WSJ What’s News - Trump’s Tariffs on Canada, Mexico and China to Go Into Effect Saturday

Episode Date: January 31, 2025

P.M. Edition for Jan. 31. The White House said that tariffs against Canada, Mexico and China will go into effect on Saturday. WSJ trade and economic policy reporter Gavin Bade tells us what the impact could be. Plus, weak loan growth is a worry, particularly for regional banks. We hear from WSJ Heard on the Street writer Telis Demos about what that could mean for their business. And we’ve got the latest on the deadly aircraft collision in Washington, D.C. Alex Ossola hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Sachs's of the world. And Metta considers leaving Delaware to incorporate in Texas or another state. It's Friday, January 31st. 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. We're mere hours away from President Trump's self-imposed deadline to impose tariffs on some of the U.S.' top trading partners.

White House Press Secretary Caroline Levitt announced today the coming tariffs would be going into effect tomorrow without a grace period. The president will be implementing tomorrow a 25 percent tariffs on Mexico, 25 percent tariffs on Canada, and a 10 percent tariff on China for the illegal fentanyl that they have sourced and allowed to distribute into our country which has killed tens of millions of Americans. I'm joined now by Gavin Bade, who covers trade and economic policy for the Journal. Gavin, assuming we get these universal tariffs, what will be the immediate effect? The immediate effect is going to be, well, first, I think a stock market hit.

You're going to see a lot of scrambling from continental industries, right? Industries that have cross border supply chains to try to comply with this and to try to figure out actually what it means. Does this mean for a car that has parts that go across the US Canada, US Mexico border multiple times, do they get a tariff every single time? Could some sectors be exempted

like the automotive sector or oil and gas? It just depends how far they want to go. The other big open question is, what legal authority do they use for this? Do they declare an economic or national security emergency and use emergency law to put these tariffs in place? The president says it's a national emergency. He has pretty broad remit to impose tariffs how he wants. However, that's never been

done before under this law and it would be certain to face legal challenges. So it sounds like many different industries are just going to figure out what this means. But in terms of trickling down to the consumer, when might they start to feel the impact? That is actually an open question as well. People have been trying to prepare for this, right? Stockpiling, for instance, cars in parking lots at auto dealerships, so maybe consumers don't feel it that soon, right? If these tariffs stay in place for a week or two weeks, you're probably not going to see that much. But you start getting beyond that and things are going to start trickling down to consumers. If there are no exemptions, that will be dollar for dollar, a larger tariff move than anything he did in his first term.

And so we're looking at, you know, a serious, serious change to the U.S. economy. And especially if they do it all in one with no notice and comment period, with no way for people to apply for exemptions and things like that. That will be a shock to the system here. That was WSJ reporter Gavin Bade. Gavin, thank you. Appreciate being here. Thanks so much, Alex. WSJ reporter Gavin Bade. Gavin, thank you.

Appreciate being here. Thank you so much, Alex. US stock indexes finished lower today after the White House's tariffs announcement. The Nasdaq was down about 0.3 percent, the S&P 500 dipped half a percent, and the Dow fell three-quarters of a percent. The Personal Consumption Expenditures Price Index, the Federal Reserve's preferred metric for inflation, accelerated in December, rising by 0.3 percent compared with 0.1 percent in November.

That contributed to a 2.6 percent increase overall in 2024, higher than the Fed's target of 2 percent. Matt Grossman, who covers business for The Wall Street Journal, says what really matters for the Fed is the core PCE index that excludes volatile food and energy prices. The core PCE inflation rate has now stayed the same for the last three months, 2.8%. It's obviously still somewhat above the Fed's 2% target. And so they still probably might feel they need to be a bit more patient with further rate cuts. On the other hand there are some things that the Fed is

probably happy about in these numbers. A lot of that elevated inflation over the last year really came earlier on in 2024 and in the last few months the monthly price increases have looked a lot closer to what the Fed wants. So if we get more of the same over the next few months, we could be in a place where the Fed is comfortable cutting rates further. Turning now to the latest on the DC aircraft collision. Rescue crews have recovered at least 41 bodies, though 26 victims are still unaccounted for. Investigators are analyzing the black box data from the plane and are still looking for the

recording device from the helicopter. They'll be looking to understand the helicopter's altitude, which may have been too high, as well as what the helicopter team could see and whether the night vision goggles they were wearing played a role. Coming up, what slower loan growth could mean for regional banks. That's after the break. For Wall Street, business is booming. And by most metrics, it should be for regional banks too. They're no longer living in the shadow of the 2023 crisis sparked by the collapse of lenders like Silicon Valley Bank. But instead, a recent report shows that loan growth is slow.

Federal Reserve data shows that, across U.S. commercial banks, loans grew about 2.7% from the end of 2023 to the end of 2024, only slightly faster than the 2.3% rise the year before. Here to tell us more about what this means is Telus Demos, who's a writer for WSJ's Heard on the Street. Telus, what have we learned from the latest bank's earnings reports? What we've learned is there are a lot of things that are working for banks in their earnings at the moment, right? If you looked at the headlines, you'd see, oh, profits are up, revenues are up, the stocks are up. But at the core, lending is just not really happening at the levels that you would expect it to be based on what seems like a fairly strong economy. There's just something missing,

and that is loan growth. If you look at other times in recent history, you've seen loan growth at 10% year over year. Right now though, almost across the board, categories of lending are growing at 1%, 2%, 3%. They are just not really growing. Any sense of why this is happening? There could be a couple of things. One is that because interest rates are high, companies just don't want to borrow at this

rate. There might be other even more thorny things going on in banking though, which could be maybe people want to borrow but not from banks. Perhaps they're going to other places, right? Like Apollo and Aries and Blue Owl. These are fund managers. These are companies that have raised money from investors like pension funds and sovereign wealth funds and even some Retail investors and want to lend out that money. They are not banks, right?

If this isn't an issue affecting all banks Is there a sense that maybe it has a bigger or an outsized impact on regional banks? Yes, because regional banks are generally more reliant on the lending business than the big global Wall Street mega banks are. Another thing that regional banks in particular are heavy in is commercial real estate lending. And that activity has been particularly slow. And a lot of banks have been forced to shrink their commercial real estate portfolios because of problems in the office market, right?

And so that is particularly a challenge for retail banks because that is really a bread and butter business for them. It's a much smaller part of the business for the JP Morgans and Bank of Americas and Goldman Sachs is the world. So given that regional banks are a bit more exposed, what is the outlook for them in the year ahead? Lending is really vital to the longer term outlook for those businesses. And I don't think that you're necessarily going to see like bad results in the first quarter, 2025, or the second quarter.

But unless this loan picture improves, it's going to be tough for regional banks for their stocks to go much further than they already have. That was Heard on the Street columnist, Telus Demos. Thank you so much, Telus. Thank you. We're exclusively reporting that Meta is looking to move its headquarters to Texas or another state. That's according to people familiar with the matter. The company is currently incorporated in Delaware, where most big U.S. companies are legally housed.

Texas has billed itself as a better destination for companies with controlling shareholders like Mark Zuckerberg. A meta-spokesman said there are no plans to move the company's corporate headquarters from California and declined to comment further. Chinese company DeepSeek shocked the world and rattled markets at the start of the week with the release of its sophisticated, cheaper artificial intelligence model. And though it may have tech giants on edge, some companies are already putting that model to use.

Isabelle Bousquet, who covers enterprise technology for the journal, is here to tell us more. So Isabelle, what is attracting companies to DeepSeek's AI model? Pretty much any company that's out there has been really trying to leverage AI and get the benefits of that over the last couple of years, but a big hindrance has been the cost of these models. So now they see this new model coming out of China and it's promising to be orders of magnitudes cheaper. It's exciting for them.

I don't know if they're jumping in full force to be like, oh, you know, instead of Clot or instead of GPT, we're immediately going to use this. I think there's still a lot of concerns about data privacy, but what it shows is just it can be done a lot cheaper, and that's really encouraging for them. So what are they doing with it? No one that I know of is using this in production today, but I think what they're looking at is just sort of testing the effectiveness and testing the cost effectiveness.

A lot of companies have systems set up to evaluate how well different models perform a given use case. And a lot of companies are at the point where they realize, you know, we're not just going to use one model for everything. What also excites them about this model is that it's an open source model, so they can essentially download the source code and just play around with it in a closed, safe environment. There's still questions around how secure that is,

considering the provenance of this coming out of China, but that's more the route that these companies have taken. I feel like we're kind of circling around this question, which has been a big one when it comes to AI and business, which is, can this actually make money? And is the advent of DeepSeek kind of getting us closer to an answer on that? It's kind of hard to measure because productivity

is something that's kind of hard to measure. And at the same time, you might be saving someone an hour on something, but you're spending hundreds of thousands of dollars on this AI tool for the whole organization. So yes, the idea that models are getting cheaper and AI tools are getting cheaper, it does mean that those productivity enhancements basically are delivering more value.

And this is maybe a bigger leap in that direction, but it's something that will definitely spur more adoption, lower prices, and more value. That was WSJ reporter Isabel Bousquet. Thanks, Isabel. Thanks for having me. And that's What's News for this week. Tomorrow you can look out for our weekly markets wrap up,

What's News in Markets. Then on Sunday, we'll be looking at how President Trump's moves to stamp out diversity, inclusion, and equity policies are rippling across corporate America. That's in What's News Sunday. And we'll be back with our regular show on Monday morning. Today's show was produced by Pierre Bienneme and Anthony Bansi, with supervising producer Michael Cosmides. Michael Laval wrote our theme music.

Aisha El-Muslim is our development producer, Scott Salloway and Chris Inslee are our deputy editors, and Philana Patterson is the Wall Street Journal's head of news audio. I'm Alex Osala. Thanks for listening.