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Assessing Biden's Signature Bill

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Over the past 24 hours, President Biden has fielded questions (and heat) about his age, memory and mental fitness. But the one economic issue likely to receive attention from the business community and beyond in the coming months is the biggest bill he passed, the Inflation Reduction Act, which he praised at his press conference last night.

Big questions still hang over the law, which many Americans don't seem to know exists. How much will this add to the federal budget deficit? And can the law survive a potential second Trump term?

The IRA is expected to incur fees more than $800 billion until 2033, the Congressional Budget Office said, an increase from the $391 billion price tag set when it was passed in 2022.

One reason: There is a huge demand for the credits and subsidies created by the law for building solar, hydrogen and nuclear energy projects, as well as rebates for the purchase of electric vehicles. (A analysis by Goldman Sachs Last fall, it emerged that the law led to about $282 billion in investments and roughly 175,000 jobs in its first year.)

The green transition will not be cheap. The IRA, which aims for sharp emissions reductions, is expected to add $250 billion more to the deficit than initially expected, according to the CBO, despite cost-saving promises by the White House.

That said, the math isn't set in stone. The Treasury Department predicted this week that additional tax collection resources from the IRA would help the IRS collect an additional $851 billion in tax revenue over the next decade. This raises the question of whether this is actually a shortage.couples law.

It also fuels geopolitical tensions. Chinese solar energy giants have rushed to take advantage of the law's tax breaks to build solar panel factories in the US, seemingly undermining the goal of creating a homegrown green technology industry.

And the popularity of the IRA has damaged relations with US trading partners, including the EU, which have been in the works his own version of the law.

The future of the IRA looks unclear. Donald Trump has said he would turn it around if re-elected. That prospect has worried business leaders, who have warned such a move would has drastically harmed American industry.

Wall Street is bracing for new inflation figures. The Commerce Department will release its annual revisions to the Consumer Price Index on Friday morning, an update that has become even more important in an election year. Investors are concerned that a warmer-than-expected outcome would prompt the Fed to delay rate cuts for longer.

President Biden defends his mental fitness. At a hastily called news conference, the 81-year-old president fired back at a special counsel report on his handling of classified documents that called him a “well-meaning, older man with a bad memory.” The president later mixed up the leaders of Egypt and Mexico in a call with reporters. The issue of Biden's age has weighed heavily on his approval ratings.

Donald Trump picks up more delegates and has a good day in Washington. The former president won the uncontested Republican caucuses in Nevada. The victory came hours after Supreme Court justices indicated they would likely overturn a Colorado Supreme Court ruling that Trump cannot appear on the state's ballot.

Vladimir Putin calls on the US to mediate a peace deal with Ukraine. In an interview with former Fox News host Tucker Carlson, the Russian president challenged the US to “make an agreement” that would force Ukraine to cede territory to Russia and end the two-year war. The interview is seen as a victory for Putin, who is trying to win Western support and thwart the flow of American aid to Kiev.

OpenAI is already a leader in the race to advance artificial intelligence, and the technology is helping with that ensure enormous growth for itself and its largest investor, Microsoft.

But the startup behind ChatGPT and its CEO, Sam Altman, have bigger ambitions, including reshaping the global semiconductor industry to the tune of several trillion – yes, with a T – dollars to boost AI chip production, according to The Wall Street Journal:

Such an amount of investment would dwarf the current size of the global semiconductor industry. Global chip sales reached $527 billion last year and are expected to rise to $1 trillion annually by 2030. Global sales of semiconductor manufacturing equipment – the expensive machines needed to run chip factories – reached $100 billion last year, according to an industry estimate. group SEMI.

The amounts Altman discussed would also be outlandishly large by the standards of corporate fundraising – larger than the national debt of some major global economies and larger than giant sovereign wealth funds.

The pandemic and rising tensions between Washington and Beijing have prompted many companies to diversify their supply chains outside of China. The results of that push are becoming clearer, including data showing that the U.S. imported more goods from Mexico than from China last year.

But the Lunar New Year holiday, which starts tomorrow, shows why China is likely to remain a global manufacturing powerhouse for years to come.

The country's migrant workers are still the country's 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 go 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 that started late last month.

Apple's operations in China illustrate the challenge of replacing that manufacturing base. The tech giant makes the vast majority of its hardware in China, having spent decades building its supplier networks and infrastructure. The largest iPhone factory, in Zhengzhou, employs about 300,000 people.

This also applies to the efforts to expand in India. Apple and its main manufacturing partner, Foxconn, are building factories in Tamil Nadu, a southern state with a population of about 72 million. Overall, India produced about 13 percent of the world's iPhones last year.

But there are obstacles. India does not have a labor force that can move en masse across the country to production centers; major differences in the languages ​​spoken there add a layer of complexity; and production quality lags behind, with some Indian suppliers a 50 percent defect ratea far cry from Apple's goal of zero.

And even import data from Mexico belies the reality of Chinese production. Chinese companies were early movers diversify supply chains, investing heavily in Mexico and across Southeast Asia, said Agatha Kratz, a China expert at Rhodium Group, a consulting firm. And a large part of the Production growth in Mexico was aimed at final assembly of products to avoid Trump-era tariffs on Chinese-made goods.

A new lawsuit about mergers and acquisitions. focuses on the way Goldman Sachs deals with multiple and sometimes competing clients.

KSFB, a celebrity management company whose executives have worked for Madonna and Beyoncé, has done so accused the Wall Street giant of deception when it agreed to sell it to potential buyers while simultaneously negotiating the sale of a larger client and former partner, Focus Financial Partners.

The backstory: In 2018, the showbiz management firm NKSFB (formerly known as Nigro Karlin Segal Feldstein & Bolno) sold its assets to Focus, an asset manager. NSKSFB's clients continued to provide services to Focus, but also founded KSFB.

In 2022, KSFB executives hired Goldman, who had pledged to pursue a joint sale of KSFB and the NKSFB business, according to the lawsuit filed Thursday in New York. But unbeknownst to them, the lawsuit alleges, Goldman, which was also in the process of selling Focus, wanted to keep NKSFB within the larger company to get a higher price.

KSFB accuses Goldman of restricting it, gaining valuable information about the company while delaying its potential sale in favor of a larger customer. Focus was ultimately sold to private equity firm Clayton Dubilier & Rice for $7 billion in a deal that closed last August. (Focus and 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 last year dismissed a lawsuit filed by KSFB after Goldman argued the case should be heard in New York.

The case shines a spotlight on banks' juggling of complicated tasks. It's an issue that has haunted Goldman before: The firm turned heads last year when it advised Silicon Valley Bank on efforts to raise capital while buying $21 billion of the embattled lender's debt. That deal that ultimately raised concerns about the health of Silicon Valley Bank.

While a bank's handling of multiple customers or customer roles is not necessarily inappropriate – as long as safeguards are in place – it can create difficult relationships and at least the appearance of conflict.

Offers

  • Aramco, the state-owned Saudi oil giant, is said to have hired banks including Citigroup and Goldman Sachs to advise on a secondary equity offering that could raise $20 billion. (Bloomberg)

  • WeWork's creditors reportedly are rejecting an attempt by Adam Neumann, the former CEO of the coworking company, to buy it out of bankruptcy. (FT)

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