As the country looks to strengthen its economic independence, we see a number of related opportunities, as we describe in our new report, "Made in America." Three government spending plans passed over the last couple of years share a common thread: They aim to protect US critical infrastructure, incentivize US manufacturing, and reward companies for using more American-made materials. The government incentives to increase the capacity of US manufacturing are beginning to have an impact, as seen from the surge in US manufacturing construction spending.
This isn’t the first time the United States has tried to kickstart domestic manufacturing, and economic theory tends to favor competitive advantages and global trade. National security concerns often take precedent over traditional economics, however, and there are several areas we expect the country to continue to prioritize: critical infrastructure, energy security, and technological leadership.
Critical infrastructure is essential for our economy to function, and in many areas the need for upgrades is clear. According to the American Society of Civil Engineers, as of 2021, about 42% of bridges were at least 50 years old and 7.5% “structurally deficient”; about 2,300 dams were labeled “deficient high-hazard-potential”; and there is a water main break every two minutes, resulting in a loss of about 6 billion gallons of treated water per day.
In a similar sense, energy and technology are critical components of our economy. Energy keeps the wheels of capitalism turning, and technology is essential to maintaining US leadership. Semiconductors in particular are one of the nation’s top exports, yet even the largest US players still rely on imports from Taiwan. The CHIPS Act is spurring a number of new semiconductor manufacturing announcements, and the Inflation Reduction Act’s incentives for domestic materials are driving similar capital expenditure plans for batteries and electric vehicles. Finding US-made minerals to capture the tax credits won’t be easy, however. Of the minerals deemed “critical” by the US government—meaning essential to our economy and fraught with
fragile supply chains—the country is 100% net import-reliant for 12 of them.
This dynamic puts the United States on a path to continue investing in the country’s own resiliency. Not all of these challenges are easily surmountable. Labor force demographics and the lengthy permitting process pose significant hurdles. This phenomenon, however, helps frame where we see opportunities. We expect automation providers to benefit as companies aim to reduce reliance on high-cost labor, and companies providing infrastructure consulting and design services may be useful partners for companies and governments starting complex projects.
To summarize the opportunity set, we’ve outlined three investment takeaways: municipal bonds, thematic equities, and thematic ETFs. In addition to municipal bond opportunities, we’ve identified a number of companies that we expect to benefit from these trends, and several thematic ETFs with exposure to the long-term investment themes "Automation and robotics" and "Energy efficiency."
The United States has been an economic and financial powerhouse since the dawn of the New York Stock Exchange in 1792, but in order to continue as a leader, it will need to invest in critical infrastructure and protect against the geopolitical risks that could quickly upend our economy. This Independence Day, we celebrate the impressive growth and innovation the nation has achieved since 1776, and we turn our heads to the next investment opportunity, "Made in America."
Main contributors: Solita Marcelli, Michelle Laliberte
This content is a product of the UBS Chief Investment Office.
See the US Regional View, Made in America , June 30, 2023.
