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

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 2022 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.