The life expectancy of companies in the Standard and Poors’ has decreased dramatically over the last fifty years. One such example is Eastman Kodak, which in the late 1990s controlled 90% of the film and camera markets. Yet less than a decade later, Eastman Kodak would file for bankruptcy, leaving most of its 140,000 employees out in the cold. That company illustrates the importance of understanding and adapting to changing world conditions.

After the end of World War II, free trade flourished around the planet, leading to what is commonly referred to as globalization. The processes, rules, and regulations were set primarily by the United States, which has had a profound impact on the world. It led millions out of poverty and grew worldwide economies in not just the developed countries but many the emerging ones as well.

But now, globalization is giving way to protectionism and subsidies. The Biden Administration has in many ways led the change. This administration has pushed bills setting aside $465 billion to subsidize manufacturing computer chips, green energy, and electric cars on US soil. Those subsidies have been complemented by policies further promoting protectionism and nationalism. While I do believe that there are circumstances in which these initiatives are a valid solution,  I am concerned that the Biden administration is taking their policies farther than they should. This could lead to a dramatic change for markets and investments.

“National security adviser Jake Sullivan, who has led the development of much of the protect agenda, previewed the actions in September. Previous U.S. policy, he noted, sought to maintain “relative advantages” over adversaries through a “‘sliding scale approach that said we need to stay only a couple of generations ahead.”

“That is not the strategic environment we are in today,” Sullivan said. “Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”1

The rest of the world is taking notice and developing policies to compete with friend and foe alike. The United States passed the $52.7 billion Chips Act and cut China off from buying the most efficient and effective chips on the market. Now India is offering to pay half the cost of building a chip plant. South Korea is offering significant tax advantages. Seven other market economies are actively considering subsidies to entice chip makers to relocate to their countries.2

That is for chips alone. There are now over 100 countries that are beginning to exam their resources and initiate policies and programs to recruit technology investment. The goal has become to protect their products. Indonesia, for example, has halted exports of the nickel used in batteries to encourage foreign companies to locate their battery factories in Indonesia, and they are not the only ones.

50% of the revenues of the companies in the Standard & Poors’ 500 are generated from overseas. Of all the companies in the United States, fully 43% of the revenues are generated overseas. American companies depend on overseas sales. As protectionism and isolation grows, I find it likely that sales will be impacted in a negative way for American companies who do business outside the US.

I read a lot of analysis of investing and investment trends these days. There is a plethora of articles on the impact of inflation in the United States and the rest of the World. There are dozens of articles on the changing economics of China, India, Southeast Asia, and Europe. There are in depth studies on the impact of the Russia-Ukrainian war. Many more articles and books lay out insights about other investment trends. But I find very little analysis of the impact of “Buy American” national protectionism and its impact on sales and earnings for American companies. Yet it may be as- or maybe more important than inflation. Its impact is very probably going to last considerably longer than inflation.

I believe that basing investment decisions on past data and world revenues will probably not be a winning strategy in 2023. Not long ago, 40% of world GDP was related to free trade. Today, world trade has shrunk to 25% and is continuing to decrease.

I remember studying the Smoot Hawley Tariff Act of 1930. While it was not the catalyst of the Great Depression, it certainly was a major contributor. Smoot Hawley was passed to protect the American farmers by assessing tariffs on agricultural imports and over 20,000 imported goods. Other countries responding by passing their own equivalents to the Act, placing tariffs on goods that the United States exported to those countries. American exports dropped 60% and world trade fell 65%.3 Instead of protecting companies in the United States, it stymied growth. Instead of protecting their competitive position it limited their markets.

In spite of Smoot Hawley, the Great Depression, the contraction of world trade, and the plunge of the stock market in general, there were companies that flourished during that time. I believe that in spite of what looks like an abandonment of free trade initiated by the Biden Administration, there will be great investments that will flourish in the years ahead. That is where we wish our clients to be invested.

Mike Adams

1. Bade, Gavin. “’A Sea Change’: Biden Reverses Decades of Chinese Trade Policy.” POLITICO, December 26, 2022.

2. Richardson, Jack. “The Destructive New Logic That Threatens Globalisation.” The Economist. The Economist Newspaper, January 12, 2023.

3. “Smoot-Hawley Tariff Act.” Corporate Finance Institute, January 9, 2023.