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Speaker 3: Just looking at the major industry groups in the S
Speaker 3: and P five hundred today, there are eleven your best
Speaker 3: performing group financials, but they were still down about four
Speaker 3: tenths of a percent. Bottom of the pack. Energy was
Speaker 3: down about two and a half percent. Real Estate was
Speaker 3: down about two and a half percent, Consumer discretionary down
Speaker 3: about two and a half percent, Materials down almost three percent.
Speaker 3: All eleven of the main industry groups are down today.
Speaker 3: Let's see what Vince Cignerella makes of the trade that
Speaker 3: we've seen not only today but since the tariffs were imposed. Vince,
Speaker 3: of course, is Bloomberg Macros strategist joining us. So, Vince,
Speaker 3: it looked like we were going to have we did
Speaker 3: have a rally, and it looked like maybe it would hold,
Speaker 3: and then.
Speaker 4: That was not to be the case is it looks.
Speaker 3: Like trade tariffs and talk about that between the US
Speaker 3: and China flared up again. Talked to us about the
Speaker 3: trade today and what was significant for you.
Speaker 5: Well, I mean the tariff is the you know again,
Speaker 5: the tariffs are the word tariff is the trade. You know,
Speaker 5: there was a little bit of excitement this morning when
Speaker 5: Trump was announcing potential deals with South Korea and Japan,
Speaker 5: and that Italy's Maloney was coming in a couple of
Speaker 5: weeks to discuss trade. So things were looking on the up.
Speaker 5: And then the reinforcement that China tariffs was still with
Speaker 5: US and we're going to hit it about one hundred
Speaker 5: and four percent tonight. That was confirmed or reconfirmed, i
Speaker 5: should say. And the reality what we heard from Trump
Speaker 5: this morning was, you know, China wants to do a deal.
Speaker 5: They don't know how to contact us, you know, I
Speaker 5: mean they went to the wto this morning complaining of
Speaker 5: Ouz Harris. So that that's hardly that's hardly a country
Speaker 5: looking to do a deal with the US. And it's
Speaker 5: really unlikely that President she is going to be knocking
Speaker 5: on the White House door with hat in hand looking
Speaker 5: to do a trade with Trump. So this is going
Speaker 5: to be extended for a while, I think.
Speaker 6: And that's extended in what says like, we know the
Speaker 6: fight's going to be extended, but the carnage that we're
Speaker 6: seeing if your long equities, how long is that going
Speaker 6: to be extended? What turns that around? I mean stocks
Speaker 6: have been in free fall in the last four days.
Speaker 5: Yeah, it's a really really good question. Talking to traders today,
Speaker 5: we're definitely seeing some folks stepping in at the clothes,
Speaker 5: getting their toes in the water. The extension that possibly
Speaker 5: that people are talking about is forty five hundred in
Speaker 5: the SMP cash. We're still about four hundred away from that.
Speaker 5: But you know, there's going to be a lot of
Speaker 5: give and take, and even if that happens, we're is
Speaker 5: just a lot of talk and I don't want to
Speaker 5: really go into this too much because it's just a
Speaker 5: lot of scuttle but on the street about if things
Speaker 5: continue like this, will the Trump administration look for a scapegoat?
Speaker 5: Will it be will it be Lutnik? Will it be
Speaker 5: the Varro? And traders today are putting more bets on
Speaker 5: the Varrol than Ludnik.
Speaker 6: So what would what would that do to markets? If
Speaker 6: if Navarro got the booth, and look again, you're saying
Speaker 6: this is scuttle. You're saying this is scuttle, but.
Speaker 5: It's totally rumored, just totally conversation on this.
Speaker 6: But there's it.
Speaker 5: But would that actually o fact to this whatsoever? But
Speaker 5: if Navarro would get the booth tomorrow, you probably see
Speaker 5: about a two thousand point rally in out.
Speaker 3: To be honest, well, you know, it's so funny that
Speaker 3: you say that, because we were talking with our Max
Speaker 3: Chafkin about some of the back and forth between Elon
Speaker 3: musk Uh and Peter Navarro, and you know what, there's
Speaker 3: been some speculation again rumor careful, let's be smart here,
Speaker 3: but that, yes, but that the president, you know, looking
Speaker 3: for an off ramp, and I guess we just assumed
Speaker 3: it would be in deal with countries. But you do
Speaker 3: wonder if he is looking for some individual to say, listen,
Speaker 3: that was his plan. Maybe it was wrong. Let's get him,
Speaker 3: you know, let him go, and let's let's let's redo this.
Speaker 3: But again, who knows?
Speaker 5: Right, Yeah, I mean I think the I think what
Speaker 5: you said, the former part of that is really where
Speaker 5: it's going to come from. You're going to see deals
Speaker 5: getting done okay, And I think the administration is going
Speaker 5: to be touting more of the deals getting done in
Speaker 5: the next couple of weeks as opposed to the deals
Speaker 5: not getting done as in visa vich China, And I
Speaker 5: think we're going to start to see a little bit
Speaker 5: more positive comments come out of the White House to
Speaker 5: turn this little bit. Don't forget. We've even seen the
Speaker 5: Republicans pushing back against Trump where they tried booking the
Speaker 5: Senate and some in the House trying to basically impose
Speaker 5: a bill that basically says Trump has to go through
Speaker 5: the Senate in the House in order to impost harffs
Speaker 5: it's dead on arrival. It's nice, it's it's not going
Speaker 5: to absolutely so, it's it's the OA, it's not going anywhere.
Speaker 5: But just the idea that they would even consider that,
Speaker 5: and that his own party is pushing back is definitely
Speaker 5: going to have some conversation going on in the White House.
Speaker 5: And I think it's very very interesting that in the
Speaker 5: last twenty four maybe even forty eight hours, we haven't
Speaker 5: heard a peep at a Ludnik and he's been the
Speaker 5: real bull in the China shop, if you will. In
Speaker 5: the same camp As Navarro talking really tough on trade.
Speaker 6: Okay, so maybe that's the case. Who we have heard
Speaker 6: a lot from his Treasury secretary Scott Bessett. What do
Speaker 6: you make of that. He's been out each and every day.
Speaker 5: Yeah, you know, he's not going to go against Trump,
Speaker 5: but he is again in terms of what the market
Speaker 5: sees is a voice or reason, so he's more likely
Speaker 5: to put a positive spin on things than a negative
Speaker 5: spin on things. Remember like the rumors yesterday what has
Speaker 5: it where he said Trump was going to consider a
Speaker 5: ninety day pause. That headline was complete fiction. Came out
Speaker 5: of a conversation on Fox, which was an elaboration on
Speaker 5: a very very on very some thing has to said
Speaker 5: that I really had nothing to do with a pause,
Speaker 5: And you saw the market react like surging on that news.
Speaker 5: They're desperately looking for good news to buy into this.
Speaker 5: People do have cash, they do want to get into this,
Speaker 5: But you just don't want to step in front of
Speaker 5: the steamroller right now because it's still it's still coming.
Speaker 5: As we saw today, although like think about like in
Speaker 5: the last fifteen minutes, the Dow was down over eight hundred,
Speaker 5: down three twenty into the close, so there's still a
Speaker 5: lot of possibility for this to turn around that I
Speaker 5: would just be really careful if you want to dip
Speaker 5: your toes in a little bit. It's not a bad idea, yeah,
Speaker 5: but definitely don't be sticking your head through the door.
Speaker 6: Vince, Vince, it's you know, I want to go back
Speaker 6: to this idea that you know, if we saw a
Speaker 6: head roll, if you you you say, if you see
Speaker 6: a head roll, we could see a Look. We kind
Speaker 6: of saw this yesterday with this ninety day reprieve. You know,
Speaker 6: read all about it on the terminal. Great stories from
Speaker 6: Bailey Lipschulten more about what happened yesterday. Carol, you were out,
Speaker 6: but it was crazy, Yeah.
Speaker 3: I believe it or not.
Speaker 6: You've paid attention occasionally.
Speaker 3: I was like reading it because I hate you can't I.
Speaker 6: Was. But Vince, if we were to see a head roll,
Speaker 6: that doesn't necessarily mean that Trump would back off this policy,
Speaker 6: he told our editor in chief John Mikelswade before the election.
Speaker 6: Tariff is his favorite word in the English language.
Speaker 5: I remember that conversation very very well. See what I
Speaker 5: think what people really need to understand is and forget
Speaker 5: about the short term view oh, the markets are going down.
Speaker 5: Trump's going to change his mind. This, that, and the
Speaker 5: other thing. He really really is an attempting to rewrite
Speaker 5: economic policy for the United States for the last forty years.
Speaker 5: He wants to bring us back before globalization, before the
Speaker 5: Clinton globalization years, more towards that nineteen eighty eight, Reagan,
Speaker 5: nineteen ninety two, George Bush kind of concept. Are trying
Speaker 5: to bring, you know, manufacturing back to the United States.
Speaker 5: The only way he's going to do that is to
Speaker 5: somehow undermine and cripple the manufacturing state of China. And
Speaker 5: the only way to do that is to outlast them.
Speaker 5: You know, we can't outspend them. We have a thirty
Speaker 5: six in building a trillion dollar deficit. This isn't This
Speaker 5: isn't Reagan against against Russia in the eighties where he
Speaker 5: outspent Russia and sort of won that war, if you will.
Speaker 3: But to be fair, to be fair, Vince, you know,
Speaker 3: this is something we talked about Tom Morlock earlier. I mean,
Speaker 3: we have what a one point two trillion dollar trade
Speaker 3: deficit with China, and I mean that's real money, right,
Speaker 3: And the whole reason that American companies wanted to be
Speaker 3: in China and they set up shop there and so
Speaker 3: on and so forth. Is they wanted to tap into
Speaker 3: the one billion plus consumers of China and it hasn't
Speaker 3: necessarily worked out as well as some might have anticipated.
Speaker 3: And so this is about I feel like, or is
Speaker 3: it about us and China or China kind of playing
Speaker 3: more in a way in terms of trade back and forth.
Speaker 5: You know, I think so if you realistically, if you
Speaker 5: look at globalization, the idea of globalization was we were
Speaker 5: going to float all boats. So we in the United States,
Speaker 5: for instance, and the developed countries I shouldn't say just
Speaker 5: the United States. We were going to invest in underdeveloped
Speaker 5: countries and such. We were going to lift up their
Speaker 5: economies and then they were going to buy our goods, right,
Speaker 5: and all boats were going to float and everyone was
Speaker 5: going to prosper. Well, that didn't happen. If you look
Speaker 5: at globalization in and of itself, it was a failed policy.
Speaker 5: What happened was the developed countries spent a lot of
Speaker 5: money into underdeveloped countries and they didn't buy anything of ours.
Speaker 5: We just bought a lot of their cheaper stuff, and
Speaker 5: that created deficits across the developed nations. Mostly of course,
Speaker 5: in the United States because our consumers spend more than
Speaker 5: anyone else in the world. And so what Trump is
Speaker 5: trying to do is recalibrate that. And you know, you
Speaker 5: can't fix it all in one day, but bring it
Speaker 5: back a little closer to the middle where essentially we
Speaker 5: get some meeting of the ways where they get a
Speaker 5: little bit I get that balance and trade.
Speaker 6: Yeah, maybe you can look, maybe you can get Japan
Speaker 6: to buy more US autos because we buy so many
Speaker 6: autos from Japan that for example. But is there a
Speaker 6: way in your view to actually go back in time,
Speaker 6: because I think the ship has sailed the genies out
Speaker 6: of the bottle. That seems to be like, this is
Speaker 6: not a world of forty years ago. This is a
Speaker 6: world where you know, we're we're using WhatsApp to connect
Speaker 6: with people all over the world right now on devices
Speaker 6: that are made with components that include Africa, Asia, Europe,
Speaker 6: the United States. Like, this is a different world that
Speaker 6: we live in. We're not making clothes in the US
Speaker 6: that we wear like, this is a completely different world.
Speaker 5: Yes, and we're we're not going to be making We're
Speaker 5: not going to be making textiles, you know, cheap textiles
Speaker 5: and United States. I think realistically, the manufacturing he wants
Speaker 5: to bring back to the United States is a bit
Speaker 5: more high end. Where he's talking about guatos, for instance, chips,
Speaker 5: you know, things of that nature. We're not we're not
Speaker 5: talking about we're not talking about making sweaters and socks
Speaker 5: in the United States. It's more on the high end
Speaker 5: stuff and setting and setting perhaps in the high end
Speaker 5: of things, a more level playing field, you know, as
Speaker 5: opposed to as opposed to what happens now. And you know, look, yeah,
Speaker 5: to think of it realistically, all of the rhetoricrat they
Speaker 5: are saying tariffs are bad, tariffs are bad, tariffs are bad. Well,
Speaker 5: if they're so bad, why do so many other countries
Speaker 5: have them? To some extent, it's definitely benefiting a lot
Speaker 5: of other countries. And I think that is what he's
Speaker 5: trying to do, just to get a little bit of
Speaker 5: a fairer trade situation. Right as you mentioned it, we're
Speaker 5: not going back to the nineteen eighties. We're not going
Speaker 5: to you know, steel mills are now. There's going to
Speaker 5: be propped up all over this country tomorrow.
Speaker 4: But we haven't gone back to smooth Holly. I'm just
Speaker 4: going to say.
Speaker 3: Going back further, I know, love it, love it, just
Speaker 3: for those on radio.
Speaker 4: Vince actually like rolled his eyes on that.
Speaker 3: Having said that, Vince, I want to go back.
Speaker 4: I want to go back to the market.
Speaker 3: You know, we technically intraday saw a twenty percent correction
Speaker 3: on the S and P five hundred and so technically
Speaker 3: hitting a bear market.
Speaker 4: We bounced back off of it.
Speaker 3: Is that significant that we didn't close there?
Speaker 5: I think we need to see how we do overnight
Speaker 5: and have China markets where the Asian markets react overnight.
Speaker 5: I mean, we could easily see us testing to get
Speaker 5: in tomorrow into the US session, depending upon the rhetoric.
Speaker 5: I mean, you know, how is China going to push
Speaker 5: back tonight? We don't know, We don't We don't know
Speaker 5: what kind of comments we're going to get from she
Speaker 5: or or or other trade ministers from China. You know,
Speaker 5: we we've we've pushed them pretty hard, you know, and
Speaker 5: to expect them again to come to the table is naive.
Speaker 3: I think, what's the what's the commentary that you're finding
Speaker 3: as you you you know, talk with traders throughout the day.
Speaker 3: I mean, yes, it's a lot of selling. Yes, the
Speaker 3: markets have functioned well For those of us who are
Speaker 3: here during the Great Financial Crisis, it was crazy and
Speaker 3: you really felt like I mean, I just remember thinking,
Speaker 3: oh my god, the financial market system.
Speaker 6: It doesn't feel like that to you now though it doesn't.
Speaker 3: I mean, I think everybody clearly understands why the market
Speaker 3: is selling off. There is a clear catalyst, and.
Speaker 6: We call it self self inflicted.
Speaker 3: Yeah, and so exactly. So I how do you what
Speaker 3: do people say about the market selling about this and
Speaker 3: when does it become something much more problematic than an
Speaker 3: understanding that it's coming from the White House directly.
Speaker 5: Well, you know, I think the endgame, I mean, obviously
Speaker 5: the administration's endgame, but I think everybody would kind of
Speaker 5: think the same. If you look at this in the
Speaker 5: more medium to long term, this will pass, as as
Speaker 5: if you think about the financial crisis that you made,
Speaker 5: you passed. I can remember the crash in the late eighties,
Speaker 5: looking over my shoulder and every time I looked over
Speaker 5: at the Tiller eight, which was back then, and see
Speaker 5: whether the dob was going going, oh my god, we're
Speaker 5: still going down. Yeah, you know, the the the sell
Speaker 5: off of this magnitude, I think it's it's different in
Speaker 5: the sense that it's all happening in kind of one week,
Speaker 5: and then not just the sell off, but the volatility.
Speaker 5: We're down, we're up, We're down, we're up. It kind
Speaker 5: of reminds me of training currencies back in the eighties.
Speaker 5: This is a kind of volatility that we saw in
Speaker 5: currency markets forty five years ago. You don't really see
Speaker 5: it in equity market so much so it's it's unusual,
Speaker 5: and it's and it's different, and I think a lot
Speaker 5: of folks in equities are just not accustomed to this.
Speaker 5: Uh And I don't think any traders are really accustomed
Speaker 5: to this. Since we've gone electronic, we haven't had it.
Speaker 5: Will this kind of evolve?
Speaker 6: Vince? Is there is there is there a technical signal
Speaker 6: that you can glean from stocks starting higher, then losing
Speaker 6: that momentum, and then finishing decidedly in the red.
Speaker 5: Well, you know, you look at this, and you look
Speaker 5: at you know, these are ugly tapes. I mean, without question,
Speaker 5: you don't like to see this kind of price action
Speaker 5: where you where you start out high in the morning
Speaker 5: and you have this positive euphoria and then the sort
Speaker 5: of puke into the into the afternoon.
Speaker 6: That's a technical term right, yeah, definitely.
Speaker 5: Technically right into the close, but there was I will
Speaker 5: say there was a positive to the close. I mean
Speaker 5: we were down about eight hundred and fifty points. I
Speaker 5: think in the now we closed down around three twenty,
Speaker 5: So there was definitely there was definitely some capitulation, some buying.
Speaker 5: We're starting on just glancing over futures is still trading
Speaker 5: abower as we head into the last hour before the
Speaker 5: break at five o'clock, So we are seeing a little
Speaker 5: bit of a sell off in future and it's not terrible,
Speaker 5: it's not aggressive. You know, we have inflation numbers coming
Speaker 5: on Thursday and Friday, sentiment numbers coming on Friday, and
Speaker 5: we start the earning season with banks on Friday. So
Speaker 5: my guess is the earnings bar is probably going to
Speaker 5: be set pretty low for next week and for the
Speaker 5: banks on Friday. So there is a very good chance
Speaker 5: we get some good numbers. And if the tariff conversation
Speaker 5: just quiets a little and we get some positive earnings
Speaker 5: next week and a good week of earnings, we could
Speaker 5: easily see this rebound dramatically.
Speaker 3: Well, listen around the markets. We went with you, thank you,
Speaker 3: thank you, thank you. Vince Signorellacome macro strategists joining us
Speaker 3: here on this Tuesday.
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Speaker 6: From Wall Street to Capitol Hill. Because politically, this trade
Speaker 6: war is creating divisions in the Republican net Party, Republican
Speaker 6: senators expressed anxiety over the potential economic toll of Donald
Speaker 6: Trump's global tariffs and pressed his trade representative from more
Speaker 6: clarity on the President's objectives in the trade conflict. Check
Speaker 6: Out what Tom Tillis of North Carolina said today, quote
Speaker 6: Who's throat? Do I get to choke? If this turns
Speaker 6: out to be wrong? This was as US Trade Representative
Speaker 6: Jameson Greer testified before the Senate Finance Committee. You got
Speaker 6: Ted Cruz extending his critique of the tariffs, and then
Speaker 6: carry you got to note Elon Musk, the billionaire presidential
Speaker 6: advisor he attacked White House Trade Counselor Pete Navarro is
Speaker 6: dumber than a sack of bricks over this fight. This
Speaker 6: terriff regime's spilling onto social media.
Speaker 3: Today, we want to ask what Wendy Schiller thinks and
Speaker 3: makes of all of this. She's professor of political science
Speaker 3: at Brown University, joining us from Providence, Rhode Island. Professor Shiller,
Speaker 3: great to have you back with us. It does feel
Speaker 3: like some Republicans are getting a little uncomfortable with some
Speaker 3: of the President's policies.
Speaker 4: How do you read it?
Speaker 7: Well, good after Carol and Tim. I think this is
Speaker 7: going to be an interesting sort of power play within
Speaker 7: the Republican Party and it will spill over to the
Speaker 7: tax cut bill because the only leverage that the Republicans
Speaker 7: Senators have even Visa VI the House Republicans and President
Speaker 7: Trump is the tax bill, which President Trump really really
Speaker 7: wants as an accomplishment, particularly for this year. So, you know,
Speaker 7: if they're not getting the answers they want, if they're
Speaker 7: getting if they want to protect particular industries in their states,
Speaker 7: even at the most local level, big businesses that are
Speaker 7: suffering from these tariffs or will suffer from the tariffs,
Speaker 7: they're going to have to play hardball with the President's
Speaker 7: most preferred legislative package, and that's the tax cuts. So
Speaker 7: you're going to start to see behind the scenes, but
Speaker 7: also maybe publicly. Ran Paul's been pretty out there from
Speaker 7: Kentucky saying he's not happy about this either. And I
Speaker 7: think that's what's beginning to disrupt the inter chamber negotiations
Speaker 7: on the tax bill.
Speaker 6: Bet in the House, in the Senate, how much power
Speaker 6: do these members of Congress actually have because the Resident
Speaker 6: has shown he is not afraid to support primarying some
Speaker 6: of these folks if they don't get behind his agenda.
Speaker 7: Yeah, you know, his Trump's success record in primaries in
Speaker 7: the in the Senate level, at the cement level is
Speaker 7: not all that great. His success is a little bit
Speaker 7: better on the House side, but not really on the
Speaker 7: Senate side. And you mentioned Tom Tillis who's running for
Speaker 7: reelection in North Carolina, Joony Ertz running for re election
Speaker 7: in Iowa, just to name a few.
Speaker 3: And so those seats.
Speaker 7: Particularly North Carolina, could be heavily contested. You know, let's
Speaker 7: say the former governor where Cooper wants to run. That's
Speaker 7: gonna be a problem for Tom Tillis. So they've got
Speaker 7: to show some returns. What is the endgame on the
Speaker 7: tariff fights? What does he expect to accomplish? The President Trump,
Speaker 7: As you say in your prior conversations, you're not bringing
Speaker 7: textile manufacturing back to North Carolina. You have had a
Speaker 7: resurgence on a micro level of some companies making things
Speaker 7: in North Carolina.
Speaker 6: That's ouriasonal stuff. I think people would say.
Speaker 7: Truly, well, you know no, I mean my understanding. I
Speaker 7: think there's a couple of companies that's taking over factories
Speaker 7: and done pretty well. But you know what is Tom
Speaker 7: Till's gonna say uh to North Carolina when things really
Speaker 7: become more expensive or inflation goes up and the Tower
Speaker 7: sort to blame unless Trump pulls the plug on the
Speaker 7: tariffs before those contemplationary pressures can really exert their will.
Speaker 3: Wendy, what do you think is the endgame? I mean
Speaker 3: President Trump has talked about terriffs for a long, long, long,
Speaker 3: long time, right. This has been part of his playbook,
Speaker 3: and he didn't get to do as much as I
Speaker 3: think it's safe to say that he hoped to do,
Speaker 3: maybe the first time around, doing something a lot more
Speaker 3: aggressively this time around. He likes tariffs, he said that,
Speaker 3: But I do wonder too. I agree with you, what
Speaker 3: is the endgame? Is it to get Europe? To spend
Speaker 3: more on defense. Is it energy policy? Is it access
Speaker 3: for us to critical minerals?
Speaker 4: Like?
Speaker 3: What is it? Do we really understand what.
Speaker 4: The endgame is with all of this yet?
Speaker 7: It's just unclear from the current public conversations that are
Speaker 7: leaking or being leaked on social media or even just
Speaker 7: playing out on social media what the team of advisors
Speaker 7: agrees on the endgame.
Speaker 3: Whether Trump is willing to even.
Speaker 7: Think about an endgame. But what he'd like to do
Speaker 7: is probably go to a plant that was abandoned or
Speaker 7: shut down temporarily a couple of years ago and see
Speaker 7: it reopened. I mean, the only way you're going to
Speaker 7: convince the American people that paying more for all these
Speaker 7: goods or small businesses that might have to lay off people,
Speaker 7: is that you have succeeded in creating jobs or bringing
Speaker 7: real jobs back. And that isn't happening quite yet. And
Speaker 7: that was the problem in the first administration. Very hard
Speaker 7: to do. He could not even prevent plants from closing
Speaker 7: down and going to Mexico.
Speaker 3: Is there that know?
Speaker 7: NATO defense spending will make some people happy, but the
Speaker 7: average American I don't think it is going to care
Speaker 7: very much about that.
Speaker 3: To be fair. Is there's something though in the President's fight, right,
Speaker 3: We've talked with you about the gaps right within our society,
Speaker 3: that there's a bunch of people who feel like nobody
Speaker 3: is representing them. They can't get ahead, they can't buy
Speaker 3: a house, they can't get a good job. I was reading,
Speaker 3: I think this morning about people who are making forty
Speaker 3: to fifty thousand dollars here in New York, and yet
Speaker 3: they go home to shelters because they can't afford to
Speaker 3: live in an apartment. So there's something wrong, some disconnects.
Speaker 3: So is there something to what the president is doing,
Speaker 3: whether it's with China in terms of leveling the playing
Speaker 3: feel about access to markets?
Speaker 7: Well, access to markets is fun by the United States.
Speaker 7: You have a combination of a lot of regulation which
Speaker 7: makes making things more expensive. You have, you know, some
Speaker 7: we have weaker private sector unions than most of Europe does.
Speaker 7: For sure, we have some pretty strong public sector unions.
Speaker 7: So you'd have to sort of weaken the private sector unions, right,
Speaker 7: I mean, you'd have to do something like that to
Speaker 7: make it less expensive. He's going to eliminate a lot
Speaker 7: of regulation, which will make everybody happier. And that will
Speaker 7: mean slightly less environmental protection. There are trade offs for
Speaker 7: everything we're doing, but it is more expensive to manufacture
Speaker 7: goods here, I think for lots of reasons some people
Speaker 7: might like and dislike. So you have to dismantle that system.
Speaker 7: But if you're also dismantling healthcare and education, we're not
Speaker 7: going to stay competitive with the countries that are investing
Speaker 7: in those areas. So, you know, the Traudminstration has to
Speaker 7: have a holistic approach to this, and right now, I'm
Speaker 7: not sure we're seeing the things coming together working in
Speaker 7: the same direction as much as we might like.
Speaker 6: When it comes to a goociations directly with China and
Speaker 6: near view Wendy, how much leverage does the US have, Well.
Speaker 7: You know, we have an awful lot of manufacturing in China.
Speaker 7: The farmers themselves, you know, they export lots to China.
Speaker 7: We are very dependent on China. There's also intellectual property.
Speaker 7: We haven't even heard about that from Donald Trump, you know,
Speaker 7: intellectual property theft, that was the big theme in his
Speaker 7: first administration.
Speaker 3: What's he going to do about that?
Speaker 7: You know, I think it's a very difficult relationship to
Speaker 7: extricate from. But if Trump can get some manufacturing back,
Speaker 7: or at least, you know, make corporations reopen or build
Speaker 7: plants here, do something like that. Then it shows the
Speaker 7: Republican Party that this is a policy that could benefit
Speaker 7: them politically, which moves them closer to Trump, not further away,
Speaker 7: but that's a couple of years away. And the House
Speaker 7: elections in twenty six just seemed closer and closer every
Speaker 7: single day.
Speaker 4: How do you think about this era?
Speaker 3: It's still being written as we speak. We just got
Speaker 3: about thirty seconds. How are you you're teaching your like,
Speaker 3: how are you thinking about this?
Speaker 7: Just quickly, forget everything that I've been teaching for very
Speaker 7: long time. Forget everything you've thought about strategy and motivation
Speaker 7: on the president by the president and his team. This
Speaker 7: is a new day, a new a new way of
Speaker 7: doing things. He's disrupting and we're all going to have
Speaker 7: to be very flexible and be able to pivot. But also,
Speaker 7: you know, local politics, you know that's the thing. When
Speaker 7: does the House report? Can party break from President Trump?
Speaker 1: If ever, you're listening to the Bloomberg Business Week podcast,
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Speaker 6: Hey, it is time for another edition of Bloomberg Plugged In.
Speaker 6: It's your weekly look at evs, and we are watching
Speaker 6: the auto sector closely. Giving that a twenty five percent
Speaker 6: tariff on US auto imports took effect last Thursday. Well,
Speaker 6: levy on parts is slated to begin no later than
Speaker 6: May third. The measures are expected to dramatically increase costs
Speaker 6: and up end supply chain. So let's talk to one
Speaker 6: of those suppliers who smack dab in the middle of
Speaker 6: all of this. Magna International is a Canadian a based
Speaker 6: autoparts and auto tech company. They create components so think
Speaker 6: car electronics, drive trains, vision systems, powertrain systems and more
Speaker 6: for some of the biggest car companies in the world
Speaker 6: GM for It's Delantes and more. The company is more
Speaker 6: than one hundred and seventy thousand employees across twenty eight countries,
Speaker 6: and by sales, it's the biggest automotive supplier in North America.
Speaker 6: I've got a market cap of close to nine billion dollars,
Speaker 6: though its stock is down about twenty five percent so
Speaker 6: far this year. Swami Kodaghary is a CEO of Magna International.
Speaker 6: He joins us this afternoon from Troy, Michigan. Swami, thanks
Speaker 6: for joining us. I know you have been extremely busy,
Speaker 6: so we certainly appreciate it. How are you and the
Speaker 6: auto manufacturers that you work with managing these tariff costs?
Speaker 7: Hi?
Speaker 8: Tim, good afternon Thanks for having me. And you know
Speaker 8: we are right really focused on control the controllable, and
Speaker 8: things seem to be changing on everyday basis. Open the
Speaker 8: playbooks that we've had during the rotating UW strikes or
Speaker 8: COVID or two thousand and eight financial crisis, or the
Speaker 8: chip crisis, and you put them all together. I think
Speaker 8: that's what we seem to be having right now.
Speaker 6: What a way to put that. So, the financial crisis
Speaker 6: saw car many some car companies declare bankruptcy.
Speaker 3: Right exactly, you're saying it's as bad as that, and
Speaker 3: then some.
Speaker 8: Yeah, I think I think the important part Carol here
Speaker 8: is look. Part of it is looking at tariffs of
Speaker 8: importing vehicles cross border. Okay, the OEMs are the importer
Speaker 8: of the record. We as suppliers, you know, have to
Speaker 8: still look at any inter company perts going across the border,
Speaker 8: and you have to look at the tier end supply chain.
Speaker 8: But all in all, even if we look at what
Speaker 8: we can do internally, all of this is going to lead,
Speaker 8: I believe, to demand destruction, at least in the short term,
Speaker 8: which is why I compared it, you know, to what
Speaker 8: happened during the two thousand and eight and two thousand
Speaker 8: and nine where the volumes went down drastically, right, And
Speaker 8: that is the reason for my comparison to that.
Speaker 3: As Tim mentioned in the introduction, you know your top customers, GM, Mercedes, Ford, BMWVW, Stilantis, Nissan.
Speaker 3: Are you already seeing tell me like kind of what
Speaker 3: the environment was going into the tariffs and then how
Speaker 3: it's changed in terms of demand from your customers now
Speaker 3: that the tariffs are here.
Speaker 8: Okayl One of the important things in the automotive industry,
Speaker 8: certainty is stability, and what we have today is the
Speaker 8: complete uncertainty.
Speaker 5: Right.
Speaker 8: It's difficult to plan in an industry such as ours,
Speaker 8: you know, on an everyday basis, right, and that's what
Speaker 8: we're trying to deal with today. You might have seen
Speaker 8: some of the announcements that have come starting April fourteenth,
Speaker 8: some of them starting you know, last Monday, already BMW
Speaker 8: five the Spartanburg facility, or General Motors from Fort Wayne
Speaker 8: Instilantis in Telukah, war on truck windsor you know, halted
Speaker 8: productions or changing production schedules and so on and so forth.
Speaker 8: So that's the fact we are starting to see. And obviously,
Speaker 8: you know, it's an industry that you can't flip the
Speaker 8: switch to change things overnight. If there is a policy
Speaker 8: roadmap towards whatever the outcome might be, I think that's addressable.
Speaker 8: But today the struggle seems to be addressing what's coming
Speaker 8: at us on a daily or hourly basis.
Speaker 6: So who absorbs the cost here? What's you know, what?
Speaker 6: What do your shareholders need to know about? Where customers
Speaker 6: will see price increases? Where you will see a head
Speaker 6: to margins, Where you're where the end end user? Right,
Speaker 6: us people who go and buy these cars will see
Speaker 6: price increases. Where do the where do the chips fall?
Speaker 8: Yeah, it's kind of all of the about him, right
Speaker 8: because you know, from a apply base as well as
Speaker 8: the automotive OEM's perspective, everybody look at whatever that can
Speaker 8: be done. I think that is given. But given the
Speaker 8: industry and the type of margins that are there, that's
Speaker 8: out there. You know, everybody knows that nobody can handle that,
Speaker 8: you know, magnitude of the impact that we're talking about here.
Speaker 8: So I believe it has to some way, shape or
Speaker 8: form pass on to the consumer. And if you look
Speaker 8: at where the car prices are today in the market,
Speaker 8: they're already you know, stretched quite a bit, right. So
Speaker 8: that's why I talk about demand instruction and the consumers
Speaker 8: ultimately facing, if not all of it, a significant part
Speaker 8: of the impact of the tariffs.
Speaker 6: You know, you said, it's like the playbooks from the
Speaker 6: financial crisis, COVID, the UAW strikes all combined. But I'm
Speaker 6: wondering if as a result of this, you are making
Speaker 6: any big chaeges to how you do business where these
Speaker 6: parts are manufactured. Do you plan as a result of
Speaker 6: these tariffs to do more in the United States?
Speaker 8: It's too soon to say that, right, Like I said,
Speaker 8: we are investing or not we as an industry, if
Speaker 8: you're doing investments today, it is typically for starting production
Speaker 8: in twenty seven or twenty eight, So we're talking at
Speaker 8: least two years out right. So when we start talking
Speaker 8: about what needs to be done, should we react to
Speaker 8: what's happening today and where the policy ends up is
Speaker 8: going to be ultimately what everybody's looking at. So from
Speaker 8: a near term perspective, cash conservation and hesitancy or tentativeness
Speaker 8: to say where will it end up. So if there
Speaker 8: is a dollar that I can push out from a
Speaker 8: perspective of investing today versus a month or two months
Speaker 8: from now, I'll pick the later, right because I want
Speaker 8: to have certainty in where we are ultimately going to
Speaker 8: invest in get the returns.
Speaker 3: So no, I'm sorry, please finish.
Speaker 8: No, no, no problem. I think going back, everybody is
Speaker 8: now focused on free cash flow, conversion, capital efficiency, so
Speaker 8: there's a little bit of a wait and see approach.
Speaker 8: And you know, in the industry that depends on two
Speaker 8: or three year cycles, that's you know, difficult.
Speaker 3: So the thing I wanted to ask you, and I
Speaker 3: keep going back to this interview that Shineli Basika Bloomberg
Speaker 3: did with Boaz Weinstein, and he said, you know, even
Speaker 3: if we get it changed and perhaps the White House,
Speaker 3: the President comes out and says forget it, delay of
Speaker 3: ninety days or you know what, let's call it off.
Speaker 3: The problem is that the president's going to be in
Speaker 3: the White House for the next four years, and that
Speaker 3: what he said is the uncertainty genie is out of
Speaker 3: the bottle. I can kind of get away from this.
Speaker 3: That would you feel if the President came out and said, oh,
Speaker 3: change my mind, would you feel confident in to move
Speaker 3: forward or would you feel like you were constantly a
Speaker 3: little bit off balance, not sure if something might change
Speaker 3: from the White House.
Speaker 8: I think the industry as a whole is going to
Speaker 8: be a little bit more conservative, and think twice, we've
Speaker 8: always believed, you know, you have to produce locally, whether
Speaker 8: it's a local for local, and we've always looked at
Speaker 8: the entire North American market as one market. So that
Speaker 8: is being questioned right now. So we have to work
Speaker 8: very closely with the OEMs, not just as saying I
Speaker 8: think the whole ecosystem has to be pretty much aligned.
Speaker 8: As you think of investments going forward, which segment is
Speaker 8: going to be consumed, Where where do you put the footprint?
Speaker 8: So in short, Carol, I think there is going to
Speaker 8: be a little bit more thought before new investment goes
Speaker 8: into address, you know, especially where parts or vehicles are
Speaker 8: going crossboarder.
Speaker 3: Right, So then when we think about the US economy
Speaker 3: or global economy, there are investments that will not have
Speaker 3: and there will be as we talked, was it a
Speaker 3: little bit of a demand destruction, Like there'll be some
Speaker 3: destruction that economic impact we don't get back right because
Speaker 3: of that conservative mode.
Speaker 8: I think it's fair to say there's going to be
Speaker 8: tentativeness in the investment cycle now until people get a
Speaker 8: little bit more clarity. That's one thing, and the second
Speaker 8: thing is short term. I think there is going to
Speaker 8: be you know, reduction in volumes.
Speaker 6: I mentioned you have one hundred and seventy thousand employees
Speaker 6: in countries throughout the world, stock down about twenty five
Speaker 6: percent so far this year. You're going to take a
Speaker 6: hit ostensibly as a result of these Are you going
Speaker 6: to have to start making decisions about who keeps their
Speaker 6: job and who doesn't keep their job.
Speaker 8: And tim Yes, that's the reason why I compared it
Speaker 8: to what happened during the COVID or the UW rotating strikes. Right,
Speaker 8: you have to constantly re act to how the OEMs
Speaker 8: are planning their production schedules, whether it's lines coming down,
Speaker 8: complete factories, assemblies that are stopping, which means we have
Speaker 8: to react accordingly. So obviously there's going to be that impact,
Speaker 8: but we have to as one of our guiding principles
Speaker 8: is a long term strategy to look at our business
Speaker 8: as a long term owner. So whatever decision we make,
Speaker 8: we have to look in terms of today, but making
Speaker 8: sure that it doesn't hurt us in the long term.
Speaker 8: So that's a little bit more challenging today than it
Speaker 8: was a few months ago.
Speaker 3: One of the things I want to ask, are you
Speaker 3: afraid and do you feel like the c suites afraid
Speaker 3: to really speak out against the Trump and mysters? You're
Speaker 3: actually being pretty frank here. CEOs and some surveys are
Speaker 3: calling this the Trump recession. CNBC did a CEO survey,
Speaker 3: yet it seems like most don't want their names attached
Speaker 3: to the criticism of the administration. Is the corporate community
Speaker 3: afraid to speak out.
Speaker 8: From our side? Look, I think Tim mentioned in the
Speaker 8: introduction we are in twenty eight different countries over the
Speaker 8: last year and a half. Nineteen of the countries that
Speaker 8: we are present in had elections, right, so policy is
Speaker 8: something we deal with all the time. This is obviously
Speaker 8: a little bit more disruptive than what we have seen
Speaker 8: elsewhere or seen in my career here, But we have
Speaker 8: to look at the industry long term. Right, Our design
Speaker 8: cycles four to five years, and maybe with the changing
Speaker 8: industry it's dropped down to two or three years. But
Speaker 8: you got to take a long term approach. So yes,
Speaker 8: it's disruptive today, but we have dealt with this in
Speaker 8: the past and we just you know, have to keep
Speaker 8: our head down and hope we look at a policy
Speaker 8: roadmap rather than react to something that's happening today.
Speaker 3: One of the things I do want to ask then
Speaker 3: and kind of on that, in terms of long term strategy,
Speaker 3: what does the auto supply chain look like if the
Speaker 3: Trump tariffs are here to stay? Long does it take
Speaker 3: to realign a point that will mitigate tariff costs?
Speaker 8: I don't know. It's mitigation that is definitely going to
Speaker 8: lead to rationalization of the footprint, right, we have to
Speaker 8: start looking at balancing capacity. You know, luckily we have
Speaker 8: footprint in Mexico, US and Canada. So again, like I said,
Speaker 8: it's not going to happen over time. Depending on complexity
Speaker 8: of the part in the system, it could be anywhere
Speaker 8: from months to years. There are some complex systems where
Speaker 8: just to give you an idea, of Some of our
Speaker 8: plants are a million square feit facilities, right with about
Speaker 8: three four hundred million in invested capital. So those kind
Speaker 8: of plants are not easy to transfer overnight. Those will
Speaker 8: take years. And it's not just a unilateral decision either, right,
Speaker 8: this has to be done in conjunction with the product
Speaker 8: cycle planning of the OEM. Where is the assembly plant
Speaker 8: and how be going to work with them? So there's
Speaker 8: a lot of complexity the involved here. Some of the
Speaker 8: more complex footprint rationalization might take years to crystallize.
Speaker 6: You know, as we're talking, we're seeing stocks continue to fall.
Speaker 6: How do you watch not your company's stock specifically, but
Speaker 6: the broader sell off in the context of consumer demand,
Speaker 6: the wealth effect, and just concerns to growth.
Speaker 8: Yeah, I think that's like I said, that's the demand
Speaker 8: destruction part, right. What happens to the industry, interest rates,
Speaker 8: what happens to the oril economy, the buying power of
Speaker 8: the consumer, especially with a lot of fear that might
Speaker 8: come based on what's happening around you, which all means
Speaker 8: people's ability to buy cars and at what price point.
Speaker 8: If that's impacted, the whole industry is impacted, and that
Speaker 8: is the big concern that we all have.
Speaker 6: Right Well, you know, we talked a little bit about
Speaker 6: whether you'd move facilities. You said it's too early to say.
Speaker 6: We are already starting to see automakers reshoring assembly plants
Speaker 6: or make announcements. Hyundai was one of the ones we
Speaker 6: saw from the White House just in the last month.
Speaker 6: If we see more automakers reshore assembly in the US,
Speaker 6: will you need to move facilities back to the US
Speaker 6: as well.
Speaker 8: We have a footprint in the US. But to your point, Tim, yes,
Speaker 8: I think look as a supply base, we look at
Speaker 8: the material availability of the entire supply chain where it's
Speaker 8: coming from. We have to look at the logistics. We
Speaker 8: have to be as closed, you know, as possible to
Speaker 8: the assembly based on the type of the part and
Speaker 8: the complexity of the part. So considering all of that stuff,
Speaker 8: if there is a significant reshoring, yeah, we have to
Speaker 8: look at, you know, rationalizing the footprint differently.
Speaker 3: Hey, s I mean just to kind of wrap up here.
Speaker 3: You know, you kicked off and both Tim and and
Speaker 3: I were like, a wait, what moment when you said
Speaker 3: that you're thinking about this environment akin to I think
Speaker 3: you said the GFC, COVID and union strikes all together,
Speaker 3: that's today's environment. So is a recession here in the
Speaker 3: United States given is maybe perhaps a global recession. Given
Speaker 3: a given I should say.
Speaker 8: Yeah, I think you know again, hopefully you know everybody
Speaker 8: comes to the table and has the discussion to avoid that.
Speaker 8: But all indications seem to be, you know, heading in
Speaker 8: that direction that the economy is taking a hit. But
Speaker 8: like I said, this is happening so fast and so quick.
Speaker 8: Part of it is you know who comes to the
Speaker 8: table at what time, and you know how much can
Speaker 8: you recover and how fast can you recover? But that's
Speaker 8: definitely on the cards based on the facts today.
Speaker 3: Well, we really appreciate your honesty and giving us an
Speaker 3: assessment of your world that really plays into all of
Speaker 3: the major auto manufacturers. Swami, thank you so much. Swammi Kutigeary.
Speaker 3: He's chief executive officer of Magna International. Joining us right
Speaker 3: here on Bloomberg Businesswekdaily.
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