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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is Wall Street Week. I'm David Weston bringing you

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Speaker 2: stories of capitalism.

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Speaker 3: President Trump wants.

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Speaker 2: To build what he calls a Golden fleet to transform

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Speaker 2: the US Navy. What will it take to get it done?

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Speaker 2: Are US shipbuilders up to the task and can the

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Speaker 2: government stay the course this time? Plus it's one thing

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Speaker 2: to charge one hundred and sixty six billion dollars in tariffs,

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Speaker 2: It's quite another to give it all back. The continuing

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Speaker 2: saga of President Trump's IEPA tariffs and whether Humpty Dumpty

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Speaker 2: can ever really be put back together again? And Blair

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Speaker 2: Efron of Centerview Partners takes us through what the AI

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Speaker 2: rush is doing American companies and the deals they are

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Speaker 2: trying to make.

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Speaker 4: Is there anything left for the rest of us? But

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Speaker 4: we start with the global.

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Speaker 2: Concern over inflation in a week that gave us new

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Speaker 2: CPI numbers and Chair Warsh's first testimony on Capitol Hill.

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Speaker 2: Are we facing higher long term interest rates? How much

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Speaker 2: of it comes from that AI rush? And what does

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Speaker 2: it mean for Western economies if we can't get back

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Speaker 2: to that magical two percent target?

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Speaker 3: The rude Mester was.

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Speaker 2: President of the Federal Reserve Bank of Cleveland and now

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Speaker 2: holds positions at both penns Warden School and Princeton.

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Speaker 4: We got new.

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Speaker 2: Inflation numbers out this week which were not as bad

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Speaker 2: as they had been in the past, but there has

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Speaker 2: been a growing concern I think about longer term inflation.

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Speaker 5: Where are we well, Inflation's been above the two percent

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Speaker 5: goal of the FED for over five years, so we

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Speaker 5: do have an inflation problem. I think it remains to

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Speaker 5: be seen whether where interest rates are today are enough

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Speaker 5: right to actually move inflation back down. I think the

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Speaker 5: question and the f home C is going to have

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Speaker 5: to ask itself, is do we need to raise interest

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Speaker 5: rates a bit in order to add restrictiveness to the

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Speaker 5: economy to bring inflation down? And I think they don't

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Speaker 5: know that yet. I think the tone is getting more

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Speaker 5: that we were impatient with this inflation. But I think

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Speaker 5: they're going to wait for some more data before they

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Speaker 5: make up their mind that they're going to need to

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Speaker 5: raise rates. I think there's a good case for saying

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Speaker 5: we need higher interest rates because it's hard to argue

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Speaker 5: that where we are today is very restrictive on the economy.

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Speaker 2: And particularly maybe because the headline number came down really

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Speaker 2: largely because of fuel.

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Speaker 5: Really, that's right. I would say though that overall the

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Speaker 5: report was a pretty good report, even when you look

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Speaker 5: at the components. I mean, one of the things that

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Speaker 5: have been I think troubling me is if you look

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Speaker 5: at core services excluding housing, and I think that's a

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Speaker 5: key indicator to look at that's been moving up.

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Speaker 3: Right.

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Speaker 5: We had the inflation coming down last year, even before

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Speaker 5: the war in Iran, we saw that indicator, the services

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Speaker 5: component excluding housing starting to move back up, and I

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Speaker 5: think that's got to be a concern for the FOMC.

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Speaker 5: They've been forecasting inflation is going to come down, and

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Speaker 5: even without oil prices pushing it back up, you still

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Speaker 5: see that inflation has been pretty sticky.

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Speaker 2: And so raises the question for some of us why.

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Speaker 2: I mean, it's good to have the numbers, know where

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Speaker 2: numbers are, but then you want to know what is

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Speaker 2: really driving that because you have some sense of where

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Speaker 2: it's going to go next.

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Speaker 5: Well, I think that's the question about how restrictive really

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Speaker 5: is policy, right. Monetary policy is what's going to determine

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Speaker 5: whether demand is outpacing supply and therefore putting up her

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Speaker 5: pressure on prices or whether it's restrictent enough and it's

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Speaker 5: going to bring demand more into balance with supply.

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Speaker 2: The one place where we know demand is up is

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Speaker 2: in AI and all that comes with it, all the

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Speaker 2: investments being made are really immedi.

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Speaker 4: At least stunning.

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Speaker 2: Does that in and of itself suggest that we probably

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Speaker 2: are going to have continued inflation pressure for the foreseeable future.

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Speaker 5: Well, you certainly see prices for components that go into

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Speaker 5: AI being elevated, and that is a source of pressure,

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Speaker 5: upward pressure on inflation. I think the question, and this

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Speaker 5: is something that the new chair, Kevin Warrish has been

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Speaker 5: talking about, is eventually he believes that AI will increase

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Speaker 5: productivity enough that it becomes sort of a disinflationary force.

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Speaker 5: I don't think the timing really suggests that we're going

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Speaker 5: to get there soon. I do think right now it's

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Speaker 5: an inflationary issue, and the question is how long will

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Speaker 5: that last and whether again that'll feed into other parts

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Speaker 5: of the inflation and the consumption basket and therefore become

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Speaker 5: a more of a broader inflation problem.

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Speaker 2: And this week we had not just the CPI numbers,

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Speaker 2: but also Chair Warsh with his first appearance on Capitol Hill,

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Speaker 2: where to my hearing said, we really are serious about

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Speaker 2: this inflation, and he recognize what you said, which is

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Speaker 2: we've had it over two percent for a long time now,

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Speaker 2: we've got to do something at that. At the same time, maybe,

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Speaker 2: as you said, eventually it.

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Speaker 4: Might come back down.

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Speaker 2: How does he balance those two things and how long

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Speaker 2: is eventually?

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Speaker 5: Well, this is always a question for the FED, and

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Speaker 5: certainly I think it was great that he reiterated the

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Speaker 5: commitment that the FOMC and the FED has to two

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Speaker 5: percent price stability. I would say, as someone who was

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Speaker 5: at the FED right, we were always committed to the

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Speaker 5: two percent inflation target. That's not and price stability and

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Speaker 5: maximum employment, which are the goals that we've been given

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Speaker 5: by Congress. So that isn't new. And the real question

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Speaker 5: is in making those trade offs between the two goals.

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Speaker 5: When there are trade offs, right when, I think they're

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Speaker 5: going to have to take seriously whether their policy rate

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Speaker 5: right now is in the right place or whether they're

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Speaker 5: going to have to recalibrate that a bit higher to

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Speaker 5: get inflation down.

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Speaker 2: As you said, there's a dual mandate. It's both about

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Speaker 2: price stability as well as employment. Does the nature of

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Speaker 2: the employment situation in the United States right now actually

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Speaker 2: give the FED, if they want to use it, some

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Speaker 2: room to raise something.

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Speaker 5: Well, you know, if you look at the labor market,

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Speaker 5: it's an interesting labor market in the sense that it

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Speaker 5: does appear to be pretty steady.

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Speaker 3: And in balance.

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Speaker 5: I think what troubles people is when you look at

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Speaker 5: the rate of payroll employment growth, it's much slower than

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Speaker 5: it had been in the past. Right, it used to

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Speaker 5: be that you'd say, to keep the unemployment rate stable,

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Speaker 5: you would need one hundred and fifty thousand jobs added

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Speaker 5: per month. Now, right that number is much much lower.

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Speaker 5: It's many estimates are between fifty and seventy thousand a month,

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Speaker 5: So that's quite a bit lower, and that's because the

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Speaker 5: supply side of the labor market has changed so much,

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Speaker 5: so you don't need as much hiring to keep supply

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Speaker 5: and demand and balance. So there's a lot of concern

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Speaker 5: about the labor market in terms of those lower growth numbers,

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Speaker 5: but actually it's been a pretty stable on. The unemployment

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Speaker 5: rate itself is low. That doesn't mean that there aren't

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Speaker 5: problems in the labor market in terms of different aspects

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Speaker 5: of it. As probably you know from and your listeners

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Speaker 5: know right young college graduates have had to struggle to

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Speaker 5: get jobs. Part of it, maybe AI part of it

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Speaker 5: may be uncertainty about the economy, but a lot of

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Speaker 5: what's happening in the labor market is on the supply

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Speaker 5: side and not on the demand sides. And so yes,

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Speaker 5: if the key concern right now in the economy is

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Speaker 5: the inflation part of the mandate, not the labor side.

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Speaker 2: You mentioned the various task force five. I think there

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Speaker 2: are that share warsh is named to deal with various aspects.

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Speaker 2: I suppose it's sort of to be expected that when

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Speaker 2: somebody comes in they want to take a fresh look

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Speaker 2: at things. Were you surprised at how quickly and how

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Speaker 2: extensively he's looking at some basic things at the FED.

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Speaker 5: Well, not really, because you know, he was very vocal

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Speaker 5: before he became chair about some of the things that

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Speaker 5: he thought could be rethought right. And so if you

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Speaker 5: look at the task forces, there's one of communications or

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Speaker 5: one of the balance sheet, and he's been very vocal

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Speaker 5: about the balance sheet and the use of quantitative easing.

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Speaker 5: He's been very vocal about trying to find data sources

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Speaker 5: that are more or micro oriented data sources and more

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Speaker 5: forward looking to help the FED do its projections so

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Speaker 5: that it can have a better sense of where the

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Speaker 5: economy is going. And the last one, of course, we just

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Speaker 5: talked about AI the labor market, and he has particular

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Speaker 5: views on that. What I was happy to see is

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Speaker 5: that the people he've chosen as leaders of those five

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Speaker 5: areas there really are experts, and it's a combination of academics,

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Speaker 5: central bankers, not only US central bankers but abroad who

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Speaker 5: have been central banking experience in terms of actually doing

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Speaker 5: monetary policy, and some business leaders. So I think the

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Speaker 5: combination of those people right, and with the staff help

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Speaker 5: from the FED, as he said, I think we're going

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Speaker 5: to get some very thoughtful results from that. And of

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Speaker 5: course then the FOC will have to take up some

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Speaker 5: of those recommendations and debate them among themselves because they

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Speaker 5: are the policymakers.

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Speaker 2: Recently, the projections based on the markets have changed.

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Speaker 4: A fair amount.

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Speaker 2: About the likelihood rate increase, for example, in July, it

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Speaker 2: really has moved around a lot. You've dealt with this

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Speaker 2: for a long time. Is that typical if you've seen

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Speaker 2: that before? Is this unusual that the expectations are changing

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Speaker 2: fairly rapidly.

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Speaker 5: Well, I think the economy has been changing, right. It's

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Speaker 5: hard to read an economy where you had the tear

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Speaker 5: of shock right then we had the Iran War and

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Speaker 5: the oil price shock, so there's a lot of uncertainty

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Speaker 5: about what the trajectory of the economy is going to be.

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Speaker 5: And of course the on again, off again you know,

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Speaker 5: Iran war, the cease fire. Right, that adds to sort

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Speaker 5: of uncertainty because the oil prices are a significant input

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Speaker 5: into a lot of parts of the economy. So I'm

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Speaker 5: not sure that I would say that it's more volatility

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Speaker 5: than what should be expected given the uncertainty we've been

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Speaker 5: facing the economy, and then layered on top of that,

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Speaker 5: of course, you have a new FED share coming in.

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Speaker 2: As you say, for several years now, we've had an

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Speaker 2: inflation problem, and one question is will it solve itself

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Speaker 2: or do they have to get more restrictive. But from

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Speaker 2: your perspective, do you think that the degree of that

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Speaker 2: problem has changed over the last six months nine months?

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Speaker 2: Is it a bigger problem today than it was six

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Speaker 2: months ago?

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Speaker 5: I think it's a different problem, right, I think six

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Speaker 5: months ago the focus was on how much of the

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Speaker 5: tariffs were going to feed through to inflation. And remember

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Speaker 5: there is also some concerns on some of the committee

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Speaker 5: members about the labor market. I think the labor market

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Speaker 5: is stabilized, and I think they have a much better

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Speaker 5: view of sort of the low payroll numbers not necessarily

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Speaker 5: meaning the labor market is weakening appreciably. I think there's

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Speaker 5: recognition now that probably the tariff part of the inflation

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Speaker 5: story is stabilized. There's going to be much more passer

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Speaker 5: of that. We do have the oil price shock now,

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Speaker 5: which is a new shot. But I think there's more

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Speaker 5: recognition of the accumulation of bad readings in terms of

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Speaker 5: inflation moving in the wrong direction that I think that's

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Speaker 5: really what's change the narrative about inflation. I think there's

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Speaker 5: better recognition that even though we're hoping that we're at

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Speaker 5: a point where industrates are enough to get inflation back

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Speaker 5: down to two percent, that projection may not come to pass.

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Speaker 5: And I think that's what's changed.

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Speaker 4: Coming up, we.

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Speaker 2: Go to Pascagoula, Mississippi, to see firsthand what it will

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Speaker 2: take for President Trump to get all those ships he

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Speaker 2: needs for his so called Golden fleet. This is a

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Speaker 2: story about staying the course. As America marks two hundred

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Speaker 2: and fifty years of independence, President Trump has plans for

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Speaker 2: a much bigger navy, what he calls a Golden Fleet.

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Speaker 2: But to get from planning to doing requires more than

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Speaker 2: just money. It requires workers, suppliers, shipyards, designed, discipline, and

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Speaker 2: executing on the plan over the course of years, even

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Speaker 2: as the very nature of aval combat faces disruption. Bloomberg

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Speaker 2: Scarlett Foo has the story.

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Speaker 6: This is an America class amphibious assault ship currently under

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Speaker 6: construction for the US Navy by Huntington Ingles Industries, also

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Speaker 6: known as HII swort of.

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Speaker 7: The flight deck of LHAA, which is really the ship

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Speaker 7: that takes marines into the fight. This deck will have

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Speaker 7: between twelve and twenty f thirty fives based on the

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Speaker 7: configuration park here. Yeah, so it's a very capable ship.

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Speaker 7: It's gonna go to trials the end of this year

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Speaker 7: and deliver next year.

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Speaker 6: It's just one of several complex naval ships being built

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Speaker 6: at the Ingles Shipyard in Pasco Gooula, Mississippi, where we

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Speaker 6: got a tour from Hi CEO Christopher Cassner.

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Speaker 7: Ship only gets in your blood. There's just something so

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Speaker 7: rewarding about building a ship you know is going to

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Speaker 7: go into service.

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Speaker 6: Turning this steal into American naval power takes thousands of workers,

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Speaker 6: millions of parts, and years of labor. Under President Donald Trump,

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Speaker 6: Washington wants more ships.

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Speaker 1: I have approved a plan for the Navy to begin

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Speaker 1: the construction of two brand new, very large, largest we've

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Speaker 1: ever built battleships. They'll be the fastest, the biggest, and

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Speaker 1: by far one hundred times more powerful than any battleship

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Speaker 1: ever built.

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Speaker 6: His administration's plan calls for new combatants, auxiliaries, unmanned vessels,

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Speaker 6: and a nuclear powered battleship. Currently, the US Navy operates

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Speaker 6: roughly two hundred ninety battle force ships, well below the

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Speaker 6: mandated three hundred and fifty five ships. The Navy is

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Speaker 6: requesting sixty five point eight billion dollars for their twenty

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Speaker 6: twenty seven fiscal year. That's about eighteen billion dollars, or

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Speaker 6: almost forty percent more than it requested for twenty twenty six.

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Speaker 6: For shipbuilders, that translates into years of expected revenue.

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Speaker 7: The administration is investing in the right places. There's a

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Speaker 7: lot of momentum behind shipbuilding. We see improvements across both

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Speaker 7: of our shipyards, and we need to continue to improved

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Speaker 7: to support their.

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Speaker 6: Requirements momentum aside, can the industry build a fleet at

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Speaker 6: the speed and scale that this White House wants, especially

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Speaker 6: when construction of the most complex navy vessels is split

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Speaker 6: between two big players, General Dynamics and HII.

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Speaker 7: HII provides fifty percent of the ships the United States fleet.

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Speaker 7: We build nuclear vessels, aircraft carriers, and submarines in Newport News, Virginia,

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Speaker 7: and then we build four classes of surface combatants here.

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Speaker 6: One of the biggest limitations is labor. Shipbuilding depends on

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Speaker 6: skilled workers like welders, electricians, and pipefitters. Today, more than

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Speaker 6: a quarter of these maritime workers are approaching retirement h

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Speaker 6: which is a problem. According to Seamus Daniels of the

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Speaker 6: Center for Strategic and International Studies, a.

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Speaker 8: Major constraint is definitely the workforce challenge, as shipyards are

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Speaker 8: losing some of their more experienced workers and they're being

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Speaker 8: replaced by workers who have less experience. So ultimately may

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Speaker 8: contribute to some of the delays that the Navy is

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Speaker 8: seeing in producing ships as you're trying to train this

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Speaker 8: workforce and really get them up to speed.

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Speaker 9: Again, I'm missing my forty five here?

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Speaker 3: What's the takeout for that?

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Speaker 6: Through net To fill that gap, the Navy helps fund

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Speaker 6: workforce initiatives while shipbuilders develop their own pipelines. Both General

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Speaker 6: Dynamics and HII have apprenticeship programs. Hii's yard in Mississippi

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Speaker 6: employs more than eleven thousand people, making it one of

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Speaker 6: the state's largest manufacturing employers.

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Speaker 9: In this building at the MTA, we also teach sheet

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Speaker 9: metal joiners, pipe and whole insulators, and also a lot

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Speaker 9: of electrician training. Being able to give some knowledge to

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Speaker 9: them so that way they can take it with them

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Speaker 9: out into the yard and better their career and also

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Speaker 9: the company as well.

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Speaker 6: The selling point for trainees are paid training, a path

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Speaker 6: to higher wages and a career that does not always

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Speaker 6: require a four year college degree. Solving for a steady

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Speaker 6: stream skilled labors is not the only challenge. The industry

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Speaker 6: also needs to address supply chain issues on time, contracts,

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Speaker 6: design changes, and overall bureaucracy. And that is after the

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Speaker 6: money has come through.

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Speaker 7: We need to get funding on time to get the

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Speaker 7: suppliers started. What we're doing is working through a backlog

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Speaker 7: that was put in place under really difficult conditions under

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Speaker 7: a different economic environment. Our two largest contracts were executed

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Speaker 7: in twenty nineteen, and you think about what was going

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Speaker 7: on in twenty nineteen, no inflation, a more stable supply base,

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Speaker 7: and those were put in a contract than COVID hit

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Speaker 7: and so we had the supply chain impacted, labor impact.

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Speaker 7: It made it very challenging.

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Speaker 3: So we're working through those.

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Speaker 7: But the ships that are being put under contract now

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Speaker 7: are putting under contract and schedule performance and schedule predictability,

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Speaker 7: assuming what the supply chain can do right now, assuming

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Speaker 7: the constraints we have in our shipyard.

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Speaker 10: If you were advising policy makers, lawmakers the navy, what

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Speaker 10: would be one policy recommation that would increase you as

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Speaker 10: ship output.

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Speaker 7: Yeah, beyond time, make sure the funding arrives on time,

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Speaker 7: make sure the supply chain is safe and can meet

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Speaker 7: the requirements, and we don't get behind before we start.

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Speaker 7: That happens from time to time and shipbuilding, where you

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Speaker 7: get laid orders, behold the schedule consistent with what the

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Speaker 7: initial contract said, you have no chance to meet it.

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Speaker 6: Securing funding is just the beginning. There's also the sequence

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Speaker 6: of how the money, contracts and ship designs move through

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Speaker 6: the system.

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Speaker 8: Government shutdowns are a major hindrance to actual effective shipbuilding

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Speaker 8: and making sure that contracts and programs themselves are getting started.

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Speaker 8: But I think there's a broader issue beyond the appropriations

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Speaker 8: and funding process that comes down to the way that

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Speaker 8: the Navy designs it ships as well, And this is

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Speaker 8: about the requirements process that the Navy goes through. The

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Speaker 8: US Naval vessels are incredibly complex with combat systems, radar,

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Speaker 8: and other technology, and so that means that the ships

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Speaker 8: themselves and their designs are incredibly complex. But given the

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Speaker 8: timelines it takes to design and build these, the requirements

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Speaker 8: may evolve as the threat environment evolves over time. What

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Speaker 8: that ultimately means is that the Navy may start constructing

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Speaker 8: ships before the design is finalized, and that can be

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Speaker 8: a major issue, especially when you're changing the design as

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Speaker 8: you're building the ship.

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Speaker 11: Every time we change your requirement change a design, it

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Speaker 11: costs US a lot, both in dollars as well as

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Speaker 11: in schedule. So that's got to stop. There isn't a

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Speaker 11: day that I go to work and I'm not thinking

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Speaker 11: about what's going on here and in other places around

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Speaker 11: the world where you're serving.

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Speaker 6: Retired Navy Admiral Mike Mullen served as Chief of Naval

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Speaker 6: Operations under President George W. Bush and Chairman of the

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Speaker 6: Joint Chiefs of Staff in the first few years of

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Speaker 6: the Obama administration.

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Speaker 11: I think the biggest challenge that the Trump administration is

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Speaker 11: going to have is xcution and staying you know, within budget,

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Speaker 11: and staying on schedule and holding people accountable. So I

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Speaker 11: think all the pieces are there now. The question is

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Speaker 11: can we execute.

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Speaker 6: One solution farm out the work. Today only a tenth

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Speaker 6: of Navy shipbuilding is done at distributed sites. The Navy

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Speaker 6: wants to increase that to half by using qualified suppliers

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Speaker 6: and smaller yards across the country to add capacity.

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Speaker 7: We doubled our outsource capacity last year, another thirty percent

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Speaker 7: this year, and we'll continue to increase that as the

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Speaker 7: partners get qualified. We're very careful to do it correctly,

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Speaker 7: because if you don't do it correctly, there's significant challenges

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Speaker 7: with quality and scheduled performance. So you have to be

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Speaker 7: mindful with how you do it, but we will continue to outsource.

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Speaker 6: That plan also relies on building ships differently, using more

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Speaker 6: modular digital designs that can be spread out across multiple yards.

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Speaker 8: So This is thinking through how to design shifts and

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Speaker 8: submarines in a way that different parts, different major segments

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Speaker 8: of the ship can be constructed in different parts of

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Speaker 8: the country, and then they can be combined in one

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Speaker 8: major shipyard. But what that'll ultimately allow the US to

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Speaker 8: do is to leverage areas in smaller, potentially commercial shipyards

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Speaker 8: or repair yards that can focus on these modules, so

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Speaker 8: then they can be combined. And what that would ultimately

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Speaker 8: mean is being able to distribute shipbuilding need and capacity

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Speaker 8: across other areas of the country.

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Speaker 6: Then there's the contrast with how our global peers are

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Speaker 6: building ships. China is achieving scale through a vast commercial

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Speaker 6: and naval shipbuilding base, while South Korea and Japan are

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Speaker 6: setting standards for their speed, process discipline, and production capacity

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Speaker 6: of commercial ships.

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Speaker 7: I think it's good to always compare yourself against the competition.

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Speaker 7: There are different shipbuilding processes. Commercial ships are completely different

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Speaker 7: from building a defense ship. If you were to go

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Speaker 7: into a Korean shipyard or commercial looks very different than

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Speaker 7: the shipyard here. If you go into the defense shipyard,

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Speaker 7: it looks very similar to this. Actually, their defense shipyards

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Speaker 7: look more alike than ours in their commercial shipyard, so

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Speaker 7: I think it's a good comparison. You always need to

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Speaker 7: know what the competition is doing.

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Speaker 6: China's shipbuilding surge is a big reason US yards expect

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Speaker 6: demand to stay elevated for years.

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Speaker 7: I think the growth in China and the growth in

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Speaker 7: their shipbuilding programs means that we're going to be building

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Speaker 7: ships for a while here, and we need to continue

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Speaker 7: to build.

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Speaker 11: We need to concentrate on that because China is building

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Speaker 11: a big fleet. And while China's fleet is significant in numbers,

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Speaker 11: They've got ways to go from a quality standpoint, and

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Speaker 11: we need to pay attention to that as well.

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Speaker 6: Even if America can build more ships, another question hangs

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Speaker 6: over the fleet, what kinds of ships should be built.

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Speaker 6: The ongoing conflicts in Ukraine and the Middle East make

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Speaker 6: clear how relatively cheap drones and missiles can threaten expensive

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Speaker 6: traditional vessels.

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Speaker 8: I think what the Navy needs to pursue is what

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Speaker 8: is generally referred to as a high low mix of capabilities.

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Speaker 8: So having your larger vessels that can perform exquisite tasks

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Speaker 8: that are large and may be expensive in some cases,

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Speaker 8: and combining those with cheaper, more affordable forces that provide

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Speaker 8: a different sort of effects, but you can actually buy

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Speaker 8: them in mass.

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Speaker 11: In the Red Sea, for literally months on end, we

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Speaker 11: were shooting down cheap drones with very expensive missiles, which

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Speaker 11: is a losing game in the long run, but we

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Speaker 11: were able to protect the ships. We know this is

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Speaker 11: coming out there in terms of the drones.

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Speaker 6: There's also the risk to the marines on board these ships.

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Speaker 6: To reduce that danger and extend the fleet's reach, the

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Speaker 6: Navy is investing in autonomous uncrewed vessels and.

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Speaker 7: We have a romulous family of systems for surface vehicles,

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Speaker 7: so we saw it coming.

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Speaker 3: It's really a force multiplier.

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Speaker 7: It leads into their strategy or their head strategy where

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Speaker 7: they have manned and un manned ships working together. And

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Speaker 7: they've had that strategy for a while. The technology just

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Speaker 7: hasn't been there to support it. Now the technology has,

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Speaker 7: the autonomy technologies come into the place where the ship's

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Speaker 7: more reliable and the integration between mandun manned is more reliable.

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Speaker 6: But can the Navy learn from past mistakes and implement

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Speaker 6: real changes to improve future fleets and see warfare. What

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Speaker 6: do companies like HII need from the government to be

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Speaker 6: the premiership builder.

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Speaker 3: We just need predictable orders.

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Speaker 7: We need a chance to be successful. We need to

445
00:23:19,520 --> 00:23:21,960
Speaker 7: limit change, and we need the orders on time. I'm

446
00:23:21,960 --> 00:23:23,760
Speaker 7: going to build whatever they want me to build.

447
00:23:24,480 --> 00:23:27,600
Speaker 6: Trump's Golden Fleet may signal a shift to a larger navy,

448
00:23:27,960 --> 00:23:30,400
Speaker 6: but the real test will be whether America can build

449
00:23:30,400 --> 00:23:33,800
Speaker 6: a fleet that's responsive and flexible enough for warfare that

450
00:23:33,920 --> 00:23:38,040
Speaker 6: is constantly changing, all while staying the multi year course

451
00:23:38,080 --> 00:23:40,520
Speaker 6: that it takes for ships to go from blueprint to

452
00:23:40,640 --> 00:23:41,560
Speaker 6: naval battlefield.

453
00:23:45,280 --> 00:23:45,840
Speaker 4: Up next.

454
00:23:45,920 --> 00:23:49,560
Speaker 2: On Liberation Day in April last year, President Trump announced

455
00:23:49,600 --> 00:23:52,240
Speaker 2: sweeping tariffs on imports from much of the rest of

456
00:23:52,280 --> 00:23:54,960
Speaker 2: the world. Now the Supreme Court says he has to

457
00:23:54,960 --> 00:23:57,800
Speaker 2: give it all back. We look at how that is going.

458
00:24:07,160 --> 00:24:10,520
Speaker 2: This is a story about putting Humpty Dumpty back together again.

459
00:24:11,080 --> 00:24:14,200
Speaker 2: Small businesses were hit hard by the sweeping tariffs President

460
00:24:14,200 --> 00:24:18,160
Speaker 2: Trump imposed under the International Emergency Economic Powers Act, So

461
00:24:18,200 --> 00:24:20,760
Speaker 2: you'd think they breathed a big sigh of relief when

462
00:24:20,760 --> 00:24:23,640
Speaker 2: the Supreme Court struck them down. But it turns out

463
00:24:23,680 --> 00:24:26,320
Speaker 2: that getting a refund when you have overpaid is not

464
00:24:26,359 --> 00:24:29,160
Speaker 2: as easy as it sounds, particularly when it's the government

465
00:24:29,400 --> 00:24:30,480
Speaker 2: that has to pay you back.

466
00:24:32,000 --> 00:24:34,280
Speaker 10: One of the most significant cases that the justices have

467
00:24:34,359 --> 00:24:37,520
Speaker 10: decided in recent years. In a Supreme Court dealing President

468
00:24:37,560 --> 00:24:39,440
Speaker 10: Donald Trump a major blow.

469
00:24:39,359 --> 00:24:43,440
Speaker 2: The President does not have the authority to impose some

470
00:24:43,520 --> 00:24:48,440
Speaker 2: of his sweeping global tariffs. In April of last year,

471
00:24:49,359 --> 00:24:53,960
Speaker 2: President Trump announced sweeping tariffs on imports from some ninety countries, a.

472
00:24:54,119 --> 00:24:59,600
Speaker 1: Historic executive order instituting reciprocal tariffs.

473
00:24:59,440 --> 00:25:02,360
Speaker 2: Which hit businesses throughout the US that had to pay

474
00:25:02,400 --> 00:25:05,760
Speaker 2: the tariffs to bring in parts and goods. Victor Schwartz's

475
00:25:05,880 --> 00:25:08,879
Speaker 2: Vos Selections is one of those businesses.

476
00:25:09,800 --> 00:25:11,479
Speaker 4: What did the tariffs do to your business?

477
00:25:12,040 --> 00:25:14,879
Speaker 12: Well, it's terribly impactful. Out of the blue. We lost

478
00:25:15,080 --> 00:25:19,119
Speaker 12: fifteen percent of our cash flow. For any business, but

479
00:25:19,160 --> 00:25:22,399
Speaker 12: certainly for a small business, that was terribly impactful. We

480
00:25:22,440 --> 00:25:24,800
Speaker 12: had to make some quick decisions. One thing we had

481
00:25:24,840 --> 00:25:26,560
Speaker 12: to look at is where can we raise prices to

482
00:25:26,600 --> 00:25:28,720
Speaker 12: cover the tariffs? How much could we raise prices on

483
00:25:28,800 --> 00:25:31,600
Speaker 12: which products? I tell you we did not even begin

484
00:25:31,880 --> 00:25:35,840
Speaker 12: to cover the tariff impact in terms of our price increases.

485
00:25:35,880 --> 00:25:39,040
Speaker 12: So there was that what kind of inventory we could jettison?

486
00:25:39,160 --> 00:25:41,440
Speaker 12: Because we had to come up with, Well, this capital,

487
00:25:41,920 --> 00:25:43,720
Speaker 12: where is it going to come from? I don't have

488
00:25:43,800 --> 00:25:47,360
Speaker 12: access to the credit markets, you know, So where we're

489
00:25:47,359 --> 00:25:48,959
Speaker 12: going to come up with that money, Well, we got

490
00:25:49,000 --> 00:25:52,800
Speaker 12: to sell product off And even worse is think about it.

491
00:25:52,800 --> 00:25:56,000
Speaker 12: It wasn't just about Vos selections. Everybody was in the

492
00:25:56,000 --> 00:25:58,239
Speaker 12: same boat in my industry. So if everyone's trying to

493
00:25:58,320 --> 00:26:01,880
Speaker 12: offload product, you've got, you know, a race to the bottom.

494
00:26:02,160 --> 00:26:05,720
Speaker 12: I think we went through four different massive price changes

495
00:26:05,720 --> 00:26:07,200
Speaker 12: over the course of the year. It was kind of

496
00:26:07,320 --> 00:26:10,399
Speaker 12: head spinning. What was coming next? When was it coming?

497
00:26:10,680 --> 00:26:13,119
Speaker 12: Not an easy situation, not a good place to be.

498
00:26:13,520 --> 00:26:17,200
Speaker 12: And then the cherry on top is the fact that

499
00:26:17,840 --> 00:26:21,240
Speaker 12: people are drinking less alcohol. So the wide and spirit's

500
00:26:21,240 --> 00:26:25,240
Speaker 12: industry is contracting all over the world, so nobody was happy.

501
00:26:25,760 --> 00:26:29,159
Speaker 2: We first met Schwartz exactly a year ago, just after

502
00:26:29,200 --> 00:26:31,960
Speaker 2: he filed the original lawsuit in the US Court of

503
00:26:32,000 --> 00:26:35,280
Speaker 2: International Trade that challenged Trump's tariffs.

504
00:26:35,520 --> 00:26:38,840
Speaker 12: It's been a mess. It was twenty percent, that was

505
00:26:38,880 --> 00:26:42,200
Speaker 12: ten percent, and they threatened fifty percent. In our industry,

506
00:26:42,600 --> 00:26:46,160
Speaker 12: end of the day, we might make five percent as

507
00:26:46,200 --> 00:26:50,280
Speaker 12: a net profit, five to ten percent, So obviously we

508
00:26:50,320 --> 00:26:53,520
Speaker 12: can't afford ten percent. We can't afford twenty percent. But

509
00:26:53,560 --> 00:26:56,040
Speaker 12: twenty percent is really egregious.

510
00:26:56,440 --> 00:27:00,000
Speaker 2: Shortly after we last spoke, the Trump administration took Schwartz

511
00:27:00,240 --> 00:27:03,280
Speaker 2: case all the way to the Supreme Court. Earlier this

512
00:27:03,400 --> 00:27:06,359
Speaker 2: year it issued its ruling. So, Victor, a lot has

513
00:27:06,359 --> 00:27:09,040
Speaker 2: happened since last we talk. You brought the case with

514
00:27:09,160 --> 00:27:12,600
Speaker 2: Supreme Court and you won. We won, But victory is

515
00:27:12,640 --> 00:27:15,320
Speaker 2: a little more complicated than that. In the time that

516
00:27:15,359 --> 00:27:18,600
Speaker 2: the tariffs were in effect, the Trump administration had collected

517
00:27:18,680 --> 00:27:21,680
Speaker 2: one hundred and sixty six billion dollars for more than

518
00:27:21,760 --> 00:27:25,720
Speaker 2: three hundred and thirty thousand businesses, including big corporations like

519
00:27:25,760 --> 00:27:29,800
Speaker 2: Walmart and Ford, but also many more small businesses selling

520
00:27:29,840 --> 00:27:33,800
Speaker 2: anything from wine to women's bicycles, businesses that may not

521
00:27:33,960 --> 00:27:36,880
Speaker 2: have the resources of large, publicly traded companies.

522
00:27:37,520 --> 00:27:43,159
Speaker 13: We just want the Constitution to serve all Americans, and

523
00:27:43,320 --> 00:27:48,000
Speaker 13: so we thought, why not us file this case, and

524
00:27:48,600 --> 00:27:52,200
Speaker 13: nobody else was stepping up? Big businesses who have all

525
00:27:52,240 --> 00:27:53,720
Speaker 13: the resources could have done it.

526
00:27:53,920 --> 00:27:57,720
Speaker 2: Sarah Albrecht is chairman and CEO of the Liberty Justice Center,

527
00:27:58,000 --> 00:28:00,439
Speaker 2: which has been litigating on behalf of a full of

528
00:28:00,480 --> 00:28:04,760
Speaker 2: small businesses, including Vos Selections, that want their money back.

529
00:28:05,400 --> 00:28:07,200
Speaker 13: I think we had a strong case. I had hoped

530
00:28:07,200 --> 00:28:09,560
Speaker 13: we'd win, but I knew the biggest battle was going

531
00:28:09,640 --> 00:28:12,679
Speaker 13: to be after we left the courtroom and refunding the

532
00:28:12,680 --> 00:28:17,160
Speaker 13: money to the thousands of small businesses across this country

533
00:28:17,320 --> 00:28:20,280
Speaker 13: that basically had had to hand over their entire working

534
00:28:20,320 --> 00:28:23,720
Speaker 13: capital to the government while they sorted out this case.

535
00:28:24,080 --> 00:28:26,680
Speaker 2: So what did in fact happen? What was the process

536
00:28:26,720 --> 00:28:28,760
Speaker 2: after it was remanded back down by the court.

537
00:28:28,960 --> 00:28:31,080
Speaker 13: We had to go back down to the Court of

538
00:28:31,160 --> 00:28:34,440
Speaker 13: International Trade and kind of sort out how the process

539
00:28:34,520 --> 00:28:36,840
Speaker 13: was going to go. And luckily, the Court of International

540
00:28:36,880 --> 00:28:40,000
Speaker 13: Trade is a very specialized court that deals with exactly

541
00:28:40,040 --> 00:28:43,479
Speaker 13: this type of situation. So they assigned us to a

542
00:28:43,520 --> 00:28:47,480
Speaker 13: great judge and we worked kind of a three way

543
00:28:47,560 --> 00:28:52,480
Speaker 13: process between CBP, the government and ourselves and kind of

544
00:28:52,480 --> 00:28:54,200
Speaker 13: came up with a game plan on how this was

545
00:28:54,240 --> 00:28:58,000
Speaker 13: going to go. The judge was very much directing the

546
00:28:58,040 --> 00:29:01,680
Speaker 13: process and the gover and CBP, I have to say,

547
00:29:01,960 --> 00:29:06,280
Speaker 13: went along and did a good job kind of facilitating

548
00:29:06,360 --> 00:29:08,760
Speaker 13: the largest refund in history. I mean, it was one

549
00:29:08,840 --> 00:29:11,360
Speaker 13: hundred and sixty six billion dollars and just for a

550
00:29:11,480 --> 00:29:16,440
Speaker 13: cens of what that means, CBP last year processed three

551
00:29:16,520 --> 00:29:20,360
Speaker 13: hundred and thirty eight thousand entries. The IIPA tariffs were

552
00:29:20,360 --> 00:29:24,040
Speaker 13: going to involve processing fifty three million entries, so they

553
00:29:24,080 --> 00:29:27,680
Speaker 13: had to build out an entirely new system and portal

554
00:29:27,720 --> 00:29:29,920
Speaker 13: to make it easy, because the last thing we wanted

555
00:29:30,160 --> 00:29:34,320
Speaker 13: is small businesses do have to spend more time filing

556
00:29:34,640 --> 00:29:39,360
Speaker 13: and doing paperwork and waiting for the government to give

557
00:29:39,400 --> 00:29:41,600
Speaker 13: them the money that was rightfully theirs.

558
00:29:42,080 --> 00:29:44,840
Speaker 2: US Customs and Border Protection has rolled out a three

559
00:29:44,960 --> 00:29:49,080
Speaker 2: phase plan to return all that money, but as Albrecht expected,

560
00:29:49,280 --> 00:29:53,280
Speaker 2: refunding tariffs is easier said than done. Five months after

561
00:29:53,320 --> 00:29:57,000
Speaker 2: the Supreme Court's rejection of IIPA tariffs, the administration has

562
00:29:57,040 --> 00:30:00,080
Speaker 2: returned only seventy one billion dollars of the one one

563
00:30:00,160 --> 00:30:03,360
Speaker 2: hundred and sixty six billion dollars it collected. And now

564
00:30:03,360 --> 00:30:05,880
Speaker 2: this Prome Court has rolled and there's a fair amount

565
00:30:05,920 --> 00:30:08,160
Speaker 2: of money A coordinators to press accounts that has been

566
00:30:08,200 --> 00:30:09,840
Speaker 2: refunded of those tariffs.

567
00:30:10,240 --> 00:30:11,680
Speaker 4: How much of that have you realized?

568
00:30:11,880 --> 00:30:12,280
Speaker 2: None?

569
00:30:12,640 --> 00:30:13,680
Speaker 4: Well, how does that work?

570
00:30:14,160 --> 00:30:18,080
Speaker 10: It's pretty frustrating, actually, So I have to contact my vendor,

571
00:30:18,480 --> 00:30:21,120
Speaker 10: who is in turn waiting for a refund from the

572
00:30:21,160 --> 00:30:24,920
Speaker 10: shipping company, so that I can still pass through that

573
00:30:25,040 --> 00:30:29,680
Speaker 10: refund to my customer. As well. It's it's just really

574
00:30:29,760 --> 00:30:31,480
Speaker 10: a big mess all the way around.

575
00:30:31,720 --> 00:30:34,440
Speaker 2: Allison B. Varzen is the COO of Out of the

576
00:30:34,480 --> 00:30:39,400
Speaker 2: Box Manufacturing, a contract manufacturer of electronic devices that imports

577
00:30:39,400 --> 00:30:42,880
Speaker 2: components from all around the world. Like many other small businesses,

578
00:30:42,960 --> 00:30:45,160
Speaker 2: it is still waiting for its refund.

579
00:30:45,600 --> 00:30:49,880
Speaker 10: We get tariffs charged on raw materials that we use

580
00:30:49,960 --> 00:30:53,640
Speaker 10: in our manufacturing process for machinery as well as the

581
00:30:53,680 --> 00:30:56,400
Speaker 10: component parts that we use to put circuit boards together,

582
00:30:56,520 --> 00:31:00,000
Speaker 10: so we're actually getting hit for multiple angles.

583
00:31:00,080 --> 00:31:01,680
Speaker 4: Pays the tariffs for you.

584
00:31:02,280 --> 00:31:05,680
Speaker 10: So it is a series of one person passing the

585
00:31:05,760 --> 00:31:10,160
Speaker 10: costs down to another. Ultimately, my end customer is paying

586
00:31:10,200 --> 00:31:14,040
Speaker 10: for the tariff. I purchase a part from my vendor,

587
00:31:14,080 --> 00:31:15,880
Speaker 10: They passed the tariff along to me, and I pass

588
00:31:15,960 --> 00:31:17,200
Speaker 10: it along to my customer.

589
00:31:17,440 --> 00:31:20,000
Speaker 2: Out of the Box Manufacturing is only one of many

590
00:31:20,080 --> 00:31:23,960
Speaker 2: small businesses that use third party shipping vendors like DHL

591
00:31:24,040 --> 00:31:27,920
Speaker 2: and FedEx. Those vendors will receive refunds first before the

592
00:31:27,960 --> 00:31:31,000
Speaker 2: money gets to the small business owners who ultimately paid

593
00:31:31,120 --> 00:31:31,760
Speaker 2: the tariffs.

594
00:31:32,560 --> 00:31:35,040
Speaker 13: So the way it's set up, since they paid the

595
00:31:35,080 --> 00:31:39,680
Speaker 13: AIPA tariffs initially, then the refunds went to them as

596
00:31:39,720 --> 00:31:43,320
Speaker 13: the importer record on behalf of the plaintiffs and other

597
00:31:43,360 --> 00:31:47,000
Speaker 13: small businesses, and so the refunds will flow to those

598
00:31:47,040 --> 00:31:50,280
Speaker 13: third party vendors, and then a second refund process from

599
00:31:50,320 --> 00:31:56,800
Speaker 13: the vendors back to their ultimate clients and customers, and

600
00:31:56,840 --> 00:32:00,480
Speaker 13: hopefully that is also a speedy process. We are just

601
00:32:00,600 --> 00:32:05,520
Speaker 13: starting to enter that phase because the third party vendors

602
00:32:05,720 --> 00:32:07,959
Speaker 13: are just starting to get their refunds and then they

603
00:32:08,000 --> 00:32:08,720
Speaker 13: have to pass it on.

604
00:32:09,320 --> 00:32:12,240
Speaker 2: And even as some refunds begin to flow, the legal

605
00:32:12,280 --> 00:32:15,440
Speaker 2: battle is not yet over. The cases you brought were

606
00:32:15,480 --> 00:32:19,360
Speaker 2: specifically about the so called i EPA tariffs imposed under

607
00:32:19,440 --> 00:32:22,200
Speaker 2: that statute, and the court said, no, you can't do that.

608
00:32:23,120 --> 00:32:26,120
Speaker 2: The topal administration pretty much immediately said, okay, fine, we

609
00:32:26,160 --> 00:32:27,840
Speaker 2: have some other statutes we'd like to use.

610
00:32:28,080 --> 00:32:29,080
Speaker 4: Where does that stand.

611
00:32:29,960 --> 00:32:30,240
Speaker 3: Yeah.

612
00:32:30,280 --> 00:32:34,160
Speaker 13: Literally five hours after we won, the announced the Section

613
00:32:34,280 --> 00:32:37,200
Speaker 13: one twenty two tariffs that was a tariff statute that

614
00:32:37,280 --> 00:32:41,400
Speaker 13: also had never been used. Those tariffs started on February

615
00:32:41,400 --> 00:32:46,000
Speaker 13: twenty fourth, they will end on July twenty fourth. So

616
00:32:46,040 --> 00:32:49,520
Speaker 13: we filed a lawsuit against those illegal tariffs as well,

617
00:32:49,880 --> 00:32:52,160
Speaker 13: and that was heard at the Court of International Trade.

618
00:32:52,240 --> 00:32:55,560
Speaker 13: We won that lawsuit. The government appealed, and we're still

619
00:32:55,600 --> 00:32:59,600
Speaker 13: waiting for our court date on the appeal. When the

620
00:32:59,640 --> 00:33:04,000
Speaker 13: tariff stop, that appeal will continue because we need to

621
00:33:04,000 --> 00:33:07,240
Speaker 13: get that money back to not only our plaintiffs, but

622
00:33:07,280 --> 00:33:09,000
Speaker 13: to every business who had to pay the Section one

623
00:33:09,080 --> 00:33:12,080
Speaker 13: twenty two tariffs, which we believe were also illegally.

624
00:33:12,480 --> 00:33:14,840
Speaker 2: Al Brecht and her team of lawyers say they will

625
00:33:14,880 --> 00:33:18,720
Speaker 2: not stop until every small business gets its refund, But

626
00:33:18,840 --> 00:33:21,800
Speaker 2: even if and when that happens, it doesn't mean that

627
00:33:21,840 --> 00:33:24,240
Speaker 2: things will be restored to where they were before the

628
00:33:24,280 --> 00:33:28,800
Speaker 2: tariffs were imposed. Business owners like Schwartz and Budvarzen say

629
00:33:29,000 --> 00:33:32,000
Speaker 2: much of the damage has already been done with unintended

630
00:33:32,000 --> 00:33:37,160
Speaker 2: consequences that money alone cannot erase. What about now going forward?

631
00:33:37,320 --> 00:33:40,200
Speaker 2: Putting aside for the moment what's already been paid, has

632
00:33:40,240 --> 00:33:42,320
Speaker 2: your business largely returned to where it was.

633
00:33:42,320 --> 00:33:43,280
Speaker 4: Before the tariffs?

634
00:33:43,480 --> 00:33:48,400
Speaker 10: I want to say it's different. So we prior to tariffs,

635
00:33:48,480 --> 00:33:52,000
Speaker 10: and prior to the expiration of R and D tax credits,

636
00:33:52,200 --> 00:33:54,760
Speaker 10: we did a fair amount of work in R and

637
00:33:54,840 --> 00:33:59,080
Speaker 10: D that went away. I believe that the tariffs had

638
00:33:59,080 --> 00:34:03,880
Speaker 10: the effect of lowing down the pace of innovation because

639
00:34:03,920 --> 00:34:10,319
Speaker 10: there was so much waiting and unpredictability in components, so

640
00:34:10,360 --> 00:34:13,120
Speaker 10: that really slowed that process down. The tariffs are not

641
00:34:13,239 --> 00:34:16,399
Speaker 10: doing anything to move the supply chain in the way

642
00:34:16,440 --> 00:34:18,920
Speaker 10: that they are intended to move the supply chain. The

643
00:34:19,040 --> 00:34:22,560
Speaker 10: reason is that the turffs simply aren't high enough to

644
00:34:22,640 --> 00:34:26,520
Speaker 10: make it painful enough for behaviors to change. I'm not

645
00:34:26,640 --> 00:34:30,360
Speaker 10: advocating for higher tariffs. What I would advocate for instead

646
00:34:30,560 --> 00:34:36,120
Speaker 10: is predictability, stability, and then support to regrow those industries

647
00:34:36,640 --> 00:34:39,840
Speaker 10: within the United States so that we're treating this problem

648
00:34:39,880 --> 00:34:41,560
Speaker 10: with a carrot rather than a stick.

649
00:34:41,719 --> 00:34:43,960
Speaker 12: As a business person, I have to work here every

650
00:34:44,040 --> 00:34:46,759
Speaker 12: single day in the market. I can't be waiting for

651
00:34:46,800 --> 00:34:49,920
Speaker 12: things to happen through the courts, etc. And it's unfortunate.

652
00:34:49,960 --> 00:34:53,800
Speaker 12: It has really contracted the market. It's something I said

653
00:34:54,040 --> 00:34:55,520
Speaker 12: a year ago. I think I said it to you,

654
00:34:55,600 --> 00:34:59,120
Speaker 12: and it's all come true. The market has contracted.

655
00:34:58,520 --> 00:35:01,319
Speaker 4: The coming up.

656
00:35:01,440 --> 00:35:04,600
Speaker 2: It's all about AI these days. But is the rush

657
00:35:04,640 --> 00:35:07,280
Speaker 2: to invest in the next new thing affecting what companies

658
00:35:07,320 --> 00:35:10,000
Speaker 2: are doing on all the rest of their businesses. We

659
00:35:10,080 --> 00:35:21,200
Speaker 2: talk with Blair Efron of Centerview Partners. Whether it's the

660
00:35:21,239 --> 00:35:24,440
Speaker 2: stock market or the bond market or capital investing. It

661
00:35:24,480 --> 00:35:27,160
Speaker 2: seems that there's only one answer to just about every

662
00:35:27,280 --> 00:35:32,200
Speaker 2: question these days, artificial intelligence. Blair Efron of Centerview Partners

663
00:35:32,200 --> 00:35:35,719
Speaker 2: spends his time advising corporate CEOs on deals and investing

664
00:35:36,080 --> 00:35:39,799
Speaker 2: going well beyond AI. We asked him, just how is

665
00:35:39,960 --> 00:35:45,240
Speaker 2: the rush to AI distorting the rest of corporate finance? Blair,

666
00:35:45,239 --> 00:35:47,759
Speaker 2: you spent a lot of time with big corporations and

667
00:35:47,800 --> 00:35:50,360
Speaker 2: their CEOs. All the talk right now seems to be

668
00:35:50,400 --> 00:35:54,080
Speaker 2: about artificial intelligence. How much is that distorting what's going

669
00:35:54,120 --> 00:35:54,960
Speaker 2: on in the c suite?

670
00:35:55,120 --> 00:35:58,399
Speaker 14: Heres Well, thanks for having me, David. I think it's

671
00:35:58,400 --> 00:36:02,000
Speaker 14: distorting the markets much more then it is the c suite. Obviously,

672
00:36:02,080 --> 00:36:06,960
Speaker 14: the markets are all about AI seven hundred billion dollars

673
00:36:07,200 --> 00:36:11,440
Speaker 14: worth of investment. At some point investors will demand a return.

674
00:36:12,200 --> 00:36:14,160
Speaker 14: And if you're worth a trillion dollars and you trade

675
00:36:14,160 --> 00:36:16,720
Speaker 14: it thirty times, that's thirty five billion dollars in income

676
00:36:16,719 --> 00:36:19,640
Speaker 14: you need. You pick the company that has that profile.

677
00:36:20,239 --> 00:36:23,160
Speaker 14: Every time this has happened before the markets will get

678
00:36:23,160 --> 00:36:28,560
Speaker 14: to the right place, there will be dislocation, whether dislocations

679
00:36:28,600 --> 00:36:29,200
Speaker 14: of people or not.

680
00:36:29,280 --> 00:36:31,680
Speaker 3: I don't know. What I do know is that CEOs

681
00:36:31,680 --> 00:36:32,680
Speaker 3: are absolutely tuned to this.

682
00:36:34,400 --> 00:36:39,280
Speaker 14: They are better at managing through these kinds of issues

683
00:36:39,280 --> 00:36:42,360
Speaker 14: more than ever, and they look at AI from a

684
00:36:42,360 --> 00:36:47,360
Speaker 14: business perspective as important. You would argue that AI investment

685
00:36:47,400 --> 00:36:51,839
Speaker 14: is adding thirty basis points to fifty basis points at

686
00:36:51,840 --> 00:36:56,840
Speaker 14: GDP growth and it's helping companies. Now it's not helping

687
00:36:56,840 --> 00:37:00,319
Speaker 14: companies quite as deeply or broadly as people think. It

688
00:37:00,360 --> 00:37:02,560
Speaker 14: takes a long time for a company to figure out

689
00:37:02,560 --> 00:37:04,680
Speaker 14: how to use it. I'd use it as appropriate tool.

690
00:37:05,080 --> 00:37:08,360
Speaker 14: So I'm not one who thinks from a business perspective

691
00:37:08,640 --> 00:37:10,759
Speaker 14: there's going to be a big cliff unemployment, but it

692
00:37:10,800 --> 00:37:14,040
Speaker 14: is on everybody's mind. The bigger question is the economy,

693
00:37:14,200 --> 00:37:16,160
Speaker 14: and that's what CEOs always think about, and I think

694
00:37:16,200 --> 00:37:20,759
Speaker 14: for the past five years or so since COVID, most CEOs,

695
00:37:20,880 --> 00:37:23,520
Speaker 14: if you talk to them in January about the year ahead,

696
00:37:23,800 --> 00:37:27,120
Speaker 14: we're always more optimistic than CBO would have been IMF.

697
00:37:27,239 --> 00:37:29,600
Speaker 3: Bloomberg and they'd be right.

698
00:37:29,760 --> 00:37:33,440
Speaker 14: I think that has shifted a bit most recently, and

699
00:37:33,480 --> 00:37:37,320
Speaker 14: I think there's a level of caution that I haven't

700
00:37:38,440 --> 00:37:41,440
Speaker 14: seen so much before. And I think most CEOs today

701
00:37:41,560 --> 00:37:43,520
Speaker 14: think the economy is a one and a half percent economy.

702
00:37:44,080 --> 00:37:45,239
Speaker 14: They would have thought it was a two to two

703
00:37:45,239 --> 00:37:46,719
Speaker 14: and a half percent economy early in the year.

704
00:37:47,040 --> 00:37:49,440
Speaker 2: What is shifted, I mean is that what they're seeing

705
00:37:49,440 --> 00:37:51,720
Speaker 2: in their own numbers internally or more.

706
00:37:51,600 --> 00:37:53,719
Speaker 14: Broadly, seeing their own numbers, and you're seeing some of

707
00:37:53,760 --> 00:37:55,759
Speaker 14: the earnings that have been coming out, but shifted to

708
00:37:55,840 --> 00:38:00,399
Speaker 14: the consumer. It is finally, I think, catch up up

709
00:38:00,719 --> 00:38:04,000
Speaker 14: with the consumer confidence in dex that Michigan index that

710
00:38:04,000 --> 00:38:06,520
Speaker 14: comes out every month, which is at all time lows.

711
00:38:07,120 --> 00:38:08,360
Speaker 3: The consumer is still spending.

712
00:38:08,400 --> 00:38:12,160
Speaker 14: Now you have consumers really having gone through their savings,

713
00:38:12,600 --> 00:38:15,400
Speaker 14: savings built up when they weren't spending money during COVID,

714
00:38:16,080 --> 00:38:19,560
Speaker 14: and becoming much more cautious. So I think how that

715
00:38:19,640 --> 00:38:23,799
Speaker 14: settles out, I think will be incredibly telling. And you

716
00:38:23,840 --> 00:38:28,440
Speaker 14: combine that with energy price, and from my perspective, its

717
00:38:28,520 --> 00:38:30,680
Speaker 14: energy price has inputs for most of the products that

718
00:38:30,719 --> 00:38:33,640
Speaker 14: a lot of our most important companies are using. And

719
00:38:34,840 --> 00:38:37,239
Speaker 14: you can see where there's a bit of turbulence. All

720
00:38:37,280 --> 00:38:42,719
Speaker 14: that said, turbulence that will be managed. And I do

721
00:38:42,840 --> 00:38:47,400
Speaker 14: believe the economy remains incredibly resilient for all the reasons

722
00:38:47,440 --> 00:38:49,520
Speaker 14: everybody's thought over the past several years. And I think

723
00:38:49,560 --> 00:38:51,759
Speaker 14: that when all said and done, will win the day.

724
00:38:52,200 --> 00:38:54,840
Speaker 2: Perhaps the most important job of a CEO is allocation

725
00:38:54,840 --> 00:38:59,040
Speaker 2: of capital. And as the CEO looks at allocation of capital,

726
00:38:59,120 --> 00:39:02,320
Speaker 2: put aside from the hyperscalers, they're in a different category.

727
00:39:02,960 --> 00:39:06,640
Speaker 2: There is some hydraulic pressure to invest in AI for

728
00:39:07,000 --> 00:39:09,279
Speaker 2: just about every company I can identify.

729
00:39:09,400 --> 00:39:11,280
Speaker 4: How do they do enough so they don't.

730
00:39:11,080 --> 00:39:14,000
Speaker 2: Get leoft behind without going too far and having something that,

731
00:39:14,040 --> 00:39:16,800
Speaker 2: as you suggest, doesn't have the return that they need.

732
00:39:17,040 --> 00:39:19,239
Speaker 14: So, first of all, it's a big difference if you

733
00:39:19,239 --> 00:39:22,879
Speaker 14: have five companies spending seven one hundred billion dollars, five

734
00:39:22,880 --> 00:39:26,080
Speaker 14: companies whose market cap together equals the GDP of China,

735
00:39:26,480 --> 00:39:29,600
Speaker 14: second biggest country in the world. Right, most companies in

736
00:39:29,640 --> 00:39:34,440
Speaker 14: the SP one hundred and actually even more broadly are

737
00:39:34,440 --> 00:39:37,759
Speaker 14: making appropriate investments in AI. They're spending more than they

738
00:39:38,040 --> 00:39:41,640
Speaker 14: thought they would, but it's being implemented on a much

739
00:39:41,760 --> 00:39:44,320
Speaker 14: slower basis. I think if you are not tech native,

740
00:39:45,280 --> 00:39:49,240
Speaker 14: you're not yet using AI anywhere close to its full potential.

741
00:39:49,600 --> 00:39:54,440
Speaker 14: That moderates how they make capital investment decisions. They know this, okay,

742
00:39:54,520 --> 00:39:59,839
Speaker 14: So I think that if you look at the tip

743
00:40:00,080 --> 00:40:07,520
Speaker 14: coal consumer company, they use AI exquisitely, but they're spending

744
00:40:07,880 --> 00:40:10,359
Speaker 14: one billion, three billion, and five billion in capital. I'm

745
00:40:10,360 --> 00:40:12,080
Speaker 14: talking about the biggest companies. That's to be one hundred,

746
00:40:12,560 --> 00:40:15,200
Speaker 14: which is manageable. The bigger question is going to be

747
00:40:15,560 --> 00:40:18,839
Speaker 14: when can they actually become effective enough to.

748
00:40:20,480 --> 00:40:23,560
Speaker 3: Realize the promise of AI. From where we are today, I.

749
00:40:23,560 --> 00:40:25,719
Speaker 2: Don't see that in order to be able to make

750
00:40:25,760 --> 00:40:28,560
Speaker 2: the capital investments, these companies have to come up with

751
00:40:28,719 --> 00:40:32,960
Speaker 2: the cash these hyperscalars. That has resulted in a lot

752
00:40:33,000 --> 00:40:35,960
Speaker 2: of issuance, debt issuance and equity issues. It's really record.

753
00:40:35,960 --> 00:40:37,759
Speaker 2: We see it in the bank results right now. All

754
00:40:37,760 --> 00:40:41,239
Speaker 2: the issuance going on is that crowding out at all?

755
00:40:41,600 --> 00:40:44,239
Speaker 2: What the corporations other than the hyperscolers can.

756
00:40:44,120 --> 00:40:48,239
Speaker 14: Do not yet it is there's a ton of a

757
00:40:48,320 --> 00:40:53,000
Speaker 14: ton of liquidity. I am surprised that investors, particularly on

758
00:40:53,040 --> 00:40:57,640
Speaker 14: the debt side, have been over describing by multiples and

759
00:40:58,000 --> 00:41:03,560
Speaker 14: willing to put money to work. The question of capital generally,

760
00:41:05,000 --> 00:41:09,880
Speaker 14: i'd say one very liquid, two at cost, which is

761
00:41:09,880 --> 00:41:14,600
Speaker 14: the key thing that is still relative to where FED

762
00:41:14,640 --> 00:41:19,000
Speaker 14: funds are, I'd say reasonable. As soon as they're as

763
00:41:19,040 --> 00:41:22,279
Speaker 14: a turn in the hyperscalars, I think we'll have a

764
00:41:22,360 --> 00:41:23,240
Speaker 14: very different conversation.

765
00:41:23,920 --> 00:41:26,160
Speaker 4: The center of you is global, it's not just US.

766
00:41:26,880 --> 00:41:29,080
Speaker 2: One of the themes that we've seen with respect to tech,

767
00:41:29,320 --> 00:41:32,160
Speaker 2: we're generally in certain AI is Europe. For the United States,

768
00:41:32,200 --> 00:41:35,360
Speaker 2: Europe perception has been left behind. We had the Droggy Report.

769
00:41:35,400 --> 00:41:38,640
Speaker 2: There are various initiatives going on. Are you seeing from

770
00:41:38,800 --> 00:41:42,960
Speaker 2: your work evidence that Europe is in the move to

771
00:41:43,000 --> 00:41:44,600
Speaker 2: catch up or at least get closer.

772
00:41:44,680 --> 00:41:46,920
Speaker 3: I do, But what you use the word perception, it's

773
00:41:46,920 --> 00:41:47,480
Speaker 3: a reality.

774
00:41:47,840 --> 00:41:50,200
Speaker 14: The fact of the matter is forty three the largest

775
00:41:50,200 --> 00:41:52,360
Speaker 14: fifty companies in AI are US based.

776
00:41:52,840 --> 00:41:54,919
Speaker 3: Europe has one. Let's just talk about the market cap.

777
00:41:55,320 --> 00:41:58,600
Speaker 14: They have one company ASML worth eight hundred billion. The

778
00:41:58,600 --> 00:42:01,680
Speaker 14: next company is thrownty and fifty billion. That is less

779
00:42:01,680 --> 00:42:03,640
Speaker 14: than ten percent the size Nvidia.

780
00:42:03,880 --> 00:42:04,440
Speaker 3: They are.

781
00:42:06,080 --> 00:42:10,440
Speaker 14: I don't believe in a position to catch up. You

782
00:42:10,480 --> 00:42:12,920
Speaker 14: look at the economies of a Germany, of France flat,

783
00:42:13,400 --> 00:42:17,480
Speaker 14: you look at the interest cost of a UK too high,

784
00:42:18,200 --> 00:42:22,040
Speaker 14: and the lack of coordination I think is a big issue.

785
00:42:22,400 --> 00:42:26,120
Speaker 14: The fact is the regulatory environment there. They're trying to

786
00:42:26,160 --> 00:42:28,480
Speaker 14: do just what you said, the merger and acquisition environment.

787
00:42:28,520 --> 00:42:31,280
Speaker 14: The rules are changing. They want to have more broad

788
00:42:31,280 --> 00:42:34,879
Speaker 14: discussion as the regulator as to what's an issue that's

789
00:42:34,960 --> 00:42:41,799
Speaker 14: not give them obviously some leeway there, and they look

790
00:42:41,920 --> 00:42:44,719
Speaker 14: at the question of what is accept a merger or

791
00:42:44,719 --> 00:42:49,160
Speaker 14: not with a much different lens. Okay hasn't changed the

792
00:42:49,239 --> 00:42:52,160
Speaker 14: numbers at all. M and A is fifty percent of

793
00:42:52,200 --> 00:42:53,680
Speaker 14: the M and A market in past six months has

794
00:42:53,680 --> 00:42:55,960
Speaker 14: been US driven, same level was last year.

795
00:42:56,480 --> 00:42:58,080
Speaker 3: So I think it's a.

796
00:42:58,040 --> 00:43:02,319
Speaker 14: Long time before Europe realizes that the promise of what

797
00:43:02,360 --> 00:43:03,000
Speaker 14: they want to achieve.

798
00:43:03,560 --> 00:43:06,479
Speaker 2: Is it an even bigger problem for Europe not having

799
00:43:06,520 --> 00:43:08,839
Speaker 2: a unified capital market. I mean that's one advantaged United

800
00:43:08,840 --> 00:43:11,360
Speaker 2: States says it's one capital market over there. They have

801
00:43:11,400 --> 00:43:12,400
Speaker 2: not been able to pull it.

802
00:43:12,600 --> 00:43:14,280
Speaker 14: And not only do they not have one capital market,

803
00:43:14,440 --> 00:43:18,680
Speaker 14: they don't have one view as to what kind of

804
00:43:18,719 --> 00:43:20,560
Speaker 14: GDP growth and what kind of debt.

805
00:43:20,440 --> 00:43:22,840
Speaker 3: To GDP you have to subscribe to.

806
00:43:23,239 --> 00:43:27,399
Speaker 14: There's exceptions every year Italy makes the exception, Spain makes

807
00:43:27,440 --> 00:43:31,200
Speaker 14: the exception. So they spend more time I think with

808
00:43:32,040 --> 00:43:34,960
Speaker 14: call it intra family back and forth, and they do

809
00:43:35,000 --> 00:43:35,839
Speaker 14: focus on the right thing.

810
00:43:35,840 --> 00:43:39,320
Speaker 3: And I do think as a place for an electric

811
00:43:39,360 --> 00:43:40,799
Speaker 3: capital incredible.

812
00:43:41,560 --> 00:43:46,400
Speaker 14: They don't let that intellectual capital be unharnessed in a

813
00:43:46,400 --> 00:43:48,600
Speaker 14: way that the US markets do.

814
00:43:49,120 --> 00:43:51,959
Speaker 2: One area of deal making where Efron and his Center

815
00:43:52,040 --> 00:43:55,240
Speaker 2: View partners have been particularly active over the years is media,

816
00:43:55,800 --> 00:44:00,680
Speaker 2: including as an advisor to both Paramount and Disney Area

817
00:44:01,160 --> 00:44:03,040
Speaker 2: in particularly the United States. We're seeing a lot of

818
00:44:03,320 --> 00:44:05,719
Speaker 2: deals announced. At least there's something you know terribly well,

819
00:44:05,719 --> 00:44:06,440
Speaker 2: which is media.

820
00:44:06,920 --> 00:44:08,120
Speaker 3: I don't know a little bit about it.

821
00:44:08,920 --> 00:44:12,000
Speaker 2: With a combination of Fox and Roku going one way,

822
00:44:12,040 --> 00:44:15,640
Speaker 2: I would say, toward integration, and you have a Comcast

823
00:44:15,640 --> 00:44:19,920
Speaker 2: spinning off NBCU going here's the other way, separating distribution

824
00:44:20,080 --> 00:44:20,680
Speaker 2: from content.

825
00:44:21,080 --> 00:44:23,040
Speaker 4: Where are we headed here? Why is this all happening

826
00:44:23,120 --> 00:44:23,600
Speaker 4: right now?

827
00:44:23,760 --> 00:44:26,200
Speaker 14: So, first of all, it's happening because people are realizing

828
00:44:26,239 --> 00:44:30,320
Speaker 14: that scale really matters in that sector.

829
00:44:30,360 --> 00:44:31,160
Speaker 3: Why does it matter in.

830
00:44:31,080 --> 00:44:34,759
Speaker 14: That industry because the fundamentally becoming technology companies. The technology

831
00:44:34,760 --> 00:44:37,320
Speaker 14: companies are coming in, they've been in, whether it's an Apple,

832
00:44:37,360 --> 00:44:41,600
Speaker 14: whether it's a Google, whether it's in Amazon, and they're

833
00:44:41,680 --> 00:44:46,000
Speaker 14: highly effective. So there has been there were too many

834
00:44:46,000 --> 00:44:49,600
Speaker 14: small companies. There are too many companies doing streaming, keeping

835
00:44:49,640 --> 00:44:52,080
Speaker 14: down the margin. In fact, there was only two companies

836
00:44:52,120 --> 00:44:56,000
Speaker 14: that showed double digit margin Netflix thirty percent, Disney of

837
00:44:56,000 --> 00:44:58,560
Speaker 14: twelve percent, and then everybody falls off the cliff. So

838
00:44:58,920 --> 00:45:03,080
Speaker 14: what Comcast did is actually in line with that trend

839
00:45:03,120 --> 00:45:07,600
Speaker 14: because by separating separating a very mature distribution business from

840
00:45:07,640 --> 00:45:11,080
Speaker 14: a vibrant content business, they will have more choice. I

841
00:45:11,080 --> 00:45:16,759
Speaker 14: think in the case of News Corp Fox, they recognize

842
00:45:17,360 --> 00:45:20,240
Speaker 14: without some sort of way to reach consumers through streaming,

843
00:45:21,400 --> 00:45:23,040
Speaker 14: they'd have a lot of problem. So I think the

844
00:45:23,160 --> 00:45:25,480
Speaker 14: making the right moves. But that's what's driving some of

845
00:45:25,480 --> 00:45:30,000
Speaker 14: this consolidation. I will tell you. I think there is

846
00:45:30,080 --> 00:45:34,520
Speaker 14: a highlighted concern which has not been justified yet, that

847
00:45:35,520 --> 00:45:38,920
Speaker 14: tech that AI is going to have a dramatic impact

848
00:45:38,960 --> 00:45:41,480
Speaker 14: on employment levels. I see quite the opposite, And when

849
00:45:41,480 --> 00:45:43,880
Speaker 14: you look at what happened with CGI, it opened the

850
00:45:43,920 --> 00:45:46,400
Speaker 14: way for more employment. If I look at the question

851
00:45:46,520 --> 00:45:51,520
Speaker 14: of AI, and you're doing an animated film and you're

852
00:45:51,560 --> 00:45:56,359
Speaker 14: spending two hundred million to put it out five million total,

853
00:45:56,400 --> 00:45:58,520
Speaker 14: and you have five hundred people working on it, and

854
00:45:58,560 --> 00:46:01,520
Speaker 14: it takes two years. Now you're AI and it's fifty

855
00:46:01,560 --> 00:46:06,920
Speaker 14: million to produce, it's six months to make, and so

856
00:46:07,040 --> 00:46:10,120
Speaker 14: fifty people you have just freed up a whole host

857
00:46:10,200 --> 00:46:16,600
Speaker 14: of really smart, really creative people to increase content availability.

858
00:46:17,000 --> 00:46:19,279
Speaker 14: And if you talk to the CEO of any of

859
00:46:19,320 --> 00:46:22,480
Speaker 14: these companies, that's what that's what you're hearing.

860
00:46:23,000 --> 00:46:26,759
Speaker 4: Does tech win? And by I mean, I mean if you.

861
00:46:26,680 --> 00:46:30,520
Speaker 2: Look at the landscape right now, just in terms of

862
00:46:30,560 --> 00:46:32,840
Speaker 2: amount of time spent viewing on screens, YouTube is just

863
00:46:32,920 --> 00:46:33,759
Speaker 2: running away with it.

864
00:46:35,040 --> 00:46:36,920
Speaker 3: But absolutely, absolutely phenomenal.

865
00:46:37,040 --> 00:46:39,960
Speaker 2: It's a better mouse trap. In the end, Do the

866
00:46:40,000 --> 00:46:43,080
Speaker 2: tech companies win? And that doesn't necessarily mean buying the

867
00:46:43,120 --> 00:46:45,400
Speaker 2: studios might not want to buy the studios, but they

868
00:46:45,440 --> 00:46:47,360
Speaker 2: basically get to fifcate the terms.

869
00:46:47,760 --> 00:46:48,799
Speaker 3: So I wouldn't say they win.

870
00:46:49,160 --> 00:46:52,720
Speaker 14: I would say that if a content company doesn't become

871
00:46:52,960 --> 00:46:55,959
Speaker 14: really tech native, they'd have a problem. I will also

872
00:46:56,000 --> 00:46:58,120
Speaker 14: tell you if you're a tech company, you don't actually

873
00:46:58,200 --> 00:47:02,279
Speaker 14: understand quality content yet. Okay, you don't understand quality creativity.

874
00:47:02,520 --> 00:47:05,200
Speaker 14: They know it. So the key for who is going

875
00:47:05,239 --> 00:47:09,360
Speaker 14: to win is the company that can combine content with technology.

876
00:47:09,440 --> 00:47:12,600
Speaker 14: If you look at what Disney's doing making progress in

877
00:47:12,600 --> 00:47:15,160
Speaker 14: that direction. If you look at what David Ellison is

878
00:47:15,160 --> 00:47:16,879
Speaker 14: trying to do with Paramount, I say trying, because we're

879
00:47:16,880 --> 00:47:20,960
Speaker 14: not closed yet. It's all about the marriage of technology

880
00:47:20,960 --> 00:47:25,120
Speaker 14: and content. So I think those companies actually are better

881
00:47:25,160 --> 00:47:28,800
Speaker 14: positioned to get the two together than some of the

882
00:47:28,840 --> 00:47:33,920
Speaker 14: bigger companies that don't have that creative DNA in their system,

883
00:47:33,920 --> 00:47:37,160
Speaker 14: but they certainly know how to get out product and distribution.

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00:47:38,800 --> 00:47:40,680
Speaker 2: That does it for us. Here at Wall Street Week,

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00:47:40,840 --> 00:47:43,880
Speaker 2: I'm David Weston. See you next week for more stories

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00:47:43,920 --> 00:47:56,440
Speaker 2: of capitalism.