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tv   Power Lunch  CNBC  May 31, 2019 2:00pm-3:01pm EDT

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spoke to baunch a bunch of expes if these tariffs go into effect, a lot of smaller trucking companies could actually go out of business. >> we know you'll be all over it frank holland. thanks that does it for "the exchange." i'll join tyler and melissa for "power lunch" which begins right now. >> thank you, kelly. see you in just a moment i'm melissa lee with tyler mathisen new at 2:00, move over china president trump now taking the trade war to mexico. threatening crippling new tariffs. what it could mean for the markets and the economy. shares of the big three u.s. automakers slammed on this new tariff threat. what it means for them and two other crucial sectors of the american economy and the bulls got mauled in may. bigger correction or are we setting up for a june rally? "power lunch" starts right now >> oh, what an interesting day this is turning out to be. welcome to "power lunch. i'm tyler mathisen stocks are tumbling on the last
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day of what has been a bearish month. a big bear of a month. major averages on track for their first monthly loss of 2019 largest monthly losses since way back in december and you'll remember, december, of course. interest rates are sinking too yields on the benchmark 10 year treasury note falling to their lowest levels since september of 2017, hitting 2.145%, kelly? >> wow okay have to read that twice. we have full team coverage in this market sell-off in the fallout from threatened tariffs. kayla tausche with the reaction from big business and trump's inner circle steve liesman looking at the impact on the economy and auto makers, those stocks getting whacked today. how mexican tariffs have agriculture. let's start with you >> as opposition grows from the allies in the business community as well as capital hill, we learn more about how that opposition played out here at the white house behind the
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scenes privately by steven mnuchin and robert lighthizer, both of whom oppose the president's decision to put forward tariffs on mexico in response to an immigration problem. i should note the usdr and treasury say both of these officials support the president's position but told by three sources that opposition was raised behind the scenes so who supported this policy and where did it come from i'm told by multiple sources that the leading advocate for a harder line on mexico was steven miller, the president's senior adviser and immigration hard liner who had his ear during the trip over the weekend to japan and i'm told by one source that the president returned from that trip riled up. a second source described miller as having poured gas on a fire lit by conservative commentators over the weekend about the border issue the president returned frustrated and wanted to do something about it we also know that he had a
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signoff and a green light from the counsel's office, legally ironclad and that rationale will come into focus as business groups now weigh whether they have any options in litigation to go forward if the president decides to put this policy in place. and then there's peter navarro who has broadly been a hawk on all things trade and supported the president's tariffs and told cnbc that investors shouldn't worry. >> i would suggest to investors to look at this calmly, look at what we're trying to do. this is actually a brilliant move by the president to get mexico's attention, to get them to help us because so far, they've been standing by and they really have the power to help. the two institutions that have the power to help us, the mexican government and congress. >> reporter: we move to get mexico's attention the acting white house chief of staff, mick mulvaney told reporters last night it's his hope the tariffs don't go into effect and the mexican government has ten days to see
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if his response is efficient for the president. >> thank you very much today's losses are adding to the sense of misery that's persistent throughout the month of may all three major averages having the worst month since december of last year dow down 8%. seema mody has more on may's meltdown hi, seema. >> reporter: hi, tyler what the market is trying to do is quantify the impact of the mexico tariffs on the u.s. economy and the state of the consumer, but that is proving to be a challenge mexico is an intermediate and assembler in the production of certain goods and products with today's move to the downside, we are sitting on some big losses for the month the two worst performing sectors, energy and tech some of the defensive sectors also got caught up in the sell-off utilities on track to close down for the month, but real estate is higher by 1%. and with the exception of mylan, combination of disappointing earnings, discussion around tariffs and saying we'll have to
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raise prices at some point due to the added cost of tariffs bucking the downward trend for the month, not a lot of them but a number in the health care space. big pharma, you see pfizer there up about 3%. kelly, down 273 points and off the lows back to you. >> seema, thanks how big of an impact could these tariffs have on the u.s. economy? and is a potential trade war with mexico a bigger threat than one with china steve liesman has that for us. >> 25% tariffs, kelly, on mexican imports are potentially a very big deal. potentially bigger deal if mexico retaliates. take a look at the wall here you can see that it's about as big as china or even bigger, depends on how you look at it. there's $558 billion of imports. we get more imports from china but send them more stuff and a lot of the stuff we send them, they send back to us so it's a big circular, what do you want to call it? supply chain issue out there, with how american companies are set up to do business. 25% tariffs on all imports
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would, without exemptions, equal 178 and so a bigger hit to u.s. growth than chinese tariffs. oxford said the mexican tariffs alone not counting mexican retaliation which shave about three quarters of a percentage point off u.s. growth in 2020 depending on where we are, they could mean a recession markets looking to be forecasting not one, now two rate cut this is year from the federal reserve. as a result, all america economic survey finds the broad public doesn't support the president's trade policy here's just one of the answers to the questions we asked and you could read the full survey on cnbc.com. 40% do not approve the president's handling of trade with other countries sorry, 43% 37% approve and 16% have no opinion. similar answers when we asked specifically about chinese tariffs. we didn't ask about mexico 28% with the president's tariffs on china 40% disapprove
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that's less support than the tariffs had last year. >> real quickly, two cuts are now fully priced in? >> it depends on how you look at it there's some weird stuff in there because the interest, yada yada yada, technical answers, i'll get calls from the traders. about a 64% probability now, 50% of two rate cuts with the first one priced in and i could tell you, publicly, fed officials aren't there yet i don't know where they are privately. >> they can come around real quick. we saw that before >> that's true they can change on a dime and they will, but two rate cuts, or a couple of rate cuts are pretty far right now. >> 87 billion, which would be effective. but that seems like it would be the lower end of the spectrum, given that a lot of auto parts, for instance, which is the biggest sort of product, actually go back and forth across the border a couple of times. >> yes, you would have a multiplier effect on that potentially. there's another factor out there that's not in that calculation
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called deadweight loss all of the sudden, if the market has made the decision that mexico right now is the optimal location for sourcing that product, and then i go to another location, that's deadweight loss to pay fmore for that product mexico or vietnam, additional deadweight loss as well. >> thank you, steve liesman. president trump's tariff threats don't stop at the 5% increase on june 10th. the white house planning to slowly increase tariffs on mexico until they reach 25% on october 1st. many rely heavily on mexican imports, arizona bringing in $43 billion worth of imports on the list, joining us with what it could mean is former new mexico governor bill richardson and libby cantrell, head of public policy. thank you for being here, both of you governor, i want to start off with you when you think about that impact on new mexico, how do you think about it and what it could do to your state >> it's a very bad impact for
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new mexico for all border states, for the whole country. it's going to hurt our ranchers, our agriculture people, our farmers, it's going to be devastating. and it's a wrong policy because it's based on the president's impulse. he has obsessions, trade wars, immigration, the wall. senator mccain there's no strategy behind this and i think the impact is putting his own agreement with mexico and trade, usmca, in real jeopardy if you have a free trade agreement and all of the sudden, you keep using the tariff issue, put trade wars on countries that you have agreements with, why is mexico and canada and the u.s. congress going to want to approve this >> so libby, how does this all play into the quest for agreement with china usmca potentially up in the air
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at this point. we have not much progress. it looks like a ratcheting up with the tensions between the u.s. and china where do we stand? how does the political risk change >> in some ways, this has disabused the narrative that president trump will wachbge two fights at once that's the common accepted narrative that he would sequence some of these fights i think what we're seeing yesterday with his announcement is that, you know, in fact, president trump really believes very strongly about his views on trade policy and on immigration. and on national security i think that's one narrative that is being disabused by market right now as it relates to sort of the china engagement, or tensions, you know, i think this could have some impact i think the perception probably from the chinese is that the united states might be in a weaker negotiating position. they also may not trust president trump.
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i think that trust was already been somewhat compromised but probably even more called into question, just given sort of this about-face with mexico. i will say, however, that it's really important just to remember that the markets, again, keep underestimating the president on what he has said. he said he believes there is an emergency at the national border national emergency at the border whether we agree with that or not, it's what the president believes he believes china has been cheating in terms of trade agreements i think we need to take president trump both literally and seriously in terms of what he said and in some ways, the announcement yesterday is very consistent with that. >> let me get a quick answer from you on the following question the president has said, i believe publicly and reportedly privately as well, he believes tariffs help the united states make us economically stronger. do they? >> well, look, i think our economists might disagree with that, but again, i don't know if
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that's really relevant here. what's relevant here from a markets perspective is what the president believes and will happen, not necessarily what should happen or whether we agree or disagree. so i think the point here is that the president believes that tariffs are working. he believes that he gets better deals from the imposition of tariffs and does belief from an economic perspective, these might, maybe not bear helpful but maybe not as damaging as some of the folks who are warning on the street are. >> how likely, bill, is retaliation by mexico? mexico with the new president? i'm sure he wants to prove his strength there. >> well, first, this does nothing to help the immigration issue. secondly, you know, mexico's been quite restrained. the new president has not said anything terribly negative about the president talking about the wall, the immigration coming in, mexico not doing enough. he's been restrained but now, you know, his back is against
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the wall mexico is going to have to retaliate if we pursue this foolish policy and it's going to affect our economy, it's going to affect the border mexico is going to put sanctions on our products too and what's going to happen with the mexico agreement? it has to be ratified by the mexican senate the president of the mexican senate and what if the mexican senate says we have to start striking back at the united states we've been rather restrained in these insults that president trump has sent us, this policy he's sending, he's defying us. so i don't understand this strategy and it helps nothing with immigration, especially when you're saying that we're cutting off honduras, to el salvador, the ones sending a lot of these asylum seekers and migrants to the u.s. border.
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i don't understand this strategy. >> libby, you made clear that you think markets are underestimating what president trump actually says. there is some thinking going on that these tariffs on mexico are simply a threat. they may not be imposed. what are you telling the folks with pimco >> i think it's a possibility but remember, melissa, president trump shut down the government over the border. he has threatened to circumvent the right to appropriate money over the border. this is something that, again, the president believes he knows politically, it resonates with his base. could this be another threat maybe. but i think especially with tariffs, what we've seen with this president is he has pursued a more aggressive approach with tariffs. again, going back to the fact that he does think that they work in terms of extracting concessions from negotiating partners. >> all right we're going to leave it there. thank you both for your time bill richardson and libby cantrell. >> coming up, may's market misery is about to end but only
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because the month is the major averages down 6% what's next in june? we'll explore that, plus a closer look at this area of the economy, likely to be hit by tariffs on mexico. as we head to break, check out the automakers they're one group in particular. "power lunch" will be right back your brain is an amazing thing. but as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life.
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welcome back we begin with the market flash dom has the big trade tariff >> a lot of attention on the tariffs today, another sector hit hard by the trump administration's latest trade salvo against mexico off by more than 7%. at this stage, the company makes l.e.d. lights, several manufacturing facilities in mexico and 50% of finished goods are manufactured in mexico so yet another big mover on the heightened trade tensions. on track for worst day of the year tyler, back over to you. >> thank you very much, dom. new tariff threats on mexico sparking a sell-off on wall street major averages set to post the first monthly loss of this year. and their largest monthly decline since december the dow, nasdaq and s&p down 6% for the merry month of may but if history is on our side
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this year, a rough may usually leads to a boon in june. hmm. we talked about that yesterday a little bit more now with brian jacobson and ron insana, cnbc senior analyst and commentator. brian, let me begin with you do we take the president at his word he's going to put these tariffs into effect in early june or do you think stock market man triumphs over tariff man because he does not like a declining stock market, it would seem >> seems like trump and mnuchin both said they view the dow jones as a barometer of president trump's popularity and how good his policies are. if we continue to get a weakness like we have seen, i think that president trump would shift his tone pretty quickly and then maybe we could get that boon in june when it comes to what we're
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doing with our portfolios on the multiple asset solutions team, we're table thumping the neutral. >> table thumping the neutral. that's a phrase i haven't heard before what does it mean? >> it's where you have high conviction in being indifferent the better return for bonds because to us, the balance of risks right now seem to be a little bit neutral, and wells fargo is talking about in terms of where we are likely to be for the s&p 500. probably, we could move back up to 2900 by the end of the year so do we go lower first or is it where we bounce from here? we're watching some key technical levels to kind of position portfolios, but right now, we're just sticking at neutral. >> brian has confidently driven a stake into a pile of jell-o.
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>> that's about right. i would be slightly firmer with that being more on the downside. if you're not getting very clear messages from treasury bonds, commodity prices and stock prices, they tend to go into that order as we move to an inflection point in the economy. bonds, stocks, as we saw in 2007 and 2008 not saying that kind of event but ignoring the president and what says about tariffs and what he's doing is doing so at your own peril. if you look at what happened with china, we would have never got the agreement that wall street was expecting there's a different agenda that the white house is operating with relative to what everybody thinks is my belief about what's going on right now. >> in defense of thumper -- >> table thumping the neutral. >> i don't want to end up being bambi. >> both of these things can go away so is the risk to the upside, there's a risk to the upside as
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well, so to be fair, when you factor it all in, unless you believe there is risk of a global slowdown even without these trade wars that's another story. >> i do and the china trade situation cannot go away in a day. president xi and president trump at the end of june might agree to restart talks. >> and that's only a few weeks away. >> that's a headline pop to the market but clearly with mexico, if you read the reports about the frustrations with dhs team and the immigration front, they're not stopping the flow of asylum seekers, he's going it alone with respect to the use of these tariffs and broader issues at play. there is a lot of geopolitical instability. there's a lot of political instability around the world and there's recession risk in other parts of the planet. if you look at the message of the bond markets around the globe, we're back towards $11 trillion of debt with negative interest rates that's a signal and a sign and i
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think you ignore that at your own risk. >> give some table thumpingly neutral investments to make right now. >> cash. cash is not bad. you can get a decent yield on it and we have higher cash balances and some of our accounts with strategy and the mandate where it's basically to be opportunistic and also, rather decent carry that you're getting right now. we do like still spread products, especially higher quality, high yield because we don't think that the u.s. is going to go into a recession globally, we might continue to experience the slowdown at investor forum last month. fixed income team with a compelling case saying if there's a recession, likely not triggered by the trade war the seeds of it were probably sown much earlier as far as the manufacturing malaise we've been seeing broadly speaking but there's still good high quality high yield companies that we find attractive on the bond side of things.
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andthen on the equities side, we think we could experience some sort of rebound from these levels but we don't have a huge or a very high conviction in that so as a result, nothing wrong with defensive consumer staples, and that's where we're biassing our portfolios. >> leave it there. brian jacobsen and ron insana, thank you. some are so upset about the tariffs in mexico, they're considering suing the trump administration stocks low today, big drops vending the s&p 500 below a key lel. we've got all the numbers you need to watch coming up on "power lunch." [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence.
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now with 5g evolution. the first step to 5g. more for your thing. that's our thing. welcome back to "power lunch. i'm michael santoli at the new york stock exchange. the s&p 500 ending may with about a 6% loss shedding $1.6 trillion in market cap is there more downside to come, come june? craig johnson of piper jaffray craig, i know you were looking for perhaps the market to hit the upper bound of the range a while back how does this all fit into your general view of where the market might be headed? >> mike, we've hit that upper end of the range and when we look at the s&p 500 chart today,
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decisively, we have broken below the 200 day moving average and now we've got to look for support levels on this when you step back and look at the chart, mike, what is this chart? is it a head and shoulders top or a triple top? i think it's definitely not a bullish chart at this point in time so we've got to be looking for downside levels. 2722 would be the next level, the marleach lows and then take into consideration, mike, right now, 15% of all the names in the s&p and about a third of all the names in the russell 2000 are trading below the december lows of last year that it certainly is not a positive set-up so you can't rule out back towards those lows at this point in time. so for us, short-term, we're sti still not oversold and more downside in the near term but look for a relief rally. >> all right well, i guess, you know, 15% of the s&p, quint, it's below the
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december lows. maybe it seems like there's bargains out there where do you come down >> it's always fascinating to me, mike we had an incredible run off the lows at the end of the year in the entire first four months and now the market coming in 5%. we were up 20% in the first four months we've given back 5% or 6% of that and now everybody is running for the hills and look, i get it there's deterioration. we don't like what's happening in copper, but the market that was very rich, just a month ago, trading 24 times forward earnings, now it's 17, now some of the estimates have come in, but prices come in as well so if you're a patient investor, this is a better price than it was just a few months ago. so headlines aside, we like the pullback here, but i can't clarify enough, i mean, we are watching copper. i know it's unrelated to equities, but it is a leading indicator and if that breaks the
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$2.50 level, we would expect the market to keep going lower as well >> copper, for better or worse, in tune also with those bond yields as well we will see where it all settles out, guys. thank you very much, craig and quint. for more "trading nation," go to our web site or head to twitter @tradingnation. >> ahead on "power lunch," all over the sell-off fueled by president trump's new tariff threat against mexico. plus, big business threatening to sue if these tariffs on mexico go through. u.s. chamber of commerce go-to trade person will join us to make the case. crude down more than 4% today. the energy sector on pace for its worst month of the year, along with stocks. we'll bring oil's closing numbers next >> and now, the latest from tradingnation.cnbc.com and a word from our sponsor. >> some people refer to the vix as the market's fear gauge but i like to refer to the vix as a
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hello, everyone. i'm sue herera here's your cnbc news update at this hour. the u.n. atomic watchdog agency said iran continues to stay within the limitations set by the 2015 nuclear deal. but it reported its stockpiles of low enriched uranium and heavy water have grown it raised questions for the first time about iran's adherence to limit that country's use of advanced centrifuges. hurricane season starts at midnight tonight with a strong warning today to prepare to know your risk, to know your way out, and know the biggest threat which is flooding and storm surge. >> a lot of people's perception of their risk is based on past experience and what we're trying to talk about this more and more, you can't compare storms every one of them are different. a teeny wiggle matters, a small difference could mean the difference between a foot of storm surge and maybe 10 foot of storm surge. just because it didn't happen last time doesn't mean it can't happen next time. >> to the amazement of noaa
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researchers, an entire ship wreck discovered under the sea in the gulf of mexico. it is believed to be a mid 19th century wooden sailing vessel leaving behind only copper and iron as artifacts to piece together the ship's story. you're up to date. that's the news update this hour, back to you. >> 90 minutes to go until the closing bell rings the dow right now is heading back towards session lows down 337 points right now or 1.25% or so, s&p 500 down by 36 1.3% is the loss and below a key 27.66 is the recent low. 20 points away from session lows here and nasdaq composite down by 1.4%. tyler? >> let's pick up with dominic chu at the commodity desk. >> tyler, crude oil getting crushed, like you said west texas, brent crude prices
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wti 3.5% and $53.56. crude, $64.47. it's also the last day of the month, which means we'll end may with the biggest one-month losses for both marks since november and no surprise what's driving the downside action. renewed global trade tied to the latest move by the trump administration to launch a new round of tariffs this time on mexico earlier this afternoon, the latest weekly active rig counts showed the u.s. added three oil rigs bringing the total to 800 the first gain in oil rigs in four weeks but means the sixth straight month of rig declines headed into june hurricane season, yes, but it will be a time when traders are very focused on the big meeting between opec and its partner, countries in the oil producing regions. kelly, opec, whatever you want to call them, big headlines in june. >> big drops in crude. thanks the third trade tariffs hitting automakers hard today. philip lebeau is looking at which companies could be most
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affected and why hitting cars and car parts with tariffs is so complicated, phil? >> it's very complicated, kelly. most likely, everybody in the industry, if this went into effect, they would pay a substantial price. in particular, there are some brands that have greater exposure to mexico and the ones we're highlighting here, these are the brands and those percentages, that's the percentage of u.s. sales that come from vehicles built in mexico so if it's volkswagen or gmc, nissan, chevy, a lot of exposure south of the border. here's an example. the chevy blazer, it's built in mexico red hot segment of the suvs. a vehicle with spot on styling the base price of $28,800. would that go up by 5% or gm eat the cost the jeep compass is another one. all of these models built in mexico the base price, just over $21,000. so does the price go up? another $1500 or would jeep say, you know what? we'll cut into the profit margins there, which nobody would like to see. also, don't forget the
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suppliers. whether you're talking about american axl, magna, lear. all under pressure as well this is not just final vehicles that are impacted, guys. it's the parts as well and the entire auto industry is feeling the effect today. >> thank you, philip lebeau in chicago. the u.s. reports agricultural imports the impact on that sector. aditi? >> melissa, the u.s. relies heavily on mexico for fresh fruit and veggies. $26 billion worth of agricultural including avavocados about 80% of avocados we consume in the u.s. come from mexico at this time of the year. we also are getting half of our tomatoes from mexico and about 30% to 40% of peppers and cucumbers. but the analysts also tells me if the peso continues to depreciate because of the tariffs, mexican imports could actually end up being cheaper
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but then u.s. exports of course, would be more expensive. $20 billion worth of agricultural products to mexico, top products include corn, soybeans, dairy products, pork, and beef those would, of course, be affected if mexico imposes retaliatory tariffs. >> aditi roy, thank you. big business has weighed in as well chamber of commerce may sue the white house over new tariffs let's bring in the person leading the charge of the chamber of commerce's position on trades and that's the executive vice president and chief policy officer neil bradley. mr. bradley, welcome, good to have you with us >> glad to be here, tyler. >> let's get your first reaction to these tariffs and what they could mean to american business and then the possibility of suing to block them. >> there's no way to describe it other than it's an overwhelming negative for american businesses and consumers, right tariffs are nothing more than taxes and we're going to pay
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them on all the products that you were just describing, whether that's automobiles or agriculture and the drag that it's going to put on the economy. it's something none of us want to see particularly, given the fact that imposing these tariffs, these taxes on americans, will do nothing to solve the problem, the very real problems that we have at the southern border. >> it hurts american businesses. explain that to me in other words, i get it if there's a ram truck that's made in mexico and now is subject to a tax that it was not subject to, but other american businesses would be hurt how because they're importing machinery or parts, components from mexico or what? >> all of those things, right? it's not just big businesses but mid-sized manufacturers and even small companies, right who import things from mexico, that they sell here in the united states. so unlike some of the previous tariffs that we've seen in this administration, this proposal hits everything that we import from mexico. >> on what basis would you
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contemplate suing the administration to block these tariffs? >> our number one goal is to make sure these tariffs don't dgo into effect but address the problem at the southern border with respect to the first goal, we look at every option available to us. first, we'd like to persuade the administration not to proceed down this path but only prudent to look at legal options and what congress might be able to do. >> what legal grounds, neil, would you say the suit would be based or is this just a threat >> we're exploring our options, right, so this is less than 24 hours old. none of us expected this when we woke up yesterday morning and so our team at the u.s. chamber, but frankly, lawyers and the business community and both individual companies and also other trade associations have since last night been looking to understand what legal authority these tariffs could be imposed under and what recourse those who are negatively impacted, businesses and consumers, might have in response >> neil, how many members do you
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have >> we represent the interest of 3 million businesses most of which are small through our federation of state and local chambers. >> that's a lot of businesses and i imagine within that mix, some are big supporters of the president, others who are not. what happens if not all of your 3 million members support what looks like an opposition against the white house? >> with this administration or any administration and disagree on other things. we approach it from a policy by policy basis and in terms of regulatory relief for american businesses and a chief proponent of the tax reform first time in 30 years. so when our interests align shoulder to shoulder, we happen to disagree on tariffs and not going to be shy with this administration or any other administration in making sure we highlight the negative consequences of imposing tariffs on american businesses and consumers. >> i think the administration would say that ultimately, the
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mexican economy would pay these tariffs in the form of lower output because demand for their products would go down and in that sense, mexico would pay for these tariffs. do you see it that way >> we don't, right so there's obviously widespread impact from these tariffs, but let's understand something the administration's number one legislative priority and our top priority is an enactment of the u.s. canada free trade agreement. it's not so easy that you can say we'll just pick up and we'll begin sourcing whether it's parts or machinery or components or tomatoes or avocados from somewhere else in the world, right? only so many options >> so in your view, what does the possibility of the imposition of these up to 25% tariffs mean for the ratification of that u.s. mca? here and in mexico. >> there's no question, it's a huge new obstacle to getting usmca ratified in both
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countries. one of the most positive was lifting the steel on aluminalumm we took an enormous step backwards. it's difficult to see how the congress passes usmca with how we propose 25% tariffs on agricultural goods, parts and everything else we import from mexico. >> i had almost forgot about the lifting of the tariffs on steel and aluminum thank you. >> you too business big is against the tariffs, steven mnuchin and robert lighthizer oppose them too. more on if these tariffs take effect and if the selling and stocking leading to buying and bonds sending the 10 year yield to a nearly 2 year low yields low, we'll talk about that one next.
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president trump threatening tariffs on all imported goods from mexico and set to go into effect next week we just heard from the chamber of commerce which is so upset, it may sue the white house over that let's dig deeper into the potential fallout from businesses guy, the former c.o.o. of goldman sachs mexico and james is american enterprise and cnbc contributor. welcome guys >> thank you >> guy, to start with you, especially with the experience you've had in mexico, do you think this is a huge blow to the mexican economy, the u.s. economy or both or neither >> it has the potential to be a blow to both of them but i want to start with the possibility that we have ten days to work with this. the president of mexico said a tough but constructive letter to president trump saying that let's sit down and talk about this and he sent his foreign minister today to get busy on that, so i think we have a time here to give the administration time to walk this back and put something in place which removes
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the need for tariffs >> the mexican administration, you mean, because they do have some time, in stemming the flow of migrants. what does it look like is that possible >> it is possible but if they don't reach an agreement in ten days, then i think we're going to see the retaliation by mexico as we did on the steel and aluminum tariffs. >> do you agree with that? we could face retaliation from mexico >> i don't see how they couldn't to a degree that most americans doost understand that north america, canada, the united states and mexico really operate as a single integrated economy doing tariffs on trade between california, texas, it would seem crazy or highly self-destructive i don't know, that might be
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next people want to walk this back. n some action. looks like the problem is alleviated somewhat, so maybe we just go with the 5% tariff and that's it. that's a possibility >> listen, do you think -- what is the impact? so the chamber of commerce comes out and we just spoke with them, says they're looking to sue the administration how so, who knows? but the simple headline is what it is. do you think that creates more blowback against, quote unquote, big business and they are look out for their own interests, they're not looking out for the little guys? how do you think this will play, jimmy? >> listen, the president's a counterpuncher and usiness, both in the campaign and today, look at the way he's gone after some of these big tech companies that provides a great target for saying that these companies, these ceos are not being
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patriotic. that we have a national security problem at the border and they're not willing to play ball yes, that gives him a huge target to go against >> guy, so if we look again at the mexican response, like jimmy said, these are incredibly integrated economies is it possible, look, the peso has already dropped in value that's going to offset some of the impact of that first 5%. are there other ways back through the supply chain we might see this absorbed or no? >> not in the short term these supply chains, as you said, are fully integrated so very hard to see how in the space of a few months he had could make the adjustments needed so if it continues to ramp up, then of course there would be effects all across the economy in the way that jim said i think that we have to therefore respond to that mexican president's letter and see what we can do to find some interim solution and put in place longer-term measures to deal with the immigration
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problem. >> all right thanks, guys guy erb, jimmy lower interest rates could help but tariffs could hit products that the builders need we'll talk more about that plus the ceo of a regional bank tells us what he's seeing in the economy right now and what could happen if these new tariffs take effect all this happening as the dow is headed for its longest weekly losing seainig yrstrk ehtea we're about to go six straight weeks of losses. "power lunch" will be right back i consulted with your grandmother's doctor. we can do the screening at her house. hi. this is the man that's going to check your eyes grandma. cognizant ai solutions are helping healthcare companies advance diagnostics and prevent blindness in patients with diabetes. everything looks good.
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well, the yield on the ten-year note falling below 2.15% right now. through see it at 2.138. lowest level in nearly two years. and that does have an impact on mortgage rates but the benefit of that for housing could be wiped out by new tariffs. diana olick explains why hi, di >> hi, ty. big drop in mortgage rates this week concern and uncertainty have investors rushing into the bond market mortgage rates loosely follow the yield on the 10-year treasury so the average rate on a 30-year fixed is now just below that emotional 4% mark. it was just over 4 1/2% a year ago and over 5% last fall. now, this benefits current homeowners who he might want to refi and potential home buyers who are still facing high home prices
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but prices for new homes could now go even higher mexico supplies a lot of the materials used to build large apartment buildings as well as single-family homes. it represents 11% of u.s. steel imports according to international trade administration data. steel is big in commercial construction as well as home renovations. mexico is also the fifth largest supplier of cement to the u.s., about $110 million worth last year and pickup trucks are a huge part of home construction. there are a couple on the street here and remodeling as well any increased costs there will hit builders and jack up prices for homeowners melissa? >> all right, diana. thank you, diana olick as rates hit new lows financial stocks are struggling. the kre and kbe bank etfs both down almost 4% this week with almost 90% of the kbe in correction levels or worse let's talk about falling rates the banks and the state of the economy. joining us is brent beardall, president and ceo of washington federal. great to have you with us. >> thank you so much for having me >> the 2-year yield.
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the 10-year yield. have we seen the peak in net interest margins for 2019? >> i think that's a reasonable likelihood considering the inversion of the yield curve that is a difficult yield curve environment. >> and how does that impact your business what is the sensitivity to eps or to lines of businesses with the peak in nims happening already? >> the good news is most of us saw this coming and have positioned ourselves to be able to grow our way through it so while the net interest margin may be under a little bit of pressure because of rates the good news is we're growing our balance sheets for example, our company's been able to grow our loan portfolio about 7% annualized. so we've been able to grow through the compression of the net interest margin. >> i wanted to ask you your take on the president's threatened tariffs on mexican goods you operate in eight states. four of those states are the top five states in the country exposed to mexican imports how do you see this potentially impacting your customer base and your business? >> well, it's amazing how
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quickly news happens you know that better than anyone but i think we need to take it with a grain of salt right now it was just announced yesterday. and as some of your previous guests were talking about, ten days is a long time to see what happens between now and then but clearly if this does in fact go into action, if these tariffs are put into place, it would have a negative impact on really all segments of our business >> let me ask you a question about your business and the general economy in the states in which you do business. and i gather from all your readings business is good, the economy is good, consumers are doing well home equity is up. overall debt is down and so on and so on and so on. why in that kind of environment, brent, are many more banks including within just the past few minutes barclays saying they expect 3/4 of a point worth of rate cuts before the end of this year why? i don't get it if the economy as you see it, as the president sees it, as many
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see it, is as strong as it is. >> well, that's a very good point. and i agree with you wholeheartedly the economy is strong on the streets of the western part of the united states. that is reality. and it's all driven by jobs. 50-year low in unemployment. and the jobs that are being generated in seattle and boise and salt lake city are good high-paying jobs why others are calling for a rate decrease, you know, it seems to be a popular fad right now. we have a saying that he who has the crystal ball will eventually learn to eat broken glass. we're not sure what's going to happen with rates. but my feeling is fed will likely be neutral until the election >> that's quite a metaphor, brent. on that note we're going to leave it there thanks so much for joining us. we do appreciate it. >> thank you appreciate it. >> brent beardall of washington federal. we're off the session lows at this point in time >> did we say good-bye to may? i guess we can we can say good-bye to may the first bad month --
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>> see you later >> yeah, see you later, may. we begin june tomorrow, everyone >> but of course a lot more session to trade with the hour left to go thank you for watching "power lunch. >> and "the closing bell" will start in just a few seconds. we'll stay with you until it does president trump has a new trade war target >> stocks set to plunge. president trump threatening tariffs on mexico. >> these tariffs will escalate throughout the summer if mexico does not provide what the administration feels is a sufficient response. >> these tariffs would hammer the auto industry. >> mexico's president says his country will not respond to provocations >> this is actually a brilliant move by the president to get mexico's attention, to get them to help us >> we'll break down the real money impact on everything from cars to cans of beer plus live reaction from mexico's head of trade. it's the most importan

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