The CEO Radar: Behind the Tariff Headlines (Sponsored Content)
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Because you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called CEO Radar. Produced by BCG and Bloomberg Media Studios, it analyzes almost 4,900 earnings calls worldwide to assess what topics merit a CEO's time and attention. Here's a recent episode.

Rich and Michael, welcome to the CEO Radar Podcast. It's great to be here with you. Thanks for having us. During the first quarter, the analysts who were on these calls, who function really as a proxy for the market in our approach, were talking about tariffs 62% more often than were CEOs, even though obviously CEOs talk far more on these calls than do analysts. So,

The fact that they were mentioning tariffs so much more surprised me a bit. I thought that we would see CEOs talking more about that, talking about how they were preparing for what seemed to be, at least to a lot of experts, an inevitability. Rich, what was your take on why they weren't discussing it more in the first quarter? I was thinking the same thing as I read through the survey. And as I reflected on it, I think there were two totally separate things going on here. One is if

If you go back to the president's first term in office, there was a saying, well, two observations. One is it became frequent to say, take him very seriously, but not literally. And the second was that he will be very responsive to how the market dynamics evolve in adjusting the actions and announcements.

And I think in many CEOs' minds, the combination of those two statements, they had heard all the comments about tariffs. The president was quite clear, both on the campaign trail and after the campaign ended about that. But I think they were still probably underestimating the magnitude of what he was prepared to do. And I think the second thing is the CEOs that I speak with generally have a view that it's best not to be too commenting in public about

about the worries you have or what you think the administration may be doing right or doing wrong. And it's much better to engage directly, whether that was going to Mar-a-Lago before the inauguration or going to Washington since the inauguration. But wouldn't they have been in a safe zone if they had talked about, in case there are tariffs, we have prepared in the following ways for that?

so that they could reassure the market that they wouldn't be as affected, perhaps, as other companies are. I don't think there's an easy near-term response on how to do that. And I think the last thing CEOs want to talk about is some of that response will be passing price through to their customers or through to consumers or things that you really don't want to be saying unless you have to, unless it's there. Michael, we saw some regional differences here in the discussion of tariffs in the first quarter.

Globally, the mentions of tariffs by CEOs did increase in the first quarter. Certainly, it's not as if they were totally blind to the topic. It went up 537% around the world. But in the US, it went up about 1,000%. In Europe, where you're from, about 500% increase and less than 100% of an increase by CEOs in Asia talking about tariffs. That last bit surprised me, given that that's where many of the global supply chains began.

and certainly would be affected by a U.S. set of tariffs. What's your take on why those numbers are different around the world? I mean, if I look at the European numbers, the five-time increase to the last quarter, I'd say we should not make the conclusion that the numbers are not as high as in the U.S., therefore the European CEOs are less well-prepared. I think most CEOs have really done their homework.

And what we've seen when speaking with the CEOs were a couple of things. I mean, they were really working on building this geopolitical muscle. We've seen a lot of scenarios being played through. And I think what we've seen over time, Rich, a bit like to your point, that this is not happening overnight. I think many of the businesses have already started a couple of years ago to think through what should my localization strategy actually look like. And we've seen that

That particularly if we look at the automotive manufacturers, the big German OEMs, I mean, they have started over time actually to build up international footprint and more and more localization strategies. And I think what we are going to see over time, I think that this strategy is going to intensify. And if I just pick up on the Asia part of your question, I also think in, again, the first term of the president term,

We saw Japan and India, leaders of both countries, Prime Minister Modi, Prime Minister Abe, do a really excellent job of building relationships with the White House, with the president. And I think there was probably some optimism, whereas in Europe, obviously coming out of Davos, the Munich Security Conference, it was pretty clear it was going to be a quite

tense relationship. So the fact that Asia perhaps or Asian business leaders may have underestimated the impacts of tariffs. And I think obviously, I think Chinese leadership, whether it's companies or political leadership was really keeping relatively quiet about what the US would do. So I'm not actually surprised that

This didn't get as big a visible play in these conversations in Asia as we saw in Europe. And then certainly the U.S. was much more front and center, as your data suggests. These tariffs were initially announced and then were put on hold for a period of time. I think that's just indicative of a level of uncertainty that the business community is going through at this point.

Is there any way that people can profit from that? Is there somebody who wins in a climate of uncertainty? So I just want to start with your comment around uncertainty because it is the comment I hear the most right now in the business community.

you know, every investment is a function of risk and reward and returns associated with it. Right now, the level of uncertainty has really heightened the risk associated with investments. So I think what we're seeing first and foremost is a level of caution around investing, certainly in physical assets. I think the second thing is in terms of where you can build advantage, look, some people will take bets on where things go and some of those will be right. The challenge is

We don't know which bets will turn out to be right. And the second thing is once this settles, and I think all business leaders, whatever their views of what the level of tariffs they want, I think we'll hope for clarity that at least you know where you stand. And once it does settle, there will certainly be competitive advantage to some companies relative to others.

Because even if your costs go up, the tariffs, if your main competitor faces even higher tariffs, you've built some advantage, even if you may have reduced overall demand because some price will flow through to the end market. So in the near term, nobody really wins from uncertainty. Things get frozen in place. When uncertainty...

I used to describe it as deer in headlights when you looked at the great financial crisis or post 9/11. I don't think we're at that magnitude, to be clear. But I do think that when there's massive uncertainty that enters the environment, the first thing people do is say, OK, let's hold on. Let's see. And that means planned investments don't go forward because people don't know, in this case, where to invest. Even if they know how they want to invest and how much they want to invest, the where question is really tricky right now.

But even though, Rich, even though we have, also from a European point of view, we have this uncertainty as well, I think the clarity what's going to happen now going forward with how obviously the administration is going to interact with the different regions, I think brings at least

new perspective for CEOs how to think about their business models how to think around okay how do I need to set up my operating model and I think from a European point of view this has been probably the final wake-up call to think through how how can we future-proof our operating models in order to be competitive in this in this new competitive world that is that is going to be set up because again if I look at my home market at Germany I

The German model was based on a full export-driven model, fully globalized, global supply chains. And that model was serving the economy, the businesses super well. I think while we have uncertainty, I think we have clarity that this model will not going to work.

Let's turn now to the topic of costs. One of the things we did in this report was we gathered together similar topics and sort of combined them to gauge sort of how some of these mega topics are playing out over time. One of them was cost. So we combined things like the topic of write downs or job cuts or an economic slowdown and saw sort of on average, where did those topics rank?

amongst the most mentioned topics, both by CEOs globally as well as by analysts. And what we found on cost was a divergence there, that the analysts were mentioning those on average about 34 in their rank of topics, whereas for CEOs, they were down in 66th place, talking about them much less. What's your take on why analysts are so focused on this and CEOs, for whatever reason, at least so far, are not?

I think when we repeat it in this upcoming quarter, if I were guessing, I think the cost and productivity issue is going to come much more to the fore. Just to give you a little bit more data here, in both Europe and the U.S., discussions of growth outweighed discussions of cost, whereas in Asia it was flipped. They were talking, CEOs were talking more about cost, less about growth, in this first quarter, that is. Right, and so if I come to the Asia question, then we'll go to Europe. I think that...

I've been traveling around Asia a lot over the last few months, and I talk to my colleagues as well. And the consistent discussion is the intensity of competition in Asia.

First, in China itself, it's massively competitive because there's lots of overcapacity and the battles are fierce to be able to once to survive as these industries are growing. But second, that overcapacity is also pushing intense cost competition toward Japan, toward Southeast Asia, toward India. It's also spilling out to other parts of the world. But just given proximity, given the volume of trade activity, there is there is

an enormous competitive intensity on cost as companies are not just competing locally, but they're often competing against really strong Chinese competitors who are playing in those markets as well. So it did not surprise me at all that when you talk to Asian CEOs, that intensity of cost competition was very high up. In Europe, I think while the cost topic was not the top concern of the CEOs,

I think it always was over the last couple of years, at least in the top three or four topics. I think the cost topic will be impacted by technology. And I think what Gen AI will do on the productivity and how it will drive cost curves down, I think will soon be implemented, I think, by CEOs. ♪

Let's go deeper on technology, particularly in Europe. One of the things we found this quarter was that mentions of AI, generative AI, automation, all increased 100% or more in Europe among European CEOs. They're still not talking about it quite as much as their colleagues are in North America and in Asia, but it's clearly on the rise. It's almost as if they're trying to catch up. What's behind that trend? Yeah.

So if we look at technology and if you look at the competitiveness of European companies, we're far behind the US. We're also far behind China. And I think we need to catch up. An area where we see where Europe is starting to catch up and actually holding leadership position is everything industrial AI. I've just been to the Hannover Messe a couple of weeks back. It's one of the biggest European trade fairs on industrial automation. It's great to see how strong European companies are in this field.

I want to talk about environmental and climate change topics. And Rich, I'd like you to address what we're seeing in the U.S. U.S. CEOs are running away from that topic as quickly as they can. Hardly anybody is mentioning it anymore on these earnings calls. Is that because they're really trying to simply not discuss stuff that is still going on behind the scenes? Or have they ratcheted back on those climate change initiatives that they had made so prominent in their calls in, say, a year or two ago? Rich Kedzior

I think there are three things going on right now. I think first, business leaders, and I would say centered in North America, but other parts of the world as well,

are much more focused on making sure that the investments that they make in climate and sustainability bring business value as well as planetary value, if you put it that way. And therefore, they are being careful to think about what initiatives they're undertaking. Can they defend them as driving greater productivity? If you take on a circularity effort, you're often

address the environment, but you're actually taking costs out of the system. If you're building a new green business, you might be helping the planet, but you're also creating the next generation of growth in a world that

even separate from what the US will do that we'll be spending trillions of dollars a year on investing to address climate change over the coming decades. You need a win-win, not just do something that feels right for the climate, but is costly to the business. I think there's a second thing that most companies in that context are still trying to keep with the commitments that they've made where they can make that work. Most companies

haven't been walking away from their commitments, but they're being much more cautious about new commitments. There was a time period where every month you'd look and see how many new commitments have come out in the US and that is really quite few right now. And then the third point is, I do think that there's a lot of green hushing going on. It's become a very political topic. They don't want to be caught in the politics of it.

And that's why I think the analysts in the U.S. actually gave it more attention than business leaders gave it. And Michael, in Europe, as you know, there has become a real bastion of discussion of climate change. In fact, the discussion of climate change, climate exposure, greenhouse gas emissions, all rose by 100% or more among European CEOs in the last quarter. I think the business cases that we're seeing on circularity, they are starting to work. They will unlock opportunities

By 2030, there are studies out there, they will unlock trillions of dollars of GDP growth. And I think there is another aspect now coming to it. If there is a sovereignty aspect, if you look about raw material circularity and keeping the raw material in certain circular flows within a certain region,

is also a second aspect, I think, that is driving that dynamic, why climate topics stay on the agenda in Europe. What I think was encouraging on the European side from a government point of view is so many business leaders have been frustrated at the amount of bureaucracy and overhead that comes with the environmental goals in Europe. Even if they fully agree with the ambition, the way it's done has felt so cumbersome. And I do think the

recognition in the EU that

You can keep the ambition, but you have to make it easier for companies. If they're going to be able to be globally competitive, this model isn't working the way it should. But there is progress. We're starting to see, particularly there's a beautiful German word, the Lieferketten-Sorgfaltsgesetz. Okay, what does that word mean? This is about how you need to report on your supply chain. Yes. That this is actually going to be stopped now. So we're starting to see progress on the bureaucracy side. Good.

For all of us. Yes, indeed. In late 2024, we had all expected to see a huge surge in mergers and acquisitions. We haven't seen that yet. Is that really just a function of the uncertainty that's in the environment now and could self-correct by the end of the year? Or is this something that's going to be a little more long-term? I think...

We won't see deals over the next couple of months because the problem is you cannot underwrite a business case in this environment. Everything that is global, that has global supply chains, you can't take a bet on these business cases. And hence, what we're actually seeing is we see quite a dramatic slowdown in the pipeline.

As one of my colleagues here in New York, who's very involved in that world, said to me, you can't do a deal if you can't do a two to three year EBITDA forecast. And right now, people don't feel confident that they have an EBITDA forecast they can rely on. And so it's hard to do a deal. So uncertainty can certainly dampen the M&A environment. Is there anything that uncertainty does that permits a CEO to do that he or she otherwise might not be able to accomplish? Does it give you

some space to be able to focus on something that in a more growth-oriented period of time you wouldn't be able to. Well, you know, there's this old expression, never let a crisis go to waste. I think where that will apply is

is less around the deployment of capital for deals or new plants, but absolutely to drive productivity, deeper customer relationships, investment of innovation into the business. I think people will realize that the world may only get harder. Is there anything that this current situation reminds you of historically?

Okay, so first I want to be careful about drawing the analogy because there's no health impacts here. But if you think about those first few months of COVID, we were all living with so much uncertainty. It's only looking back that vaccines came along faster that we were able to get past that in a less dramatic way. But in April of 2020, just five years ago, we were sitting with incredible amounts of uncertainty. Companies were really

about what was going to happen. There were talks about dramatic economic impacts. I would say that uncertainty was even higher than the uncertainty we're living with. And we only don't remember it because it got resolved

so quickly. To me, it feels more like that, not the same degree, and certainly without people losing their lives or anything of that nature, but it feels a little bit more in that direction than it felt like the challenges of past recessions or challenges of the cumulus. But I would actually, on that point, Rich, I would actually say that even though we have a lot of uncertainty, I think some things are becoming clear. And again, from a European perspective,

For us returning to our old operating model, fully globalized world, supply chains globally set up,

I don't think we will return to that world. I totally agree. I think you're right. In the longer term, I think Michael was exactly right that companies need to understand we're in a new political reality moving forward, even if the tariffs resolve in a more benign way, which is not obvious that they will, and being more localized, more understanding dynamics in different parts of the world. And I would argue this technology topic is the one secular trend that's coming around

We can do whatever we want around politics, tariffs, geopolitical dynamics.

AI and a whole set of other related technologies are coming fast. And as it relates to innovation, productivity, changes to business models, changes to building deeper customer relationships, like those things are coming. And if you let all these short-term challenges get in the way of embracing that, then I think you're really losing ground competitively, even if it seems like you're navigating the short-term okay. I'm going to go out on a limb here that if the three of us are around this table three months from now,

high likelihood we're going to be talking about uncertainty in the economy even then. Rich and Michael, thanks for your insights today. It's great to be with you. Thank you, Ed. And great to have you. For those of you who'd like to learn more about the CEO Radar, you can read the full report at bloomberg.com slash CEO Radar. If you like what you hear, we encourage you to subscribe to this podcast either on YouTube or any of the podcasting platforms that you use.

We'll have our next episode drop in early Q3 with an entirely new batch of data. I'm Edward Adams of Bloomberg Media Studios. Thanks for listening.