terms of economic growth, inflation, wage growth, & monetary policy.

There are upside risks to growth from tax cuts & deregulation & downside risks from tariffs & trade wars.

There are a number of consequential actions (especially tariffs) that are very difficult to forecast regarding what impact they may have, & the response of China & other countries is largely unknown at this stage.

With this in mind & equities at all-time highs, markets are likely to stay neutral.

It is possible that China may loosen fiscal policy notably & provide a floor under the housing market.

Stronger housing & consumption along with weaker exports (to the US, but not to the rest of the world) may be a positive change for China overall.

Bond yields may face some upward pressure, but this is not certain as yields have already moved higher.

Sources: AMP, Mercer, Livewire