Bloomberg Surveillance TV: June 2, 2025
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.

Joining us now is Brandon Ferris of the Steel Manufacturers Association. Brandon, thank you so much for being with us. I just want to start with how the increase in steel and aluminum tariffs works hand in hand with this deal for some sort of participation with Nippon Steel taking a stake of U.S. Steel.

Absolutely. Well, thank you for having me today. And with the deal and with what President Trump announced on Friday of raising the tariffs to 50%, President Trump is responding to an industry that has suffered from surges of dirt-cheap steel from foreign imports, particularly from China. And so as part of this, which was the largest investment in Pennsylvania history, these 50%, raising the tariffs to 50%, helps protect the American steel industry.

We've learned that the U.S. imports about 17% of its steel needs. This is according to Morgan Stanley. So do you think actually they really need this level of protection?

Yes, so even at 25% and the US International Trade Commission did a report on the 232 tariffs for steel and what they found was that the price impacts were minimal but what they really had a tremendous effect on was lowering the imports. 24% of imports were lowered when President Trump first instituted these tariffs in 2018.

And so what we're still seeing is surges of steel into the US. China, over the last year, has dumped more than 100 million tons into the global market. That is more than we make in the US in a year. So yes, we do believe

that bumping up the number to 50% is going to be very helpful for our industry. Construction companies, I'm sure you've seen, have warned that these levies are going to be increasing the cost of critical building materials. Do you have concern about the knock-on effects of what this 50% level means for the steel industry, for things like construction, as well as the auto sector?

Absolutely. Anytime a tariff or anytime a trade knob is turned, you have to look at the ramifications. And when the International Trade Commission studied the 232 tariffs, what it found was for the downstream industries, 0.2% increase on their prices.

So, again, small increase on prices, but a major effect on taking those imports down. The Trump administration, though, had -- or Trump himself had opposed this deal on the campaign trail. Are you happy about the Nippon U.S. steel deal?

We're looking forward to receiving more information. Again, what we look at is right now it is the number one deal that has ever been announced in Pennsylvania. One of our other members, Nucor Steel, had just recently announced the largest investment in West Virginia history. So two out of 50 states, the largest investment in their history is steel. And so we like where this trend is heading.

Brandon, you mentioned the dumping of steel in U.S. markets coming from China. But let's be clear, this tariff will affect much more than China. It is a sledgehammer. And you've seen complaints, for example, from the EU, from the U.K. Is this the right method to take for what is a very serious problem? Should there have been something more surgical coming from the administration? We do believe that the 232 steel tariffs are surgical.

And with this, yes, we do believe that it will help our industry. And the problem is not just China. It's global overcapacity. Lots of countries use cheap Chinese steel to replace their own and then send theirs onto the global market. And so this will help

solve that issue. So another concern, which again the most recent moves I'm sure you're hoping to concern, is something of just job stability and job security and any guarantees that the administration and many people hope that Nippon Steel will guarantee. Brandon, how far can those guarantees go when it is an industry that is facing a lot of changes, that is facing changes when it comes to technology that change the workforce? How long can job security be guaranteed?

I can't speak for US Steel, but what I can say for all of our members is that they have a more full order book than they've had in years. And what we're hearing is that we're hearing growth. Nearly every one of our members has announced growth.

And this means more jobs. This means more revenue. This means better benefits for the economy. And so right now, what we're looking at and what we've looked at since President Trump first instituted these tariffs in 2018 is a changed industry and a change for the better. And that's what we're looking at when President Trump has recently made this change to 50 percent as well. Brandon, are you worried about the U.S. losing customers if the U.S. angers essentially Canada and the European Union as some of its biggest adversaries?

exporters or the people who actually buy some of this steel and aluminum, maybe sending them to look elsewhere if suddenly prices are that much more expensive?

What we can say is that most of the steel produced in the U.S. is used in the U.S. We do have some trade with Canada. We do have some trade with Mexico. And I know that there are going to be negotiations this year talking about that. But as far as protecting the domestic steel industry, which is vital for economic security, energy security, national security, we believe that moving the tariffs up to 50% was a very good move.

Brendan Ferris of the Steel Manufacturers Association, thank you so much for being with us. If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app. AI is redefining what's possible for your business. Are you up for the challenge? Microsoft is helping leaders like you get AI ready faster with unified data and simplified platform management, unlocking up to 150% improved output.

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Turning back to trade, China hitting back at the Trump administration, accusing the U.S. of violating its trade truce. Former Trump trade official Kate Kaluquitz joins us now. Kate, thank you so much for being with us. What's your take on the ratcheting up in tensions that we saw between the officials in China and the U.S. over the past four or five days? It has been a whirlwind, I think, in the U.S.-China space. Of course, we saw huge tariffs. We

We saw those tariffs come down without much else agreed between the two parties, and now this war of words. I think it lends itself to the fact that some of the very baseline issues between the two nations remain very much in place, even though domestic pressure forced both sides to bring those tariffs down. So we're very much in the same space without the tariff pressure, I think.

Kate, is there really going to be an agreement if there isn't some understanding between the two countries on the AI sector and advanced semiconductors?

Well, you know, I suppose it depends on what China is willing to accept here, because I think that it's very clear from the United States perspective that these types of export restrictions on high tech goods are here to stay. In the big strategic economic competition with China, the focus from both sides, frankly, in D.C., has been to restrict access of these technologies. So unless China is willing to accept that,

I think we're not going to see an agreement. They're going to have to decide, I think, whether this is a status quo that they can move forward with. Is there a chance that the Trump administration gives in more and allows them some more access to this sector?

Well, you know, President Trump, of course, has sent some mixed messages around what he expects and hopes from China. After the tariff detente, the president announced his long-term goal is to do business with China, which, you know, undermines a bit this notion that we could really sever our economies. So I wouldn't say never.

The president certainly has shown a willingness to walk back some of his strong rhetoric. But this will be difficult because, you know, in a bipartisan way, Congress has been quite firm on this point. The rhetoric we've seen, the war of words back and forth over the weekend from Friday to today, could that derail a potential talk that Kevin Hassett said we should expect this week between the two leaders?

I suppose it could, although the signals I see on the U.S. side, at least, are very strong language from the president, softer language, of course, from his cabinet officials. We saw Ambassador Greer, Secretary Besson try to walk back a bit, the very strong tone to say things aren't going great, but

but we're hoping the leaders will speak. So the US at least is sending a very strong signal that it would like to see a leader level discussion. - Do we have a sense, Kate, of what the ultimate goal is? It feels like that's getting lost in all of this. Is the idea to decouple with respect to tech between the US and China at a time where Nvidia is saying that that's not the answer? Is it to just isolate China with the allies that we have, albeit in a somewhat messy way?

We don't have a real sense of that through all of this, do you? Well, I wish I could help come up with a stronger, clearer plan here. The reality is the president has many, many goals when it comes to economic relationships with the rest of the world. And at times these do appear somewhat to conflict with one another.

As I said, I do think his long-term goal here is to reset the relationship with China, but to continue to have an economic relationship with China. Regrettably, I think some of these other discussions, whether it's with the Europeans, India, others, these steel and aluminum tariff announcements,

the framework of where we're gonna go with China. So I'd say we're not quite there yet. I don't know that the president has been as specific as he needs to be with the Chinese as to where he hopes to go. And so we're gonna need to have a little bit more discussion before we can see something emerging. - We heard over the weekend from a number of different advisors to President Trump that July 9th is the deadline and it will not be extended past that in terms of the reciprocal tariffs. Do you believe that?

Well, I think the president is always flexible. And I think if we need to go beyond July 9th, we'll find a way to go beyond July 9th. Of course, the president is a bit on his heels given the court decision last week. But I think it means that he's going to show signals that he can move tariffs forward in other manners, as we've seen. We saw the announcement on steel and aluminum. He has quite a few other tools in his toolbox.

to bring to the ready. So I think other nations really ought to continue negotiating with the United States and keep this date in mind. It benefits them as well to negotiate some deals before the president starts to use these other tariffs.

But if we need to extend, I think the president and certainly Secretary Besant has indicated if we need more time, we'll take more time. Just quickly, when you talk to your clients, what are the risk dates, the risk events that you have that you flag to them saying this actually you need to keep your eye out for?

Well, when I talk to my clients, I really say, you know, predicting is too late in the game. We need to anticipate big outcomes as opposed to the actual when and the dates and to when they might occur, because we know the president wants to move on large scale sectoral tariffs beyond IEPA, beyond China. We are anticipating several big decisions this summer when it comes to semiconductor tariffs.

pharmaceutical tariffs, copper, critical minerals, and a range of other 232 tariffs. We have impending review of the U.S.-Mexico-Canada agreement. So when I speak to my clients, we're working to prepare for all of these eventualities to ensure that they're well positioned even before a date is announced. Kate Kluquitz, former Trump trade official, thank you so much for being with us. Aditya Bahave,

of Bank of America, writing, "We now forecast 100 basis points of cuts next year with low conviction." We penciled these cuts in for the second half of 2026. Aditya joins us now. And Aditya, thank you for that because we're all humbly having low conviction about absolutely everything. So join the club. We're joining the club. I am curious what you make of some of those Chris Waller comments where he seems to talk about good news rate cuts at a time when so many other Fed officials are saying, "We have no clue."

Thank you for having me. I think we have no clue is probably a more accurate representation of where we stand. The challenge here is that we had fairly favorable base effects on inflation for the first four months of the year, and so it isn't hugely surprising that we got down to about 2.5% on the core.

The problem is over the next eight months, the base effects are much less favorable. And so going down further is very unlikely. And in fact, it's more likely that as the tariffs set in, inflation will increase on a year-over-year basis. Well, Chris Waller's argument in that was that you could look through that because we don't have the same tightness in the labor market. And the ability for employees to go to their employer and say, hey, inflation is going up, pay me more, is limited because they just want to hold on to their jobs at this point. Is that a fair characterization of where we are?

Okay, but if inflation's above target and you aren't sure whether you should look through the shock or not, and at the same time the labor market's holding up, why do you need to cut at all? Yeah, fair enough. So we don't think they're cutting this year, just to be clear. So they're not cutting this year, but also another input into this, and this is something Michael Gapen at Morgan Stanley has talked about, this idea that we're going to have low immigration. And low immigration also means that the labor market's going to stay tight as employment growth slows.

How much is that going to impact the outlook as this year progresses? That's a more difficult one. I think it'll be very differentiated sector by sector. You're going to be seeing some sectors that are more dependent on immigration that could see wage pressures such as construction, leisure and hospitality, agriculture. But in aggregate, if you're basically shrinking the population, you're reducing supply and demand. So it could also end up being a wash. You said that if the labor market is holding up and inflation goes higher, why should the Fed do anything? Well, if inflation is going higher, shouldn't they be hiking?

Right, so that's a question that comes up every now and then. I think there's some ways away from hiking just because policy rates are already quite elevated, so they'll feel like they have some buffer. And again, they'd rather be late than wrong. This is a point that we've made, and I think it holds in both directions.

So you think this potentially will happen, even though you have a little bit of grain of salt on there, the second half of 2026. So do you think we'll have certainty on trade policy out of Washington by the second half of 2026? Right. So the way we're thinking about the second half of 2026 is that by that point...

inflation will start to, the tariff driven inflation will start to roll off the year over year rate because of base effects. So with inflation below 3%, maybe a slightly looser labor market and different Fed leadership, you might end up getting rate cuts. - You said different Fed leadership. This is the question that we all really wanna ask. Is Chris Waller just trying to get the job?

I'll let you decide that. Okay, well, it seems like a lot of people would say yes. Is this the mainstream thought, or could this be the mainstream thought of the Federal Reserve? Do you think that this is the person to watch to see the direction for the Federal Reserve in 2026, Chris Waller? So he seems to be, for now at least,

a bit of an outlier on the committee. I think what you're hearing from Chair Powell and then others like Hammack and Williams is that the Fed is very patient right now. They just have no idea. Honestly, if you asked me, told me that the Fed should be preemptive, I would ask you, what is the Fed even trying to preempt right now? There's risks in both directions to trade policy. There's risks in both directions

to fiscal policy. Let's just wait and see how it plays out. So Waller seems to have a pretty optimistic outlook that we're gonna be able to do good news rate cuts by the end of this year, and that just seems a little bit too soon for us. - I'm sympathetic with this. The question though of wait and see for a data dependent Fed really raises a question of what are you waiting for?

because the data is so incredibly messy, not only from a backward-looking, forward-looking, medium-working kind of point of view, but also just from a data collection point of view. You've had a real question about a lowering of response rates to some of the nonfarm payrolls responses. Sentiment surveys are basically throw a dart at a dartboard. What do you do with the integrity of some of the data that we're getting? So the good news about the payroll surveys is that at least by the time you get to the third reading, the response rate is pretty decent. When do you get

- No, you get that by two months later. - Okay, but the point being. And then you have data that's unreliable. You have a Fed that's not moving. Aditya, the Fed is not in the driver's seat. It is a political economy and you can even see it in what's happening with the currency market. Interest rate differentials are not making a difference.

Is it a problem that the Fed is very passive right now, that they are very reactive? Is it a problem, especially if this economy heads in a worse direction? I wouldn't characterize the Fed as passive. I think they've actually been pretty clear about their stance. They've pushed back against market pricing of rate cuts. They've made it

very clear that they're concerned about inflation to a degree that was more than perhaps I would have expected. I mean, did you look at the minutes last week? It was really striking for me. They had this, when they were, the discussion around balance of risks, they basically gave you this laundry list of concerns about why inflation might end up being sticky, and then just a sentence or two in the other direction, right, which is probably written by Chris Waller.

What is the danger? Just lay it out for us. If the FOMC starts to coalesce a Chris Waller type of policy outlook, what is the scenario? Why is that the wrong decision? I think it's concerning in the sense that we just don't know what policy is going to get implemented.

First, and then second, we don't know how it's going to affect the economy. Basically, what we're looking at is a negative supply shock from the tariffs being offset by potentially a positive demand shock from fiscal policy. That can give you the offset that you're looking for on the fiscal side. It can give you the offset that you're looking for on the output side. The problem is it can be additive on inflation.

Right, that's why they have to be very careful about the risks around inflation. And the other concern would be just that companies could raise their prices a little bit every year if they're concerned about losing market share, right? So you could get less inflation in the short run, but stickier inflation over time. Just to give us a compass for how to look at the week ahead, what data point do you think is going to be most relevant? The jolts, the job openings?

the non-farm payrolls report on Friday, or the Beige Book with all those quotes from specific regions telling you, "I feel good, I feel terrible, I feel inflation, I feel layoffs." - I think it's the unemployment rate.

You really want to watch the unemployment rate. I mean, typically, the establishment survey is more reliable than the household survey. But as you mentioned earlier, we're in an environment where there's some movement around immigration policy, and that can affect labor supply. That can affect non-farm payrolls. So the unemployment rate, as long as that stays 4.2% or below, I think the Fed's going to be very comfortable sitting where they are. Aditya Bahave, Bank of America. Thank you so much. Great to see you.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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Victoria Fernandez of Crossmark writing, uncertainty remains even if economic data and technicals show the markets holding their own for now. We see additional choppiness in the coming quarters. Victoria joins us now for more. Victoria, join the club. Everyone's seeing choppiness because it's very hard to get a sense.

what kind of direction to go in. I want to start with something that Danny was talking about earlier, which is that it's very hard to know which thing to focus on at any given time. Have we gone past earnings? And so now the focus just shifts squarely to trade or does it shift to the deficit or does it shift to something else completely? Yeah, I wish I could give you a good answer on that, Lisa, but I'm just not really sure where the focus is going to be. As you guys mentioned earlier, it changes on a daily basis. So we're

We're mostly through earnings, but there still are some good retail earnings that are going to be coming out this week. We've got some tech earnings coming out. But I think we're basically through that component. It's going to be do expectations of earnings continue to get moved lower?

for the next couple of quarters. That's going to be the key component as it relates to earnings. And we've seen that happen. So that's going to be of concern. But obviously, it's headlines that are going to be driving so much of this. The consumer is what people are watching. Credit spreads is what we're watching. Corporate profits is what we're watching. Those are all

important and they're all going to move on a daily basis depending on what it's hearing from trade and from the tax bill. So I think you have to take it all in stride through a lens, however, of not being sure how much you can rely on the data because how much of it is just due to the pull forward that we saw in March. That's another

element you have to bake into your observations. Which is one reason, Victoria, that a lot of people got a lot of confidence from earnings over the past couple of weeks. They came in significantly better than expected. Julian Emanuel calling it a boom in earnings and the consequence in the response in markets. That's real. You are seeing those profits. You are seeing companies that are still able to reaffirm some of their guidance. Does that give you confidence to be a little bit more bullish in risk assets than you were previously?

I think it gives us confidence in knowing that we will come through the choppiness that we're talking about over the next couple of quarters through all of the trade headlines. We will come through that hopefully with stronger economic elements on the other side of that. One of the most important things I think we're seeing out of earnings is that we can continue to have that

capex number because profits remain strong. So you had revenues of what, 6% or so this last quarter. When you look at capex, you've got a two and a half times multiplier in regards to every dollar spent, and that's 13% of our GDP. So I think capex could be an element that continues to boost the economy, even with the churning that we anticipate.

Victoria, how surprising is that figure? Just because when all of the trade headlines started to kick off, the narrative was, and let's be honest, still is, that businesses are paralyzed by it, that they're not committing capital. They don't want to put things to work because they just don't know what type of environment they're going to be operating in. So are the CapEx figures we got and the expectations for them, not trying to be cute here, but are they real?

You know, I would have thought if you'd asked me that maybe six weeks ago, I would have been very concerned in regards to the earnings that were coming, to the guidance that we would get as it relates to CapEx because of exactly the elements you said, because of the uncertainty and not knowing what to do going forward. But it seems like a lot of

the businesses over this last earnings season have really kind of reiterated some of those capex bins. Obviously, some has been pulled back. But overall, we still had some strength there. So I think if that continues, which it seems like it

it might if things stay status quo or slowly begin to improve on the tariff front and on the tax bill front, then I think you have the opportunity to see the markets move higher once we get through the headlines. So American companies still want to spend, still want capital expenditures. Victoria, in Europe, it was much weaker what we got from their earnings in terms of capital expenditures. We are looking at an S&P that's up just half a percent so far from the year. In Europe, stocks are up 7.5%.

Looking at the company earnings, does that suggest that that balance needs to shift back to the U.S.? That European outperformance maybe has gone as far as it can?

there's a few elements that kind of drive that story of shifting maybe back to the U.S. We had, you know, kind of broadened out some of our exposure to include Europe earlier in the year. But you had a lot of catalysts that drove that. You had the change to the debt. You had an increase in defense spending. And we saw the European markets really respond. And at that point, we thought it was time to take some money off the table and move back. And now you have

increased concerns around inflation. And we're seeing increased concerns, like you said, around corporate profits and what that means for CapEx. So I do think you could trim those positions, move them back into the U.S., into some of the sectors where you're seeing the momentum play. That's the most important factor right now in the market is the momentum factor. Beta has kind of hit a little bit of a peak. And so I think that flows into this story of

trimming those winners and maybe moving back into some of the areas that have better potential going forward. How much of the international story will be told by what happens with some of the budget negotiations in Washington, D.C. right now?

Well, I think it all ties into what we're seeing as it relates to the dollar and into currencies, which you guys have been talking about this morning. So we've seen the dollar come down in concern around the deficit. You see that play out on a global basis. So you want to look at some of those countries that maybe have current accounts on the positive side of that. That should be supportive of their currencies versus the U.S. But obviously, it's a global tradeoff.

economy right now. And so anything that happens on these fronts is going to affect everywhere. And we've seen it in yields rising. We talked about U.S. yields rising this morning. We've seen it in gilts and we've seen it in boons as well. But how much of what's going on in Washington, D.C., when it comes to the fiscal package, actually a headwind or is it a tailwind? Because the fact of the matter is this is just current policy as the crux of this bill.

Yeah, Anne-Marie, it's interesting because we always thought that from the very beginning of this new administration, we didn't think it was just like tariffs on their own. It was always kind of a more holistic plan of tariffs and deregulation and lower taxes and improving some of these elements for businesses. And so I think you have to look at what's going on in Washington through that lens and say, how does this help counteract some of the more downside elements that we're seeing from tariffs? It's a very important

important component. Congress is relying on some of the tariff revenue to offset some of the deficit costs. That's how they're able to go in and say that this is not going to add to the deficit. So it's something that we have to watch. It's all tied together. And hopefully we come out of this with some benefits from both sides. Victoria Fernandez of Crossmark, thank you so much for being with us. Have a great week ahead and we'll see you soon.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App.

Thank you.

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