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Speaker 2: About the first quarter?
Speaker 3: What we all want to know was how things are
Speaker 3: looking in the current quarter, what the outlook is for more?
Speaker 3: We bring in Bloomberg News Chief Wall Street correspondent Trenata
Speaker 3: Rajen he joins us here in the Bloomberg Business Week
Speaker 3: Studio Shree. A couple words came up, uncertainty, unknowns, turbulence,
Speaker 3: what's the outlook.
Speaker 2: If anything is look.
Speaker 4: That's something that Jamie Diamond dens to use a lot,
Speaker 4: but yes, it's across ap Morgan, Morgan, Stanley Wells Fargo.
Speaker 4: That word certainly God repeated a lot more than we're
Speaker 4: used to seeing, and it's very understandable because of everything
Speaker 4: that's happened in the last week. It would have been
Speaker 4: an impossible situation to get to to expect these bank
Speaker 4: bosses to get in there and tell you that they
Speaker 4: have a very clear grasp of what lies ahead, because
Speaker 4: the path ahead clearly had there are many folks in
Speaker 4: the road. We don't know where this will go for now.
Speaker 4: When you look at the numbers that they've printed, extremely good,
Speaker 4: extremely healthy, they should be happy with where they are.
Speaker 4: But when you look at what their stock is actually
Speaker 4: doing for the year, down more than ten percent across
Speaker 4: the board rather than JP Morgan, and even JP Morgan
Speaker 4: is read for the year, it tells you that there
Speaker 4: is some nervousness in the system out there, not so
Speaker 4: much about how banks will handle it, but because banks
Speaker 4: are considered a good proxy for the broader economy, any
Speaker 4: concerns about the pace of growth, whether that's recession or
Speaker 4: even slower growth, which is what Ted Pick said, the
Speaker 4: consensus seems to be explore growth, not no growth. That's
Speaker 4: still not going to be a good outcome for the
Speaker 4: banks at the end of the day. And that's why
Speaker 4: some chrepedition in their comments today.
Speaker 5: Yeah, and we saw definitely some swings in the share
Speaker 5: price today as well in all of them. Hey, Allison,
Speaker 5: come on in here. What's kind of the key takeaway here.
Speaker 6: So I think JP morgan volatility helps their trading, and
Speaker 6: they've used that to sort of set aside some money
Speaker 6: for the growing risk. I think, you know what's important
Speaker 6: is if you look at the underlying quarter for JP Morgan,
Speaker 6: obviously I thought it was very robust, and they had
Speaker 6: sort of five hundred million in upside to trading. They
Speaker 6: also had a gain related to First Republic of about
Speaker 6: six hundred million, and so they used that to set
Speaker 6: aside a billion in loss reserves. And that compared that
Speaker 6: to Wells Fargo where they had a slight release. But
Speaker 6: then if you look at the underlying numbers, JP Morgan
Speaker 6: now weighted average view five eight percent unemployment rate and
Speaker 6: that's about simihere to Wells Fargo is so in a way,
Speaker 6: Wells Fargo had sort of stayed a little bit more conservative.
Speaker 2: They have a different loan mix. JP Morgan has more card.
Speaker 6: I think that's, you know, for sure, an area that
Speaker 6: I'm a little bit more worried about, just giving the
Speaker 6: growth we've had, it has higher loss rates. So and
Speaker 6: by the way, like forty percent of JP Morgan's reserve
Speaker 6: was for card. So JP Morgan, I would say, you know,
Speaker 6: the model benefiting from volatility helps them to provide for
Speaker 6: some of the risks from that uncertainty. And Wells Fargo
Speaker 6: just a little bit softer, right, So, as I said,
Speaker 6: they're not much happening with the reserve, but not interesting.
Speaker 2: Income was a.
Speaker 6: Little weak, demand a little weak, and I think that's
Speaker 6: why the shares are a little weaker.
Speaker 3: So, Allison, given what we heard from these three banks,
Speaker 3: and we still have some to hear from next week,
Speaker 3: how would you characterize their view on the economy as
Speaker 3: it is right now trade tariffs and potentially any red flags.
Speaker 6: I think you know, the view on the economy is
Speaker 6: I think similar to the rest of us. We have
Speaker 6: to see what happens with tariffs and a lot of
Speaker 6: the uncertainty, and there's a lot of unknowns and hopefully
Speaker 6: we'll know more by the time next time earnings rolls around.
Speaker 2: Clear as mud, right, exactly clear is mud.
Speaker 6: But factoring in, like what JP Morgan said, is like, look,
Speaker 6: we our space case is still very benign, but we're
Speaker 6: going to factor in more of a risk of a
Speaker 6: downside scenario.
Speaker 5: All right, So listen, I got to just say we
Speaker 5: were all kind of looking forward to the start of
Speaker 5: earning season, so that we could talk about something else
Speaker 5: than tariffs, and obviously tires play into, you know, the
Speaker 5: outlook and what these guys have to say. But you know, Shre,
Speaker 5: we just talked with you and kind of how you know,
Speaker 5: we were looking forward to what we got from these guys.
Speaker 5: So is there something as we look in this environment
Speaker 5: where uncertainty is the watchword that we got from them
Speaker 5: in terms of Yeah, folks, you should be worried because
Speaker 5: these are the guys that matter.
Speaker 2: They see the financial system. Look, it's an.
Speaker 4: Interesting question because for the longest time we've seen we
Speaker 4: we've looked at these bank earnings results not necessarily to
Speaker 4: see how good their bonuses will be at the end
Speaker 4: of the year. Right, that's what matters to them, But
Speaker 4: for us, it's a bell weather for what comes ahead
Speaker 4: in the broader economy. And maybe this is something Alison
Speaker 4: could address because one thing I've been thinking about, not
Speaker 4: an original thought, has come up a few times, but
Speaker 4: I do feel it plays a bigger role increasingly. Are
Speaker 4: these big banks necessarily a true bell weather when you
Speaker 4: consider that they have stopped playing a role sort of
Speaker 4: in the riskiest spots of the lending market whether it's
Speaker 4: a mortgage market or the consumer debt market. Can you
Speaker 4: really look at their results and see if we're seeing
Speaker 4: a turn in the economy or do we need to
Speaker 4: look elsewhere?
Speaker 3: What do you think?
Speaker 6: I think it depends on the business that you're looking at.
Speaker 6: So I do think that from a card perspective, right, So,
Speaker 6: JP Morgan, biggest card lender, obviously focuses on the higher
Speaker 6: segment than some other card lenders back of America. When
Speaker 6: we hear from them next week, we really do look
Speaker 6: at their consumer trends as an underlying bell weather. The
Speaker 6: thing is right is that nothing has happened yet. If anything,
Speaker 6: What we saw in JP Morgan alluded to this is
Speaker 6: that we've seen a little bit more frontloading of the spending,
Speaker 6: right so people that maybe want to make a sizeable
Speaker 6: purchase or you know, some things they wanted to sort
Speaker 6: of get in front of any uncertainty. We've also heard
Speaker 6: this from our retail analysts. We saw some of the
Speaker 6: five serve data right spending holding up with people were surprised, right,
Speaker 6: but those numbers are through March. They're through March thirty first,
Speaker 6: and so a lot of the uncertainty is happening now.
Speaker 6: And if you you know, if you look at all
Speaker 6: the deals that are stalled as you know, you know,
Speaker 6: we're we've had a lot of IPOs reported to be
Speaker 6: on hold, and you know, looking more towards that side
Speaker 6: of the business, I think the most telling numbers are Goldmen, Sachs,
Speaker 6: Morgan Stanley cutting investment bankers. Now you know they do
Speaker 6: normally do that process at the end of the year,
Speaker 6: they're doing it early. We saw the similar thing a
Speaker 6: couple of years ago Morgan Steam. We did also allude
Speaker 6: to things like AI and technology, but you know, they
Speaker 6: also were performance based. So I think you look at
Speaker 6: those numbers and you look at some of those those cuts,
Speaker 6: it's sort of telling on what they think is going
Speaker 6: to be happening with the banking for your pipeline.
Speaker 2: I feel like we're not crazily worried, just real quickly.
Speaker 4: Well, then to Allison's point, I think the divergence is
Speaker 4: there right If any pain in the consumer economy, it'll
Speaker 4: probably still take a few quarters to play out. But
Speaker 4: where you're seeing an immediate effect is because of the
Speaker 4: lack of confidence and because of the uncertainty, it is
Speaker 4: going to impact portions of the market. The banks that
Speaker 4: are tethered to the investment bank and the investment banking
Speaker 4: business are going to see that effect. Which is why
Speaker 4: I'm very curious how Goldman reacts, not only through earnings,
Speaker 4: but also a few weeks beyond, because even in the
Speaker 4: last ten days you've seen a little bit of weakness
Speaker 4: in that stock relative to its bigger peers. I want
Speaker 4: to see if that loss or not or of earnings
Speaker 4: completely change the narrative on that.
Speaker 6: And maybe just one thing throughout quickly. You know, one
Speaker 6: billion and lost reserves at JP Morgan. They built fifteen
Speaker 6: billing in the pandemic in a couple of quarters, So okay,
Speaker 6: there is uncertainty, but just keep in mind, and you know,
Speaker 6: people look at the market and different measures, but I
Speaker 6: would just point to that for the bank.
Speaker 2: That's why we talk to you, guys. It's the perspective
Speaker 2: we needed.
Speaker 5: Thank you both so much, Bloomberg News Chief Wall Street
Speaker 5: correspondent Street nottaraje On and Bloomberg Intelligence Senior analysts for
Speaker 5: global investment banks and asset managers, Allison Williams.
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Speaker 3: Well, farmers are worried that Trump's trade war with China
Speaker 3: could cause disastrous consequences for their ability to sell soybeans.
Speaker 3: Even before the current administration took the reins, farmer income
Speaker 3: had been under pressure for a couple of years as
Speaker 3: the cost of seeds, fertilizer, and equipment went up and
Speaker 3: crop prices decline. That's what's going on here in the
Speaker 3: US with this trade war exactly. We want to go
Speaker 3: outside of the US and talk to somebody who spent
Speaker 3: his career thinking about where products, where commodities come from,
Speaker 3: who brings them to us, how they're compensated, and the
Speaker 3: working conditions of those individuals. Paul Rice is the founder
Speaker 3: of fair Trade USA. It's the nonprofit fair trade certifier
Speaker 3: he started nearly thirty years ago. The organization says that
Speaker 3: a product is a fair Trade certified and that means
Speaker 3: that it was quote made according to rigorous standards that
Speaker 3: protect the livelihoods of farmers, fishers, and other producer communities
Speaker 3: and the environment. He's got a new book out. It's
Speaker 3: called Every Purchase Matters How fair trade farmers, companies, and
Speaker 3: consumers are changing the world. He joins us from Berkeley, California. Paul,
Speaker 3: great to have you. Congratulations on the new book. It's
Speaker 3: perfect to have somebody who understands trade and tariffs. You
Speaker 3: certainly understand these things. What is your view on tariff
Speaker 3: specifically with regard to the world where you've spent the
Speaker 3: last thirty years.
Speaker 7: Well, tariffs are bad. There's no other way. There's no
Speaker 7: other way to put it. Tariffs are dumb, and they're
Speaker 7: going to hurt a lot of people. They're going to
Speaker 7: hurt American consumer US as we all know, because the
Speaker 7: cost of things that we buy are going to go up.
Speaker 7: And it's going to hurt American business because there's retaliatory tariffs.
Speaker 7: I recently spoke with a US company that sells about
Speaker 7: forty percent of their roasted coffee into Canada. Retaliatory tariffs
Speaker 7: are going to make it harder for him to do that.
Speaker 7: And finally, the tariffs are bad for sustainability.
Speaker 3: Oh.
Speaker 7: Interesting. The onus is going to be pushed back onto
Speaker 7: a lot of developing world farmers and factory owners to
Speaker 7: absorb some of that extra cost, and it's going to
Speaker 7: pressure a lot of people to cut back on sustainability
Speaker 7: measures that you know, things like installing solar panels or
Speaker 7: you know, providing better housing for workers. So all the
Speaker 7: way around, tariffs are bad.
Speaker 3: One of the reasons we wanted to speak to you
Speaker 3: is because the products that we see the fair trade
Speaker 3: certification are often products that you can only get outside
Speaker 3: of the United States. And I think it's fair to
Speaker 3: say the reason the President wants to impose these tariffs
Speaker 3: are because he has, in his view, the US has
Speaker 3: been treated unfairly when it comes to trade. He wants
Speaker 3: to see manufacturing specifically and production specifically move back to
Speaker 3: this country. Is there a disconnect in your view given
Speaker 3: that some of the stuff that could see tariffs on
Speaker 3: it you can't actually produce here in the US. Like,
Speaker 3: help me make sense of that?
Speaker 7: Yeah, a huge disconnect. I mean, seventy percent of Americans
Speaker 7: drink coffee. The US can't grow coffee, right, Coffee comes
Speaker 7: from Latin America and Asia and Africa. And you know, similarly,
Speaker 7: eighty percent of Americans eat bananas. Guess what, We don't
Speaker 7: grow bananas in the US. We import them. So tariffs
Speaker 7: are going to hurt Americans because all of those things
Speaker 7: that we love to drink and eat, like coffee and bananas,
Speaker 7: the price of those are going to go up. But furthermore,
Speaker 7: you know, tariff's are really going to hurt those farmers
Speaker 7: around the world. And so you know, what is quite
Speaker 7: possible is that a lot of those businesses are going
Speaker 7: to fail because they cannot absorb the tariff, which means
Speaker 7: more workers out of work. I mean, imagine what happens
Speaker 7: if unemployment goes up in Mexico, what kind of pressure
Speaker 7: that puts on the southern border. There's nothing good about
Speaker 7: this whole tariff policy.
Speaker 5: Now when I think about Paul Supermarket, certainly here in
Speaker 5: the United States, they live on such slim margins, so
Speaker 5: they have no choice but to pass any additional costs
Speaker 5: off to consumers.
Speaker 2: Correct either they'll.
Speaker 7: Pass it on to the consumer or they'll push it
Speaker 7: back onto the producer. And that's what I mean by
Speaker 7: you know, companies in Mexico, for example, going belly up
Speaker 7: or having to lay off workers. If you know, if
Speaker 7: Whole Foods or Costco or Walmart decides to push some
Speaker 7: of that extra cost back on to the producer, then
Speaker 7: we're going to see some severe business uh disruption south
Speaker 7: of the border, which is not going to help our
Speaker 7: our national situation at all. And on the you know, similarly,
Speaker 7: even if it all gets passed on to consumers with
Speaker 7: prices already high, will consumers pay more for imported strawberries
Speaker 7: or tomatoes, or coffee or bananas? I don't know, you know,
Speaker 7: I think it's quite possible the demand goes down, which
Speaker 7: means a ripple effect around the world that you know
Speaker 7: it's going to it's going to be a tremendous hardship
Speaker 7: for a lot of people.
Speaker 2: Well, that brings us to your book.
Speaker 5: And as we said, it's entitled Every Purchase Matters How
Speaker 5: fair trade farmers, companies, and consumers are changing the world.
Speaker 2: Fair trade, I think it's thrown around.
Speaker 5: I think we'd like to buy fair trade goods, but
Speaker 5: explain to the world, just remind them what fair trade
Speaker 5: is all.
Speaker 3: And you're talking when you ask the question, Carol, you're
Speaker 3: asking about fair trade like capital F capital T fair trade,
Speaker 3: not the concept of.
Speaker 5: Fair trade, no exactly, which is something that president might use,
Speaker 5: but no, what fair trade?
Speaker 7: Fair trade certified?
Speaker 5: There?
Speaker 3: It is.
Speaker 2: What gets that certification. What has to happen in order
Speaker 2: to get it?
Speaker 7: Yeah, So fair trade is a rigorous two hundred point
Speaker 7: checklist of social, labor and environmental criteria that farms and
Speaker 7: factories meet and get audited against every year in order
Speaker 7: to wear the fair trade certified label. And on this
Speaker 7: side of the market, our you know, two thousand plus
Speaker 7: market partners from Whole Foods to Target to Walmart all
Speaker 7: agree to pay a small premium back to those farmers
Speaker 7: and workers, which they then can invest in healthcare and
Speaker 7: education and better housing. So fair trade, you know, through
Speaker 7: the lens of global development, it's a market based approach
Speaker 7: to global poverty and to protecting the planet for us
Speaker 7: the consumer. Increasingly, consumers want to know that there's no
Speaker 7: child labor in our chocolate bar and that the environment
Speaker 7: wasn't just in the production of our coffee. So fair
Speaker 7: trade is a way that we as consumers can feel
Speaker 7: reassured that the products we're consuming are produced in a
Speaker 7: responsible and sustainable way.
Speaker 3: What are the checks that are in place to make
Speaker 3: sure these sustainable practices are followed when the folks from
Speaker 3: your organization are not watching, when they're not there visiting
Speaker 3: these plants.
Speaker 7: So our one million plus farms and factories are audited
Speaker 7: every year. The auditors talk with the workers, they may
Speaker 7: visit the production sites, they do a rigorous inspection, and
Speaker 7: that happens every year. And in addition, of course, all
Speaker 7: of the brand partners or many of the brand partners
Speaker 7: are visiting those farms and factories every year. So it's
Speaker 7: an incredibly rigorous oversight. And the producers, for their own
Speaker 7: part tend to be producers that are really bought into
Speaker 7: the notion of greater responsibility, and they're getting this premium,
Speaker 7: So producers don't want to run the risk of losing
Speaker 7: the annual premium they get. So there's a real alignment
Speaker 7: of incentives where the producer, the farmer, or the factory
Speaker 7: owners get more money, the brands get a more secure
Speaker 7: and reliable supply chain, and the consumer gets a product
Speaker 7: that makes us feel good because it's helping lift workers
Speaker 7: out of poverty, it's ensuring fair wages, and it's helping
Speaker 7: to protect the environment.
Speaker 5: I didn't know Driscolls had kind of gone through a
Speaker 5: little bit of a path. Dristcals. I think about strawberries
Speaker 5: right like, I mean, every berry, every berry is just close.
Speaker 5: It's the organic, it's the non organic. We are Bloomberg,
Speaker 5: and you know, we think, Tim and I think a
Speaker 5: lot about profitability. Obviously right here we are in earning season,
Speaker 5: but at the same time, the ability to be a
Speaker 5: good company, be a good corporate citizen, do well. What
Speaker 5: is kind of the financial story of sustainability or fair
Speaker 5: trade practice is?
Speaker 7: Yeah, I love I love this question, you know, because
Speaker 7: I spent eleven years working with coffee farmers in the
Speaker 7: mountains of Nicaragua in my twenties and then moved back
Speaker 7: here to start fair trade and I've always felt that
Speaker 7: fair trade would never work for the farmers if it
Speaker 7: didn't also work for business. So I've spent you know,
Speaker 7: the better part of the last thirty years working directly
Speaker 7: with companies to develop a strong business case for sourcing
Speaker 7: in a more sustainable way, not just because it's the
Speaker 7: right thing to do, but because it creates value for
Speaker 7: the firm, right what Michael Porter at Harvard calls shared value. Right.
Speaker 7: So there's there's value for the farmer, for the worker,
Speaker 7: for the planet, but also there's supply chain resilience for
Speaker 7: the company. There's brand differentiation for the company, and there's
Speaker 7: you know that emotional gratification as a consumer that we
Speaker 7: feel when we buy something knowing that it did no harm.
Speaker 7: I'll give you a recent example. Walmart piloted fair trade
Speaker 7: tomatoes and saw their sales go up by three percent
Speaker 7: when the label went on the package. Now, who would
Speaker 7: have thought that a Walmart consumer would care about tomato
Speaker 7: farm workers in the developing world, And in fact they do.
Speaker 7: And so it's just an indication of the business case
Speaker 7: for fair trade right that consumers are moving in this direction.
Speaker 7: They're voting with their dollars, if you will, for the
Speaker 7: kind of world they want to see. They're looking for
Speaker 7: more socially and environmentally responsible products. And quite frankly, this
Speaker 7: macro trend is politics proof. I just wrote a piece
Speaker 7: for a Wall Street Journal and our ed piece entitled
Speaker 7: will sustainability survive Trump's second term? And the reality is
Speaker 7: the business community is moving in this direction not just
Speaker 7: because it's the right thing to do, but because it's
Speaker 7: better business, and it is better for business.
Speaker 3: Paul, is there anything that cannot be produced in your view,
Speaker 3: in a fair trade way? Right now?
Speaker 2: Can an iPhone? I don't even think we.
Speaker 7: Would love to work with Apple on fair trade iPhones
Speaker 7: we're not there yet, but over the last twenty six years,
Speaker 7: you know, we started with coffee, and then year after
Speaker 7: year we engaged with lighthouse brands, pioneering brands who wanted
Speaker 7: to take us into their industry. So now we work
Speaker 7: in apparel, we work in cosmetics, we work in you know,
Speaker 7: in furniture with Williams Sonoma Inc. And we're certifying seafood,
Speaker 7: we're certifying dairy. We sort of buy farms and factories
Speaker 7: in the US now, not just abroad. And so you know,
Speaker 7: our vision is fair trade for all, and it's the
Speaker 7: notion that any and all supply chains, domestic or international,
Speaker 7: can be can embrace responsible sourcing practices. And so yeah,
Speaker 7: stay tuned. Maybe next year you'll bring me on when
Speaker 7: we have fair trade iPhones.
Speaker 2: All right, we will do that.
Speaker 8: We will do that.
Speaker 2: We will hold you to it. Paul, Thank you so much,
Speaker 2: Paul Rice.
Speaker 5: Glad we could finally get to you, founder of Fairtrade USA,
Speaker 5: his book Every Purchase Matters, How fairtrade farmers.
Speaker 2: Come, copanies and consumers are changing the world.
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Speaker 3: Chinese exports of rare earth minerals are all but on
Speaker 3: hold as producers grapple with tighter permit requirements following last
Speaker 3: week's new restrictions on the critical materials in an escalating
Speaker 3: trade war with the US. We want to go deep
Speaker 3: on rare earth to understand how they fit into the
Speaker 3: trade war, if there are alternatives, how much leverage it
Speaker 3: gives China, and more. And we've got a great roundtable.
Speaker 5: So we're going to just tell you sit down, pull
Speaker 5: your car over, maybe grab a drink, well, not if
Speaker 5: you're in the.
Speaker 3: G get your shovel and dig in well, because this
Speaker 3: is going to be lining reference.
Speaker 2: You're going to learn some stuff.
Speaker 3: Gracelynn Baskern is director of the Critical Minerals Security Program
Speaker 3: at the Center for Strategic and International Studies, and it
Speaker 3: ain familiar to our audience. Bloomberg News Metals and mining
Speaker 3: reporter Joe Doe Graceland joins us from New York. Joe's
Speaker 3: here in our Bloomberg interactive at Brokers Studio Joe. Rare
Speaker 3: earths on the surface sounds like they're rare, but I'm
Speaker 3: learning that they're not actually that.
Speaker 9: Rare, right, They're not rare. They come from the earth.
Speaker 9: Though they come from the earth, that part is true.
Speaker 9: It's hard to find them in density, right, So the
Speaker 9: rare earths are like literally in your backyard. If you
Speaker 9: just like dug up some dirt, you could be like, oh,
Speaker 9: they are rare earths in this, but.
Speaker 3: You know, we live in New York, right.
Speaker 9: But it's the same as like, oh, well I take
Speaker 9: zinc as you know, a vitamin or you know whatever.
Speaker 9: It might be, right, but in terms of industrial scale, right,
Speaker 9: because you need rare earth to create things like permanent magnets,
Speaker 9: and permanent magnets allow for wind turbines to keep moving
Speaker 9: and for electric motors to keep moving. I mean that's
Speaker 9: really all like the main thing regular people should know.
Speaker 9: To find the density is quite difficult. It's not like
Speaker 9: they're just in your.
Speaker 2: Backyard, like a huge pile graceland.
Speaker 5: Come on, in your background is pretty incredible. A mining
Speaker 5: economist critical minerals in Trade. You began your career in
Speaker 5: South Africa's Platinum Belt spent five years at the World
Speaker 5: Bank in South Africa. So tell us a little bit
Speaker 5: about like what don't we really know about rare earth minerals,
Speaker 5: and then we want to kind of roll into this
Speaker 5: how the US China trade war plays into all of this.
Speaker 2: But come on in and welcome, Welcome.
Speaker 8: Thanks so much for having me.
Speaker 10: So you know, as Joe said, rare earths aren't rare,
Speaker 10: They're everywhere. But why we're really vulnerable for them is
Speaker 10: that once you dig them out of the ground, you
Speaker 10: have to separate them, and that those separation facilities are
Speaker 10: primarily in China. So for heavy rare earths, they actually
Speaker 10: separate over ninety percent of the world's heavy rearers and
Speaker 10: about eighty percent of light rearers. Now the problem is
Speaker 10: that that means once they go to China, China can
Speaker 10: apply any sort of export restriction to them, and they
Speaker 10: actually started doing this about fifteen years ago when China
Speaker 10: first cut off Japan from rare earth exports because they
Speaker 10: got into an argument about a phishing trawler. So we
Speaker 10: have seen minerals and even rare earth's at the very beginning,
Speaker 10: be weaponized over time. For US, it's a national security
Speaker 10: challenge because rare earths go into almost every form of
Speaker 10: defense technology, from fighter jets and warships to missiles and tanks.
Speaker 3: Gracelyn, can we build the facilities here in the US
Speaker 3: that could process those rare earths? So then the United
Speaker 3: States gains control over some of the share.
Speaker 8: Absolutely, and we are building them.
Speaker 10: The problem is that none of these facilities come online overnight.
Speaker 8: So over the last five years.
Speaker 10: The Department of Defense, through something called the Defense Production Act,
Speaker 10: has given out over three hundred million dollars to build
Speaker 10: these facilities in Texas, in Canada and for some rare
Speaker 10: earth it'll be the first major facility outside.
Speaker 3: Of China Canada that maybe five years ago that worked.
Speaker 3: We're not going to talk about that right now, but
Speaker 3: that made my ears perk up because of what's going
Speaker 3: on between the US and Canada right now.
Speaker 5: But can we produce enough and Jill come on back
Speaker 5: in here enough in terms of to meet the demand
Speaker 5: that we need here in the US for things.
Speaker 9: Not right now? Yeah, I mean this is you know
Speaker 9: where Graycelin's getting at here is very similar to the
Speaker 9: story of steel and copper and like all these other
Speaker 9: things anything manufacturing right like this is the approach of
Speaker 9: the Trump administration is bring all manufacturing back to the
Speaker 9: United States of America. To maybe take a phrase from
Speaker 9: our president, sounds great, doesn't work right, Like you can
Speaker 9: do it, but as Grayson says, it's going to take
Speaker 9: you a while. I mean, MP Materials is like the
Speaker 9: big critical minerals company in the United States, and they're
Speaker 9: still shipping a significant amount of their rare earth pulled
Speaker 9: out of the ground to China to be processed. Yes,
Speaker 9: they're currently working on integrating everything and having their own processing,
Speaker 9: but you talk to anybody in the market and they're
Speaker 9: like that, even when they get fully scaled up to
Speaker 9: what they say they want to do, it's just not
Speaker 9: enough on their own gracelon.
Speaker 5: So it sounds like China has a great weapon in
Speaker 5: this trade war to get the US to maybe bend
Speaker 5: a little bit.
Speaker 2: Is that fair?
Speaker 8: Absolutely?
Speaker 10: So let's talk about the export restrictions that just came
Speaker 10: out this week.
Speaker 8: So they're not actually a ban.
Speaker 10: If you think about restrictions, you start with something that
Speaker 10: we call non automatic licensing, which means you have to
Speaker 10: apply to get a.
Speaker 8: Permit to be able to export the minerals.
Speaker 10: Then you have tariffs, you have quotas, those are your
Speaker 10: mid tier, and then you have a ban. What China
Speaker 10: did this week was the lightest form of restriction, for
Speaker 10: lack of a better word, is they put in the
Speaker 10: non automatic licensing. But if the trade war continues to accelerate,
Speaker 10: they can continue to tighten those restrictions. And ultimately, because
Speaker 10: there are so few facilities that can give us the
Speaker 10: rarers that we need outside of China, that's going to
Speaker 10: undermine our national security. It's in things like semiconductors, so
Speaker 10: it's going to affect our economic security, and it's going
Speaker 10: to affect our energy security given that they are in
Speaker 10: many forms of energy technologies.
Speaker 5: So as your read on what China did by taking
Speaker 5: the easiest member measure and or the least punitive measure
Speaker 5: a strong diplomatic sign to the US that we're open
Speaker 5: to negotiating.
Speaker 10: I think it's a sign to both China and the US, Like, ultimately,
Speaker 10: these companies are all Chinese and cutting off exports all
Speaker 10: together would be economically consequential to them.
Speaker 8: So it's a sign there that, look.
Speaker 10: That there is room that we need to get ready,
Speaker 10: we need to buffer, you know, be ready for potential changes.
Speaker 8: But it is also a signed to the US that
Speaker 8: they didn't.
Speaker 10: Go all the way to the very end and ban
Speaker 10: exports immediately.
Speaker 3: Joe, how long in your view do you think the
Speaker 3: US will have to rely on China for processing?
Speaker 9: A long time? I mean, I want to talk in
Speaker 9: one hand, counting or not anywhere in the new Yar term.
Speaker 9: And to jump off what Graceland just said, they didn't
Speaker 9: put an export ban or an export control on everything,
Speaker 9: Like the two most common rare earths are untouched by this, right,
Speaker 9: So the way I've heard the subscribe from Graceland and
Speaker 9: from other people in the rare earth space, right the
Speaker 9: critical mineral spaces, Like Chinese policymakers are incredibly sharp. They
Speaker 9: know the score, they know what impacts what. And when
Speaker 9: this came out, this export control came out on Friday
Speaker 9: Friday morning. Initially people in the market were saying, oh, whoa, Okay,
Speaker 9: they're going to restrict these you know, seven or so
Speaker 9: rare earth critical minerals. But then what they started realizing was, oh,
Speaker 9: my gosh, this includes like actual magnets, this also includes
Speaker 9: actual products that are shipped to the United States. And
Speaker 9: that's when, especially in the defense community, people were calling
Speaker 9: up and saying whoa hold on? This is an interesting
Speaker 9: shot up across the bout because you might remember gallium
Speaker 9: and Germanium had export controls put on back in the fall,
Speaker 9: and that was like a follow up to prior year
Speaker 9: where China had said they were looking at it. I mean,
Speaker 9: we had reporting a year ago that said when the
Speaker 9: gallium germanium shot came from China, that was the panic
Speaker 9: button that went off across the DOE, the DoD and
Speaker 9: all the other departments. So we had one very high
Speaker 9: senior White House official who told us that was the
Speaker 9: moment when everybody finally got it and understood how serious
Speaker 9: this was. And that was under the bid Ministers Biden administration.
Speaker 9: So this isn't new, right, Like it is my point
Speaker 9: of they know the score, which is they'll roll out
Speaker 9: something here, they'll roll out something there, and it's it's
Speaker 9: a warning sign, right, It's like, Hey, we're doing this,
Speaker 9: and we're making the people that matter most realize it first.
Speaker 3: Gracelin contextualize this for us because in the negotiations between
Speaker 3: the US and China, which do not exist right now,
Speaker 3: but we'll ostensibly have to exist when it comes to
Speaker 3: resolving this trade war. That's the whole idea here. How
Speaker 3: important is the card of rare earth.
Speaker 8: Rare earth will be important, minerals will be important. If
Speaker 8: we take a.
Speaker 10: Step back, and you know, with Joe is said as
Speaker 10: how this is escalated even from the previous administration of
Speaker 10: germanium gallium antimony was banned in the fall, we saw
Speaker 10: tungsten came at the start of this year.
Speaker 8: Is that we are actually vulnerable.
Speaker 10: You know, we kind of sometimes throw all minerals into
Speaker 10: rare ers or rares into minerals, but when I go
Speaker 10: beyond rarers, we're getting increasing restrictions coming out and all
Speaker 10: of these commodities that we're being hit by, or ones
Speaker 10: that we often don't have alternate supply of, but we
Speaker 10: may have limited stockpiles of and.
Speaker 8: That we need for our fundamental security.
Speaker 10: So expect to see minerals I think, feature very strongly
Speaker 10: in the conversation, including rarers, because of the fact that
Speaker 10: we are dependent on China for close to two dozen
Speaker 10: critical minerals.
Speaker 5: All right, So final thoughts here, just got about a minute,
Speaker 5: minute and a half here left. So Joe, I don't know,
Speaker 5: I guess to watch the negotiations between US and China, right,
Speaker 5: and what they say specifically in this area, this is
Speaker 5: a really really important sign in terms of what's happening.
Speaker 9: Yeah, we've all focused on tariffs for the past week,
Speaker 9: and for the past two or three days, we've really
Speaker 9: focused on the China terraffs because everything else apparently is
Speaker 9: on pause. One hundred and twenty five percent or whatever
Speaker 9: the latest number is, right, and what we've seen from
Speaker 9: China in this context, the rare earth of what they've
Speaker 9: done is they have different tools to respond to punitive
Speaker 9: terriffs from the President of the United States, because on
Speaker 9: some level, when you're just saying one hundred and twenty
Speaker 9: five percent tariff on all imports coming from your country,
Speaker 9: it's like the market's like, well, what does that actually mean.
Speaker 9: In China's response, they come back in very specific ways,
Speaker 9: and this is one of them. Very hard get it,
Speaker 9: very targeted, right, So like, great, you hit us with
Speaker 9: a big, big tariff. Guess what we're going to do
Speaker 9: this this one very specifically here, and maybe initially nobody
Speaker 9: in the market notices it, but people like Graceland and
Speaker 9: others are like, whoa, hey, let's take a look at this.
Speaker 5: All right, So it sounds like the advice is, let's
Speaker 5: let's watch and see how this plays without this one
Speaker 5: in particular.
Speaker 2: Hey guys, I wish we had this was so smart,
Speaker 2: so good.
Speaker 5: Grace Lynn Baskren, Director Critical Minerals Security Program at the
Speaker 5: Center for Strategic and International Studies, Thank you, Thank you
Speaker 5: so much, and of course, Joe Doe always appreciate anytime
Speaker 5: we get with you as well, Metals and Mining Heavy
Speaker 5: Machinery reporter here at Bloomberg News.
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