Who’s in the consumer-spending driver’s seat?

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Speaker 8 Yes, consumers drive this economy.

Speaker 10 Which consumers though,

Speaker 10 from American public media, this is Marketplace.

Speaker 10 In Los Angeles, I'm Kai Risnall.

Speaker 13 It is Monday today, the 24th of February.

Speaker 9 Good as always to have you along, everybody.

Speaker 15 If you are even a semi-regular listener to this program, you know that the American consumer is the beating heart heart of this economy. Repeat after me because you've heard me say it often enough.

Speaker 3 Spending by or on behalf of consumers accounts for almost 70%

Speaker 11 of U.S. gross domestic product.

Speaker 18 Turns out though that in the past couple of years that spending has increasingly been driven by a relatively small group of people.

Speaker 20 Moody's did some analysis for the Wall Street Journal that shows in the top 10% of incomes, those consumers making $250,000 or more a year, they account for nearly half of all consumer spending, the highest share since they've been collecting that kind of data.

Speaker 3 Market Blaze's Matt Levin explains how those consumption patterns are shaping our economy now and might in the future.

Speaker 22 You know how there are certain words or turns of phrase that you only really associate with the top end of the income scale?

Speaker 22 Like using a season as a verb, as in, we typically summer in the south of France, or last Christmas we wintered in St. Bart's.
Apparently, there's been more summering and wintering lately.

Speaker 23 When you look at the dynamics, I think there is certainly evidence to support that.

Speaker 22 Michael Brown is principal U.S. economist at Visa.

Speaker 22 Obviously, there's always been a spending gap between rich and not as rich, but Brown says the chasm really started widening in 2023, and it's been the widest during summer and winter.

Speaker 23 If you're summering and you're in this affluent category, you're probably traveling abroad.

Speaker 23 If you're, say, lower income or maybe even lower middle income, maybe you're driving to some of those destinations, particularly given, you know, the costs of things going up.

Speaker 22 While inflation and a softening labor market have crimped lower income budgets, it hasn't really restrained high earners from splurging. That's partly because richer households tend to own stocks.

Speaker 22 And maybe the only thing rising faster than the price of eggs the past couple of years has been NVIDIA shares. Economist Mark Zandi at Moody says that makes the economy overall more vulnerable.

Speaker 26 I mean, if their their spending is being driven by record stock prices, you know, I wouldn't count on that for sustaining long-term economic growth.

Speaker 22 Some economists argue that richer households tend to spend more on labor-intensive goods and services, which is good for the job market.

Speaker 22 But Josh Bivens at the Economic Policy Institute says a more equal distribution of incomes and consumption could reorient what jobs get created in the first place.

Speaker 27 Maybe we'd have fewer people working in really high-end hotels and resorts and a lot more people working in sort of elder care and child care.

Speaker 27 It's because all of a sudden people had the ability to pay for those things.

Speaker 22 He says with a more even distribution of incomes, more people could actually afford care for their parents and children. I'm Matt Levin for Marketplace.

Speaker 10 On Wall Street today, a little bumpy and then a slide into the close. Also, just because honestly, it's kind of amazing.

Speaker 10 Warren Buffett's holding company Berkshire Hathaway up 4% today on a solid quarterly profit report over the weekend.

Speaker 16 Should you be contemplating buying?

Speaker 15 Berkshire closed today at $747,485.50

Speaker 5 for one share.

Speaker 21 We'll have the details when we do the numbers.

Speaker 15 Apple said today it's going to spend $500 billion over the next four years to speed up work on a manufacturing facility in Houston that supports its artificial intelligence products.

Speaker 13 It's going to expand existing data centers in five other states as well.

Speaker 12 Setting aside for a second the political setting of Apple's announcement, the fact is that the boom in AI brings with it an explosion in demand for electrical power for those data centers.

Speaker 4 The Department of Energy predicts that in the next couple of years, data center growth is going to require double or triple the amount of energy those data centers do now.

Speaker 13 Marketplace of Megan McCartney Carino has more on that one.

Speaker 30 Northern Virginia is known as Data Center Alley. It's home to more than 250 facilities, the biggest concentration in the world.

Speaker 31 It's like walking through the inside of a computer.

Speaker 30 Julie Bolthaus is the director of land use with the nonprofit Piedmont Environmental Council. She says the hulking concrete campuses have taken over the landscape in Loudoun County.

Speaker 31 The impact really goes well beyond just the footprint of the data centers themselves.

Speaker 30 A December report commissioned by the Virginia state legislature projected data center growth could nearly triple the state's electricity demand in the next 15 years.

Speaker 30 Lauren Bridges is a professor of media studies at the University of Virginia who researches the social and environmental costs of technology.

Speaker 32 Essentially, more demand means the need to build more energy infrastructure.

Speaker 30 And all ratepayers could be stuck with the bill.

Speaker 32 This might represent a form of cost shifting where residents are seen to subsidize the cost of the data center industry.

Speaker 30 Those costs aren't just financial.

Speaker 30 Many tech companies are investing in nuclear and renewable energy, but demand is spurring growth in natural gas generation and delaying the closure of coal plants, says Logan Burke at the Alliance for Affordable Energy.

Speaker 33 What is it costing us to continue to invest so much money in fossil gas? It's costing us an awful lot.

Speaker 30 Data centers are an economic boon in many regions, but policymakers are starting to pay closer attention to the energy issue, says Ike Brannon, senior fellow at the Jack Kemp Foundation.

Speaker 24 Politicians on both sides do not want to face the wrath of consumers if they're told that their energy prices are going to go up by 30% or they start having occasional drownouts.

Speaker 30 From Virginia and California to Ohio and Texas, states are considering measures to increase data centers' transparency and accountability. I'm Megan McCarty-Carino from Marketplace.

Speaker 12 The foreign policy of the United States isn't just military and political strategy.

Speaker 3 Economic sanctions are an essential part of how this country tries to get things to happen internationally.

Speaker 15 In point of fact, an analysis by the Washington Post shows the United States imposes three times as many economic sanctions as does any other country in the world.

Speaker 3 And as America's role in the world changes here in the second Trump administration, it's worth spending some time, I think, on our economic diplomacy.

Speaker 12 Edward Fishman's at Columbia University now.

Speaker 3 He's also a former official in the State and Treasury Departments doing sanctions work, and he's got a new book out.

Speaker 5 It's called Chokepoints, American Power in the Age of Economic Warfare.

Speaker 20 Welcome back to the program. Good to have you on.

Speaker 35 Thanks, Kai. Great to be here.

Speaker 15 Define for us, first of all, I suppose,

Speaker 21 the modern idea of choke points.

Speaker 35 So, Kai, a choke point is an area of the global economy where one country has a dominant position and there's very little redundancy. So, for instance, if you're cut off from the U.S.

Speaker 35 dollar, there's not a readily available substitute from the U.S. dollar.
The same is true of the most advanced microchips and semiconductors. So, that is what defines choke points today.

Speaker 35 Historically, they were geographic features like the Bosphorus. Today, they are really these parts of the global economy that are almost invisible, but the U.S.
can weaponize.

Speaker 13 Trevor Burrus, Jr.: All right.

Speaker 9 So, we're going to get back to the dollar in a minute because that obviously has repercussions and manifestations, in fact, on what's playing out now in sort of global economic warfare.

Speaker 21 But the point that you make in this book is

Speaker 12 economic warfare has been a thing, and now it's even more critical that the way we use it is considered and

Speaker 13 exercised with some restraint.

Speaker 9 Yes?

Speaker 35 That's exactly right.

Speaker 35 You know, up until very recently, honestly, even at the turn of the 21st century, using sanctions and other tools of economic warfare in an impactful way, there was a pretty high threshold to it because you needed to either have broad international unity, for instance, backing from the entire United Nations Security Council, or the use of naval force.

Speaker 35 So even thinking back to the 1990s UN embargo on Iraq, that's very famous. That was implemented by a multinational naval force that was patrolling the Persian Gulf 24-7 for 13 years.

Speaker 35 What the choke points that I discussed earlier created is it gave officials in the U.S.

Speaker 35 government the power to impose economic pain on foreign countries even more dramatic than those blockades of old, just by signing documents in the Oval Office or in the Office of Foreign Assets Control in the Treasury Department.

Speaker 35 So it's made it much easier for the United States to deploy economic warfare.

Speaker 15 Aaron Powell, there's a great line in this book about

Speaker 9 sort of the overuse of sanctions and economic warfare. And you say, quoting you here, sanctions are like antibiotics.

Speaker 13 They work well when used correctly, but cause a host of problems when used excessively or inappropriately.

Speaker 5 Talk about that a little bit.

Speaker 35 Sure. When you use sanctions too much, you inspire a backlash.
Not only does it hurt the U.S. economy, but more importantly, it encourages other countries to hedge.

Speaker 35 They start building alternatives to the dollar.

Speaker 35 So for instance, in China, the Chinese government government has launched a digital version of the RMB, a central bank digital currency that's explicitly designed to evade U.S.

Speaker 35 financial infrastructure. The other thing, though, Kai, there's a flip side of that, is that, you know, as with antibiotics, you know, if you have a really bad bacterial infection, you need to go big.

Speaker 35 You need to hit it with the right drug for the right amount of time. And you can't, you know, stop taking that course of antibiotics too soon.
I think that's what really happened with Russia.

Speaker 35 It's the real tragedy of the Russia sanctions, which is that if you go back to 2014 and look, I was involved in negotiating the original Russia sanctions after the annexation of Crimea with the European Union in 2014.

Speaker 35 Russia's economy that winter was really suffering, and we really had the Russians close to a deal that potentially would have gotten them out of Ukraine.

Speaker 35 And at that time, the Europeans were so scared of the impact that the sanctions were having on their own economies that they basically threw in the towel and said, we can't escalate sanctions.

Speaker 35 And the Nord Stream 2 deal was signed a few months later. And so what happened after that? The final year and a half of Obama's administration, he didn't do anything to increase sanctions.

Speaker 35 And then for all four years of the first Trump administration, Trump did not increase sanctions on Russia.

Speaker 35 And so by the time we get to 2022, Russia's had six years basically in which sanctions have stagnated. They've fully adapted.

Speaker 35 And so by then, you know, you basically had this antibiotic resistance that had developed. So as I say in the book, sometimes with sanctions, you have to go big or go home.

Speaker 13 Trevor Burrus, Jr.: So what do you make then of this current moment where the Trump administration is, at a minimum, resetting what the global economic engagement of the United States is, when the Europeans, as we saw in the German elections this weekend, are working toward independence from the United States.

Speaker 13 Do you suppose this moment generates momentum to move away from the dollar and the Americans'

Speaker 17 unique control over the global economy?

Speaker 35 I do. And as I argue in choke points, we are headed for a new international economic order.
The days of globalization are over. We are now living in an age of economic warfare.

Speaker 35 I think that the age of economic warfare could really evolve in two different ways. One scenario is one in which the U.S.

Speaker 35 leads a block of democratic countries that continue to integrate their economies, continue to use the dollar, whereas you have another block led by China, Russia, and other autocracies that moves away from the dollar and U.S.

Speaker 35 economic dominance. I think where Trump is taking us, Kai, is a much different and and darker scenario.

Speaker 35 Trump, of course, is not only threatening sanctions and tariffs against the likes of Russia and China, but also against our allies, Canada, Mexico, Europe.

Speaker 35 And of course, this could damage American prosperity at home, and I think that's why these tariffs have gotten so much domestic opposition.

Speaker 35 But the thing I'm even more concerned about is what that augur is a much more chaotic breakdown of the global economy, in which every nation is for itself, every sort of diplomatic deal is just a business transaction, and no economic relations are permanent.

Speaker 35 And the thing that makes that so challenging and so scary is that, as history shows, if states can't feel confident that they can secure markets through open trade, the temptation for imperialism and conquest rises significantly, and the risk of great power war rises.

Speaker 35 So that's what I really worry about.

Speaker 12 Edward Fishman is at Columbia now.

Speaker 9 He was at State and Treasury working on Russia sanctions.

Speaker 13 Eddie, thanks a lot for your time. I appreciate it.

Speaker 35 Thanks, Kai. I really appreciate you having me on.

Speaker 20 Coming up.

Speaker 36 We've survived all of this, you know, and that includes three tsunamis, a pandemic.

Speaker 5 So we're okay.

Speaker 20 That's a lot, though.

Speaker 21 But first, let's do the numbers.

Speaker 8 Dow Industrial has inched up 33 points, just under a 10th percentile, 43,461 on the blue chips. The NASDAQ down 237, 1.2%,

Speaker 8 19,286.

Speaker 11 The S ⁇ P 500 dropped 29 points, about 1%,

Speaker 21 59, and 83.

Speaker 8 Megan McCarty-Carino was talking about electricity costs and data centers. So, some electric stocks, shall we? Pacific Gas and Electric, PG ⁇ E rose a 10th percentile.

Speaker 8 Virginia-based Dominion Energy descended 1%.

Speaker 8 Apple added 6 tenths percent.

Speaker 15 Amazon down 1.8% today.

Speaker 12 Bond prices went up.

Speaker 25 When that happens, the yield goes down.

Speaker 15 10-year T-Note sits at 4.40%

Speaker 8 today.

Speaker 21 And you are listening to Marketplace.

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Speaker 14 This is Marketplace.

Speaker 21 I'm Kai Rizdahl.

Speaker 10 We get earnings reports from publicly traded companies all the time.

Speaker 5 Quarterly, in point of fact.

Speaker 3 And most of them come and most of them go without much fanfare. This week, though, it's the company that everybody is watching.

Speaker 19 NVIDIA reports on Wednesday.

Speaker 4 Marketplace's Kelly Wells explains why the AI chip design giant is getting so much attention.

Speaker 41 There are two main reasons to watch NVIDIA, says Eric Gordon. He's a professor at University of Michigan's Business School.

Speaker 42 The first is its sheer size and its influence on the stock market.

Speaker 41 Gordon says last year, NVIDIA stock made up 22% of the SP's total gain. The other reason?

Speaker 42 NVIDIA is sort of the poster stock for AI. It's the way most of us can invest in AI.

Speaker 41 NVIDIA dominates because its graphics processing units make up around 90% of the market.

Speaker 43 During the dot-com era, there were something like 2,888 startups that went public. So far, there have been zero startups that have gone public for generative AI.

Speaker 41 That's not normal, says Peter Cohen. He teaches management practices at Babson College and authored a book on generative AI.

Speaker 41 NVIDIA became such a gorilla in part because it got its start long before AI took off. Cohen says its GPUs were originally used for gaming.

Speaker 43 Then used for crypto mining, and then now it has proliferated to be used by data centers that are training and operating large language models like ChatGPT.

Speaker 41 This quarterly report is getting more attention because it might not be an unfettered success story.

Speaker 41 One problem, says Matt Bryson with Wedbush Securities, DeepSeek, the Chinese AI company, launched its AI model and chatbot in January.

Speaker 44 China's development suggested that you can do more with fewer hardware resources. So in this case, fewer NVIDIA GPUs.

Speaker 41 NVIDIA's stock plunged 17% after DeepSeek's announcement. The second is NVIDIA's new super chip for the next generation of AI.

Speaker 44 There have been some fits and starts in terms of production there.

Speaker 41 But Bryson isn't concerned. He says the new chip is ramping up after a slow start.
And if DeepSeek makes AI more affordable to more companies, it could actually increase demand for AI hardware.

Speaker 41 I'm Kaylee Wells for Marketplace.

Speaker 15 We're being reminded here in the second Trump administration that in this globalized economy, supply chains are everything, and disruptions to them can be,

Speaker 4 well, let's just leave it at disruptive.

Speaker 12 There are few supply chains as closely linked as the ones between Mexico, Canada, and the United States.

Speaker 3 Businesses in all three countries have made billions of dollars worth of business decisions with the understanding that trade across those borders is going to remain free.

Speaker 18 Exhibit A, Cars and Trucks from Texas, which has been a big winner in the free trade game.

Speaker 4 Marketplace's Elizabeth Troval reports.

Speaker 45 I'm standing on the sidewalk outside a car dealership next to a Houston highway. Rice University's Tony Payan is here with me.

Speaker 46 Well, we're here outside of Toyota dealers in Houston, right on 610 Loop.

Speaker 45 The lot is full of shiny new vehicles like Tundras made here in Texas or Tacomas made in Baja California.

Speaker 46 Though Payan points out, these are not American vehicles. They're not Mexican vehicles or Japanese vehicles for that matter.

Speaker 46 When you see a plant where a vehicle is being built, what you see is parts coming from many different places.

Speaker 45 Take a manufacturing plant in Mexico where labor is cheap.

Speaker 46 You see a lot of different component parts that are coming in from the United States. They get to the plant and then they get assembled in Mexico.

Speaker 45 Like labor-intensive harness assembly.

Speaker 46 Then the software gets installed in the United States and so it's a very circuitous route.

Speaker 45 Having component parts cross the U.S.-Mexico border one, two, three or more times is economical because of the North American Free Trade Agreement, which was signed in 1992.

Speaker 45 In nearby San Antonio, President George H.W. Bush and leaders of Mexico and Canada gathered for an initialing ceremony captured by C-SPAN.

Speaker 47 We are creating the largest, richest, and most productive market in the entire world.

Speaker 45 Fast forward 30-plus years after NAFTA and then USMCA renegotiated under President Trump, San Antonio has become an anchor to an automaker's corridor that runs from Dallas all the way to San Luis Potosi in central Mexico, almost 1,000 miles.

Speaker 48 NAFTA was a big part of what's allowed our manufacturing ecosystem to grow.

Speaker 45 Jenna Salceda-Herrera with the Greater SATX Regional Economic Partnership says now Greater San Antonio is a hub for advanced manufacturing.

Speaker 48 And the companies produce a diverse range of vehicles, including SUVs, pickup trucks, heavy-duty trucks, buses.

Speaker 45 There's even a special name for the binational manufacturing ecosystem San Antonio is a part of.

Speaker 48 The Texas-Mexico Automotive Supercluster.

Speaker 45 It includes companies like Toyota, GM, Tesla, Kia, BMW, which depend on networks of suppliers in both countries that provide thousands of component parts.

Speaker 45 Networks that just might be too complex to unscramble.

Speaker 48 We can't undo 30-plus years of free trade overnight, right? Businesses have built their operations around the principles of free trade.

Speaker 45 And it's not just automakers, but an entire region's economy could be at stake.

Speaker 45 Just two and a half hours south, uncertainty looms large in Laredo, where component parts cross back and forth across the border constantly.

Speaker 45 IBC Bank's Jerry Schwebel says the auto sector is one of the drivers of Laredo's ascent to number one port in the U.S.

Speaker 45 That trade supports many local businesses.

Speaker 49 Transportation company, the trucking company that moves those parts, the warehouse where you store those parts temporarily, you know, and pick them up.

Speaker 49 The custom broker who has to process that business.

Speaker 45 The USMCA trade agreement is up for review next year.

Speaker 45 In the meantime, if auto parts coming in from Mexico do end up facing tariffs, Mike Wall with ST Global Mobility says, Sure, some companies may take a closer look at their U.S.

Speaker 50 operations and ask, Is there some low-hanging fruit that can be brought back to the U.S. quote-unquote cheaply and quickly?

Speaker 50 But overall, it's incredibly difficult because the moment you start putting up new brick and mortar, that is a much longer-term kind of either decision or prospect to get it up and running.

Speaker 45 He says automakers are making business plans years into the future. One four-year presidential term can only sway them so much.
In Houston, I'm Elizabeth Troval, PerMarketplace.

Speaker 34 Hawaii was hit especially hard in the early days of the pandemic as everybody stayed home and tourism came to a screeching halt.

Speaker 25 We started talking to Manu Powers right around then about what it meant for her business.

Speaker 4 She and her husband run SeaQuest Hawaii, which offers boat and snorkeling tours from Kona. And we called her the other day for an update, and suffice it to say, it has been a long haul.

Speaker 36 I'm doing fine, and SeQuest is doing pretty good.

Speaker 36 And as well as can be expected, I suppose.

Speaker 36 So numbers at SeQuest are down, and those numbers reflect what's happening in the state.

Speaker 36 Numbers of visitors to the islands across the board are down.

Speaker 36 Over the winter, the surf was huge and it just doesn't seem to stop which is fantastic if you're a surfer and Kona is known for having you know virtually no surf.

Speaker 36 The number of cancellations we've had to make

Speaker 28 are

Speaker 36 crazy and so I think that's why you can hear that laughter in my voice right now because we've never seen anything like this.

Speaker 36 It doesn't help that we're understaffed as we continue to be and have been since the pandemic.

Speaker 36 And so therefore, even when we are capturing the visitors that are coming to the island, we're still not able to run at full capacity.

Speaker 36 I'm tired of talking about this problem five years later, to be honest.

Speaker 36 It's a legitimate argument to say,

Speaker 36 why can't you find qualified workers? But I think that it's universal. There's hiring signs in every window of every business in this state, really.
I've always always had

Speaker 36 a smaller job pool to work with. That hasn't changed, but some of the things that have changed are cost of living, which has just gone through the roof.
It's so expensive to rent a home here.

Speaker 36 If you don't have two jobs, you have two roommates.

Speaker 36 We know that we'll be okay because we do have this data set of 30 years under our belt where we can kind of look back and say, Okay, we've survived all of this, you know, and that includes three tsunamis, a pandemic, so we're okay.

Speaker 36 Could it be easier? Absolutely, but we'll get back there again at some point. And then, of course, another set of challenges will present themselves, but we'll tackle those when they come too.

Speaker 20 Manu Powers, co-owner of Sequest Hawaii, based in Kona.

Speaker 25 This final note on the way out today,

Speaker 16 eggs, again,

Speaker 14 Denny's this time, an as-yet-unspecified surcharge depending on where you live.

Speaker 18 Our daily production team includes Andy Corbin, Nicholas Guillain, Maria Hollenhorst, Iru Ekbinobi, Sarah Leeson, Sean McHenry, and Sophia Terenzio.

Speaker 25 I'm Kyle Risdahl. We will see you tomorrow, everybody.

Speaker 16 This is 8 p.m.