Tariffs muddy the future of the global oil market

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Capitalism,

mostly

from American public media.

This is Marketplace.

I'm Kai Rizdahl.

It is Monday today.

This one's the 11th of August.

Good as always to have you along, everybody.

There is something,

well, interesting, for want of a better word, happening in American capitalism right now.

We learned over the weekend, the Financial Times had the scoop, that President Trump has convinced the chip giants NVIDIA and Advanced Micro Devices to send 15% of the proceeds from certain of their chip sales to China straight to the United States Treasury.

That is the most recent, but by no means the only example of how the Trump administration sees its role in this economy.

And we're going to talk about that a little bit with David Gurr from Bloomberg.

Hey, David.

Hey, Kai.

So I saw this news in the FT on Sunday, and my first reaction literally was, wait, what?

What about you?

I felt similarly.

I mean, this is coming from a Republican president, and for so long, Republicans have espoused a belief in laissez-faire economics, that the government shouldn't be involved in the way that corporations operate.

And this is definitely something different.

The FT, as Chesse mentioned, broke this story, called this a quid pro quo arrangement.

I've seen it called highly unusual, unprecedented by another outlet.

But you have a president who today took to the podium.

in the White House and very transparently explained what happened here.

NVIDIA wanted to be able to sell its chips to the Chinese market.

And the president said, for you to be able to do that, to get the export license to do do that, we've got to get something out of you.

I'm going to prove it if you give us 20% of those revenues.

They negotiated down to 15%.

I just can't stress enough

how different this is policy-wise from what Republicans have advocated for such a long period of time.

There is, yes, to all of that.

There is

that piece of it.

There's also, and we should be clear here,

presidents and governments have put the government in the economy repeatedly over the decades.

Most recently, President Biden did it with his Build Back Better and the infrastructure, the Inflation Reduction Act, and all of that.

We did a whole series on it.

The catch, of course, here is that that was relatively stable, relatively predictable.

It went through the congressional process.

This is now unpredictable,

ad hominem, if you will, government intervention.

And that just complicates things immensely.

Aaron Powell, absolutely.

And you could also argue it's unconstitutional.

We have a clause in the Constitutional that says no tax or duty should be laid on articles exported from any state.

So there's that as well.

But what this comes down to is sort of what the rationale is for the government doling out these export licenses or not.

And going back just a couple of months, the Trump administration said they weren't going to allow NVIDIA

and AMD to do this on national security grounds.

If you have a president who's able to reverse this so quickly, in exchange for this exchange of revenue, I guess the question is, are there actual national security grounds for not doing this?

And you're right to point out this could have a real snowball effect.

I think there have to be CEOs, executives at many other companies that do business overseas, just sort of wondering if the process that they've grown accustomed to, again, being vetted on national security grounds, is going to continue going forward here, if there's going to be something different at play.

And if that's something different at play here, it's going to be getting the U.S., getting the country more involved in the business of the companies themselves.

About those CEOs, of course, Tim Cook to the Oval Office last week, a literal gold bar to the president of the United States.

Intel got $8.5 billion worth of grants and loan guarantees for its chipbuilding plants in this country.

And then the other day, the president says the CEO of Intel ought to be fired.

And low, there he is today at the White House negotiating to keep his job.

It is

unprecedented.

You can't use the word enough, and you're detailing kind of both ends of the spectrum here in terms of how executives are trying to navigate this new world, either kind of contorting themselves to get into the president's good graces.

And you heard the president praising Jensen Huang, the CEO of NVIDIA today.

He's had a lot of meetings with him in recent weeks.

And as you say, he's called for the resignation of Intel's CEO based on investments that he's made in the past.

We have a president here who really thinks that he should and can take an active role in the way.

companies operate.

And I can just go through a few moments in recent history here.

He's floated the notion of this TikTok joint venture.

He's called for a golden share in U.S.

steel if it's taken over by a Japanese company.

You mentioned Intel just a moment ago.

He's, of course, sued and reached settlements with many major corporations, including CBS, of course.

That paved the way to the sale of its parent company.

And he's encouraging domestic investments with punitive tariffs, suggesting just a couple of days ago that there could be 100% tariff on chips made overseas.

So he is really wielding this power with a sense of impunity.

And going back to what I said a moment ago, executives are just trying to figure out how to roll with that, how to deal with the president who's doing this.

David Gura at Bloomberg on this, it's Monday today.

Thank you, David.

Thanks, Kai.

Wall Street to start the week.

Unenthusiastic might be a word that applies here.

Details, numbers, when we get there.

We've talked about the global oil market quite a bit because oil, but specifically we've talked about how delicately balanced it is on the knife's edge of supply and demand.

We globally produce about 100 million barrels of crude oil a day.

We also globally use about 100 million barrels of crude oil a day.

So forecasting how much producers are going to produce and how much consumers are going to consume is, A, it's really hard, and B, it really matters.

This week, we're going to get three fresh estimates for both sides of that supply-demand equation from the U.S.

Department of Energy, the International Energy Agency, and OPEC.

And as Marketplace's Henrietta reports, uncertainty about where the global economy is headed and what geopolitics is going to mean for the oil market are making those forecasts even harder to do.

I swear this is a story about oil, not tariffs, but everything in this economy is kind of a story about tariffs right now.

Here's why.

Oil demand pretty closely follows global economic growth.

And Trey Cowan at the Institute for Energy Economics and Financial Analysis says the Trump administration's tariffs are scrambling the global economy.

And if you're throwing up barriers, you can expect things to slow down.

And that's exactly what people are doing is expecting things to slow down.

Just how much global economic growth slows down will influence how much oil we consume.

Because when companies make big capital investments, say building a new factory, that requires energy.

But if they're slowing down those investments because they're spending more on import taxes, that's going to slow down the need for oil because you're going to need less energy to do it.

Already, there's a surplus of oil on the market, which has pushed prices down.

The U.S.

is producing near-record amounts of crude.

OPEC countries have ramped up production again.

And there's a geopolitical wildcard later this week, says Amy Myers-Jaffe at New York University.

How will these meetings between Vladimir Putin and President Donald Trump go in Alaska?

Because if the Russian and American leaders don't reach an agreement, the United States was threatening to really put the squeeze on Russian oil supply coming into the market.

But if they do reach an agreement, Russia may be able to more easily sell its oil, which could make the world's glut of crude even larger.

In the longer term, there's another big factor that'll decide how much oil we consume, the trajectory of the electric vehicle industry, especially in developing countries, says Ryan Kellogg at the University of Chicago.

As they industrialize and people demand vehicles for transportation, are they going to buy EVs or are they going to buy internal combustion engines?

The answer to that question could determine what oil demand looks like five years from now.

I'm Henrietta for Marketplace.

I'm going to throw a couple of numbers at you here, and I'm going to go real slow while I do it, just to make sure I don't lose you.

About 90% of global trade, 9-0%,

goes by sea.

And about 60%

of that is containerized, those big shipping containers you see all over the place, loaded by the thousands onto container ships.

And it turns out that the cost of shipping one of those containers across the Pacific Ocean from Shanghai to Los Angeles is down from more than $5,000 at the start of the year to about $2,000 now.

That's according to the freight pricing firm Zeneta.

And therein lies a signal about the state of global trade, a signal that shipping companies are taking note of because they are ordering fewer ships.

The ship brokerage company Clarkson's says new vessel orders were down more than 50% in the first half of this year over a year ago.

And that sagging demand, as it happens, comes just as the Trump administration is trying to revive America's shipyards.

Daniel Ackerman has that one for us.

For Cynthia Cook with the Center for Strategic and International Studies, shipbuilding is a key indicator.

Ship orders are directly linked to expectations about global commerce.

She says if ship owners don't see much future demand for moving stuff around the world, they're not going to order ships.

Simple as that.

And right now, they're not ordering ships, says shipping investor Ed Finley Richardson.

The decline is quite remarkable.

Let's see, compared to a 10-year average, we are way below average ordering.

So we're down more than 90% for car carriers, for example.

Orders for dry bulk carriers and oil tankers, also down.

Finley Richardson says that's in part due to tariffs and rising trade tensions.

If you order a vessel now, you probably won't get it in three or four years.

And that means that you really have to be sure of what the economy is going to look like then.

A single new tanker ship can cost north of $100 million.

So it's a big bet with a lot of uncertainty.

Ups and downs are nothing new for shipbuilders, says Brian Potter, an infrastructure researcher at the Institute for Progress.

The market is so, so cyclical that it's not surprising to see big, huge swings.

And Potter says those swings usually connect to what's happening elsewhere in the global economy.

In the early 2000s, orders for new ships skyrocketed as China traded more and more with the world.

And then...

After the financial crisis in 2008, 2009, you see a huge decline.

Today in the U.S., there's a bipartisan push to revive the country's nearly extinct commercial shipbuilding industry.

But investor Finley Richardson says that effort is hindered by more than just geopolitics.

It's getting harder and harder to find skilled labor.

This is really the bottleneck for U.S.

shipbuilding.

It's unclear who is going to be the welder in those yards.

That bottleneck, he says, could last beyond the current trade war.

I'm Daniel Ackerman for Marketplace.

We are told by the National Association of Realtors that the average age of a first-time homebuyer in this economy is now 38.

That's up from 35 just two years ago, and it's the oldest those first-timers have ever been.

It says something about the state of the housing market right now, yes, but it is just an average, because we know people get into the housing market at all stages of life and at all ages.

Which brings us to the latest installment of our series, Adventures in Housing, in which we're hearing from some of those first-time buyers.

My name is Caroline Scott.

I'm 75 years old, and I became a first-time homeowner in December 2023.

And I live in Milford, Massachusetts.

I never had an idea in my head that I was going to buy.

Part of it was I saw friends that would buy a house.

Something would go drastically wrong, either financially or medically or whatever, and they were just stuck.

And I just couldn't imagine being in that position ever.

But my uncle, who was my favorite relative in my entire life, even more so than my parents, he lived to be 102.

And after he died, I found out that he had gifted me a sum of money that I was able to use as a down payment.

And I decided that I would invest in a house.

I have a 30-year fixed mortgage, and I'm hopeful that I'm going to live to be very close to the end of that period.

I did have an inspection performed when I purchased the house, but being such a naive homeowner,

I had no idea how to follow up on that or what it actually meant.

Unbeknownst to me, the tree had roots that grew into the sewer pipe.

The sewer imploded in through the half bath on the first floor, took out the kitchen, the floors, the walls, the cabinets.

That was $30,000.

So I had to pony up 20 grand of that.

And then two months later, we found out that the heater they had installed had a very small hole in it, and it had to be totally repiped, and a new heater installed.

I'm 75 now, and I'm working full-time.

I live with my daughter.

And despite all of the initial drama, I'm very happy that we have this house.

It's roomy.

It has lovely architectural features.

We have a beautiful porch.

So even if it isn't completely set up totally yet, it's ours and I wouldn't have it any other way.

Caroline Scott, 75 years young, living in her first-time house in Milford, Massachusetts.

No matter how old you are or where you live and whether you're still looking for that first home or settling in and making a place your own, we want to hear about it.

Marketplace.org slash adventures in housing.

Coming up.

I do work in books, so math is not my forte.

Inflation, but show your work.

First, though, let's do the numbers.

Dow Dustro's off 200 points today, 12%, 43,975.

The NASDAQ subtracted 64 points, about 3 tenths percent, 21,385.

SP 500 down 16 points, a quarter percent, 63.73 there.

Here's a number, $7.7 billion.

It's how much Paramount Skydance is paying to become the exclusive television home of UFC.

The Paramount Plus streaming service is going to carry 13 marquee events, some of which will also go on CBS and 30 fight nights.

Paramount Skydowns tuned down 3.7 tenths percent today.

TKO Group Holdings, which owns UFC as well as WWE, rang up 10.25% today.

Bond prices up, yield on the 10, your T-Note, down 4.27%.

You're listening to Marketplace.

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This is Marketplace.

I'm Kai Rizdahl.

That 15% kickback on chip sales to China that I mentioned up at the top of the program pairs with the 100% tariffs on semiconductors President Trump announced last week.

Details on those import taxes are, as has become the norm, scarce, but they add uncertainty for the electronics companies that use those chips and for the prices they charge.

And let's remember here that semiconductors are in everything nowadays.

Marketplace Sabri Benishore has more on how this is going to trickle through the supply chain.

DF Electronics makes circuit board assemblies in Cincinnati.

Circuit board assemblies think of circuit boards, but with all the little gizmos and things that turn it into finished electronic equipment.

Ann Fine is vice president.

Our customers are original equipment manufacturers in various industries from medical,

we sell for commercial dryers, a variety of applications.

Finished circuit boards need chips, sometimes dozens of them.

100% tariffs on each little one would be a problem.

You know, you take a $6 chip and all of a sudden it becomes $12,

not to mention the 100%

on all the penny parts and 30 cent parts and 60 cent parts and it could get to be really impactful.

She worries that if these costs get passed along the supply chain, which she will definitely have to do, her customers won't buy as much because their customers won't buy as much.

Adam Siegel is with the Council on Foreign Relations.

It's hard to see how prices are not going to go up across a whole range of consumer goods, big tech, cars.

For some goods, like TVs, computer chips don't make up a big portion of the material costs, and your average consumer might not see a huge difference, says Chris Rogers, head of supply chain research at S ⁇ P Global Market Intelligence.

Where you might actually see a bigger impact is on some of the higher-end electronics devices.

So things like the servers used for artificial intelligence, electric vehicles.

The U.S.

makes just a third of the chips we consume, according to Jason Miller, professor of supply chain management at the University of Michigan.

Our existing productive capacity in no way, shape, or form can meet domestic demand needs.

While that changes, if that changes, we'd be stuck with higher prices.

There are tariff exceptions for semiconductor manufacturers who build in the U.S., but despite promises by some shipmakers, it is a tall order.

And he says, even if some semiconductor production does move here to avoid tariffs, prices would still go up because it's more expensive to make them here.

In New York, I'm Sabri Venishore for Marketplace.

The big economic data point of the week comes tomorrow, the July Consumer Price Index, courtesy of the Bureau of Labor Statistics.

2.7% was the June reading.

That is the annual increase in prices over a year ago.

Best guesses are it's going to be up just another tetch for last month.

But here's the thing: that headline number, that's what's called the all-items index.

Inflation is, by definition, a general increase in the overall price level across an economy.

But prices don't move in lockstep.

And as Marketplace Mitchell Hartman reports from Portland, Oregon, some goods and services have stagnated or even gotten cheaper over the past five or six years.

I was in my local bookstore, Literary Arts, recently, and being a marketplace reporter, I struck up a conversation with the lead book buyer, Alex Abraham, about the prices of things and how they've been changing.

What gets me up used to really reliably be able to find a middle-grade paperback for like under $10.

Now they're coming in all at $12, even $15, I'd seen.

That's just sad.

And before long, they agreed to play a little game, Guess the Inflation Rate, starting with books.

Definitely, prices have gone up, I would say, by margins of a few dollars, which I do work in books, so math is not my forte.

In fact, book prices have risen 6% over the last six years.

And what about the inflation rate since 2019 overall?

Maybe 10%.

I can't tell from your facial expression if that's way off.

I'll try to not give it away.

Do you think toys are more expensive?

Yes, for sure.

Okay, how about computers?

I imagine the prices have gone up.

Okay, how about airfare?

I was just traveling, cross-country flight, under $400.

If you were to tell me that airfare has actually gone down since 2019, I wouldn't be surprised.

In case you were trying to follow along, here are the answers.

Prices overall since June 2019, up a whopping 26%.

But toys, they're down 9%.

Computers are 7.5% cheaper.

Airfares, Abraham got that one about right, 8% lower than before the pandemic.

So what's more expensive?

Groceries, food products, automobiles.

Rohit Tripati analyzes supply chains at Relax Solutions.

Food and car prices are up 20 to more than 30% since 2019.

Other necessities like rent, insurance, funeral expenses are all up sharply as well.

But, says Tripati, inflation isn't a blanket that you can apply across all categories of goods.

And in some cases, we've seen prices come down, computers, televisions, home office furniture.

In fact, many discretionary consumer goods have seen very little inflation.

Prices for clothing, footwear, sporting goods have only risen in the mid-single digits since 2019.

That's even less than the Fed's 2% a year inflation target.

One reason, says equity analyst Arun Sundaram at CFRA Research, after the pandemic spending boom, consumers pulled back just as supply chains rebounded.

We have less demand and we have more supply.

And when supply exceeds demand, prices tend to come down.

And he says, costs are coming down.

And the main component that's coming down is freight costs.

Especially for shipping from Asia, where a lot of cheap products like clothes and toys come from so what's next for inflation dynamics in the u.s economy tariffs in particular on many of the discretionary goods that have fallen or stagnated in price over the last five to six years like clothing footwear appliances tech gadgets ernie tadesky is director of economics at the yale budget lab other than electronics apparel is the most sensitive imported good to the tariffs we had put in place those Those products have slim profit margins, making it hard for foreign producers and U.S.

retailers to absorb the additional costs of tariffs.

So they're more likely to pass them on to consumers.

Estimating the impact of all the tariffs President Trump has imposed so far, Tedesky says.

If consumers bore the entirety of the tariff, prices would go up 1.8%

overall over the next two to three years.

Or an average of $2,400 per household per year.

I'm Mitchell Hartman for Marketplace.

This final note on the way out today, in which, once again, the entire global economy doesn't know what's going to happen from one day to the next.

Tomorrow, we had been told, was the drop-dead deadline for the expiration of the 90-day tariff truce with China.

You know where this is going, right?

President Trump said today the new actual deadline is November the 9th.

We will be here for that.

Amir Babawe, Caitlin Ash, John Gordon, Oya Carr, Manda Petri, and Stephanie Seek are the marketplace editing staff.

Kelly Silvera is the news director, and I'm Kai Ruzdahl.

We will see you tomorrow, everybody.

This is APM.

We thought about calling it the ultimate do-everything wonder tool for making CIOs look like mad geniuses, but that sounded kind of long.

So we just call it the Enterprise Browser.

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It's like the ultimate do-everything wonder tool for making CIOs look like mad geniuses.

You get the idea: the Enterprise Browser from Island.