Cardano's founder on Trump choosing ADA for his crypto stockpile
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CNBC
an hour ago
- CNBC
'Collateral damage': Fund managers lobby Congress over Section 899 to avert foreign investors leaving the U.S.
American fund managers are lobbying Congress over a provision tucked inside President Donald Trump's tax bill that they say could lead to foreign investors "quickly" pulling investments out of the U.S. The "One Big Beautiful Bill Act," which passed through the U.S. House of Representatives in May, aims to penalize foreign-owned firms operating in the U.S. and that are from countries with "unfair foreign taxes" under a provision known as Section 899. It is currently being considered by the Senate. The Investment Company Institute (ICI), which represents fund houses in the U.S., is lobbying Congress for an amendment as it warns the bill in its current form also impacts most foreign investments in U.S. stock markets, according to documents seen by CNBC. "In order to avoid the impact of section 899, portfolio investors are likely to retreat quickly from US equities, leading to capital outflows from the United States," the ICI said in a letter sent to Senator Mike Crapo, the chairman of the Senate Finance Committee, on June 5. "If sustained selling by foreign investors depresses US equity markets, this would harm both US companies and investors." Section 899 aims to introduce retaliatory tax measures against entities from countries that have levies such as the Digital Services Taxes and the OECD's global minimum tax rules. If signed into law, it could impact investors from the European Union, the United Kingdom, Canada, Australia, and Switzerland, among others. The tax would start at 5% and escalate by five percentage points annually to a maximum of 20%, on top of existing taxes, which vary by country and tax treaties. That could dent returns for foreign investors in U.S. equities. In the letter, the ICI also suggests that the U.S. fund management industry, which has collectively invested around $18 trillion in U.S. stock markets, would be "collateral damage" due to the impact of Section 899. "We do believe, however, that the current drafting of proposed section 899 should clarify its scope and avoid discouraging foreign investment in US equity markets through 'investment funds' such as US mutual funds and ETFs and their foreign counterparts (e.g., UCITS funds)," the ICI said. The letter to Senators goes on to say, "section 899 would penalize these funds and their shareholders by taxing passive income from US equity investments. To this end, investment funds would be collateral damage to the intended focus of section 899." Funds typically charge fees as a percentage of assets under management, and a withdrawal by foreign investors, over Section 899 concerns, could lead to lower earnings for the investment management firm. The Senate Finance Committee declined to comment, and Senator Mike Crapo's office did not respond to CNBC's request for comment. Foreign investors own $19 trillion in the U.S. stock markets, $7 trillion in U.S. government bonds, and $5 trillion in U.S. credit, according to data compiled by Apollo Global Management. The ICI said it's largely in support of the U.S. government's attempt to "protect US business interests overseas and to address discriminatory foreign taxes." However, it cautions that the current draft of the bill does the opposite. "Some foreign governments may actually cheer this capital flight from the United States because it benefits their local equity markets, which is not the behavioral incentive that Section 899 seeks to achieve," it said. Yuri Khodjamirian, chief investment officer for Tema ETFs, said investors in Europe who are focused on dividend-distributing U.S. companies would be "thinking quite carefully" about their holdings at this stage. "If suddenly you have to pay tax on that income, why would you hold that?" Khodjamirian questioned. Tema ETFs runs the American Reshoring ETF that is available to both U.S. and foreign investors. Tax experts suggest earnings paid out to foreign investors are more likely to be hit by Section 899 than capital gains and other methods of shareholder distributions. The Tema ETFs investment chief cautioned that the impact on the U.S. equities market would be relatively minimal as U.S. companies, say in the S&P 500, are typically not known for their dividends. "In the US, dividend yields are quite low. There's not a lot of companies paying. And most of the capital gets returned to share buybacks," Khodjamirian told CNBC. "Is that actually going to be that big of an issue then?"
CNBC
2 hours ago
- CNBC
China's rare-earth mineral squeeze puts defense giants in the crosshairs
The automotive and robotics industries have been hit particularly hard by China's rare earth export restrictions in recent weeks, but analysts warn Western defense giants will also feel the heat. Top U.S. and Chinese officials are resuming trade talks in London for a second consecutive day on Tuesday, pushing to de-escalate tensions over rare-earth minerals and advanced technology. The White House has signaled a willingness to ease chip export controls if Beijing accelerates rare earth exports, boosting investor hopes of a breakthrough. Both sides have accused each other of reneging on a preliminary trade deal struck in Geneva last month. China's Ministry of Commerce in early April imposed export restrictions on several rare earth elements and magnets widely used in the automotive and defense sectors. The curbs were part of a response to U.S. President Donald Trump's tariff increase on Beijing's exported products. National Economic Council Director Kevin Hassett on Monday told CNBC's "Squawk Box" that he expected a deal on rare earths to be struck quickly. "So, our expectation is that ... immediately after the handshake any export controls from the U.S. will be eased, and the rare earths will be released in volume, and then we can go back to negotiating smaller matters," Hassett said. China is the undisputed leader of the critical minerals supply chain, producing roughly 60% of the world's supply of rare earths and processing almost 90%, which means it is importing these materials from other countries and processing them. U.S. officials have previously warned that this dominance poses a strategic challenge amid the pivot to more sustainable energy sources. William Bain, head of trade policy at the British Chambers of Commerce, said it appeared some progress had been made on the first day of U.S.-China trade talks, but it remains "absolutely vital" to achieve a further breakthrough on rare earth policy. "We've seen some relaxation over the weekend with licenses granted in sectors connected with robotics and electric vehicles, but if you take, for example, a critical mineral like samarium, within magnets, that's absolutely essential for F-35 fighter jet construction in the U.S," Bain told CNBC's "Europe Early Edition" on Tuesday. "They can't make them without that. And not having access to that is severely affecting both U.S. construction in that area, but also perhaps its national security if that remains in place," he added. Shares of some European defense giants were trading lower on Tuesday morning ahead of the fresh U.S.-China negotiations. German tank gearbox manufacturer Renk tumbled nearly 8% to lead losses on the pan-European Stoxx 600 index. Sweden's Saab and Germany's Rheinmetall, meanwhile, both fell more than 3.5%. CNBC has contacted the U.S. Department of Defense and the European Commission, the European Union's executive arm, for comment. The restrictions imposed by China's Ministry of Commerce in early April require firms to apply for a license for the export of rare earths and magnets. Rare earth elements play an integral role in modern defense technologies, according to the SFA-Oxford consultancy, enabling advanced radar and sonar systems, laser guidance and propulsion technologies in combat environments. Automotive industry groups have complained about the cumbersome process of trying to get necessary approvals, warning of increasing production threats as inventories deplete. China nevertheless appeared to offer U.S. and European auto giants something of a reprieve over the weekend. China's Ministry of Commerce on Saturday said it was willing to establish a so-called "green channel" for eligible export license applications to expedite the approval process to European Union firms. Beijing also granted rare earth licenses to suppliers of U.S. auto giants General Motors, Ford and Jeep-maker Stellantis, Reuters reported on Friday, citing unnamed sources. Gracelin Baskaran, director of the critical minerals security program at the Center for Strategic and International Studies (CSIS), a Washington-based think tank, said it was just a matter of time before the defense industry sounds the alarm over a rare earth shortage — noting that many of them have already done so behind closed doors. "Defense companies are in the front line of impact, given we need thousands of pounds of rare earths in each submarine and fighter jet," Baskaran told CNBC by email. The U.S., European Union and Australia must coordinate supply- and demand-side interventions to boost rare earths production, CSIS' Baskaran said, adding that this need arises primarily because of prevailing price dynamics. "If the price of praseodymium-neodymium (PrNd) oxide—a critical input for rare earth permanent magnets—remains below $60 per kilogram by 2030, nearly half of the projected non-Chinese supply would become financially unviable. On the supply side, this will necessitate measures such as production tax credits and subsidies," Baskaran said. "On the demand side, implementing incentives to procure minerals from allied nations—similar to the provisions in the Inflation Reduction Act—will be essential," she added. Last month, China temporarily paused export restrictions targeting 28 American companies following a trade truce reached between Washington and Beijing in Switzerland. China continued to block exports from that country of seven rare earth metals to the U.S., however. Many of the 28 American companies given a reprieve on dual-use export restrictions are common targets of Beijing's sanctions because of their activity in the defense sector. Henry Sanderson, associate fellow at the Royal United Services Institute (RUSI), a London-based defense and security think tank, said the defense industry hasn't been nearly as vocal as the automotive sector when it comes to concerns over the impact of a rare earth shortage. "Defense is hard because its less transparent, but they definitely use rare earths and rare earth magnets and especially what's called samarium cobalt magnets, but it's a much smaller demand than EVs or robots or anything like that," Sanderson told CNBC by phone. "I'm less clear whether defense is as worried as the civilian industries, but saying that, looking at the level of magnet production in the West, it is very small," he added.
CNBC
2 hours ago
- CNBC
Bulgaria is set to join the euro zone. But its citizens aren't convinced
Bulgaria is set to become the 21st member of the euro zone after receiving sign off from the European Commission and European Central Bank last week — but not everyone is convinced the move is a good idea. Bulgaria's Prime Minister Rosen Zhelyazkov, member of the center-right GERB party, has made joining the euro zone a priority, arguing that it would boost economic stability and growth. However, fears of higher prices and a loss of independence have stoked nationalist-party fueled protests against the country's euro ascension. A recent European Union survey showed that half of Bulgaria's population is against adopting the euro. Economists and experts weighed in on the potential risks to Bulgaria joining the euro, outlining what the eastern European country could lose and gain from the move. "The most immediate concern is a spike in prices during the currency switch, as some businesses may round up prices. Many Bulgarians worry that eurozone membership could erode their purchasing power, especially in poorer rural areas," Valentin Tataru, an economist at ING who covers Bulgaria, told CNBC. Nevertheless, he also noted Bulgaria's currency has long had a fixed exchange rate to the euro and therefore, "the transitional inflation bump should be mild." The second key concern is what giving up Bulgaria's currency, the lev, will mean for the country's independence and sovereignty — ideals for which it has become symbolic according to Andrius Tursa, central and eastern Europe advisor at Teneo. "Its replacement with the euro may be perceived by parts of the population as a loss of national control," he told CNBC. In addition there are concerns about relinquishing control of monetary policy as countries in the euro zone are subject to decisions by the ECB, Tursa added. The Bulgarian National Bank (BNB) would for example no longer solely be responsible for setting the country's interest rates based only on how its individual economy is developing. However, "eurozone countries benefit from lower interest rates due to the credibility of the ECB and reduced currency risk," Tursa pointed out. Lower interest rates typically benefit borrowers as loans and mortgages become more affordable. Joining the euro zone and securing oversight from the ECB could boost economic stability and growth prospects for Bulgaria, Jasmin Groeschl, senior economist for Europe at Allianz SE, told CNBC. Foreign investment could for example increase, she suggested, and the country's gross domestic product would be expected to be boosted by euro zone membership. "Deeper financial integration would strengthen Bulgaria's financial system under the ECB's oversight, enhancing monetary stability," Groeschl explained. "Adopting the euro would strengthen Bulgaria's ties with the EU, enhancing its influence and credibility," she added. Key areas that underpin the economy like trade and tourism could also be supported, Teneo's Tursa said. Many of Bulgaria's key trading partners are in the EU, with most of its exports going to members of the 27-state bloc in 2023 according to data from the country's statistics office. Key sectors include machinery and transport equipment, manufactured goods and food. Tourism has meanwhile become a major contributor to the economy as Bulgaria positions itself as both a summer and winter destination. Over 13 million foreigners visited the country in 2024, official statistics showed. "Bulgaria's accession to the eurozone would facilitate trade and tourism flows with other eurozone countries by eliminating the costs and burden associated with currency conversion," Tursa said, adding that this would be particularly important due to Bulgaria's strong integration into EU supply chains. One risk flagged by the economists and analysts are the political tensions surrounding Bulgaria's euro adoption. "Public opposition to euro adoption has already triggered notable protests, and in the medium term, the issue could become a key driver of rising support for populist and Euroskeptic political movements," Teneo's Tursa explained. But despite local protests and concerns about euro zone ascension, at least in the long term the benefits for the country outweigh any negatives, Allianz SE's Groeschl argued. "The trade-off involves losing some economic autonomy in exchange for deeper integration," she said. "Although Bulgaria would lose some monetary policy control and be subject to strict fiscal rules, the advantages of greater economic stability, reduced transaction costs and stronger integration with the EU market would typically outweigh these disadvantages." ING's Tataru struck a similar tone, saying that because the lev is already tied to the euro, there should not be a major shock. "Joining the euro is one of the most strategic steps Bulgaria can take to secure long-term prosperity and deeper European integration," he said.
