The Chip Shortage — A Threat to U.S. Growth; Earmarks Are Back !!
Author: Greg Valliere
February 24, 2021
WASHINGTON HAS FINALLY WOKEN UP to the major shortage of semiconductor chips, which has created a drag on the production of everything from autos to cell phones. A bipartisan group of lawmakers will meet with President Biden at the White House today to discuss emergency measures, the Washington Post reports this morning.
CHIPS ARE IN SHORT SUPPLY: U.S. production has decreased as demand has surged. Chips are crucial in computers, where use has exploded as more people work from home. And chips are an integral component of autos, cellphones, weapons, etc.
WHEN WE LAST LEASED a car, the salesman said that “it’s a sophisticated computer on wheels,” only a slight exaggeration. The shortage of chips has prompted Ford and General Motors to cut production.
THE DELEGATION MEETING AT THE WHITE HOUSE will be led by Senate Majority Chuck Schumer, who says the semiconductor shortage is “a dangerous weak spot in our economy and our national security.” Schumer has no equal when it comes to spending money, and he will urge the Biden Administration to fund more chip production and research, the Post reports.
ONLY ABOUT 12% OF GLOBAL CHIP PRODUCTION occurs in the U.S., as Taiwan dominates the industry, with mainland China furiously trying to catch up. A disturbing trend is apparent in the U.S. — an inattention to what might go wrong (see: Texas utility regulation), and an inability to catch up.
MOST ANALYSTS AGREE that the U.S. cannot catch up quickly on chip production. And in many other key sectors, such as the production of medical equipment, the U.S. far trails Beijing. It could take years before China stops “eating our lunch,” as Biden stated earlier this month.
* * * * *
EARMARKS ARE BACK !! The age-old Washington practice of tucking money into legislation for projects back home — local hospitals, universities and federal courthouses, etc. — was banned after the 2011 elections. But “earmarks” are back, now allowed (except for corporations).
THE REVIVAL OF EARMARKS SEEMS FITTING, since the mood in Congress is to spend and spend because deficits no longer matter. Actually, earmarks will probably cost only a few billion dollars a year, a rounding error in today’s climate.
THE MAJOR IMPACT of allowing earmarks is that leaders in both parties can use them to keep their members in line on key legislation. If, for example, the Democrats are a vote or two short of winning enactment of a Covid relief bill, the the party’s leaders can tell those wavering members that they can insert pet spending projects into the bill.
YOU WANT TO WIN RE-ELECTION IN 2022? It might be a good idea to tell voters that you “brought home the bacon” with federal funding for a new government research facility in your district. Most Democrats (and Donald Trump) have favored the revival of earmarks — to the delight of lobbyists on K Street.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2022 AGF Management Limited. All rights reserved.