U.S. tariffs reshape Australian trade

Defense stocks surge while exporters struggle

The ongoing impact of U.S. tariffs, particularly those introduced under the Trump administration, continues to shape global trade, posing both opportunities and challenges for Australian businesses. While commodity exporters face increasing pressure, the defense sector is emerging as a key beneficiary, according to Emanuel Datt, Chief Investment Officer at Datt Capital.

“The defense sector is one of the clear winners in this environment,” says Datt. “We’ve seen major global asset managers, including BlackRock, increasing their allocations to European equities, particularly defense stocks, which have surged since the war in Ukraine.”

Despite this rally, Australian investors have largely missed out. “Compared to global peers, Australian investors have minimal exposure to European equities. Instead, they remain heavily weighted towards the ASX and Wall Street - both of which have underperformed relative to European markets,” Datt says.

While the defense industry enjoys tailwinds, Australian exporters in commodities like aluminium, steel, and iron ore are facing a tougher road. Tariffs imposed under Trump’s "America First" strategy have disrupted key trade relationships, forcing companies to navigate an increasingly complex trade war.

“The U.S. has long accused countries, including Australia, of engaging in unfair trade practices,” Datt notes. “For instance, Trump claimed Australian aluminium was ‘heavily subsidised’ and ‘dumped’ into U.S. markets, putting exporters in a precarious position.”

At the same time, Australia’s trade relationship with China remains crucial, particularly for iron ore exports. While Chinese demand for steel has supported Australian mining giants, U.S. concerns over global overcapacity in steel and aluminium could pressure Australia to take a harder stance against Chinese subsidies.

In this turbulent environment, active managers hold a distinct advantage, Datt argues. “While passive index investing may appear cost-effective, it fails to account for the risks posed by tariffs, supply chain disruptions, and geopolitical shifts. Many passive portfolios inevitably hold companies caught in the crossfire of these trade wars.”

Instead, active investment strategies allow fund managers to assess individual companies and sectors, capitalising on market inefficiencies. “We focus on identifying opportunities amidst uncertainty- something passive strategies simply cannot do,” Datt says. With trade policies in flux, diversification is key. “Some Australian industries, particularly in mining, have benefited from global trade, while others remain vulnerable,” says Datt.

“Australian companies must diversify, expand their market reach beyond traditional partners and proactively adapt to shifting trade scenario.”