Biden and Trump’s comments on semiconductors could ignite a resurgence of global inflation, warns the CEO of one of the world’s largest independent financial advisory firms.
Nigel Green of deVere Group issued this stark warning as S&P 500 futures dropped over 1%, marking the largest single-day decline since April, following remarks from Biden and Trump about semiconductor companies.
The Biden administration is considering restrictions on chipmaking equipment exports to China, while Trump has controversially claimed that Taiwan controls “about 100%” of the US semiconductor business.
Additionally, Trump suggested that Taiwan should compensate the US for defense provisions.
The deVere CEO states: “As these geopolitical tensions escalate, the ripple effects could potentially trigger a resurgence of global inflation.”
“The semiconductor industry is the backbone of modern technology, driving advancements in everything from smartphones to electric vehicles.
“The US and Taiwan are key players in this global supply chain. Any disruption, such as potential export restrictions by the Biden administration or geopolitical tensions fueled by Trump’s comments, can significantly impact global markets.”
The semiconductor sector is already grappling with a severe supply shortage that has persisted for over two years. Restrictions on chipmaking equipment exports to China could exacerbate this situation, further straining the global supply chain.
As supply dwindles and demand remains robust, prices for semiconductors are likely to surge, driving up costs for consumer electronics, vehicles, among other goods that rely on these critical components.
“Rising semiconductor prices could stoke inflationary pressures worldwide. Central banks, which have been facing the delicate balance of nurturing economic recovery while curbing inflation, may face renewed challenges.
“Higher semiconductor costs would contribute to overall inflation, potentially leading central banks to tighten monetary policies sooner than anticipated.
“The Federal Reserve, for instance, might continue to hold rates to combat inflation, despite the risk of stalling economic growth. Could this shift have a domino effect on other central banks, compelling them to adjust their policies accordingly?”
He continues: “Global markets are highly sensitive to semiconductor supply chain disruptions. The recent decline in S&P 500 futures is a testament to the immediate market reaction to these developments.
“Investors are wary of the potential long-term impacts on corporate earnings, particularly in tech-heavy sectors like consumer electronics, automotive, and industrial automation.”
Tech companies, which heavily rely on semiconductors, could see their profit margins squeezed by rising input costs.
This, in turn, says Nigel Green, “could lead to lower stock prices and heightened market volatility. Investors are likely to seek refuge in safer assets such as bonds and gold, further amplifying market fluctuations.”
In the face of these uncertainties, investors need to adopt proactive strategies to mitigate risks.
Diversification remains a key principle. By spreading investments across various asset classes and geographies, investors can reduce their exposure to sector-specific risks.
Additionally, focusing on companies with strong balance sheets and robust supply chain management capabilities can provide some insulation against market turbulence.
Nigel Green concludes: “The importance of semiconductors to global markets and therefore the wider economy cannot be understated. Investors need to be proactive sooner rather than later.”