WSJ What’s News - Tariffs on Canada and Mexico Go Into Effect at Midnight, Trump Says

Episode Date: March 3, 2025

P.M. Edition for Mar. 3. The president says there is “no room left” to negotiate the tariffs before they take effect at midnight. WSJ reporter Vipal Monga tells us how the new levies will affect the tightly integrated North American automotive supply chain. Plus, asset-backed securities caused the 2008 financial crisis; now, they are back. Journal deputy markets editor Justin Baer discusses what is different about them this time around. And do you think you can name the world’s biggest fast food chain? The answer might surprise you. Alex Ossola hosts. Sign up for the WSJ's free What's News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Looking to simplify? How about the simple sounds of neutral vodka soda with zero gram sugar per can for the next 15 seconds. Neutral. Refreshingly simple. Asset-backed securities crashed the economy in 2008. Now they're back. Plus President Trump's tariffs against Canada and Mexico are expected to go into effect tonight. That's not good news for the auto industry.

The integration of the supply chain is something that has taken decades that won't be very easy to unwind, easy to destroy, but to recreate and unwind is a really hard task. And properties damaged by the recent fires in Los Angeles are in demand. It's Monday, March 3rd. I'm Alex Osala for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. President Trump's 25% tariffs on goods from Canada and Mexico are set to go into effect tonight at midnight. Trump said today that his administration will go ahead with them, saying there is quote

no room left for negotiations with the US's continental neighbors. One industry that would be hit particularly hard by these tariffs, the auto industry. My colleague Anthony Bansi spoke with WSJ reporter Vipal Manga about how the tariffs would add cost to the deeply integrated North American automotive supply chain. We've been reporting a lot about how tightly integrated the automotive supply chain is across North America. It's Canada, the US, and then Mexico.

You cannot make an automobile in North America without parts touching all three of those countries. So for example, to make a transmission, what you have to do is send parts from Ontario through Pennsylvania, Ohio, Illinois, and back again as well as Mexico before the part is finally installed in a car in Ontario which is then sold all across the United States. Just that one part goes across the borders six or seven times, depending on how you count. That makes the prospect of adding tariffs to this entire supply chain really frightening for carmakers.

And will tariffs be imposed on that part every time it crosses one of those borders? We don't really have any detail on how this actually would play out, but based on what Trump has said and what we've heard out of our Washington sources is that each time the part crosses the US-Canada border or the US-Mexico border, there would be a 25% tariff on that part. Now you start off with, let's say, a little part that goes into transmission. That part in itself might be a couple hundred dollars, but each time that part is added

to another piece of equipment, that becomes a much more expensive piece of equipment. So you can see how the numbers really add up very quickly. That was our reporter Vipal Manga speaking with Anthony Bansi. To see just how integrated the automotive supply chain is, along with graphics, you can check out Vipal's story on our site. We'll leave a link in the show notes. U.S. stocks tumbled after President Trump confirmed he would impose 25 percent tariffs on Canadian and Mexican goods. The tech-heavy Nasdaq led the declines, dropping about 2.6 percent. The S&P 500 fell roughly 1.8 percent and the Dow lost about 1.6 percent, the S&P 500 fell roughly 1.8 percent, and the Dow lost about

1.5 percent. The threat of new tariffs slowed an expansion in U.S. manufacturing. The Purchasing Manager's Index, a closely watched survey from the Institute for Supply Management, ticked down to 50.3 in February from 50.9 the previous month, below economist expectations, but still above the 50 mark that separates February from 50.9 the previous month, below economists' expectations but still above the 50 mark that separates growth from contraction. Timothy Fiore, who chairs the ISM's Manufacturing Business Survey Committee, said respondents were experiencing quote, the first operational shock of the new administration's tariff

policy. In other news, chipmaker Taiwan Semiconductor Manufacturing Company intends to invest $100 billion in manufacturing plants in the U.S. over the next several years. The company and President Trump announced the plan at the White House. TSMC, which is the world's largest contract chipmaker, plans to use the funds to add to its chip manufacturing facilities in Arizona. Such an expansion would advance a long-pursued U.S. goal to re chip manufacturing facilities in Arizona. Such an expansion would advance a long-pursued U.S. goal to regrow the domestic semiconductor industry. Trump called building

up the industry a matter of economic and national security, as well as evidence that his tariff threats were working. And Kroger CEO Rodney McMullin has resigned following an investigation into his personal conduct, ending a more than four-decade career at the grocery chain. Kroger, the biggest U.S. supermarket chain by sales, said that while the conduct was unrelated to the company's business and didn't involve any Kroger associates, it was inconsistent with its ethics policy. McMullen couldn't be reached for comment. Coming up, why investors are excited again about asset-backed securities.

That's after the break. Riding a bike in the ride to conquer cancer is like being part of humanity's greatest. The money you raise, the time you spend, the energy that you give is helping people live, is giving people hope, and that's just so beautiful. Care of the fire for cancer research. Join the ride at ridetoconquer.ca. Asset-backed securities. Does that sound familiar? They're the bonds backed by income-producing assets, and a flavor of them were what crashed the U.S. economy in 2008. Now they're back.

New U.S. issuance of some of the most popular flavors of structured credit, including asset-backed securities, hit record levels in 2024. And according to S&P Global, they're expected to surpass that tally this year. Wall Street Journal Deputy Marcus Editor Justin Baer is here with more. Justin, these are the instruments that contributed to the 2008 financial crisis. Why are people coming back to these? There are a couple things that have happened since then. One big thing is that the banks, which have historically been the main lenders

for both consumers and companies, because of all the new rules that came about after the crisis, they've had to gradually recede from those markets, so they don't hold all those loans on their balance sheets as they once had. A second factor has been just the growth of all of these private investment firms that manage all forms of debt.

And they've grown quite popular with all sorts of pensions and insurance companies. And the funds that they've raised have been pretty extraordinary. And that leads to the third part of this, which is that the demand for these kinds of debt structures is grown off the charts. You've seen, particularly after COVID, when the Fed stepped in and they cut rates to near zero again, you got a lot of investors that were desperate to add various investments that had a higher yield to them.

And so that really lit the fire for many of these products, which can be rated highly and are deemed safe, but generate a much higher yield than say owning government bonds. You know, when I hear about ABS and I hear that it was so involved in the 2008 crisis, I think, wow, it's got to be really risky, right? I mean, what makes these appealing for investors? The big part of it is the way, just in terms of the mechanism that they choose. So it's an opportunity to take a basket of loans and slice those up in different ways

that would appeal to different investors. So if you are, let's say an insurance company, that you really only wanna hold really safe stuff, you can get the slice that's the most senior and is more highly rated and deemed less risky. But if you're a the slice that's the most senior and is more highly rated and deemed less risky. But if you're a hedge fund that's just trying to generate as high returns as you can, you want the riskier stuff. And so a lot of folks need to describe these as machines as technology, and the technology, what it enables is for you to distribute those various risks to different

investors that vary in needs. That was WSJ Deputy Markets Editor, Justin Baer. Thank you, Justin. Sure, thank you. Home selling season is underway in Los Angeles. And if you were expecting that the recent fires would put a damper on buyers' enthusiasm, think again. Land parcels where homes

once stood are commanding selling prices above early expectations, and sellers are asking for roughly the same value or even above their land's estimated pre-fire valuation. In Altadena, for example, the first four lot sales have closed at an average of $69 a square foot, well above the $22 average from 2023 to 2024. One local real estate agent said she was about to close on a burned piece of land that was selling for about $99 a square foot. And property values are expected to rebound even more once the neighborhoods are fully reconstructed and fireproofed. I'm joined now by Rebecca Pichotto, who covers residential real estate for the Journal. Rebecca, tell me, what's driving this?

It's a combination of factors. A big reason is that it's actually quite expensive to hold onto these destroyed homes for your average homeowner. It could mean paying for both temporary housing and a mortgage for years, while also fielding the costs of the rebuild. So some homeowners are doing this calculation in their head and realizing that they simply can't afford the years-long carrying costs. But there are a few other reasons. Some other homeowners may have received insurance payouts

well below what they expected and are coming to terms with the exorbitant out-of-pocket costs that it might take to rebuild. Others have young kids who just want to get resettled quickly. And not to mention, there are also homeowners who had already been thinking about moving out and the fires just sped up their timeline. Who is buying up these properties? So far a lot of the purchasing bids are coming from small to midsize investors primarily who might either flip the vacant lots once they appreciate in value, or they might plan to rebuild the single-family homes themselves and sell them off later. Ultimately, the bulk of the

value in any property is in the land. So what these investors are really looking at is prime real estate, prime land plots in a place that they expect to rebuild and be fireproofed, potentially better than previously. How is this turnover affecting the demographics of who is living in these neighborhoods? And I'm thinking specifically of Altadena, which we've covered a bit on the show and had a high proportion of black homeowners living there.

Is that going to change? It's likely too soon to say whether this turnover and ownership is actually changing the demographic composition of these areas right now. After all, the numbers of sales and listings that we've seen are still a very small portion of the thousands of homes that ultimately burned. But the fact that many of these homes are getting mostly bids from investors, that's certainly raising alarm. Alta Dena is a historically black neighborhood. Black homeownership is a major feature of the neighborhood.

And so residents are concerned that as the rebuild gets underway, people who have been living in their homes for decades or who might have inherited their homes from family members, that they might get priced out of the rebuild and that that might change the composition of and character of these neighborhoods that they love. In Alta Dena, you can walk down the streets and see all of these yard signs outside of homes that say Altadena not for sale. And this is part of this broader movement to fend off predatory investor bids and ultimately try to preserve the character of the area. That was WSJ reporter Rebecca Pichotto. Thank you so much, Rebecca.

Thank you for having me. Rebecca Pichotto, thank you so much, Rebecca. Thank you for having me. And finally, what do you think is the biggest fast food chain in the world? I mean by number of locations. I assumed it was McDonald's, which I've eaten at in many different countries. Or maybe Starbucks, where here in New York, two locations can be sometimes just a block apart. But the truth is, it's a Chinese chain called Mishui.

It sells $1 ice cream and bubble tea in more than 45,000 stores across Asia and Australia. Those cheap snacks can really add up. In its initial public offering in Hong Kong today, the company raised more than $400 million. Its stock closed at 43% above its IPO price, giving Mishui a valuation of more than $10 billion. The pace of Michouet's growth has been blistering as it more than doubled its locations in three years and it isn't done expanding. Maybe get ready for a Michouet near you? And that's what's news for this Monday afternoon. Today's show was produced by Anthony Bansi and Pierre Vianamé with supervising producer Michael Kosmitis. I'm Alex Osola for The Wall Street Journal.

We'll be back with a new show tomorrow morning. Thanks for listening.