US stocks have risen following a tariff ceasefire between the US and China overnight. Does this mean the trade war is over, and what’s next for global investors? Milford Portfolio Manager Mark Riggall talks to Ryan Bridge about why investors can be reassured by recent events.

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Bridge talks Business: 13 May 2025
Episode Transcript

Ryan Bridge
Kia ora everyone and welcome to Episode 32 of Bridge talks Business with Milford. This week, is it safe to say yet that the trade war is over? Is all that market volatility and stress now a thing of the past? China and the US have basically agreed a cease fire in tariffs for 90 days. The good news, Mark Riggall is back with us today. He’s always a few steps ahead. It’ll be really interesting to get his take on what’s going on.

Ryan Bridge
First, here’s your top five business bits from the past seven days.

1. Tariffs once again taking centre stage. Trump charting a deal with the UK, and a China pause. This at least gives certainty. Add to that the lower tariffs on China than had been expected, and you’ve got yourself a rally on shares that we’ve seen over the past few days.
2. Restrictive but not destructive. That seems to be the consensus in this new tariff environment in the US. The key will be how the economy responds to it all.
3. The US Fed held interest rates steady. Powell basically sitting on his hands amid all this policy uncertainty. What else are you to do?
4. New Zealand’s quarter one employment number also held steady, better than predicted but somewhat soured by a fall in the participation rate.
5. This week we have a raft of US data. We’ve got CPI inflation coming out, and retail sales as well.

So, let’s get straight into this week’s interview because I want to pick Mark’s brain and find out what he’s thinking. This is Mark Riggall of course, Portfolio Manager at Milford. Just a reminder that this segment is informational only and should not be considered financial advice. Mark, welcome back.

Mark Riggall
Hi.

Ryan Bridge
And even better, can we now say this trade war’s over?

Mark Riggall
Well, I mean, it certainly feels like we’re getting some progress, right? And at least now we know that there’s been some deals in place in the UK. The first deal off the block and then China overnight, the big news. And so, we’ve now got some certainty whereas a few days ago we were still in very much an uncertain place.

Ryan Bridge
And so what we know from the China deal, well, it’s not a deal. It’s a ceasefire, right? Not quite a peace plan yet, but a ceasefire for 90 days, slash the tariffs and work out what’s next.

Mark Riggall
Yeah, it’s been termed a pause. And so that’s perhaps the correct language. So, the tariffs are still in place on China, but they’re much reduced versus where they were proposed to be. So, we’ve landed at 30% tariffs on China for the next 90 days. Beyond that, they could be higher, they could be lower. They have said that 30% is likely a flaw, and they’ll be somewhere between 30 and 54%. But, as I say, versus where investors had expected them to be just for the last few weeks, this is much lower than feared, if you like.

Ryan Bridge
Markets have obviously been rallying for the last three, well, for five weeks, really. Do you think that this affirms the sentiment that Trump was going to do deals? Because there was a period where we weren’t sure.

Mark Riggall
Well, I mean, after the deal, he went hard early. And Liberation Day was a shock to most people who were expecting that he wouldn’t be so reckless, if you like, with tariffs. And the levels of tariffs that he was proposing were effectively high enough to put a halt to trade with the US, with much of the rest of the world. And so, where we’ve got to now is a level of tariffs that is not going to halt trade, but is going to merely allow trade to happen, but at a higher cost because those tariffs will actually take place. So, we’ve gone from complete wanton destruction to now a tariff being in place, but it allows trade to happen.

Ryan Bridge
So in that sense, at least, there’s stability. But what does it do? This new trading environment that’s emerging from this, from the dust. What does that do to the world economy? What does that mean for markets?

Mark Riggall
Well, it’s a great question. Now investors are effectively, overnight, wiping their brow and saying, thank God, these weren’t much worse than they could have been. But now we know what the numbers are. Now we can actually do some modeling and try and understand what the impact will be. And so we know that when tariffs, if we assume that 10% – the deal with the UK – is kind of similar for most of the other trading partners, and 30% in China. If we could go with those assumptions, then you can estimate that the drag on US GDP growth might be somewhere between three quarters of a percent and one to one and a half percent. So, that’s the impact that you’re going to feel on the US economy, all else being equal. And there are mitigants and maybe companies will find a way around some of these trade issues and inventories will be drawn down. And all these things can change that impact. But we do know there will be a drag on the US economy from these tariffs being put in place.

Ryan Bridge
Is that a long term drag or will potentially the outcome strengthen the position of American firms?

Mark Riggall
Well, it’s a one-off price shock, right? So, it’s a one-off tax increase on the consumer. So, prices will rise unless companies swallow the margins. And so it is a one-off shock. It’s not ongoing. The issue is that obviously inflation has been a problem globally and in the US for the last few years. And inflation expectations are moving higher, i.e. consumers, businesses expect inflation to remain elevated. And so if prices start going up again because of tariffs, the risk is that people expect inflation to remain elevated and companies are able to then pass on price rises going forward. And that means we’re in a more inflationary environment than we were. So, that is a potential more permanent issue from the result of these tariffs.

Ryan Bridge
How have you and Milford been managing your funds over the past couple of months?

Mark Riggall
Well, it has been a wild ride in markets and we’ve done our best to try and cushion, if you like, against some of these moves. So, if we zoom out a little bit and look where we started, we were at a starting point where US shares were particularly expensive. And optimism around US economy and the outlook for the US share market was pretty high at the start of the year, and people thought Trump would be great for businesses. And so there’s been a bit of a shock. And that optimism was met with the reality of this trade war. And that resulted in the near 20% fall in US shares over the last two months, if you like.

What we’ve done is we’ve tried to reduce our exposure to some of those US shares and instead invest in other places where valuations were much more moderate, places like the UK, places like Europe as well. By doing so, we’ve avoided much of the falls in the shares and cushioned the impact. Currencies also have been a big mover. The US dollar has been quite weak over the last two months, as investors have questioned the validity of US exceptionalism. And rest-of-the-world investors have been overweight in US assets. And so the US dollar has suffered as people have started to hedge that. They sell US dollars to try and hedge some of their exposure. And so we’ve been ahead of that, and we reduced our exposure to US dollars, having been long or overweight US dollars for much of the last couple of years. So, we’ve traded the currency as well to try and avoid some of these moves that we’ve seen in markets. So we’ve been very active in moving our positions around.

Ryan Bridge
With the currency, because obviously it strengthened a little bit on the news of the deal last night, what does it mean for the American dollar going forward? Does it take a bit of the shine off what’s happened?

Mark Riggall
Yeah, that’s been the story and there’s been some kind of background stories going on. Taiwan two weeks ago saw its dollar appreciate markedly. And this is all part of the trade war and it’s all part of the whole issue. Many countries around the world have surpluses with the US, and they basically reinvest these surpluses in US assets. And so that’s why US assets have looked so good. People have been buying them and now people are questioning whether that’s sustainable going forward, especially if the US wants to rebalance global trade. One consequence of rebalancing global trade is that there’s going to be less demand for US assets. And so that’s medium-term US dollar negative. But of course, things don’t travel in a straight line. So, we saw US dollar weakness in the last few weeks and in the last week or so, the US dollar has started to recover some. So there will be volatility, there’ll be noise. But I think medium term, there is a question mark around how strong the US dollar can be in that environment if Trump continues to choose to try and rebalance global trade.

Ryan Bridge
Interesting. What is your message to investors? We’ve all kind of been on this ride. Normally you just put your money in and let someone else take care of business and you don’t think about it, right? But I guess because it’s been forefront in our minds and in the media, we’ve all been thinking about it. What is your message to investors out there?

Mark Riggall
Yeah, so it’s easy to get caught up in the drama, if you like. And part of Trump’s modus operandi is to create drama, the art of the deal. And these get amplified by market moves and then headlines that you might see in the media. And it’s easy to get caught up in that. And oftentimes, when you’re reading a story, oftentimes this has been a thing that’s been happening and building and burbling away in the background for a long time. And oftentimes, when it reaches the general press, it’s probably going to run a large degree of its course and might be time to go the other way. And so that’s at both extremes – When everyone is very pessimistic about the outlook for the US dollar and for the US share market, as they were a couple of weeks ago, probably a signal that maybe things have moved too far. And now, perhaps we’re getting the other way. Where we’ve had a 3% move up in US share markets overnight. And it’s been a very strong rally over the last four or five weeks. And everyone’s now very optimistic about the fact that the trade war is done and maybe things are going to be great from now on. And again, it pays to fade extremes. And so you have to look for those extremes and not get too caught up in trying to chase them.

Ryan Bridge
That’s why we get you in here to talk me down off the ledge, Mark. Thank you. Good to have you back in.

Mark Riggall
Great to be here. Thank you.

Ryan Bridge
And those were the wise words of Mark Riggall, Portfolio Manager at Milford. Thanks so much for listening to the podcast. Don’t forget you can share this if you’ve got friends who are interested in investing, if you’ve got family who like to hear about this stuff. You can share the podcast with them. You can like, follow and subscribe us as well. Until next week, take care.

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