Page 12 - ISO April 2023

INVESTMENT STRATEGY QUARTERLY

“ China-related legislation has picked up in activity in recent months, serving as

one of the few areas of bipartisan compromise in the new Congress... ”

Priorities for the Biden administration in its “competition, not Regulating outbound investment in this manner is uncharted
conflict” agenda have included export control agreements, waters for the US and would introduce a level of uncertainty to
industrial policy, and an upcoming screening mechanism for US cross-border capital flows; Congress is working on parallel
investments in China. International coordination has been a legislation to clarify the details of the review.
major theme of the administration’s strategy, with the US
striking agreements with the Netherlands and Japan respectively In Congress, China-related legislation has picked up in activity in
for a multilateral export control regime targeting China’s access recent months, serving as one of the few areas of bipartisan
to advanced semiconductor manufacturing technology as a key compromise in the new Congress; however, differences in
milestone—which could limit the addressable market and lower priorities and implementation may slow the progress of bills.
revenues for global equipment providers. During the release of TikTok has been in the spotlight as a core focus for China-related
the first round of applications for $39 billion in semiconductor legislation, with a flurry of bills being filed since the new Congress
manufacturing incentives, the administration further stressed began in January—including a House Foreign Affairs bill that
the importance of cooperating with allies as part of a broader passed out of committee on party lines and newly-introduced
vision to make the US into a global leader in semiconductor Senate legislation with backing from the White House. Impacts
production and innovation. Recipients of the funding will have are likelier to be seen in the longer term rather than immediately,
to comply with new rules that prevent most forms of investment but the momentum highlights the increasingly critical stance that
in China-based semiconductor manufacturing capacity. Capitol Hill is taking on Chinese tech—and the potential secondary
impacts for the technology sector at large.
On a broader level, a long-awaited outbound investment screening
mechanism is expected to be released in the coming months,
which would regulate certain outflows of US investment into
China.

KEY TAKEAWAYS:
• Geopolitical risks are on the rise and becoming a more prominent part of the macro investment decision-making process.
• Oil, natural gas, and energy infrastructure are likely to see persistent policy impacts as the availability and expansion of
these economic inputs is more acutely seen as a core national security interest.
• A lesson learned from Russia’s invasion of Ukraine is that the threat of severe economic sanctions is not sufficient as a
means of deterrence, which will place renewed emphasis on military power as a critical national security consideration.
• Economic competition between the US and China is here to stay.

12