WSJ What’s News - China, EU Signal Desire to Cool Trade Fight

Episode Date: May 2, 2025

A.M. Edition for May 2. The EU floats buying more than $50 billion in American goods to address U.S. trade complaints, while China says it’s weighing starting talks with Washington. Plus, at the tail end of busy earnings week, Arete Research's Richard Kramer discusses big tech’s ability to weather prevailing uncertainty. And bettors pour millions into prediction markets to try their hand at guessing who’ll be the next pope. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

President Trump proposes big cuts to health research, climate and education programs. Plus the EU and China signal their desire to wind down the trade fight with Washington. And to end a busy week for earnings, we'll look at whether big tech can remain an island amid prevailing uncertainty. There is certainly an element for the entire market of whistling past the graveyard, right? At the same time, if we go back to look at what happened during the COVID pandemic era, Big Tech stayed the course with its investments and came out with increased market share and market power and a deep market cap. It's Friday, May 2nd. I'm Luke Vargas for

The Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. The White House is set to release its fiscal 2026 budget today. A wish list of presidential priorities we exclusively report proposes more than $160 billion in cuts to non-defense discretionary spending. According to administration officials, that'd represent a 22.6% reduction from projected fiscal 2025 spending, with the budget blueprint envisioning far-reaching cuts to federal environmental, renewable energy, education, and foreign aid programs. Immune from the proposed cuts are Medicare, Medicaid, and Social Security, while the plan

seeks spending increases for defense, border security, air and rail safety, veterans, and law enforcement. Lawmakers will likely spend months debating which elements of the plan should become law. Meanwhile, President Trump has signed an executive order cutting off federal funding of public media including PBS and NPR, saying that quote, neither entity presents a fair, accurate or unbiased portrayal of current events to taxpaying citizens. His efforts to shut down funding for public broadcasting are the latest of several battles with the media, including a defamation suit against Disney's ABC News last December and the

suing of Paramount Global's CBS, which is currently in mediation with Trump. Officials at PBS and NPR didn't immediately respond to requests for comment. Turning to trade now, we are seeing signs that two of the world's biggest economies are looking to resolve the trade war with the US. In an interview with the Financial Times, the EU's top trade negotiator Marosz Shefchevich said the bloc could offer to buy $56 billion worth of US goods. Joshua Kirby covers the European economy for us and says the proposal includes buying American liquefied natural gas as well as agricultural products like soybeans.

Certain things the EU has definitely drawn a red line under when it comes to food standards and things like that, but they seem pretty willing to go ahead and agree to buy more American goods in a way that would, I I think redress the key point at the heart of the trade dispute from the perspective of President Trump, which is that the EU surplus that it runs in its goods trade is unfair from that perspective. And this would be a way of reducing that deficit. At the same time, China has said it's considering starting talks with the US to halt the trade war, but only if Washington shows sincerity through concrete measures like canceling tariffs. Trump has said that's a non-starter without significant concessions from Beijing, such

as increased access to Chinese markets, even as he's also said that levies on Chinese goods are unlikely to remain anywhere near the current 145% figure. China's Commerce Ministry said it had noted repeated U.S. signaling on the possibility of adjustments to those tariffs but didn't give a timeline for possible trade talks with Washington. Shares of Apple are down off hours. While the company beat analyst expectations on quarterly sales yesterday, investors appear more focused on its tariff exposure. CEO Tim Cook predicted $900 million in added costs from tariffs in the June quarter, but admitted that things could get much worse

from there and said the company plans to ship most U.S.-bound iPhones from India and Vietnam by this summer as it urgently tries to de-risk its supply chain. While Apple's mixed results cap busy few days of tech earnings, after strong results from Meta and Microsoft earlier in the week had helped to ease fears about the impact of tariffs. Well, here to assess the state of play one month since President Trump's Liberation Day tariff announcements, I'm joined by Richard Kramer, founder of global technology research firm Arite Research. Richard, in some ways that Rose Garden tariff announcement by President Trump on April 2nd

can kind of feel like a lifetime ago. U.S. equities have certainly clawed back a lot of ground since then. And yet, can one look at a company like Apple and not be reminded in many ways of the overhang of this trade war? It's certainly top of mind for investors and I think the debate has shifted from the direct impact of tariffs. If you'd said a month ago that it would be a one percent hit on Apple's total sales for the June quarter, you would have said, ha, no problem. I'm delighted with that. But what it is now shifted the debate towards is the fears of either mild or catastrophic US recession.

So it's a recognition that the world has these interconnected supply chains and Apple is showing that it has anticipated this issue by the comments it made about the India share of US smartphone sales. Okay, what is that pivot going to look like? It maybe makes Apple more resilient in time, but I can't imagine that is cheap either. You know, again, just like these words disruption and pivot, I think they sound great, but when you're running a $400 billion business, you know, it is the proverbial supertanker and you don't just sort of do a U-turn.

So there will be a long-term concerted effort to build up additional supply coming out of markets like India and build the tertiary supply chain around the assembly factories. And then behind that, same thing has happened in IFA for Macs and iPads and AirPods and so forth in Vietnam and other locations. But again, replicating that deep supply chain that you have in China is not something you can do in a matter of months in reaction to a tariff announcement. It's a multi-years project. How do they then get to the targets he's setting for this summer that a majority of

phones sold in the US will be coming from or shipped from there, I guess. That's the operative word. A little history here. If you go back even a decade or more, Nokia had one of the largest mobile phone manufacturing plants in the world in India. They had a huge market share in the India market. Obviously, Nokia is really no more in the smartphone space. That plant was taken over by Foxconn, the leading ODM production partner for Apple.

They have built up that capacity for Apple in India, principally initially to serve the Indian domestic market and to avoid import duties there. And they now can produce the full range of Apple iPhones that sell into the US market. Now, Cook didn't talk about which phones were going into the US market. It is, again, the majority, which means it may be a low quarter and they get just over half of the phones. And clearly, when they ramp towards the all-important Christmas selling season, where volumes are 40% or 50% higher than they are in the other quarters, that may be a tougher ask. But unsurprisingly, he did not want to be drawn on what the terror situation is going

to be in July, much less what's going to happen in September and December. And, you know, these things seem to have a habit of changing almost by the day. And finally, Richard, with Apple kind of rounding out what had been a bumper week for tech earnings that have generally boosted market sentiment, do you get the sense that the tariff hit just isn't too apparent now, but might come later? Yeah, I mean, there is certainly an element for the entire market of whistling past the graveyard, right? At the same time, if we go back to look at what happened during the

COVID pandemic era, Big Tech stayed the course with its investments. It kept spending on R&D and CapEx and came out with increased market share and market power and indeed market cap. That's why everybody around the world knows about the Mag 7 now. I think these companies have a unique ability, especially given the three to 400 billion dollars of net cash balance they're sitting on, of duration in their business models.

The Apple iPhone replacement cycle is four years. Gosh knows how long the average Microsoft software installation is. We've all been using these Google and Meta services for a decade or more now, and they passed the toothbrush test of using them twice a day or more. So these companies are very willing to invest through down cycles to come out better on the other end. And I think now the question that will be asked across the entire S&P 500 is how many companies have that stability and duration in their business model and have the sheer resources of big tech. And that's why Mark Zuckerberg can say, well, our CapEx isn't going to be 60 to 65 billion

because it might cost a little more. We'll spend up to 72. And no one bats an eyelash because they know meta can generate that much in free cash flow in a given year. Richard Kramer is the founder of global technology research firm Arite Research. Richard, thank you so much for being with us on What's News. Thank you so much for being with us on What's News. Thank you so much for having me. Coming up, the rest of the day's news, including what to look for in today's jobs data,

and betters, join the pious as excitement grows ahead of next week's Papal Conclave. Those stories and more after the break. Hey, wouldn't it be great if life came with remote control? You know, you could hit pause when you needed to, or hit rewind, like that time you knocked down that wasps nest. Well, life doesn't always give you time to change the outcome, but pre-diabetes does. With early diagnosis and a few healthy changes, you can stop pre-diabetes before it leads

to type 2 diabetes. To learn your risk, take the one-minute test today at Do I Have Pre-Diabetes dot org. oil majors are wrapping up a busy week for earnings with Shell this morning announcing a three and a half billion billion share buyback after posting higher than expected earnings for the first quarter. It marks the 14th consecutive quarter in which the British energy giant is returning cash to shareholders and comes as low oil prices and trade tensions have rattled other oil companies. And we will get further clues on the health of the industry when US oil majors Chevron and Exxon Mobil release their earnings before the market open.

That said, investors today will first and foremost be watching the US jobs and unemployment numbers out at 8.30am Eastern. US economics reporter Chow Dang says it'll be the first hard data since Trump's Liberation Day tariff announcements and follows a week of economic headlines that have been skewed by companies trying to mitigate the tariff impact and front-load imports. Some businesses could have put a break on hiring. At the same time, few tariffs have been passed to customers yet. Many firms are waiting to see what happens next before they make big changes, including to prices and to hiring.

Another factor that could weigh on job gains is the sharp decline in immigration stemming from Trump's border policies. Industries like construction and healthcare rely on foreign labor so less immigration could leave some job positions unfilled. Lastly, economists will be watching for the impact of the Trump administration's federal government layoffs. These federal cuts have begun to weigh on monthly job gains and that is expected to continue for the April data. And finally, as Catholic Cardinals prepare to convene at the Vatican next week to choose a new pope, bettors are signaling their enthusiasm to get in on the action.

So far, $16 million and counting has been traded on leading prediction markets where users can buy and sell contracts that pay off if their holders accurately predict who becomes the next pontiff. The journals Alexander Osipovich told me that while platforms like Polymarket and Kalshi are hoping that the secretive papal selection becomes their next hit product, the story of betting on conclaves actually goes way back. In 16th century Rome, there was quite a thriving culture of placing wagers on the results of papal conclaves. And this led to a very thriving rumor mill where information would leak out of the conclave

and things got kind of out of hand. Bookies and brokers were accused of manipulating the markets. There were also allegations of insider trading by people close to the cardinals who knew what was going on. Eventually, the papacy cracked down on this and in 1591, Pope Gregory XIV issued a papal bull that banned wagering on papal elections on penalty of excommunication. Well, if that doesn't dissuade you, Alexander reports that the papal prediction market may be risky for other reasons, with the lack of polling, public debates, or campaigning making it more likely that media attention and public perceptions affect odds as opposed to insider information.

And that's it for What's News for this Friday morning. Today's show was produced by Kate Bulevent, our supervising producer is Sondra Kilhoff, and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Otherwise, have a great weekend. Thanks for listening.