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Will manufacturing actually come back because of tariffs? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zadath and Mike Armstraw.
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Speaker 2: Chuck, Mike and Tucker with you here the day after
1:13
Speaker 2: the tariff announcement that came a little bit after four
1:17
Speaker 2: pm yesterday. And markets are not in a very good spot,
1:23
Speaker 2: I think is the nice way of putting it. They're
1:26
Speaker 2: not in a free fall. I think maybe I'm just
1:29
Speaker 2: conditioned by what I saw back in twenty twenty in March,
1:32
Speaker 2: where you know, look, we saw some of the worst
1:35
Speaker 2: days that we've ever seen in stock market history then,
1:38
Speaker 2: and this one, while bad, with the S and P
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Speaker 2: five hundred currently down about three and three quarters percent,
1:42
Speaker 2: are about two hundred points, the Dow is off about
1:44
Speaker 2: fourteen hundred points, NASDAK of almost five percent, eight hundred
1:48
Speaker 2: and thirty points. I don't know why, but this feels
1:51
Speaker 2: a little bit more orderly to me, and perhaps Mike
1:54
Speaker 2: it's just I know that we're gonna talk about the tariffs,
1:56
Speaker 2: and know that's all that everyone wants to hear about.
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Speaker 2: But I just have to talk about what I'm seeing
1:59
Speaker 2: in this market right now, because you know, on days
2:02
Speaker 2: where like people are like really nervous, every single thing
2:06
Speaker 2: gets sold, like you have days where like four hundred
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Speaker 2: and ninety nine out of the five hundred s and
2:12
Speaker 2: p five hundred companies or I think it's five oh
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Speaker 2: five now are are down and like one thing is
2:17
Speaker 2: up or like three things are up. Today, you actually
2:21
Speaker 2: have about one hundred stocks that are in positive territory now.
2:24
Speaker 2: They're in the places that everyone likes to hide out
2:26
Speaker 2: during recessions. They're in consumer staples like coke and pepsi,
2:31
Speaker 2: which are up a couple percent. They're in telecoms like
2:34
Speaker 2: Verizon and AT and T that are up a couple percent.
2:37
Speaker 2: They're in healthcare like United Health and Johnston Johnson up
2:41
Speaker 2: a couple percent. They're in utilities like Southern Company and
2:44
Speaker 2: Duke Energy up a couple percent. All the boring places
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Speaker 2: are actually getting bid today, which is kind of interesting
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Speaker 2: because it's like, Okay, you know, yeah, I get that.
2:55
Speaker 2: You know, you might think that this is where you hide.
2:57
Speaker 2: But typically even you know, recession stocks go down in
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Speaker 2: a recession, you know, no one looks back and is like, man,
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Speaker 2: like those utilities really rallied in like two thousand and
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Speaker 2: eight and two thousand and nine. It's like, no, they
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Speaker 2: just weren't, you know, quite as bad. So I do
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Speaker 2: find this kind of interesting. Yeah, just what we're seeing
3:14
Speaker 2: from the market. But let's talk about what we saw
3:16
Speaker 2: last night and get down to brass tacks on this,
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Speaker 2: because it's it's pretty clear and pretty straightforward in terms
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Speaker 2: of what we are are seeing. Here's the state of play.
3:28
Speaker 2: Ten percent tariffs on all countries going forward beginning on
3:32
Speaker 2: April nine. So the first thing these Remember we initially
3:36
Speaker 2: before the announcement, were told that these were going to
3:38
Speaker 2: be going into place on April third, immediately after they're
3:41
Speaker 2: now going into place on April ninth. That tells me
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Speaker 2: one thing, Mike, is that I expect a flurry of
3:47
Speaker 2: announcements over the next few days that countries X, Y,
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Speaker 2: and Z, you know, have negotiated this and that, and
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Speaker 2: we're not going to be imposing these Is that is
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Speaker 2: that fair to say?
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Speaker 3: Yeah, I think you can rest assured that those negotiations
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Speaker 3: were already happening behind closed doors, and the announcements of
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Speaker 3: those negotiations likely, in my opinion, to come over the
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Speaker 3: course of the next six days.
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Speaker 2: So that's part one. Part two. There are fifty seven
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Speaker 2: other countries that are listed in what they're calling Annex
4:17
Speaker 2: one of the Executive Order. Because again I do find
4:20
Speaker 2: it's like actually useful to read through the executive order
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Speaker 2: to determine what's going on in all of this. And
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Speaker 2: so they have a list of these other countries that
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Speaker 2: have a greater than ten percent tariff imposed on them,
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Speaker 2: and these range from the EU at twenty percent, to
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Speaker 2: Japan at twenty four, to Madagascar at forty seven, to
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Speaker 2: Vietnam at forty six, to China at thirty four. Whole
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Speaker 2: bunch of different you know things countries included in there.
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Speaker 3: And so Chuck just to I think phrase these two.
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Speaker 3: My takeaway, after having listened to the press conference digested
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Speaker 3: for a little bit, I break this out into two
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Speaker 3: buckets of tariffs. There appears to be a universal ten
5:03
Speaker 3: percent on every country. And subsequently there were the fifty
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Speaker 3: some odd countries that were specifically named and subject to
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Speaker 3: additional tariffs. If we're talking about negotiation. Were I a
5:16
Speaker 3: betting man, I would bet that those second tariffs on
5:20
Speaker 3: those fifty some odd countries may be negotiated down. I
5:24
Speaker 3: don't expect them to be negotiated lower than the ten
5:26
Speaker 3: percent baseline that appears to be attached to every single country, but.
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Speaker 2: I would agree with that. Well, see, and I also
5:33
Speaker 2: think there are probably some areas that are going to
5:36
Speaker 2: it's going to be different with each country and region
5:39
Speaker 2: in terms of how the negotiations go. Now, the way
5:42
Speaker 2: that these were calculated, and the US Trade Representative Office
5:46
Speaker 2: put this out like they it's on the US Trade
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Speaker 2: Representative website right now, I'm reading from it. If you
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Speaker 2: just google US Trade Representative reciprocal tariff calculations and look
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Speaker 2: at the one that is from the USTR dot gov site,
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Speaker 2: they tell you it's basically look, they weren't actually looking
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Speaker 2: at you know, tariff barriers and and things like that,
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Speaker 2: but rather they took the trade deficit with the US
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Speaker 2: relative to the country's exports with the US and basically
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Speaker 2: made the US tariff rate half of that for countries
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Speaker 2: that had trade deficits. So this is why when you
6:19
Speaker 2: look at, you know, some countries like Brazil that are
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Speaker 2: not included on this list because Brazil actually the US
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Speaker 2: runs a trade surplus with and so Brazil not included here. Like,
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Speaker 2: there are plenty of countries that the US actually does
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Speaker 2: have trade surpluses with, it's just that in the aggregate,
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Speaker 2: those surpluses are smaller than the deficits. But this is
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Speaker 2: not something where the US went out and said, hey,
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Speaker 2: this is you know, the teriff rate on this country
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Speaker 2: and this and that it is purely based on the
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Speaker 2: trade deficit at the time.
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Speaker 3: And we will talk about why that's important, Chuck, probably
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Speaker 3: at length during this show. But the reason that you know,
6:55
Speaker 3: first things first, that it's important is because it is
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Speaker 3: both different than what President Trump stated while he was
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Speaker 3: delivering his news on tariffs. The messaging that I heard
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Speaker 3: was these countries is impose unfair trade practices on the
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Speaker 3: United States, so we're doing it back to them as reciprocation.
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Speaker 3: That's actually not what these tariffs represent because, for a
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Speaker 3: number of reasons, some of which I don't fully understand,
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Speaker 3: the government said, we either can't or don't want to
7:26
Speaker 3: figure out where those actual barriers to trade are. So
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Speaker 3: we're just going to take the easy path and say, Okay, Vietnam,
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Speaker 3: you have a trade imbalance with US, so you are
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Speaker 3: going to be subject to higher tariffs than Brazil, regardless
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Speaker 3: of whether or not there are actual barriers to trade
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Speaker 3: that are different between those two countries.
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Speaker 2: So here's what this does. If these are all kept
7:47
Speaker 2: in place. If these are all kept in place, which
7:50
Speaker 2: again I think this is an evolving situation, and we'll
7:53
Speaker 2: talk about what that means as well. But if these
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Speaker 2: are all kept in place, what it's going to mean
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Speaker 2: is that the average effective US tariff rate, after incorporating
8:02
Speaker 2: all of this in plus what was done you know
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Speaker 2: earlier this year, is now twenty two and a half percent.
8:07
Speaker 2: This is according to data from the Budget Lab at Yale.
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Speaker 2: They do a bunch of stuff on trade policy, and
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Speaker 2: so I'm largely going to be quoting from them. This
8:17
Speaker 2: is the largest tariff rate that the US has employed
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Speaker 2: since nineteen oh nine, So it's been one hundred and
8:23
Speaker 2: sixteen years since the US has seen tariffs this high.
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Speaker 2: And quite honestly, what I will say on this, and
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Speaker 2: I include myself in this discussion, none of us know
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Speaker 2: for sure exactly how this is going to end up
8:34
Speaker 2: playing out, because there's no one alive who has ever
8:36
Speaker 2: seen this.
8:37
Speaker 3: And furthermore, even the greatest historians would acknowledge that the
8:42
Speaker 3: economy looks nothing like it did in nineteen oh nine today.
8:47
Speaker 3: So any of the lessons that you might have learned
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Speaker 3: from nineteen oh nine smooth, holly, great depression, A lot
8:54
Speaker 3: of this stuff being talked about today the US economy
8:57
Speaker 3: looks nothing like it did back in nineteen oh nine
8:59
Speaker 3: or nineteenth three. So let's let's temper those expectations a
9:03
Speaker 3: bit as.
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Speaker 2: Well now in terms of what this means, like the
9:08
Speaker 2: the numbers that in terms of like what it means
9:11
Speaker 2: for the US economy UH. The again I'm quoting here
9:15
Speaker 2: from the budget Lab. If you want, you can go
9:17
Speaker 2: it's right like budget lab dot Yale, dot edu. They've
9:20
Speaker 2: got a whole thing on this. And basically what it
9:23
Speaker 2: shows is that the price level from all of these
9:25
Speaker 2: tariffs UH is going to rise about two point three
9:29
Speaker 2: percent in the short run, and so that works out
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Speaker 2: to an average per household loss of about thirty eight
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Speaker 2: hundred dollars in purchasing power. So basically saying, hey, the
9:39
Speaker 2: cost of these tariffs they estimate to be nearly four
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Speaker 2: thousand dollars per year again if these are all implemented.
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Speaker 2: And this is where, quite honestly, we get to the
9:48
Speaker 2: very simple conclusion, which is, if these tariffs were to
9:52
Speaker 2: all stay in place, I did a session. I'm not
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Speaker 2: allowed to say it's like one hundred chance of recession,
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Speaker 2: but it's it's almost certain that you end up with
10:05
Speaker 2: a recession if these were to stay in place for
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Speaker 2: any extended period of time, and an extended period of
10:10
Speaker 2: time I would define as two to three months. We're
10:14
Speaker 2: not talking to like these don't need to in place
10:16
Speaker 2: for like years. This is if these are in place
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Speaker 2: by Mother's day, you're starting to run into some real problems.
10:22
Speaker 2: So again, I think the expectation is some of these
10:25
Speaker 2: are going to be negotiated away in the coming week
10:28
Speaker 2: or so. But it does raise a question, and this
10:31
Speaker 2: is I think the next one that we need to answer.
10:32
Speaker 2: We're gonna take a break here, but the next question
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Speaker 2: to answer is, Okay, if some of these are negotiated away,
10:39
Speaker 2: how do businesses and households respond to the uncertainty about
10:43
Speaker 2: whether or not tariffs end up sticking around for the
10:46
Speaker 2: short term, intermediate term, or long term. So let's take
10:49
Speaker 2: a quick break and then let's talk about that when
10:51
Speaker 2: we return.
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Speaker 3: Chuck, I know we're going to try and keep this
11:57
Speaker 3: relatively high level, but some of the stuff we're going
11:58
Speaker 3: to be talking about is by its nature technical. If
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Speaker 2: Go ahead, Chuck, And by the way, if you have
12:17
Speaker 2: questions beyond just what we're discussing, if you want to know, hey,
12:20
Speaker 2: how could this you know, potentially impact X Y or
12:23
Speaker 2: z or what do you think it means about this
12:25
Speaker 2: text that number two? Again, I can't guarantee that we're
12:28
Speaker 2: gonna be able to answer all those questions because we
12:31
Speaker 2: don't know everything about everything. We try to know as
12:33
Speaker 2: much as we can about a lot of things, but
12:36
Speaker 2: we we have not yet reached the end of the Internet.
12:39
Speaker 3: And so, Chuck, we're supposed to know everything about everything.
12:41
Speaker 2: I have to level with people, we only know a
12:45
Speaker 2: lot about a lot. We don't know everything about everything,
12:48
Speaker 2: and in fact, there's a lot that we only know
12:50
Speaker 2: a little about, and there's even more that we know
12:51
Speaker 2: nothing about. Got it. Anyways, Let's talk a little bit
12:56
Speaker 2: about businesses. So one of the main points during the
13:00
Speaker 2: press conference yesterday was, Hey, Donald Trump wants to bring
13:03
Speaker 2: manufacturing back to America. He had a member of the
13:06
Speaker 2: UAW that went up that was talking about, you know,
13:08
Speaker 2: how excited he was for you know, manufacturing to come
13:11
Speaker 2: back to the US. And the question then is, okay,
13:15
Speaker 2: is manufacturing actually going to come back based on this?
13:20
Speaker 2: And so I think it's one where in the short
13:23
Speaker 2: term there are likely still more questions than answers for manufacturers.
13:28
Speaker 2: Those questions can be answered over time, but Let's say
13:31
Speaker 2: that I am Chuck's Auto Company, Okay, and I know
13:38
Speaker 2: it's it's great. You can call me Chuck Auto for short.
13:41
Speaker 2: And let's say that Chuck Auto is you know, making
13:45
Speaker 2: half its vehicles in Canada and Mexico right now because hey,
13:49
Speaker 2: it was cheaper for me to do so. So these
13:51
Speaker 2: tariffs on autos come into effectors by the way, those
13:53
Speaker 2: are in effect today, and so those are in effect,
13:59
Speaker 2: and I'm sitting there, I'm going, Okay, I get all
14:01
Speaker 2: these additional costs that I have on vehicles, so a
14:04
Speaker 2: I've got to raise the price of my vehicles to
14:07
Speaker 2: begin with, just because I've got these additional costs on
14:10
Speaker 2: these vehicles that I'm importing here. So the cost of
14:13
Speaker 2: my vehicles that I'm selling goes up, which means all
14:15
Speaker 2: else being equal, I'm probably selling fewer of them right
14:18
Speaker 2: now because there's always if if there were more people
14:20
Speaker 2: that could buy at higher prices, I'd already be charging
14:22
Speaker 2: higher prices. So I sit here and I go, Okay,
14:27
Speaker 2: I've got this production that is, you know, in Canada
14:30
Speaker 2: and Mexico. If I want to bring it back to
14:34
Speaker 2: the US, I gotta start building a factory today in
14:37
Speaker 2: order to start producing cars three years from now, and
14:41
Speaker 2: it's going to cost me. I don't you will get
14:44
Speaker 2: like the cost of these plants that are being set
14:46
Speaker 2: up ten to twenty billion dollars, let's call it, you know,
14:49
Speaker 2: somewhere in that range, in order to build a new
14:50
Speaker 2: auto factory. Am I going to today say yes, I'm
14:57
Speaker 2: going to build a new auto factory based on what
14:59
Speaker 2: I've seen? My answer, and again this is my like
15:03
Speaker 2: me role playing this whole thing out, just because I'm
15:05
Speaker 2: not actually in the heads of you know, any auto executives.
15:08
Speaker 2: I'm not Jim Farley, I'm not married Bear, I'm not
15:11
Speaker 2: you know them. But am I gonna take ten billion
15:13
Speaker 2: dollars and say I'm going to build a new factory
15:15
Speaker 2: here in the US given that a lot of these tariffs,
15:20
Speaker 2: when they've been imposed shortly afterwards, have either been partially
15:24
Speaker 2: or entirely rescinded. And I don't know if it's going
15:28
Speaker 2: to be cost effective for me to do that for
15:31
Speaker 2: the long term.
15:32
Speaker 3: It's a it's a it's a really tough question to answer, Chuck,
15:35
Speaker 3: Can I give you I want to talk about a
15:37
Speaker 3: specific company with a specific manufacturing role here in the
15:41
Speaker 3: United States. I think you and I are both familiar
15:44
Speaker 3: with at least have discussed the BMW plant down in
15:47
Speaker 3: South Carolina, right sure, about eleven thousand workers at that
15:51
Speaker 3: BMW plant down in Spartanburg, South Carolina. They produce a
15:56
Speaker 3: lot of SUVs. There a lot of BMW SUVs in
15:58
Speaker 3: that Spartanburg plant. Those SUVs then get exported to other
16:02
Speaker 3: countries and a bunch of them get sold in the
16:04
Speaker 3: United States. But to be clear, they are not just
16:07
Speaker 3: making vehicles that get sold into the United States market.
16:10
Speaker 3: These things get produced and shipped all over.
16:12
Speaker 2: The world because it's easier to have one. It's easier
16:14
Speaker 2: and cheaper to have one factory that makes all those
16:17
Speaker 2: than separate factories everywhere making all different vehicles.
16:21
Speaker 3: So let's take that plant for a moment here and
16:23
Speaker 3: focus in on it. To those vehicles sold in the
16:26
Speaker 3: United States, there's going to be no tariff because they
16:29
Speaker 3: are produced entirely in the United States as of today. However,
16:35
Speaker 3: we do have the hint of these new parts tariffs
16:38
Speaker 3: that are going to go into place, And I don't
16:40
Speaker 3: have the estimates from BMW on what portion of these
16:42
Speaker 3: parts come from outside, but it's a lot, so here's
16:46
Speaker 3: what's going to happen. You have a tariff going into
16:49
Speaker 3: place on the parts that go into these BMW cars.
16:52
Speaker 3: Then those cars are shipped across the globe to go
16:54
Speaker 3: be sold let's say in South America and Europe.
16:59
Speaker 2: And it is now, because.
17:01
Speaker 3: Of these tariffs, going to be more costly to manufacture
17:06
Speaker 3: that vehicle in the United States and ship at elsewhere
17:09
Speaker 3: than it would be to say, manufacture that vehicle in
17:13
Speaker 3: Canada or in Mexico, at least for the portion of
17:16
Speaker 3: them that are going to be sold elsewhere. So for
17:19
Speaker 3: that again, one plant eleven thousand employees in the state
17:22
Speaker 3: of South Carolina, you do have to question, like, Okay,
17:25
Speaker 3: the result of these terraffs, is it more BMW's being
17:28
Speaker 3: manufactured in the United States or is it actually fewer
17:31
Speaker 3: because hey, they have more capacity than the demand from
17:36
Speaker 3: US buyers. What does that look like over the next
17:39
Speaker 3: few years because suddenly in one specific area of one
17:42
Speaker 3: specific market, the United States isn't a terribly competitive place
17:46
Speaker 3: to manufacture that car.
17:48
Speaker 2: So these are some of the things that businesses are
17:51
Speaker 2: going to be discussing. Beyond that, you also do have
17:55
Speaker 2: businesses that are large importers that again, if these tariffs
17:58
Speaker 2: are in place when they get you know, actually implemented
18:01
Speaker 2: on April ninth, you've got some real problems. I have
18:04
Speaker 2: two buddies of mine that run businesses that are you know,
18:08
Speaker 2: largely import dependent from China. One of them runs a
18:14
Speaker 2: small collectibles business. The other is a board game maker.
18:19
Speaker 2: The smaller one is a sole proprietor. It's like him
18:23
Speaker 2: just you know, doing his thing, and the other one
18:25
Speaker 2: has I think like twenty to twenty five employees somewhere
18:27
Speaker 2: in that ballpark, and I, you know, was curious. I'm like, hey, like,
18:31
Speaker 2: what's what's the deal on all of this? How's it
18:33
Speaker 2: going to impact you? The smaller one, who is again
18:37
Speaker 2: just a sole proprietor, was basically like, given the new
18:40
Speaker 2: tariffs from China and where my margins are, and how
18:43
Speaker 2: I have to pay these tariffs, I'm I'm gonna have
18:46
Speaker 2: to close up shop if they if they stay in place,
18:49
Speaker 2: like straight up said, look, I've been able to stomach
18:51
Speaker 2: you know, the twenty percent so far, an additional thirty
18:53
Speaker 2: four percent on top of that, I'm gonna have to
18:56
Speaker 2: close up shop because my customers won't pay that extra premium.
19:00
Speaker 2: Like he knows them. The other one is trying to
19:05
Speaker 2: find a way to negotiate with the companies that he
19:09
Speaker 2: sells into, you know, big national retailers and things like that,
19:13
Speaker 2: and is hoping to find a way to weather the storm.
19:17
Speaker 2: But I asked him, like, look, what's this. What's this
19:19
Speaker 2: gonna end up costing you? He's like, it's gonna be
19:21
Speaker 2: five million dollars this year in tariff cost that I
19:23
Speaker 2: had and budgeted, And that's money that's no longer going
19:27
Speaker 2: to be profit for him because he has to pay
19:30
Speaker 2: that five million dollars. So these are some of the
19:31
Speaker 2: real world impacts we're starting to see here that we
19:34
Speaker 2: may see quick break here. We got Wall Street Watch next,
19:37
Speaker 2: and then more tariff talk after this.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
19:45
Speaker 1: TFE show. Breaking business news is always first Right here
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch a complete look at what's moving market so
19:57
Speaker 1: far today right here on the final Anchel Exchange Radio Network.
20:01
Speaker 4: Markets are selling off significantly the day after President Trump
20:05
Speaker 4: unveiled his reciprocal tariffs as well as auto tariffs, sending
20:09
Speaker 4: shockwaves across the global economy. Right now, it's pretty ugly
20:14
Speaker 4: out there. Dow is down by three and a half percent,
20:18
Speaker 4: or about just fifteen hundred points. Here, SMP five hundred
20:21
Speaker 4: is down nearly four percent or two hundred and twenty
20:24
Speaker 4: one points, and the tech having NAZDAC down nearly five
20:28
Speaker 4: percent or eight hundred and sixty seven points. Russell two
20:31
Speaker 4: thousand selling off by five point six percent, Tenure Treasure
20:34
Speaker 4: reeled down by fifteen basis points and now sits at
20:37
Speaker 4: four point zero four percent, Crude oiled down nearly seven
20:41
Speaker 4: percent lower or sixty six dollars in seventy eight cents.
20:45
Speaker 4: Baryl over to big tech taking a big hit today,
20:48
Speaker 4: where the Magnificent seven are taking hits of anywhere between
20:52
Speaker 4: three and eight percent. Several retailers are also seeing substantial
20:57
Speaker 4: losses in reaction to the new tariff, specifically those who
21:00
Speaker 4: manufacture in both Vietnam and China. Nike, which manufactured about
21:05
Speaker 4: half of its footwear overseas, is seeing a loss of
21:11
Speaker 4: thirteen percent. In Lululemon, who also sources forty percent of
21:14
Speaker 4: its products in Vietnam, that stock is also down by
21:19
Speaker 4: about thirteen percent. Target and Best Buy down anywhere between
21:22
Speaker 4: ten and fifteen percent as retailers have warned tariffs will
21:26
Speaker 4: lead to price increases for their products. The companies have
21:29
Speaker 4: also been pressuring suppliers to cut prices or move production
21:33
Speaker 4: out of China. Walmart is only down by half a percent.
21:37
Speaker 4: Discount retailers including Dollar Tree and five below also seeing
21:41
Speaker 4: losses on the day in reaction to the tariffs. There is, however,
21:45
Speaker 4: some green on the board where investors are jumping into
21:48
Speaker 4: several consumer staple stocks, including Coca Cola, Pepsi, Procter, and
21:52
Speaker 4: Gamble Philip Moores, among others. They are seeing gains anywhere
21:57
Speaker 4: between one and two percent, and oil prices, like I
22:00
Speaker 4: mentioned earlier, down by seven percent after eight key Opec
22:03
Speaker 4: plus producers agreed to raise combined crude oil output by
22:07
Speaker 4: four hundred and eleven thousand barrels per day, speeding up
22:10
Speaker 4: the pace of their scheduled hikes and pushing down oil prices.
22:15
Speaker 4: On Tucker Silvan, that's Wall Street watch Mike.
22:18
Speaker 2: Where do you want to go next? From a tariff perspective?
22:20
Speaker 3: I think a little bit of discussion further on this
22:23
Speaker 3: country by country method and what it might mean for
22:26
Speaker 3: negotiations would be helpful here and again, if you're just
22:29
Speaker 3: joining US. The announcement of tariffs yesterday, Liberation Day went
22:35
Speaker 3: through at four pm. We have tariffs going into place
22:38
Speaker 3: on April fifth, and then the substantial reciprocal tariffs as
22:42
Speaker 3: they're being described, going into effect on April ninth. Just
22:45
Speaker 3: point of clarification, Chuck, what is going into place on
22:48
Speaker 3: Saturday of this week? Is it the auto tariffs that
22:50
Speaker 3: go into place? Or are those already in effect?
22:52
Speaker 2: So the auto tariffs are in effect today. The I'm
22:58
Speaker 2: just gonna pull the executive order. I can have it here, Okay,
23:00
Speaker 2: here it is the implementation. I'll quote here. Except as
23:04
Speaker 2: otherwise providing this order, all articles imported into the customs
23:07
Speaker 2: Territory of the US shall be consistent with the law,
23:09
Speaker 2: subject to an ad additional adve vlorum rate of duty
23:15
Speaker 2: of ten percent. Such rates of duty shall apply with
23:18
Speaker 2: respect to goods entered for consumption on or after twelve
23:22
Speaker 2: oh one a m. Eastern daylight time on April fifth,
23:25
Speaker 2: twenty twenty five. So the blanket ten percent goes into
23:28
Speaker 2: effect on Saturday. That happens two days now. Cars are
23:31
Speaker 2: as of today. April ninth is when you have the
23:36
Speaker 2: trade partners that are specified in Annex one of the document,
23:42
Speaker 2: which is you know those other countries that are included
23:46
Speaker 2: in there, and it's based on the trade deficit relative
23:51
Speaker 2: to the country's exports to the United States. So the
23:56
Speaker 2: best way to phrase this is, let's say that a
24:01
Speaker 2: country has a trade deficit of twenty dollars with the US,
24:05
Speaker 2: and let's say the export one hundred dollars to the US.
24:08
Speaker 2: Twenty divided by one hundred is point two. And then
24:12
Speaker 2: what the US did is they said, we're going to
24:14
Speaker 2: take half of that and that'll be the additional tariff
24:16
Speaker 2: that we are imposing. So in that case, there would
24:19
Speaker 2: be no additional tariff because it's in line with the
24:21
Speaker 2: ten percent. But for other countries it was you know,
24:24
Speaker 2: it's it's higher because obviously that was just an example,
24:27
Speaker 2: and so you look at the EU and you know
24:30
Speaker 2: the EU comes in at a twenty percent tariff. It's
24:34
Speaker 2: not based on how much the EU is tariffing US goods.
24:37
Speaker 2: It's based on the size of the trade deficit relative
24:41
Speaker 2: to how much the EU exports to the US.
24:44
Speaker 3: So again that that piece is a little bit complicated,
24:47
Speaker 3: but is incredibly important in my mind. So again, we're
24:50
Speaker 3: going to separate these out for a minute, ten percent
24:52
Speaker 3: universal tariffs on all imports into the United States. I
24:56
Speaker 3: recognize news is reporting that some countries like North Korea
24:58
Speaker 3: and Russia don't face any of the these tariffs. Guess what,
25:01
Speaker 3: They don't import anything to the United States, so probably irrelevant.
25:04
Speaker 2: So practically market for the market for North Korean imports
25:08
Speaker 2: still small, still small. I know that North Korea is
25:11
Speaker 2: working on it, but it's still very pecanio.
25:15
Speaker 3: So that ten percent piece, I don't think that we
25:19
Speaker 3: want to describe that as reciprocal because it does not
25:22
Speaker 3: appear to be in any way reciprocal based on trade
25:24
Speaker 3: policies of other countries or how much of a trade
25:26
Speaker 3: imbalance there is. It's universal. It's a baseline ten percent.
25:30
Speaker 3: That's how I'm gonna describe it. Is baseline ten percent
25:32
Speaker 3: tariffs probably going to be in place for most countries
25:35
Speaker 3: for a while. The reciprocal piece of all of this
25:40
Speaker 3: is also a bit problematic because it's not actually reciprocal.
25:44
Speaker 3: And I think the way that most of us understood
25:47
Speaker 3: what the administration.
25:48
Speaker 2: Was talking about.
25:49
Speaker 3: When I understood reciprocal, it was we are going to
25:52
Speaker 3: target countries who have substantial barriers to trade for American
25:56
Speaker 3: goods coming into their countries kind of makes sense, right, Hey, Mexico,
26:00
Speaker 3: you're going to put a big tariff on American whiskey.
26:02
Speaker 3: We're going to put a big tariff on products coming
26:04
Speaker 3: back into our country. Doesn't necessarily need to be the
26:06
Speaker 3: same products because we're avocados, We're going to tax them, right.
26:10
Speaker 3: That is not what we got yesterday. And so let's
26:14
Speaker 3: dive in there, Chuck for a minute with that's what
26:17
Speaker 3: we were going to get, though. I thought at least
26:20
Speaker 3: the list of countries, whether the tariff percentages formatted to
26:25
Speaker 3: the amount of tariffs or not, I didn't think that piece.
26:30
Speaker 3: But I thought at least the list of countries that
26:32
Speaker 3: were going to be subject to these reciprocations were is
26:36
Speaker 3: that a word?
26:37
Speaker 2: Sure it is on the financial exchange.
26:40
Speaker 3: I thought that at least that list of countries was
26:43
Speaker 3: going to be devised from a list of bad actors.
26:46
Speaker 2: And that is.
26:48
Speaker 3: Very clearly not the case. And I think for evidence
26:50
Speaker 3: of that, let's go to Israel for a moment here, Chuck.
26:52
Speaker 3: Let's talk about tariffs on Israel. What are they facing
26:56
Speaker 3: and what does trade look like between the US and Israel.
26:58
Speaker 2: So Israel is facing a seventeen percent tariff on all
27:04
Speaker 2: goods that Israel exports to the United States.
27:08
Speaker 3: Ten percent baseline plus seven percent reciprocal. Yes, well it's
27:13
Speaker 3: it's seventeen percent, seventeen percent. Let me see, I can't
27:16
Speaker 3: remember if this is no, sorry it is. I'm seeing
27:19
Speaker 3: if it's above and beyond the ten I can't remember offhand, No,
27:25
Speaker 3: it is, it's this. So yeah, it's it's in addition
27:28
Speaker 3: to it's in addition to anything that's already been levied earlier. Sure,
27:33
Speaker 3: and it's like including others. So like, let's say that
27:35
Speaker 3: there was an Israeli car that was manufactured and sent
27:38
Speaker 3: to the US. Yeah, it'd be the twenty five percent
27:40
Speaker 3: car tariff plus seventeen sure, but not like the ten here.
27:45
Speaker 3: So if you look at, you know, what Israel actually exports, Okay,
27:50
Speaker 3: like what you know, what are the things that they,
27:52
Speaker 3: you know, push out there. It's mostly technology and medical
27:56
Speaker 3: supplies like that. That's that's the bulk of it. But
27:59
Speaker 3: here's the thing.
28:00
Speaker 2: The US and Israel have a free trade agreement that's
28:02
Speaker 2: been in place since nineteen eighty five. It's a bilateral
28:04
Speaker 2: free trade agreement. Ninety eight percent of US exports to
28:08
Speaker 2: Israel are exempted from tariffs. There remaining two percent raises
28:11
Speaker 2: like ten million dollars a year in tariffs for Israel.
28:15
Speaker 3: So in Israel, safe to say that that is a
28:18
Speaker 3: pretty low barrier to trade between the US and is
28:20
Speaker 3: Not only is it a low barrier.
28:22
Speaker 2: Yesterday before the Trump announcement, Israel announced that they were
28:25
Speaker 2: seeking to remove the remaining two percent of items that
28:30
Speaker 2: were tariffed, you know, from US exports. So this is
28:35
Speaker 2: a big reason why when we look at the numbers
28:38
Speaker 2: that are assigned here, this set like this is one
28:41
Speaker 2: of the great examples where I think I would be
28:43
Speaker 2: absolutely shocked if we're sitting here on April ninth and
28:46
Speaker 2: this seventeen percent tariff on Israel is still in place.
28:49
Speaker 2: I would too.
28:50
Speaker 3: But that's that's the really important interpretation, because practically speaking,
28:55
Speaker 3: there is nothing Israel can do here to come up
28:58
Speaker 3: with a great new thing that they're going to do
29:03
Speaker 3: to eliminate barriers to trade. They have already done so,
29:06
Speaker 3: and we're subject to these terrorists, and so I think
29:08
Speaker 3: one interpretation would be, hey, this is gonna get done
29:10
Speaker 3: away with, and they're going to maybe still face the baseline,
29:13
Speaker 3: but not face any imposed big terrorists because guess what,
29:16
Speaker 3: there's no barriers to trade there. The other interpretation would be,
29:20
Speaker 3: what can Israel possibly do to make better trade deals
29:23
Speaker 3: with the United States right now and get a win
29:26
Speaker 3: for the Trump administration. I don't know, and so I'm
29:31
Speaker 3: pretty open to both of those interpretations.
29:33
Speaker 2: And here's the problem is that I think everyone here's
29:38
Speaker 2: one of the problems everyone came into yesterday saying Okay,
29:40
Speaker 2: after this, we're gonna have certainty. We still don't, right,
29:45
Speaker 2: And this is the thing is when you're engaging in
29:48
Speaker 2: negotiations on these types of things, you're like, there's never
29:52
Speaker 2: a defined end state that you get to. And so
29:55
Speaker 2: I think that's why this is going to be kind
29:57
Speaker 2: of challenging here, and why hey, even if some of
29:59
Speaker 2: these come off the board, which again I'd be shocked
30:01
Speaker 2: if some of them didn't over the next week. Of course,
30:05
Speaker 2: it's something where you then say, okay, as a if
30:07
Speaker 2: I'm a business owner who manufactures stuff, what do I do?
30:14
Speaker 2: You know? Like, let let's say that I'm Nike. Okay,
30:17
Speaker 2: because Nike is getting pummeled today and the reason why is, Mike,
30:22
Speaker 2: how much Nike stuff is made in the United States,
30:24
Speaker 2: not a whole lot, Bob, I don't know of anything.
30:27
Speaker 2: Like I'm sure there's a few products here and there,
30:29
Speaker 2: but there's there's not much. So Nike's down twelve percent today,
30:32
Speaker 2: So you want a bigger one, smaller company, but bigger loss.
30:35
Speaker 2: Have you seen Restoration Hardware today forty five? Yeah, but
30:38
Speaker 2: they reported earnings yesterday that were garbage. Yeah, they did.
30:42
Speaker 2: It's bad earnings yesterday. Like I wish I could find
30:45
Speaker 2: the quote from the CEO, but someone told him he.
30:47
Speaker 3: Had an expletive in the middle of his earnings.
30:49
Speaker 2: Yes, it is the word. Someone told him. Hey, you know,
30:53
Speaker 2: just so you know, like while we're doing this call,
30:55
Speaker 2: your stock is down twenty five percent, and he literally goes,
30:58
Speaker 2: oh bleep. Correct, So you know, things are kind of
31:02
Speaker 2: dodging like that. That's some of it might be terrorists,
31:05
Speaker 2: but others are. Hey, when your CEO says, oh bleep
31:07
Speaker 2: in the middle of the conference call in relation to
31:11
Speaker 2: stock price, stock price, it's not really good. Fill you
31:14
Speaker 2: with a ton of confidence looking at the transcript right now,
31:17
Speaker 2: isn't it great?
31:18
Speaker 3: It's really really oh blank, Okay, it's it's really that
31:23
Speaker 3: you it's rare that you see something like that in
31:25
Speaker 3: an earnings call. But like those are the ones where
31:27
Speaker 3: you wish that you were sitting on it instead of
31:29
Speaker 3: you know, doing something else. You're like, I would just
31:31
Speaker 3: love to be sitting there hearing a CEO be like,
31:34
Speaker 3: oh bleep, my stock's down, Like I just I love.
31:37
Speaker 2: The candor, you know, it's just like it's it's impressive.
31:40
Speaker 2: So getting back to these tariffs, some of them are
31:43
Speaker 2: gonna go away, some of them won't. But if you're Nike,
31:47
Speaker 2: first you say, okay, I make most of my stuff
31:50
Speaker 2: in Vietnam, Thailand, China, India, Sri Lanka, like like those
31:56
Speaker 2: are probably the big producers for Nike. Well, where let's
32:00
Speaker 2: say that you're sitting here and you're like, Okay, a
32:03
Speaker 2: week from now, maybe the tariff's on Vietnam are resolved.
32:07
Speaker 2: I don't know if they will be, but I'm just
32:08
Speaker 2: I'm hypothesizing. Let's say that those are resolved. Do I
32:12
Speaker 2: then say, okay, do I take my production from Thailand
32:16
Speaker 2: and try to move it to Vietnam or do I
32:19
Speaker 2: leave it there under the hope that maybe a week
32:21
Speaker 2: from now Thailand is resolved. Do I just do nothing right?
32:25
Speaker 2: And in doing nothing, then how much does that impact
32:28
Speaker 2: my margins because I'm still making a boatload of stuff
32:30
Speaker 2: in Thailand that has this tariff in place, And so
32:34
Speaker 2: what do I actually do as a manufacturer? I don't know.
32:40
Speaker 2: And this is the thing that's going to be going
32:42
Speaker 2: on at every major goods producer trying to figure out,
32:46
Speaker 2: like what do we do? And I think a lot
32:49
Speaker 2: of them are gonna just say, let's wait and see
32:51
Speaker 2: for a few weeks so we can see like kind
32:53
Speaker 2: of what the landscape looks like then. But the problem
32:57
Speaker 2: then is, Okay, if you have all these manufacturers that
33:00
Speaker 2: don't want to invest, both domestically or overseas, it just
33:04
Speaker 2: slows CAPEX to a grind, to a halt. And that's,
33:09
Speaker 2: you know, something that's potentially This is when we talk about, hey,
33:12
Speaker 2: like the damage to the economy, it's not just from
33:15
Speaker 2: the tariff, it's the uncertainty arounding it, surrounding it. And
33:19
Speaker 2: so this is again it's it's a pretty dodgy time
33:25
Speaker 2: in the economy. It's not to say that you know
33:28
Speaker 2: this is going to be permanent, but it's it's really tough.
33:33
Speaker 2: Even if some of these tariffs are removed to quickly
33:36
Speaker 2: undo the damage in confidence to businesses and or you know,
33:41
Speaker 2: households that are saying, Okay, what should I buy? Like
33:43
Speaker 2: is this going to be tariff or is it not?
33:45
Speaker 2: Like it's across the board that you're trying to sort
33:48
Speaker 2: through on that, and I think that's going to be
33:49
Speaker 2: a major challenge over the next couple of quarters, at least,
33:54
Speaker 2: anything else you want to note on that, Mic, No,
33:55
Speaker 2: we gotta take a break. Okay, let's take a break.
33:57
Speaker 2: When we come back more on this again. This is
34:01
Speaker 2: there's some days where you know we might hop around
34:03
Speaker 2: to like fifteen stories in an hour. This is gonna
34:07
Speaker 2: be like eight variations on one story. Because there's this
34:09
Speaker 2: is the only thing that matters. It's it's it. So
34:12
Speaker 2: if you're not enjoying the tariff talk, sorry, but we're
34:15
Speaker 2: gonna continue to. If you are, we got a whole
34:18
Speaker 2: lot more meat on that bone. It's juicy. We're gonna
34:20
Speaker 2: chew on it for a while. Stick around coming up
34:23
Speaker 2: right after this.
34:24
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34:59
Speaker 2: All right to talk tariffs in terms of you know,
35:03
Speaker 2: again like what's what's the potential impact here? And I
35:08
Speaker 2: think one thing that I want to tie this to is, look,
35:10
Speaker 2: what does the Trump administration want? Like, what what's the
35:14
Speaker 2: goal of this? I know that you know, manufacturing jobs
35:18
Speaker 2: is a key thing, but like let's ask the question
35:20
Speaker 2: of hey, like how do you actually get there? And
35:23
Speaker 2: what are some of the stated goals that they've had.
35:25
Speaker 2: So the first one that I come back to, and
35:26
Speaker 2: this is one that Treasury Secretary Scott Beston has talked
35:29
Speaker 2: about quite a bit. The he hasn't quite come out
35:33
Speaker 2: and said it exactly this way, but they want a
35:35
Speaker 2: weaker dollar. And the reason why they want a weaker
35:38
Speaker 2: dollar is pretty simple from a manufacturing perspective. If you
35:42
Speaker 2: sell stuff in your currency is expensive relative to other currencies,
35:46
Speaker 2: it's harder for you to sell those goods overseas. So
35:48
Speaker 2: a cheaper dollar means your stuff is more affordable in
35:51
Speaker 2: euro terms and yen terms and whatever it is. He
35:54
Speaker 2: specifically Bestin has called out the end, saying, look, I
35:57
Speaker 2: want the yen to strengthen relative to the dollar. So
36:01
Speaker 2: if we take a look at where the end is today,
36:05
Speaker 2: just as an example, the en has strengthened by about
36:08
Speaker 2: two point six percent relative to the dollar today. The
36:11
Speaker 2: dollar is getting hammered today by the way, down about
36:15
Speaker 2: two point one percent right now relative to you know,
36:17
Speaker 2: kind of the basket of global currencies. So I do
36:21
Speaker 2: think like part of this is okay, Like we want
36:23
Speaker 2: to see a weeker dollar. That's what the Trump administration
36:26
Speaker 2: is saying. They're getting that. Part two, what else do
36:29
Speaker 2: they want? They want lower deficits? Well, Jerry's out. We're
36:33
Speaker 2: gonna have to see like how that ends up playing
36:35
Speaker 2: out there, because thus far when we look at and
36:38
Speaker 2: again I'm just quoting the real time data from the
36:40
Speaker 2: Brookings Institute, even with the Doze cuts and things along
36:44
Speaker 2: those lines. Through let's see what data I have. Let
36:48
Speaker 2: me just get both the dates here. Here we go
36:50
Speaker 2: through April. First, the US government this year spent two
36:56
Speaker 2: point zero seven to nine trillion. Last year was one
36:58
Speaker 2: point nine to sixty six, So there haven't actually been
37:01
Speaker 2: lower outlays this year despite what you know, dose who's
37:05
Speaker 2: been trying to do with the federal bureaucracy. So Jerry's
37:09
Speaker 2: out on that one. Let's let's punt that. Uh. Besntt
37:12
Speaker 2: wants lower long end rates. He wants the ten year
37:14
Speaker 2: treasury down. He said that He's like, look, I viewed
37:16
Speaker 2: my my my benchmarks the ten year treasury. I want
37:18
Speaker 2: that down. Well it is down today. It's down at
37:21
Speaker 2: that point one to nine percent. It's down almost twenty
37:23
Speaker 2: basis points. The problem on the on the tenure is, hey,
37:28
Speaker 2: if you you know, if if the economy gets too
37:30
Speaker 2: badly damaged by you know, these tariffs, yes it might
37:33
Speaker 2: go down further than that, but it might also be
37:35
Speaker 2: because you have a recession in a really weak economy.
37:38
Speaker 2: So you can put this in the box of yeah,
37:41
Speaker 2: they're getting it, but are they going to be able
37:43
Speaker 2: to you know, land this thing the way they want
37:45
Speaker 2: open question? Uh other things that they are looking for
37:49
Speaker 2: cheaper oil I can tell yeah, and that in spades
37:52
Speaker 2: you're getting that. Today oil price is down almost eight percent,
37:55
Speaker 2: some of it due to the tariff announcement, but also
37:58
Speaker 2: Opek Plus announced day they were going to accelerate their
38:00
Speaker 2: production increases, which means it's not gonna be US produced
38:05
Speaker 2: oil that's being produced at those cheaper prices. It's overseas.
38:08
Speaker 2: That's kind of one. It's not in the right bucket
38:10
Speaker 2: for the administration. So you look at what they're trying
38:13
Speaker 2: to do. They're getting some of the things that they want.
38:15
Speaker 2: It's a question of can they steer kind of the
38:17
Speaker 2: narrow ship, you know, the ship down the narrow straight
38:19
Speaker 2: to get where they're going. It's it's gonna be a ride,
38:23
Speaker 2: I'll tell you. We're gonna have to see quick break here.
38:25
Speaker 2: Hour two coming up in a little bit.