Quantitative fundamental analysis
In Washington, the new industrial policy with more state intervention reverberates through the White House, Congress, think-tanks, and special interest groups. The Biden administration has issued a new executive order for all relevant government agencies to review the global supply chains for semiconductors, microchips, AIoT-led large language models (LLM), and 5G telecom networks. In due course, these global supply chains should become more resilient in response to post-pandemic aftershocks. Further, the Biden administration includes lots of business incentives in the signature $2 trillion Build Back Better bill for more government expenditures on climate change, health care, inflation, inequality, and other social and economic problems in America. Since Joe Biden won his presidential bid, the U.S. microchip provision has grown into $52 billion as part of the $250 billion American Innovation and Competition Act. This tech legislation includes $80 billion for modern research on artificial intelligence (AI), robotic automation, and biotechnology, $23 billion on space navigation, and $10 billion for tech hubs outside Silicon Valley.
Western leaders justify this new industrial policy in 2 fundamental ways. First, the new tech legislation helps preserve the rightful place for America, Britain, Canada, and Europe in the global pecking order. Second, this tech legislation reinvigorates domestic economic development with new high-tech clusters. On national defense grounds, a dose of self-reliance may make sense. Powerful semiconductor chips are critical to military arms and missiles. This consideration has become important since the Russian surprise invasion of Ukraine in early-2022. In fact, Taiwan Semi-conductor Manufacturing Corporation (TSMC) produces the world’s cutting-edge microchips in the major science parks in the northern parts of Taiwan. Taiwan has been an American ally since World War II; and since the Nationalist Party lost the Chinese Civil War and then retreated to Taiwan in 1949, today China continues to claim that Taiwan is part of the mother mainland (under the One-China policy). The former fact troubles Beijing, and the latter claim worries Washington. Adversaries understandably covet at least some independent microchip production capacity. In the Taiwan Strait, both sides should not undertake unilateral actions to change the status quo (in support of peace and prosperity in the Asia-Pacific region). In recent decades, strategic engagement has long served as an important complement to creative ambiguity in the peaceful resolution of long prevalent geopolitical tensions between China and Taiwan. Since the Trump administration launched 25% tariffs in the trade war against China, this trade conflict has already exacerbated broader anti-China investor sentiments under the Biden administration.
For Western governments, the modern industrial policy features AI, biotech, clean energy, quantum cloud service provision, and semiconductor microchip production. In the short run, extra demand risks bidding up the cost of inputs. In the longer run, extra demand may mean a supply glut. The industrial-policy arms race may turbo-charge boom-bust cycles for the capital-intensive industries from semiconductors and microchips to 5G telecom networks and AIoT hubs. Recent proponents of the venture-capitalist state are not fans of wasteful pork-barrel fiscal expenditures. In practice, these proponents would like governments to support genuinely full-blown commercial ideas with crystal-clear performance yardsticks. The venture-capitalist state should be as ruthless as Silicon Valley at pulling the plug on failures. In this fresh light, the state need not pick winners, but the state has to let losers go.
In reality, political incentives make governments worse at withdrawing support from duds than at identifying the next disruptive innovation. Decarbonizing Europe, and fully vaccinating America, would involve an awful lot of social coordination. Some proponents of industrial policy doubt that the medium-term goals of boosting R&D complement each other. The modern human history of high technology shows that promoting mass production may not help much for domestic employment. In many East Asian countries such as Japan, South Korea, Taiwan, and Vietnam, the share of manufacturing production to GDP has risen at constant prices even as the share of manufacturing employment has kept falling in recent decades. With high-tech automation, robots and machines replace manpower. On the one hand, Western governments prefer to maximize domestic employment for better economic growth. On the other hand, the gradual accumulation of national assets in high technology often causes the inevitable disappearance of low-skill labor. From picking winners to letting go of losers, the new industrial policy should take into account these near-term trade-offs.
Government intervention remains a major influence over global trade, finance, and technology. - Blog - AYA fintech network platform provides proprietary alpha stock signals and personal finance tools for stock market investors.
Government intervention remains a major influence over global trade, finance, and technology.
https://ayafintech.network/blog/government-intervention-remains-a-core-influence-over-global-trade-finance-and-technology/