Morning Brew Daily - US-China Trade War Reignited? & The Bankruptcy Shaking Wall St.

Episode Date: October 14, 2025

Episode 691: Neal and Toby unpack the latest chapter in the US-China trade war and how markets reacted to tensions renewed. Then, auto-parts supplier First Brands has its CEO step down after a financial implosion leaves billions of dollars of debt. Next, the Nobel prize is awarded to 3 economists who introduced the concept of “creative destruction” to describe the economic growth made by innovations. Meanwhile, recently fired Penn State coach James Franklin gets paid an exorbitant amount to leave. Finally, what you need to know in the week ahead.  00:00 - Trivia night 3:15 - Trade war renewed 8:15 - First Brands implodes 12:30 - Nobel Prize goes to economists 18:30 - James Franklin gets $45M buyout 22:30 - Week Ahead Get your paper tablet at https://www.remarkable.com today Get your MBD live show tickets here! https://www.tinyurl.com/MBD-HOLIDAY  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. Listen to Morning Brew Daily Here:⁠ ⁠⁠https://www.swap.fm/l/mbd-note⁠⁠⁠  Watch Morning Brew Daily Here:⁠ ⁠⁠https://www.youtube.com/@MorningBrewDailyShow⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash U.S. 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 the U.S. and China are fighting again, sending markets on a roller coaster ride.

Then a little-known auto parts seller went bankrupt. So why is Wall Street shaking in their boots? It's Tuesday, October 14th. Let's ride. Good morning. Hope you all had a relaxing three-day weekend. Toby, get into anything fun. Yeah, I went to Providence for my soccer alumni weekend and then slept 16 hours on Sunday. Pretty good weekend.

Straight through? Straight through. Oh, my God. Well, I watched Annie Hall after Diane Keaton died. She really was a genius and started the wire for the first time. I've already learned so much from Omar Little about life. Let's move ahead to this week. If your brain isn't fully kicked into gear, it surely will be tonight when over 100 of you get your wits tested at our monthly Morning Brew Daily trivia night.

We're looking forward to seeing so many of you there. and if you can't make it, maybe turn on Jeopardy in Solidarity. These have been so fun, 6 p.m. at a sweet bar in Midtown. As always, my favorite part is meeting all of you all in person. My second favorite part is seeing how angry you get when we introduce a category that requires both a deep familiarity of Danish literature and the 2004 Red Sox. If you're not New York City Base or aren't able to make it, may I direct you to our live holiday show on December 4th, way bigger,

a lot more seats, and a lot of outer towners coming in as well. Trivia tonight, holiday show in December, seems like a great slate of events. And now a word from our sponsor, Remarkable. Neil, how would you grade your note-taking skills? I mean, I'm not a court stenographer, but... Trick question, they desperately need improvement. You got to get the Remarkable Paper Pro. It's the third-generation paper tablet from Remarkable.

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While supplies last ends June 30th, terms at AKA.m.S. slash college PC. The U.S. and China kept the chill for a few months, at least. The trade war came roaring back last week, shaking the stock market and raising renewed concerns of supply chain chaos. The first volley was launched by China on Thursday when Beijing issued sweeping export controls of rare earth minerals, which are key ingredients for products that underpin the modern economy, smartphones, cars, weapons, semiconductors, and more. China controls 90% of rare earth, so when it limits their shipments abroad, it causes an earthquake for companies that need those components. President Trump responded the next day, vowing to raise tariffs by 100% on Chinese goods

come November 1st, as well as threatening to cancel his upcoming summit with Xi Jinping. His true social post was not well received on Wall Street, where stocks plunged to their worst day in months. The S&P 500 fell 2.7 percent, its biggest one-day drop since April 10th, the NASDAQ cratered 3.5%, and the Dow lost nearly 900 points in all $2 trillion in equity values evaporated in a single day. The destruction was even more severe in the crypto market, which suffered a mysteriously gargantuan wipeout, Bitcoin, Ether, Solana, and smaller coins all tanked, leading to $19 billion in losses, the largest liquidation event in crypto history, according to Coin class.

But yesterday was a different story entirely, and soaring stocks recouped more than half of their Friday losses because Trump signaled he was open to negotiation. On Sunday, he posted, don't worry about China. It will all be fine. Highly respected President Xi just had a bad moment. The USA wants to help China not hurt it. An analyst from briefing at dot com, Patrick O'Sare kind of summed up this rhythm that we have gotten used to over the past few months. This is just such nonsense, the heaving to and fro on social media posts, but it is what it is. And the stock market seems fine playing part of the puppet. And that is what it feels like. feels like the stock market just goes up and down based off of the whims of social media posts

for the most part. There is one other factor, though, that might have explained some of the resilience we saw in this bounce back period yesterday, and that is tech seems to be a counterweight to this chaos, specifically the AI trade seems alive and well because we also saw shares of broad comm surge 10% after opening I said it would partner with that chipmaker to design some of its own AI processors. So you have to throw that into the mix as well. We almost have these dueling narratives seeing if AI enthusiasm can outweigh the tariff risk that we saw kind of seep in the markets on Friday. And there's growing conviction that this is just a negotiating ploy by both sides. For China, this is them essentially showing an ace when they're playing

blackjack because they hold this card that is the rare earths minerals. And that underpins the modern economy. If they don't ship out rare earths, then you get a supply, you get supply chain. chaos that is order of magnitudes greater than what we saw during COVID. So it's very unlikely that they're actually going to play this hand. And the same with Trump. He basically acknowledged he was explicitly negotiating with this 100% tariff raise. He said, that's why I made the deadline November 1st. We'll see what happens. So this is just posturing. It seems ahead of talks between China and the United States later this month in early November. Meanwhile, rare earth materials makers in the United States absolutely had a field day on Friday and on Monday as well.

Critical materials, and then I'm looking at it this morning as well. Critical metals was up 36% pre-market after closing up 55% on Monday. MP Materials, which is one of those names that has been floated as getting a stake from the U.S. government. That was up 9% pre-market after a 21% surge on Monday. So you are seeing U.S.-based makers or miners of these materials reaping the rewards of it as well. So we've talked about the AI trade. And now it looks like the rare earth trade is also alive and well. Because there's increased understanding among U.S. companies and also in the White House that because China controls 90% of rare earths and they're so important to everything that we use on a daily basis, the United States needs to build out its domestic supply chain.

It's been so far behind. Really everyone has, except for China on building the infrastructure needed for rare earths to get them into products because rare earths are not honestly rare at all. can find them pretty much all over the globe. The problem for countries that aren't China is they don't have the infrastructure to turn them into magnets, which are the type of rare earths that you need to put into actual products. So yesterday, we saw J.P. Morgan announce a $1.5 trillion initiative aimed at strengthening industries critical to U.S. competitiveness, critical minerals, advanced manufacturing, energy,

defense, frontier technologies like AI and quantum computing. So there does seem to be a lot of momentum around building out domestic supply chains. for not only semiconductors, which we've seen over the past few years, but other things like rare earths as China has a stranglehold on this market. There's like seven different storylines all fused into one, but that's what happens when you take a long weekend. You miss a lot, so I hope everyone feels caught up now. Moving on, it's not often that a little-known auto parts supplier

can send ripples through the global capital markets, but when First Brands went bankrupt earlier this month, it set off outsized warning bells. From the outside, First Brands looked like a quiet success story of the private credit era. The company had grown from a motto's auto parts manufacturer into a global supplier with 26,000 employees backed by a dense web of lenders,

including subsidiaries of big names like Jeffreys, UBS, BlackRock, all eager to finance its next acquisition. But behind the scenes, things were looking messier than my room, with vendors complaining of late payments, basic calls for documentation getting met with hostility, and things like the founder keeping his camera off on Zoom calls as setting off warning signs. When the company filed for bankruptcy in late September,

it was worse than anyone could have imagined. First Brands listed $11.6 billion in liabilities, more than double what most of Wall Street believed it owed, and admitted that $2.3 billion in short-term financing had simply vanished. According to court filings, part of the problem was that the company would pledge the same invoice revenues to several of its lenders,

like when you promised your last week to two players in Katon. The lenders that funded First Brand's expansion were suddenly left with a massive egg on their face. A subsidiary of Jeffries has $715 million in exposure to First Brands. A unit of UBS reported $500 million in losses, while hedge fund Millennium is nursing about $100 million in losses as well. Many weren't traditional banks, meaning their financing falls into the far less regulated world of private credit. A $3 trillion market that exploded after banks got more cautious with, loans following the 2008 financial crisis. Neil, again, in the grand scheme of things, this was a auto supplier who grew a little

too fast, but it's also a wake-up call on how trillions of dollars have migrated out of traditional banks and into this murkier world of private lending. If not having your camera on during Zoom meetings, this is a sign of concern, then, you know, morning brew's about to go belly up. Yeah, this private, let's go big picture first here. This private industry has ballooned in the past few years. non-bank financial institutions is what they're called, NBFIs, have more assets than the regulated banking sector. It's now worth $2.1 trillion. You have policymakers on both sides of the Atlantic

saying a lot of this risk-taking that used to be concentrated in the banking sector, the regulated banking sector. We kind of knew about it. It went past 2008. We announced all these regulations to bring it more in line with what is deemed sufficiently risk. And that's, you know, migrated to these murkier corners of the financial market. So you have these loans that people don't really know about and you only see the damage or how risky they are is sort of when first brands or another auto lending company named Tri-Color went bankrupt in these past few weeks. Yeah, this is just a very secretive company as well. The CEO, Patrick James, not only does he keep his camera off during Zoom calls, he doesn't like to be photographed as well. His entire thing was secrecy, so it makes sense that his books were also very opaque as well.

And so when I said that he is getting financing by pledging receivables to multiple lenders, that is a relatively common practice in inventory-heavy industries like auto parts manufacturing, say, hey, I got this big P.O. from Walmart, can you lend me some financing up here so I can, you know, cover it in other parts of my business? But what it was doing was basically saying, hey, I have this P.O. to Walmart, and it would take it to four different lenders and say, can I have money, can I have money, can I have money, can I have money? And obviously that is a house of cards that is going to topple at some point. But that is almost a feature, not a bug of the private crediting lending system, is that you can get hired yields because they are riskier bets.

And so all of these pension funds were pouring money into the private credit industry chasing after those yields. But when something like this happens, it's very hard to know that things would belly up before it's too late, which is exactly what happened in this regard. Yeah. So the question is whether this is just a blip on the radar or a bigger canary in the coal mine for private credit. Okay, welcome to winners of the long weekend, this segment where Toby and I pick two things that stayed dry through the Northeaster. I won the pre-show pumpkin carving contest, so I get to go first.

And my winners are Joel Mokir, Philip Agion, and Peter Howitt for winning the Nobel Memorial Prize in Economics for explaining how innovation and technology power economic growth. Well, it may seem obvious to anyone who's used Clippy that tech. technological progress fuels the economy. These nerds did the work to explain how this works in practice and modeled it mathematically for the first time. Mokir is the historian of the group explaining why the industrial revolution in the 1800s was the spark plug moment that boosted living standards and quality of life for people around the world. Before then, for nearly all of human history, the global economy didn't expand that much at all. But in the last two centuries, everything changed.

Per capita economic growth has more than doubled for each generation in the world. the U.S. and the UK, fueled by what Mokir found is a self-sustaining process by which science and knowledge are shared and built upon to produce new discoveries. The other two winners, Aguon and Howitt, focused on creative destruction, building a growth model with that concept as the key element. Creative destruction, the Nobel Committee explained, is, quote, an endless process in which new and better products replace the old. So think cars wiping out the horse-drawn carriage industry or Netflix crushing blockbuster, both led to short-term pain for certain sectors, but created more wealth in the long term. Toby, first of all,

congrats to your brown bears because Peter Howitt is a professor there. Did he flunk you? No, I was an English major, Neil, so I wasn't really taken any of Mr. Howitt's classes. But this is a very interesting, just historical perspective on humanity. Let's go to Moir's findings first, where if you look at economic progress since the Industrial Revolution, it is a straight line, but that is not necessarily something that is inherently baked into humanity. It took a lot of cultivation for that to become a thing. And the big difference that he said that changed during the Industrial Revolution is before when humans would discover something, think fire or the wheel, it would lead to this short-term

productivity jump, but it wouldn't lead to anything sustaining because you don't need just discoveries. You need an understanding of why or you need a curiosity in society. You need scientific grounding. And he says that that is what is what. what makes humanity so good at compounding this growth. But he also is kind of warning that you need to create an environment where you have support for that sort of discovery.

You need science. You need a big thing is immigration as well for this exchange of ideas to happen too. So that is where this culture of progress came from in humanity. It wasn't something that was inherently baked into our DNA. Right. Another one of the winners warned against this closingness of the global economy that we're seeing right now through protectionism. He said in his interview post-winning, Aguone said, openness is a driver of growth, adding that he sees dark clouds accumulating.

I am not welcoming the protectionist wave in the United States. It's also very, I was curious to hear what he said about AI, because this is the guy who, not invented the term creative destruction, but really modeled it for the first time. And we're hearing from a lot of the AI bulls, a lot of the AI CEOs, that there's going to be a period of creative destruction where a lot of jobs are wiped out through AI. but ultimately, economic growth will be even greater because of the productivity gains from this new technology. So Agion, who modeled creative destruction, said after he won, ideas will become easier to find more than ever thanks to AI. So AI has a big growth potential. The problem is to harness that potential, and that's where competition policy is important. So he's warning of too much concentration at the top from big tech companies who are plowing ahead with AI at the expense of everyone else.

But taken as a whole, a very interesting model of progress, timeline of progress, if you will, basically figuring out how progress started in humanity, how it sustains, and then also some warning signs about how we could die as well. So fascinating winners. Shout out the brown bears. Couldn't have done it without them. Now we're going to take a quick break and come back with my winner of the weekend. Today we helped a...

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of Penn State's football team. Three weeks ago, Penn State was just an overtime play away from being ranked the number one team in the country. But after consecutive losses to UCLA, one of the worst power five teams and lowly northwestern, a punching bag in the Big Ten, Franklin is out of a job. So why is he in our winner's segment? Well, as he heads for the door, Franklin will collect $49 million in payments as part of his

contract's buyout clause. Far from bringing an exception, that chunky buyout is now the norm in college football. In fact, none of the 30 highest paid coaches in the country have a buyout of less than $20 million, according to USA Today data seen by the athletic. If things go sour at the highest levels of college football, schools have no problem eating that cash in search of wins. We're barely halfway through 2025, and the coaching carousel is already spinning out of control

with Stanford, UCLA, Virginia Tech, Oklahoma State, Arkansas, Oregon State, and now Penn State moving on from their coaches. Projected buyouts from that group are north of $200 million, money that is literally going to people not to work. That's enough money to fund 5,000 scholarships for Olympic sports. athletes. Neil, these contracts are completely nuts, but as Penn State's move shows, no number is too high if the boosters want someone gone, winning seems like it's non-negotiable. Money is whatever.

Sounds like we got to hire these college football coaching agents because they're doing a pretty good job leveraging their coaches over these athletic directors who are the negotiating against. College football coaches are the highest paid public employees in more than 30 states, and their salaries have been high for a while. They reached new heights back during the cycle of 2021 and 2022 when Lincoln Riley got a 10-year $110 million contract from USC, and LSU gave Brian Kelly a 10-year $95 million deal. So there was this kind of reset the market for what these head coaches were expecting.

And as I mentioned, it seems like the balance of power in terms of negotiating these contracts between these high-powered agents and college football coaches against these athletic directors who spend most of their time doing, you know, fundraising and other things that just aren't negotiating contracts that are the agent spread and butter. It seems like there's just an absolutely insanely imbalanced playing field here. And you're seeing James Franklin get a $50 million buyout. That's not even the biggest in college football history. A couple of years ago, Jimbo Fisher from Texas A&M got fired and he collected $77 million on his way out the door. Meanwhile, behind the system, there's some stuff going on that shows you,

that these schools are not necessarily flush with cash, although they're flush to pay their coaches. The Big Ten is trying to close a $2 billion investment from some private investors, a pension from, some private equity firms, selling off some of its equity and its media and sponsorships. You have a little more cash. Also, the Power Four conferences, Power Five conferences,

are pushing the SCORE Act, which is this effort to get antitrust exemptions that would cap what athletes can earn in terms of salaries and endorsements. So they're trying to basically not pay the athletes as much as the athletes think they deserve. So you have these two contrasting things going on where it looks like colleges and universities

are pinching pennies trying not to compensate the people on the field, except for one person on the field, which is head coaches, which they're plenty fine with paying a lot of money and paying them a lot of money to not even work if they think they can find someone better. And there's a lot of questions surrounding Bill Belichick,

who's won a ton of Super Bowls at the New England Patriots, and he got a $10 million dollar contract per year from the University of North Carolina this year, they are not playing well at all. So there's been a little bit of chatter about whether he was going to leave. Of course, he has a $20 million buyout as well. And he came out over the weekend and said, I'm not going anywhere. The rumors to this are categorically false. Okay, it's a Tuesday. That's actually a Monday. So here's what you need to know to stay ahead in the week ahead. The government shutdown, now two weeks old, could begin to take a substantial bite of the economy this week as more

furloughed federal employees missed their paychecks due on Wednesday. Already, the shutdown has led to flight delays, Smithsonian Museum closures, and IRS phone lines going down. But as more employees don't see a paycheck and more get laid off, it could start to dent consumer spending, which drives the bulk of economic growth. Neither the Democrats nor Republicans seem to be in any sort of rush to resolve this. Yeah, William Houghlin of the bipartisan policy center put it, it's a slow burn, but it gets worse as it goes on. And what he means by that is every week that a shutdown continues, that means no more paychecks, which means increased mispayment on stuff like mortgages, on credit cards, on auto loans. It starts to compound after that. And that's why you start talking about

shaving points off of GDP, the longer government shutdown goes on. We are fully into that long-term shutdown at this point. So it does look like we are looking at trimming quarterly growth at this point because if you're not making any money, you're not receiving a paycheck, that money is not circulating the economy starts to affect a lot of things. And the data blackout is continuing. we're supposed to get these inflation numbers, consumer price index, on Wednesday, which is critical to the Fed's thinking on how they're going to move on interest rates. But that has been delayed until next Friday, the 24th. And meanwhile, we don't even have the jobs numbers that were supposed to come out on October 3rd. So everyone's kind of flying blind in this particular economy at this

moment. Starting today, Salesforce will begin its annual takeover of San Francisco with its massive Dreamforce conference. Over 50,000 people who definitely know it's a lot of it's a Salesforce does, will descend on the city to hear CEO Mark Beniof give a keynote address on what he calls agentic enterprise, a new corporate model in which AI and humans collaborate. But political comments he made ahead of the conference could overshadow his business push. In an interview with the New York Times last weekend, the longtime liberal Beniof called on President Trump to deploy national guard troops to San Francisco, claiming that Democrats had, quote, destroyed the city.

Yeah, this was a big switch up for Beniof. He is kind of the poster child for one, San Francisco philanthropy is pledged a billion dollars into, you know, the Bay Area in general. But it also has just kind of been one of those figures that you seem like, oh, yeah, he's a San Francisco person. It doesn't seem like he's aligned with Trump in any way. But here he is kind of aligning himself with him, especially because if you read between the line, Seals Force is, has the U.S. government as a vendor. So some people are saying maybe he's trying to run the playbook that other tech execs have. Tim Cook got a statue or gave a statue to Trump. So it's, it seems. seems like maybe he's seeing what other people are doing around the tech industry and positioning

himself as well for the, you know, the next few years of the Trump era. On Wall Street, it's the most wonderful time of the year. No, not the winter holidays just yet, but Q3 earnings season, which kicks off this week. A slew of companies will get the festivities going, including J.P. Morgan, Goldman Sachs, Bank of America, Domino's Johnson & Johnson, and Taiwan Semiconductor. Remember, last quarter's earnings were one of the best in history with strong corporate profits underpinning this summer's stock market rally. Yeah, we'll see if any of the optimism in the recent months is underpinned by something real or if it's just kind of all fairy dust. Also, I love how you slid Domino's in there.

We got banks, chip makers, and also pizza makers, which, again, Domino's has famously outperformed most tech stocks over the last few decades. So I'm locked in for that as well. I think I was writing this preparing dinner yesterday. In sports, the championship series are underway in Major League Baseball to determine who will play in the World Series. In the American League, the Mariners are already. up two games to nil on the Blue Jays. And in the National League, the Brewers lost game one to the defending champs, Dodgers, but somehow managed to pull a 404 ground ball double play in one of the most bizarre baseball

scenes you will ever see. You got to watch this Brewers play. It literally is unfallible what happened. I saw a tweet that basically said, you've never seen a play like this. It wouldn't load. It wouldn't load. And then I saw it. I was like, I guess you're right, actually.

But also shout out to the Mariners. You know, my fiance is from there. My sister lives out there right now. So I'm getting a lot of excited texts from kind of first time baseball fans because the Mariners long suffering. Haven't been to the playoffs a while. So rooting for them to win. Yeah, if you're looking for any underdogs for before, the Mariners are good because they have not been in this position for a while. And they've never won a World Series.

And then on the other side in the National League, the Brewers are one of the other teams that has never won a world series. They've always lived in Chicago's shadow. That is all the time we have. Thanks for starting your morning with us and have a wonderful Tuesday. If you have any feedback on today's episode, send a note to Morning Brewing. daily at morning brew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lue is our producer. Our associate producers are Olivia Graham and Olivia Lake. Hair and makeup has a $100 million buyout, so they're not going anywhere. Devin Emery is our president

and our show is a production of Morning Brew. Great show to Daniel. Let's run it back tomorrow. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th. the powerful vocals of Demi Lovato on May 17th, and the signature Southern Country Rock of Eric Church on July 19th. Tickets on sale now at yamava Theater.com, only at Yamava Resort and Casino, celebrating its 40th anniversary.

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