ZGI - BMO Global Infrastructure Index ETF

There is a deep contradiction between perception and reality that is currently playing out in the U.S. economic landscape. In many ways, it reminds us of the setting to the famous 1999 movie, The Matrix (a friendly spoiler alert for those that haven’t seen it – skip ahead to the next paragraph). In the movie, the world in which the protagonist wakes up is a simulated reality powered by an engine that most don’t see. This ​“invisible engine” dynamic helps us square the inconsistency between the prevailing narrative of U.S. economic fragility and incoming data that shows resilience.

Despite the recovery in broad risk over the past few months, the underlying issue remains the same. The decades-long integration of global trade — with the United States at the hub — has been permanently disrupted. And unless we see a complete reversal from the Trump administration, the current regime of higher trade barriers is likely here to stay.

What’s more, we also appear to be in the early stages of something more nefarious — a capital war. As congressional members pass the ​“One, Big, Beautifull Bill Act”, a provision like Section 899, even if excluded, should send a reminder to non-U.S. investors that foreign investment is becoming less welcome than it has been in the past.

As we update our quarterly portfolio strategy, we’re reminded of an important lesson that often must be re-learned. Namely, that markets are terrible at forecasting non-linear events.

To wit, we are preparing this edition just ahead of the ​“America First Trade Policy” memorandum is scheduled to be released. That release is expected to recommend additional country-specific tariffs to be implemented based on the principle of reciprocity and other non-tariff barriers. 

Additionally, tariff exemptions on USMCA-compliant imports from Canada and Mexico are set to expire on April 2^nd while the threat of sector-specific damage on autos, semiconductors and pharmaceuticals still looms large.