What the US tariffs mean for infrastructure

In the infrastructure sector, the tariffs imposed by the US will likely impact greenfield and brownfield infrastructure projects. However, the impact may vary widely across industries and regions.

Infrastructure inflation, recession risks and supply chain disruption

Take construction costs as an example. There are concerns that supply chain disruption caused by tariffs will raise the cost of construction of greenfield projects. Investors and lenders are currently asking clients to confirm construction costs with their EPC provider before making any investment decisions. A reassessment of costs, risks delay and possibly the cancellation of some projects, as EPC contractors may find it difficult to commit given the degree of uncertainty.

At the same time, it could be that markets with lower tariffs see costs go down as they become the destination of choice for spare capacity that had been destined for the US. Currency fluctuations will inevitably also favour some markets over others, with wind turbines and solar panels becoming more expensive in some markets and cheaper in others.

Existing core infrastructure may be less exposed to the direct effects of supply chain disruption, but likewise face potential changes to forecast numbers. Potential recession is generally bad news for assets subject to demand risk, such as toll roads and airports. Forward power prices are also down from a week ago. Assets in the infrastructure sector are often less sensitive to the economic cycle and many also have revenues linked to inflation. So, to the extent that tariffs lead to higher inflation, this could mean higher revenue forecasts.

Impact on energy transition projects

Because of all of the various factors noted above and others, it is probably too early to predict the impact of widespread trade tariffs on the energy transition. Some markets may actually benefit from suppliers in Europe, China or elsewhere looking to divert exports from the US to alternative markets: not just through lower pricing, but also potentially for reduced lead times, with the ability to stockpile critical supply. Other markets may see the precise opposite of this, with currency and power price movements also important to investment cases.   

Alternative infrastructure trade routes: ports, rails and industrial growth

The probability of a global recession has risen since the tariff announcement last week. While an economic downturn can have widespread effects on all sectors, some infrastructure companies and assets will be less exposed than others. Utilities, benefiting from vertical integration and regulated prices, will be less exposed than some roads, airports and rail, which are more sensitive to the economic cycle. There is also the policy response to consider. We may see increased government spending on infrastructure and re-industrialisation designed to have a countercyclical effect that may mitigate against the slowdown caused by short-term macroeconomic uncertainty. The US aims to attract investment to onshore manufacturing and expand the industrial base, necessitating significant investment in new energy generation and grid infrastructure to support re-industrialisation. If the US can realise its re-industrialisation plan, it will lead to a new flow of projects and investment.

Energy & infrastructure Bond yields and valuation tailwinds

As stock markets have fallen and fears of a recession have grown, investors have rallied towards safer government debt, causing 10-year US treasury yields to fall below 4%. Government bonds in other markets have similarly fallen in the past week. As well as reducing the cost of debt, any sustained decrease in Government yields means reduced discount rates and increased valuations, especially for the more defensive parts of the energy and infrastructure sector. For greenfield projects, even project developers forced to revise EPC costs upwards, with higher cost contingencies, may be able to offset the impact through lower borrowing costs.

Impact on the financial reporting of listed companies

While US tariffs present significant challenges for many companies, there is an immediate impact on listed companies still waiting to announce their 2025 results, particularly when preparing viability statements and going concern analyses. These companies must model the near-term impact of tariffs, which complicates forecasting due to increased costs and potential disruptions in supply chains. This uncertainty can affect their ability to accurately assess financial stability and long-term viability, requiring disclosure of scenario planning and risk management strategies.

Some initial conclusions

Most infrastructure funds, energy, and utility stocks are lower now than they were before last week's announcement. But in many cases, share price falls have been lower than the broader market and some actually saw initial price rises before a subsequent decline.

The fundamentals of infrastructure as an asset class (downside protection, inflation protection, stable cash flow) make it comparatively more resilient than other asset classes. Furthermore, long-term government concessions and cost pass-through mechanisms built into infrastructure contracts provide a cushion against macroeconomic instability.

Infrastructure has, for some time, been a global story. It could be that what we are starting to see is fragmentation into separate stories across regions. But beyond the current uncertainty and disruptions, there are reasons to be optimistic about the resilience of infrastructure as an asset class.

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