Trump and Xi Agree to More Talks; Can Apple Afford to Leave China?
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

So the public feud between Elon Musk and President Trump erupted today, and it cost Musk $34 billion in net worth. Also today, President Trump and Chinese President Xi Jinping agreed to further trade talks after a 90-minute phone call. And a big question, will Apple be able to successfully relocate its supply chain outside of China? We'll check in with Bloomberg Opinion columnist Catherine Thorbeck.

But we begin this morning with a look at market action. Joining me now is Robert Schein. He is the Chief Investment Officer at Blankie Schein Wealth Management. Robert is on the line from Palm Desert, California. Good of you to make time to chat with us. I want to begin with this public feud between Elon Musk and President Trump. It seemed to just explode today into threats and recriminations.

It began when Trump accused Musk of trying to tank the tax bill because, in Trump's words, it eliminates electric vehicle credits, and that, in turn, is going to hurt Tesla's bottom line. The stock was down quite a bit today. Tesla, I think, was off about 14%. But later in the day, the damage may have been greater because Trump proposed ending Musk's government contracts and subsidies, and that's when Musk shot back and said he was going to immediately decommission the SpaceX aircraft

Dragon spacecraft. So Robert, first question, is this simply a distraction or do you believe this is a worrisome sign?

Well, quite honestly, at first, I didn't think it would escalate as quickly as it certainly did in real time. That was, I think, shocking to everybody. And, you know, just watching and following along today's public and very, you know, very public political circus, my advice is

you know, the Trump versus Musk, I believe there's only one person who will able to be, be able to settle this right now. And that in my mind is the great Joe Rogan. Joe is going to have to either sit them down on a three hour face off and a podcast or put them in a rink together. Cause this, this got escalated very quickly and very, you know, quite personal, uh,

And it was sad to see. So hopefully we're going to turn the corner on this. Do you believe this is going to have any impact on what the Senate is doing right now with respect to the tax bill, the charge that Musk is making that this simply blows out the deficit in a very, very harmful way? If you actually take a step back from what they're saying and take out their personal jabs, they're both on the same side. They both agree.

I think the Senate also, if you look at top senators, they were asked about it later this afternoon,

They are in agreement, too. There's a lot of spending, too much spending that needs to be addressed. And let's quite frankly, this is sort of the first round, the first week of what the Senate is looking at. And everyone and you know this, everyone in Washington puts in their, you know, their favorite pet project and see if they could pass with nobody being able to have time to read it and just push the pass button.

This shines a light squarely on sort of a sobering moment and gets everyone attention to saying, hey, guys, timeout. We're all on the same page. There's too much spending.

Very interesting in terms of the way in which the day began, because President Trump on Truth Social discussed the fact that he and President Xi had a phone call and they agreed to further trade talks. Do you think that's a positive sign or maybe there's a little bit too much optimism being expressed by the president? And we've got a long, long road ahead in terms of this trade war.

Yeah, let's not overreact based upon the distraction today on social media between Trump and Elon Musk, simply because we did inch closer to at least sitting down at the table in a trade deal with China. I think that would be extremely bullish for the market and healthy to have a more normal relationship with China going forward.

and with every partner around the world. I do believe we're going to see a positive outcome and a measured progress as a result. And I think this is a great step forward, even though it's incremental. I'm wondering whether we have reached, not just from the U.S. side, but from the China side as well, a threshold for pain that can no longer be ignored by both sides. And it's in both parties' best interest to find a resolution as quickly as possible.

Yeah, both sides can self-induce a recession to their economies.

And I don't think either one of them, politically speaking, it's the smart thing to do, nor it's the right thing to do. They just have to both put aside their differences and sit down and start making some progress for the people they all represent. So we've talked about two things that essentially put the Fed into a box. We've got the budget situation and we've got the trade war. Talk to me about what your expectations are for Fed policy in the next couple of months.

I think it's going to be the next couple of days and weeks. The Federal Reserve, we do believe they have the window of opportunity to start another round of rate

cuts simply because I believe that the macro data that we're going to see in the weeks and months ahead will be showing a slower and a cooling economy. Again, we see the labor market in play and jobs and wages are kind of trending in the direction that the Federal Reserve needs. Obviously, they're going to have to choose between inflation and jobs.

But at this moment, with all the uncertainty that we've seen and a lot of what the small business owners have been doing, which is sitting on their hands, everyone's waiting for the tax bill.

Everyone's waiting to see the tariffs and the shakeout from that. So, I think there's going to be some slowing in the economy that's going to surface in the eco data that could give the Federal Reserve in the next couple of months sort of the opportunity to make a move. So, we've sketched out some of the issues that markets are grappling with right now. I'm curious, Robert, to get your strategy of how to kind of play the terrain, so to speak.

Well, most important for anybody, stay focused on valuation and discipline matter in markets like these. And let's be honest, the earnings, why markets are close to all-time highs since April, are the earnings are coming back and bouncing back, if you will, and holding in there. In fact, we're just seeing, you know, obviously the concerns, the markets about inflation and tariffs, and that has translated into inflation

the analysts lowering their estimates for the second quarter this year for US companies by way of 4%. Historically speaking, we haven't seen something that large in the last five, 10 and 15 years. On average, they would lower estimates, especially in the second quarter by 2.6%.

That being said, earnings are hanging in there. The only sector that didn't last quarter have a year-over-year increase was industrials. Every other sector is improving by double-digit earnings. And even if we take out the MAG-7, we have growth in the U.S. companies. So that could be a positive for the markets. That's one of the reasons why the markets are still hanging in there with

with all of these distractions. So instead of the word of the year uncertainty, I think the word of the year is going to be resiliency of the markets as well as the economy. And if investors stay focused and keep some cash on the sidelines, jump on some opportunities that come their way. And trust me, we've already had plenty of opportunity. And for our clients, we've put some money to work and we're in great spot. So we're ready to jump on that once again.

if there's more volatility. Well, to your point about valuations, we had Broadcom going into the day-to-day trading at around 35 times projected earnings over the next 12 months. Then we heard from the company after the bell, and Broadcom gave somewhat of a lackluster forecast for revenue in the current quarter, $15.8 billion. That's only about $100 million above expectation. But the stock got hit.

about four and a half percent in late trading. So especially when you deal with some of these companies that trade in the tech space, semiconductors here in the case of Broadcom, valuation, perhaps the most important criteria, right? Yeah, but Broadcom today closed at an all-time high. So having them sell off based upon

a weak guide in every management team, whether you're in the chip sector or across the S&P 500, you're gonna use this opportunity in your conference call to use the word uncertainty ahead, 'cause that gives you cover given if the economy starts continuing to slow down and decelerate. But let's not forget the AI spent for 2025 just in the Mag7 is $240 billion.

And at this end of the day, Broadcom and Nvidia are in the chip storage and power space. So they're squarely focused on just executing. Obviously the valuation on Broadcom is a little bit rich right now, but that was the anticipation of earnings. But if you just be patient on some of these companies, let the market bring you to a better valuation,

there's still a long-term growth strategy and good companies to be investing in. Robert, we'll leave it there. Thank you so much. Enjoy the weekend. Robert Schein, Chief Investment Officer at Blankey Schein Wealth Management, joining on the line from Palm Desert, California, here on the Daybreak Asia podcast.

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So last month, President Trump threatened to slap tariffs on Apple over its reluctance to bring manufacturing back to the U.S. And at the same time, Trump was very critical of Apple's move to create more iPhone production in India. Now, we know the president has placed smartphone production in the spotlight as part of his global trade war and his vision to reshore manufacturing back to the United States.

But in the case of Apple, is this really feasible, especially when you consider the company's relationship with China? Let

Let's take a closer look with Bloomberg's Catherine Thorbeck, Bloomberg Opinion columnist who joins from Tokyo. The history of making iPhones in China, I think, goes back to around 2009. And over that period, I would think that the relationship between China and Apple has been tightly forged. And it's not going to be easy for Apple to extricate itself from this situation, right?

That's absolutely right, Doug. And we actually got even more bad news for Apple in China this week. The Financial Times actually reported that the rollout of Apple intelligence, these AI features for the iPhone, was delayed even further by regulators in Beijing. And that's this long-awaited partnership between Apple and Alibaba in China to bring AI features to the iPhone in that massive market for Apple. And apparently regulators in Beijing are halting their approval of this even further due to the trade war.

And I think taking a step back, what's interesting here is that it's not the US that's using this sort

sort of crown jewel of Silicon Valley as a chip in the trade war, it's China. And I think the reality is China has immense leverage over Apple right now. And I actually wrote about this new book called Apple in China by Patrick McGee that very convincingly argues that Apple's biggest existential threat right now is not Trump and his constant nagging about tariffs, but Beijing and the hold and the sway that Beijing has over Apple.

And really, over the course of decades, it's been Apple's been chasing sort of short term profits by making really small decisions that have led to where it is now, which is pretty much entirely relying on China to produce its products. So when I read your column and you referred to Apple in China, the Patrick McGee book, I

I thought of Chip War by Chris Miller and his history of the semiconductor industry, first designed and built in Silicon Valley, and then very quickly moving production to Asia. First Hong Kong, I believe. Japan was involved there, along with South Korea and eventually Taiwan. So what you begin to understand is the intricacy of the supply chain. And I would imagine that Apple is very, very reliant on that.

Absolutely. I mean, at this point, Apple's, you know, all of its marquee products are pretty much entirely reliant on suppliers in China. And I think, you know, with Trump now, he's been very insistent on threatening all these tariffs on Apple and asking them to move production back to the U.S. I just don't think that's possible. And for a number of reasons, you know, I think

The supply chain ecosystem in China was built up sort of as Beijing was playing the long game. So it was built up over decades and that's gonna be very, very hard to replicate in the US. But I also think at this point, Apple can't really move away from China without irking and upsetting Beijing. So it has to do so sort of very slowly so as not to upset regulators in China, but also it can't go too slow because then it will be harder to inevitably get it done.

So this book, which is a very gripping read on how we sort of got here, but it sort of argues that

It basically argues that this technology transfer that was facilitated by Apple through setting up its supply chain in China actually made Apple one of the biggest corporate, the biggest corporate backer of President Xi Jinping's Made in China 2025 plan, which was this really ambitious goal to sever reliance on foreign technology. And Apple's upskilling of workers in high-tech manufacturing over the years have actually given birth to these homegrown tech companies like Huawei.

You write about how in the early days, it was Apple engineers from the United States that were going to China to help train Chinese workers and how that's kind of turned around.

Right. So I remember or I think we all remember during President Trump's first term, he famously toured that Texas factory and he claimed credit for bringing Apple production back to America. Except some workers that were quoted in this book actually called that plant an unmitigated fiasco. And they say that workers in China had to be flown in to fix all of the manufacturing issues that were really encountered in the U.S. heartland.

And I thought that was a really interesting anecdote sort of at the end of this book, because up until then, the entire book was about how Apple flew engineers from Cupertino to China to sort of work with suppliers in Asia and build out these high tech manufacturing ecosystems. And now the tables have it seems like irreversibly turned. Yeah.

Yeah. The other thing that's very interesting during the first Trump trade war, I think Apple was put on notice that it needed to diversify its supply chains and the company began to deepen its relationship with India. How does that enter into the story?

Right. So I think even more recently, we've seen Apple try to sort of move towards India and set up its supply chain over there. But I think now that's going to be very, very difficult for a number of reasons. And one issue is that

China does a really good job of sort of suppressing labor issues. So, you know, I think supplier Apple suppliers in China were able to sort of suppress any labor unrest. And Beijing was able to sort of quell any media reports of it.

And there was a Samsung plant that was set up in India a couple of years ago. And I believe last year there was a very big strike and that made international headlines. And that kind of thing doesn't really happen in China. You know, we saw during the COVID lockdowns at the iPhone factory there that the

The protests were very, very quickly quashed in China. And so I think that that's going to be hard to set up in India. And on top of that, I mean, just like I said, they built the supply chain ecosystem in China over the course of decades. And so recreating that in India is going to take about the same amount of time if it's even possible. And it's going to be very, very expensive. But at this point, you know, it's not just sort of the first tier suppliers, but it's the second tier suppliers and all the engineers and

Just recreating that somewhere else right now is a very, very tall task for Apple. And I think it's pretty much impossible in America. We know that Apple's manufacturing partner in China is Foxconn, a company that is known in China as Honhai. Its founder, Terry Guo, is really to be credited with building this organization into quite the powerhouse. And I would imagine that's another thing that would be very, very difficult for Apple to walk away from.

That's right. And so I think, you know, we've all heard of the sort of legendary partnership between Johnny Ive, the designer, and Steve Jobs, who really made the iPhone such a unique product. But I think perhaps a more revolutionary partnership was between Tim Cook and Terry Goh, who created

really brought the iPhone to the masses and made it so that it could be, you know, manufactured at scale. And Terry Goh was very, very wise. You know, he was obsessed with cutting costs. You know, one source in this book described him as worth, uh, $2 billion in nickels and dimes. And he would always sort of dilute the hand soap in factories with water. So he was very, very frugal, but at the same time, he recognized that working with Apple wasn't just about making profits. It was about sort of the tacit knowledge and the learning that his team would, uh,

would receive from the Apple engineers that were flown over. So he understood that sort of even losing money, if it meant getting these Apple orders was very, very valuable. And I think sort of as a result of that, he's sort of trained up this whole army of engineers, these Foxconn engineers that really have this sort of tacit knowledge that they can use to make the iPhones. And now in China are sort of being used to sort of launch some homegrown competitors that are actually,

really a concern for Apple right now. So maybe Apple is making a small step because recently Bloomberg News reported that the company is planning to source more than 19 billion chips from the U.S. this year as part of a plan to diversify its global supply chain, maybe reduce its reliance on China a little bit.

and give the Trump administration something that it's looking for. We'll see whether that develops into a bigger story. Catherine, thank you so much. Bloomberg Opinion columnist, Catherine Thorbeck, joining from Tokyo here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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