Donald Trump’s decision to pause steep tariffs against most nations has ignited a share market rally that erased some of the heavy losses suffered over the past week, even as Australia eyes an escalating trade war between the world’s two biggest economies.
Wall Street soared overnight after Trump unveiled a 90-day pause on tariffs above 10% on dozens of countries, with the notable exception of China.
Australia’s position, along with those of the UK and New Zealand, are unchanged given they remain subject to the US’ “baseline” 10% tariff.
The S&P/ASX 200 closed up 4.5% on Thursday, at 7,709 points, after giving away some of its early gains.
The lift added $100bn in value to Australian shares, although the benchmark is still lower than levels recorded one week ago, shortly after the new tariff regime was unveiled.
Major miners BHP and Rio Tinto, which had been weighed down over concerns demand would drop for commodities if the global economy entered into a recession, helped lead the rally, with both stocks up more than 5%.
The surge represented the strongest trading day since 2020, although investment groups were quick to advise caution.
ANZ downgraded its price targets for energy and metal markets, which are two important components of the ASX.
“The unpredictability of US trade policy is likely to have ongoing impacts on investment and trade, as companies and consumers wait for clarity,” ANZ said in a research note.
“Importantly, the escalation of trade tension between the US and China shows no sign of abating.”
Australia’s close resources ties to China also make it susceptible to any economic slowdown sparked by the escalating tariff wars between Washington and Beijing.
The chief economist at Betashares, David Bassanese, warned investors that the global economy “faces enormous risk in the weeks and months ahead” and that the bounce may be a “cruel bear market” rally.
“We’re not out of the woods just yet,” Bassanese said.
A bear market rally refers to a temporary increase in share prices in an otherwise falling market.
Trump’s stunning tariff reversal came shortly after clear signs of market ruptures appeared, with investors selling off US government bonds, which have historically been one of the world’s safest financial assets.
Asked why he had ordered the pause, the US president told reporters: “People were jumping a little bit out of line. They were getting yippy.”
While traders cheered the tariff reversal, the effect on some market sectors was unchanged. The 25% levy on steel and aluminium imports to the US is still in place, and Trump has said he will introduce a “major” tariff on all pharmaceutical imports.
The Australian dollar recovered significant ground on Thursday, rising to US61.8c late in the day, after threatening to plunge below the 59c barrier earlier this week.
