What type of businesses could benefit? We believe companies that manufacture equipment or infrastructure for electrification should continue to enjoy solid growth as the quest for energy security plays out. Similarly, equipment makers for industries like natural gas and nuclear energy, which are essential for meeting higher demand, should also see steady gains.
Tariffs and Trade Wars Buoy Supply Chain Investment
President Trump has been pressing ahead with plans to impose tariffs on Canada, Mexico and China, as well as a wider set of trading partners. The situation is fluid, but the brewing trade war has compounded concerns about the broader industrial economy and levels of capital investment needed to restore US infrastructure.
While the anxiety is understandable, we think the trade war will actually add another catalyst for US companies to secure supply chains, which in turn, will likely bolster infrastructure investment. For many companies, this is already happening. Since the COVID-19 pandemic disrupted global supply chains, companies have been reconfiguring supply chains to reduce the risk of painful production bottlenecks. Concerns about US-China trade tensions have already led many US companies that depended on Chinese suppliers to find alternate sources of supply elsewhere.
Massive spending to secure supply chains is taking place in areas tied to US national security and economic priorities, such as in the semiconductor industry. If anything, the latest round of tariffs has incentivized companies to invest even more to reduce supply chain risk.
Decaying US infrastructure is an obstacle to this process. For years, chronic underinvestment in US ports, airports, roads and power has been a festering problem, which must be addressed in any strategic policy agenda aimed at revitalizing American manufacturing and securing supply chains. Yet in January, Trump sought to eliminate or cut certain components of the Infrastructure Investment and Jobs Act of 2021. In our view, infrastructure investment remains an area of rare bipartisan agreement. So after the dust settles, we expect spending on key initiatives to resume, given the urgency.
Despite near-term policy concerns, recent earning trends indicate that some industries are poised to benefit from the push to secure supply chains. Semiconductor equipment is showing signs of recovery even as sales to China slow, based on revenue from Lam Research, one of the industry’s leaders (Display). Logistics in general—and trucking in particular—are stabilizing following a steep decline from pandemic-driven peaks. Spending on cybersecurity continues to power ahead through the turbulence we have seen in the other parts of the economy.
