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Infrastructure opportunity follows political priorities, and threats
Olivier Esnou
Senior Analyst, Industrials
key takeaways.
An ‘America first’ trade policy using tariffs instead of tax breaks incentivises manufacturing infrastructure in the US. While we expect an incremental rise in US manufacturing, high labour costs will prevent a dramatic shift
If AI infrastructure competition is global, fossil energy infrastructure becomes another key investment focus in the US
In Europe the Draghi report sets out a blueprint for accelerating integration and investments towards greater EU autonomy, while China pursues a BRICS-focused strategy
US incentives and tariff threats mean that we favour the US for infrastructure investments at this stage, and at the sector level, see opportunities the entire length of the AI value chain.
Geopolitics have been at the heart of supply-chain security since 2016. The Trump administrations, Brexit, the Covid pandemic and Ukraine conflict, all triggered a need to organise critical infrastructure as a ‘global hub’ to make supply chains more robust. Rising protectionism demands an approach that builds-in overlapping redundancy, rather than just optimises costs.
The new US administration’s ‘America first’ trade policy is designed to rebalance trade deficits with its main trading partners and spur investments. The Trump White House says it aims to eliminate ten regulations for every new one issued, and treats import tariffs as a negotiating tool to incentivise firms to bring manufacturing facilities to the US. However, significant differences in labour costs between countries create a very high threshold for any decision to relocate manufacturing. For many firms, the predictability of tariffs is more important than their absolute level. Nevertheless, over time, we are likely to see the US becoming a more favoured destination for businesses to build manufacturing capacity.
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For investors, the need to both replace ageing infrastructure in communications, energy, water, and transportation, as well as invest in rising demand for data centres and liquefied natural gas (LNG), creates opportunities. This combination of investment in infrastructure and increasing protectionism is driving economic growth through supply chain hubs.
Investment opportunities in the US were already catalysed by key legislation passed under the Biden administration primarily through tax incentives: the Inflation Reduction Act (IRA), Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, the Infrastructure Investment and Jobs Act (IIJA), and the Elementary and Secondary School Emergency Relief Fund.
Investment opportunities in the US were already catalysed by key legislation passed under the Biden administration
In communication technologies, the US aims to sustain and enhance its global lead in artificial intelligence (AI). The ‘Stargate’ programme, a partnership between OpenAI, Oracle Corp. and SoftBank Group Corp., is a USD 500 billion data centre investment that includes a plan for 100,000 new jobs. The announcement, the day after President Trump’s second inauguration, came despite the announcement by China’s DeepSeek of a competing, lower-cost Chinese AI model.
In the energy sector, President Trump declared a national emergency to maintain the US’s position as the world’s largest producer of fossil fuels - by removing restrictions on gas permits and exports. The US also wants to become the leader in non-fuel minerals, including rare earth minerals. The White House has in addition scaled-back renewable energy initiatives with a 90-day pause on all IRA/IIJA funding, as well as a specific aim to halt electric vehicle mandates and EV charging subsidies. Finally, the Trump administration has pledged to withdraw the US from its international climate agreements.
In telecoms, the US has appointed a new head of its Federal Communications Commission, who will push a drive to deregulate. This could result in further consolidation in the sector.
Europe’s deeper ties and autonomy should stimulate investment
In Europe, there is an ambition to accelerate telecommunications industry consolidation and there is investment worth EUR 170 bn under the EU’s ‘Digital Decade 2030’ goals. That follows a September 2024 European Commission report on the region’s competitiveness supervised by former European Central Bank President Mario Draghi.
Europe is increasingly focused on both deepening integration between its member states and regaining some autonomy from the US
Europe is increasingly focused on both deepening integration between its member states and regaining some autonomy from the US. Following years of low productivity, compared with the US, and the impact of the war in Ukraine, Mr Draghi’s report also identified the need for additional European investment equivalent to 5 percentage points of EU gross domestic product. This, the report concluded, should digitalise, decarbonise and boost Europe’s capacities. The EU is also working to catch up with the US through a EUR 200 bn AI project, announced in February this year. A further EUR 110 bn public-private partnership involving the United Arab Emirates is in place to create data centres in France.
As far as integration is concerned, the Draghi report seeks to facilitate consolidation in the telecommunications infrastructure sector to reduce the total digital connectivity investment gap between Europe and the US. It also focuses on energy, and suggests that the EU needs investments of around EUR 400 bn in distribution grids by 2030 in order to accelerate decarbonisation and create a cross-border legal framework for ‘interconnectors’ that allow electricity flows between grids. The report also refers to trans-European transport network investments, worth EUR 845 billion by 2040, needed to plug missing transport links and modernise infrastructure.
The Draghi report anticipates some of today’s geopolitical tensions by concluding that geopolitical shocks require a reduction in the EU’s dependence on global markets. This is especially true in areas such as critical minerals, and the report says that the bloc should also increase capacity in semiconductors, as it has done, for example, through the EUR 100 bn European Chips Act of 2023. Lastly, the report also highlights European security as a precondition for sustainable growth and estimates that additional defence investments of around EUR 500 billion are needed over the next decade.
Geopolitical shocks require a reduction in the EU’s dependence on global markets
China - focusing on BRICS
China meanwhile continues to implement its ‘Belt and Road’ initiative, which develops overland commercial routes and deepens its ties with BRICS (Brazil, Russia, India, China, South Africa) economies. The country also has a ‘Digital Silk Road’ ambition to expand mobile data coverage across Asia. China has in addition demonstrated its ability to develop disruptive a AI technology, DeepSeek, and faced with sanctions, do more with less.
We believe that the unique combination of fiscal incentives and the threat of US tariffs favours the US as a primary destination for infrastructure investments. At the sector level and for the foreseeable future, the entire value chain of AI - from data all the way through securing energy sources – looks to offer the most compelling investment opportunities.
The spectre of trade war
By Nannette Hechler-Fayd’herbe, Head of Investment Strategy, Sustainability and Research, CIO EMEA
On 4 March 2025, 25% US tariffs on Canada and Mexico went into effect along with additional 10% tariffs on Chinese products. Canada and China have prepared a series of counter-measures. Given the large trade deficit in goods that the US has with the European Union, European tariffs may be next, as well as EU counter-measures. Trade war salvoes will now grab news headlines as geopolitical developments follow their course, and US domestic policy measures aiming to deregulate and enhance transparency on critical goods and services are enacted. On 4 March, President Trump will set out his comprehensive policy view to the US Congress. Meanwhile the Organization of the Petroleum Exporting Countries – plus other key suppliers (OPEC+) – have surprised markets by announcing they will proceed with supply increases, starting in April 2025.
The US has among the lowest effective (trade-weighted) tariffs globally. This has given foreign exporters access to US consumers at relatively preferential rates compared with US exporter access to other markets. We expect talks between the US and its trading partners to follow, focusing on levelling these differences. As such, we believe US tariffs are a transactional tool to apply leverage on US trade partners.
In the short-term, this may create more risk aversion in financial markets. US Treasuries and gold have rallied while stocks reacted negatively. We expect large domestic-oriented economies to do relatively better than small open economies, and countries with a trade deficit with the US to be relative havens. In countries with large trade surpluses with the US (such as the EU), governments may react with more spending to cushion the negative trade impacts.
Eventually, we expect financial markets to take a more positive view and focus on the global economic picture, including the impact of lower energy prices. We continue to see resilient US growth translating into robust corporate earnings. Corporate bonds (investment grade and high yield) still offer attractive yields, while alternative asset classes continue to play a useful diversification role in multi-asset portfolios.
CIO Office Viewpoint
Infrastructure opportunity follows political priorities, and threats
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