Monique Rooney, senior analyst in our Australian investment team, found herself right in the thick of the so-called “tariff storm” last week. The timing of her US investment trip—planned way back in January—proved to be quite fortuitous.
The trip was originally arranged to gain a clearer understanding of the overall policy direction under the Trump administration and to explore what the phrase “Drill Baby Drill” truly meant for the energy sector and broader industry. Coincidentally, her journey began just as President Trump announced reciprocal tariffs on what he termed “Liberation Day.”
The itinerary included meetings in New York with companies and real estate brokers focused on data centres and industrial property; several days in Washington engaging with former presidential staffers and current members of Congress; and concluding in Houston meeting with energy and engineering companies.
Insights from Washington DC:
Washington proved to be a dynamic environment, with developments unfolding daily. Several key themes emerged consistently:
Tariffs and trade negotiations: The prevailing view on Capitol Hill was that the newly announced tariffs would likely be negotiated down from their initial “Liberation Day” levels and that exemptions would be made.
While the administration fundamentally supports tariffs, many viewed the initial announcements as part of Trump’s negotiation strategy—the so-called “art of the deal.” Some even suggested that trade agreements could ultimately improve beyond the status quo prior to these negotiations.
Bringing manufacturing back to America: The administration’s goal to repatriate manufacturing was widely discussed. However, most observers did not expect this to happen on a large scale. Economic realities do not currently support such a shift, and companies remain cautious about investing heavily when executive orders could be reversed within a few years, if not days.
China is a significant exception: There was genuine concern among policymakers and corporate leaders about China’s intellectual property theft, particularly in AI, defence, and biotechnology sectors. The tariffs were seen as a clear message to China, but there was also apprehension that the administration might be underestimating China’s tolerance for economic pain, which could complicate the negotiation process.
Tax Relief and Economic Impact:
US lawmakers are currently in the middle of writing the new Tax Bill. Our expectation that tax relief would offset the impact of tariffs for businesses and consumers was tempered by concerns over the size of the national debt. There is no “silver bullet”! Lawmakers are focused on eliminating taxes on tips, which was a firm promise during the election campaign, and extending existing tax cuts, which are set to expire at the end of the year, but they will need to find $US4.5 trillion of spending cuts over ten years to fund. Proposals under consideration to help fund these measures include reviewing social security benefits, raising the SALT (State and Local Tax) deduction cap, and even introducing a millionaire’s tax.
Implications for the US Energy Sector:
Efforts to clarify the meaning of “Drill Baby Drill” revealed that energy affordability and security remain key priorities for the administration. The focus appears to be on reducing permitting hurdles and increasing the sale of federal land leases. However, corporate feedback was cautious. The US went from energy scarcity to abundance after the shale revolution. But with crude oil prices around $60 per barrel, supply is expected to decline. Federal lands were described as high-cost and less economically viable, especially in the current low oil price environment.
Geopolitical concerns relating to Iran:
Iran’s nuclear capabilities remain a critical concern for the administration. The fact that Iran has enough enriched uranium to produce several nuclear weapons is front of mind. The US is expected to continue applying maximum economic pressure, with the possibility of escalation if negotiations fail. This situation is being closely monitored due to the risk of supply disruptions in Iranian oil.
Implications for our portfolios:
This trip has provided valuable, on-the-ground insights into the evolving landscape of tariffs, tax policy, and energy strategy under the new administration. The tariff situation remains fluid across borders and heightened volatility is likely to persist for some time. As a result, a focus on quality and earnings certainty will be even more critical moving forward, and any portfolio adjustments will be made gradually and with caution.
The on-the-ground insights gained from this trip have reinforced a cautious and selective approach to managing the portfolio in the current environment. Direct conversations with policymakers, industry leaders, and corporates provided a clearer understanding of the evolving landscape around tariffs, tax policy, and energy strategy. This real-time intelligence has validated the decision to maintain our defensive tilt, reduce exposure to sectors and regions facing heightened macroeconomic risks, and focus on companies with resilient earnings, strong pricing power, and lower sensitivity to trade disruptions.
Additionally, the trip highlighted the importance of flexibility and diversification. While the portfolios have not fully exited companies exposed to the US, technology, or the cycle, the insights gathered have underscored the need to avoid taking outsized positions in any single theme or sector, given the high degree of uncertainty and rapid policy shifts. It also emphasised the value of quality and earnings certainty, and we will continue taking a measured and gradual approach to any future portfolio adjustments.
Overall, these on-the-ground observations have provided a deeper, more nuanced perspective that cannot be captured through data alone, which will help us to keep making balanced and informed investment decisions in the future.
