Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 254

Trump’s tariff proposals benefit global infrastructure

During the 2016 US presidential campaign, a familiar rhetoric used by Donald Trump was the need for the US to re-evaluate trade deals such as the North American Free Trade Agreement (NAFTA) as well as several bilateral trade agreements with the intention to improve domestic employment and industries.

In line with this protectionist view of international trade, on 1 March 2018, President Trump announced his plan to enforce a 25% tariff on steel imports and a 10% tariff on aluminium imports. Immediately post-announcement, the US and global equity markets pulled back sharply over global trade concerns.

Since this initial statement, several trade negotiations have taken place, and on 22 March, the Trump Administration announced that it would suspend the steel tariffs on select countries until 1 May 2018, including Australia.

However, on the same day, President Trump also issued a memorandum directing his Administration to take action under section 301 of the US Trade Act of 1974, related to China’s acts, policies, and practices related to technology transfer, intellectual property and innovation. The actions include:

  • Restrictions on Chinese investment in the United States.
  • Imposition of higher customs duties on imports from China.

This announcement sparked global concerns over a potential trade war between the US and China which resulted in another sharp drop in global equity markets. As trade negotiations continue, the outcome of the tariff proposals and the Administration’s broader trade policy remain unclear. Many market participants believe that a ‘watered down’ version of the initial proposals may be implemented.

Impact on infrastructure and flow of trade

Theoretically, the enactment of tariffs changes the trading dynamics between economies, which in turn, changes the flow of trade. For the importing nation, the local consumer must seek domestic alternatives or pay a premium for imported goods. For the exporting economy, on the assumption that the volume of goods produced remains unchanged, these goods can be redirected to other countries. This redirection of trade flow has a net positive impact on infrastructure. Let’s explore why.

From a global perspective, user-pay infrastructure, specifically port, road, and rail operators, move goods throughout the global economy as well as domestically. Given tariffs impact trade flows, these companies are set to be most exposed to the impact of a US tariff on Chinese imports.

We believe that in the event the proposed tariff on Chinese imports is imposed, it will likely change the direction of trade flowing out of China rather than the volume. In other words, it’s likely that the goods will be shipped to other countries instead of the US.

For port operators outside the US, this could mean that shipping volume could remain neutral, or, in fact, could stimulate the need for greater shipping which positively affects the infrastructure needed to support the redirected trade. For instance, the frequency of the China to US route might be replaced by increased China to Europe shipments. As an extension of this, where the goods land will require a recalibration of that economy’s infrastructure to account for the increased goods coming in and then the movement of these goods around that economy. Domestic freight rail operators, and warehousing and storage providers, may have to increase their capacity to account for the increased trade.

From the perspective of the US, fewer goods being imported from China may see long-haul rail companies experience a reduction in freight volumes, however, domestic intermodal operators might see increased activity domestically as US consumers switch to alternative products. This will result in a need to re-calibrate US infrastructure. Trump’s infrastructure proposal, if passed by Congress, will help make capital available for this recalibration.

Caveats on identifying consequences

However, we do see some cautionary elements to consider:

1) The actions of the Trump Administration, including high-level personnel changes, since taking office have heightened US political risk. Some market participants believe that the recent share price movements signal that the equity markets are factoring in this heightened risk, that is, it’s less about trade, and more about general policy uncertainty.

2) Investors like infrastructure assets because they are typically characterised by long useful lives and a stable cash flow profile. Tariffs, in contrast, are often short lived and thus have a limited impact. For instance, in early 2002, the Bush Administration imposed steel tariffs of up to 30% on the import of steel. Similar to Trump’s tariffs, this tariff was highly controversial, with many market pundits fearing a global trade war. In November 2003, the World Trade Organisation (WTO) ruled against the steel tariffs citing that they had not been imposed during a period of import surge and thus the tariff violated the US WTO tariff-rate commitments. Given a looming $2 billion penalty in sanctions coupled with trade retaliation from the European Union, the US withdrew this tariff in December 2003. This tariff was only enforced for an 18-month period.

3) The enactment of a tariff may not completely remove the comparative advantage some economies have in the production of certain goods. For instance, relative to the US, Australia has a comparative advantage in the production and export of steel (predominately in the cost of transportation from the point of origin in East Coast Australia to the final market in the US West Coast). The implementation of a steel tariff, for instance, is highly unlikely to completely erode this and thus may not result in the intended redirection of steel trade flows.


Nick Langley is Chief Investment Officer of RARE Infrastructure, an affiliate of Legg Mason, a sponsor of Cuffelinks. This article is general information and does not consider the circumstances of any individual.


Leave a Comment:



China’s new model is a plan for a hostile world

We’re number 106, and that’s not good

It’s getting hot in here


Most viewed in recent weeks

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Welcome to Firstlinks Edition 433 with weekend update

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

  • 11 November 2021

Welcome to Firstlinks Edition 431 with weekend update

House prices have risen at the fastest pace for 33 years, but what actually happened in 1988, and why is 2021 different? Here's a clue: the stockmarket crashed 50% between September and November 1987. Looking ahead, where did house prices head in the following years, 1989 to 1991?

  • 28 October 2021

Why has Australia slipped down the global super ranks?

Australia appears to be slipping from the pantheon of global superstar pension systems, with a recent report placing us sixth. A review of an earlier report, which had Australia in bronze position, points to some reasons why, and what might need to happen to regain our former glory.

How to help people with retirement spending decisions

Super funds will soon be required to offer retirement income strategies for members in decumulation. With uncertain returns, uncertain timelines, and different goals, it's possibly “the hardest, nastiest problem in finance".

Tips when taking large withdrawals from super

You want to take a lump sum from your super, but what's the best way? Should it come from you or your spouse, or the pension or accumulation account. There is a welcome flexibility to select the best outcome.

Latest Updates


John Woods on diversification using asset allocation

All fund managers now claim to take ESG factors into account, but a multi-asset ethical fund will look quite different from a mainstream fund. Faced with low fixed income returns, alternatives have a bigger role.

SMSF strategies

Don't believe the SMSF statistics on investment allocation

The ATO's data on SMSF asset allocation is as much as 27 months out-of-date and categories such as cash and global investments are reported incorrectly. We should question the motives of some who quote the numbers.

Investment strategies

Highlights of reader tips for young investors

In this second part on the reader responses with advice to younger people, we have selected a dozen highlights, but there are so many quality contributions that a full list of comments is also attached.

Investment strategies

Four climate themes offer investors the next big thing

Climate-related companies will experience exponential growth driven by consumer demand and government action. Investors who identify the right companies will benefit from four themes which will last decades.

Investment strategies

Inflation remains transitory due to strong long-term trends

There is momentum to stop calling inflation 'transitory' but this overlooks deep-seated trends. A longer-term view will see companies like ARB, Reece, Macquarie Telecom and CSL more valuable in a decade.


Infrastructure and the road to recovery

Infrastructure assets experienced varying fortunes during the pandemic, from less travel at airports to strong activity in communications. On the road to recovery, what role does infrastructure play in a portfolio?


The three prices that everyone should worry about

Among the myriad of numbers that bombard us every day, three prices matter greatly to the world economy. Recent changes in these prices help to understand the potential for a global recovery and interest rates.


Why green hydrogen is central to achieving net zero

Hundreds of green hydrogen projects show this energy opportunity is finally being taken seriously. While a cost disadvantage and technical challenges need to be overcome, it promises to deliver a path to net zero.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.