Good morning. Here’s your Daily Situational Awareness for Wednesday, 26 July 2023.
- READ TIME: 5 Minutes, 46 Seconds
- Inside the Beltway
- (1) Mayorkas Heads to the House for Grilling, Impeachment Talk
- (2) “Bidenomics” Focus on Fabs Overlooks Supply Chain
- (3) Larry Summers: Bidenomics “Increasingly Dangerous”
- (4) Anthropic CEO: AI Can be Used to Develop Bioweapons
- Domestic INTSUM
- (5) DeSantis Guts Campaign Staff as Reset Continues
- (6) UPS and Teamsters Come to Tentative Deal
- (X) Wall Street Banks’ Hidden Pipeline for Fossil Fuels
- (8) Alaska Airlines Demand Not Signaling Recession
- Russia-NATO SITREP
- (9) Russia Extends Conscription Window
- China & Indo-Pacific SITREP
- (10) China to Face More Restrictions on U.S. Investments
INSIDE THE BELTWAY
- (1) MAYORKAS HEADS TO THE HOUSE FOR GRILLING, IMPEACHMENT TALK: Department of Homeland Security Secretary Alejandro Mayorkas is scheduled to appear before the House Judiciary Committee today to face a grilling from Republicans pushing for his impeachment.
- House Democrats are pointing to a two-year low in illegal immigrant border crossings, while Republicans point out border authorities are sending illegals to ports of entry and aren’t included in the illegal crossing numbers.
- The House Republican Study Committee endorsed impeachment proceedings against Mayorkas.
- Why It Matters: Some Republicans appear to be moving past the “strongly worded letter” response to Mayorkas’ sleight-of-hand border conditions. Republicans so far remain split on initiating impeachment efforts, and the “America First” bloc continually warns that moderate Republicans, in some cases, pose greater challenges than Democrats. The strong language used by the Republican Study Committee suggests Republicans are serious about impeaching Mayorkas. – R.C.
- (2) “BIDENOMICS” FOCUS ON FABS OVERLOOKS SUPPLY CHAIN: Senator Mark Warner (D-VA) said he was concerned that if too many federal funds went to large semiconductor fabricators instead of supporting the whole supply chain, the result would be a weak domestic chip industry.
- Sen. John Cornyn (R-TX), the Republican cosponsor of the CHIPS Act, said bringing chip production back to the U.S. is primarily a national security issue and not simply an “economic proposition.”
- Why It Matters: A trend in “Bidenomics” is a focus on high-profile projects without the requisite supply chain to support them: battery production facilities using 90% components and key minerals from Chinese sources, pushing EV adoption without bolstering the grid or building charging infrastructure, and in this case building semiconductor fabrication facilities without securing domestic sources of key metals. The U.S. defense industry depends on chips for producing advanced weapons and equipment, while China effectively controls most production. – R.C.
- (3) LARRY SUMMERS: BIDENOMICS “INCREASINGLY DANGEROUS”: Former Treasury Secretary Larry Summers said while he largely supports President Biden’s economic policies, the administration’s focus on industrial policy and foreign investment is nationalistic and “increasingly dangerous.”
- Summers added that the U.S. economy’s main challenge was rising costs, not a lack of jobs.
- Why It Matters: Larry Summers is right. The Biden administration’s moves to bring chip fabrication back to the U.S., targeting the Chinese tech industry, and implementing export controls on technology risks further escalation with China. – R.C.
- (4) ANTHROPIC CEO: AI CAN BE USED TO DEVELOP BIOWEAPONS: Anthropic CEO Dario Amodei warned the Senate yesterday that AI could be used to develop weapons of mass destruction, including bioweapons.
- Amodei urged lawmakers to secure AI supply chains and pass legislation to avoid global risks of technology that even its creators may not understand.
- Why It Matters: The current state of bioagent development doesn’t require a purposeful weaponization and release by a malevolent actor; an accidental release of a virus enhanced through “gain-of-function” could be just as devastating, and lab leaks are already too common. The use of generative AI technology could cause an explosion in virus development, making them more lethal and transmissible at a faster rate, while there is no regulatory body that oversees research or safety. – R.C.
- (5) DESANTIS GUTS CAMPAIGN STAFF AS RESET CONTINUES: Florida Governor Ron DeSantis laid off one-third of his campaign staff after recent filings revealed the campaign was not raising enough money to sustain operations.
- Campaign Manager Generra Peck said after a top-to-bottom review, the campaign took aggressive steps to streamline operations and put DeSantis in the best position to win the primary and defeat President Biden.
- Why It Matters: The DeSantis campaign appears to be imploding almost five months from Iowa’s first primary caucus. The campaign is spending money faster than it can raise, and former President Trump’s lead in polling in the first four primary states is increasing. DeSantis has even slipped behind Senator Tim Scott (R-SC) and former governor Nikki Haley in the polls in South Carolina. The falling polling numbers in key primary states may negate any advantage the Never Back Down PAC war chest could give DeSantis in 2024. – R.C.
- (6) UPS AND TEAMSTERS COME TO TENTATIVE DEAL: The Teamsters Union and United Parcel Service (UPS) have reached a tentative contract deal that could avert the planned strike on 01 August.
- Teamsters President Sean O’Brien said UPS put up an additional $30 billion to make the deal, and a vote to finalize the contract will take place from 03 to 22 August.
- Why It Matters: A Teamsters strike appears to have been averted – at least tentatively. However, there’s still a chance that the new contract deal could fall apart during the voting period, leading to a strike. – R.C.
- (7) WALL STREET BANKS’ HIDDEN PIPELINE FOR FOSSIL FUELS: U.S. banks support climate change policies, but they’re also underwriting energy companies’ fundraising rounds – what environmental groups call banks’ “hidden fossil fuels pipeline.”
- From 2016 to 2022, America’s six biggest banks underwrote $266 billion in energy companies’ new bond and equity issuances. On average, that’s $38 billion per year – comparable to the $30 billion of greenhouse gas emissions-linked securities issued in 2021.
- 61% of all U.S. bank financing for oil and gas expansion comes from underwriting bonds and equities.
- Why It Matters: Despite U.S. policymakers’ rhetoric and wishes, fossil fuels are not going away, and banks are simply following the money. JPMorgan’s CEO Jamie Dimon said it best: [Failing to invest in oil and gas] would “be the road to hell for America.” Investors will realize that renewables are not the single energy solution, capital will flow to oil and gas companies, and banks will underwrite more bond and equity raises. – H.B.
- (8) ALASKA AIRLINES DEMAND NOT SIGNALING RECESSION: Alaska Airlines reported strong demand in yesterday’s second-quarter earnings call but noted that domestic fares have likely peaked.
- The company set a record on 30 June for flying the most passengers in a day, and Alaska’s long-haul international seats from the west coast are up 31% year-over-year.
- Why It Matters: Alaska Airlines’ flight demand is consistent with other industry reports, suggesting that a recession isn’t immediately ahead. We expect that domestic and international travel will slow in the fall as we inch closer to a recession. – H.B.
- (9) RUSSIA EXTENDS CONSCRIPTION WINDOW: The Russian parliament’s lower house voted to extend the upper age limit for conscription into military service from 27 to 30 on Tuesday.
- Up until this point, Russian men aged 18-27 were required to serve in the military for one year.
- The bill needs to be approved by the upper house, but little resistance is anticipated to the new rules.
- Why It Matters: Russia is likely deepening its bench of conscripts in anticipation of a longer timeline for armed conflict in Ukraine and possibly with NATO. China, with which Russia maintains a no-limits alliance, is in the queue with the U.S. for conflict in the Pacific over Taiwan. Forces from Russia’s Eastern Military District, along with Chinese Eastern Theater Command forces, have conducted increasingly frequent joint exercises aimed at deterring Japan, the Philippines, and South Korea from supporting the U.S. should conflict break out between the U.S. and China in the Pacific. Russia is likely leaning into a global East versus West conflict scenario. – M.M.
China & Indo-Pacific SITREP
- (10) CHINA TO FACE MORE RESTRICTIONS ON U.S. INVESTMENTS: The U.S. Senate overwhelmingly backed legislation on Tuesday that would require U.S. companies to notify federal agencies of investments in Chinese artificial intelligence and semiconductor manufacturing.
- The restrictions were requested by the Biden administration and are an amendment to the National Defense Authorization Act which is expected to pass without difficulty.
- China’s ambassador to the U.S. warned last week that any further restrictions on technology transfer to China would result in harsh retaliation.
- Why It Matters: China views U.S. restrictions on technology transfer as economic warfare and has already taken measures to push back on U.S.- led restrictions by placing their own restrictions on key rare earth metal exports. Expect China to react poorly to these latest restrictions on AI technology and move to hurt the U.S. where it can. Possibilities include further export controls on rare earth metals, dumping U.S. treasuries, or expanded arms shipments to Russia. – M.M.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge