Sakura in London, the first cherry blossoms blooming across the city, herald the beginning of Spring, the time of optimism and growth. They remind us of the balance of permanence and change as we invest in shifting political and economic landscapes with a long-term perspective.
As seasons come and go, our focus is on the quality and the fundamentals of the companies we invest in. We wrote earlier this year about our positive outlook for the year and about the strength of the underlying economy in the US and elsewhere both from a corporate and consumer perspective. Corporate investment in the renewal of the public and private asset base to improve efficiency, increase capacity and address the challenges that we face has been strong. Reports we have heard from the World of Concrete – a convention in Las Vegas that needs no further description – have said that the expectations among participants at the beginning of February were high and that their primary concern was labour shortages. Consumer spending has been supported by strong labour markets and rising real incomes as wage growth has exceeded inflation and we have been seeing signs of recovery in the consumer products companies we hold.
However, it is also clear is that there is the beginning of an impact on the US economy from the political and economic uncertainty surrounding President Trump and the policies he is announcing and implementing. With the turn in consumer confidence and other predictive economic measures we are starting to see the uncertainty taking a toll on the economy and on markets.
President Trump’s policies appear to be driven by clear principles including that uncertainty is good because it provides negotiation leverage and that tariffs are positive because they achieve economic realignment and benefits for the US economy. Scott Bessent, the US Treasury Secretary has said that tariffs are supposed to be a loaded gun that is on the table but that is meant to be rarely used. That does not appear to be the case so far: President Trump has created a lot of uncertainty to gain a lot of leverage in a lot of bilateral discussions. People with a great deal of experience in trade negotiations do not know how many of the announced tariffs are intended to be imposed for reshoring-type benefits to the US economy and how many are still intended as a source for negotiation leverage for other outcomes. The fact that there appear to be negotiations that are differentiated between countries and their leaders points to the latter. The month to come will show more about the intentions when the full set of tariffs, including the reciprocal tariffs which may be most closely associated with levelling terms of trade will be imposed.
