Chief Investment Strategist, The Freeport Society
Globalization is on life support…
It was in terminal decline long before Donald Trump burst onto the political scene in 2015 with his message of “America First.”
The U.S. and China have been frenemies for the past 20 years.
We were trading partners out of mutual need. But there was no real love lost.
Washington criticized Beijing for its massive trade surplus – meaning America was buying more from China than China was from America.
The U.S. also accused China of currency manipulation to make its exports more competitive.
And there were regular spats over intellectual property theft… repeated cyberattacks… and Beijing’s territorial claims in the South China Sea.
It was a situation ripe for disruption.
Trump didn’t shy away from the challenge.
In his first term, he slapped…
- 25% tariffs on imported Chinese industrial machinery
- 10% tariffs on furniture, electronics, and auto parts
- And 20% to 50% tariffs on washing machines.
And far from reversing Trump’s tariffs, President Biden added to them!
The average tariff on Chinese goods is now about 11%.
Even without tariffs, globalization suffered a mortal wound during the Covid pandemic.
We breached the limits of the world’s overly complicated supply chains. It took us years to untangle that mess.
No major company can ever put themselves at risk of that happening again. And with China and the U.S. now more enemies than frenemies, the era of globalization is well and truly over.
That’s why deglobalization and rebuilding America’s industrial base is one of the top investment themes we track here at The Freeport Society.
And with Trump about to move into the White House for another four years, now is a great time to position yourself to profit.
Today, I’ll pass along a recommendation that does just that.
First, let’s dig deeper into why globalization fell apart.
From Frenemies to Enemies
Globalization is a bigger story than simply the trade relationships.
The U.S. and China are also locked in intense competition for technological dominance – in particular, supremacy in artificial intelligence (AI).
With technological dominance comes military dominance.
So national security concerns have had a major role in the breakdown of the U.S.-China relationship.
The Pentagon is worried that China will use its power to threaten U.S. ally Taiwan and maybe even Japan.
But all of these points of friction might have been tolerable if the price savings from cheap Chinese imports were still a thing.
Unfortunately, the lower wage costs companies got from outsourcing to China are no longer as tempting as they used to be.
China’s aging population has dried up its once seemingly infinite pool of cheap labor. If you separate urban China from the countryside, it’s solidly a middle-income country now.
So, with China, you get the same risks you’ve always had – intellectual property theft, political risk, and all the rest – but without the cost savings that made those risks worthwhile.
China’s No. 1 Export – Inflation
In 1990, the average urban Chinese worker took home the equivalent of about $1,000 a year.
According to Chinese digital marketing agency GMA, by 2022, that figure was closer to $50,000,
The next chart shows how sharply wages in China have increased since 1990.
The story this chart tells is simple: The single biggest factor driving globalization over the past half-century has vanished.
So, even if President Trump and Chinese Premier Xi Jinping held hands and declared themselves best friends forever on national TV, China can no longer export deflation.
It now exports inflation.
America’s “Biggest Threat”
Of course, Trump and Xi are not best friends forever.
And U.S.-Chinese relations are scraping the abyss.
Yesterday, during a bipartisan Senate hearing Marco Rubio, Trump’s pick for Secretary of State, called China the “biggest threat” to America.
And he made no bones about shredding any notion of China and America being trade buddies. Rubio…
[China] lied, cheated, hacked, and stole their way to global superpower status, at our expense.
If we don’t change course, we are going to live in a world where much of what matters to us daily, from our security to our health, will be dependent on whether the Chinese allow us to have it or not.
All of these factors are driving companies to bring production closer to home.
This isn’t something that’s about to happen.
It’s already happening.
As this next chart from the Fed shows, real private investment in manufacturing structures – mainly factories and plants – has doubled since 2020.
That’s what that hockey stick pattern on the right-hand side of this chart is all about.
The trend toward reshoring is also ongoing.
A survey last year by KPMG found that the trade routes outside of the Americas will shrink by about 28% over the next three years.
By government incentive… and by economic necessity… we’re going to build more in America.
That means a massive investment in new infrastructure.
And massive investment opportunities for you.
How to Play It
You can profit as this trend plays out via the Global X U.S. Infrastructure Development ETF (PAVE).
This exchange-traded fund (ETF) invests in the American industrial companies best positioned to benefit from infrastructure investment.
This includes firms involved in construction and engineering, production of infrastructure raw materials, industrial transportation, and heavy construction equipment manufacturing.
Top holdings includes…
- Trane Technologies – A maker of energy-efficient heating, ventilation, and air conditioning (HVAC) systems, as well as transport refrigeration solutions.
- Howmet Aerospace – A maker of advanced engineered solutions for the aerospace and transportation industries, including jet engine components and structural parts.
- Nucor – One of the largest steel producers in the U.S., focused on producing steel and steel products using electric arc furnaces and a commitment to sustainability.
- Deere – Commonly known as John Deere, the company manufactures agricultural, construction, forestry machinery, and diesel engines.
- Quanta Services – A leading provider of infrastructure services for the electric power, pipeline, telecommunications, and renewable energy sectors.
If Trump keeps his promise to put “America First,” PAVE will be a great way to profit.
To life, liberty, and the pursuit of profit,
Charles Sizemore
Chief Investment Strategist, The Freeport Society
P.S. So far this week, I’ve shared with you the names and ticker symbols of three ETFs that will do well throughout Trump’s second term. On Monday, I detailed how to hedge against a dying dollar in a way that is traditional and anti-traditional. I suggested the STKD Bitcoin & Gold ETF (BTGD) would do well under President Trump.
On Tuesday, I explained why the Global X MLP & Energy Instructure ETF (MLPX) is a good play on Trump’s “drill, baby, drill” philosophy.
Today, we looked at PAVE.
Tomorrow, I’ll share the last of the four ETFs I believe you should invest in before Trump is inaugurated on Monday. So make sure you tune in.
In the meantime, I want to hear if you’re made any of the investments I’ve suggested so far. Let me know at [email protected].
And shoot me over any questions you have as well. Just nothing that involves personalized investment advice. I can’t do that.