00:00So, Kevin, through this earnings season, we've seen companies communicate the potential impact of tariffs in a number of ways, right?
00:06They have maintained their guidance, but not included the impact, which they got punished for.
00:10They've pulled their guidance, too many to name on that front.
00:13They've offered a base case and a worst case like United.
00:16And in many instances, they've maintained guidances, but also said that they may raise prices.
00:21What is actually happening inside the C-suite?
00:24Walk us through these executives' calculus of determining just how much to reveal,
00:28the risks of saying too much versus too little.
00:31Well, Scarlett, I think, I mean, the evidence that you just put out there of all of the sort of the diversity of how companies and executives are articulating
00:41what their sensitivity is to inflation just goes to show that none of them are any more clairvoyant than anybody else at this point.
00:48You know, obviously, there were concerns that we were going to see an increase in inflation.
00:53The most recent inflation prints have been very, very mixed, that the headline numbers have been pretty decent.
00:57But when you started to pick away, you saw what was what's bubbling up down there.
01:01And, of course, late last week, we had some of the retailers start to suggest price increases are coming.
01:07And obviously, we're in this kind of reprieve moment with regards to with regards to the tariffs.
01:12There's been this 90 day suspension.
01:14We're about halfway through that of the reciprocal tariffs, right?
01:17That is looming out there.
01:20Notwithstanding the quote-unquote deals that were cut with the United Kingdom and with China,
01:25they are supposed to re-kick in if all the rest of the deals aren't satisfied in the next 200 days.
01:31My point is, or in the next 45 days or so, my point is that the impact of tariffs continues to loom out there.
01:40And once we get to a point where you have a good indication of what the final numbers are going to look like,
01:48I think companies will have a lot more license to be more precise or they'll be demanded by investors that they be more precise
01:54on what those inflationary impacts are going to be on them.
01:56In the meantime, they're trying to get a handle of the landscape as well.
02:00So can you talk a little bit about their lobbying efforts in Washington?
02:02Do you send the CEO out to make a trip to the White House and talk to the president, him or herself?
02:09Or do you do it from the safety of an industry trade group with your competitors
02:14so that you won't be singled out and shamed out loud later on?
02:18Look, I think it depends on a number of factors.
02:21One is the stature of the CEO.
02:23Another is, of course, the sensitivity of the industry that they are in
02:27and how sensitive that is going to be to any disruption of the global supply chain.
02:31So really, you know, my colleagues at Toneo who are counseling these very CEOs every single day,
02:38you've got to take it in a very customized perspective depending on where they are in that space.
02:43But if you're a consumer-facing company, I mean, and even not just a consumer,
02:47even if you're a B2B company, there has to be some explanation of a higher price tag on your product, right?
02:52And if that price tag is going up directly because of tariffs,
02:56don't you have an obligation as an executive to communicate that to your customers in some fashion?
03:03Yes, but I do think it's premature to say exactly where everything's going to wind up.
03:06What it looks like right now, Romain, is that we might be heading toward what I would call the 10 and 30 model.
03:12It looks like we may be heading, and I wouldn't necessarily straight line this,
03:15but it looks like we might be heading toward an environment where there's going to be a baseline 10% tariff on most countries,
03:2130% on China, and then there will be these added sectoral tariffs, steel, aluminum, cars, car parts,
03:28possibly pharmaceuticals, et cetera.
03:30If it winds up being a 10% tariff that your product is subject to,
03:36how you're going to be able to split that between the exporter, the importer, and the consumer
03:41is going to impact how you're going to have to communicate that.
03:44If you're going to put it all onto the consumer, that's one thing.
03:46If you're willing to accept margin hit for some period of time, that'll be something else.
03:50So I think there's no one-size-fits-all answer to this question is the issue.
03:55And this gets to this idea then as to what the marketing, I guess for lack of a better word,
04:01the salesmanship of it is going to be.
04:03And is that the CEO's job, or is that something that he or she can put off on their deputies,
04:09so to speak, to sort of go out there and try to find a narrative that their customers is going to be palatable
04:15for their customers and maybe even palatable for the White House and the president?
04:18Well, Romain, I think that tariffs right now is the subject du jour,
04:23but we know that it's about so much more than just the economy.
04:27It's about so much more than just trade.
04:29It's one of many really geopolitical issues.
04:32It's one that obviously touches CEOs and companies more directly than a lot of the other ones.
04:37But all that to say that I think in this environment,
04:41the CEO has to be the chief political risk officer of a company.
04:44We're making strategic decisions now.
04:47It is going to be incumbent on them.
04:48Even if some of the requests are maybe unreasonable.
04:51I mean, I think back to the comment from Trump the other week about Apple moving its production to India.
04:57I mean, even if Tim Cook wanted to abide by Trump's threat,
05:00I mean, that's not something you just can unravel in a day or two.
05:03No, but let's be clear.
05:04I think Apple and Tim Cook have been under this pressure before.
05:08I mean, President Obama asked Steve Jobs why they couldn't make the iPhone in the United States.
05:15There are good reasons for it.
05:18It's complicated.
05:19There's probably nothing more complicated or more emblematic of the global supply chain sort of perfection than Apple.
05:26So we pay so much attention to it because Apple is a U.S.-based company, but it's a global company.
05:30It relies on sales to the rest of the world.
05:32And that brings us to this idea that as much as everyone's focused, fixated on U.S. tariffs on other countries,
05:40other countries are still making deals with each other as well.
05:43How are CEOs thinking through the logistics, the strategy with that,
05:48while staying focused on the uncertainty of what's happening with the U.S.?
05:51Well, I think, number one, it is being as best informed as you possibly can be about the fact.
05:56I mean, it's so easy, right, to over-index on exactly what's happening in Washington.
06:01The noise and the velocity is just so great.
06:04On the other hand, this time around, Trump 2.0, other countries are not standing still, as we have seen.
06:10The deal yesterday between the EU and the U.K., India and the U.K., EU and Mercosur.
06:16A number of the Latin American leaders were just in China last week.
06:19Xi Jinping did a trip throughout Southeast Asia the week before.
06:25So there's going to be, I think, an increased move to more bilateral and even multilateral deals that are going around the U.S.
06:33Remember that global GDP, or trade as a percentage of global GDP, has remained constant since Trump 1.0.
06:40It's about 60% of global GDP.
06:42It's going up in most of the world.
06:44Trade as a percentage of GDP, as the White House just pointed out in your clip a minute ago, is going down.
06:50It's 25% here.
06:51And if you look at the 10 fastest-growing trade routes in the world, only two of those have a terminus in the United States.
06:58So there are going to be a lot of countries that continue to believe that free trade and the principles of free trade are to their benefit and to the benefit of their companies.
07:06So, you know, increasingly we may see trade around the U.S. in addition to trade with the U.S., kind of working on two different cycles.
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