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Are tariff impacts finally showing up in earnings reports? · The Financial Exchange Show

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Speaker 1: and Paul.
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Speaker 2: Lane, Good morning. It's Mike, Paul and Tucker with you
1:13
Speaker 2: on a Tuesday here on the Financial Exchange, with earnings
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Speaker 2: kicking into high gear. We heard yesterday after the bell, No, no,
1:23
Speaker 2: it was today. We heard from a number of different
1:26
Speaker 2: companies including General Motors, Coca Cola, Phillip Morris Raytheon, RTX Corp. Rather,
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Speaker 2: tomorrow we will be hearing from the heavy hitters. Alphabet
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Speaker 2: is reporting after the bell, as is Tesla, IBM, T Mobile,
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Speaker 2: AT and T and several others here. We are also
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Speaker 2: having some interesting trade type escalations with China that we
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Speaker 2: will get into as in addition to the Microsoft hack
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Speaker 2: that occurred that microsofts now accusing China of orchestrating. But
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Speaker 2: let's first jump into a pretty much household name, especially
2:05
Speaker 2: when it comes to tariffs, which would be General Motors.
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Speaker 2: Earlier this year they put together some estimates on tariff impact,
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Speaker 2: and they estimated that their business would see a four
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Speaker 2: to five billion dollar profit hit from the result of tariffs.
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Speaker 2: They came out today and pretty much reaffirmed that guidance,
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Speaker 2: saying that it's not meaningfully different. They are making progress
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Speaker 2: towards trying to mitigate some portion of that, I think
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Speaker 2: it was thirty percent of the impact. But I don't
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Speaker 2: think you reaffirm your profit guidance if you think that
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Speaker 2: that's going to be something that you quickly are able
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Speaker 2: to do. And so they didn't speak to much else.
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Speaker 2: I mean, you know, job is to be optimistic and
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Speaker 2: speak aggressively about your business, and they certainly did that.
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Speaker 2: But I think the tariff news is certainly what's dominating
2:56
Speaker 2: general motors this morning.
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Speaker 3: Yeah, if you take a look at the numbers might
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Speaker 3: that came out, they saw a decline in net income
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Speaker 3: of about thirty five percent year over year. So last
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Speaker 3: year they reported about three billion of profit in this
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Speaker 3: same quarter the second quarter, down to one point nine
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Speaker 3: billion for Q two twenty twenty five. And I couldn't
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Speaker 3: directly figure out what of this one billion dollars differential
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Speaker 3: in profit decline that they saw is specifically a tributale
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Speaker 3: to tariffs. I thought perhaps a third of it on
3:29
Speaker 3: some research that I did, but that's not a final number. Necessarily,
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Speaker 3: there were some impacts that they had from recall on
3:35
Speaker 3: one of their vehicles that was for six hundred thousand
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Speaker 3: cars that added to some of the profitability issues. But
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Speaker 3: in general. Like you mentioned, I think the headline takeaway
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Speaker 3: for a company that is a household name as we
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Speaker 3: try to get more economic sense for what are the
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Speaker 3: impacts of these tariffs on the vehicle side. For auto manufacturing,
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Speaker 3: they're still going to feel this burden. Like you mentioned,
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Speaker 3: they're trying to offset about thirty percent of it by
4:01
Speaker 3: rejiggering around production manufacturing a little bit, but it does
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Speaker 3: seem like the impacts can be felt. You also saw
4:07
Speaker 3: Stillantis earlier this week. They're the maker behind Jeep and
4:10
Speaker 3: Ram vehicles, mentioning that tariffs hit their bottom line for
4:15
Speaker 3: three hundred and fifty million.
4:17
Speaker 2: The investors in general notice seemingly surprised by this news.
4:20
Speaker 2: This morning, stock price is off about seven percent in
4:23
Speaker 2: early trading. It was up about two percent for the
4:26
Speaker 2: year prior to today, so some some pessimism there. I
4:31
Speaker 2: keep going back to the fact that being an auto
4:34
Speaker 2: manufacturer in twenty twenty five is just a garbage business.
4:39
Speaker 2: It's been a tough business for a long time. It's
4:41
Speaker 2: been a tough business for a very long time. But
4:44
Speaker 2: you know, in terms of the headwinds that you faced
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Speaker 2: right now, you have absolute whiplash. Whiplash in terms of
4:52
Speaker 2: policy president to president. So this president is strongly in
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Speaker 2: favor of gas Howard vehicles manufactured in the United States
5:03
Speaker 2: and doing away with any sort of push towards electric vehicles.
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Speaker 2: Last administration, it was all about subsidies for electric vehicles,
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Speaker 2: higher emission standards, all sorts of things that would push
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Speaker 2: you to say development battery manufacturing plants. You are now
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Speaker 2: facing tariffs for you know, vehicles that are produced even
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Speaker 2: you know, potentially using the North American Free Trade Agreement,
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Speaker 2: but certainly vehicles are produced anywhere else in the world.
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Speaker 2: And on top of all of that, your competition if
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Speaker 2: you expand your competition a little bit and think about
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Speaker 2: these companies as what they are, which is not just
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Speaker 2: a US focused company anymore. Right, your competition to try
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Speaker 2: and sell cars into the European or Asian market is
5:50
Speaker 2: being faced by a bunch of Chinese auto manufacturers that
5:54
Speaker 2: are operating as effective branches of the Chinese government. Good
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Speaker 2: luck that, like no wonder, you're struggling so much. Pretty
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Speaker 2: much the only place you're gonna be able to sell
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Speaker 2: your cars is here in the United States. That is
6:09
Speaker 2: not a fast growing market. And even here in the
6:11
Speaker 2: United States, it's a really volatile political environment to try
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Speaker 2: and follow. One minute, you're building out a massive battery
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Speaker 2: factory because you think you're going to be producing only
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Speaker 2: electric vehicles. The next moment, you're closing that thing up
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Speaker 2: and focusing on gas powered vehicles because the demand isn't there,
6:28
Speaker 2: and the administration has changed and completely changed their view
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Speaker 2: on these things. So yeah, not a great outlook for
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Speaker 2: these companies, you know. On the surface, I do like
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Speaker 2: what GM is doing with some of their lineup. I
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Speaker 2: really think I'm pretty impressed by their self driving capabilities
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Speaker 2: that they're pushing out with their supercrews technology. But man,
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Speaker 2: when you are faced with that degree of instability, no wonder.
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Speaker 2: You're looking at a four to five billion dollar profit
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Speaker 2: cut on tariffs alone, you know, suffice to say, there's
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Speaker 2: going to be more of that to come.
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Speaker 3: It is fair to mention that if you look at
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Speaker 3: the average cost of a new vehicle in the United States,
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Speaker 3: for example, they were reaping pretty significant profit margins, kind
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Speaker 3: of in that post twenty twenty two window where they
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Speaker 3: were selling less cars than they normally would, but the
7:14
Speaker 3: margins were so fat that they were sitting pretty at
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Speaker 3: that point. But I agree with you there is always
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Speaker 3: something to combat. And it's been interesting to see sort
7:22
Speaker 3: of the capital rejiggering or changing that you've seen from
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Speaker 3: GM and others, less focus on investment on EV and
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Speaker 3: more back to sort of their bread and butter trucks
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Speaker 3: and SUVs and making that margin there.
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Speaker 2: Yeah, the tricky parts to all of this, and you
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Speaker 2: know where this dangerously could go. And we'll be talking
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Speaker 2: about retaliatory terrorists from the European Union in other places soon.
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Speaker 2: But if you are really pushed, let's say you're General
7:47
Speaker 2: Motors and you already do a bunch of manufacturing here
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Speaker 2: in the United States, you're not just selling those vehicles
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Speaker 2: here in the US, you were exporting those vehicles all
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Speaker 2: across the world. The dangerous position that General Motors could
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Speaker 2: find themselves in is saying, Okay, yeah, we made this
8:03
Speaker 2: big move to bring a bunch of manufacturing back to
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Speaker 2: the United States, but now when we try and sell
8:08
Speaker 2: these ram trucks to Mexico, they're hitting us with tariffs
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Speaker 2: again because we manufacture them in the United States instead
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Speaker 2: of in Mexico. And so that's some of the danger
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Speaker 2: that we face here when it comes to tariffs again.
8:21
Speaker 2: Mexico's not the biggest market, but you talk about Canada
8:23
Speaker 2: or Mexico or European Union. The danger of these tariffs
8:27
Speaker 2: is not purely Hey, it does bring manufacturing back to
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Speaker 2: the United States, and that's more expensive. You have to
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Speaker 2: plan out what those other countries do to respond to
8:36
Speaker 2: tariffs on foreign made products, and in many cases for
8:40
Speaker 2: businesses that already do a lot of manufacturing in the
8:43
Speaker 2: United States, it is a bit of a minefield for them.
8:48
Speaker 2: Another company reporting earnings, Coca Cola, been in the news
8:51
Speaker 2: a fair bit recently on the push from the President
8:54
Speaker 2: to put sugar back in their Coca Cola products rather
8:58
Speaker 2: than what do they use fruit? Corn syrup?
9:00
Speaker 4: Yeah, corn syrup, so rock cane sugar.
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Speaker 2: Potentially some problems because we don't manufacture enough sugar in
9:06
Speaker 2: the United States to be able to even do this
9:08
Speaker 2: if we were trying to. But nonetheless, cokeal earnings came
9:11
Speaker 2: out kind of mah is how I describe it. Demand
9:16
Speaker 2: was not great. Global demand unit case volume fell one
9:20
Speaker 2: percent in the quarter. Pretty much everywhere in coke business
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Speaker 2: except Europe, Middle East and Africa reported shrinking volume. They
9:29
Speaker 2: try and coke business is always a little bit messy.
9:32
Speaker 2: From this reporting standpoint, because obviously they're a US based
9:36
Speaker 2: company that has sales all across the globe and there's
9:38
Speaker 2: big currency impacts. So what they do is they take
9:41
Speaker 2: all the currency impact out and say, okay, well if
9:43
Speaker 2: you just look at actual volume demand, what did it
9:46
Speaker 2: look like. And the answer was, you know, it only
9:50
Speaker 2: fell a little bit, but it did fall across the
9:52
Speaker 2: globe in terms of demand for Coca cola. Problem.
9:55
Speaker 3: The positive side of it, and you mentioned kind of
9:58
Speaker 3: it's mixed. The volume, like you mentioned, was down, they
10:01
Speaker 3: were able to increase their net income. Also, they saw
10:04
Speaker 3: a fifty eight percent year over year increase to net income,
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Speaker 3: reporting three point eight billion, up from two point four
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Speaker 3: billion a year prior. Why did they see that spike
10:13
Speaker 3: in net income. They were able to expand their operating margins.
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Speaker 3: Pricing power was pretty strong. Even though they sold less product,
10:21
Speaker 3: they were able to increase some of their prices. Overall
10:23
Speaker 3: product prices rose about six percent. That drove a lot
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Speaker 3: of the revenue growth even though there was lesser volume.
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Speaker 2: Well too, and if your volume demand is growing in Europe,
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Speaker 2: for example, which is a massive market, and the dollar
10:36
Speaker 2: is weakening against that, that benefits you as Coca Cola,
10:38
Speaker 2: if you're making those sales in euros. Let's take a
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Speaker 2: quick break. When we come back a little bit more.
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Speaker 2: Fed chalk. J. Powell is speaking just this morning now
10:47
Speaker 2: Bessent calling for a review of the Fed's building renovations.
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Speaker 2: That's next on the Financial Exchange.
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11:28
Speaker 2: As the pressure on Federal Reserve Chair Jerome Powell has
11:33
Speaker 2: het up over the course of the last few months,
11:35
Speaker 2: it's become a parent that Treasury Secretary Scott Bessant has been,
11:39
Speaker 2: if not one of his key defenders, perhaps maybe more
11:42
Speaker 2: just a defender of the idea of the Federal Reserve
11:45
Speaker 2: and its operations. Over the course of the last few months,
11:50
Speaker 2: reporting came out from the Wall Street Journal over the
11:52
Speaker 2: weekend that he was firmly in the corner of not
11:55
Speaker 2: firing the FED, share convincing the President that look, he's
11:58
Speaker 2: probably going to lower interest rates later this year. Anyway
12:00
Speaker 2: he's going to be outcome. May you don't want to
12:02
Speaker 2: do this. It could shake markets, et cetera, et cetera. Therefore,
12:07
Speaker 2: this piece this morning is in some ways complicated, but
12:11
Speaker 2: maybe maybe not so much on the surface. Treasure Secretary
12:15
Speaker 2: Besant saying a review of the fed's building renovations is
12:19
Speaker 2: now needed, also saying that he wants a regular, more
12:24
Speaker 2: thorough and exhaustive internal review of its non monetary policy operations,
12:30
Speaker 2: citing significant mission creep and institutional growth that have taken
12:35
Speaker 2: the FED into areas that potentially jeopardize the independence of
12:37
Speaker 2: its core monetary policy mission. I'd say, you know, that's
12:40
Speaker 2: an area that we have criticized as well. I'm not
12:44
Speaker 2: I'm not really in disagreement with any of this. Why
12:47
Speaker 2: it's significant one he has been one of the big
12:49
Speaker 2: defenders of not J Powell himself, but the idea of
12:53
Speaker 2: the independence of the Central Bank. I think you know
12:56
Speaker 2: from all reporting it has been the case. Why might
12:59
Speaker 2: he be doing this now? Now you know it's all conjecture,
13:02
Speaker 2: But I mean, one read could be, Hey, if you
13:05
Speaker 2: want to stay on the President's good side and have
13:07
Speaker 2: him still listen to your opinions on this, then you
13:09
Speaker 2: want to announce things like this, and you know, even
13:12
Speaker 2: if you do a study that doesn't really result in anything,
13:14
Speaker 2: at least you can point to, hey, no, we looked
13:17
Speaker 2: at it, and I publicly announced it, and now we
13:21
Speaker 2: can move on because I did all the analysis. Mohammadel
13:25
Speaker 2: Arian another non member, not a member of the administration
13:29
Speaker 2: by any stretch, but outspoken and heavy voice in financial markets,
13:34
Speaker 2: calling for J. Powell to step down, interestingly, his view
13:38
Speaker 2: being that if you step down, it actually takes steps
13:41
Speaker 2: to preserve that independence. I'm not sure I agree with
13:44
Speaker 2: el Arian here, and there could be some self interest
13:47
Speaker 2: because I can think of few people who over the
13:49
Speaker 2: course of the last few years have been more critical
13:51
Speaker 2: of J. Powell and this Federal Reserves actions. I don't
13:56
Speaker 2: know what to make of all of this, Paul, I
13:57
Speaker 2: guess you know. I'm trying to ask myself, do I
14:01
Speaker 2: feel that the Central Bank of the United States is
14:06
Speaker 2: facing a bigger or smaller threat than they were two
14:10
Speaker 2: weeks ago to their independence? And I'm not sure where
14:12
Speaker 2: I land as of today.
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Speaker 3: It's hard to say, really, because the narrative changes so quickly. Ultimately,
14:19
Speaker 3: what do I make of the stories that we're mentioning
14:22
Speaker 3: here this is all political posturing. I'm not gonna spare
14:26
Speaker 3: the listeners times with going through their scrutiny of the
14:29
Speaker 3: renovation of the FED building and you know, five hundred
14:32
Speaker 3: more parking spots for FED reserve people. Like why am
14:34
Speaker 3: I even wasting time reading through? This is what I
14:38
Speaker 3: felt in prep But by.
14:40
Speaker 2: The way, like I am firmly in the camp that
14:44
Speaker 2: I bet there is a bunch of really distasteful things
14:46
Speaker 2: when it comes to the FED renovating these buildings because
14:49
Speaker 2: it's a giant government spending project and to get them
14:52
Speaker 2: like like, go study the big dig. Did anybody think
14:54
Speaker 2: it was done perfectly or really well or efficiently? Not
14:57
Speaker 2: at all. No, it was briberies all over the place.
14:59
Speaker 2: And I would be to bet that this weren't wasn't
15:01
Speaker 2: all that different.
15:03
Speaker 3: But this is like focusing on you know, we run
15:05
Speaker 3: the office here, our budget for coffee versus the financials
15:09
Speaker 3: of the firm. Like you know, it's like as you
15:12
Speaker 3: have the FED that is controlling trillions of dollars and
15:15
Speaker 3: monetary supply and the position that they said is so
15:17
Speaker 3: significant for the global economy, and we're focusing on just
15:21
Speaker 3: something that's so mean. I'm not downplaying the construction over them,
15:26
Speaker 3: but let's not focus on that because that's getting way
15:28
Speaker 3: too far down into the details relative to the bigger
15:30
Speaker 3: picture issues in terms of what they control on impact.
15:33
Speaker 2: Yeah.
15:33
Speaker 3: Here, and ultimately I agree with you that to me,
15:36
Speaker 3: Besen is doing, to me a tremendous job of sort
15:40
Speaker 3: of playing both sides. He has the background that, like
15:43
Speaker 3: you mentioned, is a proponent of the Federal Reserve and
15:46
Speaker 3: it's independence. He's making enough commentary there not to undermine
15:51
Speaker 3: President Trump, but sort of asserting that in the importance
15:54
Speaker 3: behind the independence at the same time with this review, which,
15:58
Speaker 3: like you said, maybe that comes out six months later
16:00
Speaker 3: or three months later as a nothing burger, but it
16:03
Speaker 3: at least gives credence to the idea that both sides
16:06
Speaker 3: are being played.
16:07
Speaker 2: The Treasury Chief at the same time of calling for
16:09
Speaker 2: this stuff also said quote the Fed's conduct of monetary
16:12
Speaker 2: policy is a jewel box that should be walled off
16:16
Speaker 2: to preserve its independence. And the Fed's independence is a
16:19
Speaker 2: cornerstone of continued US economic growth instability. And so that's
16:23
Speaker 2: why I take those two comments to say, Okay, he
16:25
Speaker 2: might need to announce these things in order to maintain
16:28
Speaker 2: credibility with the President and maintain his role of influence there.
16:31
Speaker 2: But I think fundamentally he does want to see the
16:34
Speaker 2: Federal Reserve preserved in its independence, even if he does
16:37
Speaker 2: want it reformed in some ways. And I think that's
16:39
Speaker 2: the piece. That's the piece that I wish we could
16:41
Speaker 2: have an honest conversation about, is the mission creep of
16:44
Speaker 2: the FED that has occurred over the course of not
16:47
Speaker 2: Jerom Powell's tenure. We're talking about a multi decade long
16:50
Speaker 2: experience here of the Federal Reserve getting assigned more and
16:54
Speaker 2: more power, and we can talk about you know what
16:58
Speaker 2: that what different that's taken, but you know, I.
17:01
Speaker 3: Mean just like kind of always being the backstock quantitative
17:04
Speaker 3: easing sort of bailing us out as a country as
17:07
Speaker 3: frequently as.
17:08
Speaker 2: They Yeah, see, I see the FEDS taking on of
17:14
Speaker 2: new powers, not so much a fault of the Federal
17:19
Speaker 2: Reserve and the Central Bank itself, but rather a failure
17:24
Speaker 2: of our elected officials to want to do anything that
17:27
Speaker 2: could get them voted out of office. So what new
17:30
Speaker 2: powers would So during two thousand and eight, during the
17:33
Speaker 2: financial crisis collapse, basically the Central Bank just kind of
17:37
Speaker 2: invented a whole bunch of new tools that they could
17:40
Speaker 2: utilize to stabilize markets in one way, shape.
17:43
Speaker 1: Or form.
17:44
Speaker 2: They should have had They shouldn't have had to do that,
17:46
Speaker 2: right like Congress should have passed TARP and then passed
17:48
Speaker 2: a whole bunch of other things to be able to
17:52
Speaker 2: deal with that crisis in a more organized fashion. Instead,
17:56
Speaker 2: Ben Bernanke was kind of put out there and said, hey,
17:58
Speaker 2: you fixed this problem because we don't understand it, we
18:00
Speaker 2: don't want to fix it, and we don't want to
18:02
Speaker 2: have to vote on a bunch of really controversial things
18:04
Speaker 2: that are going to get us voted out of office.
18:06
Speaker 2: So let's go get a political appointee to go do
18:08
Speaker 2: this stuff. And I think you can look at the
18:12
Speaker 2: time period post GFC, post Great Financial Crisis as a
18:16
Speaker 2: just strong continuation of that every step of the way
18:19
Speaker 2: COVID twenty twenty. Right when things came crashing down there,
18:24
Speaker 2: Congress started to act, they didn't really do much fast enough.
18:27
Speaker 2: Markets were falling apart, So what did the Federal Reserve do?
18:29
Speaker 2: They were kind of thrust into that spotlight again, whether
18:33
Speaker 2: you like it or not. They basically came out and
18:35
Speaker 2: said we're not going to really let any bonds fail
18:37
Speaker 2: during this period of time. We're going to backstop the
18:40
Speaker 2: entire market. If they start to fail, we will backstop it.
18:42
Speaker 2: We will buy them with our balance sheet. It's not
18:46
Speaker 2: something that is explicitly allowed by Congress. But yeah, if
18:50
Speaker 2: your job is to maintain financial stability and maintain minimal
18:55
Speaker 2: unemployment and stable prices, it's certainly a tool that would
18:59
Speaker 2: do that. It's just not explicitly granted by Congress. And
19:02
Speaker 2: so that's the stuff that I think you can point
19:04
Speaker 2: to as Mission creep. But I don't think it's the
19:06
Speaker 2: Fed's fault. I think it's Congress's fault for failing to
19:08
Speaker 2: do anything and failing to rain this in and actually
19:11
Speaker 2: control the outcomes of the economy.
19:13
Speaker 3: They have the independence the FED does, and that's a
19:15
Speaker 3: strength in those situations to be able to act quickly,
19:18
Speaker 3: more quickly than legislators, and they don't have to report
19:21
Speaker 3: back to a voting basis.
19:22
Speaker 2: Like you said, let's take a quick break. When we
19:24
Speaker 2: come back. Wall Street watches Next.
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20:00
Speaker 4: One day after the S and P five hundred and
20:02
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20:05
Speaker 4: territory as traders sift through a flurry of second quarter
20:09
Speaker 4: earnings from major names including General Motors, Coca Cola, Lockheed, Martin,
20:14
Speaker 4: and others. Right now, Dow is up by a tenth
20:18
Speaker 4: of one percent or fifty five points, SMP five hundred
20:21
Speaker 4: is down a tenth of a percent or nine points,
20:24
Speaker 4: Nasdaq pulling back a little bit, down nearly six tenths
20:27
Speaker 4: of one percent or one hundred and eighteen points. Russell
20:30
Speaker 4: two thousand is up by only two points, about a
20:33
Speaker 4: tenth of a percent. Ten youre Treasure reeled down two
20:36
Speaker 4: basis points at four point three four to six percent,
20:40
Speaker 4: and crude oil is off one point three percent today,
20:43
Speaker 4: trading in sixty six dollars and thirty two cents a barrel.
20:47
Speaker 4: General Motor share is falling over seven percent after the
20:50
Speaker 4: automaker saw its net income shrink thirty five percent in
20:54
Speaker 4: the second quarter despite strong sales, as auto tariffs weighed
20:58
Speaker 4: on its result. Tariff's hit GM's operating income by one
21:03
Speaker 4: point one billion dollars in the second quarter. Meanwhile, Coca
21:07
Speaker 4: Cola reported quarterly earning xan revenue that beat analysts expectations
21:11
Speaker 4: as strong demand in Europe off sat weaker volume in
21:14
Speaker 4: other markets. The beverage giant also said it plans to
21:17
Speaker 4: launch a new coke product for American consumers made with
21:21
Speaker 4: US Kane sugar this fall. Coke stock is down by
21:25
Speaker 4: one percent. Elsewhere, Lockheed Martin Schars sinking over six percent
21:30
Speaker 4: after the defense manufacturers quarterly revenue fell short of forecast.
21:34
Speaker 4: Lockheed also reported a one point six billion dollar loss
21:38
Speaker 4: attributed to some defense programs. We have yet another meme.
21:42
Speaker 4: Stock online real estate startup open Door Technologies is rally
21:46
Speaker 4: more than five hundred percent this month, where yesterday trading
21:51
Speaker 4: volume surge to one point nine billion shares, more than
21:55
Speaker 4: seventeen hundred percent of the three month average.
21:58
Speaker 1: That according to.
21:59
Speaker 4: Fact set, that stock today is up by two percent
22:02
Speaker 4: at the moment, but again remains quite volatile. And after
22:06
Speaker 4: today's close, we'll see earnings from SAP, Texas Instruments and
22:10
Speaker 4: Intuitive Surgical tomorrow morning.
22:12
Speaker 2: At and T and.
22:13
Speaker 4: Thermo Fisher will report followed by Google's alphabet TESLA and
22:18
Speaker 4: IBM Wednesday afternoon. I'm Tucker Sullivan. That is Wall Street Watch.
22:24
Speaker 2: President Trump is apparently targeting trade loopholes. We've reported on
22:28
Speaker 2: this many times before. But here's the loophole. I manufacture
22:32
Speaker 2: something in China, I send it to Vietnam. They put
22:34
Speaker 2: in one screw, they label it made in Vietnam, and
22:37
Speaker 2: it avoids giant tariffs on China. You pretty easy to understand, Yes, okay, good.
22:43
Speaker 2: So if we did go about doing this, and we
22:46
Speaker 2: did it successfully, which is obviously pretty difficult to do
22:48
Speaker 2: because you have to track this stuff down and try
22:50
Speaker 2: and figure out its location of origin, then it would,
22:54
Speaker 2: you know, target some seventy percent of Chinese exports to
22:57
Speaker 2: the United States and obviously dramatically change the trade shake
23:01
Speaker 2: up if we were any good at this. I find
23:05
Speaker 2: it interesting because there's a few other stories to report
23:09
Speaker 2: on all of this today. So first and probably most relevant,
23:14
Speaker 2: Treasure Secretary Besant is saying that the August twelfth China
23:19
Speaker 2: tariff deadline is likely to be extended as talks are
23:23
Speaker 2: being planned in Stockholm, Sweden, next week, So we will
23:27
Speaker 2: see where all of that goes. At the same time,
23:31
Speaker 2: we have seen China moving against three foreigners in their country. First,
23:39
Speaker 2: a Wells Fargo banker as well as a US government
23:42
Speaker 2: employee were blocked from leaving the country. Separately, a Japanese
23:47
Speaker 2: pharmaceutical executive was imprisoned. At the same time that they
23:52
Speaker 2: are allegedly trying to loosen stuff in trade between the
23:58
Speaker 2: US and Japan and court all sorts of investment in China.
24:01
Speaker 2: They are doing this type of thing now, I think
24:04
Speaker 2: it's fair to say we know very little about the
24:06
Speaker 2: individuals that are being not quite detained in China. But
24:11
Speaker 2: I don't know what else you call it, Like you're
24:13
Speaker 2: not under arrest, but you can't leave. You don't have
24:17
Speaker 2: to go home, but you can't stay here. The exact
24:20
Speaker 2: opposite of that, you can't go home and you must
24:24
Speaker 2: stay here. Now again, there could be all sorts of
24:30
Speaker 2: reasons behind this. They could be worried about some form
24:33
Speaker 2: of espionage. In the past, though when this type of
24:37
Speaker 2: thing has happened, it's been because they are worried that
24:40
Speaker 2: those employees have some sort of data on domestic companies
24:45
Speaker 2: that doesn't really have to do with espionage. That they're
24:47
Speaker 2: more worried about being leaked. Maybe it is that there's
24:49
Speaker 2: an accounting scandal with a Chinese company, Maybe it's some
24:53
Speaker 2: other type of thing that they don't want being leaked publicly.
24:56
Speaker 2: And so what do they do. They monitor every one
24:57
Speaker 2: of their phone calls, they seize all their devices, and
25:01
Speaker 2: they prevent them from leaving. The US government employee, interestingly,
25:06
Speaker 2: I think was part of the Patent Office. If I'm
25:08
Speaker 2: not mistaken, I have to double check. Yes, sorry, Eric Zang,
25:13
Speaker 2: the president of the American Chamber of Commerce in Shang No, sorry,
25:17
Speaker 2: this isn't This isn't the same thing. So I believe
25:21
Speaker 2: it was a government employee from the the Patent Office.
25:26
Speaker 2: And it suddenly makes you wonder, like, Okay, what possible
25:31
Speaker 2: reason could you have for detaining these employees other than
25:33
Speaker 2: wanting to restrict the data that's going back and forth. Blackrock,
25:37
Speaker 2: the major investment firm, seemingly in reaction to this, has
25:42
Speaker 2: now restricted the use of company devices for China travel.
25:47
Speaker 2: So you are an employee of Blackrock and you have
25:51
Speaker 2: your work cell phone, you've got your work laptop, you're
25:54
Speaker 2: no longer allowed to take them into the country. They're
25:56
Speaker 2: that nervous about what Chinese authorities are going to do
25:59
Speaker 2: to try and seize intellectual property or private company information
26:03
Speaker 2: that they're basically issuing you a burner when you go
26:06
Speaker 2: into that country, to which I say to my employer,
26:10
Speaker 2: you are so nervous about me being detained, please don't
26:14
Speaker 2: send me to China. I don't I want to come
26:16
Speaker 2: back someday. I don't want to be stuck here in perpetuity.
26:21
Speaker 2: I can't imagine being asked to go there and and
26:24
Speaker 2: deal with this sort of stress. But look, this is
26:29
Speaker 2: potentially a very minor escalation that blows over, but it's
26:33
Speaker 2: pretty world changing for the individuals who are affected by it,
26:37
Speaker 2: and is quite honestly one of the few countries in
26:39
Speaker 2: the world that I can think of where you would
26:41
Speaker 2: have genuine concerns about this happening. Iran and North Korea
26:47
Speaker 2: are like the others on the list. The only others
26:50
Speaker 2: on the list are pretty much active war zones that
26:53
Speaker 2: I wouldn't want, you know, like, yeah, you said now,
26:57
Speaker 2: or Russia right now? Yeah, I mean we're in a
26:59
Speaker 2: proxy war with some of these countries. China seems different
27:02
Speaker 2: to me, like we have trade agreements ongoing, we have
27:07
Speaker 2: trade negotiations ongoing. It's not as though we have many
27:10
Speaker 2: diplomatic channels with North Korea. Right now, you go to
27:13
Speaker 2: North Korea, good luck, you're on your own, right, This
27:16
Speaker 2: is pretty wild stuff to be happening to US citizens,
27:20
Speaker 2: two US employees, And yeah, it's a bit chilling in
27:27
Speaker 2: terms of what it might mean for future trade between
27:30
Speaker 2: the two countries. But yeah, hopefully it's something that gets
27:33
Speaker 2: worked out relatively quickly.
27:34
Speaker 3: Yeah, the Wells Fargo banker, she is someone who grew
27:39
Speaker 3: up in China but is now a US citizen, And
27:41
Speaker 3: it seems as if just research is looking at her
27:44
Speaker 3: LinkedIn that she's sort of behind Wells Fargo and some
27:47
Speaker 3: of the factoring efforts that they do for businesses, so
27:50
Speaker 3: basically taking upfront payment for accounts receivable invoices. So not
27:56
Speaker 3: so sure you know what particular data that she would
27:59
Speaker 3: have her hand on that would be of utmost concerned
28:02
Speaker 3: in China. But your overall arching point, your arching point
28:05
Speaker 3: is taken that bit concerning some of these these news
28:09
Speaker 3: stories here.
28:10
Speaker 2: So anyway, Paul, we meant to tell you we're putting
28:13
Speaker 2: you on assignment in China. Next week. You'll be landing
28:16
Speaker 2: in Shanghai, and we don't want you to bring any tech.
28:21
Speaker 2: Just bring a notepad and a and a tape recording mic.
28:25
Speaker 2: If you don't mind, for you report that would be appreciated.
28:27
Speaker 2: Good luck, Polish up the resident and we'll see you
28:29
Speaker 2: in twenty twenty six. Let's take a quick break. When
28:33
Speaker 2: we come back, more trade talk, this time with Europe.
28:37
Speaker 2: According to CNBC, they're preparing a trade bazuka, which doesn't
28:41
Speaker 2: sound like a fun tool to use in trade. But
28:43
Speaker 2: we'll talk about what a trade bozuka is next. On
28:46
Speaker 2: The Financial Exchange.
28:48
Speaker 1: Missed one of our shows. Catch up anytime by asking
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29:02
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29:07
Speaker 2: Network, Tucker. We don't have to do it for today's show,
29:27
Speaker 2: but if European Union actually does use a trade bazooka,
29:31
Speaker 2: I'm gonna be looking for some sound.
29:32
Speaker 4: Oh, there will be plenty of sound effects for that.
29:34
Speaker 2: Yeah, just making sure. So let's jump in here. We're
29:38
Speaker 2: heading towards in August first deadline. The story on terraff
29:43
Speaker 2: between the US and the EU keeps on changing. The
29:47
Speaker 2: largest I think it's the largest two trade partners in
29:50
Speaker 2: the world, if I'm not mistaken when you look at
29:53
Speaker 2: goods and services in terms of dollar terms, but nonetheless
29:57
Speaker 2: massive trade partners. Heading towards in August first death line,
30:00
Speaker 2: growing frustration on the EU part. They thought they had
30:05
Speaker 2: been kind of locked into a trade deal that was
30:08
Speaker 2: looking like it was going to get executed. President Trump
30:11
Speaker 2: hears about it and reverses course and wants higher tariffs.
30:16
Speaker 2: In any case, the narrative for the last week or
30:19
Speaker 2: so has been about the EU as a whole growing
30:23
Speaker 2: a little bit more frustrated. Germany had been the kind
30:27
Speaker 2: of neutral ground here and pushing for hey, just be patient,
30:32
Speaker 2: let's see what happens. Let's negotiate in good faith. Now
30:36
Speaker 2: moving more towards the French opinion all this which is,
30:39
Speaker 2: let's prepare some retaliatory measures if we need to. In
30:44
Speaker 2: twenty twenty three, the European Union created an anti coercion instrument.
30:51
Speaker 2: It effectively utilizes a whole bunch of different things around
30:55
Speaker 2: trade and other tools in order to prevent other countries
30:58
Speaker 2: from coercing the EU into passing certain types of laws.
31:02
Speaker 2: And that's what we're talking about right now, is the
31:04
Speaker 2: US using trade to coerce the EU into changing things
31:09
Speaker 2: like their digital tax structure and other types of rules.
31:13
Speaker 2: In terms of what this bazouka would do, it would
31:16
Speaker 2: restrict US suppliers access to the EU market, exclude them
31:20
Speaker 2: for participation in public tenders in the block, put exports
31:24
Speaker 2: and import restrictions on goods and services, and limit on
31:27
Speaker 2: foreign direct investment into the region, which, do not get
31:31
Speaker 2: me wrong, would be pretty ugly for a whole bunch
31:34
Speaker 2: of companies. It also seems like one of those tools
31:38
Speaker 2: that hurts the EU a lot more than it hurts
31:41
Speaker 2: anybody else, or at least equally damaging. Right. Like, what
31:44
Speaker 2: you're talking about here is something we've talked about in
31:45
Speaker 2: the United States too, is hey, we're just going to
31:48
Speaker 2: prevent foreign companies from investing in the United States. What
31:52
Speaker 2: a bad deal for American companies.
31:54
Speaker 3: I mean, anytime you get into these trade wars, when
31:57
Speaker 3: you examine any of the options, it's bad on both sides.
32:00
Speaker 3: I mean, if there were to be an embargo on
32:02
Speaker 3: Chinese imports like where it was with the reciprocal tear
32:06
Speaker 3: flow that doesn't help the US, you know at all either,
32:09
Speaker 3: just because we can't just flip a switch and no
32:11
Speaker 3: longer be reliant on Chinese exports, and so the same
32:14
Speaker 3: thing would apply here. As much as it would be
32:17
Speaker 3: damaging to the EU, it is truly the best way
32:21
Speaker 3: to characterize this in this piece and CNBC is quote
32:23
Speaker 3: unquote a nuclear option or brazuoka or whatever military terminology
32:28
Speaker 3: we can throw out there. It would be a dramatic step.
32:31
Speaker 3: I always hesitate with these stories. The one thing I've
32:34
Speaker 3: learned this year is to not dive too deep into
32:38
Speaker 3: these details of an instrument like this, because we still
32:41
Speaker 3: have what feels like a long time by these standards
32:45
Speaker 3: of just in terms of how quickly the news changes,
32:47
Speaker 3: you know, nine or ten days for potential resolution, or
32:50
Speaker 3: the idea of the deadline getting pushed back further. But
32:53
Speaker 3: if they were to take this step, and you'd have
32:55
Speaker 3: to get broad agreement I guess against all the EU
32:59
Speaker 3: you know members how on with this, it would be
33:01
Speaker 3: detrimental on both sides, no question about it.
33:03
Speaker 2: Yeah, it would be really painful. They can impose various
33:05
Speaker 2: restrictions on access to that EU market, Like I mentioned,
33:10
Speaker 2: public procurement is another area that can go after as
33:13
Speaker 2: well as you know, obviously US suppliers' ability to sell
33:16
Speaker 2: food and chemicals into the European Union, which again hurts
33:20
Speaker 2: US companies but hurts the EU. Two. With all of this,
33:24
Speaker 2: the biggest piece that I'm surprised we're not hearing more
33:27
Speaker 2: about would be, and I'm guessing because this would require
33:30
Speaker 2: a whole bunch of legislation, would be going after big
33:34
Speaker 2: US tech companies. Right. That's if you talk about the
33:37
Speaker 2: trade between the US and Europe and the you know,
33:41
Speaker 2: one directional trade. It is true that, yeah, the European
33:44
Speaker 2: Union sells a lot more goods into the United States
33:46
Speaker 2: than the US does Europe. But in terms of services,
33:50
Speaker 2: we flood the EU with all that stuff, right, you know,
33:53
Speaker 2: if it's Netflix or YouTube or Gmail, Facebook, all of
34:00
Speaker 2: these different services, we have a massive trade surplus with
34:05
Speaker 2: the European Union on if you want to really shoot
34:09
Speaker 2: America in the foot and not harm yourself too badly,
34:14
Speaker 2: like those are luxury products, right, I mean maybe Google
34:18
Speaker 2: infrastructure isn't. But if you just say, okay, we are
34:21
Speaker 2: going to be somehow taxing Meta or somehow prohibiting Netflix
34:27
Speaker 2: from distributing across Europe. That's a huge hit not only
34:31
Speaker 2: to those businesses, but to the US stock market itself
34:34
Speaker 2: because of the size of those companies. Sure again, there's
34:37
Speaker 2: no way to do this if you're in Europe without
34:39
Speaker 2: hurting yourself in some way, shape or form. But it
34:42
Speaker 2: would seem to me like the low hanging fruit with
34:44
Speaker 2: the least impact of your citizens would be going after
34:46
Speaker 2: big tech com.
34:47
Speaker 3: Yeah, just throw a couple of anti trust lawsuits at them.
34:49
Speaker 3: They be used very good at doing that.
34:51
Speaker 2: They are pretty good at that.
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35:50
Speaker 2: Have the two of you have either seen the movie
35:52
Speaker 2: Canadian Bacon No, have never ever heard of it? Really solid,
35:57
Speaker 2: Really everybody should be aware of the movie Canadian Bake
36:00
Speaker 2: and a really really good movie. But in any case,
36:04
Speaker 2: I don't remember the circumstances. But they are at a
36:07
Speaker 2: hockey game in Canada and they're just insulting Canadians over
36:10
Speaker 2: and over to see if they can get a rise
36:12
Speaker 2: out of them, calling them idiots and French, all sorts
36:16
Speaker 2: of offensive things that you can John Cam Yeah, hell yeah.
36:20
Speaker 2: Really solid cast and solid movie. And then they suddenly
36:23
Speaker 2: say yeah and their beer sucks too, and the entire
36:27
Speaker 2: hockey arena goes silent and a massive brawl erupts because
36:31
Speaker 2: of it. And that reminded me of the story here
36:35
Speaker 2: between the United States and Canada because US liquor sales
36:39
Speaker 2: have absolutely plunged in Canada amid this tariff spat, and
36:43
Speaker 2: it's not because of the actual tariffs, seemingly, but rather
36:48
Speaker 2: because of the Canadian backlash against very obvious American brands.
36:54
Speaker 2: You know, if you're a Canadian shopper that if you're
36:56
Speaker 2: buying Jack Daniels or Angels Envy or really pretty much
36:59
Speaker 2: any bourbon on the shelf, that it is coming from
37:03
Speaker 2: the United States, and hey, it's a pretty easy way
37:05
Speaker 2: for me to spin my consumption towards a different product
37:09
Speaker 2: and hit back at America at the same time. Now,
37:13
Speaker 2: I am certain that you know, Jack Daniel sales to
37:16
Speaker 2: Canada do not make up the biggest portion of their
37:20
Speaker 2: overall sales, but total spirits sales did fall nearly thirteen
37:24
Speaker 2: percent in the country, and sales of Canadian made spirits
37:29
Speaker 2: dropped a bit as well. But overall, you are starting
37:32
Speaker 2: to hear from some of those whiskey producers, especially that
37:36
Speaker 2: times are not great for us over in Canada.
37:38
Speaker 3: Yeah, what I didn't realize is that in Ontario, one
37:40
Speaker 3: of the bigger regions there, it's government run. Liquor stores
37:44
Speaker 3: are part of the part of the infrastructure there, so
37:47
Speaker 3: they control distribution and some of the retail outlets, and
37:50
Speaker 3: they're the ones that have just pulled those options off
37:53
Speaker 3: the shelves, not to have any American spirits out there
37:56
Speaker 3: for purchase in terms of availability.
37:58
Speaker 2: That's actually interesting that Mirrors New Hampshire is set up.
38:01
Speaker 2: I wonder, I wonder if New Hampshire has ever pulled
38:04
Speaker 2: like French wine off the off the shelves in reaction
38:07
Speaker 2: to some spat. Let's take a quick break. We have
38:10
Speaker 2: a lot more to cover in the second hour of
38:12
Speaker 2: the show. Folks, stay tuned. We'll be right back after
38:14
Speaker 2: this