Latest / The Financial Exchange Show / More companies are showing impacts from tariffs

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More companies are showing impacts from tariffs · The Financial Exchange Show

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2:16
Speaker 2: as well. And we've got a market here that I
2:19
Speaker 2: think is probably going to be obsessed with. I guess
2:25
Speaker 2: two different things that span a litany of them for
2:28
Speaker 2: the next few weeks. One would be what is the
2:30
Speaker 2: Fed going to do in September, and so that will
2:32
Speaker 2: encompass all sorts of jobs data and inflation data. Two
2:36
Speaker 2: would be what is going to happen with tariffs over
2:38
Speaker 2: the course of the next few weeks and months? And
2:42
Speaker 2: guess what, that's the same thing we've been obsessed with all.
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Speaker 3: Your the most important forgive me, but you left out
2:46
Speaker 3: the most important consideration for markets now. And you know
2:50
Speaker 3: what I'm gonna say.
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Speaker 2: I don't know. I'm waiting with baited breath here.
2:53
Speaker 3: Mark the reliability of economic data. I know we probably
2:58
Speaker 3: don't want to get into it too much because it's
2:59
Speaker 3: no We will inspect and we're going to talk about
3:03
Speaker 3: it later, yep. But also a big consideration. We don't
3:07
Speaker 3: know what the President's going to do in terms of
3:09
Speaker 3: filling the commissioner job, but the Bureau of Labor Statistics,
3:12
Speaker 3: so maybe the market and maybe this is sensible. Let
3:15
Speaker 3: me talk myself down from my initial hysterical reaction. Maybe
3:19
Speaker 3: he'll appoint somebody with credibility and it'll be sufficient for
3:22
Speaker 3: him that the Biden appoint he was removed, and there
3:26
Speaker 3: are no ongoing concerns about the reliability of economic data.
3:30
Speaker 3: If he appoints a toady, however, someone who's going to
3:33
Speaker 3: ensure that the numbers are skewed favorably when he wants
3:36
Speaker 3: them to be. This is an enormous This would be
3:38
Speaker 3: the single biggest challenge facing asset prices, not just in
3:41
Speaker 3: my fifty three year lifetime, but in any span of
3:44
Speaker 3: any developed economy that I or anybody who's commented on
3:47
Speaker 3: this who's informed, has ever seen.
3:50
Speaker 2: So Mark here is referring to the removal of the
3:52
Speaker 2: head of the is the head of the Bureau of
3:54
Speaker 2: Labor Statistics, or the head of the Data releases, the
3:57
Speaker 2: chief the commissioner the commission of the Beer of or Statistics.
4:00
Speaker 2: We are going to get.
4:01
Speaker 3: Yeah, I'm sorry, I talk for jumping the gun, but
4:03
Speaker 3: he brought up markets OCAs.
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Speaker 2: My personal view would only be that that is a
4:08
Speaker 2: long term consideration rather than an immediate consideration. But I
4:12
Speaker 2: could be wrong.
4:13
Speaker 3: I just you know what we should look at there,
4:15
Speaker 3: because I'm upending your It's a good tease.
4:17
Speaker 2: I like it, Mark, It is good too.
4:19
Speaker 3: So let's talk about the other. So tariffs people think
4:22
Speaker 3: what they're either going to be around fifteen to twenty percent,
4:25
Speaker 3: which is extreme only relative to the post war era,
4:28
Speaker 3: but not as bad as it could have been on
4:30
Speaker 3: April second. So markets are now, Yeah, markets have adjusted,
4:34
Speaker 3: even though inflation is not fully.
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Speaker 2: I think they're starting to adjust to that. You still
4:39
Speaker 2: have a litany of countries who are hoping to negotiate,
4:42
Speaker 2: and so I think we'll get those headlines, even though
4:44
Speaker 2: quite honestly, US trade with Switzerland is probably not the
4:47
Speaker 2: most market moving data point that we will see. And
4:50
Speaker 2: then obviously you have the suspension of any sort of
4:53
Speaker 2: re escalation with Mexico at the moment. You've got a
4:56
Speaker 2: lot of confusion around trade with Canada still, and so
5:00
Speaker 2: in spite of the fact that we are seeing more
5:02
Speaker 2: of these deals inked and moving past them, I do
5:05
Speaker 2: think that trade is going to be the undertone of
5:07
Speaker 2: this economy and this market for the next few months.
5:09
Speaker 2: In addition, because I think we've just barely started to
5:14
Speaker 2: see the tariff impact roll through the economy right now, but.
5:18
Speaker 3: We got is I know, we poo pooh ism as
5:22
Speaker 3: a forecaster of economic activity, I don't, but Chucksada tends
5:28
Speaker 3: to poopoo it their price is paid. We did get
5:33
Speaker 3: new data from the Institute for Supply Management. They ask
5:37
Speaker 3: manufacturers about output. They asked them about the prices they're
5:40
Speaker 3: paying for inputs, prices paid. It's an index, so the
5:45
Speaker 3: number doesn't mean a lot. Suffice to say it's at
5:48
Speaker 3: its highest level since the peak of inflation in late
5:53
Speaker 3: twenty twenty two.
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Speaker 2: So input prices for manufacturers, this is what you're saying,
5:58
Speaker 2: is input prices.
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Speaker 3: High as they've been since the inflation crisis that followed COVID.
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Speaker 2: So that would inform me of two things. One, tariffs
6:06
Speaker 2: are hitting, because if you're a manufacturer, you're in.
6:08
Speaker 3: We're seeing that elsewhere too. It's not just here.
6:11
Speaker 2: Caterpillar reported it. Other companies have reported tariffs starting to hit.
6:15
Speaker 2: It would also explain to me that, okay, so I
6:19
Speaker 2: have to take a step back. But when it came
6:20
Speaker 2: to tariffs, what we talked about earlier the spring is
6:23
Speaker 2: they will start to show up in the data somewhere
6:25
Speaker 2: because they're real, they're not make believe. They will start
6:28
Speaker 2: showing up. And we counted three places that they could
6:31
Speaker 2: show up. One would be in prices that foreign suppliers
6:36
Speaker 2: of goods charge to US customers, Right, so they could say, hey,
6:42
Speaker 2: you're gonna have to pay a fifteen percent tariffs, so
6:44
Speaker 2: we're going to lower our price a little bit to
6:46
Speaker 2: be able to make the products still affordable for that
6:49
Speaker 2: US customer. Two would be in the profits of US businesses.
6:55
Speaker 2: That's who pays a tariff. Right. You and me generally
6:58
Speaker 2: don't pay a tariff unless we're ordering something from one
7:01
Speaker 2: of those Chinese retailer websites where there's an actual tariff
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Speaker 2: built in. Usually it's a US company that is paying
7:07
Speaker 2: the actual tariff and then deciding whether or not to
7:09
Speaker 2: pass it through to their customers. Third place would be
7:11
Speaker 2: prices to US customers. It is to me pretty definitive
7:17
Speaker 2: at this stage that the tariff effect is not showing
7:20
Speaker 2: up in foreign suppliers of goods to US companies because
7:25
Speaker 2: import prices are not falling. Import prices are up. Right.
7:30
Speaker 2: We measure import prices regularly, either through the ISM Survey
7:33
Speaker 2: or through import prices, and import prices are up year
7:36
Speaker 2: over year, Meaning it does not appear to me that
7:40
Speaker 2: foreign suppliers are saying, hey, I know you've got this
7:42
Speaker 2: tariff to pay, so Walmart, we're going to lower our
7:45
Speaker 2: price on this soccer ball in order to make it
7:47
Speaker 2: still affordable in your store. So to me, that means
7:51
Speaker 2: it's showing up in the other two places, which would
7:53
Speaker 2: be two consumers. Inflation has been pretty muted to this point,
7:57
Speaker 2: but still higher than was hoped. And balance not balancees,
8:01
Speaker 2: but p and ls of US companies, And that's where
8:04
Speaker 2: we're starting to see it now now that we're getting
8:07
Speaker 2: past the giant, big tech AI companies and more focused
8:11
Speaker 2: onto the less sexy and less exciting US companies that
8:18
Speaker 2: aren't developing AI, but companies like Caterpillar and GM who
8:21
Speaker 2: are saying, yeah, we saw a tariff impact in the
8:23
Speaker 2: most recent quarter and we're still kind of navigating through.
8:26
Speaker 2: And that's what you heard from Caterpillar this morning is yeah, yeah,
8:29
Speaker 2: you know, billions of dollars in tariff effects if they
8:32
Speaker 2: stay in effect the way they are. You're trying to
8:34
Speaker 2: look something up, Mark, did you find I was like,
8:36
Speaker 2: you know.
8:37
Speaker 3: People have pointed out number one headline, inflation has yet
8:41
Speaker 3: to spike, and it may never spike, but a lot
8:43
Speaker 3: of components. Some things go down, others go up. On average,
8:47
Speaker 3: tariff should put prices up, because prices don't all move
8:52
Speaker 3: at the same time. Prices are rigid.
8:54
Speaker 2: A lot of people have points to goods inflation versus services.
8:57
Speaker 3: I was looking for a good summary of that. And
9:00
Speaker 3: there are expenditure categories like furnishings and imports of electronics.
9:08
Speaker 3: I'm not naming the series correctly, but there's some subcategory
9:11
Speaker 3: like that that there's evidence of a spike. But it's
9:15
Speaker 3: an open question as to what happens to headline inflation
9:17
Speaker 3: because of the way inflation is calculated, and whether or
9:22
Speaker 3: not it's feeding into underlying inflation will be evident in
9:27
Speaker 3: the behavior of measures like core inflation, which is we
9:31
Speaker 3: know strips out food and energy. That's one way to
9:33
Speaker 3: get an inflation's trend or median or trimmed mean, which
9:36
Speaker 3: are fancier ways of removing extreme observations from the inflation
9:42
Speaker 3: data gathering process. It'll probably take several months. It's way
9:46
Speaker 3: too early for either proponents of tariffs to declare victory
9:50
Speaker 3: and say, look, they're non inflation areya. But that point
9:53
Speaker 3: of view makes no sense. The whole point is to
9:55
Speaker 3: increase prices and shift people to purchase.
9:58
Speaker 2: I mean, even members of the Trump administration have not
10:01
Speaker 2: been described as a contentationary they have. Scott Beston has said, yes,
10:05
Speaker 2: they will cause inflation, but it'll be a one time
10:07
Speaker 2: adjustment in prices and then and then that's it. And
10:11
Speaker 2: so well, I think that viewpoints debatable, but that's been
10:15
Speaker 2: an admission on the part of the administration that yes,
10:17
Speaker 2: terrorists will cause inflation, but it won't be permanent and
10:20
Speaker 2: ongoing inflation.
10:21
Speaker 3: So in either case, so your initial when we open
10:23
Speaker 3: this segment, your question is your question was something to
10:25
Speaker 3: the effective What are market's warring about right now? Is
10:28
Speaker 3: it tariffs? Is it what the FED should do? And
10:31
Speaker 3: I think we nearly exhaustively covered tariffs in that.
10:36
Speaker 2: I think they're all kind of interrelated. But I do
10:38
Speaker 2: want to take I do want to take that. Let's
10:40
Speaker 2: let's take a break because I want to get to
10:42
Speaker 2: that second piece now, which is what should and will
10:45
Speaker 2: the FED do at their next meeting on September seventeenth.
10:49
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Speaker 2: Those are not the picks Mark No.
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Speaker 2: The current Fed Chair, Jerome Powell, has been pushing back
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Speaker 2: against pressure for a rate cut, and that narrative took
12:18
Speaker 2: a bit of a shift on Friday of last week,
12:20
Speaker 2: and so I still want to just assume that we're
12:24
Speaker 2: going to get good and reliable data from the Bureau
12:27
Speaker 2: of labor statistic.
12:29
Speaker 3: Now we're going to talk about this in the next hour. Sorry,
12:31
Speaker 3: I keep jumping into it.
12:32
Speaker 2: Sorry, jump the gun. But at this stage, given that
12:35
Speaker 2: report from Friday, you had the likelihood of a rate
12:39
Speaker 2: cut at that September meeting, according to fed Fund's future
12:42
Speaker 2: is available at the Chicago Mercantile Exchange. Jumping, you now
12:46
Speaker 2: have a ninety six point one percent chance of a
12:49
Speaker 2: rate cut at that September seventeenth meeting. And so I
12:53
Speaker 2: think I before we get into the BLS story, I
12:57
Speaker 2: want to get into purely based on the data. Know now,
13:02
Speaker 2: how much does that shift the narrative around the need
13:05
Speaker 2: for rate cuts? And when we put that the way
13:08
Speaker 2: what we know now is that hiring in the months
13:12
Speaker 2: of May and June in particular was a fair bit weaker,
13:18
Speaker 2: substantially weaker than we previously understood before Friday. And so
13:23
Speaker 2: it sort of reshapes your thinking on Hey, where does.
13:27
Speaker 3: This if you're just looking at that, it does, Mike. Yet,
13:29
Speaker 3: we got a reasonably solid there were some chinks in
13:32
Speaker 3: the armor, but a reasonably solid GDP report, and there's
13:34
Speaker 3: no evidence of economic slow down or worse. I shouldn't
13:40
Speaker 3: say no, you can always find pockets of weakness, but
13:42
Speaker 3: there's not evidence of the type of widespread slow down
13:46
Speaker 3: that the arbiters of recession at the National Bureau of
13:48
Speaker 3: Economic Research look for when they call a recession. So
13:52
Speaker 3: until we see industrial production, manufacturing orders, hours worked, income less,
13:59
Speaker 3: government trans there are a few other series they look
14:01
Speaker 3: at that I'm forgetting off the top of my head.
14:04
Speaker 3: Until we see a conspicuous and broad slow down in
14:09
Speaker 3: and a wide number of measures of economic activity, I
14:12
Speaker 3: don't know that we should be upping our forecast. First
14:15
Speaker 3: of all, nobody should be trying to forecast recessions. They're
14:18
Speaker 3: not fore castable. But I don't think this might raise
14:22
Speaker 3: the chances a little bit that the revisions which nobody
14:24
Speaker 3: ever you occasionally talk about on this show, but for
14:26
Speaker 3: the most part, their ancient history, and by the way,
14:30
Speaker 3: we should we should expect large revisions from time to time.
14:34
Speaker 3: When we talk about payrolls being one hundred or one
14:36
Speaker 3: hundred and fifty K, the confidence interval, the band in
14:42
Speaker 3: which the true number could reside, is plus or minus
14:45
Speaker 3: one hundred and twenty. So in every one of those
14:48
Speaker 3: months in which the numbers were revised, we were well
14:51
Speaker 3: within the confidence interval. BLS should perhaps report the confidence interval,
14:55
Speaker 3: as many researchers do when they report their results. They
14:57
Speaker 3: don't give you the point point estimate is the thing
14:59
Speaker 3: in the middle. It's not that useful because the probability
15:02
Speaker 3: the point estimate is not necessarily that much greater than values,
15:06
Speaker 3: far from it. So maybe the new commissioner at BLS,
15:10
Speaker 3: if they're if they're a person of substance and integrity,
15:15
Speaker 3: and I have serious doubts, But if they end up,
15:17
Speaker 3: by some miracle being actually qualified to take the position,
15:21
Speaker 3: maybe they'll report the confidence intervals and place more emphasis
15:24
Speaker 3: on the errors in these estimates.
15:26
Speaker 2: So I think you know, one piece of debate about
15:30
Speaker 2: what you just said would be, hey, do you wait
15:32
Speaker 2: until you see things like industrial production and that type
15:35
Speaker 2: of investment tailing off as a sign of recession, or
15:37
Speaker 2: do you start cutting at the earliest signs of weakness
15:40
Speaker 2: in the labor market. And I think there are people
15:44
Speaker 2: of genuine backgrounds that that I would take seriously that
15:47
Speaker 2: would debate.
15:48
Speaker 3: Yeah, disagree, Yeah, I think that's maybe even Yeah, if
15:52
Speaker 3: they had cut rates by twenty five BIPs, I wouldn't
15:54
Speaker 3: be screaming from the hilltops. We were risking a pickup
15:58
Speaker 3: and inflation necessarily, there's an argument for I'm just saying
16:00
Speaker 3: it's not obvious.
16:01
Speaker 2: The question to me is less about these job creation
16:05
Speaker 2: numbers now. And j Powell made this point at the
16:09
Speaker 2: last press conference. I'll be interested to see if he
16:11
Speaker 2: sticks to his guns on this. But the point that
16:14
Speaker 2: he more or less made was look that job creation number.
16:17
Speaker 2: And this was, by the way, his commentary on this
16:19
Speaker 2: was before the weak revisions of that job's report, and
16:23
Speaker 2: before he even knew about that job's report. He gets
16:26
Speaker 2: that data usually a day in advance. This press conference
16:28
Speaker 2: was a Wednesday of last week. That job's data was
16:31
Speaker 2: out Thursday. What he said was we need to focus
16:34
Speaker 2: a little bit less on the pace of job creation,
16:36
Speaker 2: a little bit more on the unemployment rate. And I
16:38
Speaker 2: think he was pointing to there the denominator how many
16:43
Speaker 2: people are in that labor force now looking for work.
16:47
Speaker 2: There has been a substantial shift in migration into the
16:52
Speaker 2: United States, illegal migration in particular, there has been a
16:57
Speaker 2: substantial increase in deportations of both primarily workers that are
17:02
Speaker 2: not registered to be able to work here, but also
17:06
Speaker 2: some of their family members who might be registered to
17:08
Speaker 2: work here. And so his point was the you know,
17:11
Speaker 2: one hundred thousand or seventy two thousand or twenty five
17:14
Speaker 2: thousand jobs get created in the last month, to him,
17:18
Speaker 2: is less indicative of where they're going to go with
17:22
Speaker 2: policy than indicative, isn't the right word? Less informative of
17:27
Speaker 2: where they should go with policy, rather than the unemployment rate,
17:32
Speaker 2: which is where he says we should now.
17:33
Speaker 3: And why did he say that. It's because during the
17:35
Speaker 3: months of those law, the months during which those large
17:38
Speaker 3: revisions occurred, also featured stable, static, unchanging unemployment. They're taken
17:44
Speaker 3: from two different surveys, so any relationship would have to
17:47
Speaker 3: be statistical, and it could break down. I'm not going
17:50
Speaker 3: to get into what I mean by that, just suffice
17:51
Speaker 3: to say these patterns can can break down, so you've
17:56
Speaker 3: got to be a little careful there. But I I
18:00
Speaker 3: guess superficially, yeah, the unemployment rate didn't change despite virtually
18:04
Speaker 3: non existent new job creation reported by firms.
18:07
Speaker 2: Right, So in either case, the next FED meeting coming
18:11
Speaker 2: up will be September seventeenth. By then, they will have
18:14
Speaker 2: one additional jobs report several you know, several weeks of
18:19
Speaker 2: initial jobless claims, which should give you some indication if
18:22
Speaker 2: the labor market is weakening due to firings and layoffs,
18:26
Speaker 2: so you know, much more of that data. You'll have
18:29
Speaker 2: another report on the state of job openings, quits rates,
18:33
Speaker 2: all of those things. But the markets at least are
18:37
Speaker 2: now betting that the data will line up well enough.
18:42
Speaker 2: I guess really the data will line up poorly enough
18:45
Speaker 2: to justify J. Powell and the FED moving forward with
18:49
Speaker 2: a quarter of a percent rate hike, a twenty five
18:51
Speaker 2: basis sorry, rate hike, rate cut at that next September meeting.
18:55
Speaker 2: And I would just point out that to me, at least,
18:58
Speaker 2: I am not ninety six percent confident that they will
19:01
Speaker 2: end up cutting rates at that.
19:02
Speaker 3: What do we expect mon and maybe we talk about
19:04
Speaker 3: this on the other side or at eleven two, at
19:06
Speaker 3: five past eleven, What do we expect monetary policy? What
19:09
Speaker 3: should it do? What can the Fed actually do? What
19:11
Speaker 3: can monetary policy do? Which is what the FED engage
19:13
Speaker 3: is in and what is it likely to do in
19:15
Speaker 3: this environment? Is it the right remedy for a slowdown
19:17
Speaker 3: induced by tariffs?
19:19
Speaker 2: Fair question?
19:20
Speaker 3: I leave you with that.
19:21
Speaker 2: We got to say quick break though, Wall Street Watch
19:23
Speaker 2: full market update is next.
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Speaker 1: today right here on the Financial Exchange Network.
20:02
Speaker 4: Markets are slightly pulling back after yesterday's strong rally as
20:06
Speaker 4: investors digest a new batch of second quarter earnings this morning.
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Speaker 4: At the moment, Dows off three tenths of one percent,
20:14
Speaker 4: or one hundred and thirty seven points. SMP five hundred
20:17
Speaker 4: also down by three tenths of one percent or nineteen points.
20:21
Speaker 4: Nasdaq is off by two tenths of one percent or
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Speaker 4: forty seven points. Russell two thousand is up three tenths
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Speaker 4: of one percent, Tenure treasureilled flat at four point two
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Speaker 4: zero percent, and crude oil down over one and a
20:33
Speaker 4: half percent lower today trading its sixty five dollars in
20:37
Speaker 4: twenty four cents. A barrel Ai software company, Pallenteer, seeing
20:42
Speaker 4: its stock surge nine percent today after it reported revenue
20:46
Speaker 4: above one billion dollars for the first time in its history,
20:48
Speaker 4: well above street expectations. Pallenteer reported fifty three percent growth
20:54
Speaker 4: in earnings from US government contracts for the previous quarter.
20:58
Speaker 4: Management also raised its annual revenue outlook. Meanwhile, shares in
21:02
Speaker 4: telehealth company Hymns and Hers falling nearly one percent after
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Speaker 4: its quarterly revenue missed expectations. The company had a challenging
21:10
Speaker 4: breakup with Novo Nordisk back in June related to the
21:13
Speaker 4: platform sales of copycat weight loss drugs. Elsewhere, Pfizer reported
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Speaker 4: better than forecasted quarterly results and lifted its annual profit guidance.
21:23
Speaker 4: The drug maker said its guidance absorbs the impact of
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Speaker 4: the currently imposed teriffs from China, Canada, and Mexico, as
21:30
Speaker 4: well as potential price changes this year. Pfizer stock is
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Speaker 4: up four percent. Caterpillar posted mixed quarterly results and said
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Speaker 4: it expects incremental tariffs to knock one point three to
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Speaker 4: one point five billion dollars off its bottom line for
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Speaker 4: the year. Shares in machinery in the machinery maker down
21:49
Speaker 4: over half a percent. Chemicals and materials producer DuPont reported
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Speaker 4: better than expected sales, while its forecast for the current
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Speaker 4: quarter beat estimates. That stock is up modestly and after
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Speaker 4: today's closing bell, we'll see earnings from chip maker AMD
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Speaker 4: tomorrow morning. Ahead of the Open, Novo, Nordisk, McDonald's, Disney, Uber,
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Speaker 4: and Shopify will all report their quarterly results. I'm Tucker Silvan.
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Speaker 4: That is Wall Street Watch.
22:16
Speaker 2: So Caterpillar reported earnings this morning before the bell. Their
22:20
Speaker 2: stock is off a bit this morning. They specifically cited
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Speaker 2: tariffs in their quarterly report here and so what they
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Speaker 2: cited was that, yeah, their profit did fall, and they
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Speaker 2: warned of about a one and a half billion dollar
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Speaker 2: impact from tariff. So I was trying to get a
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Speaker 2: sense of what that actually means for their business in
22:41
Speaker 2: the most recent quarter. What they said was a tariff
22:44
Speaker 2: effect of between four to five hundred million dollars. That's
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Speaker 2: on a total profit for the quarter of two point
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Speaker 2: two billion dollars. So not insignificant. But we did have,
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Speaker 2: for instance, was it four or GM who's in entire
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Speaker 2: profit margin for the quarter was wiped out by tariffs?
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Speaker 2: I can't recall, but one of them basically would have
23:06
Speaker 2: reported a seven hundred million dollar profit instead they had tariffs.
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Speaker 2: So they reported a loss for the a slight loss
23:12
Speaker 2: for the quarter. That is not the case with Caterpillar,
23:14
Speaker 2: but again goes back to this overall story. And by
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Speaker 2: the way, Caterpillar does a fair bit of manufacturing in
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Speaker 2: the United States, and there are other reasons that their
23:23
Speaker 2: stock is down today than just tariffs. They're also warning
23:27
Speaker 2: of sluggish construction equipment, demanded sales, and other industries that
23:32
Speaker 2: aren't doing terribly well. But the question that Caterpillar is
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Speaker 2: navigating is, Okay, how do we get this one point
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Speaker 2: five billion dollar hit from tariffs down? And is I
23:44
Speaker 2: guess the other part of the question is it worth
23:46
Speaker 2: doing so? Because that's an important question, right, Like, Okay,
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Speaker 2: we could avoid these tariffs if we spend a few
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Speaker 2: billion dollars on expanding manufacturing in the United States instead
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Speaker 2: of doing so much in China. Is that worth doing
24:01
Speaker 2: for a company like Caterpillar. I have no idea what
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Speaker 2: the answer is, but you can be certain well that
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Speaker 2: executives at the company are measuring that equation.
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Speaker 3: We need tariff certainty here the next step in this
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Speaker 3: tariff process, and I think this would be the case
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Speaker 3: in a Democrat administration too. I think that the the
24:18
Speaker 3: trend clearly is towards terra less free trade or retrenchment
24:23
Speaker 3: from globalization. So let's just look at the broad themes here.
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Speaker 3: You can quibble with the way tariff policy has been conducted. Sure,
24:31
Speaker 3: but maybe there's method in the madness. We'll have to
24:33
Speaker 3: see how it all shakes out. But either way, companies
24:36
Speaker 3: are screaming for clarity, consistency. This probably has to be
24:41
Speaker 3: put to Congress at some point. That would be helpful. Actually,
24:44
Speaker 3: if it became law, then companies could rely on it
24:47
Speaker 3: and make those adjustments to their so called supply chains.
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Speaker 2: So important points like why does it actually need to
24:53
Speaker 2: be codified? Why does Congress?
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Speaker 3: Because the President right now is acting under emergency authority
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Speaker 3: and it's statutorily, as I understand it, by law, it's limited.
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Speaker 3: So these tariffs will expire I guess at some point,
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Speaker 3: and it's it's like six months or something. You have
25:07
Speaker 3: to keep re upping them.
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Speaker 2: I don't. I don't know that there's a defined period
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Speaker 2: where it would happen. But we can't have an action
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Speaker 2: emergency forever, right we couldn't present.
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Speaker 3: That's definitely true, because you know government's going to change
25:16
Speaker 3: hands and there'll be a new president. So President Vance
25:19
Speaker 3: or President whoever on the Democrats side in four years,
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Speaker 3: will they re up these Will their trade philosophy be different?
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Speaker 3: We could use some codification here, at least bring Congress
25:29
Speaker 3: into the process at some point and give businesses clarity.
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Speaker 2: Another reason why you would want Congressional action on this
25:36
Speaker 2: is because there are lawsuits making their way through the
25:39
Speaker 2: Trade Court right now to determine if the President.
25:42
Speaker 3: Has exceeded and they can strike the whole regime down.
25:45
Speaker 2: They could strike it down now. The immediate request would
25:47
Speaker 2: be for the Supreme Court to then go hear the case.
25:50
Speaker 2: They don't have to. They could say no, we uh,
25:54
Speaker 2: you know. They sometimes explain their reason for hearing the case,
25:57
Speaker 2: they other times don't. But that case is right now
26:00
Speaker 2: working its way through. I think it's a twelve judge
26:03
Speaker 2: panel on the use of these emergency tariffs, and we
26:07
Speaker 2: should have an answer by this fall. So there are
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Speaker 2: a number of reasons why you would want Congress involved
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Speaker 2: in these decisions. But I also think their ability to
26:14
Speaker 2: pass tariffs would be extraordinarily limited because, in spite of
26:17
Speaker 2: the fact that you think there might be bipartis the
26:19
Speaker 2: support for some of them. No Democrats going to line
26:22
Speaker 2: up to vote for a Donald Trump.
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Speaker 3: I think it'd be some from the Midwest Wood I think, yeah, Michigan, Pennsylvania, Ohio.
26:28
Speaker 3: Ohio is now solidly read. There's pretty widespread support, it seems,
26:33
Speaker 3: for some level of tariffs. The objectives differ. Are they
26:37
Speaker 3: to raise revenue, which I actually like, it's a consumption
26:40
Speaker 3: tax if we can shift away from the income tax
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Speaker 3: toward consumption taxes. There's a good Now that the administration
26:44
Speaker 3: is not making that argument. I wish they would, because
26:47
Speaker 3: there's a good, solid argument for consumption taxes as opposed
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Speaker 3: to income taxes. It's a discussion we should have, and
26:53
Speaker 3: putting this in the congressional arena and formalizing things would
26:57
Speaker 3: allow us to flesh all these issues. It could be
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Speaker 3: an interesting national discussion and take away it takes away
27:03
Speaker 3: a lot of the acrimony too.
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Speaker 2: Is America winning the tariff negotiations.
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Speaker 3: Store and then lose on Yeah, it's just it's the
27:12
Speaker 3: wrong framework.
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Speaker 2: I tend to agree there is no definition of winning
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Speaker 2: or losing on this.
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Speaker 3: But revenue's gone up though I mean that's undeniable, and
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Speaker 3: the deficit, a key number for me relative to last year,
27:25
Speaker 3: is actually slightly lower, arguably because of that tariff revenue.
27:29
Speaker 3: Now there will be inflationary and inefficiency consequences in the
27:33
Speaker 3: long term. But those who are opposed to the sort
27:37
Speaker 3: of helter skelter tariffs. Forgive me, but that's what the
27:39
Speaker 3: strategy has been. Maybe again, there's method to the madness,
27:42
Speaker 3: but it's been a little health skelter. Yes, have to
27:44
Speaker 3: admit that they do work to raise revenue. That is,
27:47
Speaker 3: after all the points, So there are pluses and minuses.
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Speaker 2: I'm not sure, you know, not sure it's the point,
27:53
Speaker 2: and I want to keep going back to that because
27:56
Speaker 2: the point has been thrown out as well. The legal
27:59
Speaker 2: justification for the griffs are to punish countries who are
28:04
Speaker 2: abusing things like heroin trafficking into the United States, so
28:08
Speaker 2: that's the legal justification, or not doing enough to curb
28:11
Speaker 2: immigration into the United The economic justifications that uh, you know,
28:17
Speaker 2: the the MAGA movement in general have used have been
28:21
Speaker 2: a fewfold. Revenue generation, to me, has not been one
28:25
Speaker 2: of those I've heard that. I have heard it a ton,
28:28
Speaker 2: but I don't think it's one of the core magaz
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Speaker 2: shift hearing. Yes, I am okay, I'm hearing it from
28:36
Speaker 2: the likes of Bessent. I'm hearing it from the likes
28:37
Speaker 2: of others that I don't really attribute to the core
28:40
Speaker 2: MAGA movement.
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Speaker 3: From the core MAGA movement.
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Speaker 2: No, I think it's I think that the likes of
28:48
Speaker 2: Steve Bannon kind of started it.
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Speaker 3: Don't worry well, actually he worked a golden sax.
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Speaker 2: He's not an economic he's not an economic and he just, I.
28:54
Speaker 3: Said, illiterate in the issue of trade. He you know,
28:57
Speaker 3: I wouldn't call anybody an idiot.
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Speaker 2: I think his view on Harris would be purely based on, Hey,
29:03
Speaker 2: we want to use these to strengthen American manufacturing. Yeah,
29:07
Speaker 2: like that's pure play that we're starting, really debatable, agreed.
29:12
Speaker 2: So I think that's why it is shifting now, because
29:15
Speaker 2: that would be pretty painful.
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Speaker 1: Lift.
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Speaker 2: It's shifting now. I think the narrative much more towards Hey,
29:20
Speaker 2: it might not bring every job back to the US,
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Speaker 2: because even with fifteen percent or twenty percent or thirty
29:24
Speaker 2: percent tariffs, we might not be able to compete with
29:26
Speaker 2: China on manufacturing TVs. And that's okay. Instead, we're shifting
29:31
Speaker 2: the narrative too. If this can be used to put
29:34
Speaker 2: America on a more sustainable path regarding its debt, then
29:39
Speaker 2: maybe they're a good thing and still debatable, and I
29:43
Speaker 2: think a real problem because you have no certainty about
29:45
Speaker 2: whether or not they'll be here three years from now.
29:48
Speaker 2: But I am seeing that shift, and I will admit
29:49
Speaker 2: that I am pretty surprised that we have landed in
29:53
Speaker 2: a place now where, for instance, we seem to be
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Speaker 2: agreeing on fifteen percent tariffs with the EU and UK
29:59
Speaker 2: and Japan without much in the way of retaliation from
30:03
Speaker 2: those same countries change.
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Speaker 3: The situation feels more stable than it did a few
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Speaker 3: months ago. No, honest, people can discortet about merits of tariffs.
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Speaker 3: It doesn't have to get you know, personal, It's not
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Speaker 3: even ideological. It's just about how you want to raise revenue,
30:18
Speaker 3: because any tax has inefficiency costs. Of course, income tax does, yep,
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Speaker 3: we all know it, and tariffs do as well. Just
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Speaker 3: a question of which piper you want to pay?
30:28
Speaker 2: Quick break when we come back a little bit more
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Speaker 2: on tariff specifically the continued negotiations with the Opinion Union.
30:34
Speaker 2: That deals not quite angry yet. What are they harping
30:38
Speaker 2: over now? That's next to the Financial Exchange.
30:40
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31:11
Speaker 2: Mark. We got announcements last week that the European Union
31:16
Speaker 2: and the United States had agreed to the framework of
31:18
Speaker 2: a deal, but there were a number of questions to
31:21
Speaker 2: still be worked out. Semiconductors was one of the areas,
31:25
Speaker 2: but there were energy and other implications too on this
31:28
Speaker 2: framework of a deal. Certainly nothing executed and signed yet.
31:32
Speaker 2: In any case, one of those big items for the
31:36
Speaker 2: European Union has been access to the US market for
31:39
Speaker 2: wine and spirits, and that specific item has not been
31:44
Speaker 2: worked out in terms of what the teriff rate is
31:46
Speaker 2: going to be for wine and spirits, and there's been
31:48
Speaker 2: a potential implication that the European Union would retaliate against
31:52
Speaker 2: American made wine and spirits if there were a teriff
31:55
Speaker 2: in place there. I find this one interesting, not because
32:00
Speaker 2: I truly care whether or not French and Spanish wine
32:04
Speaker 2: faces a tariff coming into the United States. I actually
32:07
Speaker 2: have a personal preference for California wine, So no skin
32:11
Speaker 2: off my back, but it's actually one interesting thing here because.
32:14
Speaker 3: His birthday is coming up. Your handhand.
32:16
Speaker 1: I'm on.
32:19
Speaker 2: It is interesting to me because if there is one
32:22
Speaker 2: state that would very much benefit from fifteen percent tariffs
32:28
Speaker 2: on European spirits, it's California, right, Like you think about.
32:33
Speaker 3: That data on individual company trade surplus and deficit with
32:36
Speaker 3: various countries individual state.
32:37
Speaker 2: Excuse me, no, I have not, but I mean you
32:40
Speaker 2: think about that, like.
32:41
Speaker 3: Like, where do we stand here? We're mess Go ahead, sorry, the.
32:44
Speaker 2: You just think about like wine consumption in the United
32:47
Speaker 2: States when you talk about other things like liquor consumption,
32:51
Speaker 2: we already primarily consume American made liquor, whether it's whether
32:56
Speaker 2: it's whiskey obviously would be the big one, but even
32:58
Speaker 2: vodka in January, Like, these are spirits that we mainly
33:02
Speaker 2: produced in the United States and consume here, whereas why
33:04
Speaker 2: does wine is much more globally diversified. And so my
33:08
Speaker 2: conclusion would be, yeah, if you hit European wine with
33:11
Speaker 2: a fifteen percent tariff, California wine makers are going to
33:17
Speaker 2: be those who benefit the most. The state of California
33:19
Speaker 2: in general would be a beneficiary of that. And so
33:21
Speaker 2: it doesn't you know, it doesn't immediately line up in
33:24
Speaker 2: my view with President Trump's political goals there. I don't
33:27
Speaker 2: know if that sways him at all in one direction
33:30
Speaker 2: or another. And obviously the European Union is pressuring to
33:33
Speaker 2: have no terifts on European a lot.
33:34
Speaker 3: Does policies help so called blue states? Yeah, the tax
33:38
Speaker 3: bill heavily favors blue states, wealthier states, for example, their
33:43
Speaker 3: net contributors to that.
33:45
Speaker 2: I want to actually go back to that. But yeah,
33:47
Speaker 2: I mean on this European Union. Yeah, it's just interesting
33:52
Speaker 2: to me, and I do wonder how it all shapes out.
33:54
Speaker 3: But what okay, So what's your You're wondering what to
33:58
Speaker 3: what degree vegetation for lower boost prices here factors into
34:04
Speaker 3: the ultimate what's the I think I missed your point.
34:08
Speaker 2: I think my point a lot of interesting facts.
34:10
Speaker 3: But I missed the main thrust.
34:11
Speaker 2: If we hit foreign made wine with tariffs, they're going
34:15
Speaker 2: to retaliate. Whether they retaliate or not. Well, let's say
34:19
Speaker 2: they don't retaliate it in particular, because that's been the
34:23
Speaker 2: direction in your opin union has gone here is yeah,
34:25
Speaker 2: you put teriffts on our goods and you turn it retaliate.
34:28
Speaker 2: The primary beneficiary would be California winemakers in nex Yes, okay,
34:32
Speaker 2: which I just find politically interesting.
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35:31
Speaker 2: You are making a point mark before about a lot
35:34
Speaker 2: of policies, including the big tax bill, as largely benefiting
35:37
Speaker 2: Blue states. Explain to me. I agree with you, but
35:40
Speaker 2: explain how the tax bill overall kind of benefits Blue states.
35:45
Speaker 2: In many cases, I.
35:46
Speaker 3: Don't know enough about its components. It's just the most
35:48
Speaker 3: expensive parts of it. Look, when you cut taxes, the
35:53
Speaker 3: benefits are going to recruit to people that make money
35:55
Speaker 3: and pay taxes. So this whole argument that will at
35:59
Speaker 3: benefax Republican tax bills tend to benefit the rich, Well, no, duh.
36:03
Speaker 3: They they're the ones who pay most of the taxes.
36:05
Speaker 3: I've just never found that particularly persuasive. You can argue
36:08
Speaker 3: about whether or not as a good time. Now is
36:10
Speaker 3: a good time to shut taxes given the fiscal crisis
36:13
Speaker 3: that we're facing. When it's going to arrive, nobody knows.
36:15
Speaker 3: We've been warning, but people have been warning about it
36:17
Speaker 3: for decades now. So I don't really have anything profound
36:20
Speaker 3: to say, Mike, other than the curate's it's an observation
36:23
Speaker 3: that it's curious that Republican policies tend to benefit Blue states.
36:27
Speaker 3: Subsidies to subsidies that induce investment tax credits to corporations.
36:32
Speaker 3: These corporations are chartered in Delaware. These corporations employ people
36:37
Speaker 3: mostly just by virtue of population mass in blue or
36:40
Speaker 3: purplish purplish excuse me, states.
36:42
Speaker 2: Yeah, I would. I would simplify it too, Like I mean,
36:44
Speaker 2: there's a few things to me that benefit blue states here. One,
36:48
Speaker 2: in order to get the pack tax bill over the
36:50
Speaker 2: over the line, you needed the votes of a number
36:53
Speaker 2: of Republicans in blue states like New York, like Jersey
36:56
Speaker 2: and others, and so you had specific carve outs for
36:59
Speaker 2: things like the deduction, which is a big benefit to
37:02
Speaker 2: high income earners in those blue states. The other piece
37:04
Speaker 2: would just be income is your high income is concentrated
37:10
Speaker 2: in some of these coastal blue states, right, so Massachusetts,
37:14
Speaker 2: New York, New Jersey, California, Washington State, that's where a
37:19
Speaker 2: lot of the highest income earning is. Texas is another one.
37:22
Speaker 2: But because of that, yeah, when you have a lock
37:25
Speaker 2: in of that thirty seven percent income tax bracket on
37:28
Speaker 2: the highest end, yeah, it does benefit those highest income earners,
37:32
Speaker 2: which are often located in those blue states. So yeah,
37:35
Speaker 2: there's some truth to that, I think.
37:37
Speaker 3: The other general point Mike, oh sorry, go ahead. If
37:39
Speaker 3: the other general point is tariffs have winners and losers.
37:43
Speaker 3: Like any tax, there are winners and losers. If you
37:45
Speaker 3: have to cut spending to finance attax cut, there are
37:47
Speaker 3: going to be some people come out on the losing end.
37:49
Speaker 3: And policymaking is about trade offs and making choices. You're
37:54
Speaker 3: railing against something because railing against free trade or against
37:57
Speaker 3: tariffs because one or the other ben that's a particular
38:01
Speaker 3: constituency is not really a good argument. Policymaking is about
38:05
Speaker 3: trade offs.
38:06
Speaker 2: Let's take a quick break. We've got markets now in
38:08
Speaker 2: fairly strongly negative territory. We've had a three days of
38:12
Speaker 2: a bit of volatility here. We'll have a full market
38:15
Speaker 2: recap end more next on the financial exchange