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Welcome to Capital Gains. Yahoo Finance's unique look at how US government policy will affect your bottom line. I'm your host Rochelle Akufo, and of course we are less than 10 days out from inauguration Day. And even though President-elect Trump isn't in office yet, he's certainly already been making waves. We've seen a lot of, uh, big policy announcements, or at least proposed policy announcements and wishes talking about, you know, taking back the Panama Canal, buying Greenland. Both, of course, have been met with a lot of chagrin.From the international community. But also, of course, tariffs, tariffs, tariffs, and how those are going to be implemented. So a lot to unpack. And later on coming up, we're going to be having Joanne So, University of Michigan's survey of consumers director joining us to break down all that tariff talk and how all of this is going to play out. And of course, I would be remiss to not bring in my co-stars, Ben Worshcott and Rick Newman, because obviously these fresh uncertainties won't face themselves. So, Ben, what have you been focusing on thisweek?

Yeah, so I've got, well, I got mynu Carter this week. You mentioned some of it, but I wanted to, I thought we could start with a kind of incomplete list of things Trump has slammed, threatened, whatever this week. You mentioned some of them. Canada, he wants to take it over. Um, Gavin Newsom and Karen Bass in California for their response to the wildfires, the kingdom of Denmark, um, he wants to tariff it because, uh, it's a it's, it controls Greenland and he wants Greenland, Panama, Mexico, Jack Smith.Joe Biden, even Jimmy Carter, who was laid to rest this week. So it's, it's a long list, and I, to, to, but I wanted to put out the list to bring us back to the tariff implementation part you, you mentioned at the top, because literally half of that list, believe it or not, part of Trump's solution to it is tariffs. He wants, he thinks that economic pressure specifically through tariffs, is the way he's going to get a huge amount of his agenda done and it kind of led to aA Trump rollercoaster this week around tariffs, you know, signs from different wings of different wings of his aides, from the business community in front, and especially from Trump himself about how hard he's aiming to go on tariffs. So we really don't know. There's still a lot of indecision within Trump's camp about what the day one tariffs look like, but it's clear they're aiming to be big, they're aiming to be dramatic, but exactly how they're going to do it and what they do right at the beginning is being still set up for sure.

You know, guys, as I get ready for uh the second Trump term, I I've I've started to think of Trump as three different personas. Uh, the #1 persona that our audience likes is businessman Trump, the guy who likes deregulation.Uh, low taxes and things that are friendly to businesses. Uh, the other, uh, and a second Trump is the Trump that got elected, which is protectionist Trump. That is what you're talking about, Ben, with the tariffs, uh, deporting migrants, um, and, uh, and, you know, that's, that's sort of the America first program. And then there's Madman Trump. That's the Trump who who wants to annex Canada, uh, seize thePanama Canal, invade Greenland, uh, and do some of these other crazy things. Uh, I, I think it's worth pointing out, uh, I, I, you know, we should, we should no longer be shocked when Trump says outrageous things. Um, some people still are, and I see them. Can you believe what Trump said? And it's like, yeah, of course I can believe what Trump said that we don't we know the way this guy operates for, uh, at this point. So we're gonna talk about tariffs.Or later, but what does Trump want with the Panama Canal, um, and with Greenland and with Canada. So I'll venture a few guesses. I don't, I don't think it's really all that mysterious. Trump wants more control over shipping, um, that goes through the Panama Canal. That is a huge route for um Chinese um ships that go through there. Um, China, now Trump has overstated this, but China does have some port facilities that controls or operates along.The uh the Panama Canal and, you know, it's not crazy to say, what do we, how do we feel about China operating, uh, ports in on our half of the world? Maybe, maybe we should do something about that. So, you know, he, Trump saying he wants to take over the Panama Canal is positioning for some kind of negotiation in which perhaps the United States gets more control over the Panama Canal or lower shipping rates or something. I have no idea if he'll get it.Um, but that's what he's trying to do. What about Greenland? Well, um, Greenland has tons of mineral reserves, uh, since it's up, uh, I don't know if it's in the Arctic Circle or near the Arctic Circle, but it's basically up until now it's been permafrost, um, which means super hard to access any of those minerals, but as we know, glacial ice is melting and some of those minerals are now becoming available. Um, also an important military base for the United States close to Russia.But also, um, uh, near new shipping lanes as some of that um Arctic ice melts, um, you can, you know, that is a new way to get from, uh, from Europe to Asia and from North America to Asia that is going to be cheaper and faster. So Trump wants some leverage there. So I sincerely hope he doesn't invade Greenland. Um, I'm leaving out Canada. I'm not sure what Trump is really after by by talking about annexing Canada as aFor state. Is he just trolling Canada, do you guys think? Or have you guys identified something Trump actually wants? Yeah, I

mean, I tend to agree with you that that sort of dynamic that the shipbuilding is really at the core here for, especially for the Greenland of Panama. Canada is a tricky one, but it also points to me to kind of the way out of the, of the Panama and the Greenland situations. Very few people think he's actually gonna invade Greenland. Very few people think the US is gonna take over the Panama Canal, but there's clear.ways to sort of get a win here that Trump can then tout and wins. But to your point, Canada is the one that I think is much harder, right? Canada's not going to become the 51st state, but there's not a lot of concessions they can give that that allows Trump to back down and sort of declare victory. So that's the tricky one for sure.

But youhave to wonder then what does this mean for the configuration of alliances if you're talking about invading Greenland, and of course Trump also talking about pulling the US out of NATO.So I mean, is it just a case of just sort of just sort of blow everything up, but this is someone who essentially wanted to be a peacemaker. When you look at what he wants to do in the Middle East, what he wants to do with Russia and Ukraine. This this seems to fly in the face of that while still trying to benefit US interests. I'm not sure how much of an appetite there's gonna be for

this, Rick. Well, you know, uh, when Trump says America first, in a way he also means America alone.Um, and he, he considers the United States to be the, um, um, you know, senior partner in all of the alliances, and, you know, he's not wrong about that. I mean, it's without a doubt, the United States is the senior partner in NATO, and during his first term, you know, Trump highlighted what is a legitimate issue, which is that many European countries are not, were not living up to their pledge to spend at least 22% of their budget on on defense, um.And Trump drew attention to that and some of those countries actually started spending more on defense, and then, uh, Russia invaded Ukraine in 2022, and that has kind of changed everything. Um, you know, we also have a hugely important, um, economic alliance here in the United States. Uh, it's now the USMCA, the United States, Mexico and Canada. Um, Trump does want something from Mexico and Canada. I mean, it, it's getting muddled exactly what he wants from these countries.But I mean, we know that a core principle is Trump wants more production and more manufacturing in the United States, which means he wants fewer imports from elsewhere. Um, by the way, most economists say it's just not going to work the way the way Trump wants it to, but he is obviously once again, um, he has, he has said one of the first things he might do is put a 25% tariff on imports from Mexico and from Canada. That would, that would be an economic disaster probably very quickly if that happens, so it probably won't.But, um, Trump wants something in return. For Mexico, we know that he wants um help with migration, uh, you know, more help uh stopping undocumented migrants coming across the border. And Canada again, a little more puzzling, but there are some migrants who do come from Canada, I mean, not very many. And also Trump has raised fentanyl. He wants everybody, Mexico, Canada, and China to help um interdict fentanyl shipments to the United States. I mean, on that one I would point out, um, ifFentanyl stops coming into the United States, that's not, that's not gonna reduce demand for opioids in the United States. That's the core problem in the market, including the black market, we'll probably find out, figure out how to meet that demand, but Trump is tackling the supply side.

It'svery hard to know where to go from there. I mean, obviously he said he's gonna do a lot of these things on day one. I know we've, we've talked about some of this before. What actually needs to happen on day one, Ben? What are you hearing even in terms of sort of the appetite?Well, what Trump is able to do on day one.

Yeah, well, yeah, so there's definitely going to be a lot on day one, and then Trump has already signal, signaled a lot of what it's going to be. The big one in the sort of the broader sense is going to be immigration. He was, Trump was on Capitol Hill this week, and Stephen Miller gave a whole presentation to Senate Republicans about the, the immigration day one stuff, reinstating them remain in Mexico policy, things like that. So that's gonna be, I think, in terms of the overall media, the, the larger headline, the tariff one is gonna be some sort of action on.Day one, but the question is kind of what specific methods. I wrote a whole story on this, I won't bore people get the weeds, but the one thing to remember is the International Economic Powers Act of 1977. That's the kind of big option Trump could go in. That allows the biggest changes and the quickest implementation. There's some that think he could, he could announce it on day one and it could be in place on day two, literally that fast. Other options, Section 301, Section 232 tariffs take longer and it's a whole review process andAnd our and ours a little bit lower. So he's definitely gonna kind of go big on tariffs at the beginning. The question we still don't know, and I think even in Trump's camp, they don't know, um, do they try to actually have it go into place quickly or in any form or or is it sort of a, we're announcing it, it's going to be in place later in this year, which obviously the business community would be much happierwith.

And I hope you don't have to worry about boring our audience. I mean, I thought our audience was trade geeks who want every mind numbing detail.You know, what's in the US MCA and you know, Ben's stories are never boring. Everybody should read Ben's stories. Um, you know, the other thing we're gonna see in Trump's first, let's let's just call it first six months, is there's gonna be a way faster rollout of almost everything than we. It's gonna be much the same agenda, but much faster rollout than we saw in 2017. And if you go back to 2017, it you could argue that it took Trump a year, even two years to get his footing, uh, figure out how the process.Works, get the people in place who are going to do what he wanted instead of, you know, the institutionalists who tried to protect the government from Trump and things like that. I mean, none of that is gonna be in Trump's way anymore. Um, so it's gonna be much more bumptious right off the bat, and, you know, this could unsettle markets right away. One thing I hope our audience is paying attention to is what's been happening with um longer term interest rates, especially the 10 year treasury.Um, bond, um, since the, since the Federal Reserve started cutting short term rates last September, short term rates have come down by a full percentage point, but the tenure has gone up by a full percentage point along with mortgage rates and, um, other, other, uh, basically consumer and business rates that are pegged to the tenure.And uh the bond market doesn't always explain itself, but what many people watching this closely, this is there's a lot of chatter on Wall Street about this, and, uh, a lot of uh analysts are saying this looks like the market could be anticipating a couple of things. Number one, tariffs that are gonna cause higher inflation, also deportation of migrant workers that could cause higher inflation, and perhaps the federal government is finally just borrowing too much money and there aren't there's not enough uptake of those bonds. So that that is aSuper important thing to watch and one analysis I saw from Bank of America said, uh, we can, we kind of consider 5%, the the 10 year paying 5% as a sign that if it gets above that, that might be the bond market saying something is wrong. So, you know, markets are a little unsettled with Trump coming in. We'll see what happens during the first couple of weeks.

And we'll certainlyget a chance to see how consumers are feeling about the economic and business climate on the other side of this break. Stay with us on Cagains.Welcome back to Capital Gains. We're continuing the conversation now with Joanne Shu, director of the University of Michigan surveys of Consumers. Thank you for joining us. So, now, for people who are wondering, uh, about the information that's in this, in the survey, it really is a snapshot, a monthly and mid-month snapshot of how consumers are feeling about business climate, personal finance, spending, inflation.Now we have seen something of a post-election calibration, but we did see in the December survey that there was already a a steady uptick for the past 5 months. What are consumers really focusing on in this period?

Well, consumers have been telling us um for quite some time that the number one factor on their minds is inflation and high prices. Um, you know, consumers really don't feel very good about the economy do because their personal finances are being weighed down by the persons of high prices, but at the same time they also haveRecognize that inflation has slowed considerably over the last two years. Um, so that, that's really the main thing that they're thinking about, um, even when it comes to recalibrating their views in the wake of a transition in the White House, inflation and high prices continue to be top of mind.

Joanne, I, I, uh, follow your uh survey very closely. This is one of the main, uh, consumer sentiment surveys when people hear consumer confidence or consumer sentiment, uh, a lot of times what we're talking about is the University of Michigan survey, the conference board has another survey. Um, your survey has for a long time has been asking people their political affiliation, and one thing I, I just findis that people's view of the economy, their optimism on the economy, can change by a lot uh when a member of their own party gets elected, and we saw that um in the in the in what your survey found in after the elections in November and then in December. What is going on there and how long has that pattern been in place?

So we'vebeen asking people about theirPolitical affiliation for quite some time now. Uh, we also only used to do it a few times each administration and now we do it every month. Um, notably, um, as you mentioned, there is a partisan gap in sentiment. Um, if you belong to the party that's in the White House, you tend to have more favorable views of the economy than if your person is not in the White House. And this is not new. We've been seeing this at least as early as.Reagan administration and possibly even earlier than that. Now what is true is that the partisan gap has grown over time. Um, it was about 20 index points under the Bush and Obama years, and it doubled to about 40 points between the two parties under Trump, um, and it waned a little bit under Biden, but, you know, it still remained quite high.Um, I do want to note that this isn't just partisan flag waving. People aren't just, um, you know, really rooting for the team that rooting for their own team. Um, in fact, consumers, at least in the last few months have been telling us that they're really being influenced by the prospect of the different policies, uh, you know, prior to the election, Harris's proposed policies or Trump's proposed policies, um, and with Trump's election, we're hearing a lot of spontaneous mentions, uh, about.His policies and particularly tariffs, and that's something that's really shaping how consumers view the trajectory of the economy.

Hey, John, yeah, I wanted to follow up on that on that tariff point you mentioned. That was a stat that you had that jumped out at me that 25% of consumers spontaneously brought it up in a negative way. I'm curious kind of more details on that, how they're talking about it? Are they, are they into the weeds of, of tariff detail of tariff details, or do they just sort of associate tariffs with inflation? How, how, how are they thinking about tariffs overall?

We have a few areas of the uh of the interview where tariffs are coming up. Um, I mean I think the key areas are, you know, when we ask about is it a good time to buy a car, is it a good time to buy large durable goods like appliances, that's really really where it's coming up. Um, people are anticipating that tariffs are gonna hit these kinds of purchases next year. It's also coming up when we're asking them about news they've heard about the economy, um, and, and when we're asking them for other views on, on the.On their expectations for the economy. By and large, they're not giving us a lot of detail on, you know, what exactly they think Trump is going to implement. Overall, they're anticipating that these tariffs are going to hit, um, sometime in the near future, um, and the vast majority of the people who are mentioning this expect them to hit in their, in their pocketbooks. They're expecting those higher prices, um, uh, that the cost of tariffs are going to be passed on to consumers.

So when the conversations that you're having with people about tariffs, how soon are they expecting to see this impacting the, the prices that they're looking at?

It's really hard to say, and I think there's not a lot of agreement. I mean, I think, uh, or, or there's just a lot of uncertainty. We don't know when these tariffs are going to be implemented. Um, so there's one thing we've been tracking for quite some time is, which is the share of people who say now is a good time to buy durables because the prices are going to just go up next year, so you better buy them now. Um, and we saw a surge of people mentioning.That motivation for buying now, um, in, uh, in, in December. And interestingly, when you look back to 2016, when Trump was elected at that time, he also campaigned on tariffs and leading, um, and right after the election, we also had a surge of consumers at that time saying, by now, avoid future price increases. Um, at that time, it took about two years for the tar.Hikes to to go in, um, and when, when the tariffs did not actually hit on day one, we had fewer people um saying by now, um, but of course when tariffs hit in 2018, um, everyone again was worried about prices going up. Um, and you know, will it take him two years? Is this merely a negotiating ploy and he's not actually planning on hiking tariffs, I think.Consumers aren't reallysure.

We're not sure either. Um, so my the way I think about this is I I don't think people, um, understand tariffs very well. I mean, they're they're somewhat arcane and there's a lot of misinformation about tariffs, and there was one survey, uh, late at the end of 2024, asked people about tariffs and and most people in this survey, I think it might have been a morning consult survey, got got it wrong about tariffs, so only like 30% said.knew what a tariff actually is, which is it's a tax on an import that is paid by the importer, which means American businesses and consumers. A bunch of people said the foreign government pays, uh, for the tariff and or that somebody else pays for the tariff, and it wasn't even clear in that survey whether people thought tariffs would raise prices or not. So do you think, do you, so do you feel like you are the people in your survey understand tariffs and view them negatively, or is it not that simple?

I think it depends on the person. Among Democrats, they unambiguously believe that tariffs are going to increase prices. Republicans, they are not really concerned about tariffs at all. They're way more concerned about the persistence of high prices right now. They're less worried about prices in the future. They do expect Trump's policies overall, not tariffs specifically, to lower inflation. Um, so we have basically people on different parts of the political spectrum.Who are drawing different conclusions from the um from the policies that they anticipate. Now what I don't know um about Republicans who are not concerned about tariffs, um, is, you know, is it their belief that tariffs will not affect prices paid by consumers or is it their beliefs that tariffs are negotiating ploy and they're not actually going to be implemented? Uh, we don't really know at this point. Um, we don't ask specific questions about that, but we're trying to do a bit more investigation.Notably, independents are leaning towards where the Democrats are on tariffs. Um, independents are consistently in the middle on basically everything that we measure, um, but we do have a solid share of independents who are also quite worried that tariffs will bring a resurgence in inflation. So

Joanne, over, can you tell us where this allShakes out overall. My the way my understanding is, um, Republicans are more optimistic about the economy since Trump won. Democrats are are more pessimistic and it's kind of a wash. I mean that the overall confidence sentiment level hasn't really changed that much. And also the sentiment level is relatively low. Am I getting that right?

That is all correct. So, you know, I think that the partisan gap in sentiment gets a lot of attention, but it kind of obscures the main message, you know, overall, if, if a Democrat's in power, um, Democrats have higher sentiment, if the Republicans in power, vice versa, but they're just really rotating from one position to the other when there's a White House change and our data have consistently shown that independence.are in the middle and right at the national average. Right now what we've seen is, you know, over the last two years we've seen an improvement in sentiment, um, sentiment has been on an overall upward trajectory that kind of stalled a bit in the middle of 2024, um, and, uh, and so consumers do recognize inflation has slowed and the economy they perceive to be in a much better.than it was 2 years ago, but they don't feel like they're thriving, and that's true, um, across the population.

And how, how does this wash um phenomenon you're talking about, is there any changes in how that's happened historically? You mentioned this going all the way back to Reagan in certain sense. Has this the sort of flip we're seeing right now, similar or different than ones in the past and, and what does that tell you if so?

It looks very similar. Uh, we actually only have a, a couple of situations where we have month to month data right around the election, you know, as mentioned historically speaking, we measure partisanship, um, political affiliation a few times, but not every single month. What's really interesting that we're seeing right now, um, we have questions both on how people perceive the current.situation, the current conditions, as well as what people expect for the future. And we've only seen a partisan shift in terms of the expectations for the future. How people see their personal finances right now, how they see buying conditions for durable goods right now, there's not been any sort of partisan shift. And so I think that really signals to us that it's not justPeople changing their minds on the drop of the bat, depending on how the election went. They're really responding um to how they think economic policies are going to change under the new administration and there happens to be a lot of disagreement on that, but they are really focused, quite focused on the possible changes in policy.That the, the new White House may usher in.

And Joanne, I know we're tight on time here. I do want to ask, because you've mentioned some of the, the, the new ways and different ways that you've been tracking some of this consumer data. Are there any changes that, that the survey's going to implement with the incoming Trump administration to really get a more sort of nuanced take on how the consumer is feeling?

We have been running, um, the, we, we have been running the surveys of consumers here at the University of Michigan since 1946, and so we, uh, have, you know, continuously over time, you know, we field new questions, um, from time to time just to make sure that we can really address the current events of the day. So right now we areCollecting additional data to find out, um, how much of an impact people actually think tariffs are going to have on the economy, so we can say a little bit more in the coming months, um, you know, just beyond just tracking how many people are spontaneously telling us about it.

I appreciate you taking the time for joining us, Joanne Shu there. Thank you so

much. Thank you, Joanne.

Thanks. Thanks for

having me.

Well, that does it for this episode of Capital Gains. A big thank you to Joanne Shu, and of course, to Rick and Ben for this episode of Capital Gains. You can find us where you find all good podcasts. And of course, be sure to keep tracking our coverage here on Yahoo Finance that does it for us this time. We'll see you next time on Yahoo Finance.

Bye. Bye, everybody.