Marketplace - What’s a dollar worth?

Episode Date: January 7, 2025

President-elect Donald Trump spent much of his campaign promising to impose tariffs on Chinese goods, and the value of the dollar has fluctuated in response to his trade agenda. We’ll explain the connection — and why lower import tariffs bring down the dollar’s value against other currencies. Also in this episode: Small businesses take advantage of their leases, home equity could fuel a massive wealth transfer and the GOP presses for changes to how the government calculates the cost of legislation.

On the program today, a little budget math, the housing inheritance and the T-word. From American Public Media, this is Marketplace. In Los Angeles, I'm Kyle Rizdall. Monday, today, January 6th, good as always to have you along, everybody. The 119th Congress is, as you know, seated and getting about the business of governing. Republicans in control of both chambers are figuring out the best way to get done what they want to get done, including, right near the top of the list, taxes, extending the 2017 tax cuts, to be precise. It's important to note here that no matter what you hear from the GOP, no tax cut in the history of tax cuts has ever paid for itself.

So how to massage the math, on a tax package the Congressional Budget Office and other outside groups figure is going to add something like four to six trillion dollars to the deficit over ten years. That math is of interest and as Marketplace's Kimberly Adams reports to get us going, some want to convince the CBO at least to change the way it makes its calculations. One way to make an expensive piece of legislation look cheaper, on paper at least, is something called dynamic scoring. See, normally when the Congressional Budget Office

is scoring the cost of legislation... CBO takes into account how individuals respond to policies, but they don't take into account the effect on the larger economy. Chris Towner is with the Washington think tank, the Committee for a Responsible Federal Budget. the effect on the larger economy. Chris Towner is with the Washington think tank, the Committee for a Responsible Federal Budget. But the way that tax cuts especially work and especially changes the tax policy that are very large

is they do affect the broader economy quite a bit. And so groups like the Republican House Freedom Caucus want estimates of economic growth to be factored in as well, offsetting some of the cost. Philip Rocco teaches political science at Marquette University. Dynamic scoring is a way of estimating the costs of tax cuts by taking into account the feedback effects that tax cuts have on the economy.

The problem with this strategy, argues Rocco, is that if politicians still don't like the number that comes out, they'll complain the scoring wasn't dynamic enough and still dismiss the cost. Another way to change the price tag on a bill? Act like it doesn't have one by asking the CBO to base its estimate on what current policy is versus what the law says it will be. Members of Congress who are about to vote for legislation that would make deficits bigger don't want to admit that.

Former CBO Director Douglas Elmendorf, who now teaches at Harvard, gets why this is attractive. If they can get CBO to produce some report that sort of calls a big number, a small number or zero, then that avoids they're having to admit publicly that what they're doing is making the deficit bigger. But he says it's risky for Congress to push the CBO to change its math just because they don't like the numbers. In Washington, I'm Kimberly Adams for Marketplace.

On Wall Street to open the first full week of the new year, tech was the place to be. Chip stocks in particular, and video if you really want to get granular. We will have the details when we do the numbers. Business owners are, for the most part, coming into this new year with more certainty about the future than they had this time in 2024. We know that interest rates have been coming down. We know inflation has cooled and we know who's gonna be in the White House. But there is still uncertainty aplenty.

Consumers are fickle, that we also know. Supply chains and inventories can be challenging. And for us today, real property costs, rents and leases are gonna come up for renewal at some point in the next 12 months. Justin Ho has reported for us on businesses that manage that uncertainty of their leases and rents by owning the spaces in which they operate. But for a lot of small businesses, buying a building simply is not an option. So Justin spoke with some business owners who rent, but have they been making the most of their leases?

Over the last couple years, spoke with some business owners who rent, but have they been making the most of their leases? Over the last couple of years, Jess Harrington has been thinking about buying a warehouse for her company in the Boston area called Finest Home Staging. It fancies up homes, staging them for sale. She currently rents out a warehouse to store all the furniture she uses,

and space is getting a little tight. I stock enough furniture to furnish around like 45 homes. And so I don't have enough storage space already as it is. But Harrington says right now, buying a warehouse is a non-starter. For one, there just aren't many places available that are big enough to suit her needs. But the big reason is that she still owes rent

for the two and a half years left on her lease and I don't want to have both a mortgage and lease for longer than I have to because that would put a lot of strain on my business. So in the meantime, Harrington says she decided to make do with the space she's renting and to make it work, she's subletting some additional space from another business owner upstairs who has some unused square footage. Harrington says that gives her some runway to keep growing the business before her lease ends. They're billing me in 500 square foot increments as I'm using it.

So I'm not paying for what I don't need, which is great. I can sort of control my costs more. Business owners who rent their spaces also have to decide how much they want to invest in them. Marcia St. Hilaire Finn is president of Bright Start Early Care in preschool in Washington, D.C. Her business has four locations, three of them in rented spaces. And right after she signed those leases, she made some serious upgrades. At one of her locations? We had to put sinks in there, there were no sinks in the locations. We had to put sinks in there.

There were no sinks in the classroom. We had to put cabinets. We had to change the flooring. We had to put washer, dryer, dishwasher. So pretty much we really had to do a total renovation on it. Part of that was simply to make the space daycare compliant. But St. Hilaire Finn says she also has high standards for her brand. So even though she doesn't actually own the building,

We treat it like it's ours because at the end of the day, we represent whatever space we are in. So we want to make sure the space represents us. St. Hilaire Finn says pouring hundreds of thousands of dollars into upgrading a rented space also gives her some leverage with her landlord. She says when she signed her leases, she asked her landlords to give her concessions including several months of free rent. And most of the landlords have because they know for them it adds value so they put in some and you put in some so both bodies are happy. That said many

landlords are under a lot of pressure right now to raise rents says Tom Taylor head of research at TREP, a commercial real estate analytics company. You know, real estate taxes are up, property insurance way up, like way, way up, especially in certain coastal communities. Utilities are up, labor costs are up. TREP found that in many parts of the country, including the West Coast, New England, and the coastal South, rents on retail spaces have been rising. Ken Giddin, co-owner of Rothman's, a men's clothing store chain in the New York City area, says where he is, higher rents are a given. If you're in a retail spot that you like, you're obviously there because you think things

are going to get better there and you think that you can build a business there. And if that's the case, it is highly, highly unlikely that the price of that space is going to go down. It's going to go up over time. Giddens says there are ways to plan around rent hikes. Last year, he signed a 10-year lease on his Manhattan location. Giddens says long-term leases like that often come with scheduled rent hikes every three years or so. But that's something he can anticipate.

If you know that your rent is going to be, you know, 5% higher in three years, you can plan for that. It's all about having the numbers in front of you and figuring out whether you can still make money at these higher prices. Giddens says he's confident that he will, since over the last few years, clothing sales have been pretty good. I'm Justin Ho for Marketplace. The holiday season is behind us and for retailers it was a pretty good one overall. Early data from MasterCard shows spending in November and December was up 3.8% over a

year ago. Something else that was on the rise? The use of artificial intelligence in retail. Salesforce says AI influenced nearly 20% of all holiday purchases this year and that we human consumers used AI powered consumer service chat bots 42% more than we did a year ago. Marketplace has made the fields. That's more on that one. I don't know about you, but I have yet to interact with a chat bot I actually found helpful. Katie Thomas at the Kearney Consumer Institute says even though there are more

of them, she thinks some have actually been getting worse. Like people are forcing the use of AI, but it's not that conversation, that dialogue where it's supposed to be input and iterative. We're in the age of AI, and retailers, like people in most other industries, are scrambling to figure out how to use it to their advantage and not get left behind. Everyone is trying to use it more. There are lots of ways better AI could benefit retailers and customers, Thomas says. For customers?

The ideal use case is, oh, I'm looking for a black dress. Okay, what kind of black dress? And really have a dialogue and go back and forth? And have the AI chatbot help you find something that fits what you're looking for. But Thomas says we're not quite there yet. Most retailers are still experimenting with newer uses of the technology.

Christian Beckner at the National Retail Federation says 2024 was a big year for that. We've definitely seen an increase in their use of AI across a variety of applications. Not just chat bots and other customer-facing technology, but also behind the scenes for things like preventing fraud and optimizing the returns process. Some estimates are upwards of $25 billion a year that retailers globally are spending on AI tools and services. So definitely a big area of investment where retailers are seeing an opportunity to better serve customers, to be more efficient in their operations.

But Bechner says it's still early to really know how much value they're getting so far. And Sonia Lipinski at Alex Partners says for retailers who are not particularly tech savvy... There are so many options and shiny objects that they could deploy, it's really hard for them to kind of get to the root of where they should start. So far, where she's seen AI benefit retailers the most is in those less flashy behind the scenes uses,

helping with pricing and inventory and actually personalizing and targeting emails and ads to customers. I'm Samantha Fields for Marketplace. Coming up... Look, an almond's an almond. I mean, he's not wrong, you know? First though, let's do the numbers. Dow Industrial is down 25 points today, less than a tenth percent, finished at 42,706.

The NASDAQ grew 243 points, that's 1.2%. 19,864. The S&P 500 up 32, 6 tenths percent, 59 and 75. Justin Trudeau is stepping down after nine years in office as the Prime Minister of Canada. The Canadian dollar, the loonie, jumped 7 tenths percent against the greenback. That's about 69 American cents after that announcement. Some Canadian companies publicly traded in the US of a include Toronto Dominion Bank TD Bank grew 8 tenths percent lululemon learned something new every day Canadian company grew four and a half percent today Bond prices fell yield on the tenured T note up four point six three percent. You're listening to Marketplace

This is Marketplace. I'm Kyle Rizdal. The political news of this Monday, of course, is that nothing unusual happened in the Capitol building in Washington, D.C. today, just what is supposed to happen according to law. The early economic news of this Monday featured the same protagonist reporting by the Washington Post that advisors to the president-elect are pushing tariffs of a more limited scope than what the president-elect himself has been promising. Said the president-elect later called the story fake news. But the market reaction was very real. The currency markets in particular, which saw the U.S. dollar take a solid hit. But why?

Marketplace's Elizabeth Troval has today's explainer. When we talk about the complexities of global trade, we have to consider trade balance. Exports and imports, there's some accounting math involved. Your trade balance is going to be equal to the difference between domestic savings and domestic investment. That's Chris Mitchner with Santa Clara University. We really don't have time to get into the algebra of it all, but here's how that global economy math plays out when it comes to tariffs and currency.

A tariff, it's gonna raise the US dollar price of say, something like Chinese goods inside the US. But what simultaneously is going to happen is that U.S. dollar is going to strengthen against the RMB, the Chinese currency. Because the price of the dollar adjusts quickly to any signals on where tariffs are headed. News of lower tariffs means a lower dollar. News of higher tariffs, like on China, means... The RMB is going to look cheaper in U.S. dollar terms. So the U.S. dollar is going to appreciate to partly offset the direct impact of that tariff. And the U.S. dollar getting stronger can be good for U.S. consumers, says Olivier Jean

with Johns Hopkins University. Because it reduces the price of imports. Just like it's good for US tourists who travel abroad when the dollar is strong. So who is this bad for? It's not a good thing if you are working for the export sector. A stronger dollar compared to other currencies means that other countries will need more of their currency to buy U.S. products, says Colin Ward with the University of Alberta. And exports should go down because it's more expensive for, say, European firms to buy

U.S. goods. So the deficit should get worse. So on the macro level, he says, if the goal is to reduce the U.S. trade deficit overall, a stronger tariff-supported dollar doesn't actually help. I'm Elizabeth Troval for Marketplace. Owning a home is the single best way to build wealth over time in this economy. And given the disparities in home ownership rates across race and class, not owning a home is a key contributor to inequality in this economy. With all of that stipulated, new research from Freddie Mac becomes all the more relevant.

Homeowners born before 1964, that is baby boomers, have a collective $17 trillion in home equity. And most of those people, Freddie Mac says, three-quarters of them, plan to pass that wealth onto their children when they die. It's part of a massive wealth transfer that's going to reshape the economy over the next couple of decades, as Marketplace's Amy Scott reports. Just in the last five years, baby boomers have gotten $19 trillion richer, which is kind of hard to get your head around. So in simpler terms, their wealth increase by 486,000 per household, almost half a million dollars. So that's a huge amount. Sam Cater is chief economist at Freddie Mac, which says half of that increase came from home price appreciation. And it helps explain why nearly 70% of Baby Boomer homeowners in the

company's recent survey said they feel confident about having a comfortable retirement. That's actually down from more than 80% in 2021. Cater says recent inflation has likely dented that confidence a bit. Still, almost 70% is pretty high. That compares to 42% for renters. And so this really shows how much of a difference that homeownership can make. And for the bulk of households, homeownership is their primary form of wealth. Interestingly though, only 9% in the survey said they plan to use their home equity to fund their retirement. Most plan to pass it on to their children or other family members.

And that, says Lina Zhu, a researcher at the Urban Institute, could perpetuate inequity in our society. While more than 82% of older white households own their home, less than 60% of older black households do. Our research found that this pathway disproportionately favors white homeowners who tend to own higher-valued homes and own less mortgage debt as compared to their black and Hispanic counterparts. Zhu says people who receive an inheritance are more likely to become homeowners themselves and have wealth to pass on to their heirs, a cycle she says will continue without policies to support more equitable access to homeownership and other opportunities to build wealth.

But children of homeowners shouldn't count on a windfall. So I'm a retirement security expert as an economist. And the first thing I tell younger people is please do not look at your parents as your retirement plan. Jason Fickner is chief economist at the Bipartisan Policy Center. He says people are living longer while Social Security is running out of money and traditional pensions are vanishing. Security is running out of money and traditional pensions are vanishing. Even if Baby Boomers plan to pass on housing wealth to their heirs, Fickner says they might need it. Let's just make up a number.

If someone's sitting on a $250,000 house and it's paid off and they get into their 80s and they need long-term care, long-term care can cost $10,000 a month right now. The trouble is, unless that person sells their house, it can be hard to tap into that wealth. Alicia Manel is a senior advisor at the Center for Retirement Research at Boston College. It's very frustrating in the sense that it's a big source of wealth.

It could be helping the older generation itself to live more comfortably. They don't access it. They keep it. And then they leave it to their children. Who, she says, may not even want it. Manel would like to see more offerings like reverse mortgages and deferred property tax programs that allow older homeowners to tap equity that's paid off when the home sells. And yet, Manel says she plans to leave her house to her children.

Because I don't want to move, right? And so they're just going to have to clean things out. Lucky them. I'm Amy Scott for Marketplace. [♪upbeat music playing -♪》 One cannot know, of course, exactly what soon-to-be President Trump is going to do until he does it, but if the frequency of his pronouncements about tariffs is any clue, new and higher

taxes on imports are coming. But in what you might call Newton's third law of economics, tariffs often result in equal and opposite reactions. It's possible, bordering on likely, that countries on which President Trump imposes tariffs are going to respond by imposing tariffs of their own on American goods, making those goods less competitive internationally. One U.S. export that could be caught in the tariff crossfire again? California almonds, about 70% of which are shipped overseas.

Still dealing with retaliatory tariffs from Trump 1, the nearly $5 billion industry is worried and new, as Marketplace's Matt Levin reports. The largest almond convention in the country takes place every December in Sacramento, California, which makes sense. There's really only five almond growing regions on the planet, and California's Central Valley

produces about 75% of the global crop. While this expo hall is full of gigantic four-wheel drive pruning machines and boosts promoting the latest and greatest pollinator technology, surprisingly, not that many almonds. No, we do not have any samples here. We deal in raw almonds, and most people want flavored and this and that. You do have Ghirardelli chocolates. You can have that.

Manish Seth is the owner of Farmers International, an almond grower and processor based in Chico, California. He oversees a few thousand acres of almond orchards and ships a major share of his harvest to more than 60 different countries. We do not need tariffs. I hope they go away, because we have tariffs on Californian almonds in India, China,

where Australian almonds do not have those tariffs. Australia is the second biggest almond grower in the world, and it's got a big advantage, a free trade agreement with China. Our almonds, because we have a tariff situation, it almost cost them a dollar a pound more. So our product is about $3 a pound. When you're paying a dollar or more,

that's a pretty substantial disadvantage. In 2018, President Trump levied taxes on steel and aluminum imports to help U.S. companies. China then retaliated by raising tariffs on U.S. products, including hiking the tax on American almonds from 10 to 25%. Clarice Turner is CEO of the Almond Board of California. China was our number one export market when the tariffs went into effect. It's now fallen to number four. when the tariffs went into effect.

It's now fallen to number four. Last fiscal year, China imported about 37% fewer California almonds than it did the year the tariffs hit. Turner stresses we don't know exactly what Trump will do yet, and the Almond Board has spent the last decade trying to persuade foreign governments not to retaliate against them. We've dealt with tariffs before in the past in many different countries and we adjust. You'd think Australian almond grower Neil Bennett would be doing cartwheels over the

prospect of another American almond trade war, especially since the difference between American and Australian almonds is, well... Look, an almond's an almond. But Bennett says his country has maxed out its almond production. When tariffs hit California almonds, Australia can't make up the difference. He worries if tariffs cause global almond prices to rise, big buyers will just switch to different nuts entirely. A candy bar or a cereal, the percentage of say almonds might be dropped and some of them that may

be substituted in there. Should a new terrafore break out, other players in the almond economy will also feel the fall out. At the almond conference in Sacramento, Todd Gruber from Gruber Manufacturing is showing off a video of one of the elevators his family business sells to almond processing plants. It's the fastest almond elevator in the industry the belt speed on it is about 800 feet a minute. While Gruber manufacturing is American, the parts it needs to make its American almond elevators and other equipment often come from Europe, Asia, and Mexico. Gruber says some parts suppliers have a special tariff line item on the invoices he receives.

Ballparking. I think one time we bought a hydraulic motor, just one motor, and the motor was about $1,000, and the separate tariff I believe was maybe in the $200 range. Gruber says his business has been able to pass on the costs of earlier tariffs to buyers. But if tariffs are raised again, that may be tougher. In Sacramento, California, I'm Matt Levin for Marketplace. This final note on the way out today, which comes with the observation that Friday is going to bring us the December unemployment report. I saw this in the Wall Street Journal today that even with the two million or so new jobs

that this economy added in 2024, more people are finding themselves looking for work for longer. Data from the Labor Department, the journal reports, shows that the number of people who've been looking for work for more than six months is up by more than half since the end of 2022. Our daily production team includes Andy Corbin, Nicholas Guion, Maria Hollenhorst, Sarah Leeson, Shawna Kenry and Sophia Terenzio. I'm Kyle Rizdal. We will see you tomorrow tomorrow everybody.