WEBVTT - Philip Morris Bets The Company's Future On Vaping Products 0:00:02.600 --> 0:00:05.320 Welcome to the Bloomberg pien L podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.440 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.919 at Bloomberg dot com. Well, tobacco companies around the world 0:00:22.000 --> 0:00:25.400 have been dealing with declining smoking rates for years. As 0:00:25.440 --> 0:00:28.240 a result, many of the companies are undergoing a transformation 0:00:28.320 --> 0:00:32.680 from traditional cigarettes to less harmful alternatives like vaping and 0:00:32.760 --> 0:00:34.640 heated tobacco. To help us kind of get up to 0:00:34.640 --> 0:00:37.080 speed on what's happening in the tobacco business, we welcome 0:00:37.320 --> 0:00:40.760 Yasik al Sak. Yasik is, the chief operating officer for 0:00:40.800 --> 0:00:43.880 Philip Morris Internationally, joins us on the phone. Yasick, thanks 0:00:43.880 --> 0:00:45.800 so much for joining us. I wondering if you could 0:00:45.800 --> 0:00:48.479 just give us a sense for what Philip Mars inter 0:00:48.560 --> 0:00:51.400 National's trying to do here to kind of make that 0:00:51.479 --> 0:00:55.480 transition from complete reliance on cigarettes to vaping and heated 0:00:55.480 --> 0:01:00.240 tobacco and other products Hi, thank you for having me. Look, 0:01:00.320 --> 0:01:03.440 I mean we started years ago with you know, once 0:01:03.480 --> 0:01:06.480 we developed the product, you know, developed the science around 0:01:06.480 --> 0:01:09.080 the product to substantiate and be sure really that the 0:01:09.120 --> 0:01:11.920 product is a better alternative for you know, those who 0:01:12.040 --> 0:01:16.040 don't don't quit. We'll answer so far in a forty 0:01:16.040 --> 0:01:18.920 eight market. So this is I think the best testimony 0:01:19.000 --> 0:01:23.320 how serious we are about essentially one day stopped selling 0:01:23.360 --> 0:01:26.080 a compastible product and I go to the smoke class 0:01:26.120 --> 0:01:30.880 of noncompastible alternatives. Forty eight markets. Markets are in. This 0:01:31.040 --> 0:01:35.760 market is well about a five percent now and continue 0:01:35.800 --> 0:01:39.839 and and and and it's growing. Um, we allocated most 0:01:39.880 --> 0:01:42.560 of our resources, more more than a sixty percent of 0:01:42.560 --> 0:01:46.000 our resources and now for the alternative product. And I 0:01:46.040 --> 0:01:49.040 think we'll make this very wise decision. And I am 0:01:49.160 --> 0:01:51.840 very proud for you know, this company, the boards that 0:01:52.040 --> 0:01:55.000 we could stood up and say, look, there is a problem. 0:01:55.120 --> 0:01:58.200 Let's solve the problem. That offer those who you know, 0:01:58.320 --> 0:02:01.920 don't switch, don't quit, sorry, offer a better alternatives. And 0:02:01.920 --> 0:02:05.160 we're very committed one day to you know, have Philip Morris, 0:02:05.240 --> 0:02:07.600 who will be just remembered that you know, this was 0:02:07.640 --> 0:02:11.080 the company in the past Coal used to sell compostible cigarettes. 0:02:11.120 --> 0:02:13.440 I think it's for the benefit of a billion people 0:02:13.560 --> 0:02:16.839 and and many other smokers and many other people even 0:02:16.919 --> 0:02:18.920 get around them. So we are very excited about this 0:02:19.000 --> 0:02:22.720 whole of thing and we will not stop. Yes, like, 0:02:22.919 --> 0:02:27.480 how conclusive have your studies been about the degree to 0:02:27.480 --> 0:02:31.960 which these heat not burn products are safer or less 0:02:32.000 --> 0:02:38.359 cancerous than than smoked cigarettes. Look, it's very much ultimately 0:02:38.440 --> 0:02:43.639 to the to the authorities or organizations like f d 0:02:43.760 --> 0:02:45.720 A in a case of a US to to make 0:02:45.760 --> 0:02:49.240 the final assessment. If you would ask my scientists, we 0:02:49.360 --> 0:02:52.520 are we are very very sure that this products are 0:02:52.639 --> 0:02:55.280 better alternative as safe for product than a than a 0:02:55.280 --> 0:02:57.880 compastible cigarette, but to a degree that would actually have 0:02:58.480 --> 0:03:01.639 it doesn't mean does meaning allow mean it doesn't mean 0:03:01.680 --> 0:03:04.800 that the product is safe. Okay, the product is safer. 0:03:04.880 --> 0:03:07.680 I mean so today, based on this knowledge, we know 0:03:07.880 --> 0:03:10.400 that if you want to continue smoking, this is not 0:03:10.480 --> 0:03:13.040 a great idea, you should diver quit. If you can't quit, 0:03:13.160 --> 0:03:15.639 going a switch to this product, you have a very 0:03:15.680 --> 0:03:20.920 significant reductions in exposure to the most harmful toxicons in 0:03:20.960 --> 0:03:24.720 the smoke because we eliminated combustion, et cetera. Obviously, smoker 0:03:25.200 --> 0:03:28.840 while switching to this product to reduce the significantly the 0:03:29.000 --> 0:03:32.880 exposures so one would expect, and some of our our 0:03:32.960 --> 0:03:37.080 studies actually concluded that as much as you can obviously 0:03:37.080 --> 0:03:40.080 conclude based on a clinical status that this has a 0:03:40.120 --> 0:03:45.240 positive impact very similar in many occasions to to to 0:03:45.240 --> 0:03:49.480 to the same things as you would quit smoking. But 0:03:49.560 --> 0:03:51.560 as I said, it is up to the regulators of 0:03:51.760 --> 0:03:56.800 d A issued very recently our PMT A authorization order, 0:03:57.280 --> 0:04:00.880 were awaiting every d A decisions with regards to the 0:04:00.920 --> 0:04:07.800 modified risk application, and I'm very helpful, I'm very hopeful 0:04:07.920 --> 0:04:10.840 that you know, so they will to reach that conclusion. 0:04:11.160 --> 0:04:14.560 So so yes, so generally, just clearly clarify a little 0:04:14.600 --> 0:04:18.000 bit for me, just what has the FDA ruled about 0:04:18.040 --> 0:04:21.120 your products to date and what else are you awaiting 0:04:21.160 --> 0:04:25.960 from them. The authorized US to the start commercialization of 0:04:26.080 --> 0:04:31.160 hicles the product on the US in the US based 0:04:31.279 --> 0:04:37.160 on the assessment that from the public health per perspective, 0:04:37.360 --> 0:04:39.479 this is a right thing to have that product in 0:04:39.520 --> 0:04:41.960 the market, which means that the product has to prove 0:04:42.120 --> 0:04:48.680 that not only obviously worse than all is not worse 0:04:48.720 --> 0:04:51.280 than a cigarette, but the product and this is in 0:04:51.320 --> 0:04:56.000 a statement coming from DA significantly reduced the human potential 0:04:56.120 --> 0:04:59.520 human exposure to a number of the very harmful constituents 0:04:59.560 --> 0:05:04.560 include think the carcinogens. This is not conclusive from every 0:05:04.640 --> 0:05:08.800 d A at this stage over the product. The usage 0:05:08.800 --> 0:05:11.799 of this product will reduce that risk. That's the subject 0:05:11.839 --> 0:05:14.800 of the second applications which is now pending with every 0:05:14.880 --> 0:05:17.120 d A. But as the first step, I think a 0:05:17.720 --> 0:05:21.799 statement from EVERYDA were very clear it is better, frankly speaking, 0:05:21.800 --> 0:05:26.120 for smokers if they don't quit to switch to this product. Yes, yes, 0:05:26.440 --> 0:05:28.080 I want to shop gears a little bit. Because you're 0:05:28.080 --> 0:05:32.159 talking about diversifying away from just cigarettes that are traditional 0:05:32.320 --> 0:05:35.359 in the way that they're smoked. What about the cannabis industry. 0:05:35.400 --> 0:05:38.320 Do you foresee a time when that will provide a 0:05:38.360 --> 0:05:45.080 significant portion of Philip Morris revenues? Definitely not that the stage. 0:05:45.120 --> 0:05:51.080 Our focus is entirely on eliminating the combustion from the 0:05:51.120 --> 0:05:54.800 from the tobacco, and I think if we really want 0:05:54.800 --> 0:05:57.840 to be successful in a in a shorter period of time, 0:05:58.600 --> 0:06:01.640 I'd rather have our company being focused just on the 0:06:01.680 --> 0:06:05.120 tobacco and the problem of smoking and the cigarettes, etcetera. 0:06:05.120 --> 0:06:07.440 I think any diversion at this moment of time, which 0:06:07.480 --> 0:06:12.680 is elude our resources. Having said so, while developing these products, 0:06:12.680 --> 0:06:17.640 we have developed a tremendous scientific and technological capability at 0:06:17.640 --> 0:06:21.360 Philip Moore's International. And as we know, many other products 0:06:21.360 --> 0:06:24.479 are also being used for the combustion, etcetera. And you know, 0:06:24.560 --> 0:06:27.080 based on our knowledge, this is not necessarily the best 0:06:27.120 --> 0:06:30.480 thing one could do. But as I said, from a company, 0:06:30.520 --> 0:06:34.520 from a corporate perspective, from the corporate objective perspective, for us, 0:06:34.800 --> 0:06:38.040 we just focus on solving that problem first and you know, 0:06:38.200 --> 0:06:40.920 then we'll see what the future will will bring up. Yes, 0:06:41.040 --> 0:06:43.000 like ol Sack, thank you so much for being with us. 0:06:43.240 --> 0:06:47.000 Yessa Ozaki is chief operating officer at Philip Morris International, 0:06:47.080 --> 0:06:50.520 joining us by phone. Interesting to see how they are 0:06:50.560 --> 0:06:54.640 shifting gears to try to increase, uh, the proportion of 0:06:54.680 --> 0:06:58.240 their business that is the heat not burn a product, 0:06:58.360 --> 0:07:02.080 the vaping products, and Bloomberg Intelligence estimates that about five 0:07:02.080 --> 0:07:05.120 percent of the revenues and eighteen came from these products. Uh. 0:07:05.279 --> 0:07:09.159 The goal is by so just to give you a 0:07:09.160 --> 0:07:11.040 sense of how much they're hoping to ramp it up, 0:07:13.840 --> 0:07:16.720 we've been talking about jobs all morning. After that disappointing 0:07:16.840 --> 0:07:20.760 us Payrolls report, it was below all the estimates, including 0:07:20.760 --> 0:07:24.200 the lowest, with both the headline number coming in weaker 0:07:24.240 --> 0:07:26.760 than expected as well as wage gains. Here to look 0:07:26.840 --> 0:07:29.840 under the hood of the US jobs market is Tom Gimble, 0:07:30.160 --> 0:07:34.000 founder and chief executive officer of LaSalle Network based in Chicago, 0:07:34.040 --> 0:07:37.320 but joining us here in our Bloomberg Interactive Broker Studios. Tom, 0:07:37.360 --> 0:07:40.080 You've been very bullish on this bond, on this job's 0:07:40.120 --> 0:07:43.680 market for a while, and I'm wondering, does this job's 0:07:43.680 --> 0:07:46.440 report some of the other data we've seen make you 0:07:46.520 --> 0:07:49.280 change your view? You ready for this? I'm ready. It's 0:07:49.320 --> 0:07:54.480 not a bad report today, Okay, later, grow down. If 0:07:54.480 --> 0:07:56.440 it's not a quarter of a million jobs every month. 0:07:56.520 --> 0:08:00.960 People are unhappy. We added seventy jobs, unemployment stayed flat. 0:08:01.200 --> 0:08:02.960 We've been going for what a hundred months in a 0:08:03.040 --> 0:08:06.480 row of job creation, and it's not and it's not. 0:08:07.640 --> 0:08:10.440 This is actually the argument, right, This is full employment, right, 0:08:10.840 --> 0:08:14.680 this is what happens. But but then my question is, 0:08:14.840 --> 0:08:17.320 if this is full employment, why are we not seeing 0:08:17.320 --> 0:08:20.480 wages increase at a faster pace. Because it's a global 0:08:20.480 --> 0:08:22.800 economy and we're not competing against the guy down the street. 0:08:22.800 --> 0:08:26.440 We're competing against people in China and India and Mexico 0:08:26.640 --> 0:08:28.760 and all tear. I would say that before the tariff 0:08:28.800 --> 0:08:32.520 conversation that when jobs can be done. Thirty years ago 0:08:32.559 --> 0:08:36.000 it was a call center for minimum wage being shifted overseas. 0:08:36.040 --> 0:08:39.839 Today it's legal work, accounting work, i T work, high 0:08:39.840 --> 0:08:43.079 salary jobs being shifted overseas. If you can have somebody 0:08:43.080 --> 0:08:46.000 who's got a PhD in a master's degree doing i 0:08:46.160 --> 0:08:51.600 T work or accounting work for of the cost, people say, oh, 0:08:51.800 --> 0:08:55.280 that's not being patriotic. That's the exact same thing as 0:08:55.280 --> 0:08:57.440 saying you don't hire you hire a freelancer to paint 0:08:57.440 --> 0:08:59.840 your house because you say fifty, Why don't you support 0:08:59.880 --> 0:09:02.120 the economy and give it to the person who's employing 0:09:02.160 --> 0:09:04.520 thirty people as a painting company. So what do you 0:09:04.559 --> 0:09:07.800 think the new kind of normal is in terms of 0:09:07.880 --> 0:09:10.400 job creation given where we are in a cycle, And 0:09:10.679 --> 0:09:12.680 you know it is because I guess the three months 0:09:12.800 --> 0:09:15.920 run right is still a hundred fifty jobs. But job 0:09:16.000 --> 0:09:19.240 creation is supply and demand right, So so demand is high, 0:09:19.320 --> 0:09:21.880 supply is low, and you can get what you can get. 0:09:21.920 --> 0:09:24.560 So you'd say, why isn't wages going up? If that's 0:09:24.559 --> 0:09:26.880 the case. They are going up a little bit. But 0:09:27.320 --> 0:09:29.800 we're in a situation also that there isn't a new 0:09:29.880 --> 0:09:32.600 skill set that's being created. This isn't the mid two 0:09:32.679 --> 0:09:36.160 thousands when no one understood e commerce, no one understood 0:09:36.240 --> 0:09:40.160 data analytics. We're a more sophisticated employer market than we've 0:09:40.160 --> 0:09:43.719 ever been before, and so things have just stabilized from 0:09:43.720 --> 0:09:47.040 a standpoint of Companies aren't throwing crazy money out there anymore. 0:09:47.240 --> 0:09:50.800 They understand how to drive revenues and profits ability, profitability, 0:09:51.000 --> 0:09:55.800 and the biggest thing is the economy. It's interesting, it's 0:09:55.840 --> 0:09:58.120 I don't believe it's as tied to the stock market 0:09:58.160 --> 0:09:59.839 as it used to be. And when I say used 0:09:59.840 --> 0:10:01.920 to be maybe a year or two years ago, where 0:10:01.920 --> 0:10:04.480 the volatility on the stock market used to drive the 0:10:04.559 --> 0:10:06.640 job numbers a little bit. The c suite would get 0:10:06.679 --> 0:10:08.959 a little bit nervous if there was vat Now the 0:10:08.960 --> 0:10:11.760 stock market volatility is the same way of global volatility 0:10:11.760 --> 0:10:14.720 with Trump. Okay, well, it's put us putting aside stock 0:10:14.760 --> 0:10:17.360 market volatility. There's been a lot of volatility and discussions 0:10:17.400 --> 0:10:20.120 about trade. Uh. There was a great story on Bloomberg 0:10:20.160 --> 0:10:23.160 dot com this morning talking about how CEO s. Even 0:10:23.200 --> 0:10:26.000 though they don't necessarily think that some of the worst 0:10:26.040 --> 0:10:28.559 case scenarios with the trade wars will come to pass, 0:10:28.960 --> 0:10:30.960 they have to start preparing for that. So, given the 0:10:31.000 --> 0:10:34.199 fact that you're talking with chief executive officers about their 0:10:34.240 --> 0:10:37.240 hiring plans, are they pulling back some of their plans 0:10:37.280 --> 0:10:40.760 because of this uncertainty? No? Not not as of now. 0:10:40.800 --> 0:10:43.400 I mean, the Mexico thing is so new, right, I 0:10:43.400 --> 0:10:46.280 mean that was the window on that was was was 0:10:46.360 --> 0:10:50.480 so short. But with with China, there's a short term 0:10:50.520 --> 0:10:53.160 and there's a long term view, and a lot of companies, 0:10:53.240 --> 0:10:56.560 especially small to mid sized companies that have always been 0:10:56.640 --> 0:11:00.200 the job hotbed for where where jobs are creating in 0:11:00.240 --> 0:11:02.960 this country, they do realize that there may be a 0:11:02.960 --> 0:11:06.520 short term six to twelve months of a dip. But 0:11:06.600 --> 0:11:09.040 the whole goal of doing it is you either drive 0:11:09.120 --> 0:11:12.720 costs down because of the tariffs that that China will renegotiate, 0:11:12.880 --> 0:11:15.920 or manufacturer will come back here and their businesses will 0:11:15.960 --> 0:11:18.520 increase eventually. That is the point. No one talks about 0:11:18.559 --> 0:11:20.320 it a lot. But if the price is even out, 0:11:20.400 --> 0:11:24.680 if salaries overseas rise and the price to import, where 0:11:24.679 --> 0:11:27.079 are you gonna do it? You're gonna build it in America. 0:11:27.360 --> 0:11:29.480 It's a long term play, but that is the goal. 0:11:29.640 --> 0:11:32.200 Are you Are you seeing any signs? I mean, as 0:11:32.240 --> 0:11:34.160 you talk to I guess some companies that you know, 0:11:34.200 --> 0:11:36.440 you guys are one of the biggest recruiters and staffers 0:11:36.520 --> 0:11:39.920 around all right, our companies actually thinking that? Are they 0:11:40.000 --> 0:11:42.080 investing in for that? Are they just saying, listen, let's 0:11:42.080 --> 0:11:44.200 see how this plays out over the next you know, 0:11:44.280 --> 0:11:46.800 could be a year two. The biggest difference between now 0:11:47.000 --> 0:11:50.160 and the bull market of the mid two thousands is 0:11:50.280 --> 0:11:53.320 it's not mass hiring, right that you don't see people 0:11:53.360 --> 0:11:55.880 going out and signing a lease for another hundred thousand 0:11:55.960 --> 0:11:59.320 square feet and hiring two people. But you do see 0:11:59.400 --> 0:12:03.319 consistent hiring. You see companies back filling attrition, and that 0:12:03.679 --> 0:12:06.120 where you're gonna start seeing things towards the latter half 0:12:06.120 --> 0:12:08.800 of the year. I feel in in wage growth to 0:12:08.840 --> 0:12:12.400 an extent is companies are now giving money to their 0:12:12.400 --> 0:12:14.959 employees in advance of them having to leave and get 0:12:14.960 --> 0:12:18.320 a counter offer. It's a really interesting phenomenon. They're giving 0:12:18.360 --> 0:12:22.240 salary increases ahead of schedule so people won't go look 0:12:22.240 --> 0:12:27.160 and leave in what areas of work, maybe not in broadcasting. 0:12:27.160 --> 0:12:32.280 With the look you just give me, I will say that. No. 0:12:32.400 --> 0:12:34.160 The reason why I say that is because if that's 0:12:34.160 --> 0:12:36.200 the case again, it goes back to why we're not 0:12:36.240 --> 0:12:38.760 seeing it in the average numbers. Well, the average numbers 0:12:38.760 --> 0:12:41.480 are skewed two across the board with service workers and 0:12:41.480 --> 0:12:43.640 different things. We've also see you see that the boost 0:12:43.960 --> 0:12:46.800 minimum wage has a boost when they do that municipalities 0:12:46.840 --> 0:12:49.360 and there's those issues. So I mean, sometimes the numbers 0:12:49.360 --> 0:12:51.200 are the numbers, and you guys have economists on here 0:12:51.240 --> 0:12:53.240 all the day. They're the ones to tell you why, 0:12:53.280 --> 0:12:55.800 how the numbers can be manipulated. I'm telling you that 0:12:55.840 --> 0:12:58.080 companies are hiring. It's a great job market if you 0:12:58.080 --> 0:13:00.840 have the skills, and they're really other interesting fact is 0:13:01.120 --> 0:13:03.800 employees aren't leaving to get more money elsewhere at other 0:13:03.800 --> 0:13:05.679 companies because they don't want to be the lowman on 0:13:05.720 --> 0:13:09.040 the totem pole, because they're afraid, just like you're saying, 0:13:09.080 --> 0:13:11.360 you think companies are afraid. So it's a really interesting 0:13:11.400 --> 0:13:15.480 sociological dynamic and business. Tom gimble thanks so much. Tom Gimbell, 0:13:15.480 --> 0:13:17.600 founder and CEO of LaSalle Network, one of the leading 0:13:17.640 --> 0:13:20.000 staffing and recruiting firms in the country joining us in 0:13:20.040 --> 0:13:27.720 our Bloomberg Interactive Broker Studio. We are trained on the 0:13:27.760 --> 0:13:30.559 FED today and whether we're going to get rate cuts, 0:13:30.559 --> 0:13:33.959 but trade is very much on the forefront for both 0:13:33.960 --> 0:13:36.720 companies and traders. Enjoining us here to talk about what 0:13:37.120 --> 0:13:41.320 big companies are doing, particularly the industrial space, with respect 0:13:41.440 --> 0:13:43.600 to the threat of tariffs is our own of course. 0:13:43.600 --> 0:13:46.600 Brooks Sutherland, Bloomberg opinion columnists joining us here in our 0:13:46.600 --> 0:13:52.120 Bloomberg Interactive Broker Studios broke how much action have industrial 0:13:52.160 --> 0:13:55.760 companies taken to immunize themselves from some of the tariffs 0:13:55.760 --> 0:13:58.440 that have been threatened so far. So they've all been 0:13:58.520 --> 0:14:01.040 talking about it in awful lot, and they've all been 0:14:01.559 --> 0:14:06.679 looking at particularly minimizing their exposure to China. That could 0:14:06.679 --> 0:14:09.839 mean sourcing products from different places, that could mean even 0:14:09.920 --> 0:14:13.960 doing something as drastic as moving a manufacturing facility. Um. 0:14:14.160 --> 0:14:16.960 But you know, in terms of actually limiting their exposure 0:14:17.000 --> 0:14:19.320 to China, it's a little bit tricky because they all 0:14:19.640 --> 0:14:23.360 evoke these localized manufacturing strategies that are meant to sort 0:14:23.360 --> 0:14:25.720 of insulate them from the trade where fallout. And I 0:14:25.760 --> 0:14:28.040 think what we've really seen is that you can have 0:14:28.080 --> 0:14:31.480 a localized manufacturing you know strategy, but you're never going 0:14:31.520 --> 0:14:35.479 to have your entire supply chain concentrated in an individual 0:14:35.520 --> 0:14:37.800 country anywhere where you sell your products. And so I 0:14:37.800 --> 0:14:41.760 think you see these manufacturers continually keep getting tripped up 0:14:41.800 --> 0:14:43.880 in the trade war, and I think part of the 0:14:43.880 --> 0:14:46.760 difficulty is there's just so much uncertainty that even making 0:14:46.800 --> 0:14:50.240 these kinds of changes just gets very tricky. I think 0:14:50.280 --> 0:14:52.400 you have to make a bet on first of all, 0:14:52.440 --> 0:14:54.400 do you think Trump's going to get reelected? Are we 0:14:54.480 --> 0:14:56.640 still going to be talking about this in a few years, 0:14:56.800 --> 0:14:59.440 or do you think this is going to peter out? Um, 0:14:59.480 --> 0:15:02.400 you know, these very expensive decisions, and I just don't 0:15:02.440 --> 0:15:04.800 think that a lot of CEOs know where to go. 0:15:05.400 --> 0:15:07.920 And the other thing is that you may make a 0:15:07.960 --> 0:15:10.840 move that that ends up looking very stupid later on 0:15:10.880 --> 0:15:12.640 down the road. Go pro s that it was moving 0:15:12.640 --> 0:15:15.880 its facilities in China to Mexico, and now of course 0:15:15.920 --> 0:15:18.960 we have terroriffs being put back on Mexican goods, and 0:15:19.000 --> 0:15:20.760 who knows how long that will last. So it's just 0:15:20.800 --> 0:15:23.760 I mean, it's a very dicey environment to make any 0:15:23.760 --> 0:15:25.720 types of changes to your supply chain, but you have 0:15:25.880 --> 0:15:27.240 to do it. At the end of the day, if 0:15:27.320 --> 0:15:29.160 you want to try to protect your business from these 0:15:29.200 --> 0:15:31.360 increased costs. It's interesting you raise a good point at 0:15:31.440 --> 0:15:33.840 I think about some of these global industrial companies based 0:15:33.840 --> 0:15:36.680 in the US, and I think about their supply chains, 0:15:36.760 --> 0:15:40.840 and they're just you know, mind, they're so incredibly complex. 0:15:41.080 --> 0:15:44.600 I want to realistically what they can even do at 0:15:44.600 --> 0:15:46.800 the end of the day. It's mentioning to see, um, 0:15:46.840 --> 0:15:49.040 you know, how much they just pass along or take 0:15:49.080 --> 0:15:51.480 into the margin. Are you hearing anything from the companies 0:15:51.480 --> 0:15:54.480 about any kind of percentages they think they can pass 0:15:54.560 --> 0:15:59.080 long versus mitigate through you know, relocating some some suppliers. 0:15:59.520 --> 0:16:02.640 So right now, the industrial sector has actually been very 0:16:02.640 --> 0:16:05.800 successful at passing on price increases, but that is based 0:16:05.840 --> 0:16:08.480 on the tariffs that we've seen thus far, and you 0:16:08.520 --> 0:16:11.880 are starting to see some cracks in the industrial economy. 0:16:11.920 --> 0:16:15.200 We had obviously those not great numbers from I S 0:16:15.360 --> 0:16:17.520 M earlier this weekend from I H S Market on 0:16:17.600 --> 0:16:20.480 the manufacturing activity in the U S sort of teetering 0:16:20.560 --> 0:16:23.320 on the brink of slipping into a contraction. So I 0:16:23.360 --> 0:16:25.880 don't know how much demand there is to soak up 0:16:25.920 --> 0:16:28.520 another round of price increases. And that's why it gets 0:16:28.560 --> 0:16:31.640 really problematic when you start talking about putting tariffs on 0:16:31.680 --> 0:16:35.400 the remaining three billion dollars of goods from China or 0:16:35.760 --> 0:16:38.600 you know, following through on this Mexico threat. So one 0:16:38.760 --> 0:16:42.480 argument has been that these tariffs, should they go into effect, 0:16:42.800 --> 0:16:45.640 could be a short term pain for these companies and 0:16:45.680 --> 0:16:47.840 for the broader U S economy, but down the road 0:16:48.200 --> 0:16:50.560 it will actually be a benefit for the United States 0:16:50.600 --> 0:16:52.960 because a lot of these companies will just simply bring 0:16:53.000 --> 0:16:57.040 their supply chains back to the US and that will 0:16:57.080 --> 0:17:00.960 add to the economy. Here. Have you seen any evidence 0:17:01.000 --> 0:17:04.280 of companies looking to do that to simplify their supply 0:17:04.359 --> 0:17:08.159 chains perhaps bring more back to the United States. No, 0:17:08.560 --> 0:17:11.000 And I think part of the issue is that most 0:17:11.080 --> 0:17:14.000 of the companies that I cover are multinational and sort 0:17:14.000 --> 0:17:16.119 of the flip side of the argument that you're making 0:17:16.160 --> 0:17:17.639 is that you can see a lot of these companies 0:17:17.680 --> 0:17:21.480 find themselves shut out of China because China is increasingly 0:17:22.080 --> 0:17:25.600 realizing it probably needs to develop its own homegrown technologies. 0:17:25.680 --> 0:17:28.920 You see this in aviation, where they're investing very significantly 0:17:29.040 --> 0:17:32.040 in developing a rival to Boeing and Airbus jets. Now 0:17:32.040 --> 0:17:34.159 there's still a few years away from that, but I 0:17:34.200 --> 0:17:37.520 think the trade war has probably reinforced how important that 0:17:37.640 --> 0:17:41.280 is to them. Similarly, in gas turbines, they're investing significantly 0:17:41.359 --> 0:17:44.399 and having technology that competes with the highest level of 0:17:44.400 --> 0:17:46.960 the g and Siemens produced and Semens CEO s just 0:17:47.000 --> 0:17:49.280 the other day he expects them to have that capability 0:17:49.280 --> 0:17:52.760 by so, how much market share or GE and Siemens 0:17:52.800 --> 0:17:54.560 going to be able to get in the gas turbine 0:17:54.560 --> 0:17:57.280 market in China, which is expected to be the biggest 0:17:57.440 --> 0:18:00.359 market for gas turbines for the foreseeable few Sure, so, 0:18:00.400 --> 0:18:03.560 I think if you make too drastic of a move 0:18:03.600 --> 0:18:06.239 and try to refocus yourself on the US, you do 0:18:06.400 --> 0:18:08.560 risk being cut out of some of these other markets 0:18:08.840 --> 0:18:11.240 that realistically are going to be growing a lot faster 0:18:11.280 --> 0:18:13.440 than the U S, which is fairly mature at this point. 0:18:13.800 --> 0:18:16.400 It's interesting. I think a lot of industrial companies are thinking, 0:18:16.480 --> 0:18:18.000 I've I've read a lot about our work, and it 0:18:18.119 --> 0:18:21.200 we can maybe pull our production or sourcing out of China, 0:18:21.240 --> 0:18:24.119 maybe put in some other countries that might be you know, 0:18:24.200 --> 0:18:27.120 almost as good, almost as efficient. Have you heard any 0:18:27.280 --> 0:18:30.920 particular countries or regions that might benefit from the change 0:18:30.920 --> 0:18:34.080 in supply chain. Yeah, I think people are looking at Vietnam, 0:18:34.160 --> 0:18:37.080 They're looking at Indonesia, They're looking at those areas. But 0:18:37.160 --> 0:18:41.480 of course those countries can be economically linked to what 0:18:41.640 --> 0:18:44.240 ultimately happens with China. If you see a drop off 0:18:44.240 --> 0:18:46.960 in demand in China, that can sort of make its 0:18:46.960 --> 0:18:49.680 way throughout the Southeast Asian economy. And so I think 0:18:50.080 --> 0:18:52.360 there are risks to that as well. Obviously there are 0:18:52.400 --> 0:18:56.240 some political questions with those economies as well. And the 0:18:56.320 --> 0:18:58.560 other thing is just that this is very expensive. You 0:18:58.640 --> 0:19:00.880 just can't do this over night. And so I think 0:19:00.880 --> 0:19:03.320 that gets back to the question of how long do 0:19:03.359 --> 0:19:05.159 you think we're going to be in this mess for? 0:19:05.400 --> 0:19:08.520 And you know, do you think that the dynamic has 0:19:08.560 --> 0:19:11.240 now shifted so much that China is completely unsafe to 0:19:11.440 --> 0:19:13.720 use as a as a sourcing for your products or 0:19:13.800 --> 0:19:15.320 do you think that you're going to wait this out? 0:19:15.560 --> 0:19:19.280 So what other levers do these big industrial companies have 0:19:19.400 --> 0:19:22.280 that are multinationals? Can they? I mean, is it just 0:19:22.640 --> 0:19:26.480 cutting jobs and cutting costs? I think a lot of 0:19:26.520 --> 0:19:29.399 it is going to be cutting jobs and cutting costs. 0:19:29.440 --> 0:19:31.520 I mean, I think you've already seen a pretty significant 0:19:31.560 --> 0:19:34.800 move in the industry toward automation, towards robotics, and I 0:19:34.840 --> 0:19:37.080 think if you think that this is the new normal 0:19:37.600 --> 0:19:39.399 of having higher costs that you have to deal with 0:19:39.400 --> 0:19:41.880 in your business, that's only going to incentivize these companies 0:19:41.880 --> 0:19:44.760 to invest even more in that technology and sort of 0:19:44.800 --> 0:19:48.200 intermediate some of these other cost pressures. Um Now, of course, 0:19:48.640 --> 0:19:50.840 you know, it's sort of an ironic twist for a 0:19:50.880 --> 0:19:55.360 president who really campaigned on increasing manufacturing jobs and instead, 0:19:55.520 --> 0:19:58.040 you know, one side effect that we are already seeing 0:19:58.080 --> 0:19:59.720 from the trade wars that there's been a lot of 0:19:59.720 --> 0:20:03.120 cut to the manufacturing sector. Challenger Gray had numbers out 0:20:03.160 --> 0:20:07.240 earlier this week that showed a six increase in manufacturing 0:20:07.320 --> 0:20:09.679 job cuts so far this year relative to this period 0:20:09.760 --> 0:20:12.320 last year. So you're already feeling the pain there. The 0:20:12.359 --> 0:20:16.240 jobs report today only three thousand manufacturing job gains. That's 0:20:16.400 --> 0:20:18.760 very weak numbers, sort of consistent with the trend we've 0:20:18.800 --> 0:20:21.040 seen so far. And so you know, I do think 0:20:21.119 --> 0:20:24.960 ultimately manufacturing companies aren't passing costs on directly to the 0:20:24.960 --> 0:20:28.439 consumer because they don't sell necessarily to you and me. 0:20:28.640 --> 0:20:31.880 But the consumer, the ravage American, is going to feel 0:20:31.880 --> 0:20:34.359 it in one way or another. Brook Sutherland, Thank you 0:20:34.440 --> 0:20:37.960 so much. Brooks Southerland, Deals and Industrials columnist for Bloomberg Opinion, 0:20:38.040 --> 0:20:40.520 joining us in our Bloomberg and Reactive Brooker studio. She 0:20:40.560 --> 0:20:42.640 covers all things industrials and I think that was very 0:20:42.640 --> 0:20:45.000 interestingly say that Brooks comments about how we are really 0:20:45.359 --> 0:20:48.080 seeing it in the manufacturing numbers starting to come out 0:20:48.119 --> 0:20:49.639 over the last couple of months, a little bit of 0:20:49.840 --> 0:20:53.199 you know, a crack in the industrial story. Well, to me, 0:20:53.480 --> 0:20:56.000 my big takeaway is they just don't have that many lovers. 0:20:56.040 --> 0:20:59.040 They don't have the ability to bring a lot of 0:20:59.119 --> 0:21:01.880 jobs back here because they cater to all of these 0:21:01.920 --> 0:21:05.200 other countries. It's not so simple, but it's interesting. Yeah, 0:21:05.240 --> 0:21:06.720 and and and it goes back to the you know 0:21:06.760 --> 0:21:08.879 what has happened really over the last couple of generations, 0:21:09.040 --> 0:21:12.960