If you are keeping up to date on our blogs, you know we’re constantly talking about innovation and technology. Well, now Congress is talking about it too, and this means a BIG opportunity is on the horizon for smart investors. A bipartisan approval of the U.S. Innovation and Competition Act changes two big things: how we compete against China to become self-sufficient, and public funding for private companies via taxpayer dollars. The result is the spending of $250 billion over five years. Even by Washington standards, that’s a huge injection in high-tech capital!
What did the Senate find out about that made this so bipartisan? Who benefits from this? How will this change the way I need to look at investing? Why is this a big deal?
Let’s start with who will be the beneficiaries of this bill. It is focused on money going toward innovation, manufacturing, and research companies. Semiconductors sit at the top of the list. Companies that provide us chips that power our Zoom calls, computers, refrigerators, computers, smart homes. Is this where AMD starts to look like Boeing, now having the backing and funding of the United States government? That’s very possible.
Also on the list of priorities are robotics and artificial intelligence, synthetic biology, and quantum computing. (insert uh-hum) This is the innovation sleeve of our portfolios that we have been pushing for the past year. #YoureWelcome
The amazing part about this is that both parties in Washington came to a common agreement to pass this bill (plus or minus some of the original funding and some political favors, I’m sure). They can’t seem to agree on much these days, even considering that we have been discussing infrastructure for a decade on both sides with no real, substantial progress. However, find us an adversary, in this case, China, and we have commonality. An E-War of sorts.
What started this in Washington? Most likely when China started it’s “Made in China 2025” campaign with the goal of being self-sufficient and self-reliant on all things technology. China is flat out leading that initiative, spending twice as much as the U.S. as a percentage of GDP. Now, U.S. Senators are sweating and feeling the pressure on both sides of the aisle.
One major discovery Senators made during the hearings centered on some large electric transformers that were being imported into the U.S. Engineers had found hardware that was inserted in transformers that was not part of the original design spec. This hardware allowed the manufacturers (Chinese) to flip the transformers on and off. In telecommunications manufactured in China, there were Chinese controlled elements that were mysteriously re-routed to Beijing before they went back to wherever else in the world it needed to be. If it sounds creepy, that’s because it is.
When 5G was being rolled out, we urged our allies not to buy Chinese tech, but we had nothing to offer them. We essentially gave up and defaulted to China. This was an eye opening moment -- it became plainly obvious that we HAD to increase our own investment in tech. The reality is that we cannot be reliant upon China for technology post 2025, especially with the fear of their ability to essentially shut us off. If they are self-sufficient, then we must become self-sufficient as well.
Why is this a shocker that Congress came together for this? In the 1980s, Japan was recognized as the next economic power. The fear was that we were going to be technology-reliant on Japan. Cars, electronics, and semiconductors were coming out of Japan cheaper and better manufactured. The Japanese government was funding the technology. The United States government stepped in, bailing Chrysler out of bankruptcy and putting together a consortium of semiconductor makers, investing $100m in government funds to revive that industry. There was a huge backlash on this government intervention, and a hard line was drawn between the aisles.
What many people don’t realize is that government spending has fueled all sorts of R&D throughout the years. The race to the moon created a military and commercial satellite business. Government seed money was given to start the internet. Innovation that is funded will jump start these industries, allowing them to become viable in the private sector. Some money is inevitably wasted, but the hope of the successful output is meant to be more impactful than the losses. This shift in the mindset has a lot to do with China being the adversary as opposed to Japan. Japan is one of our closest allies, China is not. This has been supported by the Trump presidency and has carried into the Biden presidency as well. So now, the race to 2025 begins.
It’s very important to us that our clients have an understanding of our methodology so you are never in the dark. Managing your portfolio effectively requires an understanding of current trends and policies that present opportunity for future growth. This is an example of how a bipartisan spending bill may fall below the radar when your assets are managed with the typical "set it and forget it” strategy.
If your portfolio isn’t primed to take advantage of these changes, you could miss a huge opportunity. Contact us today to talk about your path forward: