Trump Threatens Licenses of TV Stations That Criticize Him

25:45Litboutin is like, I'm going to cut back. I'm going to cut down to profit, get the balance sheet strong. But on paper, Intel also represents everything that this administration wants. A US company with heavy footprint in the United States that on paper can do more manufacturing. The problem is this NVIDIA agreement has nothing to do with manufacturing really.

26:05Carol Massar:Well, our next guest was giving us hints and cues several years ago about the chip wars. And so we're going to talk a bit more about it with Chris Miller. But you set us up so well, as you always do. Ed Ludlow, Bloomberg TV B-Tech co-host joining us there from San Francisco. All right. So let's get to Chris Miller. He wrote Chip War, the fight for world's most critical technology. It was written in 2022. That book made us all sit up and take notice of the importance of semiconductors to the world, to the most developed nations when it comes to economic growth, national security, and so much more.

26:38Chris is professor of international history at the Fletcher School at Tufts University. He does consulting, but he has not consulted for Intel or for NVIDIA. He joins us from Palo Alto, California. Chris, the book laying it out for us three years ago, America's Edge is slipping, undermined by competitors in Taiwan, Korea, Europe and above all China. Should we be shocked by a partnership such as this? Strange bedfellows in a previous life, no? Well, I think from the perspective of 10 years ago, this would have been a pretty surprising pair up. But today there's a real logic for it. NVIDIA is a leader in AI chips.

27:14Intel has been trying to catch up when it comes to AI. But also Intel's got a lot of unique know-how when it comes to building processor chips, which AI servers still require. So certainly on the chip design side, there's differing areas of expertise that both of these companies can bring together. All right.

27:32Carol Massar:But just all of it together, the U.S. taking that 10%, approximately 10 % stake in Intel over the summer. You've got SoftBank, their$2 billion investment now in NVIDIA. What is this? I mean, is this what you thought would happen, need to happen to ensure U.S. remain a dominant player in the semi-space? Well, I think we're going to need to wait and see what implication this announcement has, if any, for Intel's manufacturing business. I think there's no doubt that Intel is going to be an important chip designer in the future, perhaps smaller than it used to be. But they've got a unique position in the market on the chip design side.

28:12But from a national perspective, what really matters is Intel's manufacturing arm. And that's where Intel has really struggled the last couple of years to stay at the cutting edge technologically and also to win customers away from TSMC, the Taiwanese market rival. And today, NVIDIA produces almost all of its most advanced chips with TSMC. There's been a big push from Washington to get companies like NVIDIA to diversify their supply and to try to help Intel become a more successful manufacturer of chips for other companies. The announcement today doesn't really say anything about that, but I think a lot of people will ask whether this is a stepping stone for other U.S.

28:51companies, NVIDIA or some of its peers, to bring more of their manufacturing business to Intel's manufacturing arm.

28:56Carol Massar:So chip war, it is on or where are we? Is it the beginning of the chip war? And I'm just curious, are you starting to think about, I don't know, another book and where it goes from here? Give us give us your thought here. Well, I think we're in the thick of the chip war right now. Next to this news about NVIDIA and Intel, there's a big debate going on in Beijing and in Washington about which companies should be allowed to buy which type of the AI accelerators that NVIDIA specializes in designing that are almost exclusively today produced in Taiwan. on. And so you've got these competitive commercial dynamics intersecting with high geopolitics.

29:37And today you can't really separate the chip industry from the decisions of President Trump or from Chairman Xi. Well, that's a really good point and kind of brings me to that question about Intel specifically and the U.S. taking this unprecedented stake in this chip maker earlier this year. What did you think of that, Chris? Well, I think the U.S. has been pretty clear in its desire, going all the way back to the first Trump administration, through the Biden administration, as well as both houses of Congress, both parties, that it sees Intel's success in manufacturing as important for U.S. national security.

30:12Right now, most of the world's advanced processor chips are produced by one company in one country, Taiwan. And the U.S. wants a more diversified base of manufacturing these ultra-critical chips that are key both for smartphones and computers, but especially for AI. high. And Intel is one of the three companies in the world alongside Samsung and TSMC that can produce these cutting edge chips. And it's the only U.S. company, the only company with a major U.S. footprint, at least right now. And so that's why the U.S. government has been trying to find ways to help Intel out. So what would it take for Intel to be able to compete with TSMC?

30:50I mean, it got money from the U.S. government. It got money. It's getting money from Intel here. As Carol always says, the devil's in the details. And you said, we need to see exactly where this money goes. But what do we need to see to say, okay, this company, this U.S. company is now competing with TSMC? So there's no doubt that Intel needs money, and it's raised some money from SoftBank and the U.S. government. But the key thing that it needs is customers for its advanced manufacturing processes. You'd only prove whether or not they work if you've got at least medium-sized, but ideally large-scale customers that are going to let you produce thousands, tens of thousands, eventually millions of chips on your manufacturing process.

31:28You can't scale up without customers. And right now, Intel's got a couple of smaller customers for its manufacturing business, but it's thus far failed to win a very large-scale customer. And NVIDIA is one example of a company. There are others that could provide a really large contract that would let Intel test out its cutting-edge manufacturing. And right now, I think the entire ecosystem is waiting to see, will it win some big customers that lets it complete that scale out and testing of its cutting edge manufacturing.

31:56Carol Massar:All right. So we're talking with Chris Miller, professor of international history at the Fletcher School at Tufts University, author of Chippewa, the fight for the world's most critical technology. Hey, Chris, one thing I want to ask you, and I want to go back to China. There was a story I was reading this morning by our Javier Blas, an opinion piece. And it was asking, why is China stockpiling so much surplus oil? And one of there were like five or six different reasons. And one of it was, does China fear an interruption in supply beyond U.S. and European sanctions? Oil traders who traffic and intrigue at our only one word, Taiwan.

32:28Carol Massar:Do you believe that there is a strong possibility that there will be a conflict involving Taiwan? And what does that mean for TSMC, who is so crucial in terms of the global chip supply chain? what could that potentially mean for the United States, the global economy? I mean, can you play that out and what the likelihood is? Well, there's no doubt it's a possibility. Nobody knows for certain what the likelihood is. But I think the magnitude of impact is so large that even if you think it's only 5 % or 10 % likely, you've got to take steps to prepare. All of the biggest, most valuable companies in the United States require silicon that today can in some cases only be sourced from Taiwan.

33:14That's true for NVIDIA, true for Apple, true for Google, true for Microsoft, true for Meta. The entire U.S. tech ecosystem relies on Taiwan's expertise. And that's why there's been this push for the last couple of years to find ways to diversify the U.S. from being so centrally exposed to China's decisions about war and peace in the Taiwan Straits.

33:35Carol Massar:And the reality is that the U.S. is still very, very exposed, correct, because of how much TSMC still produces. That's right. I think the U.S. has made a bit of progress, but there's still a long way to go. And it's a long way to go because TSMC is an extraordinarily capable company and the entire Taiwanese ecosystem is just so central to producing the semiconductor hardware that our tech firms and AI firms depend on. What do you think of the politics of this and the fact that TSMC has this facility in Arizona and is working to increase its presence here in the United States. Does it put that at risk?

34:13No, I don't think so. I think TSMC has got a strong signal from its customers that they want U.S. space production. It's got this uncertainty created by the tariffs that incentivizes more investment in the United States. And it's got a signal from the U.S. government, again, across multiple administrations, both parties, that they're going to keep pushing for a bigger U.S. footprint. But I think the challenge that TSMC faces is twofold. First, all of its key R &D remains in Taiwan and will be in Taiwan as far as we can see in the future. So Arizona is helpful in diversifying today's manufacturing, but it doesn't really get you diversification of the next generation.

34:52The second thing is that the ecosystem in Arizona is still less developed than it is in Taiwan. And so sourcing the gases and the materials and all the spare parts and specialized equipment you need for a cutting edge chip plant, it's still harder and more expensive in Arizona than in Taiwan. And that's going to be the case for some time until we keep building out the scale of Arizona. And all of that means that Taiwan is going to stay very, very important for our tech ecosystem for many years to come.

35:18Carol Massar:Chris, really quickly, 30 seconds here. I mean, was President Trump right in his increasing tensions on China? It started in his first term and ramped up in the second. Was he right, especially when you think about semiconductors? And just quickly, if you could. Well, I think the key driver of tensions in this sector is actually China's desire to become self-sufficient. We were in a pretty stable equilibrium in 2015 before the Made in China 2025 plan was released. That happened before any of the U.S. policies to support its own chip industry. And that was really the catalyst for introducing geopolitical tension as a central facet in the chip industry.

35:53All right.

35:54Carol Massar:So glad we could get some time with you. So relevant as always. Chris Miller, author of Chip War and professor of international history at the Fletcher School at Tufts University. Stay with us. More from Bloomberg Businessweek Daily coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English.

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38:34Carol Massar:This is the Bloomberg Businessweek Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern. on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. We're looking at a day where we could potentially see records across four major averages. We're talking about S &P 500, Dow, NASDAQ 100, and Russell 2000. If this happens, it would be the first time since 2021. But we'll see whether or not we get there. In the meantime, curious to see what our next guest has to say about the market environment.

39:13Carol Massar:He is Aaron Kennan, co-founder and chief executive officer of Clear Harbor Asset Management, about$2 billion in assets under management, joining us once again from Stanford, Connecticut. A lot, as always, Aaron, coming at us. We're more than 24 hours from that last Fed decision. I don't know, what do you think is the kind of constructive conversation right now to have about the equity markets in particular, valuations and what seems to be kind of continued moves to the upside? Yeah, we've had quite a run, Carol. And, you know, as you mentioned, the S &P's up historic levels today. And yet we look across the pond and emerging markets are up 28 percent versus the S &P's 14 and Europe's up 18 versus the S &P 14.

40:00So it hasn't just been a U.S. story. I think that's an important narrative for at least our clients to understand. And certainly valuations are not cheap. We're trading at sort of top quartile levels in most equity indices other than the small cap area, which is relatively cheap here. And yet we also know that elevated valuations do not always or never really augur bear markets. Usually there's some economic shock that ensues. And so we're mindful of the valuations, but it's not sort of putting up the cautionary flag too significantly for us here. So we remain reasonably constructive here, particularly now that the Fed is starting to cut rates and we think they'll continue to cut rates, even though they were quite cautious.

40:49OK, so let's talk about that. Why are you convinced that they'll continue to cut rates? Well, if you look at the Fed, they always want to be a little more optimistic, Tim, as it pertains to sort of the economic outlook. And this transcends this Fed chair, Yellen, Bernanke, Greenspan. have all done it. They don't want to sound gloom and doomy. But I would argue that there's still some normalization to occur as it relates to just sort of the Fed funds rate and its relationship to inflation. I also think, too, that we have a Fed that's going to be leaning more towards supporting employment than pulling down the last 50 basis points or 75 basis points of inflation.

41:35I think there's a sense that there's more of a prerogative to do that, to ensure that we have a healthy employment market. And then, of course, you look at the Fed Fund's futures, which is what the market thinks, and the market's calling for five to six rate cuts between now and year end. Maybe it will not be that aggressive. And we heard, of course, Chairman Powell yesterday say, well, we're on a meeting-to-meeting basis. So we don't have any insight. We're just going to look at the data.

42:02Carol Massar:Yeah, right? I mean, just that dot plot. And of course, that's never set in stone. It can change and it will change. But it's just a reminder that there are a lot of different views being discussed there at the central bank. So what do you do with new money in this market environment, Aaron? Well, I think we want to start with the foundational framework of what's the objective of the client? What is their risk tolerance, whether it's an individual, family or an institution? How much liquidity do they need? And then we look at where we're allocating capital around the world, where there are opportunities to maybe stick our necks out a bit.

42:38We still believe in the U.S. equity story for the long run. We still think the AI growth story is in the earlier innings that we're going to go from picks and shovels to a broader opportunity set within software, within AI. And we think, of course, the tariff picture in the U.S. is probably going to mean more reshoring, more investment in the United States going forward. But we also think there's opportunity in places like Europe and emerging markets. In fact, I think what's interesting right now is you have a country like China that is historically selling to the developed world, the United States and Europe.

43:16We've put up tariffs, and they can't flood our markets any longer with a good portion of their goods. And so they're looking at places where they can do that. And I think they're going to be selling more and more of their goods to emerging markets. It could push up emerging market currencies and actually boost capital markets further in those regions. So we're thinking, you know, about asset class level allocation as well as, you know, even within the equity asset class sector level and then geographic level. So there's a lot to talk about there. There is. I'm curious about your view on the U.S.

43:48consumer. We got news yesterday that the average FICO score slipped to 715 in April from 717 a year earlier. It's the second consecutive year over year drop. It's essentially the fastest rate that credit scores have fallen since 2009. We're also seeing some inflation in some places as a result of tariffs or other other things as well, like beef prices, beef prices moving higher, which certainly affects consumers. How is the consumer doing in your view? I think it's a tale of two stories, Tim. I think you just alluded to half the country, which doesn't own financial assets, unfortunately, haven't been able to sort of hedge this rising inflationary price that we've seen over the last five years or so.

44:35And you have retail sales recently that indicated relatively robust numbers. But then when you look beneath the hood to your question, where is the retail sales growth really happening at the unit level? It's happening at the upper quartile, upper decile of the economic stratum in the United States. The lower half, they have credit card debt. They have auto loans. If they're lucky, they have a mortgage. But that's all liability. That's not asset. And so we have this sort of bifurcation in the consumption pattern in the U.S. I think it's one reason why the Fed's leaning towards the dovish side, why they cut rates, and they'll continue to cut them.

45:14Carol Massar:so my sister had shared something with me a little while ago and i'm forgive me i'm trying to find out who the individual but it was essentially i think it was a european ceo or something who basically said i don't want to be a rich man in a poor country and i just think this kind of resonates with me and we've talked about this k-shaped recovery and economy so people who are in the market and have a good job and doing well and own a house so many who don't And you kind of laid it out for us. I mean, isn't that a problem? Isn't that a problem today? Continues to be a problem. And I don't know, something that ultimately is going to be playing out, like in our economy, in our markets.

45:53Carol Massar:And forgive me, it's a serious question, Aaron. I'm giving you about 40 seconds. Yeah. Well, we have a widening maldistribution of wealth. But if you look at where we were 50 years ago, where we were 100 years ago, and even where we were 30 years ago, you know, it's sometimes easy to think that, you know, we have it worse today among large cohorts than we did 50 years ago. But the rising wealth boat has lifted almost all tides. It's just that the maldistribution of existing wealth has widened. And so I think that the base level of sort of quality of life has improved dramatically for the lower quartile of Americans relative to 50, 75, 100 years ago.

46:40And I think, you know, it's good to keep that in mind.

46:43Carol Massar:Always good also to get some time with you. Aaron Kennan, co-founder, CEO of Clear Harbor Asset Management. This is the Bloomberg Businessweek Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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