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Quest Means Business
Stock Markets Are Sinking As Trade Fears Take Hold; Harley-Davidson Looks Overseas To Avoid The New Eu Tariffs And Admits What The Cost Will Be, Turkey's Lira Falls Further; Election Monitors Say Erdogan Had Unfair Advantage; Tehran Traders Protest Over Economic Conditions; Trump: Don't Regret Signing Order to Stop Family Separations at Border; Xhaka and Shaqiri Fined Over Goal Celebrations; Britain's Prince William Arrives in Israel; G.E. Dumps Another Division as it Exits the Dow; Brent Crude Prices Fall After OPEC Deal; Spain, Portugal, Put to the Test at Last Group Game; Iowa Farmers Feel the Fallout as Tariff Battle Escalates; Global Markets Fall as Trade Anxiety Spreads. Aired 4-5p ET
Aired June 25, 2018 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN HOST: Closing bell just rung on Wall Street. Gavel being hit sharply. Dow Jones Industrials off the lows of the day, but
still sharply down over the course of the session, and today's trading is over on Monday, the start of a new week. It's June 25th.
Tonight, stock markets are sinking as trade fears take hold. We'll hear an exclusive interview with the former U.S. Treasury Secretary, Larry Summers
in just a moment.
Harley-Davidson looks overseas to avoid the new E.U. tariffs and admits what the cost will be. And Turkey's lira falls further. President Erdogan
is here for the foreseeable future.
I'm Richard Quest, live from the world's financial capital city, New York City, beautiful day summer -- late spring, early summer, beautiful day, but
of course even with the market down heavily, I still mean business.
Good evening. Tonight, once again we talk about trade wars and the anxiety on Wall Street as the market finally spreads the damage to the tech sector.
The Dow was down as much as 496 points during the course of the session. It has been down nine of the past 10 sessions, and by definition, it is now
flirting with corrections, which is a fall of some 10 percent.
And across the world, the markets are following this mood. Let's start with the overarching picture of the Dow Jones Industrial's for year to date
and the Dow as you can see has been sharply -- the volatility has been the story of the day. We're now trading down at 24,000, which is about a 9
percent or so fall from where we were.
Now, if you ignore the reminder that we have to update our software, you'll see the way in which the market has moved over the course of the past -- of
the global markets have moved over the course of the past 24 hours. This is the Dow Jones over the course of the session. The only four stocks, and
they were all up for individual reasons, very specific reasons particularly say for example American Express, which was up as a result of a Supreme
Court ruling, but at the other end of the market, Walmart might have been up two percent, but Intel was down three percent, Visa was off 3.25
percent.
Alan Valdes explained to me the significance of the in fact that the 200- day moving average for the Dow Jones, the market is now lower.
(START VIDEO TAPE)
ALAN VALDES, PARTNER, WALL STREET CAPITAL PARTNERS: There's a lot of guys that have fiduciary responsibilities. They have to start selling when the
market acts like that, especially when they look at the trends, but they'll follow that down. For the Dow Industrials, they seem to embrace that 200-
day moving average.
QUEST: This 200-day moving average, we always talk about that. I've never tried to fully understand it or give it the true significance.
VALDES: Well, you know, it's a base. So, it's a base where they have to go off of it, the hedge fund guys, the guys upstairs, they look at that and
say, "Okay, we're above the 200-day. We don't really have to sell. It fluctuates in there." Down 50 points or 100 points, but when it gets below
that, they say, "Okay, we've got to take a breather, we've got to get out of the market to play it safe in case it goes down further tomorrow or late
on today."
(END VIDEO TAPE)
QUEST: So, we need to understand exactly what these forces mean. Rana Foroohar is CNN's global economic analyst. She is in Colorado at the Aspen
Ideas Festival. Rana, it's too simplistic to ask you, is this the break in the market? Are the markets now starting to get so seriously worried about
the trade, but at some point like with the Harley-Davidson, which we'll talk about in a moment, there is this an infection which will take hold.
RANA FOROOHAR, CNN GLOBAL ECONOMIC ANALYST: Yes, absolutely, Richard and you know, you and I have been preparing about -- for this for months now.
You know, we knew there was more volatility coming. I think this is just one of many ripples. But there are a lot of factors in play.
I mean, Harley has its impact because this is an iconic American firm. These are exactly the kind of firms that get targeted in trade wars, right?
We know that. We saw a drop when we started hearing talks of tariffs in Boeing and companies like this. The big iconic firms will get hit, but you
know, I am talking to insiders in the middle of these debates in Washington. I'm still hearing folks saying, you know, for the next quarter
or two, we're not expecting there to be a huge overall growth dip.
A lot of this depends on how much retaliation comes and how fast. And really I think the big story is still U.S. versus China, and it's about
technology, not so much about motorcycle, steel and aluminum.
[16:05:02]
QUEST: But, right, well, yes, but at the end of the day, what we're seeing with the Trump administration is the issue of U.S.-China technology, the
theft of IP, the way in which the stealing through joint ventures and the like, but it transmits itself by collateral damage to all these other
areas.
FOROOHAR: Yes. Well, I think that what the markets are still grappling with and frankly, CEOs are grappling with, it's kind of an existential
crisis for them is that we're not in business as usual anymore. China has changed everything. The election of Donald Trump has changed everything.
I think Peter Navarro, the economic adviser to the President would really like to see global supply chains dramatically re-jiggered in the next year
or two. Most CEOs I talk to are thinking about those contingency plans. They don't want to believe that neo-liberalism is over and that free trade
is over, but they are beginning to say, "You know what? We are probably going to have to go more regional."
Now, that begs the question why is the President fighting everyone at all times? This would be a time to come closer to Europe around certainly to
come closer to NAFTA partners. That's not happening and I think that that's going to be a major point of uncertainty in the market.
QUEST: What do you -- from the people you're talking to and what you're listening to, this idea, Rana, that, "Ah, come on, this is all just noise,
it will all end well. He won't do his worst excesses and extremes. It's just a negotiating ploy, the art of the deal. There will be an agreement."
You don't buy this, do you?
FOROOHAR: Yes, I don't buy this, Richard. You know, you've hit on something very important -- the good and the great and many of them are
here and asking right now, still believe that, "Oh, this is a negotiating tactic. Surely, we're not going to have a global trade war. Surely,
globalized supply chains are not over." I don't think so. I think this President has an entirely new world view. I think his hawkish advisers
would be very happy to see some short-term damage in order to re-jigger things along the more regional and national lines that they think are
appropriate at this stage of the game.
QUEST: As Donald Trump might say, Rana, sad that you are in Aspen, sad that you are in Aspen with a beautiful background and the most glorious
weather and mountains and you're spending your time with economics when you could be out having a good mountain hike.
FOROOHAR: With you, Richard.
QUEST: Yes, I should be there, too. Rana, good to see you. Rana Foroohar, who I am hopefully, hopefully is going to manage to get some form
of fresh air. In a few moments from now, I'll be joined by the former U.S. Treasury Secretary Larry Summers to talk through these issues.
The Trump administration is putting media reports that's comparing new trade restrictions against China to rest. It's been suggested that they've
got other countries in the cross hairs, too. Steven Mnuchin, the Treasury Secretary said, "On behalf of Donald Trump, the stories on investment
restrictions are false, fake news. The leaker either doesn't exist or know the subject very well. Statements will be out not specific to China, but
to all countries that are trying to steal our technology."
I guess we ought to be grateful that they're not just going to attack China, in that case, everybody else will be involved. The new restrictions
have been a long time in the making. Donald Trump has been railing against intellectual property theft since his Presidential campaign.
CNN's Will Ripley now looks at the impact it could have on China's economy.
(START VIDEO TAPE)
WILL RIPLEY, CNN INTERNATIONAL CORRESPONDENT: Welcome to Silk Street, a shopping complex here in Beijing notorious amongst international tourists
for its wide selection of items that look and feel almost like the real thing, but for a fraction of the price. Look behind those doors, it's no
secret, you can find a lot of counterfeit items. It's something that the Chinese government has been trying to crack down on, and the issue goes far
beyond designer handbags.
Technology companies have long complained that here in China, just to do business in this lucrative market, they have to share their technology with
Chinese firms and then they say, those same firms will actually build their own version of the same product for a lower price, giving Chinese
tech companies an unfair advantage. It's that concern over intellectual property theft that is prompting this announcement expected this week from
the Trump administration, major limits on how much Chinese companies can invest in U.S. technology.
Now, these planned U.S. restrictions on Chinese investments are in large part fueled by U.S. concerns about Made in China 2025. That's China's plan
to boost industries like robotics, electric cars and aerospace with the aim of becoming a global leader in those areas. Now, "The Wall Street Journal"
first reported that the measures are set to include rules that would bar firms that are at least 25 percent Chinese ownership from buying companies
involved in technology deemed significant by the White House.
Here in Beijing, the Chinese government is responding saying that the trade relationship between the U.S. and the China is mutually beneficial and it
creates jobs and brings in tax revenue and opens up channels for overseas business expansion by the U.S., but they're also saying they will strike
back against any measures taken by Washington including those $50 billion in tariffs that are due to take effect next month.
Will Ripley, CNN, at the Silk Market, Beijing.
(END VIDEO TAPE)
[16:10:08]
QUEST: When we return, President Erdogan in Turkey, his reelection win spells more trouble perhaps for the flagging currency, in the last 24 hours
having to go by. I'll ask from one of the President's former advisers about the economic implications of yesterday's victory.
In Turkey, President Erdogan's election victory hasn't put an end to the lira's struggles. The Turkish currency has fallen steadily over the past
two months when a referendum granted the President's sweeping new powers.
Now, Sunday's victory means that President Erdogan will wield these powers for another five years. CNN's John Defterios on how investors have
digested his reelection.
(START VIDEO TAPE)
JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: The initial market reaction was positive, but that did not last long, a clear cut victory with high
turnout gives President Erdogan a renewed economic mandate. What he does with that mandate is what has some investors on guard.
The Turkish lira climbed three percent to start before giving back ground and dollar denominated bonds initially rallied. But the President has
pursued a growth at all cost approach, and as a result, inflation has skyrocketed to more than 12 percent, double the Central Bank's target.
Inflation remains his biggest his challenge. It has averaged over seven percent, which is high but it is expected to stay above 11 percent this
year. Investors like Turkey's size, 80 million plus people, a strategic position at the edge of the European Union, but worry Erdogan will abuse
his concentrated powers.
This is a leader who has swept to power by promising a pro-business moderate form of Islam. He nearly quadrupled the GDP to $850 billion and
raised more than $220 billion of foreign direct investment. It's more complicated now and the corporate sector is saddled with $300 billion of
debt.
Let's not forget, a few years back, he planned to grow the economy to $2 trillion by 2023 to mark the 100th Anniversary of the Secular Republic.
That looks impossible after the political turmoil and attempted coup and scores of unrest the last couple of years. John Defterios, CNNMoney, Abu
Dabhi.
(END VIDEO TAPE)
QUEST: Joining me now, Cuneyd Zapsu who is a former adviser to President Erdogan. He now leads one of the world's largest hazelnut producers, Balsu
Gida. Good to see you, sir. Thank you for joining us.
The political -- the geo-strategists are worried that President Erdogan, emboldened with these new powers, will become a more authoritarian,
dictatorial character because he will be wielding more power than any President has done before. Are they right or wrong?
CUNEYD ZAPSU, FORMER ADVISER TO PRESIDENT ERDOGAN: Okay, hi, Richard. Good evening from here. Listen, you said the dictatorial and more power
and stuff, you know, you must be a really, very, very bad dictator if he wins only with 52 point something percent and loses even the Parliament or
--
[16:15:16]
ZAPSU: -- so you know, I think you and I were used to dictatorships with 90 percent plus. Why am I saying that is very clear. I think it's
exaggerated and I do not think that it is right to say that.
QUEST: The economic front and the economic challenges are very real in Turkey at the moment. You would agree on that. I mean, obviously you just
heard John Defterios talking about the inflation front, but there's also a question of maintaining the promises of fast growth in the future whilst
keeping a Central Bank modicum of independence and keeping inflation under control.
ZAPSU: Okay. Richard, you are right, I mean -- but on the other hand, please think of the following. Right now, we just have not even, I think,
24 hours now after the election and we will get the formal election time, I think, on the 3rd of July it will be formal, you know, the numbers and
everything. And right now as we speak, I do not think that anyone in this country and anyone out of this country can say it will go worse or it will
go better
The only thing I can say is following. This President, I worked with him in the early 2000s and until 2008 and nearly 24 hours a day, so this
President showed the world that it can be done much better, and we had, when our Party came to power, please do not forget, we had around 72
percent or 73 percent interest rates and 35 percent inflation.
Now, we are talking now of 12 percent inflation. What do I say with that? Normally, I really do hope as a business adviser that he will do it again,
but I think we have to give him the credit and leave him time to choose his Cabinet next week or 10 days, I guess and see where it leads to.
QUEST: All right, sir, we'll talk more about that Cabinet with you, sir, once it is established. I appreciate it. Thank you.
Harley-Davidson shares are down nearly seven percent. That is not surprising. President Trump's trade policy appears to be well and truly
backfiring for the maker of the iconic American motorcycle.
The opening scene of the film "Easy Rider" where two hippies from Los Angeles set out to explore the real America on their Harleys. Now Harley
is shifting some production out of the United States as it gets caught in the middle of an international trade fight. Now, first of all, Donald
Trump put 25 percent tariffs on steel. Steel got more expensive. If Harley is importing some of its steel, or at least coming in from Mexico,
then the cost to built rises. The actual raw cost of building the bikes is more expensive.
Then E.U. retaliatory tariffs, 20 percent. It adds roughly $2,200.00 to export every Harley. The costs to Harley, they now estimate at $100
million a year. So you've got two choices, you either lower your margins, your profit margins, you make it yourself, or you pass it onto the consumer
and you risk lower sales.
What they're doing in third option, you move production. Instead, they will get plants already in Australia, Brazil, India and Thailand to make
those Harley-Davidsons. Not surprisingly, overseas where Harleys have been advertised, as you can see, the price -- to keep that price as it is,
you're going to have to bring the Harleys in from elsewhere. Otherwise, it will cost another $2,000.00 or so dollars.
Larry Summers is the former U.S. Treasury Secretary joins me from Harvard. I guess, Larry Summers, the reality -- it's important even though it's
micro in looking at the small stuff, but it's important to show the Harley- Davidson situation or Daimler Benz which says it's going to have to shift production, because this is the real effect of the trade wars that
economists like you warn us about.
[16:19:59]
LARRY SUMMERS, FORMER TREASURY SECRETARY: Richard, for me, this is about working people. This is about working people who lose their jobs in states
like Michigan and Ohio and other working people who get jobs in France. This is about working people in the Midwest who aren't able to do their
jobs anymore because the companies they work for can't procure steel at a reasonable price because of the tariffs.
This is about people who work in sales in automobile dealerships who are going to lose those jobs in sales because it's going to become so much more
expensive to bring a car into this country. This is about companies that are going to close that would have been saved by an investment from China
or another country.
You know, people make all kinds of comments about the international system and all of that. That's very important, but fundamentally, this is about
jobs for Americans and the President's blunder bus incompetent negotiating strategy is going to mean fewer Americans working at lower pay and with
less purchasing power for the pay they do get, and that's why all of this is a tragic error.
QUEST: The President points out, though, for many decades that the U.S. in his view, has been taken advantage of, when let's take for example China.
Everyone accepts that there have been unfair trading practices by China, but no other administration he would argue besides himself has been
prepared to do anything about it and face them down.
SUMMERS: He says that, but China had a nine percent of GDP trade surplus when President Obama took office and 1.5 percent of GDP trade surplus when
President Obama left office. President Trump's policies have rung up our budget deficit, are going to make more trade deficits inevitable. He's not
reducing our trade deficit. He's not increasing our competitiveness on his watch, we're slashing the funding that would give us a prospect of keeping
up in crucial industries like artificial intelligence. He's going to make every problem he describes worse.
QUEST: On the question of -- we'll move off trade in just a second, but I just want to finish on this point, for example, the threat to introduce 20
percent tariffs against European car makers, now there is a discrepancy that both sides admitted, the U.S. charges a lower tariff than the E.U.
does on automobile exports and imports. Is that fair?
SUMMERS: Look, you have to look at these things in the context of all the goods and services that are traded. You have to look at it in the context
of all the rules and regulations. Would I like Europe to reduce its trade barriers? Yes. Is threatening to shoot ourselves in the foot by raising
the price of every input that we get from Europe? A good strategy for responding to that problem? I very seriously doubt it.
He is entering into the worst conflict with Europe in the last 50 years of the economic area, a good idea when the really serious competitor is China?
I gravely doubt it. Is isolating ourselves at the moment of our greatest challenge a prudent policy? I don't think so. Is making threats to take
our own stock market down by an amount that reduces American wealth by hundreds of billions of dollars an effective strategy? No, I don't think
it is.
It is not that President Trump hasn't identified some legitimate issues, of course, there are legitimate issues with trade with China. It's that all
previous Presidents have believed in the Hippocratic Oath, "First do no harm," with your policies. There are measured, prudent, responsible
alliance-based law-based policies for addressing these problems with China. They are the kind of thing that reduce China's surplus from 10 percent of
GDP to 1.5 percent of GDP. But, this approach, that's not it.
QUEST: If we look at the latest polling numbers -- and I know one can't -- one doesn't want to put too much store by them, but they are a good
barometer and politicians use them on both sides. His popularity is going up, which suggests, Mr. Secretary --
[16:25:14]
QUEST: -- that I guess standing up for the ordinary American, at least appearing to, in your view, is a successful political strategy that is
winning the President popularity. How do the Democrats fight that?
SUMMERS: Richard, I hope, I trust they're not going to fight it by watching little twiddles from 41 to 43 or 44 in a President's approval
rating. Bill Clinton said several things to us that I thought were very wise. He said, in the short run, strong and wrong can often win, but in
the long run, good policy is good politics. This is strong in a certain sense, at least the rhetoric is intense. The policy is wrong. It's making
us poorer, and I believe that the right approach is to stand up for renewing America at a moment of high challenge.
That's about bringing us all together, not pitting those of us with different color of skin against each other, that's about investing in
fundamental science, not slashing the available budgets. That's about renewing our commitment to having a decent infrastructure in this country,
not cutting back on all kinds of public investments. That's about working to bring other countries with us to meet our greatest challenge which is
China, not going into conflict in every direction and talking about how Canada's going to burn the White House.
So, yes, this is about standing up for people, but it's about standing up for people in a way that will actually make them better off.
QUEST: Finally, I've interviewed you numerous times over more years than probably either of us would like to remember. You seem fired up. You seem
like you've got the bit between the teeth with it on this, almost irritated at the arguments. The arguments are not getting through.
SUMMERS: Richard, I've been watching economic policy now for close to 40 years. Certainly, there have been many moments when I disagreed with the
administration, but I have not seen a moment in 40 years when policy seemed to me so fundamentally misdirected and so likely to damage not some overall
abstraction of American leadership, but so likely to make middle class Americans poorer.
And when they become poorer, they will be angrier and more bitter, and that, I think, is a real threat to our democracy. And so if I seem heated
up, it's not because of anything partisan. I've thought Democratic Presidents made mistakes and I've thought Republican Presidents did
important things right sometimes, but it's because of a lack of seriousness and strategy about issues that threaten the kind of country that my
children are going to inherit. That's why I sounds heated up.
QUEST: Larry Summers, always a pleasure to have you on the program. Thank you tonight, sir. Thank you.
SUMMERS: Great to be with you, Richard.
QUEST: Thank you. You don't hear that every day. As we continue after the break, General Electric, what's left of the grand company of
manufacturing. They brought good things to life, but they haven't got much left. After the break.
(COMMERCIAL BREAK)
[16:30:00] QUEST: Hello, I'm Richard Quest -- excuse me, I am Richard Quest where there's more QUEST MEANS BUSINESS in just a moment. When
General Electric marked its last day on the Dow by selling off more of its businesses. And we'll be in Iowa, farmers there are coming to terms with
Donald Trump's new tariffs.
Look for any of that, this is CNN, and on this network, the facts always come first. An election watchdog says Turkey's election was slanted in
favor of President Erdogan, the organization, security and corporation, any of the OSCD says the ruling party benefited from excessive media coverage.
There were also concerns over Mr. Erdogan's claiming victory before the results had been confirmed. Traders at Tehran's central bus have closed
their businesses to protest against deteriorating economic conditions according to reports in Iranian media.
Shops have been shattered and the traders made complaints to the sliding value of the currency, high phone costs and the low numbers of customers.
President Trump says he does not regret signing the executive order that stops the separation of undocumented families at the border.
The president said it was something he felt he had to do. He also called U.S. immigration laws a disaster and said they needed to be changed. FIFA
has fined two Swiss players more than $10,000 each over their politically- charged goal celebrations at last week's World Cup.
Granit Xhaka and Xherdan Shaqiri each made a double eagle gesture after scoring against Serbia. It was seen as a reference to the Albanian flag
which Serbia just not recognized, both players are a cause from their descent.
Britain's Prince William has arrived in Israel on historic tour of the Middle East. It's the first official visit by a British royal to Israel
and the Palestinian territories. The Prince will meet both Israel's Prime Minister and the president of Palestinian authority.
Today, the markets were in shocking state during the course of the day. There's the Dow, they're already just a couple -- you notice American
Express at the top there, they closed -- shares closed at 1.7 percent, U.S. Supreme Court found in favor of the company over merchant fees case.
Now, not on the Dow but the Campbell Soup is up 10 percent on the report of a Kraft Heinz takeover. General Electric's G.E.'s listing on the Dow ends
today. (INAUDIBLE), another division took on its mountain of debt.
It sold -- it's called the distributed power business and the price tag of $3.25 billion. Now, it makes this particular business, makes gases and
engines to generate electricity in remote areas. In May, G.E. Electric gave up control of its century old oil division and merging with a rival
and raising only $3 billion.
Right now the company is trying to dump its light bulb business, surely one of its most iconic, but they haven't managed to find a buyer. Light bulbs
at the end of the day just 2 percent of revenue.
[16:35:00] The firms dumped new "NBC Universal" appliances, G.E. Capital, Insurance and Plastics.
Art Hogan is with me, chief market strategist at B. Riley FBR joins me from Boston. All right, come on, Art, what's left!? I mean, you know, they've
sold just about everything -- all right, the power business, they've still got -- I mean, what is G.E. now?
ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY FBR: Yes, it's amazing, 126 years and we're still trying to figure that out in the modern time. You
know, G.E. is a company that's gone through massive transition and a lot of that started with Jack Welch leaving and some really large bets made at the
really wrong time.
So when we think about the G.E. sort of getting into G.E. financial at the very worst time and at the end of the financial crisis and then getting
out, and then you know getting into the energy market place of fossil fuels. When the price of world oil went from about 100 to about 30, so
very large bets really bad timing and you know, here's the end results.
You have to unwind and pay down some of your debts or they're finding divisions to sell, it is going to be an ongoing fight. But I will say,
Richard, on the note of being removed from the Dow, the last ten companies that were taken out of the Dow were up in the next 12 months between seven
percent and eight percent.
And the last 10 companies that we're putting to the Dow were down in the next 12 months. So G.E. might have that going as favorable right now, it's
just on a -- it's a garage sale looking for buyers.
QUEST: What do you think G.E. is? I mean, obviously, their medical appliance is a crucial part, the MRIs and the footing(ph). It's still got
a very sizable power business and power -- and it has now got the joint venture on rail business.
What is G.E. -- what do you see -- where do you see its future?
HOGAN: Well, I see its future in paying down a lot of debt and transitioning into industries of the future, and I think that's what it's
been trying to do, albeit at a very staggering difficult pace.
So I think -- wait, you know, what I would really like to do is lessen the exposure of fossil fuels increases the spurge to green -- to clean
technology.
QUEST: Right --
HOGAN: I think it's making moves in that direction. Remember so long is a good slack of Baker Hughes, and obviously with the price of world oil
moving higher, not lower, that division --
QUEST: Right --
HOGAN: And as you know met the vices in healthcare, obviously also doing very well.
QUEST: Talk about the general market, I need to get your thought on this because today, arguably, and I'm not suggesting maybe you do have, but
arguably, the infection of the trade worries moved into the market in a much more substantial way and started to hit the tech companies because if
China is hit, and we start to see Intel because Intel is one of the -- one of the biggest fallers on the Dow.
Are you worried now about what we're seeing?
HOGAN: Richard, that's a great question, semi-conductors and technology in general, especially the destructors had been really resilient in very most
of our trade concerns, and just today, when we talked about perhaps keeping China from investing in any of our companies because our main concern is
intellectual property theft that that's when technology became less diagnostic to this and actually got hit.
Remember a lot of the M&A activities has been going on in semiconductors and in technology in general as been with China as a JV or China being one
of the buyers. Take them away as one of the potential buyers and technology stocks are no longer free -- you know, free to trade during the
trade concerns.
So I think in general, we need to get some good news at a trade, all we're hearing are the threats and the bluster and the -- you know, harm-
handedness of trade and right now we're in that part of the sausage-making that nobody wants to watch.
At some point in time, we'll get back to the using (ph) an earnings (ph) table, that's just not happening this week.
QUEST: Good to hear you, thank you, much appreciated, enjoy Boston.
HOGAN: Thank you, Richard.
QUEST: You want to keep on top of the day's business headlines, you can do so -- it's a 92nd briefing, it's a podcast, it's updated twice a day before
and after the bell rings on Wall Street. Ask Alexa or Google device for CNNMoney/briefing. So with the briefing and you might even get it.
After the break, as president's tariffs escalates, the loyalty of those who voted for him -- we're in Iowa, that's where Trump supporters farmers are
struggling with higher costs directly as a result.
[16:40:00] (COMMERCIAL BREAK)
QUEST: Brent crude is falling after last week's OPEC decision to increase output which is perhaps exactly what you'd expect it to do. It's down
almost 1 percent and it still trades at a healthy premium to west Texas.
On QUEST EXPRESS, I spoke to Gerald Bailey; the head of Petroteq Energy and a former Exxon boss in the Gulf, he said he expects things to settle down.
(BEGIN VIDEO CLIP)
GERALD BAILEY, DIRECTOR, PETROTEQ ENERGY: Now, I didn't think things would change too much there, I knew they would hold where they were, but now,
we're seeing that people are trying to swallow all that news from last week, trying to see where we're going, I think it will steady, that's
bouncing around $68.5 in WTI.
The usual and a little better to spray after Brent. But I think we're pretty stable, now I'll look forward to move up more.
QUEST: Right, this is on the back of a weaker, more production, therefore more in the pipe -- more oil in the market. I mean --
BAILEY: That's right --
QUEST: There has been a short fall.
BAILEY: A very short fall, a little more came in, but bear in mind, I think your viewers should probably notice that with the trouble that's
backing oil out at Venezuela, the Iranian problem questions that are happening there in the market, some of that has just back fuel oil.
It was made up for some its disappearing, so the net overall global increase has not really been that large.
QUEST: What are the things -- we've got a moment of directions, what are the reasons -- why is West Texas cheaper than Brent traditionally? Although
those were a certain age we'll remember for many years. West Texas was more expensive --
BAILEY: Yes --
QUEST: Because of transportation costs. And now why has it reversed that now?
BAILEY: That's the word again, transportation because Brent is primarily delivered by water because it is accessed obviously at the north sea. So
the market discounts the fact that West Texas has to be transported over land to move anywhere.
And right now, it's even bottleneck because a lot of the oil that's there is restricted and flowing because there's no good way to get it out.
QUEST: Which is the -- which is the normal form versus a contingent form for West Texas versus Brent, what should we be seeing? West Texas should be
cheaper or more expensive?
BAILEY: I think it will remain cheaper, it will not be more expensive. I think Brent will maintain its status of being anywhere from bad to $10
depending on the market at a given fact and higher to West Texas.
(END VIDEO CLIP)
QUEST: When we return, it's a make or break moment at the World Cup, the last round of the group games in some of the most dramatic mode in the
tournament so far.
[16:45:00] (COMMERCIAL BREAK)
QUEST: Farmers in the U.S. state of Iowa say tariffs on American soybeans and products are now taking the tone on the bottom line. And to test
whether the staunch Trump supporters can afford to stay loyal as the president's trade war escalates. Nick Watt has been to Iowa.
(BEGIN VIDEOTAPE)
NICK WATT, CNN NATIONAL CORRESPONDENT (voice-over): Dark clouds over an Iowan soybean field, it just might be a metaphor.
UNIDENTIFIED MALE: It meant I'm worried, sir, I'm concerned.
WATT: What about Iowan hog farmers?
UNIDENTIFIED MALE: There are sanction times, yes, no doubt about it.
WATT: The first day in April, China slapped an extra 25 percent tariff on imports of American hog. The pig, you're probably talking $200 million to
$300 million impact already. That's just Iowa, now China threatens something similar on soybeans.
Two largest economies on earth locked in a trade war largely over intellectual property in the tech industry.
UNIDENTIFIED MALE: We get punished, we as agriculture so to speak.
WATT: That was a good one. Iowa gets hits hard, one of the country's top soybean producers and the top pork producer. Did you vote for President
Trump?
UNIDENTIFIED MALE: Yes, I did.
WATT: You voted for President Trump?
UNIDENTIFIED MALE: Yes, I did.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I have to come to Iowa --
WATT: But his tariff-laden trade policies might now hit his base hard. Chinese motives are veiled but Mexico now blatantly targeting tariffs in
states like Iowa that voted Trump slapping 10 percent on pork. Iowan Congressman Rod Blum now among the most vulnerable incumbent Republicans in
the mid-terms.
UNIDENTIFIED MALE: People get more vocal and it gets more painful. But we're going to try to be patriotic.
WATT: So is there a point when Iowan farmers abandon Trump.
UNIDENTIFIED MALE: Yes, there is a point.
WATT: There's a point?
UNIDENTIFIED MALE: Yes --
WATT: And where is that point?
UNIDENTIFIED MALE: God, I wish I knew, I wish I knew, we might be there.
WATT: The president has pledged to help farmers, the details remain unclear.
UNIDENTIFIED MALE: Well, while the stuff he's done is good, right now with the trade negotiations going on, happening in six months because it is
painful right now.
WATT: Right now, our locals stand to lose over half a million dollars this year alone. Nick Watt, CNN, Iowa.
(END VIDEOTAPE)
QUEST: Edward Alden is senior fellow at the Council on Foreign Relations. Well, we really are seeing that, aren't we? The effects of trade wars or
trade skirmishes that people like you have warned us about.
How much worse does this get?
EDWARD ALDEN, SENIOR FELLOW, COUNCIL ON FOREIGN RELATIONS: Oh, I think it could get a lot worse. I mean, we're really only kind of three and a half
weeks into this, that was when the U.S. imposed the steel and aluminum tariffs on the E.U. and Canada and Mexico.
E.U. retaliation just kicked in on Friday, Mexico has only been around for a week or so. We haven't even seen the China shoe drop yet, so I think it
could get a lot worse.
QUEST: And what should we be watching for? I mean, obviously we have the Harley-Davidson announcement (INAUDIBLE) last week about what could happen.
Where will we see the evidence of -- because the job gains are easy when a new steel works is open or a new line is open.
The job losses are harder to see.
ALDEN: Yes, I mean, I think it's going to dribble out little by little. You know, I mean, it started the reverse of where we were for years like
trade opening brought us benefits in terms of lower consumer costs, cheaper clothing and television sets and smartphones and some concentrated costs
for factory jobs that were lost in particular --
QUEST: Right --
ALDEN: Communities. Now, we're sort of seeing the flip side which is these broad costs from the tariffs, you know, higher prices for consumers
while little manufacturing companies hit here and there because of higher costs in some concentrated benefits, say if you open a new aluminum rolling
mill in Kentucky.
QUEST: Do you -- what was your thoughts on these new tech investment restrictions, though the treasury secretary says will not just be. I mean,
the rumors were they were for China. But he says no, they're for everybody, although there be a much wider net. How significant are these?
[16:50:00] ALDEN: Well, I mean, I think they're clearly going to be written in a way that targets China. I think in a lot of ways, they've
already had their impact. If you look at Chinese investment in the first half of this year, it's fallen off a cliff, and already the national
security process, the safest(ph) process was making it difficult for Chinese companies in the tech sector.
So I think that's only going to get worse, I think the economic impacts of that are going to be more --
QUEST: Right --
ALDEN: Modest than the tariff wars, but still significant.
QUEST: Listen to what Larry Summers; former Treasury Secretary told me earlier on, on this program.
(BEGIN VIDEO CLIP)
LAWRENCE SUMMERS, FORMER UNITED STATES TREASURY SECRETARY: There are measured, prudent, responsible alliance-base, law base policies for
addressing these problems with China. They're the kind of things that reduce China's surplus from 10 percent of GDP to 1.5 percent of GDP.
But this approach, that's not it.
(END VIDEO CLIP)
QUEST: Now, the president's argument is always the same, which is that they didn't do it. Previous administrations didn't do it, they didn't
address the trade and fairness that he insists and which frankly, everybody seems to agree that China has not played by 11 or a level playing field.
If everybody says that, then you can -- how do you blame this president for being the first one to try and substantially and significantly do something
about it.
ALDEN: Yes, I mean, I don't think you can blame Trump for the problems he's targeting, maybe and recognized for a long time, I think other
administrations were slow off the mark in order to be fair to the Obama administration I think by the second term that we're getting it filed the
whole series of WTO cases and other members.
The problem really is the tactics here. I mean, these very heavy threats coupled with very broad demands and no negotiating strategy to kind of get
to and end deal. So I'm scared that the outcome of this is just going to be an escalating tariff conflict rather than the U.S. using leverage to
address these longstanding problems in the Chinese market.
So I think unfortunately, we're going from bad to worse with respect to how we're responding to the challenge from China.
QUEST: From bad to worse, sobering with trend, but we will talk to you again in the future, thank you sir.
ALDEN: Thank you.
QUEST: The first few groups at the World Cup are now set after a big test, the two are in favorite. Portugal is going to advance after drawing with
Iran 1-1, Cristiano Ronaldo missed a penalty and narrowly avoided a red card.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Ronaldo, is denied.
(END VIDEO CLIP)
QUEST: Now, it would have seen him sit out in the next round if he had got the red card. Spain was shaken by an early goal there that you see it from
Morocco trailing behind much of the match for an injury time equalizer.
After scoring a draw, and Spain facing in the next round. Amanda Davies help me understand. So where do we stand at the moment? How much more have
we got and what -- who else is still at parallel(ph) for going through.
AMANDA DAVIES, CNN CORRESPONDENT: Richard, there's a long way to go, I have to say. This is -- we have two groups, each day from today through
until Thursday where we have the climax, the final round of fixtures. But I have to say Monday has been a cracker, we have been kept on the edge of
our seats all the way through to kind of the injury time and beyond in terms of Group B that you were talking about there.
We knew that the four teams in the group, three of them stay in Portugal and Iran who are still within a shot of going through. And we probably
were kept on the edge of our seats. It was pretty much -- all was certain that it was going to be Spain and Portugal, the two favorites on paper the
far to experience size in that group going through.
But as you said, we have technology, the video assistant referee --
QUEST: Right --
DAVIES: Rules here in a number of times. We had Cristiano Ronaldo who has done so well for Portugal so far in this competition, missing a penalty,
very nearly being sent off, we had Spain having to come back from behind to draw against Morocco.
So it's been --
QUEST: Good --
DAVIES: Fantastic evening of football, and we do have Iran heading home which is you know, a big disappointment for them having come so close. But
it's Spain, the 2010 champions who square up to Russia in the next round, the host, and it's Portugal who will take on Uruguay who were really
impressive in their 3-0 win over the host in the other group.
QUEST: Right, quickly, Nigerian fans who have been with you. You have been out gauging their reaction to Russia and their team's chance.
DAVIES: Yes, Tuesday promises to be just as a exciting as today has been. Group D, the group that Nigeria are in, flying the flags but what's been a
pretty disappointing competition for Africa. Group D has all four size fill in contention. And Nigeria have a blockbuster of a final game against
Argentina who you might remember at the end of last week, Richard, suffered that humiliating 3-0 defeat to Croatia.
[16:55:00] They actually held on national television a minute silence in memory of Argentinean football. So understandably, the Nigerian fans
pretty --
QUEST: Right --
DAVIES: Buoyant ahead of their final one.
QUEST: All right, Amanda Davies joining me from Moscow, thank you. We will take a profitable moment after the break, this is QUEST MEANS
BUSINESS, we'll be back.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment. And so we are starting to get the real hard evidence of the cost of the trade wars. Harley-Davidson, HOG as
their code is on the New York Stock Exchange. HOG have warned us that the cost will be about a 100 million and they are shifting production to
oversees plants to supply European markets.
Make sense of course. Now, this doesn't immediately mean that job losses in the United States, the U.S. plants could pick up production for U.S.
markets and the like. But it does tell us that companies are making -- having to make real decisions about what they want to do, how they're going
to re-arrange their business.
And you heard it from Larry Summers tonight who criticized the way in which the policies have been implemented, and you also heard it from other guests
who all said the same thing. Companies are having to make real decisions. This is not an esoteric economic discussion, this is not economics 101,
this is not some high brow trade wars debate.
It is real decisions taken by CEOs about how to manage a trade war in 2018. And we're going to see more of it in the weeks ahead. Now, that's QUEST
MEANS BUSINESS for tonight, I am Richard Quest in New York, whatever you're up to in the hours ahead, I hope it's profitable.
We will do it again tomorrow.
END
