Squawk Pod: Tariffs on the EU & consumer tastes - 05/27/25 | Audio Only

Key Concepts

Tariffs (EU, iPhones), Trade Negotiations (US, EU, India), Supply Chain Restructuring, Consumer Spending, Credit Card Debt, Economic Growth, Deregulation, Community Banks, Real Estate (Retail, REITs), Onshoring, US-China Trade Relations, Inflation, Labor Market, Tax Cuts, Economic Policy.

Tariffs and Trade Negotiations

• EU Tariffs: President Trump initially threatened 50% tariffs on the European Union, but granted an extension to July 9th after a call from Ursul Vander Lean. Negotiations are ongoing, with both sides agreeing to fast-track discussions. The EU presents a challenge due to the aggregation of preferences from its 27 member countries.
• iPhone Tariffs: Trump considered 25% tariffs on iPhones made outside the US, potentially raising the cost to $3,000. Treasury Secretary Scott Besson suggested Apple could bring chip and component production to the US as a solution.
• India Trade Talks: India seeks a way for phones to be produced there and sold in the US, which is a stumbling block in trade negotiations.
• Kevin Hasset's Perspective: As National Economic Council Director, Hasset noted that negotiations with the EU were intractable. He believes the UK deal was easier due to specific priorities on both sides (autos for the UK, agricultural access for the US). He expects more deals to be finalized soon and emphasizes President Trump's "America First" approach.
• Off-ramps: The administration is exploring off-ramps for Apple, potentially involving assembling more phones in the US with a longer-term plan for manufacturing.
• Tariff Levels: Ray Washburn suggests businesses can manage tariffs up to 10%, but higher levels (20-30% or more) pose a significant challenge. Hasset indicates that 10% is a level many have been pushed to, with potential for lower rates based on good offers and market opening.

Supply Chain Restructuring and Onshoring

• Red Lobster Example: Ray Washburn cited Red Lobster's shift in shrimp sourcing from China to India, Vietnam, and the Texas Gulf Coast as a positive outcome of tariff pressures, forcing a rethinking of the supply chain.
• To-Go Packaging: Washburn noted that the cost of to-go packaging (bags, plastic wear) sourced from foreign countries has doubled or quadrupled, prompting a search for closer, onshoring suppliers.
• Onshoring Incentives: The administration aims to incentivize onshoring to reduce US dependence on imports from China. Hasset believes supply chains are moving faster than expected due to just-in-time inventory management and AI.

Consumer Spending and Economic Indicators

• Consumer Debt: Ray Washburn expressed concern about high credit card debt and consumer debt levels.
• Gasoline Sales: Gasoline sales are soft compared to last year due to refinery capacity, consumer concerns, and the rise of EVs.
• Diesel Sales: Diesel sales, a barometer of the economy, are currently about equal to last year. Softening diesel sales would indicate reduced goods distribution.
• Retail and Restaurants: High-end shopping centers are experiencing positive growth, but consumers are seeking great experiences and are willing to spend where they find them. Casual dining restaurants have raised prices over 20% since the pandemic.

Real Estate and Community Banks

• Retail Real Estate: No new shopping centers have been built in the US in the last 20-25 years. Existing open-air shopping centers are 100% leased, with bankrupt retailers' spaces being repurposed.
• Community Banks: Ray Washburn highlighted the need for consolidation in the community banking sector (banks under $20 billion). He believes community banks are key to driving the economy.
• REITs: Washburn suggested that real estate REITs are incredibly cheap compared to their underlying asset value. Public REITs are trading at low multiples, while private real estate funds haven't marked down assets to the same extent.

Economic Policy and Outlook

• Deregulation: Deregulation is seen as a positive factor for the economy.
• Tax Cuts: The Council of Economic Advisors estimated that failing to pass the House tax bill would have resulted in the biggest tax hike in American history, cutting 4% off GDP growth and causing a recession.
• Senate Opposition: Republican Senators Ron Johnson and Ran Paul have signaled opposition to the House spending and tax cut bill in its current form.
• Hasset's Optimism: Hasset believes the underlying economy is strong, with strong job numbers and inflation heading down. He anticipates positive economic effects from the tax cuts and the opening of foreign markets to US goods.

Other Notable Points

• Elon Musk: Elon Musk is focusing on his companies, including X, XAI, Tesla, and Starship. Tesla's sales in Europe plunged 49% year-over-year, while China's BYD sold more electric cars in Europe than Tesla for the first time.
• Harvard: President Trump considered taking billions of dollars in grant money away from Harvard due to alleged anti-semitism and redistributing it to trade schools.
• Box Office: Disney's remake of Lilo and Stitch topped the holiday weekend box office, and the total domestic hall of $327 million set a record for Memorial Day weekend.

Synthesis/Conclusion

The Squawk Pod episode covers a wide range of economic topics, with a focus on the impact of tariffs and trade negotiations on various industries and the overall economy. Key takeaways include the ongoing uncertainty surrounding trade deals with the EU and India, the potential for supply chain restructuring and onshoring, concerns about consumer debt, and the debate over the effectiveness of current economic policies. The episode also highlights the resilience of the US economy despite these challenges, with strong job numbers and the potential for further growth if tax cuts are implemented.