Also Known as the Duality of America
Go figure. The market is at record highs, but key advisors to the White House, which are the voice of businesses, have resigned en masse (FN1). The United States is heading in a new direction. The duality of America.
This is not a political article, but a look at business implications of a new direction. It’s not all negative. It’s also not all positive. It’s a question of can we find a path forward that is best for America.
The incoming president has won the Senate (and possibly the House). He will likely appoint similar minded individuals to lead the various agencies. There is a high probability the Justice Department, and possibly the Supreme Court, could be reformed. Now is the time to reflect on how this will impact businesses.
There is much talk about institutional safeguards to prevent impractical policies. But the question remains whether there are sufficient safeguards to prevent a “dictator for a day” (his words, not mine). The following are some thoughts on how new policies could impact businesses. Certainly this is not an exhaustive list as I don’t address the U.S. role in Ukraine, abortion rights, thoughts on influencing the Federal Reserve, but it’s the start of a discussion.
There is a great article from Brett Samuels in the Hill (FN2) about how the new administration will be busy from Day 1 reshaping the country. Unlike 2016, there are playbooks (think Project 2025 which is likely not to be disavowed anymore), executive orders already drafted, and loyalists in Washington ready to implement. Some of the areas impacting businesses include:
IMMIGRATION. I don’t think anyone would disagree that our immigration system needs fixing, but mass deportation is impractical. From a number’s perspective, there are not enough agents or funding to engage in mass deportation. In the construction industry alone there are an estimated 3.3 million immigrants (FN3). The need to confirm the legality of each person’s status before deportation is likely to be months, if not years, unless all judicial safeguards are tossed out the window. Let’s assume there is mass deportation, the consequences would be less houses and roads repaired. You get the point, a possible economic slowdown. There was a talking head who said “don’t worry about agents, the administration would just pull from other agencies and departments.” Would this result in slower visa processing of critical visas like an EB-1 which already takes close to a year to process? Would this mean new agents with less training? Would this mean less customs agents?
CLEAN ENERGY. There are some very clear statements from the incoming administration to support fracking and oil and gas. This is not an article about the environmental impact, but more about asking the question of what is the incoming administration’s support of clean energy. Will clean energy grants go away and tax credits disappear? Will states become islands of disparate clean energy policies trying to individually solve a global problem?
The incoming president has already been on record saying he would dismantle (which might be a politically correct way of saying he will terminate…) the Inflation Reduction Act (IRA) which is a key piece of legislation for providing subsidies for clean energy technology. Future prognosticators believe termination of the IRA could result in everything from private equity de-emphasizing investments in clean energy, or exiting transactions of which over $15 billion dollars has already been invested (FN4). Could this be a winddown of environmental social governance (ESG) mandates as well as the downward trajectory of the PropTech and carbon credit movement? The incoming president has already signaled a withdrawal from the Paris Agreement so there would be no global coordination on climate initiatives. A looming labor issue is what do you do with the 3 million people employed in the clean energy sector (FN5)?
TELECOMMUNICATION. The Biden Administration’s Broadband Equity, Access, and Deployment (BEAD) program, allocated billions of dollars to expand internet access for all (FN6).
While the majority of us have acceptable internet access (note I said acceptable, not great…), there are still millions in rural areas that have low to no internet coverage so tele-education or remote health services are currently just a dream. The incoming president plans to reassess the BEAD program. There is even discussion about pausing BEAD for a complete overhaul.
What this means for current fiber and infrastructure buildout is in the category of “uncertain”. On the other hand, it may also mean a fresh look at less costly alternatives, such as private networks and CBRS. If you read my prior article regarding “U.S.-China telecom relations”, the incoming administration will rightfully continue to safeguard and grow the U.S. telecommunication market providing potential growth for U.S. established companies. A signal to venture capital, private wireless communication companies could be an opportunity.
ARTIFICIAL INTELLIGENCE. A solid bipartisan topic is AI. It was the former president who signed the executive order on AI (aptly named the American AI Initiative). This was largely carried forward during the Biden administration. What may become highlighted in the coming months is a national AI strategy, not only to give the U.S. a competitive edge, but also to help national security. If anything, the U.S. landscape can see an acceleration of implementing AI on a national scale with more federal support.
FOREIGN DIRECT INVESTMENT. This is a massive topic with related intricacies ranging from customs regulations to tariffs. If the new administration follows through with significant tariff increases, we may see companies that rely on overseas suppliers rushing to get orders fulfilled before there is any tariff increase. Indeed I have heard this is happening now. Of course, this means there is the possibility of supply chain and logistics logjams in the interim. Once tariffs are imposed, prices will rise. How the increase in pricing will be offset is still unclear except for some broad pronouncements.
I also think there will be a heightened focus on strengthening the Committee on Foreign Investment (CFIUS). This is a good thing as shell games have been in play for quite a while with foreign investors trying to enter the U.S. Refer to my prior article that discusses the consequences of U.S./China relations.
Overall, there will still be a focus on foreign direct investment (except China), but with a strategic shift toward economic nationalism, especially in key sectors for the U.S’s technological sectors and defense. This can be a good thing.
THE DUALITY OF AMERICA. I started with this thought as I think there is a path forward for acceptable policies that impact U.S. businesses. This means getting both sides working together and requires less bluster and posturing. I am optimistic that clean energy, for example, can be supported while providing more opportunities for oil and gas. Once the practical realities of governance are analyzed, and the political rhetoric subsides, I remain optimistic for America.
About the author
Gary Sumihiro is the founder of Sumihiro Investments, LLC a global strategic consulting firm representing domestic and international companies, and a former appointee of the U.S. International Advisory Council.
Learn more at: www.sumihiroinvestmentsllc.com
FOOTNOTES:
FN1: https://www.linkedin.com/pulse/inside-ceo-rebellion-against-trumps-advisory-councils-swanson-phd
FN2: https://shorturl.at/bz6V3
FN4: http://www.carboncredits.com