Yahoo Finance

Welcome to a new episode of the opening bid podcast. I'm Yahoo Finance executive editor Brian Sai. Like I always say this, the podcast that will make you a smarter investor, period. And of course opening bid sponsored by our friends at Vanguard, big special guest here on the podcast, returning to opening bid is former Commerce Secretary Mr. Wilbur Ross. Mr. Secretary, good to see you again. It's been a while. Good to see you. Yeah, I appreciate it. Yeah, it's good to, uh, see you here at the, uh, NASDAQ in Times Square, and I went back.To every time you've been on this podcast, and I have to say, Mr. Secretary, you've been right, uh, every single time on tariffs. Now we've had a big breakthrough which I'm sure you saw, uh, agreement between the US and China stocks soared. We're here at the Nasdaq tech stocks really ripped higher. Are markets too optimistic based on your understanding of what was agreedupon?

Well, I, I don't think so. I think the only reason.Markets got really dizzy for a while was fear of the unknown because for a while it looked like maybe there was no real plan, maybe there was no real exit ramp. Well, now with the small deal with the UK and potentially very big deal with China, market sees there is a path.And market knows India, Japan, South Korea, Vietnam, a whole bunch of others are in the wings waiting to make deals as well.

And I should note, of course, a key member of the first Trump administration, you were in the trenches negotiating tariffs in that first administration, but now we're in this new what.90 day period and we're taping this I guess it's 89 days now. Um, what advice would you give to the administration, uh, during this key time?

Sure. Well, there are a couple of big issues that haven't been addressed. One is market access. The tariffs are one thing, but market access is another very big deal. Intellectual property being respected, big deal, and maybe most of all enforcement.Remember we made a deal with China, the so-called phase one, but they never implemented it. And then when the Biden administration came in, they didn't seem to have much interest in it anyway, so we really need an enforcement mechanism.

Does the US to get some of those things you're talking about here or to get the ball over the finish line.Is the administration going to have to give something up or several things?

Well, I think they're giving things up relative to where they were in terms of the announcements that preceded, but they're not gonna be giving things up relative to where we were before the recent announcement.

Are you confident that after the now the 89 days there's something definitive on the table because going back to my first question, I think that's what that's why the markets cheered this. I think investors were quick to price in maybe the trade war with China is over.

Well, I don't think it will ever quite be over, but what will be over are these tariffs up there over 100%. But you know, once a tariff gets over 40 or 50%, it doesn't.It doesn't make much difference if you add more on top because you've really said, we're not doing any business with you. It's not absorbable even at 40 or 50, let alone at 125 or 135.

What lessons, I mean, you've been in the room with the Chinese. These are high pressure talks. What have you learned by negotiating withthem? Well,

they're very tough. They're very determined and very well prepared, um, so the real question is, have they made up their mind that.Time to get serious. I believe they have and including not just regular tariffs, but I think we're gonna get a lot of progress on fentanyl. They had an extremely high security person from China at this talk uh that just occurred.That's the first time they've done that. Well, it's the security part of China that has to deal with fentanyl because they don't have a domestic fentanyl issue. You never hear about drug problems in China because they're very strict, but they've actually been subsidizing export of fentanyl.

What do you think um made the Chinese blink?

Oh, I think seeing that Trump wasn't kidding, I mean him imposing over 100, he put in first the tariff, then when they responded, he jumped way up.

You toldme you told me 6 months ago, quote, the president was deadly serious about tariffs, and he escalated it very quickly.

He certainly has proven to be.And I think they got that. I think they also, uh, realized something else.In the first administration, the president didn't have very good control of the Republican Party, and he didn't have very good control of the Senate and the House. Now the majorities are very slim, but he's got pretty much control, so that means.He's the decision maker. We don't have to worry too much about it going back into the legislature, so that's a change, big change. The other thing that's a big change is in the first administration we were probing what are the legislative mechanisms.That exist and that we could use to give the present tariff power. Well, we found Section 20301, Section 232 and IEA, all of which are based on national emergency or national defense.And that's why you notice this time he's not putting anything to the Congress. He's doing it all by his own order. That's why you've seen so much activity so quickly.And why he feels unconstrained about the levels.

Now for those not familiar with your career, you've, you've known the President Trump for decades back when he was, you know, a real estate mogul and a businessman. What do you think his next move will be with China?

Well, the next move will be to finalize a big deal. This is just the tip of the iceberg, and as I mentioned, there are these other issues the fentanyl, the intellectual property, uh, and market access, and there's finally a complicated one. They use some junk science to keep our agricultural products out.Those are the issues that haven't been addressed to any real degree in this little thing, but the very fact that during the pause period, China was willing to accept materially higher tariffs than we're having because he kept in place the base tariff that he's talking about for the world plus added something to it. So they're at about 30%, we're at about 10%.

I talked to a lot of CEOs, uh, Mr. Secretary, and if there's any theme that ties these conversations together, they've been confused by the negotiating strategy on tariffs. What do you tell the CEO community that is just trying to, to meet a quarter, meet a cash flow number, and keep their employees happy?

Well, what I, what I keep telling them, and I have been telling them, is that the end result is going to be a good end result, um.And that they shouldn't let the interim noise distract them because it's all it is, is interim noise. It's not a permanent thing. And I've been telling him he has no intention of staying at 100 and some odd%. There's no point to being that high.I also think that longer term if they apply reciprocity on the way down just as they more or less are on the way up we could end up with lower tariffs.

Doyou think the CEOs should expect that they will now have to operate in a land of tariffs for the next decade? I mean, are tariffs the new normal for the US versus the rest of the world?

Well, people forget from the days of the American Revolution right through World War II, tariffs were the main source of revenue to the US federal government, so tariffs are nothing, nothing new.Um, what changed after World War II, we decided to help rehabilitate Europe and Asia, both with direct aid like the Marshall Plan and with indirect aid like.That was a good idea, but it should have been time limited. There's no reason to give China the same concessions in 2025 as you would give them in 1947. The whole world has changed. They've changed, but instead of time limiting it, we locked it in first with the GATT and then subsequently with the WTO.

Has President Xi, China's President Xi, been bolstered his standing in the world been bolstered because of the situation?

I think they've both been, um, it's not correct to say that Xi blinked. Um, I, I don't think it's correct to say that either one blinked.Nor frankly other than for their own political purposes do I think it makes any difference whatsoever. The real key is, are we going to find a level that reduces our trade deficit with China.

All right, stay right there, Mr. Secretary, we'll be right back on opening bid. We're gonna go off for a quick break.All right, welcome back to opening bid here at the NASDAQ in Times Square, and of course opening bid sponsored by our friends at Vanguard, having a great chat here with former Commerce Secretary Mr. Wilbur Ross. I, I wanna get your sense of the economy, um, because, uh, we just had, uh, Fed Governor Adriana Kugler.She said that tariffs are likely to generate significant economic effects if they stayed at current levels. Would you agree with that?

Well, if they were to stay at 100 some odd%, surely, but that's never really been in the cards. That was just a mechanism for getting the talks going.Plus, you can't really just look at tariffs independently. Remember, he's also got a whole tax program coming through, and that's gonna have enormous impact.Giving a $4000 credit tax credit against Social Security is huge. Tens of millions of families depend on Social Security, and an extra $4000 means a lot to those people. It's 300 some odd dollars a month net net net in their pocket.And people on Social Security have a very high propensity to consume. They will spend that money. Similarly, abating the tax on overtime is a very good thing. People are a little bit loath to do overtime nowadays. They prefer lifestyle to wages, butMaking it tax free will be an incentive and that's important because in many of these sectors it's gonna take a couple of years to build our capacity to where we can be self-sufficient, but if you start out with overtime, you can have a bridge toward that gap. So that's a very important thing.Further, people haven't noticed, but it's gonna make the interest you pay on buying a car tax deductible.Well, a huge percentage of automobiles are financed, and so that makes a very big difference. You'll notice in the TV ads, the car companies don't even talk about the price. They talk about how much per month. Well, now if they're tax deductible, how much per month they've just gone down.

Even in,even in light of some of those measures, you still have uh an investment bank like Goldman Sachs.After the trade agreement with China, they, they were at a 45% chance for recession this year. Now they're at 35%. Would you agree with their probability?

Well, there's probably always a 20 or 25% chance of a recession, and it's been many years since we had a real recession. COVID, uh, you have to put to the side because that was not an economic recession that had to do with the horrible epidemic.So it's been a long time and we're therefore due to recession at some point. My biggest worry in terms of whether there will be a recession is Jay Powell and his antipathy toward the president, their mutual.antipathy makes it less likely that he'll be reducing rates as soon as I would prefer that he do so. Should he

be fired as the president has suggested?

Well, it's not at all clear that the president can fire.Uh, the head of the Federal Reserve. My guess is if it were clear, Trump would have fired him in the first administration. So I, I would be very surprised to see an effort to do that, uh, and that would be litigated in any event. So by the time he got done with it, his term will have expired. His term expires pretty soon.

To be fair to JP Powell, it's hard to cut rates because they're concerned about the inflation outlook. Where do you stand on tariffs equating to inflation? Do you think we will see

inflation soon? Well, where I disagree with him about the impact of tariffs on inflation is this You can make the case there will be a one-time step up in inflation, but unless the tariffs kept going up as a percentage.There's no reason to believe that it'll be incrementally more the next year and the next year. So I don't agree with the argument that, uh, tariffs justify fears of continuing inflation.I, I just don't think so. And when you start getting down to low levels like 10%, 20%, a lot of that is absorbable anyway.

What do you think about, you know, now there's reports that, you know, given that backdrop of tariffs, potential inflation, Apple CEO Tim Cook looking at price increases for his products, even if tariffs are removed.

Well, uh, Apple are very clever strategists, and remember their purpose is not to boost or not boost the economy. Their purpose is to maximize profit, so they will clearly use whatever strategy accomplishes that goal.

And you are in the in your term as commerce secretary, you work closely with the semiconductor industry, a lot of, a lot of tech players. Should investors believe Tim Cook that he really wants to make products in the US?

Oh, I think he will make products where it makes the most sense. You'll notice what he started with is moving assembly out of China to India.Well, I think it won't be long before he moves the rest out as well. Reason being this within China, which like India is a great huge land mass, within China, ground transportation is very good, very good railroads, very good highways.India transportation is not so good, so it's going to be a lot more complicated getting the parts to India to the factories for assembly than it was in China. So I think this is just the start of moving more out. Now moving a factory to India doesn't particularly help us.But, um, what will help us is as the demand grows and as they source the semiconductors from the US as opposed to elsewhere, that will help.

Do you believe we can make.iPhones in America and that will actuallyhappen

physically we certainly could physically. We have the technology um whether we will end up doing it, I don't know, but there are a lot of high value components to it. The last bit of assembly is not the highest value.Uh, to the product,

and some of that worked very closely on with semiconductors, uh, in, in the first presidency, curious on what you think about.The export controls on on AI chips with China sounds like we've had a little bit of a breakthrough there, but what's your sense of where things,

I think it's essential. I think it's quite important that we be the leaders in both semiconductor and in AI, and as you may remember, I spent a couple of years.Getting TSMC, the highest tech one from Taiwan to put their next factory in Arizona, and then they pushed for the chips Act, which finally went through. It took a little time. It took too long, but at least it got through. But what's interesting.TSMC, since you didn't have Americans who were trained how to make chips, and it's a very highly technical process, and you're working in tiny, tiny areas, so there's no room for margin of error. So TSMC took hundreds of American workers, sent them to Taiwan at their expense for 6 months to train them. Now they've.Come back in their work and TSMC says productivity in Arizona is actually better than the productivity in Taiwan. Well, we start getting stories like that in high tech it'll make up for the higher wages. You know,

you've beenright a lot of times on this program about tariffs and where things are going, moving forward, what's your biggest remaining concern or concerns regarding US trade policy?

Um, my biggest concerns are the enforcement, um, because it looks as though he's going to have different tariffs for the same product depending on which country they come from. Problem with that is if you're a high tariff country, you're gonna find a way to move them through a low tariff country. So what we.the missing piece is to get the low tariff countries to put barriers so that you won't have the transshipment or other devices to get around the high tariffs in say China. That's the most complicated part because that requires all those local countries to change their tariff regimes.

Alright, we're gonna leave it there. Always nice to get some time with you. Always gracious with your time. Former Commerce Secretary Wilbur Ross, we'll talk to you

soon. Thank you.

Appreciate it. And that's it for the latest episode of Open bid at Times Square. uh, one more time. There we go. I always hate doing this.Go again.All right, that's it for the latest episode of Opening bids sponsored by our friends over at Vanguard and like I always say, continue to hit us with all of those likes and thumbs up on all the social media platforms and podcast platforms. I very much enjoy all of your feedback. I learn a lot. We'll talk to you soon.