America’s Unique Talent for Hurting Its Best Companies

From Standard Oil to Microsoft to NVIDIA–how Washington keeps stepping on its own toes

 

KEY TAKEAWAYS

• US has a long history of targeting its own corporate leaders through antitrust action and tariffs
• Tariffs originated as a primary revenue source for the U.S. Treasury until 1913, when income tax became official
• Modern tariffs are sold as protectionist but often hurt U.S. companies and shareholders
• NVIDIA and AMD now face a 15% fee to export AI chips to China
• Consumers and investors ultimately bear the cost of tariffs

 

MY HOT TAKES

• The U.S. is uniquely aggressive in disadvantaging its own top companies
• Tariffs marketed as “protectionist” often act as hidden taxes
• The NVIDIA/AMD export fee is essentially an AI chip excise tax
• Tariffs almost always find their way into consumer prices or investor losses
• History proves revenue motivation is never far from the surface in tariff policy
• You can quote me: “We’ve upgraded from taxing imported saddles in the 1700s to taxing artificial intelligence in the 2020s.”

 

Tips are appreciated. There is a great coffee shop in our downtown Manhattan HQ building. Always great music, excellent food, and–dare I say–pretty good coffee. The folks taking orders are really nice and most of them have these great Australian accents. My order is rarely complicated. I typically get a cold brew coffee and a Diet Coke (don’t judge me–we all have vices). Honestly, I need that sometimes in order to stay focused after getting started on this newsletter/blog at 3:30 AM. Paying is easy, the nice Australian guy or gal simply puts the POS device on the counter in front of me. But there’s a hitch. I must first navigate the TIP screen that gives me a choice of 18%, 20%, or 25%. Oh, there is also a “no tip” option that may as well have the word “loser” written on it, because the pressure to click on the numbered buttons is intense. I mean, the server is so nice and those accents make them feel like you are their best friends. No one wants to be a loser.

 

I have been known to get on the occasional soapbox. One of my favorite soapbox issues is how the US Government seems to be hellbent on disadvantageing US companies. It dates back to the trustbusting days of my favorite President Teddy Roosevelt. I don’t want to get into the history of trust-busting, but that era was sort of the groundbreaking of government intervention into private enterprise. PRIVATE ENTERPRISE–as in capitalism! Now, I understand that there are good trusts and bad trusts, but the fact is, that era birthed government suits against private companies.

 

The Sherman Act is at the center of antitrust litigation. It dates back to 1890. EIGHTEEN NINETY! There is a direct thread between the breakup of Standard Oil in 1911 to the breakup of AT&T in 1984, to the ongoing Justice Department litigation of Google.1890! Oh there were also Government suits against Apple and Microsoft, both settled. And I don’t want to forget that there is also an ongoing suit against Meta.

 

Let’s take a step back. Let’s forget about S.O. for a minute. Let’s put Ma Bell–the original inventor of everything worth anything in technology today–on the back burner as well. The rest of those companies either collared or in the process of being collared are THE CROWN JEWELS of American innovation and industry. And by “industry” I don’t mean factories with smokestacks, though I am in no way discounting the importance of American manufacturing, which still makes up some 10% of GDP.

 

Sticking to tech and the digital economy for this discussion, when was the last time you heard of an EU country or the EU itself bringing a suit against one of its own companies? Exactly. How about China? To be fair, China does crack down on some of its leading companies but only for state or ideological control, not necessarily to hinder its business. For the most part, I think that you would agree that the US is somewhat unique in its effort to somehow thwart the success of its industry leaders.

 

Let’s spend a moment on tariffs. Sorry, we can’t avoid this one. If you have been reading any of my notes on tariffs since 2018, you know that I refer to them as tax on US companies. In other words, I am not a fan. Being that I am in a history-lecture kind of mood this morning, I want to treat you to a bit of tariff history this morning. [Malek straightens powdered wig, takes up feather quill pen, and dips it in ink well… cue chamber music]

 

The Revolutionary War was over. The US had won its independence, but it cost a lot of money. Money the US didn’t have, so it had to take on debt. There was a problem, though. How would the US repay its war debts? The young government had no revenue! Enter the Tariff Act of 1789. Enter Alexander Hamilton–not the Broadway show frontman–the first Secretary of the Treasury. He had the tough job of figuring out exactly how to pay those war debts, and the Tariff Act became that vehicle.

 

This is where it gets a little interesting. The US, at the time, was highly reliant on imports, and Hamilton wanted to spur American industry, and he viewed tariffs as a way of doing it. The 1789 Act along with others that would follow would exact a 5% duty on most imports. Higher tariffs like 7 - 10% were charged on certain finished goods that the US wanted to support domestically. Some examples included cotton, wool, pottery, nails, tools, shoes, and saddles. By making imports more expensive, tariffs would cause buyers to turn to cheaper locally produced goods, thus supporting domestic economic growth. Does this all sound a bit familiar? This was the 1790s when Beethoven was still a pop star. 

 

The bottom line, however, is that tariffs were mostly viewed as a government income source. Would you believe that tariffs were a primary income source for the US Treasury up until 1913 when the 16th Amendment created federal income tax? It’s true!

 

Using tariffs for protectionism and and as a trade tool became more prominent in the pre-civil war era seeking to protect US industry. That hit a fever pitch during the Civil War with the Morrill Tariff that exacted 40% + on some manufactured goods. That said, tariffs were still a major income source for the Treasury. Eventually, by the late 1800s, tariffs became more about economic nationalism than as a revenue source. The McKinley Tariffs and Dingley Act set tariffs beyond 50% at one point! As mentioned before, tariffs as a source of Government income would finally end with the passing of the 16th Amendment, which created a Federal Income Tax. After that, tariffs would become a tool for trade protection, almost exclusively.

 

That would eventually die down and they would pop up every now and then, but they would make their way back to the front page of the Wall Street Journal once again in 2018. Side note: the WSJ has been around since 1889–for the record. 😉 In 2018, President Trump in his first presidency sparked a trade war with China and basically put the rest of the world on notice with the largest tariffs since the Smoot-Hawley Tariffs of 1930. Trump 45’s tariffs were all about trade. His goal was to shield US industry, particularly steel, aluminum, manufacturing, and agriculture. He also introduced it as a bargaining chip to combat intellectual property rights abuses by China. Revenue was not a factor.

 

That would change with Trump 47 this year. The initial tariffs launched by the administration were to force Canada, Mexico, and China to do more to combat fentanyl trafficking. Steel, aluminum, and autos would soon follow. Those would be for protectionist purposes. Then came the onslaught of reciprocal taxes which were also designed to advantage US industry. As those tariffs ripened in the market, a new discourse began to emerge around tariffs as income. The One Big Beautiful Bill Act was passed and the incentives would add to the deficit. There are only two ways to fix a deficit: spend less money or collect more revenues. The former is very difficult for lawmakers, and so is the later if they come from income taxes. But wait, what about those revenues from tariffs? Yes, that would become the new soundbite–”we are collecting billions!” The problem is–and I wrote a lot about this last week–those billions are being paid by US CORPORATIONS. Yes! Tariffs are literally impairing US companies! Why would the US want to disadvantage its own companies? 

 

I understand that if tariffs cause a Chinese product to become more expensive than a US-made one, a US consumer will choose it over an import, thus, ultimately hurting Chinese exports. That mechanism only works if US importers pass the costs on to consumers, in which case we are footing the bill. If not, the tariff is simply a tax–a draw on US company profitability. I will also remind you that if you own stock in those companies, it will cost you in stock valuation. So, one way or another, you and I are going to get the bill.

 

In the middle of the night I learned that AMD and NVIDIA, two other crown jewels in American industry, have agreed to pay a 15% fee on exports to China. That’s right, a concession, to allow them to trade with China. That ability to trade was thrown into question as security concerns emerged around artificial intelligence. Apparently that is no longer a concern, because 15% is a lot of money. Revenue. Good for the treasury, good for the deficit, good for you, and not good for your stock in NVIDIA and AMD. Surely similar deals will follow, but at the end of the day, these are another mechanism to thwart US companies… by the US. Confusing, isn’t it?

 

Back in the day, Hamilton championed an infamous Bourbon excise tax. Excise taxes are charged to producers for all sales, foreign and domestic. Bourbon was a big deal back in the day (and still is today) and it seemed a good way to raise more money to pay down that big pile of debt. Who would have thought that all these years later, the government would charge a form of excise tax on AI chips? Unfortunately, that tax will ultimately be paid by shareholders of those amazing stocks. I am stepping off the soap box.

 

I always click the 20% button even though the server pours my cold brew and grabs my Diet Coke in under 30 seconds. It costs almost $10 for the 2 drinks and adding $2 for that most minimal amount of effort seems almost silly. I am paying for the coffee and soda, I am paying sales tax, and now I am being taxed even more with the tip. I am a loser if I click the “loser” button, but also if I click the 20% button–I lose either way. It seems to be the new norm. The server always smiles and thanks me. I suppose I don’t mind.

 

FRIDAY’S MARKETS

Stocks traded higher on Friday as optimism carried the day helping to make up for the losses of the prior week. All eyes are on this week’s inflation numbers–especially in the wake of the President’s firing of the boss in charge of calculating those very numbers.

 

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