July 10, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss Trump's 50% tariff on Brazil might actually be a shot at China. Trump says 50% levy on copper imports to take effect August 1st. Fresh tariff games are leaving small businesses dazed. Fed says most policymakers see risks tariffs will cause persistent infaltion.
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Mark van Detti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you here and as we
kick things off today, our top story is an announcement
from after the close yesterday where I think it was
around maybe six pm or so that I saw this,
the actual letter sent from President Trump to the Brazilian
(01:32):
president indicating that the Trump administration was going to be
imposing a fifty percent tariff on Brazilian imports effective August first,
this taking a similar form to the other letters. The
key difference here is that if you actually read through
the letter that was sent, most of it doesn't really
(01:56):
have anything to do with trade, but instead has to
do with President Hyer Bolsonaro, who was the president of
Brazil prior to Luna coming into office and currently is
on trialers about to be facing a trial for charges
related to an alleged coup attempt. I'll read a couple
(02:19):
of quotes here from the letter. This trial should not
be taking place. It is a witch hunt that should
end immediately, And so that the Trump administration basically saying, look,
you're putting the former president on trial, who I happen
to like. You need to stop this otherwise I'm going
to impose tariffs The Brazilian President, Lula has responded by
saying any unilateral rate hikes will be responded to using
(02:41):
Brazil's economic reciprocity law. The sovereignty, respect and in transident
defense of the Brazilian people's interests are what guide our
relations with the world. So we're left to try to,
you know, make sense of this and navigate. You know,
what's happening here? Is this going to go into effect?
Speaker 3 (02:58):
Why? Now? Like, what's there?
Speaker 2 (03:00):
There are a few different things going on here, Mark,
I'm interested to get your thoughts before we go further.
Speaker 4 (03:05):
Well, it's it's hard to analyze this through objective economic lens, Chuck,
because we don't know a lot at this point.
Speaker 3 (03:16):
Well, we do know, we know some things.
Speaker 4 (03:18):
Well yeah, okay, so let's let let's let's let's.
Speaker 3 (03:20):
Talk about it from an objective economic lens. Okay.
Speaker 2 (03:23):
The United States has a trade surplus with Brazil, meaning
we export more to Brazil than we import from them.
So we know that this is not about balance of trade.
Speaker 4 (03:36):
Ro I'm sorry, I meant it's economic impact. Yeah, sorry,
go ahead.
Speaker 2 (03:39):
So we know that this is not about balance of trade, yeah,
because if that were the key reason, you would simply
not be imposing any meaningful tariff on Brazil because we
export more to them than they export to US. So
it's it's not that. Is this as the letters suggest
(04:00):
Yusts related specifically to the trial of Bolsnaro.
Speaker 3 (04:06):
Maybe maybe not. I don't know.
Speaker 2 (04:08):
I have some other theories that I'll get into it
as far as where this goes, and so can we
believe that this is actually going to end up going into.
Speaker 4 (04:17):
Okay effect here, Chuck, what I meant to say was
this is so crazy. I don't know what to say.
As you pointed out, we have a surplus with these folks,
not a deficit. This stated purpose of tariffs, at least
under this regime is to remedy deficits as a national
security matter. Alternatively, the stated purpose might be to reshore something.
We only make coffee, as I understand it, in Hawaii
(04:40):
and Puerto Rico, maybe little bits elsewhere, but this is
not a major industry for US, so none of the
traditional justifications for tariffs apply here. This seems to be
this This gets into an area that I'm not really
qualified to comment on, but it does seem, just based
on his letter, to be based totally on his personal
(05:01):
view that a buddy of his should not be prosecuted
by the courts of another country. That seems really odd
to me.
Speaker 2 (05:08):
Which if look, if if someone wants again, I always
find that it's best to try to put myself in
kind of those shoes, just to be like, Okay, how
would I feel about this. Let's say that someone from
pick a random country. Do we do we have like
a random country generator? No, we need like someone not
the UK, because we have like a very special relationship
with the UK. Let's say that it's a country that
(05:30):
we have like normal relations with, but.
Speaker 4 (05:32):
Like, well not anymore. Canada No, No.
Speaker 3 (05:35):
Like Cannon is not.
Speaker 2 (05:36):
They're a neighbor, like they're right there, like pick, like
just a random Picklike Spain.
Speaker 3 (05:41):
Okay, Spain.
Speaker 2 (05:43):
If Spain came to us and I don't even know
who the president of Spain is, I don't even know
if they have a president or a prime minister. And
quite honestly, and they have a king too. Yeah, everyone's
got kings these days, like they're very in fashion. In
any case, Spain comes to us and sends us a
letter in says, hey, you need to change your laws
(06:05):
regarding I don't know, you gotta change your laws regarding
marijuana usage. Otherwise we're going to impose penalties on the
export of goods to Spain.
Speaker 3 (06:18):
We'd look at them and we go bug off. Yeah, no, no,
thank you, Like you're.
Speaker 2 (06:22):
Not getting involved in our internal affairs. And but that's
the right thing to do. Like there's a reason why
nations have sovereignties because they they have the authority to
do so based on you know, whether it's the will
the people or whatever the governing charter of the country is.
So I think that it's not surprising to me that
the Brazilian president is like.
Speaker 3 (06:42):
No, I'm not gonna do this, or you kidding me.
But I think this gets it.
Speaker 2 (06:46):
The question of is the stated reason in the letter
the actual meet here, and this is where I have questions.
And I think the reason that I bring this up
is because if you go to any other countries I
just outlined and say change what you're doing internally, they're
(07:06):
gonna say no, like that's our thing. Like yeah, we
can talk about how we, you know, conduct business outside
our borders, but no, internally, that's that's us.
Speaker 3 (07:13):
You you don't get.
Speaker 2 (07:13):
Involved where I think this is interesting to me is
if you look at the last couple of months. Uh,
there's been a lot of chatter between Brazil and China
about deepening relations. And you also just came off of
(07:34):
this brick summit that happened in Brazil.
Speaker 3 (07:38):
Was it last week? I think it was. Is that wrong?
Am I wrong?
Speaker 2 (07:42):
I think it was last week that that was happening.
And so you've got a number of different things. There's
been you know, talk about Huawei building you know, new
facilities in Brazil. There's Brazil China talking about, you know,
importing more stuff from Brazil. And so I look at
this and I look at it few different things, and
I realized this is kind of, you know, trying to
(08:03):
tie a few disparate things together and make something out
of them. But there's been a lot of chatter about
Brazil and China deepening ties, which I don't think the
Trump administration particularly likes.
Speaker 3 (08:13):
There has been.
Speaker 2 (08:16):
Clearly an emphasis from the Trump administration on trying to
isolate China in these negotiations. I look at the Vietnam
deal from a couple of weeks ago. Is the template
where transhipments are taxed at double the rate on tariffs
as things that are direct from Vietnam. And so I
look at this and say, is this really about China
and just using this as something that is, you know,
(08:38):
front and center to try to put this out here,
just because if there's one thing I think the Trump
administration has learned over the last three months, if they
try to go directly up against China, China's gonna stop
the rare earth exports. And the US can't deal with
that right now. No one in the world can deal
with that right now, because China produces most of the
(08:59):
rare earth materials needed for electric motors and this and
that and and whatever.
Speaker 3 (09:05):
And so I look at.
Speaker 2 (09:05):
This happening on the same day, and here's where I'm
going to probably lose everyone in the process. But did
anyone I'm sure that some of you noticed the first
headline on CNBC MP Materials is a rare earth miner
out of California. They're the only rare earth mine in
(09:26):
the United States. And did you happen to see that
the DoD agreed to a four hundred million dollar investment
in this company with a whole bunch of you know,
basically productive like minimum price levels and minimum buying levels
for the next decade. I look at this and I
think what the Trump administration is trying to do here.
(09:49):
I don't know if they're going to be successful at it,
but I think they are trying to reassess the China strategy,
the China containment strategy that they had, and a lot
of this stuff is coming in kind of different ways,
but I think this is more tied to that and
them trying to go back to the China well and
you know, have a firmer stand than they were able
(10:11):
to take a couple months ago. Maybe now that the
reconciliation packages passed and they have a little bit more
leeway to, you know, do some different things. This is
kind of where I'm at on this, because if it
simply is, hey, we're going to impose a fifty percent
tariff because you're prosecuting someone internally and we don't like that.
I don't know that there's much meat on that bone.
(10:33):
But how does he the dog doesn't hunt?
Speaker 4 (10:34):
How do we win if they I suppose there are
back channel discussions going on, we want them to gradually
decouple or at least back off on, say a couple
of their closer ties arrangements with China. I suppose they
do that, but they can't say it.
Speaker 3 (10:52):
Now.
Speaker 4 (10:52):
This sort of gets into like the Cuban missile crisis negotiation.
It does back channel stuff like we couldn't say what
we gave up, Soviets couldn't say what they gave up.
Everybody kind of save face. Nobody knew what the hell
was going on for ten years. How does either side
win from that other than that we back down and
they back but China is going to recognize that they
did that and pressure them in other ways. I get you, Chuck,
(11:15):
and I respect your attempt to rationalize what is, on
the surface a nutty move, but that seems a little
deep for this for the type of thinking that we've
seen this crew exhibit so far. I hope you're right,
because that makes sense.
Speaker 2 (11:30):
But we'll see again if it actually is just, hey,
we're gonna put this fifty percent, you know, tariff in place.
I think that the Trump administration has to be careful
of a number of different things. The first is just okay,
it's very clear that Trump would prefer Bolsnaro to be
the Brazilian president. Am I wrong on that?
Speaker 4 (11:50):
I guess that's what he said in his lettership going
back to his first term, Like it's they're pretty close
in terms of like how they were during the first term.
He says that about everybody. But yeah, no he doesn't.
He know, I get along so well with him.
Speaker 2 (12:04):
So anyways, I digress into just meaningless nothinglessness. But we
need to like focus on the fact that he would
rather have Boalsnaro there, plain and simple, like he does
not like Lula. He would prefer Baalsonnaro. The question is
does this cause the same kind of backfire that it
did in Canada, where, Hey, the Canadian election looked like
(12:27):
it was heading away from uh, I'm totally forgetting the
guy's name, is it Carney? Yeah, looked like it was
heading away from Karnie. Trump imposes you know, tariffs and
threatens Canada, and Carney comes away and is like, Okay,
I took this thing classic. You wonder if it ends
up causing the same thing in Brazil, where Lula's popularity
has been bad to quite bad over the last you know,
(12:50):
year or so, and you wonder if this ends up
spurring it on and he ends up winning another term
next October when the Brazilian election is So these are
things that I think.
Speaker 3 (12:59):
About as we go through this, just take a quick break.
Speaker 2 (13:02):
When we come back, we'll stop talking about tariffs because
quite honestly can't do it anymore. Let's instead talk a
little bit about the Fed, outs the FED and tariffs.
Speaker 3 (13:10):
Great more tariffs.
Speaker 1 (13:12):
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Speaker 2 (14:13):
All right, so we just talked about the Trump administration
looking to impose a fifty percent tariff on Brazil, which
clearly is not related to trade deficit. But I think
even though they're publicly saying, hey, it's about Balsonaro, I
suspect this is more about China than anything else. We'll
(14:34):
we'll have to see how this ends up playing out
to see, you know what we get there. We then
get to the other announcement from the Trump administration yesterday,
and this was posted on true social I'll read the
post from the President. I'm announcing a fifty percent tariff
on copper, effective August first, twenty twenty five, after robust
national security assessment. Copper is necessary for semiconductors, aircraft ships,
(14:56):
ammunition data centers, lithium ion batteries, radar systems, missile defense systems,
and even high personic weapons, of which we are building many.
Copper is the second most used material by the Department
of Defense. Why did our foolish and sleepy leaders decimate
this important industry. This fifty percent tarif will reverse the
Biden administration's thoughtless behavior and stupidity. America will once again
build a dominant copper industry. This is, after all, our
(15:17):
Golden Age. So the Brazil one I can get to
a place where I'm like, okay, like this makes sense.
The copper one I look at and I go, okay,
this is you know, not really making sense to me.
And the reason why is twofold well threefold.
Speaker 3 (15:34):
Actually.
Speaker 2 (15:35):
The first is, okay, if you think copper is that important,
why are you making it harder and more expensive for
American companies to get copper?
Speaker 3 (15:45):
Is that is that fair? Mark? I think so? Yeah.
The second piece is.
Speaker 2 (15:53):
If it really is something that is, if it's that
critical to national security, then in the first segment we
discussed the Defense Department making this investment in MP what's
the name of it, MP Materials, the rare earth minor
out of California, in order to boost up American production
(16:15):
of rare earths. Well, why are you not taking the
same approach with copper?
Speaker 1 (16:19):
Then?
Speaker 2 (16:20):
Right, If if it's that critical for national security, then
from an industrial policy perspective, something like the MP Materials
deal would make more sense than the tariff side of things.
The third piece, and the reason why this doesn't make
sense is Okay, if it's really important to be able to,
you know, in general, manufacture things in the United States.
(16:42):
By imposing a tariff on copper, you're making it more
expensive to manufacture them in the US relative to other
parts of the world, and so stuff might simply go
and be made elsewhere. If a company building a plant
in the United States, that makes okay, let's say that
they make MYONN batteries. If the cost of copper in
(17:02):
the US is higher than elsewhere, then instead of importing
the copper into the United States in order to make
the batteries, won't you just say I'll make the batteries elsewhere.
Speaker 4 (17:11):
You know, there's one argument for making copper more expensive,
which is it might induce more domestic production and for
national security reasons that might be desirable. So the rationale,
the rationale is not nonsensical. The only problem is he
cites the stupidity of past leaders, past administrations. He was
president for four years. We have data for those four
years during his first term. Now this is not an indictment.
(17:34):
I'm simply pointing out that he's got to explain what
he's going to do differently this time. During his first term,
Industrial production and mining that's copper, nickel, lad and zinc.
So there's other stuff in there. Fell by eleven percent
from the day he took office until immediately before COVID,
so we were mining less. Now there's other stuff besides
copper in there, sure than we were at the end
of his first term before COVID. I'm giving him a
(17:55):
real break here. It'd be like not counting the Great
Recession on George W. Bush. George W. Bush would look
like Ronald Reagan, but we count the Great Recession.
Speaker 3 (18:03):
With Trump, they wouldn't look like Ronald Reagan was handsome.
He was better looking.
Speaker 4 (18:10):
Wow, yes, on so many levels.
Speaker 3 (18:11):
You're right.
Speaker 4 (18:12):
Let's not get started on Reagan's physical attributes because it
would take the whole show. But the point is we
were doing less of it at the beginning at the
end than we were at the beginning. So Trump Trump
may want to ask, what did I do wrong in
my first term and by the way it went up
under Biden? But I'm not going to credit Biden or
blame Trump necessarily for those results. But the data is
telling there are long term structural changes that need to
(18:34):
be made if we want to make more copper here,
and actually maybe pushing up its price and inducing more
people to get into the copper mining business. Here is
a good idea, but you do have to restrict imports
at the same time. And to your point, it would
make it would make the creation of a lot of vital
technologies tougher in the in the short run while we
were adjusting.
Speaker 2 (18:53):
I guess my question is, like I see this MP
Materials deal, which I got to say, like, I think
this is just a brilliant move, Like I think that
this is like the template that I would use for
industrial policy if I were trying to, you know, specifically
focus on making something in the United States. And so
I see the Trump administration, I'm literally the same day
(19:15):
being like, hey, here's this great policy that we unveiled
for rare earths. And then I see the copper one,
and I'm like, so, what gives. Let's take a quick
break here. When we come back, we got Wall Street
Watch after this.
Speaker 1 (19:41):
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Speaker 5 (20:01):
Now the day of tariff news for Wall Street after
President Trump announced today fifty percent tariff on Brazilian goods
and also said the fifty percent tariff on imported copper
will take effect on August first. Right now, Dow is
up by three tenths of one percent or one hundred
and twenty five points, SMP five hundred completely flat, and
(20:21):
the Nasdaq is off by about four tenths of one
percent or seventy nine points. Rusted two thousands off by
two tenths of one percent. Ten year Treasure reeled up
by two basis points now at four point three six percent,
and crude oil is down over one and a half
percent lower today training at sixty seven dollars and twenty
four cents SA Beryl. Big news in packaged foods this
(20:45):
morning after the Italian candy maker behind Ferrero agreed to
buy cereal giant w K Kellogg for about three point
one billion dollars. W K Kellogg is best known for
making childhood staples, including fruit loops and frosted flakes. Wk
Kellogg's shares are surging thirty percent on that news. Meanwhile,
the Defense Department will become the largest shareholder in Rare
(21:08):
Earth minor MP Materials after agreeing to buy four hundred
million dollars of its preferred stock MP Materials, jumping over
fifty percent on that Delta Airlines reported earnings ahead of
the opening bell that beat analysts expectations, where its quarterly
profit was up sixty three percent from a year ago.
Delta also reinstated is twenty twenty five profit outlook. Delta
(21:32):
up by thirteen percent on its earnings, while other airlines
are seeing gains as well, including United Airlines up over
eleven percent. AMD climbing over three percent after the chip
maker was upgraded to a buy at HSBC, where it's
higher than expected pricing for its new AI chip could
add significant upside to revenue and shares in ConAgra Brands
(21:53):
down by three percent after the maker of Slimgym and
Swiss Miss Hot chocolate posted disappointing quarterly results and an
annual outlook that missed expectations. I'm Tucker Silva and that
is Wolstrey watch Mark.
Speaker 2 (22:08):
We had a piece in the Bloomy Berg. It's titled
fresh Tariff games are leaving small businesses dazed and.
Speaker 3 (22:15):
This gets it.
Speaker 2 (22:16):
Something we've talked about the last couple of days, which
is a lot of businesses have spent, you know, the
last few months that a lot of businesses that you know,
import goods have spent the last few months trying to
figure out, Okay, what's my plan because I don't want
to be dealing with these you know, high China tariffs.
Speaker 3 (22:32):
And they may have.
Speaker 2 (22:32):
Come up with a plan to import from Vietnam or Malaysia,
Thailand instead, wherever it might be. And then this week
they get hit with the idea that, okay, we might
be facing higher tariffs on those countries in the next
few weeks. And again the market has done a pretty
good job of just shrugging this off. By the way,
I mean, you look at the S and P five
(22:53):
hundred this week and what it's done, and effectively the
S and P five hundred is flat this week, like
hasn't really moved, went down on Monday, down a bit
on Tuesday, up yesterday, and it's basically flat this week.
Speaker 3 (23:07):
And so I guess.
Speaker 2 (23:09):
The question is, you know, to this point, if we're
talking about both the market and the economy, and those
are two distinct things, obviously, the market you can make
the case, look gets rallied back to not back to,
but beyond an into new all time highs because the
(23:31):
worst tariffs were taking off the table in each situation,
and the impact from the ones that are in place
currently has been I would say minimal to this point.
I don't think we've seen like no impact, but the
impact has been minimal to this point, and so markets
have been able to carry on.
Speaker 3 (23:50):
Is that a fair statement on equity?
Speaker 4 (23:52):
Mind, I don't know if they're taking Yeah, they don't
seem to be taking the taf threat seriously.
Speaker 2 (23:57):
With the real economy. I think by and large, what
we have seen to this point is no evidence the
tariffs have caused any inflation yet. But it's probably too
early to definitively say that.
Speaker 4 (24:10):
Unless inflation would have been lower without them.
Speaker 2 (24:12):
But yeah, possible, But we still need I think, another
you know, six months or so to be able to
get the full look at this, just because we really
only have you know, a few weeks where tariff goods
might have actually made it to store shelves. So I
think that it's too early to tell on the inflation side,
but hey, there hasn't been anything that's shown up there
yet on the employment side. The overall job's growth numbers
(24:38):
have been slowing, but still fine and probably fine just
because there are signs that the overall labor force is
not growing at the same pace that it was growing
at previously. We are seeing small businesses struggling in terms
of hiring. There are a number of different data sources
out there, whether you look at indeed, paychecks, ADP, basically
(25:01):
all of them are telling you. All of the major
payroll companies or you know, job listing companies are telling you, hey,
small businesses is they are hurting right now and not
hiring the way that you like to see in a
healthy economy. And I think by and large it's probably
because they just feel like they're being yanked all over
the place and they don't have the financial resources to
(25:24):
just spend their way out of it the way big
companies like Walmart and Amazon do.
Speaker 3 (25:28):
Your thoughts as too.
Speaker 4 (25:31):
We are seeing some import inflation. It hasn't passed through
to CPI yet, so I just I want to make
that point and how these tariffs affect inflation will depend
in part on how the FED responds. If the FED
does nothing, if it leaves the money supply growth rate
as it was before the tariffs. There'll be less money
(25:51):
to spend on other things because people are spending more
on tariffs. That will slow economic growth and at the
same time increase inflation. That's why economists call things like
tariff or for that matter, oil price increases, they call
them supply shocks. They move output down and prices up.
So I would expect, as you said, we would expect
to see some effect on the trend in inflation at
(26:13):
some point, though it hasn't trickled into CPI yet. As
to the larger picture, again, some of that depends on
how the Fed responds. Will they act to maintain overall demand,
so called aggregate demand. If so, that requires an increase
in the supply of money that could also be inflationary.
So I just I don't really know how this is
(26:36):
going to play out because policy is changing, and how
the FED reacts to this depends on the changing weights
they apply to keeping inflation stable versus keeping output growing.
Speaker 2 (26:50):
And I think my view of the current danger and
again I don't know what's going to happen. Again, we
haven't seen anything like this from a terror perspective in
one hundred years, so I have an open mind to
the idea that hey, like, we don't entirely know how
this is going to play out. It could play out
differently because the world is very different from the last
(27:10):
time we saw this, and so I acknowledge the possibility that, look,
we could be sitting here a year from now and say, yeah,
it didn't play out the way most people thought and
things went differently. But the risk that we do have
here is the Trump administration I think has looked at
the last three months and said, hey, we imposed you know,
Tariff's X, Y and Z, and everything's still clicking.
Speaker 3 (27:33):
Let's go impose some more because really like it.
Speaker 2 (27:36):
I think they really wanted to do more in April,
they just had to back off because everything started kind
of falling apart. But the risk is that because of
that delayed impact, things may be worsening under the surface,
or might worsen in the coming months, and they're throwing
more onto that.
Speaker 3 (27:53):
And when you if you go.
Speaker 2 (27:54):
To undo it, then the businesses that you've already heard
the capital has already been spent somewhere, they have already
been laid off. You don't just pop back to where
you were. From a real economy perspective, the same way
the market can bounce back in two months.
Speaker 4 (28:07):
Yeah, I don't take much comfort in the fact that
tariffs don't appear to have been a major drag on
the economy in twenty eighteen, twenty nineteen. The economy was
expanding robustly. It was expanding robustly before the tariffs were implemented.
So if there was a dragon, by the way, there was.
It's estimated they cost consumers several billion dollars a month,
(28:29):
and that they cost, believe it or not, over seventy
jobs for every job they created. I'm talking about in
particular the steel and other manufacturing tariffs imposed at that time.
But like tariffs imposed by say George W. Bush and
even Ronald Reagan, they hit at a favorable time. Their
effects were masked by the overall a vigorous state of
(28:53):
economic growth. So we got a little lucky. These tariffs
are broader, and they might be hitting when the economy
was naturally slowing anyway.
Speaker 3 (29:02):
So I think there's still just a lot to navigate here.
Speaker 2 (29:05):
And the concern that I have is, hey, because the
market has bounced back so quickly, does that potentially put
us in a position where we're now throwing more at
the real economy that it can handle, right as you
know that the tariffs from the spring are starting to
take effect.
Speaker 3 (29:21):
Maybe I don't know.
Speaker 2 (29:22):
I I I often find that we tend to get
a little bit too confident that you know, things are
going to play out any certain way. And so while
I do think that we haven't necessarily seen the worst
of you know, how this is going to play out
in the in the broad economy, I acknowledge that I
could be wrong, Like, who knows how this is? Like
we could sit here a year from now and unemployment
(29:45):
is still in you know, the load to mid fours,
and inflation hasn't gone you know, north of three one
three two, and we're sitting here going.
Speaker 3 (29:54):
Okay, like that was it.
Speaker 2 (29:56):
There's also a path where you sit here, you're like, okay,
you know, unemployments up to six percent, in inflations running
at four and gosh, this really isn't very good.
Speaker 3 (30:05):
I could see that as a path too.
Speaker 2 (30:06):
But I try to just acknowledge the different paths, because
this is how you have to look at these things,
as far as what could or could not happen. Anytime
that you're going into something new that you haven't seen before.
In markets or in the economy. Let's take a quick
break here, and when we return, we'll talk a little
bit about the FED and how they see the terif
(30:28):
inflation risk.
Speaker 1 (30:29):
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(30:49):
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Speaker 2 (31:02):
Federal Reserve put out there meeting minutes from their June
meeting yesterday, and I'll quote you from the Financial Times.
The majority of US Federal Reserve officials warrant it its
June meeting that President Donald Trumps tarfs would have persistent
effects on inflation amid a growing schism over when.
Speaker 3 (31:17):
To cut interest rates. So I'll quote one more piece.
Speaker 2 (31:21):
Actually, while a few participants noted the tariffs would lead
to a one time increase in prices, it would not
affect longer term inflation expectations, most noted that the risk
that tariffs could have more persistent effects on inflation. So
a couple things on this. The first is, okay, this
is why the Fed isn't moving yet. It is because
they're nervous about where inflation could go in the second half.
Speaker 3 (31:42):
Of the year.
Speaker 2 (31:43):
The other piece that I'll add is you could mark
is it fair to say, like, all else being equal,
which I know we can never do, but all else
being equal, if you had an immediate, you know, ten
percent jump in import prices and that was it, could
you at least make a plausible case for that being
a one time price increase and nothing more.
Speaker 4 (32:05):
That depends on what happens to expectations. Expect you can't
hold expectations in the federal I'm going.
Speaker 2 (32:12):
To because it's my theoretical conversation. If you held them stable.
Speaker 4 (32:19):
And then what what was your could what happened? If
could was brain dead?
Speaker 3 (32:23):
Would happened? Yes?
Speaker 2 (32:24):
Could you see a one Could you make the case
that it's a one time increase in inflation?
Speaker 4 (32:32):
Well, I think the parameters you set, that's the only
potential result.
Speaker 3 (32:38):
That's all I'm saying. But like, but that would be
the case.
Speaker 4 (32:41):
If that happened, it would have to be because of
the constraints you put on the question yes, yes, Now
is that begging the answer?
Speaker 3 (32:51):
Yes? But I'm just trying to envision, like, is there
a world in which that could happen? And we found one.
Speaker 2 (32:57):
I'm not saying, Mark, whatever is that in. I'm not
saying it's realistic. Just like, let's just talk. We're doing
a radio show.
Speaker 3 (33:05):
Okay, I God, sorry, Chuck, I can't in this discussion
from there.
Speaker 4 (33:10):
Those assumptions are preposterous.
Speaker 3 (33:13):
Here's the next piece though.
Speaker 2 (33:15):
If you have one set of tariffs that goes into
effect in April, and then additional ones that keep coming
into effect down the road, even holding expectations stable, it
becomes impossible for it to be a one time effect.
Speaker 4 (33:31):
Correct once again, by it follows from the constraints.
Speaker 2 (33:36):
Well, I'm just creating different worlds like this is what
I'm just get Am I wrong on this?
Speaker 3 (33:43):
If you keep adding new tariffs over time? Would inflation
be stable?
Speaker 4 (33:47):
Well? I know what's happened. Probably the prices aren't changing somehow. Okay.
I have a hard time getting my head around these assumptions.
I can't process them. I think you want me to
say yes, so maybe I should.
Speaker 2 (34:00):
If you keep adding more Yes, if I kept adding
to your production cost.
Speaker 3 (34:05):
What would happen.
Speaker 2 (34:07):
You'd either start losing money or your prices would go up. Correct,
That's what I'm saying.
Speaker 4 (34:12):
Yeah, okay, so yeah close.
Speaker 2 (34:17):
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Speaker 2 (35:24):
Mark, do we want to talk about companies laying people off?
Or do we want to talk about delta and their right?
Speaker 4 (35:30):
I can we go back to the hypothetical, because actually, okay,
so there's a and I wasn't getting your point. Even
if expectations don't go best of all possible worlds, people
are willing to look past the tariffs. If there are
only two producers, is me and you making stuff in
the economy, and maybe Tucker's the customer. If my prices
go up, you do nothing. Inflation goes up, is your point?
(35:54):
Even if nothing else changes because your prices maybe don't fall,
maybe you don't recognize that my prices went up, or
you just don't feel like changing yours. The average price
in the economy in that scenario goes up. And that's
what inflation is. It's the average price in the economy.
Said differently, if other prices are sticky and one person's
prices go up, the average price goes up. That's inflation. Yeah,
(36:17):
I mean I think that's the point I was missing.
Speaker 2 (36:19):
Yeah, Well, I was just effectively saying, look, if I
raise the input cost to you of what you're making,
if you do it once, there's at least a scenario
that you can envision.
Speaker 3 (36:31):
It might not be realistic.
Speaker 2 (36:32):
There's a scenario you can envision where prices go up
once and then don't have to go up again as
a result of that.
Speaker 4 (36:38):
But you do that to producer A, then you do
that to producer by do it to all of them.
Speaker 3 (36:42):
Because oh, I thought you were.
Speaker 4 (36:44):
Saying in sequence.
Speaker 2 (36:45):
If you do it in sequence, if I impose one tariff, yeah,
and if I impose one tariff that goes in Yeah, Okay.
Speaker 3 (36:55):
There's a path. It might not be realistic.
Speaker 2 (36:57):
It may or may not be, but there's a path
where Okay, producers have a one time price increase. They
either choose to pass that through or their margins go down.
Either way, it's something where it affects prices to the
upside once in the aggregation.
Speaker 4 (37:10):
Yeah, that'd be a jump in the price level and
then but you held everything else constant, So I can't
say what people would do in the next period. But yeah,
that would be inflation area. And that's like the best
case because we're you're holding expectations and how the FED
responds constant.
Speaker 3 (37:26):
But if I.
Speaker 2 (37:27):
Start going and saying every three months, okay, I put
a new price increase in place on you know, input
good X, and then one on good Y, and then
one on ZE, then you've got then we have a
threat of persistent inflation from a series of potential one
time price increases. Because it's a repeated game. It's not
(37:48):
just one sample that we're playing. It's happening, it's it's
over and over. It's it's that each one builds on
the previous.
Speaker 4 (37:55):
Right, and this you do have to you eventually bring
it and you're right in prior to the nineteen seventies
the conversation, if you would have stopped there. Post nineteen seventies,
we bring expectations into the dynamics, and that's where it
starts to get interesting in airy.
Speaker 3 (38:07):
Yes, yes, let's take a quick break here.
Speaker 2 (38:09):
We still got more to come in our two right
here on the financial exchange,
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and Mark van Detti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you here and as we
kick things off today, our top story is an announcement
from after the close yesterday where I think it was
around maybe six pm or so that I saw this,
the actual letter sent from President Trump to the Brazilian
(01:32):
president indicating that the Trump administration was going to be
imposing a fifty percent tariff on Brazilian imports effective August first,
this taking a similar form to the other letters. The
key difference here is that if you actually read through
the letter that was sent, most of it doesn't really
(01:56):
have anything to do with trade, but instead has to
do with President Hyer Bolsonaro, who was the president of
Brazil prior to Luna coming into office and currently is
on trialers about to be facing a trial for charges
related to an alleged coup attempt. I'll read a couple
(02:19):
of quotes here from the letter. This trial should not
be taking place. It is a witch hunt that should
end immediately, And so that the Trump administration basically saying, look,
you're putting the former president on trial, who I happen
to like. You need to stop this otherwise I'm going
to impose tariffs The Brazilian President, Lula has responded by
saying any unilateral rate hikes will be responded to using
(02:41):
Brazil's economic reciprocity law. The sovereignty, respect and in transident
defense of the Brazilian people's interests are what guide our
relations with the world. So we're left to try to,
you know, make sense of this and navigate. You know,
what's happening here? Is this going to go into effect?
Speaker 3 (02:58):
Why? Now? Like, what's there?
Speaker 2 (03:00):
There are a few different things going on here, Mark,
I'm interested to get your thoughts before we go further.
Speaker 4 (03:05):
Well, it's it's hard to analyze this through objective economic lens, Chuck,
because we don't know a lot at this point.
Speaker 3 (03:16):
Well, we do know, we know some things.
Speaker 4 (03:18):
Well yeah, okay, so let's let let's let's let's.
Speaker 3 (03:20):
Talk about it from an objective economic lens. Okay.
Speaker 2 (03:23):
The United States has a trade surplus with Brazil, meaning
we export more to Brazil than we import from them.
So we know that this is not about balance of trade.
Speaker 4 (03:36):
Ro I'm sorry, I meant it's economic impact. Yeah, sorry,
go ahead.
Speaker 2 (03:39):
So we know that this is not about balance of trade, yeah,
because if that were the key reason, you would simply
not be imposing any meaningful tariff on Brazil because we
export more to them than they export to US. So
it's it's not that. Is this as the letters suggest
(04:00):
Yusts related specifically to the trial of Bolsnaro.
Speaker 3 (04:06):
Maybe maybe not. I don't know.
Speaker 2 (04:08):
I have some other theories that I'll get into it
as far as where this goes, and so can we
believe that this is actually going to end up going into.
Speaker 4 (04:17):
Okay effect here, Chuck, what I meant to say was
this is so crazy. I don't know what to say.
As you pointed out, we have a surplus with these folks,
not a deficit. This stated purpose of tariffs, at least
under this regime is to remedy deficits as a national
security matter. Alternatively, the stated purpose might be to reshore something.
We only make coffee, as I understand it, in Hawaii
(04:40):
and Puerto Rico, maybe little bits elsewhere, but this is
not a major industry for US, so none of the
traditional justifications for tariffs apply here. This seems to be
this This gets into an area that I'm not really
qualified to comment on, but it does seem, just based
on his letter, to be based totally on his personal
(05:01):
view that a buddy of his should not be prosecuted
by the courts of another country. That seems really odd
to me.
Speaker 2 (05:08):
Which if look, if if someone wants again, I always
find that it's best to try to put myself in
kind of those shoes, just to be like, Okay, how
would I feel about this. Let's say that someone from
pick a random country. Do we do we have like
a random country generator? No, we need like someone not
the UK, because we have like a very special relationship
with the UK. Let's say that it's a country that
(05:30):
we have like normal relations with, but.
Speaker 4 (05:32):
Like, well not anymore. Canada No, No.
Speaker 3 (05:35):
Like Cannon is not.
Speaker 2 (05:36):
They're a neighbor, like they're right there, like pick, like
just a random Picklike Spain.
Speaker 3 (05:41):
Okay, Spain.
Speaker 2 (05:43):
If Spain came to us and I don't even know
who the president of Spain is, I don't even know
if they have a president or a prime minister. And
quite honestly, and they have a king too. Yeah, everyone's
got kings these days, like they're very in fashion. In
any case, Spain comes to us and sends us a
letter in says, hey, you need to change your laws
(06:05):
regarding I don't know, you gotta change your laws regarding
marijuana usage. Otherwise we're going to impose penalties on the
export of goods to Spain.
Speaker 3 (06:18):
We'd look at them and we go bug off. Yeah, no, no,
thank you, Like you're.
Speaker 2 (06:22):
Not getting involved in our internal affairs. And but that's
the right thing to do. Like there's a reason why
nations have sovereignties because they they have the authority to
do so based on you know, whether it's the will
the people or whatever the governing charter of the country is.
So I think that it's not surprising to me that
the Brazilian president is like.
Speaker 3 (06:42):
No, I'm not gonna do this, or you kidding me.
But I think this gets it.
Speaker 2 (06:46):
The question of is the stated reason in the letter
the actual meet here, and this is where I have questions.
And I think the reason that I bring this up
is because if you go to any other countries I
just outlined and say change what you're doing internally, they're
(07:06):
gonna say no, like that's our thing. Like yeah, we
can talk about how we, you know, conduct business outside
our borders, but no, internally, that's that's us.
Speaker 3 (07:13):
You you don't get.
Speaker 2 (07:13):
Involved where I think this is interesting to me is
if you look at the last couple of months. Uh,
there's been a lot of chatter between Brazil and China
about deepening relations. And you also just came off of
(07:34):
this brick summit that happened in Brazil.
Speaker 3 (07:38):
Was it last week? I think it was. Is that wrong?
Am I wrong?
Speaker 2 (07:42):
I think it was last week that that was happening.
And so you've got a number of different things. There's
been you know, talk about Huawei building you know, new
facilities in Brazil. There's Brazil China talking about, you know,
importing more stuff from Brazil. And so I look at
this and I look at it few different things, and
I realized this is kind of, you know, trying to
(08:03):
tie a few disparate things together and make something out
of them. But there's been a lot of chatter about
Brazil and China deepening ties, which I don't think the
Trump administration particularly likes.
Speaker 3 (08:13):
There has been.
Speaker 2 (08:16):
Clearly an emphasis from the Trump administration on trying to
isolate China in these negotiations. I look at the Vietnam
deal from a couple of weeks ago. Is the template
where transhipments are taxed at double the rate on tariffs
as things that are direct from Vietnam. And so I
look at this and say, is this really about China
and just using this as something that is, you know,
(08:38):
front and center to try to put this out here,
just because if there's one thing I think the Trump
administration has learned over the last three months, if they
try to go directly up against China, China's gonna stop
the rare earth exports. And the US can't deal with
that right now. No one in the world can deal
with that right now, because China produces most of the
(08:59):
rare earth materials needed for electric motors and this and
that and and whatever.
Speaker 3 (09:05):
And so I look at.
Speaker 2 (09:05):
This happening on the same day, and here's where I'm
going to probably lose everyone in the process. But did
anyone I'm sure that some of you noticed the first
headline on CNBC MP Materials is a rare earth miner
out of California. They're the only rare earth mine in
(09:26):
the United States. And did you happen to see that
the DoD agreed to a four hundred million dollar investment
in this company with a whole bunch of you know,
basically productive like minimum price levels and minimum buying levels
for the next decade. I look at this and I
think what the Trump administration is trying to do here.
(09:49):
I don't know if they're going to be successful at it,
but I think they are trying to reassess the China strategy,
the China containment strategy that they had, and a lot
of this stuff is coming in kind of different ways,
but I think this is more tied to that and
them trying to go back to the China well and
you know, have a firmer stand than they were able
(10:11):
to take a couple months ago. Maybe now that the
reconciliation packages passed and they have a little bit more
leeway to, you know, do some different things. This is
kind of where I'm at on this, because if it
simply is, hey, we're going to impose a fifty percent
tariff because you're prosecuting someone internally and we don't like that.
I don't know that there's much meat on that bone.
(10:33):
But how does he the dog doesn't hunt?
Speaker 4 (10:34):
How do we win if they I suppose there are
back channel discussions going on, we want them to gradually
decouple or at least back off on, say a couple
of their closer ties arrangements with China. I suppose they
do that, but they can't say it.
Speaker 3 (10:52):
Now.
Speaker 4 (10:52):
This sort of gets into like the Cuban missile crisis negotiation.
It does back channel stuff like we couldn't say what
we gave up, Soviets couldn't say what they gave up.
Everybody kind of save face. Nobody knew what the hell
was going on for ten years. How does either side
win from that other than that we back down and
they back but China is going to recognize that they
did that and pressure them in other ways. I get you, Chuck,
(11:15):
and I respect your attempt to rationalize what is, on
the surface a nutty move, but that seems a little
deep for this for the type of thinking that we've
seen this crew exhibit so far. I hope you're right,
because that makes sense.
Speaker 2 (11:30):
But we'll see again if it actually is just, hey,
we're gonna put this fifty percent, you know, tariff in place.
I think that the Trump administration has to be careful
of a number of different things. The first is just okay,
it's very clear that Trump would prefer Bolsnaro to be
the Brazilian president. Am I wrong on that?
Speaker 4 (11:50):
I guess that's what he said in his lettership going
back to his first term, Like it's they're pretty close
in terms of like how they were during the first term.
He says that about everybody. But yeah, no he doesn't.
He know, I get along so well with him.
Speaker 2 (12:04):
So anyways, I digress into just meaningless nothinglessness. But we
need to like focus on the fact that he would
rather have Boalsnaro there, plain and simple, like he does
not like Lula. He would prefer Baalsonnaro. The question is
does this cause the same kind of backfire that it
did in Canada, where, Hey, the Canadian election looked like
(12:27):
it was heading away from uh, I'm totally forgetting the
guy's name, is it Carney? Yeah, looked like it was
heading away from Karnie. Trump imposes you know, tariffs and
threatens Canada, and Carney comes away and is like, Okay,
I took this thing classic. You wonder if it ends
up causing the same thing in Brazil, where Lula's popularity
has been bad to quite bad over the last you know,
(12:50):
year or so, and you wonder if this ends up
spurring it on and he ends up winning another term
next October when the Brazilian election is So these are
things that I think.
Speaker 3 (12:59):
About as we go through this, just take a quick break.
Speaker 2 (13:02):
When we come back, we'll stop talking about tariffs because
quite honestly can't do it anymore. Let's instead talk a
little bit about the Fed, outs the FED and tariffs.
Speaker 3 (13:10):
Great more tariffs.
Speaker 1 (13:12):
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Speaker 2 (14:13):
All right, so we just talked about the Trump administration
looking to impose a fifty percent tariff on Brazil, which
clearly is not related to trade deficit. But I think
even though they're publicly saying, hey, it's about Balsonaro, I
suspect this is more about China than anything else. We'll
(14:34):
we'll have to see how this ends up playing out
to see, you know what we get there. We then
get to the other announcement from the Trump administration yesterday,
and this was posted on true social I'll read the
post from the President. I'm announcing a fifty percent tariff
on copper, effective August first, twenty twenty five, after robust
national security assessment. Copper is necessary for semiconductors, aircraft ships,
(14:56):
ammunition data centers, lithium ion batteries, radar systems, missile defense systems,
and even high personic weapons, of which we are building many.
Copper is the second most used material by the Department
of Defense. Why did our foolish and sleepy leaders decimate
this important industry. This fifty percent tarif will reverse the
Biden administration's thoughtless behavior and stupidity. America will once again
build a dominant copper industry. This is, after all, our
(15:17):
Golden Age. So the Brazil one I can get to
a place where I'm like, okay, like this makes sense.
The copper one I look at and I go, okay,
this is you know, not really making sense to me.
And the reason why is twofold well threefold.
Speaker 3 (15:34):
Actually.
Speaker 2 (15:35):
The first is, okay, if you think copper is that important,
why are you making it harder and more expensive for
American companies to get copper?
Speaker 3 (15:45):
Is that is that fair? Mark? I think so? Yeah.
The second piece is.
Speaker 2 (15:53):
If it really is something that is, if it's that
critical to national security, then in the first segment we
discussed the Defense Department making this investment in MP what's
the name of it, MP Materials, the rare earth minor
out of California, in order to boost up American production
(16:15):
of rare earths. Well, why are you not taking the
same approach with copper?
Speaker 1 (16:19):
Then?
Speaker 2 (16:20):
Right, If if it's that critical for national security, then
from an industrial policy perspective, something like the MP Materials
deal would make more sense than the tariff side of things.
The third piece, and the reason why this doesn't make
sense is Okay, if it's really important to be able to,
you know, in general, manufacture things in the United States.
(16:42):
By imposing a tariff on copper, you're making it more
expensive to manufacture them in the US relative to other
parts of the world, and so stuff might simply go
and be made elsewhere. If a company building a plant
in the United States, that makes okay, let's say that
they make MYONN batteries. If the cost of copper in
(17:02):
the US is higher than elsewhere, then instead of importing
the copper into the United States in order to make
the batteries, won't you just say I'll make the batteries elsewhere.
Speaker 4 (17:11):
You know, there's one argument for making copper more expensive,
which is it might induce more domestic production and for
national security reasons that might be desirable. So the rationale,
the rationale is not nonsensical. The only problem is he
cites the stupidity of past leaders, past administrations. He was
president for four years. We have data for those four
years during his first term. Now this is not an indictment.
(17:34):
I'm simply pointing out that he's got to explain what
he's going to do differently this time. During his first term,
Industrial production and mining that's copper, nickel, lad and zinc.
So there's other stuff in there. Fell by eleven percent
from the day he took office until immediately before COVID,
so we were mining less. Now there's other stuff besides
copper in there, sure than we were at the end
of his first term before COVID. I'm giving him a
(17:55):
real break here. It'd be like not counting the Great
Recession on George W. Bush. George W. Bush would look
like Ronald Reagan, but we count the Great Recession.
Speaker 3 (18:03):
With Trump, they wouldn't look like Ronald Reagan was handsome.
He was better looking.
Speaker 4 (18:10):
Wow, yes, on so many levels.
Speaker 3 (18:11):
You're right.
Speaker 4 (18:12):
Let's not get started on Reagan's physical attributes because it
would take the whole show. But the point is we
were doing less of it at the beginning at the
end than we were at the beginning. So Trump Trump
may want to ask, what did I do wrong in
my first term and by the way it went up
under Biden? But I'm not going to credit Biden or
blame Trump necessarily for those results. But the data is
telling there are long term structural changes that need to
(18:34):
be made if we want to make more copper here,
and actually maybe pushing up its price and inducing more
people to get into the copper mining business. Here is
a good idea, but you do have to restrict imports
at the same time. And to your point, it would
make it would make the creation of a lot of vital
technologies tougher in the in the short run while we
were adjusting.
Speaker 2 (18:53):
I guess my question is, like I see this MP
Materials deal, which I got to say, like, I think
this is just a brilliant move, Like I think that
this is like the template that I would use for
industrial policy if I were trying to, you know, specifically
focus on making something in the United States. And so
I see the Trump administration, I'm literally the same day
(19:15):
being like, hey, here's this great policy that we unveiled
for rare earths. And then I see the copper one,
and I'm like, so, what gives. Let's take a quick
break here. When we come back, we got Wall Street
Watch after this.
Speaker 1 (19:41):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall
Street Watch a complete look at what's moving markets so
far today right here on the Financial Exchange Radio Work well.
Speaker 5 (20:01):
Now the day of tariff news for Wall Street after
President Trump announced today fifty percent tariff on Brazilian goods
and also said the fifty percent tariff on imported copper
will take effect on August first. Right now, Dow is
up by three tenths of one percent or one hundred
and twenty five points, SMP five hundred completely flat, and
(20:21):
the Nasdaq is off by about four tenths of one
percent or seventy nine points. Rusted two thousands off by
two tenths of one percent. Ten year Treasure reeled up
by two basis points now at four point three six percent,
and crude oil is down over one and a half
percent lower today training at sixty seven dollars and twenty
four cents SA Beryl. Big news in packaged foods this
(20:45):
morning after the Italian candy maker behind Ferrero agreed to
buy cereal giant w K Kellogg for about three point
one billion dollars. W K Kellogg is best known for
making childhood staples, including fruit loops and frosted flakes. Wk
Kellogg's shares are surging thirty percent on that news. Meanwhile,
the Defense Department will become the largest shareholder in Rare
(21:08):
Earth minor MP Materials after agreeing to buy four hundred
million dollars of its preferred stock MP Materials, jumping over
fifty percent on that Delta Airlines reported earnings ahead of
the opening bell that beat analysts expectations, where its quarterly
profit was up sixty three percent from a year ago.
Delta also reinstated is twenty twenty five profit outlook. Delta
(21:32):
up by thirteen percent on its earnings, while other airlines
are seeing gains as well, including United Airlines up over
eleven percent. AMD climbing over three percent after the chip
maker was upgraded to a buy at HSBC, where it's
higher than expected pricing for its new AI chip could
add significant upside to revenue and shares in ConAgra Brands
(21:53):
down by three percent after the maker of Slimgym and
Swiss Miss Hot chocolate posted disappointing quarterly results and an
annual outlook that missed expectations. I'm Tucker Silva and that
is Wolstrey watch Mark.
Speaker 2 (22:08):
We had a piece in the Bloomy Berg. It's titled
fresh Tariff games are leaving small businesses dazed and.
Speaker 3 (22:15):
This gets it.
Speaker 2 (22:16):
Something we've talked about the last couple of days, which
is a lot of businesses have spent, you know, the
last few months that a lot of businesses that you know,
import goods have spent the last few months trying to
figure out, Okay, what's my plan because I don't want
to be dealing with these you know, high China tariffs.
Speaker 3 (22:32):
And they may have.
Speaker 2 (22:32):
Come up with a plan to import from Vietnam or Malaysia,
Thailand instead, wherever it might be. And then this week
they get hit with the idea that, okay, we might
be facing higher tariffs on those countries in the next
few weeks. And again the market has done a pretty
good job of just shrugging this off. By the way,
I mean, you look at the S and P five
(22:53):
hundred this week and what it's done, and effectively the
S and P five hundred is flat this week, like
hasn't really moved, went down on Monday, down a bit
on Tuesday, up yesterday, and it's basically flat this week.
Speaker 3 (23:07):
And so I guess.
Speaker 2 (23:09):
The question is, you know, to this point, if we're
talking about both the market and the economy, and those
are two distinct things, obviously, the market you can make
the case, look gets rallied back to not back to,
but beyond an into new all time highs because the
(23:31):
worst tariffs were taking off the table in each situation,
and the impact from the ones that are in place
currently has been I would say minimal to this point.
I don't think we've seen like no impact, but the
impact has been minimal to this point, and so markets
have been able to carry on.
Speaker 3 (23:50):
Is that a fair statement on equity?
Speaker 4 (23:52):
Mind, I don't know if they're taking Yeah, they don't
seem to be taking the taf threat seriously.
Speaker 2 (23:57):
With the real economy. I think by and large, what
we have seen to this point is no evidence the
tariffs have caused any inflation yet. But it's probably too
early to definitively say that.
Speaker 4 (24:10):
Unless inflation would have been lower without them.
Speaker 2 (24:12):
But yeah, possible, But we still need I think, another
you know, six months or so to be able to
get the full look at this, just because we really
only have you know, a few weeks where tariff goods
might have actually made it to store shelves. So I
think that it's too early to tell on the inflation side,
but hey, there hasn't been anything that's shown up there
yet on the employment side. The overall job's growth numbers
(24:38):
have been slowing, but still fine and probably fine just
because there are signs that the overall labor force is
not growing at the same pace that it was growing
at previously. We are seeing small businesses struggling in terms
of hiring. There are a number of different data sources
out there, whether you look at indeed, paychecks, ADP, basically
(25:01):
all of them are telling you. All of the major
payroll companies or you know, job listing companies are telling you, hey,
small businesses is they are hurting right now and not
hiring the way that you like to see in a
healthy economy. And I think by and large it's probably
because they just feel like they're being yanked all over
the place and they don't have the financial resources to
(25:24):
just spend their way out of it the way big
companies like Walmart and Amazon do.
Speaker 3 (25:28):
Your thoughts as too.
Speaker 4 (25:31):
We are seeing some import inflation. It hasn't passed through
to CPI yet, so I just I want to make
that point and how these tariffs affect inflation will depend
in part on how the FED responds. If the FED
does nothing, if it leaves the money supply growth rate
as it was before the tariffs. There'll be less money
(25:51):
to spend on other things because people are spending more
on tariffs. That will slow economic growth and at the
same time increase inflation. That's why economists call things like
tariff or for that matter, oil price increases, they call
them supply shocks. They move output down and prices up.
So I would expect, as you said, we would expect
to see some effect on the trend in inflation at
(26:13):
some point, though it hasn't trickled into CPI yet. As
to the larger picture, again, some of that depends on
how the Fed responds. Will they act to maintain overall demand,
so called aggregate demand. If so, that requires an increase
in the supply of money that could also be inflationary.
So I just I don't really know how this is
(26:36):
going to play out because policy is changing, and how
the FED reacts to this depends on the changing weights
they apply to keeping inflation stable versus keeping output growing.
Speaker 2 (26:50):
And I think my view of the current danger and
again I don't know what's going to happen. Again, we
haven't seen anything like this from a terror perspective in
one hundred years, so I have an open mind to
the idea that hey, like, we don't entirely know how
this is going to play out. It could play out
differently because the world is very different from the last
(27:10):
time we saw this, and so I acknowledge the possibility that, look,
we could be sitting here a year from now and say, yeah,
it didn't play out the way most people thought and
things went differently. But the risk that we do have
here is the Trump administration I think has looked at
the last three months and said, hey, we imposed you know,
Tariff's X, Y and Z, and everything's still clicking.
Speaker 3 (27:33):
Let's go impose some more because really like it.
Speaker 2 (27:36):
I think they really wanted to do more in April,
they just had to back off because everything started kind
of falling apart. But the risk is that because of
that delayed impact, things may be worsening under the surface,
or might worsen in the coming months, and they're throwing
more onto that.
Speaker 3 (27:53):
And when you if you go.
Speaker 2 (27:54):
To undo it, then the businesses that you've already heard
the capital has already been spent somewhere, they have already
been laid off. You don't just pop back to where
you were. From a real economy perspective, the same way
the market can bounce back in two months.
Speaker 4 (28:07):
Yeah, I don't take much comfort in the fact that
tariffs don't appear to have been a major drag on
the economy in twenty eighteen, twenty nineteen. The economy was
expanding robustly. It was expanding robustly before the tariffs were implemented.
So if there was a dragon, by the way, there was.
It's estimated they cost consumers several billion dollars a month,
(28:29):
and that they cost, believe it or not, over seventy
jobs for every job they created. I'm talking about in
particular the steel and other manufacturing tariffs imposed at that time.
But like tariffs imposed by say George W. Bush and
even Ronald Reagan, they hit at a favorable time. Their
effects were masked by the overall a vigorous state of
(28:53):
economic growth. So we got a little lucky. These tariffs
are broader, and they might be hitting when the economy
was naturally slowing anyway.
Speaker 3 (29:02):
So I think there's still just a lot to navigate here.
Speaker 2 (29:05):
And the concern that I have is, hey, because the
market has bounced back so quickly, does that potentially put
us in a position where we're now throwing more at
the real economy that it can handle, right as you
know that the tariffs from the spring are starting to
take effect.
Speaker 3 (29:21):
Maybe I don't know.
Speaker 2 (29:22):
I I I often find that we tend to get
a little bit too confident that you know, things are
going to play out any certain way. And so while
I do think that we haven't necessarily seen the worst
of you know, how this is going to play out
in the in the broad economy, I acknowledge that I
could be wrong, Like, who knows how this is? Like
we could sit here a year from now and unemployment
(29:45):
is still in you know, the load to mid fours,
and inflation hasn't gone you know, north of three one
three two, and we're sitting here going.
Speaker 3 (29:54):
Okay, like that was it.
Speaker 2 (29:56):
There's also a path where you sit here, you're like, okay,
you know, unemployments up to six percent, in inflations running
at four and gosh, this really isn't very good.
Speaker 3 (30:05):
I could see that as a path too.
Speaker 2 (30:06):
But I try to just acknowledge the different paths, because
this is how you have to look at these things,
as far as what could or could not happen. Anytime
that you're going into something new that you haven't seen before.
In markets or in the economy. Let's take a quick
break here, and when we return, we'll talk a little
bit about the FED and how they see the terif
(30:28):
inflation risk.
Speaker 1 (30:29):
Right now, find daily interviews and full shows of the
Financial Exchange on our YouTube page. Like us on YouTube
and get caught up on anything and everything you might
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Has to play the Financial Exchange and catch up on
(30:49):
anything you might have missed. This is the Financial Exchange
Radio Network.
Speaker 2 (31:02):
Federal Reserve put out there meeting minutes from their June
meeting yesterday, and I'll quote you from the Financial Times.
The majority of US Federal Reserve officials warrant it its
June meeting that President Donald Trumps tarfs would have persistent
effects on inflation amid a growing schism over when.
Speaker 3 (31:17):
To cut interest rates. So I'll quote one more piece.
Speaker 2 (31:21):
Actually, while a few participants noted the tariffs would lead
to a one time increase in prices, it would not
affect longer term inflation expectations, most noted that the risk
that tariffs could have more persistent effects on inflation. So
a couple things on this. The first is, okay, this
is why the Fed isn't moving yet. It is because
they're nervous about where inflation could go in the second half.
Speaker 3 (31:42):
Of the year.
Speaker 2 (31:43):
The other piece that I'll add is you could mark
is it fair to say, like, all else being equal,
which I know we can never do, but all else
being equal, if you had an immediate, you know, ten
percent jump in import prices and that was it, could
you at least make a plausible case for that being
a one time price increase and nothing more.
Speaker 4 (32:05):
That depends on what happens to expectations. Expect you can't
hold expectations in the federal I'm going.
Speaker 2 (32:12):
To because it's my theoretical conversation. If you held them stable.
Speaker 4 (32:19):
And then what what was your could what happened? If
could was brain dead?
Speaker 3 (32:23):
Would happened? Yes?
Speaker 2 (32:24):
Could you see a one Could you make the case
that it's a one time increase in inflation?
Speaker 4 (32:32):
Well, I think the parameters you set, that's the only
potential result.
Speaker 3 (32:38):
That's all I'm saying. But like, but that would be
the case.
Speaker 4 (32:41):
If that happened, it would have to be because of
the constraints you put on the question yes, yes, Now
is that begging the answer?
Speaker 3 (32:51):
Yes? But I'm just trying to envision, like, is there
a world in which that could happen? And we found one.
Speaker 2 (32:57):
I'm not saying, Mark, whatever is that in. I'm not
saying it's realistic. Just like, let's just talk. We're doing
a radio show.
Speaker 3 (33:05):
Okay, I God, sorry, Chuck, I can't in this discussion
from there.
Speaker 4 (33:10):
Those assumptions are preposterous.
Speaker 3 (33:13):
Here's the next piece though.
Speaker 2 (33:15):
If you have one set of tariffs that goes into
effect in April, and then additional ones that keep coming
into effect down the road, even holding expectations stable, it
becomes impossible for it to be a one time effect.
Speaker 4 (33:31):
Correct once again, by it follows from the constraints.
Speaker 2 (33:36):
Well, I'm just creating different worlds like this is what
I'm just get Am I wrong on this?
Speaker 3 (33:43):
If you keep adding new tariffs over time? Would inflation
be stable?
Speaker 4 (33:47):
Well? I know what's happened. Probably the prices aren't changing somehow. Okay.
I have a hard time getting my head around these assumptions.
I can't process them. I think you want me to
say yes, so maybe I should.
Speaker 2 (34:00):
If you keep adding more Yes, if I kept adding
to your production cost.
Speaker 3 (34:05):
What would happen.
Speaker 2 (34:07):
You'd either start losing money or your prices would go up. Correct,
That's what I'm saying.
Speaker 4 (34:12):
Yeah, okay, so yeah close.
Speaker 2 (34:17):
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Speaker 1 (35:08):
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Speaker 2 (35:24):
Mark, do we want to talk about companies laying people off?
Or do we want to talk about delta and their right?
Speaker 4 (35:30):
I can we go back to the hypothetical, because actually, okay,
so there's a and I wasn't getting your point. Even
if expectations don't go best of all possible worlds, people
are willing to look past the tariffs. If there are
only two producers, is me and you making stuff in
the economy, and maybe Tucker's the customer. If my prices
go up, you do nothing. Inflation goes up, is your point?
(35:54):
Even if nothing else changes because your prices maybe don't fall,
maybe you don't recognize that my prices went up, or
you just don't feel like changing yours. The average price
in the economy in that scenario goes up. And that's
what inflation is. It's the average price in the economy.
Said differently, if other prices are sticky and one person's
prices go up, the average price goes up. That's inflation. Yeah,
(36:17):
I mean I think that's the point I was missing.
Speaker 2 (36:19):
Yeah, Well, I was just effectively saying, look, if I
raise the input cost to you of what you're making,
if you do it once, there's at least a scenario
that you can envision.
Speaker 3 (36:31):
It might not be realistic.
Speaker 2 (36:32):
There's a scenario you can envision where prices go up
once and then don't have to go up again as
a result of that.
Speaker 4 (36:38):
But you do that to producer A, then you do
that to producer by do it to all of them.
Speaker 3 (36:42):
Because oh, I thought you were.
Speaker 4 (36:44):
Saying in sequence.
Speaker 2 (36:45):
If you do it in sequence, if I impose one tariff, yeah,
and if I impose one tariff that goes in Yeah, Okay.
Speaker 3 (36:55):
There's a path. It might not be realistic.
Speaker 2 (36:57):
It may or may not be, but there's a path
where Okay, producers have a one time price increase. They
either choose to pass that through or their margins go down.
Either way, it's something where it affects prices to the
upside once in the aggregation.
Speaker 4 (37:10):
Yeah, that'd be a jump in the price level and
then but you held everything else constant, So I can't
say what people would do in the next period. But yeah,
that would be inflation area. And that's like the best
case because we're you're holding expectations and how the FED
responds constant.
Speaker 3 (37:26):
But if I.
Speaker 2 (37:27):
Start going and saying every three months, okay, I put
a new price increase in place on you know, input
good X, and then one on good Y, and then
one on ZE, then you've got then we have a
threat of persistent inflation from a series of potential one
time price increases. Because it's a repeated game. It's not
(37:48):
just one sample that we're playing. It's happening, it's it's
over and over. It's it's that each one builds on
the previous.
Speaker 4 (37:55):
Right, and this you do have to you eventually bring
it and you're right in prior to the nineteen seventies
the conversation, if you would have stopped there. Post nineteen seventies,
we bring expectations into the dynamics, and that's where it
starts to get interesting in airy.
Speaker 3 (38:07):
Yes, yes, let's take a quick break here.
Speaker 2 (38:09):
We still got more to come in our two right
here on the financial exchange,
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