WSJ What’s News - Flurry of Trade Deals Boosts Markets

Episode Date: July 31, 2025

A.M. Edition for July 31. Ahead of tomorrow’s deadline for reciprocal tariffs to kick in, the U.S. confirms deals with South Korea, Thailand and Cambodia, with more expected today. WSJ editors Timothy Martin and Peter Landers explain how these last-minute deals will benefit some of the world’s biggest manufacturing hubs. On the other hand, President Trump casts doubt on a Canada pact, after Ottawa said it plans to recognize a Palestinian state. And, shares of Microsoft and Meta rally in off-hours trading as ad sales and core businesses make up for huge spending on artificial-intelligence. Azhar Sukri hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Markets gain on trade optimism as the US announces a flurry of deals. But Trump casts doubt on an accord with Canada, citing Ottawa's plans to recognise Palestinian statehood. And investors cheer on Microsoft and Metta over their artificial intelligence spending plans. You kind of have this leap of faith going on where there's so much money going out the door, but clearly the business is doing well and even improving. So the company's kind of saying, hey, take our word for it because look at the results.

And so far, Wall Street's been willing to do that. It's Thursday, July 31st. I'm Azhar Sukri for The Wall Street Journal. Here is the AM edition of What's News, the top headlines and business stories moving your world today. The US is announcing a flurry of trade deals ahead of tomorrow's deadline for reciprocal tariffs to come into force, with at least three agreements confirmed overnight. We're going to build ships in America, We're going to build semiconductors in America. We are going to finally take care of the core of America.

And it's led by Donald Trump's trade policy. That was Commerce Secretary Howard Lutnick, who went on Fox News' Hannity like last night, announcing new deals with Cambodia and Thailand. The magnet of the world is the US consumer, right? You know, remember the saying, the customer is always right? US customers, the greatest buyer in the world, and Donald Trump understands how to harness that customer

and show that customer to everybody and say, if you want to play in our sandbox, you've been treating us badly for years, come on and play. And just hours ago, the US and South Korea agreed to a trade deal that'll see the US apply 15% tariffs to Korean goods. In Seoul, Journal Bureau Chief Timothy Martin says South Korea is holding up the deal as the end of trade uncertainty with the US. South Korea saw the writing on the wall.

And that's because if South Korea did not come to an arrangement with the US, it could be left behind because its export-heavy economy competes against many other major trading nations. And if we look at the deals between Japan and South Korea, they're very similar in terms of reciprocal tariffs, the levies on autos. They also share this investment commitment. And Japan has pledged $550 billion to the US. South Korea will have a $350 billion investment fund. About $200 billion will be earmarked for things like semiconductors, batteries, nuclear energy, biopharmaceuticals.

The remaining $150 billion is saved for shipbuilding. And that's been a top priority, not only for the US, but President Trump. As part of the agreement, Seoul won't open its market further to American rice or beef, moves that would have sparked significant backlash inside South Korea. We do not yet know what was agreed with Cambodia and Thailand, though we have learned that Malaysia is due to announce a trade deal tomorrow as well. Asia business editor Peter Landers says these last-minute tie-ups are crucial for the massive supply chain in Southeast Asia. All of these countries have a strong trading relationship with the United States from things

like clothing up to parts of the semiconductor supply chain are centered in Malaysia. So like Japan, like Korea, like the European Union, they'd all want to keep up their trade with the US and they're trying to do deals before tariffs go up to rates around 25%. And so we have a little more certainty certainly than we did at the beginning of July in terms of what the rate is going to be and it's 15 percent in many cases Japan, South Korea and the European Union. And so I think markets have welcomed that it's much higher than the tariffs that the US has traditionally charged on goods from these countries. On the other hand, it's not so high that it would rule out

many of the existing trading relationships. And with more deals expected today, Peter says it'll be particularly tough on the countries who miss out. Trump has suggested deals are not forthcoming with a number of big trading partners with India. He said they're going to face a 25% tariff and criticize India for trading with Russia. He criticized Canada, saying that Canada was prepared to recognize statehood for Palestine. And Trump said that would make it difficult for the US to do a trade deal with Canada. And here also in the case of Brazil, he has been connecting trade to non-trade issues such as Brazil's pursuit of a former president.

Some of these political issues he is bringing together with the trade issue and saying, I can't do a trade deal if you're not satisfying my demands in other areas. Now, as Peter just mentioned, Canada is saying it intends to recognize a Palestinian state if conditions, including a peace deal with Israel, are met. It follows similar moves by France and the UK and, as journal editor David Luna explains, potentially creating a cascade effect among other Western nations. On the ground, it's not going to make any difference in the Palestinian territories or to Israel. Palestine won't be any closer to having a state. Nobody even knows, for example, where the borders would run. But this is very symbolically important and more importantly, it suggests

a direction of travel that could be quite negative for Israel. I mean, Western allies could become increasingly frustrated and then begin to resort to things like economic embargoes, sanctions, sanctioning growing numbers of Israeli politicians, which has already started to happen, and not letting Israel into certain international fora. So this could be a signal that those kinds of things, if this doesn't work, are up next, as it were. And that could be quite damaging to Israel. This comes as the US Senate has rejected efforts to block American arms sales to Israel. The proposal was led by Senator Bernie Sanders and takes on new prominence following international

outcry over images of malnourished babies and children in Gaza. Democratic support for blocking weapons sales has grown in recent months, with both of Wednesday's measures drawing the backing of a majority of the Democratic caucus. However, no Republican in the GOP-controlled chamber supported either measure. And in a growing sign of tensions between Washington and Beijing, China's cybersecurity regulator has summoned representatives of Nvidia to discuss the security risks of artificial intelligence chips it sells in the country. Nvidia said earlier this month that it could resume its H20 AI chip sales in China months

after the US Commerce Department restricted those sales. The Cyberspace Administration of China wants Nvidia to explain what it described as the backdoor security risks associated with its H20 chips. Nvidia didn't immediately respond to a request for comment. Earlier this week, US and Chinese trade negotiators discussed potentially extending a tariff truce over two days of talks, but haven't yet come to an agreement. Their truce is set to expire on August 12th.

Coming up, Microsoft and Meta rally in off-hours trading, with Microsoft nearing that $4 trillion valuation. We look at their earnings, and just how these tech giants are managing to leverage AI. That's after the break. Microsoft and Facebook parent Meta have rallied in off-hours trading after the tech giants reassured investors that billions of dollars in outlays to AI aren't hurting their bottom line. In fact, core business growth was surprisingly strong. Dan Gallagher is the Journal's tech columnist. Dan will get to Microsoft in a moment. First, Metta's shares have surged 11% off hours following those earnings. What

has gotten investors so excited? Well, two things. They're making a lot of money and they're spending a lot of money. Now, I think the key to the reaction that we're seeing to this report is that we already know they were spending a lot of money. There had been reports over the last month that Mark Zuckerberg personally is like recruiting AI people, researchers, paying them $100 million salaries, which are huge even for tech. And so people knew there was a lot of money going out the door, but Meta's actual business is actually doing really well. The ad revenue grew up strong, everything was like well ahead of where Wall Street expected it to see. And so I think we were seeing this kind of relief that the core business is doing strong.

And when that happens, I think investors tend to be okay with a lot of money going out the door for AI. Right. So does it seem like those results have reassured investors that all that AI spending will pay off? It's still way too early to tell. Now, I mean, if you talk to them on their earnings call, you know, they do talk about how they are seeing the benefits already in like the way AI is helping like target ads better and helping boost user engagement. The trick for Meta is that that's not stuff that you can like necessarily break out on

an income statement in the same way that the companies like Microsoft and Amazon can give, you know, put some dollar amount on what their customers are spending specifically on AI. It's harder for Meta to do that right now. I mean, just as an example, Meta's capital spending is going to be around $70 billion this year, over a third of its revenue, which is really, really high even for a tech company. And their projection is that's going to top a hundred billion in 2026, which would be over 40% of what Wall Street expects for revenue. So they're making very heavy investments relative to their size, even though they are a very big company that makes a lot of money. These are really

big bets. And how do those big bets compare to competitors like Microsoft, which of course also had some strong results out yesterday? You know, these are two very different businesses met in Microsoft. You know, Microsoft makes most of its money selling, you know, very large software packages and contracts to large corporations and a big way they're trying to make money off AI is to sell AI services to those kinds of companies. So you have very different businesses, but similar to Meta, Microsoft is making big, big spending relative to its size this year, their capital spending is going to be over 30% of their revenue, which is really high for them.

They've typically been in the mid teens that way. So it's a major bet for them as well, but they didn't project as strong of a jump for their next fiscal year here. So I think they're trying to send a message that their spending is not going to maybe be going up quite as much. And that's a good sign for investors, I think, obviously, because they, you know, the business is doing well. But I think if their business can do well, while they spend a little less, that's always

a good thing. So spending a little less, but also outperforming and essentially sending Microsoft on track for that $4 trillion valuation, it seems. Microsoft does seem to be on track to finally hit this $4 trillion valuation because their stock rose in the off-hours trading following the report. So if it goes that way in the formal session, they'll officially be at that line. They'll still be a little bit below Nvidia. But to have these two companies both in $4 trillion is interesting because Nvidia has

been the main beneficiary of all this AI spending so far because most of it's going to chips that Nvidia sells. And for Microsoft, its investments in AI are still kind of a ways from paying off. It's still a very small part of their business. And so we're still waiting for that kind of payoff to come. So to have both these companies in this four trillion range for Microsoft, it still signifies quite an active faith from investors. Wall Street Journal tech columnist, Dan Gallagher. Thanks ever so much. Thank you for having me. And we'll get more clues on how AI is disrupting big tech when we hear from

Apple and Amazon later today. Check out wsj.com for all the earnings coverage. And that's it for what's News for this Thursday morning. Today's show was produced by Kate Bullivant and Daniel Bach. Our supervising producer is Sandra Kilhoff. I'm Azhar Sukri for The Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening. night.