by IRA Costs and Benefits
In the past 24 hours, President Biden has received questions (and criticism) about his age, memory, and mental fitness. But the one economic issue that is likely to draw scrutiny from the business community and beyond in the coming months is the most important bill he has passed, the Inflation Reduction Act, which he praised at his press conference last night. .
Big questions remain about the law, which many Americans don’t seem to know exists. How much will it add to the federal deficit? And can the law survive a possible second Trump term?
The IRA is expected to cost more than 800 billion dollars until 2033, the Congressional Budget Office said, above the $391 billion price tag assessed when it was approved in 2022.
One reason: There is enormous demand for credits and subsidies created by law for the construction of solar, hydrogen and nuclear energy projects, as well as discounts for the purchase of electric vehicles. (A Goldman Sachs analysis Last fall showed that the law generated about $282 billion in investments and approximately 175,000 jobs in its first year.)
The green transition will not be cheap. The IRA, which aims for deep emissions cuts, is expected to add $250 billion more to the deficit than initially anticipated, according to the CBO, despite cost savings promises by the White House.
That being said, mathematics is not set in stone. The Treasury Department forecast this week that the additional tax collection resources provided by the IRA would help the IRS collect up to $851 billion more in tax revenue over the next decade. This raises the question of whether this is really a deficit.paring law.
It is also stoking geopolitical tensions. Chinese solar energy giants They have been quick to take advantage of the law’s tax breaks to build solar panel factories in the United States, apparently undermining the goal of creating a local green technology industry.
And the popularity of the IRA has affected relations with American trading partners, including the EU, which has been working on your own version of the law.
The future of the IRA seems uncertain. Donald Trump has said he would dump it if he is re-elected. That prospect has worried business leaders who have warned that such a measure drastically harm American industry.
THIS IS WHAT’S HAPPENING
Wall Street prepares for new inflation data. The Commerce Department will release its annual reviews of the Consumer Price Index on Friday morning, an update that has taken on added importance in an election year. Investors worry that a higher-than-expected reading would lead the Federal Reserve to delay cutting interest rates longer.
President Biden defends his mental fitness. In a hastily called news conference, the 81-year-old president responded to a special counsel report on his handling of classified documents that called him “a well-intentioned old man with a bad memory.” The president later confused the leaders of Egypt and Mexico in an exchange with journalists. The issue of Biden’s age has weighed heavily on his approval ratings.
Donald Trump wins more delegates and has a good day in Washington. The former president won the Nevada Republican caucuses undisputed. The victory came hours after Supreme Court justices signaled they would likely overturn a Colorado Supreme Court ruling that ruled Trump cannot appear on the ballot in the state.
Vladimir Putin calls on the United States to negotiate a peace agreement with Ukraine. In an interview with former Fox News host Tucker Carlson, Russia’s president challenged the United States to “make a deal” that would force Ukraine to cede territory to Russia and end a two-year war. The interview is seen as a victory for Putin, who has been trying to win Western support and thwart the flow of American aid to kyiv.
OpenAI’s trillion-dollar dream
OpenAI is already a leader in the race to advance artificial intelligence and its technology helps drive huge growth for itself and for its largest investor, Microsoft.
But the new company behind ChatGPT and its CEO, Sam Altman, has bigger ambitions, including reshaping the global semiconductor industry at pace. several billion (yes, with a T) dollars to reinforce the production of AI chips, according to The Wall Street Journal:
Such an investment sum would dwarf the current size of the global semiconductor industry. Global chip sales were $527 billion last year and are expected to rise to $1 trillion annually by 2030. Global sales of semiconductor manufacturing equipment (the expensive machinery needed to run chip factories ) last year were $100 billion, according to an industry estimate. SEMI group.
The amounts Altman has discussed would also be outrageously large by corporate fundraising standards: larger than the national debt of some major global economies and larger than giant sovereign wealth funds.
Why China’s supply chain is not broken
The pandemic and rising tensions between Washington and Beijing have led many companies to diversify their supply chains outside of China. The results of that push are increasingly evident, including data showing that the United States imported more goods from Mexico than from China last year.
But the Lunar New Year holidays, which begin tomorrow, show why China is likely to remain a global manufacturing powerhouse for years to come.
The country’s immigrant workers remain its secret weapon. About 300 million workers leave their homes in rural areas and cities to work in the country’s manufacturing centers in southeastern China. The only time most of them return home is during the Lunar New Year, creating the world’s largest annual mass migration event.
Chinese state media estimate that nine billion trips will take place during a 40-day holiday period, which began late last month.
Apple’s operations in China illustrate the challenge of replacing that manufacturing base. The tech giant manufactures the vast majority of its hardware in China, having spent decades building its supplier networks and infrastructure. Its largest iPhone factory, in Zhengzhou, employs about 300,000 people.
So do its efforts to expand in India. Apple and its main manufacturing partner, Foxconn, are building factories in Tamil Nadu, a southern state with about 72 million people. Overall, India produced about 13 percent of the world’s iPhones last year.
But there are obstacles. India does not have a workforce capable of moving en masse across the country to manufacturing hubs; The vast differences in the languages spoken there add a layer of complexity; and production quality is lagging, with some Indian suppliers reporting a 50 percent defect ratewell below Apple’s zero target.
And even Mexico’s import data contradicts the reality of Chinese manufacturing. Chinese companies were the first to move forward diversifying supply chains, investing heavily in Mexico and throughout Southeast Asia, according to Agatha Kratz, a China expert at Rhodium Group, an advisory firm. And much of the Manufacturing growth in Mexico went into final assembly of products to circumvent Trump-era tariffs on products made in China.
A fight over Goldman Sachs’ many hats
A new demand for mergers and acquisitions. is taking aim at how Goldman Sachs juggles multiple, and sometimes competitive, clients.
KSFB, a celebrity management firm whose executives have worked for Madonna and Beyoncé, has accused the Wall Street giant of deception when he agreed to shop around for potential buyers and at the same time negotiate the sale to a larger client and former partner, Focus Financial Partners.
The backstory: In 2018, showbiz management company NKSFB (formerly known as Nigro Karlin Segal Feldstein & Bolno) sold its assets to Focus, a wealth management company. The directors of NKSFB continued to provide services to Focus but also formed KSFB.
In 2022, KSFB executives hired Goldman, which had promised to make a joint sale of KSFB and the NKSFB business, according to the lawsuit filed in New York on Thursday. But, unbeknownst to them, the lawsuit claims, Goldman, which was also working to sell Focus, wanted to keep NKSFB within the larger company to get a higher price.
KSFB accuses Goldman of moving ahead, gain valuable information about the business while delaying its potential sale to benefit a larger client. Focus was eventually sold to private equity firm Clayton Dubilier & Rice for $7 billion in a deal completed last August. (Focus and his co-founder, Lenny Chang, are co-defendants in the lawsuit.)
Goldman denied the allegations and said in a statement that it “acted fairly and honestly” in its dealings with KSFB. A Los Angeles court dismissed a lawsuit filed by KSFB last year after Goldman argued that the case should be heard in New York.
The case sheds light on how banks juggle complicated duties. It’s an issue that has dogged Goldman before: The firm came under scrutiny last year when it advised Silicon Valley Bank on its efforts to raise capital while also purchasing $21 billion in debt from the troubled lender. That deal that ultimately raised concerns about the health of Silicon Valley Bank.
Although a bank handling multiple clients or functions for clients is not necessarily inappropriate (as long as safeguards are in place), it can create uncomfortable relationships and at least the appearance of conflict.
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