Morning Brew Daily - Companies Brace for US Tariffs & Musk Gets Keys to Treasury Dept.

Episode Date: February 3, 2025

Episode 510: Neal and Toby dive into Trump's sweeping tariffs on the US’s most significant trading partners, Mexico, Canada, and China, and how the tax could affect the pockets of Americans. Then, Musk gains unprecedented access to the Treasury Department’s payment system as he tries to slim down government spending. Also, the Director of the Consumer Financial Protection Bureau Rohit Chopra has been fired from his position by the Trump administration. Meanwhile, Author Rebecca Yarros and Beyoncé are the weekend winners. Finally, what you need to know for the week ahead. Check out https://wise.com/business for more! Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Download the Yahoo! Finance App (on the Play and App store) for real-time alerts on news and insights tailored to your portfolio and stock watchlists. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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at pwc.com slash US slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today, Trump launched a trade war, and Canadians are so mad. They're booing the star-spangled banner. Ben Elon Musk was granted full access to the federal payment system

to do some dose-related cost-cutting. It's Monday, February 3rd. Let's ride. Welcome back to the week. Unfortunately, it looks like we're in for a day. a long spell of cold, dreary weather. Pugsatani Phil, the all-knowing Groundhog, made his annual weather forecast yesterday

at Gobbler's Knob in Western Pennsylvania, and he saw his shadow, meaning six more weeks of winter. It was Phil's first forecast as a dad after he and his wife, Phyllis, welcomed two pups into the family last spring. But does father actually know best? While Phil is probably a loving parent, he is a piss-poorologist,

His predictions are correct, only 35% of the time, according to the NOAA. Oh my gosh, Neil, you're still getting your winter forecasts from Phil, ditch Phil, and instead listen to Staten Island Chuck. Staten Island Chuck is New York City's resident groundhog, and he did not see his shadow on Sunday. That means he is in direct opposition to Punksitani, Phil. So who should you trust? Well, Phil is right, 35% of the time.

but NOAA data say that Chuck is right. 85% of the time, it does have an asterisk, though. Phil has longevity on his side. He's been in the prediction game since 1887 compared to Chuck's 1981. But still, if you want accuracy, Staten Island, Chuck is your guy. It's not about being right. It is about being first. And maybe it's just cloudy, more cloudy in Staten Island than it is in Punksitani, Pennsylvania.

I'm saying you are part of the big Phil Cabal. about Staten Island, Chuck. Now a word from our sponsor, Wise. Neil, international travel, fun. International payments, a pain in the neck. There are always inflated exchange rates and hidden fees, and sometimes he even got to open an overseas bank account. It is a total headache.

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I believe in you. To make international payments headaches a thing of the past, visit wise.com slash business. That's wise.com slash business. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds. Get the unreal college deal, everything you need to study and play with select Windows 11 PC. 11 PCs. Eligible students get a year of Microsoft 365 premium and a year of Xbox GamePass Ultimate with a custom color Xbox wireless controller. Learn more at Windows.com slash student offer.

While supplies last ends June 30th, terms at AKA.m.m.m. slash college PC. Let's start with the only trade news bigger than Luca Donchich going to the Lakers. On Saturday, President Trump followed through with his pledge to impose heavy tariffs on the U.S.'s three largest trading partners, 25% on imports from Canada. in Mexico, 10% on Canadian energy products, and 10% on Chinese imports in what he described as retribution for the flow of migrants and drugs into the U.S. The tariffs will go into effect Tuesday at 1201 a.m. Eastern time and will have massive consequences for the global economy. To name a few, they'll upend supply chains carefully calibrated over

decades, raise prices for American consumers and businesses, and possibly send Mexico and Canada into a recession. You might be thinking, well, we had a trade war the first time Trump was in office, and it wasn't so bad. Inflation didn't spike. That is true. But round two is of much greater magnitude. Trump imposed tariffs on $380 billion worth of goods during his first term, mostly against a U.S. rival, China. This time, tariffs will affect $1.4 trillion worth of goods and primarily target U.S. allies. Those numbers are from the Tax Foundation. The tariffs drew a furious response from Mexico and Canada especially to give you a sense of the anger and sense of betrayal

at the Ottawa Senators game Saturday night and at the Toronto Raptors game on Sunday, the crowd booed the U.S. national anthem as it was being sung. Prime Minister Justin Trudeau unleashed tariffs of his own against U.S. products, and Mexico has pledged to do the same. Toby, welcome to the new trade wars. You said it, Neil, this trade war is just a lot bigger than Trump round one. What are some of these goods, though, that are going to be affected? What might be more expensive now that this trade war has kicked off?

Well, the first one is definitely cars. The New York Times found that a single car can go back and forth over the U.S. Canada border up to eight times before it hits a U.S. dealer's lot. So under these tariffs, you can expect to pay more for your automobile. U.S. buyers might see prices rise about $3,000 on average. Also, remember how food prices and inflation were such a big part of the pre-election rhetoric. well, grocery store trips are definitely going to get more expensive. Mexico supplies over 80% of U.S. avocado, so maybe, you know, opt for that salsa instead of guac at your Super Bowl party. But also fruits, vegetables, meats, those are all shipped in from Canada and Mexico.

U.S. home builders, too, are going to be affected. 25% of building materials they import come from Canada and Mexico. Terrace are only going to make building a house and buying a house more expensive. and then finally energy. A quarter of the oil that America consumes per day comes in from Canada. And Trump basically tacitly acknowledge this by only slapping a 10% tariff on Canadian oil and gas because we do rely on them for a good chunk of our oil and gas production. So yeah, that is the general state of the playing field. Those are some of the prices that you can expect to potentially rise.

And so if you ask, what are these tariffs affecting? My answer would be pretty much everything. Yeah, and, you know, we focus a lot on consumer goods, so what you buy at the end state, at the grocery store, at the store. But a tariff going across the border will affect not just finished goods, but also intermediate parts. So it will raise costs for American factories and manufacturers because they're importing, you know, think about an auto plant. They're importing like in a bolt or, I don't know, you know, what goes into cars. Everything that goes into cars is coming from Canada and Mexico. that goes into their cost structure.

So when they export things abroad, it will make them less competitive at the global scale. So a lot of what we talk about in tariffs is raising prices for consumers, yes, but it also raises prices for American factories, which could make them less competitive with factories abroad. So it hurts their exports. So this is affecting everything. It shows how interlinked Canada, United States, and Mexico has been. We've had three decades of free trade agreements and plants. You have auto plants that are sprinkling auto companies that are sprinkling their plants all across the border. Canada, United States, and Mexico, and sending things across the border.

Basically, the border hasn't existed. But now every time a good passes through the border, it will be taxed by 25%. And we haven't even really mentioned China that much. We've been focusing on Canada and Mexico. But one provision that will be eliminated that will certainly affect China is this day minimis exemption. That applies to packages that are worth less than $800. and it's been a commonly used, I mean, call it loophole for Chinese e-commerce companies, think Xien, think TAMU, to directly ship these cheap packages to the United States without paying, you know, a duty on them. And so that day-minimus exemption is being taken away.

So now that they will have to pay for those goods shipped directly to U.S. consumers. But also, Trump removed the day-minimus exemption for small packages from going into Canada as well. So say, you know, your grandma in Ontario wants to send you a little birthday present, that will get hit with a 25% tariff as well. So even though Trump on the surface wants to target these packages shipped in from Chinese e-commerce companies, it is affecting more than just, you know, your clothing halls from Shian and Timu. Okay, so let's talk about the response from Canada. They were absolutely furious. I mentioned that they were booing the national anthem at the NHL game and the NBA game. Just absolutely livid.

There's a sense of betrayal there. And the reason is they are probably going to go into a recession from this based on how long it lasts. Mexico, two estimates says that Canada's GDP could fall as much as 3% of this from this. Mexico's could suffer a 2% drop. And that's because those two countries export, 80% of all their exports go into the United States. So basically, their customer base is drying up. Factories will have to close down. People are going to lose jobs.

So you see a swell of economic nationalism that's happening in Canada right now, where they're buying more made in Canada. I mean, it's been only two days, but they're buying more made in Canada products. The Ontario Premier said that, you know, remove U.S. liquor and beer from shelves. We're not buying American liquor anymore that happened in British Columbia and Nova Scotia as well. So there's an uprising from Canada saying, look, we feel very spurned by our southern neighbor, and we are just going to try to be more self-sufficient and we're preparing for harder times, which is definitely coming.

And then finally, what has been the reaction from the business world? They've been very critical of these tariffs. The U.S. Chamber of Commerce said, tariffs are not the answer. The Wall Street Journal's editorial board penned this widely shared editorial called the dumbest trade war in history.

And then a lot of people were, you know, kind of nudging J.P. Morgan's CEO, Jamie Diamond, who last month went on record and said, hey, get over these tariffs. It might be painful, but they're probably in the interest of national security. So just get over it. So now a lot of people are kind of tugging on his shirt sleeves saying, Jamie Diamond, what do you think now that they're actually in place? So it hasn't been a lot of support from the business world so far.

I guess you still have to wait and see to see if they shake out the way that Trump intends to boost domestic manufacturing. But so far it hasn't been very positive. No, I mean, if you look at the stock market this morning, investors are not reacting too well. All three indexes are down about 1.5% as we record this at around 6.15 a.m. And that is because tariffs could push inflation back up. We know it's been hovering at that elevated level, 2.9%. It's not at that 2% target that the Fed wants.

And it can't cut rates until inflation comes back down. Bloomberg economics estimates that these tariffs will raise, you know, raise, prices and lead to 0.7% more inflation. So that is what's kind of rocking stocks this morning, and it will be a storyline to come. Let's move on. Elon Musk just gained unprecedented access to the U.S. government's Venmo account, and he is not happy with who it's been sending money to. Just before the weekend, new Treasury Secretary Scott Besant gave Musk access to the agency's payment system responsible for doling out trillions of dollars in government spending. That means Musk and his Doge representatives now have deep insight into what is essentially the central bank

account of the United States, including the disbursement of social security checks and tax refunds. The purpose of granting Musk and Doge access is to review the broader payment system and cut down on waste, though the fear is, quote, politically motivated meddling risk severe damage to our country and the economy, as Democratic Senator Ron Wyden wrote in a letter to Scott percent. Already, some of that meddling is happening with Elon vowing to cancel hundreds of millions of dollars in government grants, which he says have been flowing to fraudulent causes or even terrorist groups. Neil, the dojification of the federal government continues. I mean, this is getting very dramatic. Apparently, they kind of knocked on the door of this very obscure thing that no one kind of knew existed.

They're basically the accounts payable arm of the U.S. government. They get these requests from agencies, and they say, hey, can you send out these tax refunds? Hey, can you send out, we said we'd pay this government contractor? Can you send out that payment? And then this small office does that. It's run by this guy, David Labrick, who has been doing this for the first Trump administration, for the Biden administration. He's been at the Treasury for multiple decades. Now he's gone. He was placed on an administrative lead because he would not hand over the keys to the Venmo account, as you said, to Elon Musk, but that got overridden. So now he retired.

So there's been a continued purge of these high-level civil servants who are supposed to be nonpartisan. They just work in the government. It doesn't matter who the administration is, Republican, Democrat, and now political actors, like Elon Musk, who was not elected, and his people he's worked with. The guy who now is overseeing this effort at the Treasury Department is the CEO of a Silicon Valley company called Cloud Software Group. So critics of what Elon Musk is doing is saying, you know, what is the CEO of a random Silicon Valley company doing with the Treasury payments that Americans rely on and that doled out $6 trillion last year? Yeah. And then the fear, too, is whenever it comes to

Elon gaining more power on the federal government is a conflict of interest. He can now see payments to government contractors, including those that will compete directly with all the companies that Elon himself owns and runs. And then also this is just another instance of the Trump administration trying to potentially control and restrict Congress's power to disperse money. If you can see where all the money is being dispersed to, it wants to, you know, say, let's slash this here, let's add more there. So it is just another instance of them trying to, you know, find and control the flow of money when it comes to disbursements in America. Also, and some other reshaping the federal government news. Rohit Chopra, the director of the Consumer Financial Protection Bureau,

was fired over the weekend. This move was widely expected. People weren't actually sure how he lasted even 12 days in the Trump administration because, you know, his agency has been a subject of frequent attacks from Trump and the Republican kind of cohort. Remember, the CFPB was this entity group created in 2010 post-banking crisis. They were supposed to prevent another banking crisis, but banks have not been a big fan of Chopra or, you know, the CFPB in general. They have been the subject of the agency's, you know, purview, saying that they haven't protected consumers from widespread fraud. So big banks have been pushing for change.

And this is probably like the first step in remaking that agency or potentially even dissolving it all together, that big banks have just not been a fan of it or Chopper. I'll tell you why they haven't been a fan because Chopra a few years ago, find Wells Fargo $2 billion for consumer abuses. He's gone after these financial institutions for things like junk fees and trying to limit credit card late payment fees to no more than $8 a month in 2021. Since 2021, he said they returned nearly $6 billion to consumers. So on the other side, the CFPB thinks that it has done a great job of reigning in banks

and protecting consumers from abuses. On the other side, banks and Republicans say that they've overstayed. step their bounds, gone way too far than what they were created to do. And in the first term, Trump basically neutered the CFPB. It came back in a big way under Biden. Now it looks like it's going back to being a non-factor in the next Trump administration. Up next, it is our winners of the weekend. We're the Hartford with decades of experience ensuring millions of unique small businesses when it comes to your small business insurance. Thank you. One size, absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business.

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And my winner is Beyonce. Last night at the Grammys, the most awarded and nominated musician in the awards history took home the one piece of hardware she didn't have. album of the year. Beyonce won the award for Cowboy Carter, avenging her four previous losses in the category, many considered snubs. She also made history in another way, becoming the first black woman to win album of the year since Lauren Hill way back in 1999. Overall, the Grammys sprinkled the awards out to all the big artists of the past year. Kendrick Lamar won five Grammys, including record and song of the year for his Drake disc track Not Like Us. Chapel Roan was named Best New Artist, Sabrina Carpenter won Best Pop Vocal Album, and Dochie became the only the third woman ever

to win Best Rap album after Hill and Cardi B. But the show wasn't all focused on music. Throughout the telecast, presenters and musicians discussed the devastation from the Los Angeles Wildfires and appealed for donations. By the time things wrapped up, the Grammys had raised $7 million from viewers. Toby, what were your big takeaways? I think that it was pretty reflective of the music, you know, of the last year. one artist that was kind of missing from some of these awards was Taylor Swift, but you know,

she has won plenty in the past. I also can't believe that Beyonce had never won album in the year. Like that is something that never has really, it's just insane that someone nominated as much as her has never won the top award. And it was a country album too to boot. So pretty cool that she finally got over that hump. Another big winner, I do say, if you didn't pick Beyonce, you would pick Kendrick Lamar because, I mean, he has just wiped the floor with Drake in this rap battle. When you have your disc track winning, you know, record of the year awards, that is a very tough look. Remember, Drake doesn't even put his music up for Grammy consideration. So it's just absolutely a one-sided fight at this point so far. So glad to see Chapel Roan, you know,

acknowledged as well. So the final band that you didn't shout out, that is, I don't think a lot of people expected to win a Grammy in the year of 2025. That is the Beatles, whose song now and then, which, remember, used AI technology to bring back some of their voices. That took home Best Rock performance. So pretty cool for, you know, the Beatles to still be winning awards. Yeah, and there were some sort of music industry drama things going on. Chapel Roan when she won for Best, new artists got up there and kind of attacked the labels, saying that they were profiting millions of dollars off of artists without offering a livable wage and health care.

So she urged the labels to sort of pay better to artists. And Lady Gaga talked about trans issues in the new administration. Alicia Keys got up there, talked about DEI, protecting DEI. So, and then the weekend, this was a big, actually maybe the winner of the weekend was the weekend because he buried his hatchet with the Grammys. He had boycotted the Grammys for many years saying they weren't diverse enough and they snubbed him with his album in 2020. But he got up there and gave a performance.

And it looks like that, that whole drama has been resolved. My winner of the weekend is Rebecca Yaros because the Romantici author's third book is approaching Harry Potter levels of hype. Her first book, Fourth Wing, became a viral sensation after TikTok took a liking to her romance epic set at a military academy for Dragon Riders. Her second book, Iron Flame, kept the hype going, but it is her third release, Onyx Storm, that is smashing sales records. The book sold more than 2.7 million copies in its first week, making it the fast, the fast, is selling adult novel in the last 20 years. Now, I might have over-exaggerated a bit when I said Yaros is approaching Harry Potter levels. The last book in J.K. Rowling series sold 8.2 million copies in its first 24 hours.

But still, Yaros laps similar adult novels like Colleen Hoover's. It Starts with Us, which moved 810,000 copies in its first week. However, this is Dragon Mania we are talking about here, Neil. Yaros' book currently holds the top three spots on both the New York Times' hardcover bestseller list and Amazon's top-selling fiction list. It is a force of nature, Neil. And a remarkable story because before she published the first wing, she had written about 20 contemporary...

The fourth wing. What did I say? You said the first wing there. We're talking about the fourth wing. Yeah, she had written 20 novels before this, and she suffers from this chronic illness, and she said, I don't think I can write anymore. I think I'm done writing. I've sort of toiled in obscurity.

and then she releases the fourth wing into this romanticie maelstrom and book talk. And it absolutely took off. And now she had this, you know, she's now an insane superstar. People have these parissocial relations with it. She had this big book release in St. Paul, Minnesota. People were driving 380 miles away from Nebraska just to see her. So she is, you know, she is the queen of the literary. world right now. Well, she's queen, but then her co-queen is definitely Sarah J. Moss as well.

She released that hugely successful series, a court of thorns and roses. I always call it a court of roses and thorns. But Sarah J. Moss was actually the best-selling author in the United States last year. She sold 7.7 million copies. So it definitely is. We're in the Romanticie moment right now. It is evocative of, you know, the days of Harry Potter, the days of twilight. We really haven't had these big cultural events around book releases in a while now. But when you see people dressing up in costume and driving from hundreds of miles away just to go to a book release party, it does seem like we're in a similar, you know, Twilight Harry Potter moment. It's very cool. And I guess I got to read the poor thing. I haven't read. I haven't read. I've done the first two.

I haven't read on it. It's Monday and you're probably planning out your week. So here are the major events you need to know about. Times have never been more chaotic on Wall Street. Not only are investors figuring out what tariffs mean for markets or what deep seek means for AI, but they've also got a ton more earnings reports to digest. Magnificent seven members, Alphabet and Amazon take the mic this week, as do Disney and Chipotle. And we're all curious how tariffs will affect guac prices. And then to cap it all off, the first jobs report of the year will be released on Friday. I mean, Neil, you usually ask me which companies am I interested in seeing their earnings, but I'm looking down the list and I'm just interested in all of them because I do think that

will affect the input costs of a lot of these companies. I mean, you mentioned guacamole from Chipotle, but, you know, Ford is reporting earnings. Let's see how they, you know, deal with these tariffs as well. So I do think it will be a pretty tariff, heavy earnings cycle that we're entering. Tomorrow is a special day in video game history. The Sims turns 25 years old. And the open-ended life-building game from EA still feels as relevant as it did when it first came out.

In 2024 alone, people logged more than 1.2 B. million hours playing the latest edition. Since its release, the Sims and its expansion packs have sold a combined 200 million copies, attracting more than 500 million players. But I can't help but think, Toby, what if we're the Sims and people are playing us? It feels like that sometimes. I did not grow up playing Sims. Were you a Sims guy or no?

Yeah, of Sim City. The urban planning version. Yeah, of course. Wait, is there like roller coastered tycoon? Is that within the Sims universe as well? Yeah. Not as much. See, I just never got into it. Although I do think this shows, I mean, we've talked a lot about this trend of nostalgia, driving a lot of sales. So 25th anniversary, releasing the original version of the game. I think it's another instance of trying to, you know, play on people's nostalgia, your nostalgia of growing up, you know, planning cities. So I think it will sell pretty well. Finally, it's Super Bowl week. On Sunday, your boys, Philadelphia Eagles will try to dethrone the two-time defending champs, Kansas City Chiefs at Super Bowl L-I-X in New Orleans.

Kevin Burkart and Tom Brady will be on the call for Fox, and Kendrick Lamar is headlining the halftime show, now with his five new Grammys. Toby, let's hear it. Who is your pick? So I'm taking a very data-driven approach to this pick. Zero motions. I saw this stat from a sports commentator,

Jay Kuda, that reads, in this century, every time the Super Bowl has been played between a team traveling east and a team traveling West. The team traveling West has won. So who is traveling west this year? Neil, since the Super Bowl is, in New Orleans, your Philadelphia Eagles. So congratulations.

So far, this has never been disproven. So don't be the first once, you know, break this trend. I hope that the Eagles win. We will try. All right, that is all the time we have. Thanks so much for starting your morning with us. And have a great start to the week. For any questions, comments, or feedback,

send an email to Morning Brewdaily at Morningbrew.com. And if you're enjoying the show, share it with a friend, family member, or coworker who is in desperate need of a brief business news roundup. and for more specific sharing idea, Toby's guy you covered. I want you to share today's pod with all the Beyonce fans out there. I know you've been long-suffering. I know it's been a long time coming, so congrats for finally, I'm congratulating you as well as Beyonce for getting over the hump and winning album of the year.

Let's roll the credits. Emily Milliron is our executive producer. Raymond Lou is our producer. Olivia Graham is our associate producer. Yuchenoa Ogu is our technical director. Scoop Stardaris is on audio. Hair and makeup, they are not like us. Devin Emery is Chief Content Officer

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