The tariffs throw a massive wrench into the economy on top of the existing structural headwinds of demographics, labor force mismatch, regulatory friction, and infrastructure constraints. While it was not my intention to offer ongoing market commentary, especially given the time horizons of Logos’ investments, recent events have been structurally aligned with the themes on which we are focused. And while I’m not an economist, I did stay at a Holiday Inn Express last night.
The tariffs amount to a self-induced supply shock, bigger than anticipated and seemingly bludgeoned into place. The impact of tariffs and the uncertainty caused by the current implementation of new trade policy will most likely create economic challenges with slowed capital investment and consumption. Whatever the outcome, the US is pushing for accelerating self-reliance and will have to find a way to replicate the relative cheapness of foreign production.
While tariffs may shield firms from global competition, they risk entrenching inefficiency rather than driving innovation.1 A more constructive path relies on the scale of the U.S. economy to foster internal competition, combined with strategic policy that directs investment and incentives toward innovation. Historically, such approaches have boosted productivity, particularly in the post-WWII era.23 Today, with limits to growth from population, capital, and education, producing more with less—technology driven productivity—is the only sustainable way forward.
As we have discussed, Logos invests in and supports companies that are driving productivity in the United States. Since the mid-2000s, the U.S. has faced a modern productivity paradox: rapid technological progress has coincided with slowing productivity growth,45 a trend that deepened after the Global Financial Crisis.678 Rather than reversing this decline, protectionist policies like tariffs risk compounding it, making the imperative to unlock productivity through innovation and technology even more urgent.
There are early signs that the current technological ecosystem can produce the results needed. Over the past two years, U.S. productivity ticked up beyond its pre-COVID trend.9 We at Logos are witness to tangible examples of AI’s early productivity enhancing use cases. However, we are early in the development and diffusion cycle. History suggests adoption will unfold gradually, and the productivity that follows will lag adoption as complementary technologies advance and industries are reconstructed, much like past general-purpose technologies of electricity10 and IT.11
Market disruptions create an opportunity for new entrants, which are unincumbered by existing business models and balance sheets. It is our expectation that incumbents will focus on cash conservation with the risk of compressed earnings requiring reductions in capital expenditures and R&D. The risk of inflation and a weakening dollar reduce the Federal Reserve’s ability to stimulate the economy with lower rates, further constraining companies with material debt levels (e.g. private equity).
These conditions push companies to seek technology solutions but place a higher bar on the ROI of those investments. Our framework is that disruption comes as a product of better value, which is simply the quality and cost of a product or service. More specifically, we believe that an order of magnitude (10x+) improvement in value is required to drive adoption to justify customer’s making the investment and navigating the challenges of change management.
Productivity will not solve everything, but in the face of mounting headwinds, innovation is the most powerful lever we have.
Salomon, E. (2025, February 1). Tariffs and US Labor Productivity: Evidence from the Gilded Age. NBER Digest. Retrieved from https://www.nber.org/digest/202502/tariffs-and-us-labor-productivity-evidence-gilded-age
Moore, M. O. (1996). Steel Protection in the 1980s: The Waning Influence of Big Steel? In A. O. Krueger (Ed.), The Political Economy of American Trade Policy (pp. 73–132). University of Chicago Press. Retrieved from https://www.nber.org/system/files/chapters/c8704/c8704.pdf
Auerbach, S. (1987, March 18). Harley Asks End to Tariff. The Washington Post. Retrieved from https://www.washingtonpost.com/archive/business/1987/03/18/harley-asks-end-to-tariff/7c5e76ae-3617-4597-a971-7c501c9f9b29/
Brynjolfsson, E., Rock, D., & Syverson, C. (2017). Artificial intelligence and the modern productivity paradox: A clash of expectations and statistics (NBER Working Paper No. 24001). National Bureau of Economic Research
Wolla, S. A. (2017, March 3). The productivity puzzle. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/publications/page-one-economics/2017/03/03/the-productivity-puzzle
Eldridge, L. P., & Powers, S. G. (2021, April 6). The U.S. productivity slowdown: An economy-wide and industry-level analysis. Monthly Labor Review, U.S. Bureau of Labor Statistics. Retrieved from https://www.bls.gov/opub/mlr/2021/article/the-us-productivity-slowdown-the-economy-wide-and-industry-level-analysis.htm
U.S. Bureau of Labor Statistics. (n.d.). Business sector: Labor productivity (output per hour) for all workers [PRS84006092]. FRED, Federal Reserve Bank of St. Louis. Retrieved April 25, 2025, from https://fred.stlouisfed.org/series/PRS84006092
U.S. Bureau of Labor Statistics. (n.d.). Manufacturing sector: Labor productivity (output per hour) for all workers [PRS30006091]. FRED, Federal Reserve Bank of St. Louis. Retrieved April 25, 2025, from https://fred.stlouisfed.org/series/PRS30006091
U.S. Bureau of Labor Statistics. (n.d.). Business sector: Labor productivity (output per hour) for all workers [PRS84006092]. FRED, Federal Reserve Bank of St. Louis. Retrieved April 25, 2025, from https://fred.stlouisfed.org/series/PRS84006092
Harford, T. (2007, June 2). Paul David: It took decades for the economic impact of electricity to become clear. The same will prove true of information technology. History News Network. Retrieved from https://www.hnn.us/article/paul-david-it-took-decades-for-the-economic-impact
Fernald, J., & Wang, B. (2015, February 9). The Recent Rise and Fall of Rapid Productivity Growth. FRBSF Economic Letter, 2015-04. Federal Reserve Bank of San Francisco. Retrieved from https://www.frbsf.org/research-and-insights/publications/economic-letter/2015/02/economic-growth-information-technology-factor-productivity/