Global tariff opportunities

A sign of the times: tariffs will increasingly be part of our risk analysis resulting in both threats and opportunities in the global view of our investment universe. The impacts could be large in magnitude.

According to Goldman Sachs, a 25% tariff on North American trade could increase the consumer price index by 9%. In this extreme tariff environment for Canada and Mexico, Vietnam, Germany and Japan (all being equal) are the countries that would benefit in the short term as they have the most trade deficit with the United States. Mid-term, inflation sets back in and the winners would become sectors led by banks, real estate, utilities and commodities.

Lifting tariffs from down under

Meanwhile, at the other end of the globe, China and Australia are coming out of a trade war and Australia is set to benefit from increased free trade. China has recently ended heavy sanctions on Australian goods such as an 80.5% tariff on barley and a 212% tariff on wine. Further, China has recently declared an intent to promote free trade as a way of ending their economic slowdown. Over 30% of Australian exports are destined for China, making it by far Australia’s largest trading partner.

In 2024, trade between Australia and China continued to grow significantly, with volumes exceeding pre-pandemic levels. Australian exports like iron ore, coal and natural gas remained dominant, while products like barley, timber, and potentially wine and lobster recovered after previous trade restrictions were eased. China’s imports from Australia showed double-digit growth, supported by warming diplomatic ties.

Over-reliance on China prompted Australia to diversify. As per the Organisation for Economic Co-operation and Development (OECD), the recent Australia-UK Free Trade Agreement provides new opportunities for agricultural exports, opening doors for Australian beef, lamb and wine producers to access high-value European markets, reducing dependency on Asia.

Australian services exports surged by 9.9% in the June quarter, reflecting strong recovery in tourism and international education. These sectors are critical for reducing Australia’s reliance on raw materials and fostering a more balanced trade profile. In addition, Australians have kept busy addressing tariffs and non-tariff barriers. Tariff cuts under the Australia-India Economic Cooperation Agreement fostered significant increases in exports, particularly in mining and agri-products.​

Australia and the United States maintain a significant trade relationship, but the relationship is 20 times smaller than the US relationships with China or Canada. The 2023 Australian trade surplus with the United States was a mere $2.5 billion. Key exports from Australia include beef, alcoholic beverages and industrial equipment, while imports from the United States feature technology, vehicles and pharmaceuticals​.

Australian investments

Global Alpha is invested in Australia in different sectors with companies that both serve the local markets as well as ones dedicated to exporting goods. Many of its holdings should profit from reduced trade barriers.

The AUB Group Limited (AUB:AU) is an ASX200-listed insurance broker and underwriting group based in Australia. It operates across approximately 595 locations globally, employing over 5,500 people. The group manages about AUD10 billion in insurance premiums annually for around 1 million clients.

AUB acquired the UK-based Lloyd’s wholesale broker Tysers in 2022 for AUD880 million. The deal significantly expanded AUB’s international presence, integrating Tysers’ operations in London, Singapore, and Miami. Tysers, a leading Lloyd’s broker, contributed AUD192.4 million in revenue in its first full year under AUB, highlighting strong performance and alignment with AUB’s strategy to address global and specialty insurance markets.

Orora Group (ORA:AU) is a global leader in packaging, headquartered in Australia. It operates across Australasia, North America and Europe, with a strong focus on the beverage industry. Orora Beverage specializes in glass bottles, aluminum cans and closures for wine, beer and other beverages. The acquisition of Saverglass in France in 2023 expanded its global footprint in premium glass packaging.

Orora primarily exports glass bottles and beverage cans to China, with a focus on packaging solutions for beer, wine and more. Exports have historically been tied to the Australian wine industry, but volumes dropped significantly after Chinese tariffs were imposed on Australian wine. Orora was able to shift capacity to other markets and is now ready to reap the benefits as wine tariffs to China are eased.​

Orora’s total annual production includes about 900 million glass bottles and substantial can output, with investments in new facilities and sustainability to support future growth​.
Also headquartered in Australia, ALS Limited (ALQ:AU) is a leading global provider of testing, inspection and certification services. Operating through three main divisions – commodities, life sciences, and industrial – it specializes in servicing the mining and exploration industries through:

• Analytical and metallurgical testing,
• Geochemistry,
• Quality testing,
• Microbiological, physical and chemical testing, and
• Remote monitoring.

ALS also provides diagnostic testing and engineering solutions for energy, infrastructure, and transportation, servicing the power and petrochemical sectors. The segment experienced growth in environmental services, particularly in Europe and the Americas, offset by challenges in pharmaceuticals​.

ALS stands to benefit soon on many fronts including the junior mining sector revival, the increased demand for environmental chemical testing, and the turnaround of its pharmaceutical testing division.