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

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 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.