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Are Trump's tariffs on Brazil really about China? · The Financial Exchange Show

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  Speaker 2: Chuck, Mark and Tucker with you here and as we
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  Speaker 2: kick things off today, our top story is an announcement
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  Speaker 2: from after the close yesterday where I think it was
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  Speaker 2: around maybe six pm or so that I saw this,
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  Speaker 2: the actual letter sent from President Trump to the Brazilian
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  Speaker 2: president indicating that the Trump administration was going to be
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  Speaker 2: imposing a fifty percent tariff on Brazilian imports effective August first,
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  Speaker 2: this taking a similar form to the other letters. The
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  Speaker 2: key difference here is that if you actually read through
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  Speaker 2: the letter that was sent, most of it doesn't really
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  Speaker 2: have anything to do with trade, but instead has to
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  Speaker 2: do with President Hyer Bolsonaro, who was the president of
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  Speaker 2: Brazil prior to Luna coming into office and currently is
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  Speaker 2: on trialers about to be facing a trial for charges
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  Speaker 2: related to an alleged coup attempt. I'll read a couple
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  Speaker 2: of quotes here from the letter. This trial should not
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  Speaker 2: be taking place. It is a witch hunt that should
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  Speaker 2: end immediately, And so that the Trump administration basically saying, look,
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  Speaker 2: you're putting the former president on trial, who I happen
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  Speaker 2: to like. You need to stop this otherwise I'm going
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  Speaker 2: to impose tariffs The Brazilian President, Lula has responded by
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  Speaker 2: saying any unilateral rate hikes will be responded to using
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  Speaker 2: Brazil's economic reciprocity law. The sovereignty, respect and in transident
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  Speaker 2: defense of the Brazilian people's interests are what guide our
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  Speaker 2: relations with the world. So we're left to try to,
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  Speaker 2: you know, make sense of this and navigate. You know,
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  Speaker 2: what's happening here? Is this going to go into effect?
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  Speaker 3: Why? Now? Like, what's there?
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  Speaker 2: There are a few different things going on here, Mark,
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  Speaker 2: I'm interested to get your thoughts before we go further.
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  Speaker 4: Well, it's it's hard to analyze this through objective economic lens, Chuck,
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  Speaker 4: because we don't know a lot at this point.
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  Speaker 3: Well, we do know, we know some things.
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  Speaker 4: Well yeah, okay, so let's let let's let's let's.
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  Speaker 3: Talk about it from an objective economic lens. Okay.
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  Speaker 2: The United States has a trade surplus with Brazil, meaning
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  Speaker 2: we export more to Brazil than we import from them.
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  Speaker 2: So we know that this is not about balance of trade.
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  Speaker 4: Ro I'm sorry, I meant it's economic impact. Yeah, sorry,
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  Speaker 4: go ahead.
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  Speaker 2: So we know that this is not about balance of trade, yeah,
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  Speaker 2: because if that were the key reason, you would simply
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  Speaker 2: not be imposing any meaningful tariff on Brazil because we
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  Speaker 2: export more to them than they export to US. So
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  Speaker 2: it's it's not that. Is this as the letters suggest
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  Speaker 2: Yusts related specifically to the trial of Bolsnaro.
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  Speaker 3: Maybe maybe not. I don't know.
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  Speaker 2: I have some other theories that I'll get into it
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  Speaker 2: as far as where this goes, and so can we
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  Speaker 2: believe that this is actually going to end up going into.
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  Speaker 4: Okay effect here, Chuck, what I meant to say was
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  Speaker 4: this is so crazy. I don't know what to say.
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  Speaker 4: As you pointed out, we have a surplus with these folks,
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  Speaker 4: not a deficit. This stated purpose of tariffs, at least
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  Speaker 4: under this regime is to remedy deficits as a national
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  Speaker 4: security matter. Alternatively, the stated purpose might be to reshore something.
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  Speaker 4: We only make coffee, as I understand it, in Hawaii
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  Speaker 4: and Puerto Rico, maybe little bits elsewhere, but this is
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  Speaker 4: not a major industry for US, so none of the
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  Speaker 4: traditional justifications for tariffs apply here. This seems to be
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  Speaker 4: this This gets into an area that I'm not really
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  Speaker 4: qualified to comment on, but it does seem, just based
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  Speaker 4: on his letter, to be based totally on his personal
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  Speaker 4: view that a buddy of his should not be prosecuted
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  Speaker 4: by the courts of another country. That seems really odd
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  Speaker 4: to me.
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  Speaker 2: Which if look, if if someone wants again, I always
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  Speaker 2: find that it's best to try to put myself in
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  Speaker 2: kind of those shoes, just to be like, Okay, how
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  Speaker 2: would I feel about this. Let's say that someone from
• 5:18
  Speaker 2: pick a random country. Do we do we have like
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  Speaker 2: a random country generator? No, we need like someone not
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  Speaker 2: the UK, because we have like a very special relationship
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  Speaker 2: with the UK. Let's say that it's a country that
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  Speaker 2: we have like normal relations with, but.
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  Speaker 4: Like, well not anymore. Canada No, No.
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  Speaker 3: Like Cannon is not.
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  Speaker 2: They're a neighbor, like they're right there, like pick, like
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  Speaker 2: just a random Picklike Spain.
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  Speaker 3: Okay, Spain.
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  Speaker 2: If Spain came to us and I don't even know
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  Speaker 2: who the president of Spain is, I don't even know
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  Speaker 2: if they have a president or a prime minister. And
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  Speaker 2: quite honestly, and they have a king too. Yeah, everyone's
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  Speaker 2: got kings these days, like they're very in fashion. In
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  Speaker 2: any case, Spain comes to us and sends us a
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  Speaker 2: letter in says, hey, you need to change your laws
• 6:05
  Speaker 2: regarding I don't know, you gotta change your laws regarding
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  Speaker 2: marijuana usage. Otherwise we're going to impose penalties on the
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  Speaker 2: export of goods to Spain.
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  Speaker 3: We'd look at them and we go bug off. Yeah, no, no,
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  Speaker 3: thank you, Like you're.
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  Speaker 2: Not getting involved in our internal affairs. And but that's
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  Speaker 2: the right thing to do. Like there's a reason why
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  Speaker 2: nations have sovereignties because they they have the authority to
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  Speaker 2: do so based on you know, whether it's the will
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  Speaker 2: the people or whatever the governing charter of the country is.
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  Speaker 2: So I think that it's not surprising to me that
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  Speaker 2: the Brazilian president is like.
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  Speaker 3: No, I'm not gonna do this, or you kidding me.
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  Speaker 3: But I think this gets it.
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  Speaker 2: The question of is the stated reason in the letter
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  Speaker 2: the actual meet here, and this is where I have questions.
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  Speaker 2: And I think the reason that I bring this up
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  Speaker 2: is because if you go to any other countries I
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  Speaker 2: just outlined and say change what you're doing internally, they're
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  Speaker 2: gonna say no, like that's our thing. Like yeah, we
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  Speaker 2: can talk about how we, you know, conduct business outside
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  Speaker 2: our borders, but no, internally, that's that's us.
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  Speaker 3: You you don't get.
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  Speaker 2: Involved where I think this is interesting to me is
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  Speaker 2: if you look at the last couple of months. Uh,
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  Speaker 2: there's been a lot of chatter between Brazil and China
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  Speaker 2: about deepening relations. And you also just came off of
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  Speaker 2: this brick summit that happened in Brazil.
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  Speaker 3: Was it last week? I think it was. Is that wrong?
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  Speaker 3: Am I wrong?
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  Speaker 2: I think it was last week that that was happening.
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  Speaker 2: And so you've got a number of different things. There's
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  Speaker 2: been you know, talk about Huawei building you know, new
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  Speaker 2: facilities in Brazil. There's Brazil China talking about, you know,
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  Speaker 2: importing more stuff from Brazil. And so I look at
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  Speaker 2: this and I look at it few different things, and
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  Speaker 2: I realized this is kind of, you know, trying to
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  Speaker 2: tie a few disparate things together and make something out
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  Speaker 2: of them. But there's been a lot of chatter about
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  Speaker 2: Brazil and China deepening ties, which I don't think the
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  Speaker 2: Trump administration particularly likes.
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  Speaker 3: There has been.
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  Speaker 2: Clearly an emphasis from the Trump administration on trying to
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  Speaker 2: isolate China in these negotiations. I look at the Vietnam
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  Speaker 2: deal from a couple of weeks ago. Is the template
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  Speaker 2: where transhipments are taxed at double the rate on tariffs
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  Speaker 2: as things that are direct from Vietnam. And so I
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  Speaker 2: look at this and say, is this really about China
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  Speaker 2: and just using this as something that is, you know,
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  Speaker 2: front and center to try to put this out here,
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  Speaker 2: just because if there's one thing I think the Trump
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  Speaker 2: administration has learned over the last three months, if they
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  Speaker 2: try to go directly up against China, China's gonna stop
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  Speaker 2: the rare earth exports. And the US can't deal with
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  Speaker 2: that right now. No one in the world can deal
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  Speaker 2: with that right now, because China produces most of the
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  Speaker 2: rare earth materials needed for electric motors and this and
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  Speaker 2: that and and whatever.
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  Speaker 3: And so I look at.
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  Speaker 2: This happening on the same day, and here's where I'm
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  Speaker 2: going to probably lose everyone in the process. But did
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  Speaker 2: anyone I'm sure that some of you noticed the first
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  Speaker 2: headline on CNBC MP Materials is a rare earth miner
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  Speaker 2: out of California. They're the only rare earth mine in
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  Speaker 2: the United States. And did you happen to see that
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  Speaker 2: the DoD agreed to a four hundred million dollar investment
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  Speaker 2: in this company with a whole bunch of you know,
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  Speaker 2: basically productive like minimum price levels and minimum buying levels
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  Speaker 2: for the next decade. I look at this and I
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  Speaker 2: think what the Trump administration is trying to do here.
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  Speaker 2: I don't know if they're going to be successful at it,
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  Speaker 2: but I think they are trying to reassess the China strategy,
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  Speaker 2: the China containment strategy that they had, and a lot
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  Speaker 2: of this stuff is coming in kind of different ways,
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  Speaker 2: but I think this is more tied to that and
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  Speaker 2: them trying to go back to the China well and
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  Speaker 2: you know, have a firmer stand than they were able
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  Speaker 2: to take a couple months ago. Maybe now that the
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  Speaker 2: reconciliation packages passed and they have a little bit more
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  Speaker 2: leeway to, you know, do some different things. This is
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  Speaker 2: kind of where I'm at on this, because if it
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  Speaker 2: simply is, hey, we're going to impose a fifty percent
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  Speaker 2: tariff because you're prosecuting someone internally and we don't like that.
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  Speaker 2: I don't know that there's much meat on that bone.
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  Speaker 2: But how does he the dog doesn't hunt?
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  Speaker 4: How do we win if they I suppose there are
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  Speaker 4: back channel discussions going on, we want them to gradually
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  Speaker 4: decouple or at least back off on, say a couple
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  Speaker 4: of their closer ties arrangements with China. I suppose they
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  Speaker 4: do that, but they can't say it.
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  Speaker 3: Now.
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  Speaker 4: This sort of gets into like the Cuban missile crisis negotiation.
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  Speaker 4: It does back channel stuff like we couldn't say what
• 10:57
  Speaker 4: we gave up, Soviets couldn't say what they gave up.
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  Speaker 4: Everybody kind of save face. Nobody knew what the hell
• 11:02
  Speaker 4: was going on for ten years. How does either side
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  Speaker 4: win from that other than that we back down and
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  Speaker 4: they back but China is going to recognize that they
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  Speaker 4: did that and pressure them in other ways. I get you, Chuck,
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  Speaker 4: and I respect your attempt to rationalize what is, on
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  Speaker 4: the surface a nutty move, but that seems a little
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  Speaker 4: deep for this for the type of thinking that we've
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  Speaker 4: seen this crew exhibit so far. I hope you're right,
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  Speaker 4: because that makes sense.
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  Speaker 2: But we'll see again if it actually is just, hey,
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  Speaker 2: we're gonna put this fifty percent, you know, tariff in place.
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  Speaker 2: I think that the Trump administration has to be careful
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  Speaker 2: of a number of different things. The first is just okay,
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  Speaker 2: it's very clear that Trump would prefer Bolsnaro to be
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  Speaker 2: the Brazilian president. Am I wrong on that?
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  Speaker 4: I guess that's what he said in his lettership going
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  Speaker 4: back to his first term, Like it's they're pretty close
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  Speaker 4: in terms of like how they were during the first term.
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  Speaker 4: He says that about everybody. But yeah, no he doesn't.
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  Speaker 4: He know, I get along so well with him.
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  Speaker 2: So anyways, I digress into just meaningless nothinglessness. But we
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  Speaker 2: need to like focus on the fact that he would
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  Speaker 2: rather have Boalsnaro there, plain and simple, like he does
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  Speaker 2: not like Lula. He would prefer Baalsonnaro. The question is
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  Speaker 2: does this cause the same kind of backfire that it
• 12:22
  Speaker 2: did in Canada, where, Hey, the Canadian election looked like
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  Speaker 2: it was heading away from uh, I'm totally forgetting the
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  Speaker 2: guy's name, is it Carney? Yeah, looked like it was
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  Speaker 2: heading away from Karnie. Trump imposes you know, tariffs and
• 12:37
  Speaker 2: threatens Canada, and Carney comes away and is like, Okay,
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  Speaker 2: I took this thing classic. You wonder if it ends
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  Speaker 2: up causing the same thing in Brazil, where Lula's popularity
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  Speaker 2: has been bad to quite bad over the last you know,
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  Speaker 2: year or so, and you wonder if this ends up
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  Speaker 2: spurring it on and he ends up winning another term
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  Speaker 2: next October when the Brazilian election is So these are
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  Speaker 2: things that I think.
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  Speaker 3: About as we go through this, just take a quick break.
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  Speaker 2: When we come back, we'll stop talking about tariffs because
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  Speaker 2: quite honestly can't do it anymore. Let's instead talk a
• 13:07
  Speaker 2: little bit about the Fed, outs the FED and tariffs.
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  Speaker 3: Great more tariffs.
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  Speaker 2: All right, so we just talked about the Trump administration
• 14:17
  Speaker 2: looking to impose a fifty percent tariff on Brazil, which
• 14:21
  Speaker 2: clearly is not related to trade deficit. But I think
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  Speaker 2: even though they're publicly saying, hey, it's about Balsonaro, I
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  Speaker 2: suspect this is more about China than anything else. We'll
• 14:34
  Speaker 2: we'll have to see how this ends up playing out
• 14:36
  Speaker 2: to see, you know what we get there. We then
• 14:39
  Speaker 2: get to the other announcement from the Trump administration yesterday,
• 14:42
  Speaker 2: and this was posted on true social I'll read the
• 14:45
  Speaker 2: post from the President. I'm announcing a fifty percent tariff
• 14:48
  Speaker 2: on copper, effective August first, twenty twenty five, after robust
• 14:52
  Speaker 2: national security assessment. Copper is necessary for semiconductors, aircraft ships,
• 14:56
  Speaker 2: ammunition data centers, lithium ion batteries, radar systems, missile defense systems,
• 14:59
  Speaker 2: and even high personic weapons, of which we are building many.
• 15:02
  Speaker 2: Copper is the second most used material by the Department
• 15:04
  Speaker 2: of Defense. Why did our foolish and sleepy leaders decimate
• 15:07
  Speaker 2: this important industry. This fifty percent tarif will reverse the
• 15:09
  Speaker 2: Biden administration's thoughtless behavior and stupidity. America will once again
• 15:13
  Speaker 2: build a dominant copper industry. This is, after all, our
• 15:17
  Speaker 2: Golden Age. So the Brazil one I can get to
• 15:21
  Speaker 2: a place where I'm like, okay, like this makes sense.
• 15:24
  Speaker 2: The copper one I look at and I go, okay,
• 15:26
  Speaker 2: this is you know, not really making sense to me.
• 15:30
  Speaker 2: And the reason why is twofold well threefold.
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  Speaker 3: Actually.
• 15:35
  Speaker 2: The first is, okay, if you think copper is that important,
• 15:40
  Speaker 2: why are you making it harder and more expensive for
• 15:43
  Speaker 2: American companies to get copper?
• 15:45
  Speaker 3: Is that is that fair? Mark? I think so? Yeah.
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  Speaker 3: The second piece is.
• 15:53
  Speaker 2: If it really is something that is, if it's that
• 15:59
  Speaker 2: critical to national security, then in the first segment we
• 16:02
  Speaker 2: discussed the Defense Department making this investment in MP what's
• 16:07
  Speaker 2: the name of it, MP Materials, the rare earth minor
• 16:10
  Speaker 2: out of California, in order to boost up American production
• 16:15
  Speaker 2: of rare earths. Well, why are you not taking the
• 16:18
  Speaker 2: same approach with copper?
• 16:19
  Speaker 1: Then?
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  Speaker 2: Right, If if it's that critical for national security, then
• 16:24
  Speaker 2: from an industrial policy perspective, something like the MP Materials
• 16:28
  Speaker 2: deal would make more sense than the tariff side of things.
• 16:33
  Speaker 2: The third piece, and the reason why this doesn't make
• 16:35
  Speaker 2: sense is Okay, if it's really important to be able to,
• 16:38
  Speaker 2: you know, in general, manufacture things in the United States.
• 16:42
  Speaker 2: By imposing a tariff on copper, you're making it more
• 16:45
  Speaker 2: expensive to manufacture them in the US relative to other
• 16:48
  Speaker 2: parts of the world, and so stuff might simply go
• 16:51
  Speaker 2: and be made elsewhere. If a company building a plant
• 16:54
  Speaker 2: in the United States, that makes okay, let's say that
• 16:58
  Speaker 2: they make MYONN batteries. If the cost of copper in
• 17:02
  Speaker 2: the US is higher than elsewhere, then instead of importing
• 17:06
  Speaker 2: the copper into the United States in order to make
• 17:08
  Speaker 2: the batteries, won't you just say I'll make the batteries elsewhere.
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  Speaker 4: You know, there's one argument for making copper more expensive,
• 17:14
  Speaker 4: which is it might induce more domestic production and for
• 17:17
  Speaker 4: national security reasons that might be desirable. So the rationale,
• 17:20
  Speaker 4: the rationale is not nonsensical. The only problem is he
• 17:25
  Speaker 4: cites the stupidity of past leaders, past administrations. He was
• 17:28
  Speaker 4: president for four years. We have data for those four
• 17:31
  Speaker 4: years during his first term. Now this is not an indictment.
• 17:34
  Speaker 4: I'm simply pointing out that he's got to explain what
• 17:36
  Speaker 4: he's going to do differently this time. During his first term,
• 17:38
  Speaker 4: Industrial production and mining that's copper, nickel, lad and zinc.
• 17:41
  Speaker 4: So there's other stuff in there. Fell by eleven percent
• 17:44
  Speaker 4: from the day he took office until immediately before COVID,
• 17:48
  Speaker 4: so we were mining less. Now there's other stuff besides
• 17:51
  Speaker 4: copper in there, sure than we were at the end
• 17:53
  Speaker 4: of his first term before COVID. I'm giving him a
• 17:55
  Speaker 4: real break here. It'd be like not counting the Great
• 17:58
  Speaker 4: Recession on George W. Bush. George W. Bush would look
• 18:01
  Speaker 4: like Ronald Reagan, but we count the Great Recession.
• 18:03
  Speaker 3: With Trump, they wouldn't look like Ronald Reagan was handsome.
• 18:07
  Speaker 3: He was better looking.
• 18:10
  Speaker 4: Wow, yes, on so many levels.
• 18:11
  Speaker 3: You're right.
• 18:12
  Speaker 4: Let's not get started on Reagan's physical attributes because it
• 18:15
  Speaker 4: would take the whole show. But the point is we
• 18:17
  Speaker 4: were doing less of it at the beginning at the
• 18:18
  Speaker 4: end than we were at the beginning. So Trump Trump
• 18:21
  Speaker 4: may want to ask, what did I do wrong in
• 18:22
  Speaker 4: my first term and by the way it went up
• 18:24
  Speaker 4: under Biden? But I'm not going to credit Biden or
• 18:27
  Speaker 4: blame Trump necessarily for those results. But the data is
• 18:31
  Speaker 4: telling there are long term structural changes that need to
• 18:34
  Speaker 4: be made if we want to make more copper here,
• 18:36
  Speaker 4: and actually maybe pushing up its price and inducing more
• 18:39
  Speaker 4: people to get into the copper mining business. Here is
• 18:42
  Speaker 4: a good idea, but you do have to restrict imports
• 18:45
  Speaker 4: at the same time. And to your point, it would
• 18:47
  Speaker 4: make it would make the creation of a lot of vital
• 18:50
  Speaker 4: technologies tougher in the in the short run while we
• 18:52
  Speaker 4: were adjusting.
• 18:53
  Speaker 2: I guess my question is, like I see this MP
• 18:56
  Speaker 2: Materials deal, which I got to say, like, I think
• 18:58
  Speaker 2: this is just a brilliant move, Like I think that
• 19:03
  Speaker 2: this is like the template that I would use for
• 19:06
  Speaker 2: industrial policy if I were trying to, you know, specifically
• 19:09
  Speaker 2: focus on making something in the United States. And so
• 19:12
  Speaker 2: I see the Trump administration, I'm literally the same day
• 19:15
  Speaker 2: being like, hey, here's this great policy that we unveiled
• 19:18
  Speaker 2: for rare earths. And then I see the copper one,
• 19:20
  Speaker 2: and I'm like, so, what gives. Let's take a quick
• 19:24
  Speaker 2: break here. When we come back, we got Wall Street
• 19:26
  Speaker 2: Watch after this.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:53
  Speaker 1: Street Watch a complete look at what's moving markets so
• 19:56
  Speaker 1: far today right here on the Financial Exchange Radio Work well.
• 20:01
  Speaker 5: Now the day of tariff news for Wall Street after
• 20:03
  Speaker 5: President Trump announced today fifty percent tariff on Brazilian goods
• 20:06
  Speaker 5: and also said the fifty percent tariff on imported copper
• 20:10
  Speaker 5: will take effect on August first. Right now, Dow is
• 20:14
  Speaker 5: up by three tenths of one percent or one hundred
• 20:17
  Speaker 5: and twenty five points, SMP five hundred completely flat, and
• 20:21
  Speaker 5: the Nasdaq is off by about four tenths of one
• 20:24
  Speaker 5: percent or seventy nine points. Rusted two thousands off by
• 20:27
  Speaker 5: two tenths of one percent. Ten year Treasure reeled up
• 20:31
  Speaker 5: by two basis points now at four point three six percent,
• 20:35
  Speaker 5: and crude oil is down over one and a half
• 20:38
  Speaker 5: percent lower today training at sixty seven dollars and twenty
• 20:41
  Speaker 5: four cents SA Beryl. Big news in packaged foods this
• 20:45
  Speaker 5: morning after the Italian candy maker behind Ferrero agreed to
• 20:49
  Speaker 5: buy cereal giant w K Kellogg for about three point
• 20:53
  Speaker 5: one billion dollars. W K Kellogg is best known for
• 20:56
  Speaker 5: making childhood staples, including fruit loops and frosted flakes. Wk
• 21:00
  Speaker 5: Kellogg's shares are surging thirty percent on that news. Meanwhile,
• 21:04
  Speaker 5: the Defense Department will become the largest shareholder in Rare
• 21:08
  Speaker 5: Earth minor MP Materials after agreeing to buy four hundred
• 21:11
  Speaker 5: million dollars of its preferred stock MP Materials, jumping over
• 21:16
  Speaker 5: fifty percent on that Delta Airlines reported earnings ahead of
• 21:20
  Speaker 5: the opening bell that beat analysts expectations, where its quarterly
• 21:23
  Speaker 5: profit was up sixty three percent from a year ago.
• 21:27
  Speaker 5: Delta also reinstated is twenty twenty five profit outlook. Delta
• 21:32
  Speaker 5: up by thirteen percent on its earnings, while other airlines
• 21:35
  Speaker 5: are seeing gains as well, including United Airlines up over
• 21:39
  Speaker 5: eleven percent. AMD climbing over three percent after the chip
• 21:43
  Speaker 5: maker was upgraded to a buy at HSBC, where it's
• 21:46
  Speaker 5: higher than expected pricing for its new AI chip could
• 21:50
  Speaker 5: add significant upside to revenue and shares in ConAgra Brands
• 21:53
  Speaker 5: down by three percent after the maker of Slimgym and
• 21:56
  Speaker 5: Swiss Miss Hot chocolate posted disappointing quarterly results and an
• 22:01
  Speaker 5: annual outlook that missed expectations. I'm Tucker Silva and that
• 22:06
  Speaker 5: is Wolstrey watch Mark.
• 22:08
  Speaker 2: We had a piece in the Bloomy Berg. It's titled
• 22:11
  Speaker 2: fresh Tariff games are leaving small businesses dazed and.
• 22:15
  Speaker 3: This gets it.
• 22:16
  Speaker 2: Something we've talked about the last couple of days, which
• 22:18
  Speaker 2: is a lot of businesses have spent, you know, the
• 22:21
  Speaker 2: last few months that a lot of businesses that you know,
• 22:24
  Speaker 2: import goods have spent the last few months trying to
• 22:26
  Speaker 2: figure out, Okay, what's my plan because I don't want
• 22:28
  Speaker 2: to be dealing with these you know, high China tariffs.
• 22:32
  Speaker 3: And they may have.
• 22:32
  Speaker 2: Come up with a plan to import from Vietnam or Malaysia,
• 22:36
  Speaker 2: Thailand instead, wherever it might be. And then this week
• 22:41
  Speaker 2: they get hit with the idea that, okay, we might
• 22:43
  Speaker 2: be facing higher tariffs on those countries in the next
• 22:47
  Speaker 2: few weeks. And again the market has done a pretty
• 22:50
  Speaker 2: good job of just shrugging this off. By the way,
• 22:51
  Speaker 2: I mean, you look at the S and P five
• 22:53
  Speaker 2: hundred this week and what it's done, and effectively the
• 22:58
  Speaker 2: S and P five hundred is flat this week, like
• 23:00
  Speaker 2: hasn't really moved, went down on Monday, down a bit
• 23:03
  Speaker 2: on Tuesday, up yesterday, and it's basically flat this week.
• 23:07
  Speaker 3: And so I guess.
• 23:09
  Speaker 2: The question is, you know, to this point, if we're
• 23:16
  Speaker 2: talking about both the market and the economy, and those
• 23:19
  Speaker 2: are two distinct things, obviously, the market you can make
• 23:23
  Speaker 2: the case, look gets rallied back to not back to,
• 23:26
  Speaker 2: but beyond an into new all time highs because the
• 23:31
  Speaker 2: worst tariffs were taking off the table in each situation,
• 23:35
  Speaker 2: and the impact from the ones that are in place
• 23:38
  Speaker 2: currently has been I would say minimal to this point.
• 23:43
  Speaker 2: I don't think we've seen like no impact, but the
• 23:45
  Speaker 2: impact has been minimal to this point, and so markets
• 23:49
  Speaker 2: have been able to carry on.
• 23:50
  Speaker 3: Is that a fair statement on equity?
• 23:52
  Speaker 4: Mind, I don't know if they're taking Yeah, they don't
• 23:54
  Speaker 4: seem to be taking the taf threat seriously.
• 23:57
  Speaker 2: With the real economy. I think by and large, what
• 24:01
  Speaker 2: we have seen to this point is no evidence the
• 24:06
  Speaker 2: tariffs have caused any inflation yet. But it's probably too
• 24:08
  Speaker 2: early to definitively say that.
• 24:10
  Speaker 4: Unless inflation would have been lower without them.
• 24:12
  Speaker 2: But yeah, possible, But we still need I think, another
• 24:15
  Speaker 2: you know, six months or so to be able to
• 24:17
  Speaker 2: get the full look at this, just because we really
• 24:19
  Speaker 2: only have you know, a few weeks where tariff goods
• 24:21
  Speaker 2: might have actually made it to store shelves. So I
• 24:24
  Speaker 2: think that it's too early to tell on the inflation side,
• 24:27
  Speaker 2: but hey, there hasn't been anything that's shown up there
• 24:30
  Speaker 2: yet on the employment side. The overall job's growth numbers
• 24:38
  Speaker 2: have been slowing, but still fine and probably fine just
• 24:42
  Speaker 2: because there are signs that the overall labor force is
• 24:45
  Speaker 2: not growing at the same pace that it was growing
• 24:47
  Speaker 2: at previously. We are seeing small businesses struggling in terms
• 24:55
  Speaker 2: of hiring. There are a number of different data sources
• 24:57
  Speaker 2: out there, whether you look at indeed, paychecks, ADP, basically
• 25:01
  Speaker 2: all of them are telling you. All of the major
• 25:04
  Speaker 2: payroll companies or you know, job listing companies are telling you, hey,
• 25:09
  Speaker 2: small businesses is they are hurting right now and not
• 25:13
  Speaker 2: hiring the way that you like to see in a
• 25:14
  Speaker 2: healthy economy. And I think by and large it's probably
• 25:18
  Speaker 2: because they just feel like they're being yanked all over
• 25:21
  Speaker 2: the place and they don't have the financial resources to
• 25:24
  Speaker 2: just spend their way out of it the way big
• 25:25
  Speaker 2: companies like Walmart and Amazon do.
• 25:28
  Speaker 3: Your thoughts as too.
• 25:31
  Speaker 4: We are seeing some import inflation. It hasn't passed through
• 25:35
  Speaker 4: to CPI yet, so I just I want to make
• 25:37
  Speaker 4: that point and how these tariffs affect inflation will depend
• 25:43
  Speaker 4: in part on how the FED responds. If the FED
• 25:45
  Speaker 4: does nothing, if it leaves the money supply growth rate
• 25:48
  Speaker 4: as it was before the tariffs. There'll be less money
• 25:51
  Speaker 4: to spend on other things because people are spending more
• 25:53
  Speaker 4: on tariffs. That will slow economic growth and at the
• 25:56
  Speaker 4: same time increase inflation. That's why economists call things like
• 25:59
  Speaker 4: tariff or for that matter, oil price increases, they call
• 26:03
  Speaker 4: them supply shocks. They move output down and prices up.
• 26:07
  Speaker 4: So I would expect, as you said, we would expect
• 26:11
  Speaker 4: to see some effect on the trend in inflation at
• 26:13
  Speaker 4: some point, though it hasn't trickled into CPI yet. As
• 26:17
  Speaker 4: to the larger picture, again, some of that depends on
• 26:21
  Speaker 4: how the Fed responds. Will they act to maintain overall demand,
• 26:26
  Speaker 4: so called aggregate demand. If so, that requires an increase
• 26:29
  Speaker 4: in the supply of money that could also be inflationary.
• 26:33
  Speaker 4: So I just I don't really know how this is
• 26:36
  Speaker 4: going to play out because policy is changing, and how
• 26:40
  Speaker 4: the FED reacts to this depends on the changing weights
• 26:44
  Speaker 4: they apply to keeping inflation stable versus keeping output growing.
• 26:50
  Speaker 2: And I think my view of the current danger and
• 26:54
  Speaker 2: again I don't know what's going to happen. Again, we
• 26:58
  Speaker 2: haven't seen anything like this from a terror perspective in
• 27:00
  Speaker 2: one hundred years, so I have an open mind to
• 27:02
  Speaker 2: the idea that hey, like, we don't entirely know how
• 27:06
  Speaker 2: this is going to play out. It could play out
• 27:08
  Speaker 2: differently because the world is very different from the last
• 27:10
  Speaker 2: time we saw this, and so I acknowledge the possibility that, look,
• 27:14
  Speaker 2: we could be sitting here a year from now and say, yeah,
• 27:17
  Speaker 2: it didn't play out the way most people thought and
• 27:20
  Speaker 2: things went differently. But the risk that we do have
• 27:23
  Speaker 2: here is the Trump administration I think has looked at
• 27:26
  Speaker 2: the last three months and said, hey, we imposed you know,
• 27:29
  Speaker 2: Tariff's X, Y and Z, and everything's still clicking.
• 27:33
  Speaker 3: Let's go impose some more because really like it.
• 27:36
  Speaker 2: I think they really wanted to do more in April,
• 27:38
  Speaker 2: they just had to back off because everything started kind
• 27:41
  Speaker 2: of falling apart. But the risk is that because of
• 27:45
  Speaker 2: that delayed impact, things may be worsening under the surface,
• 27:49
  Speaker 2: or might worsen in the coming months, and they're throwing
• 27:52
  Speaker 2: more onto that.
• 27:53
  Speaker 3: And when you if you go.
• 27:54
  Speaker 2: To undo it, then the businesses that you've already heard
• 27:57
  Speaker 2: the capital has already been spent somewhere, they have already
• 28:00
  Speaker 2: been laid off. You don't just pop back to where
• 28:02
  Speaker 2: you were. From a real economy perspective, the same way
• 28:05
  Speaker 2: the market can bounce back in two months.
• 28:07
  Speaker 4: Yeah, I don't take much comfort in the fact that
• 28:10
  Speaker 4: tariffs don't appear to have been a major drag on
• 28:12
  Speaker 4: the economy in twenty eighteen, twenty nineteen. The economy was
• 28:15
  Speaker 4: expanding robustly. It was expanding robustly before the tariffs were implemented.
• 28:22
  Speaker 4: So if there was a dragon, by the way, there was.
• 28:25
  Speaker 4: It's estimated they cost consumers several billion dollars a month,
• 28:29
  Speaker 4: and that they cost, believe it or not, over seventy
• 28:32
  Speaker 4: jobs for every job they created. I'm talking about in
• 28:35
  Speaker 4: particular the steel and other manufacturing tariffs imposed at that time.
• 28:39
  Speaker 4: But like tariffs imposed by say George W. Bush and
• 28:43
  Speaker 4: even Ronald Reagan, they hit at a favorable time. Their
• 28:47
  Speaker 4: effects were masked by the overall a vigorous state of
• 28:53
  Speaker 4: economic growth. So we got a little lucky. These tariffs
• 28:56
  Speaker 4: are broader, and they might be hitting when the economy
• 28:59
  Speaker 4: was naturally slowing anyway.
• 29:02
  Speaker 3: So I think there's still just a lot to navigate here.
• 29:05
  Speaker 2: And the concern that I have is, hey, because the
• 29:08
  Speaker 2: market has bounced back so quickly, does that potentially put
• 29:13
  Speaker 2: us in a position where we're now throwing more at
• 29:15
  Speaker 2: the real economy that it can handle, right as you
• 29:17
  Speaker 2: know that the tariffs from the spring are starting to
• 29:19
  Speaker 2: take effect.
• 29:21
  Speaker 3: Maybe I don't know.
• 29:22
  Speaker 2: I I I often find that we tend to get
• 29:27
  Speaker 2: a little bit too confident that you know, things are
• 29:29
  Speaker 2: going to play out any certain way. And so while
• 29:31
  Speaker 2: I do think that we haven't necessarily seen the worst
• 29:33
  Speaker 2: of you know, how this is going to play out
• 29:35
  Speaker 2: in the in the broad economy, I acknowledge that I
• 29:39
  Speaker 2: could be wrong, Like, who knows how this is? Like
• 29:42
  Speaker 2: we could sit here a year from now and unemployment
• 29:45
  Speaker 2: is still in you know, the load to mid fours,
• 29:47
  Speaker 2: and inflation hasn't gone you know, north of three one
• 29:51
  Speaker 2: three two, and we're sitting here going.
• 29:54
  Speaker 3: Okay, like that was it.
• 29:56
  Speaker 2: There's also a path where you sit here, you're like, okay,
• 29:58
  Speaker 2: you know, unemployments up to six percent, in inflations running
• 30:01
  Speaker 2: at four and gosh, this really isn't very good.
• 30:05
  Speaker 3: I could see that as a path too.
• 30:06
  Speaker 2: But I try to just acknowledge the different paths, because
• 30:10
  Speaker 2: this is how you have to look at these things,
• 30:11
  Speaker 2: as far as what could or could not happen. Anytime
• 30:14
  Speaker 2: that you're going into something new that you haven't seen before.
• 30:18
  Speaker 2: In markets or in the economy. Let's take a quick
• 30:21
  Speaker 2: break here, and when we return, we'll talk a little
• 30:25
  Speaker 2: bit about the FED and how they see the terif
• 30:28
  Speaker 2: inflation risk.
• 30:29
  Speaker 1: Right now, find daily interviews and full shows of the
• 30:32
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• 30:36
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• 30:38
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• 30:53
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• 31:02
  Speaker 2: Federal Reserve put out there meeting minutes from their June
• 31:05
  Speaker 2: meeting yesterday, and I'll quote you from the Financial Times.
• 31:08
  Speaker 2: The majority of US Federal Reserve officials warrant it its
• 31:11
  Speaker 2: June meeting that President Donald Trumps tarfs would have persistent
• 31:14
  Speaker 2: effects on inflation amid a growing schism over when.
• 31:17
  Speaker 3: To cut interest rates. So I'll quote one more piece.
• 31:21
  Speaker 2: Actually, while a few participants noted the tariffs would lead
• 31:24
  Speaker 2: to a one time increase in prices, it would not
• 31:26
  Speaker 2: affect longer term inflation expectations, most noted that the risk
• 31:30
  Speaker 2: that tariffs could have more persistent effects on inflation. So
• 31:33
  Speaker 2: a couple things on this. The first is, okay, this
• 31:36
  Speaker 2: is why the Fed isn't moving yet. It is because
• 31:39
  Speaker 2: they're nervous about where inflation could go in the second half.
• 31:42
  Speaker 3: Of the year.
• 31:43
  Speaker 2: The other piece that I'll add is you could mark
• 31:47
  Speaker 2: is it fair to say, like, all else being equal,
• 31:49
  Speaker 2: which I know we can never do, but all else
• 31:51
  Speaker 2: being equal, if you had an immediate, you know, ten
• 31:55
  Speaker 2: percent jump in import prices and that was it, could
• 32:00
  Speaker 2: you at least make a plausible case for that being
• 32:03
  Speaker 2: a one time price increase and nothing more.
• 32:05
  Speaker 4: That depends on what happens to expectations. Expect you can't
• 32:10
  Speaker 4: hold expectations in the federal I'm going.
• 32:12
  Speaker 2: To because it's my theoretical conversation. If you held them stable.
• 32:19
  Speaker 4: And then what what was your could what happened? If
• 32:21
  Speaker 4: could was brain dead?
• 32:23
  Speaker 3: Would happened? Yes?
• 32:24
  Speaker 2: Could you see a one Could you make the case
• 32:26
  Speaker 2: that it's a one time increase in inflation?
• 32:32
  Speaker 4: Well, I think the parameters you set, that's the only
• 32:36
  Speaker 4: potential result.
• 32:38
  Speaker 3: That's all I'm saying. But like, but that would be
• 32:40
  Speaker 3: the case.
• 32:41
  Speaker 4: If that happened, it would have to be because of
• 32:43
  Speaker 4: the constraints you put on the question yes, yes, Now
• 32:49
  Speaker 4: is that begging the answer?
• 32:51
  Speaker 3: Yes? But I'm just trying to envision, like, is there
• 32:54
  Speaker 3: a world in which that could happen? And we found one.
• 32:57
  Speaker 2: I'm not saying, Mark, whatever is that in. I'm not
• 33:01
  Speaker 2: saying it's realistic. Just like, let's just talk. We're doing
• 33:04
  Speaker 2: a radio show.
• 33:05
  Speaker 3: Okay, I God, sorry, Chuck, I can't in this discussion
• 33:09
  Speaker 3: from there.
• 33:10
  Speaker 4: Those assumptions are preposterous.
• 33:13
  Speaker 3: Here's the next piece though.
• 33:15
  Speaker 2: If you have one set of tariffs that goes into
• 33:17
  Speaker 2: effect in April, and then additional ones that keep coming
• 33:21
  Speaker 2: into effect down the road, even holding expectations stable, it
• 33:28
  Speaker 2: becomes impossible for it to be a one time effect.
• 33:31
  Speaker 4: Correct once again, by it follows from the constraints.
• 33:36
  Speaker 2: Well, I'm just creating different worlds like this is what
• 33:39
  Speaker 2: I'm just get Am I wrong on this?
• 33:43
  Speaker 3: If you keep adding new tariffs over time? Would inflation
• 33:47
  Speaker 3: be stable?
• 33:47
  Speaker 4: Well? I know what's happened. Probably the prices aren't changing somehow. Okay.
• 33:53
  Speaker 4: I have a hard time getting my head around these assumptions.
• 33:56
  Speaker 4: I can't process them. I think you want me to
• 33:58
  Speaker 4: say yes, so maybe I should.
• 34:00
  Speaker 2: If you keep adding more Yes, if I kept adding
• 34:04
  Speaker 2: to your production cost.
• 34:05
  Speaker 3: What would happen.
• 34:07
  Speaker 2: You'd either start losing money or your prices would go up. Correct,
• 34:11
  Speaker 2: That's what I'm saying.
• 34:12
  Speaker 4: Yeah, okay, so yeah close.
• 34:17
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• 34:52
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• 35:08
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• 35:24
  Speaker 2: Mark, do we want to talk about companies laying people off?
• 35:26
  Speaker 2: Or do we want to talk about delta and their right?
• 35:30
  Speaker 4: I can we go back to the hypothetical, because actually, okay,
• 35:33
  Speaker 4: so there's a and I wasn't getting your point. Even
• 35:36
  Speaker 4: if expectations don't go best of all possible worlds, people
• 35:39
  Speaker 4: are willing to look past the tariffs. If there are
• 35:42
  Speaker 4: only two producers, is me and you making stuff in
• 35:44
  Speaker 4: the economy, and maybe Tucker's the customer. If my prices
• 35:48
  Speaker 4: go up, you do nothing. Inflation goes up, is your point?
• 35:54
  Speaker 4: Even if nothing else changes because your prices maybe don't fall,
• 35:58
  Speaker 4: maybe you don't recognize that my prices went up, or
• 36:00
  Speaker 4: you just don't feel like changing yours. The average price
• 36:03
  Speaker 4: in the economy in that scenario goes up. And that's
• 36:06
  Speaker 4: what inflation is. It's the average price in the economy.
• 36:10
  Speaker 4: Said differently, if other prices are sticky and one person's
• 36:13
  Speaker 4: prices go up, the average price goes up. That's inflation. Yeah,
• 36:17
  Speaker 4: I mean I think that's the point I was missing.
• 36:19
  Speaker 2: Yeah, Well, I was just effectively saying, look, if I
• 36:22
  Speaker 2: raise the input cost to you of what you're making,
• 36:27
  Speaker 2: if you do it once, there's at least a scenario
• 36:30
  Speaker 2: that you can envision.
• 36:31
  Speaker 3: It might not be realistic.
• 36:32
  Speaker 2: There's a scenario you can envision where prices go up
• 36:35
  Speaker 2: once and then don't have to go up again as
• 36:37
  Speaker 2: a result of that.
• 36:38
  Speaker 4: But you do that to producer A, then you do
• 36:40
  Speaker 4: that to producer by do it to all of them.
• 36:42
  Speaker 3: Because oh, I thought you were.
• 36:44
  Speaker 4: Saying in sequence.
• 36:45
  Speaker 2: If you do it in sequence, if I impose one tariff, yeah,
• 36:49
  Speaker 2: and if I impose one tariff that goes in Yeah, Okay.
• 36:55
  Speaker 3: There's a path. It might not be realistic.
• 36:57
  Speaker 2: It may or may not be, but there's a path
• 36:59
  Speaker 2: where Okay, producers have a one time price increase. They
• 37:03
  Speaker 2: either choose to pass that through or their margins go down.
• 37:05
  Speaker 2: Either way, it's something where it affects prices to the
• 37:08
  Speaker 2: upside once in the aggregation.
• 37:10
  Speaker 4: Yeah, that'd be a jump in the price level and
• 37:13
  Speaker 4: then but you held everything else constant, So I can't
• 37:15
  Speaker 4: say what people would do in the next period. But yeah,
• 37:18
  Speaker 4: that would be inflation area. And that's like the best
• 37:21
  Speaker 4: case because we're you're holding expectations and how the FED
• 37:24
  Speaker 4: responds constant.
• 37:26
  Speaker 3: But if I.
• 37:27
  Speaker 2: Start going and saying every three months, okay, I put
• 37:31
  Speaker 2: a new price increase in place on you know, input
• 37:36
  Speaker 2: good X, and then one on good Y, and then
• 37:39
  Speaker 2: one on ZE, then you've got then we have a
• 37:41
  Speaker 2: threat of persistent inflation from a series of potential one
• 37:44
  Speaker 2: time price increases. Because it's a repeated game. It's not
• 37:48
  Speaker 2: just one sample that we're playing. It's happening, it's it's
• 37:52
  Speaker 2: over and over. It's it's that each one builds on
• 37:54
  Speaker 2: the previous.
• 37:55
  Speaker 4: Right, and this you do have to you eventually bring
• 37:57
  Speaker 4: it and you're right in prior to the nineteen seventies
• 37:59
  Speaker 4: the conversation, if you would have stopped there. Post nineteen seventies,
• 38:01
  Speaker 4: we bring expectations into the dynamics, and that's where it
• 38:05
  Speaker 4: starts to get interesting in airy.
• 38:07
  Speaker 3: Yes, yes, let's take a quick break here.
• 38:09
  Speaker 2: We still got more to come in our two right
• 38:12
  Speaker 2: here on the financial exchange,