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What are the real goals for Trump's tariffs? · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul Lane.
1:10
Speaker 2: Good morning, Welcome to the Financial Exchange. Mike Armstrong, Paul Lane,
1:15
Speaker 2: Tucker Silva with you this morning. Paul Tucker, quick question.
1:19
Speaker 2: Do you know of any of our listeners who physically
1:22
Speaker 2: live under a rock? Not that I know of, Okay,
1:26
Speaker 2: in most cases, I'm guessing everybody has heard that tariffs
1:30
Speaker 2: went into place ten hours ago on Canada, Mexico and China.
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Speaker 2: They are now in place. You are hearing announcements from
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Speaker 2: private companies, the leaders of those governments retaliate Tory terriffs,
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Speaker 2: predictions of recession, higher prices, how impactful it's going to
1:49
Speaker 2: be here in New England versus other parts of the country.
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Speaker 2: And I'm here to say that at this stage it's
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Speaker 2: pretty much all conjecture. I want to try and start
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Speaker 2: off with what we do know at this point in time,
2:00
Speaker 2: how markets are reacting, and then we can you know,
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Speaker 2: if we want to go off on baseless conjecture, we
2:04
Speaker 2: can go from there in the next time. I will
2:06
Speaker 2: let's start with that.
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Speaker 3: I will say you mentioned the markets, Mike. I did
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Speaker 3: have somebody approached me and asked me yesterday why the
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Speaker 3: hell did market sell off so much? And I doing
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Speaker 3: for them? Of or remind them of the tariff deadline
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Speaker 3: and they're.
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Speaker 2: Like, oh, oh yeah, got it. Yeah.
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Speaker 4: Drinking game at home for all listeners every time we
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Speaker 4: say tariff today on the show, I'm already home.
2:27
Speaker 2: Don't take a shot, you will die. Uh. So, yesterday
2:31
Speaker 2: you did have the S and P five hundred fall
2:33
Speaker 2: about one point nine percent at the worst. The Dow
2:36
Speaker 2: Jones Industrial average average was off about eight hundred points,
2:39
Speaker 2: closed down closer to six hundred. We are closing in
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Speaker 2: on that territory again today. And I think one of
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Speaker 2: the key messages from US over the course of the
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Speaker 2: last month was whether you believe Donald Trump or not.
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Speaker 2: Investors are not believing him leading up to these tariff
2:55
Speaker 2: announcements that you know, got reaffirmed yesterday and went into
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Speaker 2: place overnight, and that was a major theme of the
3:01
Speaker 2: program over the course of the last month, is investors
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Speaker 2: aren't buying it. And the problem would be, hey, either
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Speaker 2: you know, someone's got a blink. Either you know the
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Speaker 2: markets are going to sell off because the tariffs are real,
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Speaker 2: or the White House is going to blink and suspend
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Speaker 2: these again, in which case they're going to face a
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Speaker 2: credibility issue. And I think whether because they genuinely want
3:23
Speaker 2: these tariffs in place long term, or they are merely
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Speaker 2: trying to regain credibility in future negotiations with Canada, Mexico,
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Speaker 2: China and Europe, I don't know, but in either case,
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Speaker 2: these tariffs are real. They are in place now, and
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Speaker 2: we need to start planning as though they exist. So markets,
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Speaker 2: like I said, in early trading, all three major industries
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Speaker 2: off by approximately one and a half percent, a little
3:46
Speaker 2: bit worse on the NASDAQCT, little bit less so on
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Speaker 2: the Dow. We'll keep you appraised of that as investors
3:51
Speaker 2: continue to digest what this trade wark might mean. But
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Speaker 2: let's start with some basics, because plenty of people who
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Speaker 2: are smarter than me have run calculations on what this
4:01
Speaker 2: actually means in terms of imports and what happens here.
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Speaker 2: So let's face Let's start off with China, because China
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Speaker 2: has already been facing many, many tariffs since twenty eighteen,
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Speaker 2: and these new ones will bring up prices of imports
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Speaker 2: from China a little bit more, but at the end
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Speaker 2: of the day, they've already been facing them. So there
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Speaker 2: have been four tranches of tariffs on imports from China
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Speaker 2: that came into effect in twenty eighteen and twenty nineteen.
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Speaker 2: These new tariffs that are going to be put on China,
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Speaker 2: which increase it in additional ten percent, will bring that
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Speaker 2: average import rate to about twenty four and a half percent. However,
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Speaker 2: the bigger impact of all this is that that average
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Speaker 2: effective rate was just on those goods imported from China
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Speaker 2: that were actually paying the tariffs. And you might have
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Speaker 2: heard of this deminimus exception that existed prior to that
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Speaker 2: was where anything with a value of under eight hundred dollars,
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Speaker 2: so pretty much anything you could buy on Shin or Timu,
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Speaker 2: because I don't think they have anything over one hundred
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Speaker 2: dollars quite frankly, would not face those tariffs. Under these
5:09
Speaker 2: new rulesoff those items imported will also face that tariff.
5:13
Speaker 2: And so in all you're probably talking about higher rates
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Speaker 2: of tariff. We don't know how they're going to do that,
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Speaker 2: because right now US Customs doesn't really have the ability
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Speaker 2: to go and open every package that's under eight hundred
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Speaker 2: dollars in value from China, but nonetheless that will likely happen.
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Speaker 2: You will also likely have an increase in companies trying
5:33
Speaker 2: to skirt those tariffs by rerouting orders through Vietnam, which
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Speaker 2: and other countries, Malaysia, other areas that don't have these
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Speaker 2: same import tariffs because guess what, they've gotten pretty good
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Speaker 2: at it over the course of the last six years
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Speaker 2: to try and avoid these things. The newer ones where
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Speaker 2: these countries are very unlikely to try and skirt these
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Speaker 2: tariffs in any meaningful way have to do with Canada
5:54
Speaker 2: and Mexico. So when we talk about Canada, Mexico, and China,
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Speaker 2: those three countries, according to import data from twenty twenty three,
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Speaker 2: which as far as I know, is the most recent
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Speaker 2: we have, represent forty three percent of all goods coming
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Speaker 2: into the United States, close to half. That also represents
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Speaker 2: about five percent of US gross domestic product in terms
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Speaker 2: of those imports most recent data. Right, if so, if
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Speaker 2: you take a look at all goods imported into the
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Speaker 2: United States from every country, the average effective tariff rate
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Speaker 2: most recently was about three percent according to data analyzed
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Speaker 2: by Schwab from Bloomberg. With these new tariffs, if people
6:41
Speaker 2: didn't change their behavior, huge caveat, right, you know, because
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Speaker 2: maybe you're going to go look for avocados and tomatoes
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Speaker 2: from the United States instead of Canada. Now. But assuming
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Speaker 2: you displayed the exact same behavior, that average effective tariff
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Speaker 2: rate on everything coming into the United States goes from
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Speaker 2: three percent to ten point seven percent. Huge jump. I
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Speaker 2: just I think, you know, plain and simple, that's a
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Speaker 2: massive jump, and that would represent the largest highest effective
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Speaker 2: tariff rate that you've seen since the nineteen forties. Are
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Speaker 2: we good with the numbers? Have we? I mean, I
7:19
Speaker 2: know we're going to talk about a lot of additional numbers,
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Speaker 2: but that's the basics. The average effective tariff rate will
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Speaker 2: more than triple assuming people don't change their behavior, which
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Speaker 2: they obviously will, but certain things can't be changed. We
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Speaker 2: just don't import We just don't produce enough avocados in
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Speaker 2: the short term to satisfy American's gluttonous demand for avocados.
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Speaker 2: We do not have the ability for does not have
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Speaker 2: the ability to build a transmission entirely in the United
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Speaker 2: States in the next couple of months, so they're going
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Speaker 2: to face tariffs on those items. We do not in
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Speaker 2: the Northeast have good infrastructure to import oil and refined
7:55
Speaker 2: gas from Louisiana, so we're probably going to import it
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Speaker 2: continually from a lot of it, at least from Quebec, Montreal,
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Speaker 2: where a lot of it gets you know, sent to
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Speaker 2: after being refined. So in the short term, I would
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Speaker 2: expect the average effective rate to approach ten point seven
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Speaker 2: percent and then you know, ultimately maybe slowed down a
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Speaker 2: little bit. That is the highest tariff rate that we've
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Speaker 2: seen since the nineteen forties. So anything to add Paul
8:22
Speaker 2: before I kind of conclude this first part of this
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Speaker 2: argument here because it was a lot to digest, A
8:29
Speaker 2: lot of people have put a lot of good numbers together.
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Speaker 2: We can certainly talk you know, the Federal Reserve estimates
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Speaker 2: that tariffs could knock one point two percent off GDP.
8:38
Speaker 2: The GDP now calculator has already flashed negative based on
8:41
Speaker 2: some other reports that have come out recently. We can
8:44
Speaker 2: talk about sentiment. We'll get to all that, but anything
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Speaker 2: else in terms of the facts on tariff that we
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Speaker 2: know so far, You've hit the.
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Speaker 1: Numbers pretty hard.
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Speaker 4: So I'll go more big picture as to why, what
8:53
Speaker 4: are the strategic reasons behind implementtion implementation sure of tariffs
8:58
Speaker 4: to kind of speak to the thirty thousand foot view,
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Speaker 4: you know, part of it is this idea of trying
9:04
Speaker 4: to bring more manufacturing on domestic soil. I would push
9:09
Speaker 4: back a little bit against that notion, just because with
9:12
Speaker 4: all the uncertainty regarding tarifs, you're not gonna see FORD
9:15
Speaker 4: or GM and still it just like you alluded to before,
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Speaker 4: reroute their whole supply chain on something that has changed
9:20
Speaker 4: on a whim. Also, the other idea is you're trying
9:24
Speaker 4: to bring yourself to the negotiating tables the United States
9:27
Speaker 4: to renegotiate trade deals or to potentially inflict pain on
9:32
Speaker 4: these other countries so that they, like I mentioned, come
9:35
Speaker 4: to the barging table. Now, some of the issues that
9:37
Speaker 4: have been mentioned concerns about drug importation, particularly fedenal. That
9:41
Speaker 4: was another area the negotiating taxics behind it. But I
9:46
Speaker 4: think that you do have to understand as part of
9:48
Speaker 4: this these can lead to higher costs for consumers, and
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Speaker 4: we'll definitely get into that at some point during this show.
9:54
Speaker 4: But those are sort of a couple of the things
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Speaker 4: to keep in mind as to why these tariffs are
10:00
Speaker 4: being put into places. Trying to have more domestic production,
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Speaker 4: trying to bring more manufacturing jobs back on short of
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Speaker 4: the United States, as well as bring yourself to the
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Speaker 4: negotiating table to perhaps get more favorable trade deals.
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Speaker 2: So again, those are the basic facts. The important one
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Speaker 2: that I think we should keep in mind, this is
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Speaker 2: the highest average efect of tariff rate that we have
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Speaker 2: seen since the nineteen forty. So the other conclusion that
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Speaker 2: I have is a lot of people, a lot of
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Speaker 2: very smart people talking about what this could mean. Recession
10:28
Speaker 2: in Mexico and Canada, recession in the United States, prices
10:31
Speaker 2: through the rife, stagflation. Here's how you should invest if
10:34
Speaker 2: you do, if you think this way or that way.
10:36
Speaker 2: Who's the oldest famous investor you can think of these days?
10:39
Speaker 2: Paul Boffett. Yeah, this guy started his investing career in
10:42
Speaker 2: nineteen fifty one. Nobody alive today has invested in a
10:46
Speaker 2: universe where tariffs are as big a part of the
10:49
Speaker 2: US economy as they are as of twelve oh one
10:53
Speaker 2: am this morning. So I'm going to say that I'm
10:56
Speaker 2: going to pretty significantly discount any economist's view or any
11:00
Speaker 2: market analyst view of what's going to happen next, because
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Speaker 2: nobody living today has any real experience in this space,
11:05
Speaker 2: and there might be a lot of arguments that end
11:07
Speaker 2: up not being true. This is going to be a
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Speaker 2: highly volatile situation and very well could pivot on a dime,
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Speaker 2: as we all know. So let's take a quick break
11:15
Speaker 2: in case I misspoke one other area. The twenty five
11:18
Speaker 2: percent tariffs on Canada and Mexico applied to everything except
11:21
Speaker 2: energy imports from Canada, which are facing a ten percent tariff.
11:24
Speaker 2: I'd like to talk about that next, and the potential
11:26
Speaker 2: effects on New England households in particular when it comes
11:30
Speaker 2: to all this. That's next here on the Financial Exchange.
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Speaker 2: So impacts here in New England wanted to focus on
12:51
Speaker 2: that as majority of our listeners right now are tuning
12:53
Speaker 2: in across New England. Energy seems to be the area
12:56
Speaker 2: that most are honing you on. I'm sure that we
12:59
Speaker 2: in our our grocery stores, for example, import more Canadian
13:02
Speaker 2: produce than other areas of the country. Has well given
13:05
Speaker 2: the proximity, but energy has been a key focus and
13:09
Speaker 2: according to The Boston Globe, which actually cited the Business Council,
13:15
Speaker 2: New England imports eighty percent of its gasoline and diesel
13:19
Speaker 2: fuel from Canada, about nine percent of electricity came from
13:23
Speaker 2: Canada and New York last year, and that gas from
13:26
Speaker 2: Canada remains quote essential to New England, particularly in cold
13:30
Speaker 2: winter months, which we're probably through the worst of right now.
13:33
Speaker 2: So reality speaking, here, most of our gas and diesel
13:38
Speaker 2: is coming at the gas station is coming from Canada.
13:42
Speaker 2: I would assume that some portion of that can come
13:45
Speaker 2: from elsewhere. I am not a local energy expert, but
13:50
Speaker 2: I would assume that, yeah, we can find some of
13:52
Speaker 2: this from other parts of the country. But you're talking
13:54
Speaker 2: about a pretty significantly larger, longer drive to get it there,
13:59
Speaker 2: you know. Right now. They did an interview, for example,
14:02
Speaker 2: with a very local company. Dennis Percy, the general manager
14:06
Speaker 2: of Fred's Energy, which is a locally owned customer that
14:09
Speaker 2: serves around fifteen thousand customers in vermont spoke about the
14:13
Speaker 2: tariffs and just that, hey, you know, probably we're going
14:17
Speaker 2: to continue importing from Montreal because what am I going
14:20
Speaker 2: to do drive to Louisiana every few days to get
14:23
Speaker 2: my gasoline. There's just some short term impracticalities about this.
14:28
Speaker 2: On the other hand, in response to a lot of
14:32
Speaker 2: these tariffs, you do have global oil prices selling off
14:35
Speaker 2: right now along with equities. The price of a barrel
14:39
Speaker 2: of oil on West Texas crude is now sitting at
14:41
Speaker 2: sixty seven dollars and eighteen cents, and so this is
14:45
Speaker 2: where the all else equal thing comes in. Right. Do
14:47
Speaker 2: I expect energy costs to go up in New England? Yeah?
14:50
Speaker 2: Of course. We import eighty percent of our gas and
14:52
Speaker 2: diesel from Canada. It's going to go up in price
14:55
Speaker 2: because you can't immediately start getting that from elsewhere, and
14:57
Speaker 2: if you do, your costs are going to rise. We
15:00
Speaker 2: have such bad infrastructure here in New England when it
15:02
Speaker 2: comes to importing energy. But if you get a massive
15:06
Speaker 2: sell off on oil prices because the fear is about recession,
15:08
Speaker 2: then that's probably not your biggest concern of the day
15:11
Speaker 2: is New England energy prices. So short term I do
15:14
Speaker 2: expect yeah, New England is probably going to feel more
15:18
Speaker 2: of the burden of these tariffs in terms of energy
15:21
Speaker 2: price effect than most anywhere in the country. I know
15:23
Speaker 2: there's another refinery near Detroit that accounts for a lot
15:27
Speaker 2: of the oil imports and gas imports across that area
15:31
Speaker 2: of the country. But yeah, this should be something that
15:34
Speaker 2: we probably feel pretty quickly in New England because it's
15:37
Speaker 2: not as though we have massive storage facilities of refined
15:40
Speaker 2: fuels here.
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Speaker 4: Yeah, especially Maine, you know, they get all of their
15:44
Speaker 4: gasoline home heating oil from Canada, so listeners up in
15:47
Speaker 4: the Portland area certainly will be impacted. At least we're
15:49
Speaker 4: on the back end, like you said, of that season,
15:51
Speaker 4: but obviously in mainstays cold are a little bit longer.
15:54
Speaker 4: It is interesting to see on oil prices like you
15:57
Speaker 4: were mentioned, trending down today and speaks to how glows
16:00
Speaker 4: mobil oil prices is. OPEC Plus was announcing on Monday
16:03
Speaker 4: that they planned to increase their production by one hundred
16:06
Speaker 4: and thirty eight thousand barrels per day. That's the first
16:08
Speaker 4: time they've done that since twenty twenty two. So as
16:11
Speaker 4: much as we can get tied up in the local stuff,
16:13
Speaker 4: the energy market is truly a global market and so
16:16
Speaker 4: its impacts are far reaching to things going on in
16:18
Speaker 4: other countries outside of what's going on here domestically.
16:22
Speaker 2: Obviously, the US announced these tariffs, Donald Trump reaffirmed them
16:26
Speaker 2: late yesterday afternoon. When did he have that one clocki
16:31
Speaker 2: ish shift. Market shifted and sold off significantly from there,
16:35
Speaker 2: which we'll cover next on Wall Street Watch. But that's
16:37
Speaker 2: not only been the only terriff action, as has been
16:40
Speaker 2: the case previously, other countries have responded Mexico. To this point,
16:44
Speaker 2: I have not seen any announcements from them in terms
16:47
Speaker 2: of responses.
16:48
Speaker 3: I saw they were going to put retaliatory tariffs into
16:51
Speaker 3: effect on Sunday.
16:52
Speaker 2: Okay, but China pretty much immediately responded. They imposed new
16:57
Speaker 2: tariffs as high as fifteen percent primary on American agricultural shipments.
17:02
Speaker 2: So again, if we're talking about regional, you know, big
17:05
Speaker 2: problem for the West and Midwest in terms of agricultural products.
17:09
Speaker 2: Probably soybean's a big piece of here. They also banned
17:11
Speaker 2: exports of some products to some defense companies here in
17:15
Speaker 2: the United States. Don't know exactly what that looks like,
17:19
Speaker 2: but you know, banning some products that defense companies use.
17:22
Speaker 2: I would imagine those have to be fairly low tech products,
17:25
Speaker 2: because I don't think any administration for the last several
17:27
Speaker 2: would have been comfortable with a Chinese semiconductor sitting in
17:30
Speaker 2: a US missile system.
17:31
Speaker 4: They'll probably also ruffle some feavers on the company side
17:33
Speaker 4: of things. You know, we talked about the probing into Google,
17:37
Speaker 4: which doesn't really even have much of a presence there
17:39
Speaker 4: in China anymore. I wouldn't be surprised if you saw
17:42
Speaker 4: a little bit more in the way of headlines of
17:44
Speaker 4: them going after some of the bigger tech names out there.
17:47
Speaker 4: Possibly this is not this is just speculation that I'm
17:49
Speaker 4: mentioning there.
17:50
Speaker 2: On the Canada side, the government there announced that they
17:53
Speaker 2: would proceed with a sweeping package of counter terrace against
17:55
Speaker 2: US made products, first age of twenty five percent on
17:58
Speaker 2: about thirty billion dollars worth thirty billion Canadian dollars worth
18:02
Speaker 2: of imported goods on items such as orange juice, peanut butter, wine,
18:06
Speaker 2: and coffee. Those go into effect again already in effect
18:11
Speaker 2: twelve oh one am this morning. They're planning a second
18:14
Speaker 2: round of tariffs to be placed on an additional one
18:16
Speaker 2: hundred plus billion dollars worth of goods. Those would go
18:20
Speaker 2: into a place in three weeks, and that would be
18:22
Speaker 2: more retaliatory. So we're talking about cars, trucks, steel, aluminum products,
18:27
Speaker 2: just as the United States has done. And so again,
18:30
Speaker 2: if I'm going to take a potential for good news here,
18:33
Speaker 2: I think Justin Trudeau is trying to leave the door
18:37
Speaker 2: open for negotiations. But speaking of Justin Trudeau, I believe
18:43
Speaker 2: that the elections for the next Canadian Prime Minister are
18:46
Speaker 2: happening in something like five days so I don't know
18:49
Speaker 2: who is going to be leading Canada in these negotiations.
18:53
Speaker 2: When all is said and done, I believe they're just
18:56
Speaker 2: parliamentary elections, not not you know, full Canadian elections. But
19:02
Speaker 2: nonetheless that will be obviously interesting. And I think again,
19:07
Speaker 2: what I see here is both Mexico and Canada attempting
19:09
Speaker 2: to leave the door open for negotiation. Canada saying, hey,
19:13
Speaker 2: we will be implementing bigger retaliatory tariffs in a few weeks.
19:17
Speaker 2: Mexico announcing very little and delaying implementation of anything for
19:22
Speaker 2: a little while here. So this is going to be
19:24
Speaker 2: volatile situation. It can change rapidly. We'll keep your praise.
19:27
Speaker 2: But next, we've got a full market recap with Wall
19:29
Speaker 2: Street Watch.
19:40
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Speaker 1: Street Watch a complete look at what's moving market so
19:56
Speaker 1: far today Right here on the Financial Exchange Radio Network.
20:02
Speaker 3: Markets are extend, extending their losses from yesterday's sell off
20:07
Speaker 3: in reaction to President Trump's implementation of tariffs on Canada, Mexico,
20:11
Speaker 3: and China. Yesterday, Mark the SMP five hundred's largest single
20:16
Speaker 3: day loss since December, which shed one point eight percent,
20:20
Speaker 3: and the tech heavy Nasdaq sunk two point six percent
20:23
Speaker 3: yesterday during that selloff. Right now, the Dow is down
20:27
Speaker 3: by five hundred and eighty three points or one in
20:30
Speaker 3: a third percent, SMP five hundred down nearly one and
20:33
Speaker 3: a half percent or eighty four points in the NASDAK
20:37
Speaker 3: down another two hundred and fifty seven points nearly one
20:40
Speaker 3: and a half percent lower, Russell two thousand down nearly
20:43
Speaker 3: two and a half percent, or about fifty one points.
20:47
Speaker 3: Ten year Treasure reeled down by four basis points at
20:49
Speaker 3: four point one three percent, and crude oil is off
20:54
Speaker 3: nearly two percent lower, trading just above sixty seven dollars,
20:58
Speaker 3: a barrel plunge of nine percent yesterday, and Video shares
21:02
Speaker 3: down another two percent today as investors are showing concern
21:06
Speaker 3: about the potential for further export restrictions that could curb
21:09
Speaker 3: the chip maker's business in China. Several auto stocks are
21:13
Speaker 3: also seeing losses on the tariff news, including General Motors
21:16
Speaker 3: Ford in Stilantis, GM down by four percent. Ford is
21:20
Speaker 3: retreating by two percent in Stalantis down by seven percent.
21:24
Speaker 3: Tesla shares also retreating six percent after data from the
21:28
Speaker 3: China Passenger Car Association showed the company's sales of vehicles
21:32
Speaker 3: made in China drop nearly fifty percent last month from
21:35
Speaker 3: the same period a year ago. Meanwhile, Target posted fourth
21:39
Speaker 3: quarter earnings and revenue that beat expectations. However, the retail
21:43
Speaker 3: giant warned that the first quarter will see meaningful year
21:46
Speaker 3: over year profit pressure given tariff and ongoing consumer on certainty.
21:51
Speaker 3: Target shares down by four percent. Sticking with the retail sector,
21:56
Speaker 3: where best Buy also beat earnings and revenue forecast for
22:00
Speaker 3: the fourth quarter. However, the consumer electronics retailer also expressed
22:04
Speaker 3: tariff concerns, where it said price increases are highly likely.
22:08
Speaker 3: As a result, Best Buy down by thirteen percent. Elsewhere,
22:12
Speaker 3: Alumina shares down by two percent after China said it
22:15
Speaker 3: would ban imports of the biotech company's gene sequencers and
22:19
Speaker 3: a retaliatory move to the tariffs some green to report.
22:23
Speaker 3: Actually today, Octa shares jumping by over eighteen percent after
22:27
Speaker 3: the cloud software company posted strong fourth quarter results. And
22:31
Speaker 3: after today's close, we'll see earnings from CrowdStrike. I'm Tucker
22:36
Speaker 3: Silva and that's Wall Street.
22:37
Speaker 2: Watch just a little bit more context for everybody in
22:40
Speaker 2: terms of market reaction, not just today but over the
22:43
Speaker 2: last few months. So for the peak market right in
22:49
Speaker 2: terms of where we reach the all time highs on
22:51
Speaker 2: the S and P five hundred that was reached back
22:53
Speaker 2: on February nineteenth when it closed above sixty one hundred
22:57
Speaker 2: to today, we're sitting about a six percent markets sell
23:01
Speaker 2: off from that peak level to now year to date.
23:04
Speaker 2: It's a different number, but you know, that's about where
23:07
Speaker 2: we are in terms of a market selloff on the
23:09
Speaker 2: S and P five hundred. A lot of people talked
23:12
Speaker 2: about that Trump bump after the election, depending on how
23:16
Speaker 2: you define it. I'm defining it as closing markets on
23:19
Speaker 2: election day to end of year. You did see the
23:21
Speaker 2: S and P five hundred rally about one point seven
23:25
Speaker 2: percent at the end of last year today compared to
23:29
Speaker 2: the election. So market's closed on election day at fifty
23:32
Speaker 2: seven eighty three on the SMP. We're now sitting around
23:35
Speaker 2: fifty seven to sixty two. So markets are officially now
23:37
Speaker 2: down for the first time since the election news of
23:41
Speaker 2: President Trump taking office, and again I don't think that
23:46
Speaker 2: this is a particularly massive sell off. We're talking about
23:49
Speaker 2: six percent off of the all time highs, and so
23:52
Speaker 2: we talk about volatility, but it's important to contextualize all that.
23:55
Speaker 2: But for a frame of reference, that's that's where we
23:57
Speaker 2: sit now with the most recent two days of volatility
24:01
Speaker 2: and reaction to the new tariffs on Canada, Mexico and China.
24:06
Speaker 4: Yeah, I think it's worth talking about. Obviously we've seen
24:08
Speaker 4: the sell off. Why are we seeing the sell off? Well,
24:11
Speaker 4: the big broad word is tariffs, of course, but if
24:13
Speaker 4: we drill down to maybe giving listeners a sense for
24:16
Speaker 4: what are some of the concerns that come with terriffs.
24:19
Speaker 4: You know, some of them we've spoke about in this
24:21
Speaker 4: program already, but also reiterate some others. You have retaliatory
24:24
Speaker 4: tariffs that can come back, and we've talked about some
24:26
Speaker 4: of those. So we are imposing tariffs on imports from
24:30
Speaker 4: goods overseas or in this case in Mexico and Canada
24:33
Speaker 4: and China as well, they are coming back and sending
24:36
Speaker 4: retaliatory tariffs our way in terms of what we export.
24:39
Speaker 4: So what could that lead to? Potentially lesser on the
24:41
Speaker 4: export front from the.
24:42
Speaker 2: US specifically where they seem to be targeting so far, agriculture.
24:47
Speaker 2: Right with the farm China and Canada specifically targeting the
24:51
Speaker 2: agriculture sectors. We've talked about, OHJ peanut, butter, coffee, as
24:56
Speaker 2: probably soybeans. China is pretty much all agriculture products. I
24:59
Speaker 2: don't know where we grow coffee in the United States,
25:01
Speaker 2: so I'm not sure about that one. But maybe it's
25:03
Speaker 2: just you know, I guess bagged here and that would
25:07
Speaker 2: face the tariff next round though would probably California, Puerto Rico.
25:12
Speaker 2: No good to know, Thanks Doc, You're welcome. The more
25:15
Speaker 2: you know that's where we grow coffee. Yeah, HAWAYI that
25:17
Speaker 2: does make sense. So that has been the immediate effect
25:21
Speaker 2: so far. Go ahead.
25:22
Speaker 4: Yeah, then increased costs for consumers and business we allude
25:24
Speaker 4: to a little bit earlier.
25:26
Speaker 2: Again, I think we we got to dive in here,
25:28
Speaker 2: like increase cost of businesses and consumers. Let's actually talk
25:31
Speaker 2: about how these tariffs effectively operate. So you are an importer,
25:38
Speaker 2: Let's let's talk about that guy who had his business
25:41
Speaker 2: driving over the Canadian border with his oil, you know,
25:43
Speaker 2: his gas truck, filling it up and delivering it. I
25:47
Speaker 2: think there's actually home eating oil in this case, but
25:49
Speaker 2: delivering it directly to consumer's households. How is that going
25:52
Speaker 2: to work for that importer of tariffs when he crosses
25:55
Speaker 2: the border and files his returns and and you know,
25:58
Speaker 2: goes through customs, he's a media going to face an
26:01
Speaker 2: additional ten percent on the price that he paid for
26:05
Speaker 2: that oil that he filled up his true right, So.
26:06
Speaker 4: Let's use one hundred thousand, just because the round number,
26:08
Speaker 4: I'm sure it could be substantially more than that. So
26:10
Speaker 4: of course, instead of importing, you know, his good for
26:13
Speaker 4: one hundred thousand for paying for oil or whatever the
26:16
Speaker 4: natural gas resource that he's bringing over, it's one hundred
26:19
Speaker 4: and ten thousand. So okay, what is what is the
26:21
Speaker 4: trickle down impact of that? Think of anyone out there listening.
26:24
Speaker 4: If you're a business owner and your cost increase by
26:27
Speaker 4: ten percent, there's two ways you could approach it. One
26:29
Speaker 4: you could eat it and just say, you know what,
26:31
Speaker 4: I'm gonna keep my prices the same. What's that gonna hurt.
26:33
Speaker 4: That's gonna hurt of course, your profit margin. Or the
26:35
Speaker 4: alternative is you're gonna say, you know what, I'm paying
26:38
Speaker 4: ten percent more. Unfortunately, I'm gonna have to spread this
26:40
Speaker 4: out amongst my consumers. That's the trickle down impact that
26:44
Speaker 4: because of Fred's you know, energy business. When you're paying
26:47
Speaker 4: it the pump at you know, X gas station up
26:50
Speaker 4: in Vermont or Main you would have to eat potentially
26:53
Speaker 4: some of that cost increase. And it's not a pure
26:55
Speaker 4: one for one, maybe five percent of that is absorbed
26:58
Speaker 4: by the consumer. And the same thing applies for everything avocados.
27:02
Speaker 4: Chipotle is going through the same thing to make it
27:04
Speaker 4: like a more you know, sort of reasonable thing. And
27:07
Speaker 4: I got a breadable there yesterday. They are saying that, hey,
27:10
Speaker 4: we're going to eat the cost of the importation of
27:14
Speaker 4: avocados from Mexico for the time being. How long do
27:17
Speaker 4: they do that for? That's you know, up for up
27:20
Speaker 4: for to be.
27:21
Speaker 2: And every business will react a little bit differently to this.
27:23
Speaker 2: There will be some like Chipotle, who I'm guessing, you know,
27:27
Speaker 2: they don't want to be the target of anything from
27:28
Speaker 2: the Trump administration. They're going to try and eat some
27:31
Speaker 2: of that and and figure out a different way. They
27:33
Speaker 2: have pretty thick profit margins so they can afford to
27:36
Speaker 2: do so. Others, you know, a very common reaction when
27:40
Speaker 2: you face increased costs from a business perspective that are
27:45
Speaker 2: very well known. Think about cigarettes and the increased taxes
27:48
Speaker 2: that they faced over the course of the last fifty years.
27:51
Speaker 2: What cigarette manufacturers found was, Hey, people know that there's
27:57
Speaker 2: new taxes on cigarettes. They don't really know the details,
28:01
Speaker 2: and they're not running the calculations to figure out how
28:03
Speaker 2: much that should increase the price per pack. But they
28:05
Speaker 2: know that, you know, taxes are going up on these products,
28:08
Speaker 2: They're already expecting the prices to increase. What cigarette manufacturers
28:11
Speaker 2: found was, Hey, you know, we might only be facing
28:14
Speaker 2: a thirty cent tax, but we're gonna be able to
28:16
Speaker 2: bump up prices by fifty cents and put that right
28:18
Speaker 2: to our bottom line because consumers no, yeah, I should
28:21
Speaker 2: expect a higher price when I go to buy this
28:23
Speaker 2: thing at the store. Will there be grocery stores, oil companies,
28:26
Speaker 2: car manufacturers that do the same thing in this case
28:29
Speaker 2: to say, hey, we, for instance, you're a car manufacturer,
28:33
Speaker 2: We've been knowing about these tariffs for months. We already
28:36
Speaker 2: have all this stuff in the United States. We don't
28:38
Speaker 2: have to pay a tariff on it. But if I
28:40
Speaker 2: have the opportunity to drive a higher price for that
28:43
Speaker 2: repair to my end customer and pad my bottom line
28:47
Speaker 2: without them knowing and a big deal being made of it.
28:50
Speaker 2: I'm probably going to take advantage of that because that
28:53
Speaker 2: consumer already expects me to be delivering that higher price.
28:57
Speaker 4: And what's been the backdrop for the last couple of years,
29:00
Speaker 4: a country like the United States that's been facing a
29:02
Speaker 4: lot of inflation, and just what you're alluding to, there
29:04
Speaker 4: is this idea that that could further, you know, enhance
29:09
Speaker 4: inflation in a bad way, that we would have to
29:11
Speaker 4: deal with that as US consumers. The backdrop is so
29:13
Speaker 4: much different than the first time around when tariffs were
29:16
Speaker 4: implemented in twenty eighteen. Not only were they more targeted
29:19
Speaker 4: the first time around, they're much more broad based this
29:21
Speaker 4: time around. And we're coming off the backdrop of inflation
29:25
Speaker 4: that peaked at nine percent in twenty twenty two and
29:27
Speaker 4: is running at you know, three percent year over year.
29:29
Speaker 4: On the CPI piece, the other aspect that I wanted
29:32
Speaker 4: to talk about is this uncertainty on the manufacturing side
29:35
Speaker 4: of things Domestically. This doesn't mean, as I mentioned in
29:38
Speaker 4: an earlier segment, that all of a sudden, supply chains
29:40
Speaker 4: will be rebuilt to be produced domestically in the United States.
29:44
Speaker 4: A lot of what you're getting from the Dallas FED
29:46
Speaker 4: Manufacturing survey in February and other surveys that are being conducted,
29:50
Speaker 4: is that businesses on the manufacturing side are unsure of
29:53
Speaker 4: what to do. They're almost paralyzed as to what their
29:56
Speaker 4: next step should be. Home Builder sentiment has reflected similar
29:59
Speaker 4: sort of thought processes. Geez, are we going to have
30:02
Speaker 4: to pay twenty five percent tariff on importing of lumber?
30:05
Speaker 4: Do we pause potential permitting or projects that we're working
30:08
Speaker 4: on until we see how this shakes out a little
30:10
Speaker 4: bit more.
30:11
Speaker 2: Let's take a quick break. When we come back, I
30:13
Speaker 2: want to focus in on what could be the first
30:16
Speaker 2: items to start facing these import tariffs, and then I
30:19
Speaker 2: do want to talk about the other side of this,
30:21
Speaker 2: because very clearly the Trump administration has a reason behind this.
30:24
Speaker 2: This was a clear focus of their economic priorities heading
30:27
Speaker 2: into twenty twenty five. It's part of their plan. And
30:30
Speaker 2: so what is the other side of that coin in
30:33
Speaker 2: terms of how this could benefit United States consumers in
30:37
Speaker 2: the long term, benefit businesses, and reshape the state of
30:42
Speaker 2: American manufacturing. Quick break? That's next. Here on the Financial Exchange.
30:46
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31:26
Speaker 2: We were talking before the break about what's likely to
31:29
Speaker 2: be affected first from these terrorists should they remain in place,
31:32
Speaker 2: and again I consider that to be a huge if
31:36
Speaker 2: I think that this could be volatile. We could see
31:38
Speaker 2: surprise announcements via social media of negotiations that occur, and
31:42
Speaker 2: I think we should all plan for that and not
31:44
Speaker 2: assume that the status quo will remain the status quo,
31:47
Speaker 2: but it is what it is for now. Among the
31:50
Speaker 2: first affected items, I would expect to be things that
31:55
Speaker 2: are perishable, So any sort of food item is likely
31:58
Speaker 2: to see a pretty quick response to this, because obviously
32:01
Speaker 2: you can't store avocados for six months in a warehouse
32:04
Speaker 2: and expect to sell them to the general public. So
32:08
Speaker 2: I would imagine that food items imported from Canada and
32:11
Speaker 2: Mexico will face quick price increases at the grocery store
32:16
Speaker 2: in relatively rapid pace. Energy products similar story. Although we
32:21
Speaker 2: do have more storage capacity here in the United States,
32:24
Speaker 2: and I would imagine some importers have been doing so
32:26
Speaker 2: over the course the last few months, But it really
32:28
Speaker 2: depends on where you are. Right If you're here in
32:30
Speaker 2: New England, where we don't have much in the way
32:32
Speaker 2: of storage capacity, then it might be a pretty quick
32:35
Speaker 2: felt effect. Things like cars. These guys have been making
32:39
Speaker 2: their plans. They have discussed as much four months now
32:43
Speaker 2: in terms of their contingency plans. Upon contingency plans, when
32:46
Speaker 2: it comes to these tariffs, it's not to say they
32:49
Speaker 2: won't be heavily affected, because look to build the transmissions.
32:52
Speaker 2: I was listening to a podcast recently about following this
32:55
Speaker 2: one vehicle manufacturer's process for a transmission, and it went
32:59
Speaker 2: through something like fifteen US states across the border six
33:02
Speaker 2: times before it was ready to be inserted into a car.
33:05
Speaker 2: And remember the way that these tariffs are set up
33:07
Speaker 2: is every time it crosses the border, it faces that
33:11
Speaker 2: new additional twenty five percent on the value. So massive increase.
33:15
Speaker 2: But to that end, these companies have been saying, get
33:17
Speaker 2: me that transmission manufactured and sitting in a warehouse in
33:20
Speaker 2: the United States sooner than later. So I can just
33:22
Speaker 2: think car lots.
33:23
Speaker 4: You know, you have much more excess inventory and the
33:25
Speaker 4: ability to store it than you do with these parishal
33:27
Speaker 4: items you spoke about.
33:28
Speaker 2: Before, likewise lumber and other items. Again, we do import
33:31
Speaker 2: a lot of that. If these tariffs remain in place
33:33
Speaker 2: for three months, then you're going to start facing that immediately.
33:36
Speaker 2: The importers will start dealing with it. If it lasts
33:38
Speaker 2: a couple of weeks, probably no impact. So again I
33:42
Speaker 2: just would I would exercise caution when listening to anybody
33:46
Speaker 2: that tells you they know how the economy is going
33:49
Speaker 2: to react to this, because, as I mentioned before, these
33:52
Speaker 2: are the highest tariffs we have seen since the nineteen forties.
33:55
Speaker 2: There is no one alive today who invested in a
34:00
Speaker 2: similar environment to what we are talking about, so nobody
34:03
Speaker 2: knows how the economy or markets are likely to react
34:07
Speaker 2: to this in the short term.
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35:23
Speaker 2: So in terms of priorities for these terraffs and what
35:26
Speaker 2: the administration on the surface seems to be attempting to accomplish.
35:29
Speaker 2: There's a very clear line being drawn when it comes
35:32
Speaker 2: to border protection and specifically people and illicit drugs crossing
35:37
Speaker 2: the border, and there have been renewed commitments both from
35:40
Speaker 2: Canada and Mexico on that front since the announcement of
35:43
Speaker 2: these tariffs a month ago, on preventing the flood of
35:47
Speaker 2: fence and all, for example, over the borders when it
35:50
Speaker 2: comes to that a lot of that stuff does come
35:52
Speaker 2: from China. I've heard nothing from them on the subject,
35:54
Speaker 2: but nonetheless there has been a renewed commitment on that
35:57
Speaker 2: side of things. Tough for me to understand, and the
36:00
Speaker 2: economic impact or measure the economic impact of such a
36:03
Speaker 2: horrible rampant drug addiction problem that we've dealt with in
36:06
Speaker 2: the United States, the massive loss of life across you know,
36:11
Speaker 2: primarily middle aged men who have dealt with the opioid epidemic.
36:15
Speaker 2: Although it's affected you know, many different people of different
36:17
Speaker 2: backgrounds and women as well, it's primarily been middle aged
36:22
Speaker 2: men dying of this, and obviously, I think any improvement
36:25
Speaker 2: that you can make to that would be significantly beneficial.
36:29
Speaker 2: The other stuff is just a little bit unclear in
36:33
Speaker 2: terms of what the goals are. Obviously, it's to bring
36:37
Speaker 2: companies and manufacturing back to the United States, and Donald
36:40
Speaker 2: Trump himself has reiterated that time and time again, bring
36:44
Speaker 2: your company to the United companies moved to the United States.
36:47
Speaker 2: There are no terroriffs. That was a social media post
36:50
Speaker 2: that he did just today. And I won't stay here
36:55
Speaker 2: and stay that that's impossible, right, Like, I genuinely don't
36:58
Speaker 2: know how much of that might occur. The question, in part,
37:02
Speaker 2: of course, is how much do other countries retaliate, Because
37:06
Speaker 2: if you are a European audio manufacturer and you know that, hey,
37:09
Speaker 2: if I go and build this bigger plant here in
37:12
Speaker 2: the United States, I'm going to face additional retaliatory tariffs
37:15
Speaker 2: when I import those cars back to Spain or back to Italy.
37:19
Speaker 2: Then it's an equally significant problem in many cases. So look,
37:24
Speaker 2: the initial market reaction right now is quite negative, and
37:27
Speaker 2: I think it's quite negative because investors are worried about
37:30
Speaker 2: a few things, but one big one, which is the
37:32
Speaker 2: idea of stagflation. Could these tariffs send the economy into
37:36
Speaker 2: an environment where we experience uncomfortable inflation at the same
37:41
Speaker 2: time that businesses are unwilling to invest and maybe even
37:45
Speaker 2: start cutting costs in the face of tariffs and retaliatory tariffs.
37:49
Speaker 2: I see no evidence of that occurring right now, but
37:52
Speaker 2: that is the big worry. That is the big worry
37:54
Speaker 2: right now is a supply type shock and recession the
37:58
Speaker 2: likes of which we saw during the nineteen six seventies
38:00
Speaker 2: as a result of these tariffs. And that's what investors
38:04
Speaker 2: are reacting to right now. That's all the hot time
38:07
Speaker 2: we have for the first hour of the Financial Exchange,
38:09
Speaker 2: But wow, do we have a lot more to cover
38:11
Speaker 2: in the second hour. We did have some earnings and
38:13
Speaker 2: profit warnings from the likes of Target that we need
38:16
Speaker 2: to cover a whole lot more coming up next here
38:19
Speaker 2: on the Financial Exchange, Folks, tune in.