Return to Transcripts main page
First Move with Julia Chatterley
U.S. Eases Restrictions On China's Huawei. Biggest Shoe Brands Telling President Trump Tariffs Would Be "Catastrophic;" How One Cannabis Firm Is Doing Its Best To Fill The Gaps In Regulation. Aired: 9-10a ET
Aired May 21, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR: Live from the New York Stock Exchange, I'm Julia Chatterley, this is FIRST MOVE. And here's your needs
to know. Dialing back. The U.S. eases restrictions on China's Huawei. Footing the bill. The biggest shoe brands telling President Trump tariffs
would be quote, "catastrophic." And setting the gold standard. How one cannabis firm is doing its best to fill the gaps in regulation. It's
Tuesday. Let's make a move.
Welcome to FIRST MOVE this Tuesday, and right now, actually, I'm calling it Turn Around Tuesday, temporary, though it might be. Take a look at what
we're seeing, for U.S. futures at this moment, a real shift compared to what I was talking to you about in yesterday's early session. We're seeing
a bounce, a sigh of relief, perhaps after the U.S. government announced a temporary reprieve, as I mentioned for companies doing business with
China's Huawei and that of course, is going to be the sector to watch.
The NASDAQ shed some one and a half percent yesterday. The PHLX Semiconductor Index lost some 4 percent. Just for perspective, that chip
index specifically is down over 15 percent from the April highs, half of that loss coming in the last three sessions.
The chip makers' troubles only compounded yesterday by reports that the Federal Trade Commission is expanding its antitrust probe into the sector,
too. What about at the stock level though? Apple losing 3 percent; Broadcom, 6 percent; Qualcomm, 6 percent, too. Some of the highest profile
casualties in the session yesterday.
So watch all of these players today. So you get a sense of just how confident investors are that the Huawei reprieve actually lasts. Can we
get a trade deal in the next 90 days?
By contrast, though, and it is an important one, the S&P 500 did finish down a more measured, six tenths of 1 percent, just three tenths of 1
percent lower for the Dow right now. There was also some pretty fascinating commentary coming from China overnight, too. The "People's
Daily" to be specific saying that repeated misjudgment by the United States could produce grave consequences. This is the quote though, "Attempts to
impede the historical progress of the great rejuvenation of the Chinese nation will be like a quote 'a mantis trying to stop a car with its arms.'"
What do you think of that imagery there? Wowsers. In this vein, something more specific, watch the Chinese currency. We have Chinese yuan weakening
against the U.S. dollar overnight, too. The key level to keep in mind, seven in dollar-China cross rates. That threshold was last breached back
in 2008, and is seen as a line in the sand. If it breached, then, oh boy, would that be a huge challenge to any future trade talks.
All right, let's get to the drivers because I want to talk you through what happened with the White House, of course and Huawei. The U.S. government
temporarily loosening those restrictions on Huawei's products.
Many rural American internet providers rely on the company's technology. Samuel Burke joins me now. Samuel, a 90-day reprieve. The question is,
does this mean just three more months of uncertainty or at least in the short term, it's a good thing for companies in the United States that we're
going to be severely impacted simply overnight?
SAMUEL BURKE, CNN BUSINESS TECHNOLOGY CORRESPONDENT: You can view this 90- day extension through two very different lenses. If you believe this is all about national security and American businesses, you could say well,
these 90 days are to help companies like Google and Qualcomm adjust.
I see Qualcomm stock is up about 3 percent in pre-trade, by the way. So if you believe it's all about national security, well, then it's helping those
companies, and then it really gets to business. But if you believe it's not about national security, and you believe that this is all about the
trade war or U.S.-China tensions, you can view these 90 days then as really an opportunity for Trump to get Xi to the table -- the negotiating table --
just like he did with ZTE.
So he has put out his maximum negotiating point and said, "Now I'm creating a 90-day space for you to come to the table." The question is, will he
comes to that table, Julia?
CHATTERLEY: Yes, and you and I were discussing the possibility of this just being a pawn in the trade battle. I guess my counter to this would be
Huawei is so much bigger than ZTE, and now you've got the whole of Congress.
You've got Republicans and Democrats backing Trump's firmer stance here, backing down here for the President, surely much, much harder.
BURKE: Much harder and as we've always said, the danger of the trade war if it is about the trade war, even if it's not about the trade war,
frankly. It's once you've done something, it is harder to walk it back and certainly hard to walk back something so large.
[09:05:08] BURKE: Your point about market size, let's say, ZTE is nothing compared to Huawei. And what I'm really intrigued about here is what
Huawei is doing and saying. Take a listen to what the founder of Huawei told media earlier today about their plans.
(BEGIN VIDEO CLIP)
REN ZHENGFEI, FOUNDER, HUAWEI (through translator): Our preferred low-end products could be affected. We think that's inevitable. We weren't ready
in some areas, so we got affected. But in the most advanced areas, at least for 5G, there's no impact whatsoever.
(END VIDEO CLIP)
BURKE: So the consumer side is currently being hit. It sounds like they're being honest there. But they're saying on the 5G side, the other
half of their business, they're good.
Another note, they're launching the Honor Phone, that's a Huawei company that doesn't use the same marketing brand name. It's called Honor going
forward saying that it's an Android device that's going to market very soon. We'll see it launched in the next few minutes here.
CHATTERLEY: Sneaky question, Samuel. Do we believe them on 5G technology?
BURKE: Listen, they've done so well in 5G, and they've always played the long game here that even if it's not true, we know that they've been
planning since 2018. So it will be true very soon, if it's not.
CHATTERLEY: Yes. Great point. Samuel Burke. Thank you so much for that. All right, let's move on to our second driver. A big day for U.S. retail
earnings, too. Home Depot earnings beat estimates, but shares in Kohl's and JCPenney in freefall after they disappointed. That's premarket. Paul
La Monica joins me now.
A department store disaster, Paul. Talk me through what we had from JCPenney and Khol's here.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes. JCPenney, Julia has been struggling for some time. It is almost literally a penny stock because the
shares are hovering around the $1.00 level. And JCPenney as a new CEO. She is trying to turn things around, but I think it's going to be a slow
grind in order to fix this company. Hopefully, it can avoid the fate of Sears which, you know, we know how bad things got there.
Khol's is a bit more of a surprise because under CEO Michelle Gaas, there had been a lot of hype about Khol's being innovative. They're doing these
partnerships with Amazon where you can come and return Amazon goods at Kohl's stores. They're leasing out space to Planet Fitness and Weight
Watchers and you know, Aldi as well, the big grocery store chain.
But Khol's reported a surprise drop in same store sales and investors are unforgiving because Khol's was a turnaround retail story that a lot of
people bought into and it's starting to look like this turnaround is going to take a lot longer to materialize.
CHATTERLEY: Yes, and investors realizing that, I think, premarket as well. What about for Home Depot here, too, because I just mentioned that they've
earnings beat, but then I looked through some of the details here in their same store sales where the weakest they've been in what? Almost three
years. Talk to me about what's going on beneath the surface here.
LA MONICA: Yes, Home Depot same store sales growth in the U.S. was solid in light of what's going on in the rest of retail, but still a slightly
disappointing number compared to what analysts were expecting. The stock is down a tiny bit premarket.
But I think Home Depot is still holding up really well because the housing market remains relatively strong. They did cite poor weather in February
as a problem, also tumbling lumber prices, deflation in that part of an important product category for Home Depot hurt them as well.
But Home Depot is doing much better than a lot of other big box retailers. It's going to be interesting to see what Lowe's, their top rival reports
tomorrow because Lowe's, remember now has a new CEO, Marvin Ellison, formerly of JCPenney trying to steer and turn around at that company.
CHATTERLEY: Yes, watch this space. Paul La Monica, thank you so much for that. All right, we're going to move on now to Iran because the Iranians
are saying they won't negotiate with President Trump, unless the U.S. shows respect regarding the nuclear deal.
Fred Pleitgen is in Tehran for us. He has been speaking exclusively to the Iranian Foreign Minister, the likelihood of that greater respect, at least
towards this nuclear deal from the United States feels pretty negligible. What else did he have to say, Fred?
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: You're absolutely right. I mean, it seemed as though right now, it's not really
in the cards for the U.S. to return to the nuclear agreement. But the Iranians are saying, look, if that nuclear agreement is to survive, if Iran
is not going to leave that nuclear agreement as well, at some point, they want to reach some of the benefits, some of the economic benefits that they
say they were promised by the nuclear agreement.
Now, to a great extent, Julia, he was talking about the Europeans trying to make it possible for the Iranians to for instance, sell their oil on
international markets. But he also said at this time, he doesn't believe there's any sense in the Iranians talking to the U.S. after the U.S. left
the nuclear agreement. Let's listen to what Javad Zarif had to say.
(BEGIN VIDEO CLIP)
MOHAMMAD JAVAD ZARIF, IRANIAN FOREIGN MINISTER: The United States is engaging in an economic warfare against Iran. It has to stop. Economic
war means targeting Iranian people. That has to stop. The United States does not have the legal position, it does not have the moral position.
[09:10:10] ZARIF: It does have the political position. It does not have the international position to impose economic war on Iran.
Iran is not interested in escalation. We have said very clearly that we will not be the party to begin escalation, but we will defend ourselves.
Now, having all these military assets in a small waterway is in and of itself, prone to accident, particularly when you have people who are
interested in accidents.
So, extreme prudence is required and we believe that the United States is playing a very, very dangerous game.
(END VIDEO CLIP)
PLEITGEN: "A very dangerous game," he is saying. The United States is playing there, of course, highly critical of the U.S.' own presence there
in the Persian Gulf region.
One of the things that the Iranians have been saying, Julia, for a while is that they don't want the situation to escalate. Iran Supreme Leader even
has come out and said that there won't be any war between the Iran and the United States. But again, Javad Zarif is making absolutely clear, with the
situation, as tense as it is right now in that narrow waterway in the Persian Gulf, it really is very prone to miscalculations that could happen.
So the situation there still very, very dangerous -- Julia.
CHATTERLEY: Fred, what about other nations hereto, because I mean, the Foreign Minister had called them the B Team that were against the Iranians
at this moment. And he said, look, it's not just about the likes of John Bolton. It's also about, you know, MBS over in Saudi Arabia, the UAE.
What are they also saying about the countries within the region, not just the United States?
PLEITGEN: Not surprisingly highly critical. You're absolutely right. It's one of those terms that Javad Zarif has coined, mostly using that on
Twitter, the B Team, obviously referring, as you said, not only the John Bolton, but also Mohammad Bin Salman, the Crown Prince of Saudi Arabia, and
then also Benjamin Netanyahu, the Prime Minister of Israel as well.
He says that those countries are making a big mistake in the region by relying on the United States. Obviously, the Iranians are very critical of
some of the U.S. policies. He says that the Iranians -- while he says they don't spend as much, for instance, on military spending, as a lot of these
other nations do, he believes that they are in a stronger position than most of these nations.
Although, the Iranians continuing to say that they also want dialogue, for instance, with the Saudis. So they do think that they would like the
situation generally in this region to deescalate. They obviously, from their perspective, keep saying that they believe that the U.S. presence
here is something that continues to escalate, the situation destabilizes the region.
Obviously America has a very, very different view on that. It's one of the things I asked Javad Zarif about as well. And he also once again
reiterated Iran's position that they have not been behind any of these recent attacks on ships that have taken place in the Persian Gulf area --
Julia.
CHATTERLEY: Well, so there are unanswered questions. Fred Pleitgen, thank you so much for that. Great job. All right, let me bring you up to speed
now with some of the other stories that we are following around the world.
Legendary Formula One driver, Niki LaudA has died. The Australian three times World Champion driver achieved one of the most inspirational sporting
comebacks of all time. His Ferrari crashed during a Grand Prix race in 1976 and he was pulled from the car with life-threatening burns. His
injuries was so severe that a priest administered the last rites.
Fast forward just 42 days, and he was back in the driver's seat to defend his title at the Italian Grand Prix. Amanda Davies joins us now. Amanda,
legendary driver, investor, entrepreneur, I mean, there's so many titles that we can give him, but a guiding light I think from the Mercedes team as
well, he will truly be missed.
AMANDA DAVIES, CNN INTERNATIONAL SPORTS PRESENTER: Yes, Julia, I think maybe too often in sport, we can be accused of throwing out the word
"legend," but certainly with Niki Lauda, it is very, very apt, as you said, a three-time world champion, but it wasn't just that.
Yes, he equal the World Championships of the likes of the great Ayrton Senna, only five drivers in the history of the sport, have achieved more
World Championships than him, but it was everything else that went with it.
So many people of course, know the name Niki Lauda because of that crash, that great rivalry with James Hunt for the 1976 season that was made into
that Hollywood blockbuster just a couple of years ago.
I was just talking to former Formula One World Champion, Sir Jackie Stewart. He said he was there in Monza, as you said just 42 days after
that stint in a hospital where he said to have died twice. And Sir Jackie said he looked at Niki Lauda and said, "What are you doing?" With the
bandages still on his head, the wounds still being so incredibly raw, but a real mark of the man that he was determined to get back in that car and
carry on his fight for the World Championship title.
[09:15:05] DAVIES: He admitted afterwards, he was absolutely petrified doing it. But he just felt if he wasn't then, he was never going to get
back in the car. So that was him as a driver.
But as you said in recent times, he's been known amidst the paddock as the nonexecutive chairman of Mercedes, the team that have dominated Formula One
in recent times.
If you wanted to know where Niki Lauda was in the paddock, you'd look around, look for the crowd and then bang in the middle of it would be that
infamous red cap of Niki. He is the kind of man who, when he speaks, you just want to sit up and listen and the Mercedes team principal, Toto Wolff
has paid tribute, as you were saying, saying, "We have just lost a hero who staged the most remarkable comeback ever seen, but also a man who bought
precious clarity and candor to modern Formula One. He will be greatly missed as our voice of common sense."
And Niki really was somebody who didn't mince his words. He had a view certainly on the state of Formula One in this day and age, the rivalries
between the drivers whether the drivers were not putting in the effort doing as they should in the name of Formula One.
I feel incredibly fortunate to have been able to share a few moments with him, perhaps my favorite, actually back in Vienna where he lived with his
family. Every morning, he would make a point of taking his young children twins, now 10 years of age to school. He would take them to school then go
to a local hotel, the Imperial Hotel in Vienna, he would sit, have his breakfast, some boiled eggs and a bit of yogurt, read the papers with his
coffee and just discuss the world life and times, with the people at the hotel, with the staff and those around him and I feel very, very privileged
to have been able to share just a little part of that.
CHATTERLEY: And thank you for sharing it with us. Amanda Davies there. Niki Lauda, rest in peace. All right, let's move on. A Federal judge has
ordered an accounting firm to turn over to Congress Trump's financial records going back four years.
In his ruling, the judge says the President is subject to the same legal scrutiny as anyone else and Congress is within its rights to investigate
the President. The decision may set a precedent for other judges considering whether to release President Trump's records.
A man has been charged with assault after pro-Brexit politician, Nigel Farage was hit by a milkshake during a campaign event on Monday. Police
detained 32-year-old, Paul Crowther at the scene. It comes amid a string of recent incidents of politicians being targeted with milkshakes days
ahead of the E.U. elections. I am not allowed to smile, but I will say shaken, but not stirred -- Nigel Farage.
All right still to come on FIRST MOVE, we speak to our fund manager that predicted the huge volatility spike in 2018. Find out what she is thinking
or now.
And kicking off and hitting out, the world's biggest shoe brands urging the President to stamp out higher China tariffs. Stay with us, you're watching
FIRST MOVE.
(COMMERCIAL BREAK)
[15:21:15] CHATTERLEY: Welcome back to the floor of the New York Stock Exchange. Let me give you a look of what we're seeing as far as futures
are concerned this morning. An about turn from what we were seeing this time yesterday.
Right now, futures in the green, keeping an eye on any potential bounce in the tech sector following that temporary reprieve coming in from the U.S.
government for China's Huawei, of course, and the retail sector following some weaker earnings this morning, too.
All right, let's get some market perspective. I'm joined now by Nancy Davis. She's founder of Quadratic Capital Management. She's a woman who
called the 2018 volatility explosion and the stock market selloff at the end of last year and joins us now. Great to have you with us.
NANCY DAVIS, FOUNDER, QUADRATIC CAPITAL MANAGEMENT: Great to be here.
CHATTERLEY: What do you think of markets right now?
DAVIS: Oh, I'm very excited about our new product that's coming to market. It's called IVOL. It's a long -- first of all, fixed income volatility
product. It also trades options on inflation expectations. So seems like a very confusing time for markets, given the very low level of volatility
and very high stocks and bond prices.
CHATTERLEY: So you were saying investors should be, if nothing else, anticipating high volatility once again, at this point, because things have
come down so low.
DAVIS: Well, I think volatility is very, very compressed for generational lows for volatility. So I think for regular investors, you have to look at
your asset allocation and look for what is good value. And I say, owning diversification now is good value.
Most investors have real estate, and then they have some amount of bonds, and then they have some amount of stocks. So having something different in
your portfolio, especially when it's very cheaply priced, in my opinion is attractive, yes.
CHATTERLEY: So take a step back and explain what you do at your fund because we sometimes talk on this show about exchange traded funds - ETFs.
Why did you look at this as a product to go, you know what, I think this is something where investors should be involved, can make money, and actually,
traditionally seen as something that just tracks an underlying product, just does it more cheaply for an investor? Why is this interesting, do you
think right now?
DAVIS: Yes. So we see IVOL as an access product, as a way to gain access to a market that individual investors or even institutional investors can't
get on their own. So for us, it's really a way of democratizing the financial markets, allowing like think about, you know, your parents or
your own savings, the majority of most individuals have their net worth tied up in their homes and real estate.
CHATTERLEY: Housing.
DAVIS: It's so sensitive to long and interest rate, and then your fixed income portfolio is so sensitive to inflation expectations. So we think
it's a very attractive product to diversify your portfolio.
CHATTERLEY: So what you're creating here is products that ordinary people who want to perhaps protect their investments, their pensions, whatever it
is, they can actually get access to a product that traditionally would, they simply wouldn't be able to get access to.
DAVIS: Yes.
CHATTERLEY: Because it will be considered too complex, they'd have to be considered a far more superior, I guess, investor in terms of their
experience.
DAVIS: Well, I think it's even, we trade options that are over the counter. So the OTC swaps market is approximately 28 times larger than the
U.S. equity market cap and it's really bizarre that there's no products that are in the rates markets in ETF packages.
So you know, it's mostly credit spreads. So it's trading corporate credit, or sovereign credit, or stocks. So we're really excited about giving
investors choices and giving them access to the world's biggest asset class.
CHATTERLEY: What do you see right now when you look at markets because we introduced you and said, look, you spotted that there was going to be a
problem in volatility in 2018.
[15:25:06] CHATTERLEY: When you look at bond yields having come down, when you look at markets find they've given back some of their gains over the
past week and week and a half, but we were trading at record highs. What do you see going on in the markets right now?
DAVIS: Yes, I mean, I think it's a really challenging time for investors, because you have stocks and bonds that all-time highs. And you have the
whole rally that's happened in 2019. It is really because central bankers came out and said, you know, the economy is not actually strong enough to
continue quantitative tightening, so we're going to stop.
CHATTERLEY: Yes.
DAVIS: So it's really kind of negative reasons for stopping and the markets have taken it as just gasoline on the fire and everything has just
rallied so much.
So I think investors should be looking for a diversification right now in their portfolio. They should be looking for other ways to generate yield,
have a safe -- relatively safe investment -- but also diversify themselves, because truly, you don't want to have you know, credit spreads and equities
tend to go down together, right?
CHATTERLEY: Yes.
DAVIS: Credit spreads widen and so you can't just hedge rates and isolate credit, you want to also have exposure. We are using options that are on
the shape of the yield curve, and a lot of people talk about the yield curve as a recession indicator. So what that is, let me define it for the
viewers.
CHATTERLEY: Very quickly because we have like 30 seconds.
DAVIS: In 30 seconds, it's a difference between front-dated yields and longer-dated yields.
CHATTERLEY: So you're basically allowing investors to take a look at that, get access to that and actually take a view on where you think it's going
and what it means to the economy. Nancy, we will get you back to discuss that in more detail.
DAVIS: Yes.
CHATTERLEY: Nancy Davis there, the founder of Quadratic Capital Management. All right, we are counting down to the market open this
morning. An eye on technology and an eye on retail, in particular, too. Plenty more to come on the show. You're watching FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:05] CHATTERLEY: Welcome back to FIRST MOVE and the opening bell here at the New York Stock Exchange for the second session this week. It
is slightly higher open expected for these markets and that is what we're seeing right now.
Reprieve, of course, granted to China's Huawei, easing some of the pressure on the big technology companies, but also some of the smaller ones as well.
Some of the providers in the rural United States relying on Huawei's technology, not so easy to diversify and get that technology from
elsewhere.
So a 90-day reprieve right now, but we are seeing a reaction in some of these individual names. Let me walk you through them in our global movers.
This morning. Qualcomm in focus. The chip maker said Monday will stop supplying Huawei until further notice. Of course, as a result now of the
United States temporary easing those restrictions, it's going to allow companies like Qualcomm that lost some 6 percent in yesterday's trading
session, to continue to trade with them. And that of course, is going to be key. The question is how long does the reprieve last and does a trade
deal come in the interim?
Tesla also in focus. Morgan Stanley cutting its worst case scenario for Tesla shares from $97.00 to just $10.00 a share. They cited concerns about
the company's increased debt load and Chinese demand, of course for Tesla's product, too. However, the firm's price target remains at $230.00 a share
with an equal weight rating. Of course, the stock is currently trading around that $205.00, still down some three and a half percent though in the
session so far.
Over to retail and now, JCPenney, the shares sinking after earnings missed estimates as we were discussing with Paul earlier on in the show. Revenues
though did come in line with expectations, same store sales, dropping those some five and a half percent. And of course, they slashed their full year
outlook, too. So challenges there, down some 9 percent in the session -- early parts of the session so far.
What about DowDuPont, though? That stock also in focus, it said it will announce a $2 billion buyback program. Investors always like that kind of
news after the company's split is completed next month, it is set to become an independent company as of June the first and of course, then it will
simply be called DuPont, up some 2 percent on that news.
All right, let's move on now. Famous footwear brands have voiced their concern, an opposition to tariffs on China. I'm talking brands like Nike,
Adidas, Under Armour. They are among some 170 firms who wrote to President Trump warning of an existential threat to the industry.
They say the proposed tires will be quote, "catastrophic" for consumers. The letter was posted on the website of the Footwear Distributors and
Retailers of America.
Matt Priest is the trade group's President and CEO and he joins us now from Washington. Matt, fantastic to have you on the show with us. You
quantified this, you said this could be up to a $7 billion additional expense for consumers? How did you get to that kind of number?
MATT PRIEST, PRESIDENT AND CEO, FOOTWEAR DISTRIBUTORS AND RETAILERS OF AMERICA.: Yes, Julia, thanks for having me on. I really appreciate it.
What's really interesting about this threat, is the fact that we already paid duties on Chinese footwear $1.5 billion a year.
And so as we look to what the $7 billion number means, it means that an additional three and a half billion dollars will be put on Chinese
footwear, if the Trump administration proceeds with List 4 under this investigation.
And so if you start to multiply that out as the cost on the first product as it crosses our borders, that has a multiple effect on footwear consumer
here in the U.S., and we already pay upwards of $3 billion in duties every single year in all footwear. And so that's why we're so concerned about
this threat.
CHATTERLEY: Because the risk is if we see the President hit terrorists on the additional $325 billion worth of imports in China that currently aren't
tariffed beyond what you're saying you already pay, that's what's going to create the additional burden here. So the message from these big brands
and from the community is, "Please don't do this."
PRIEST: That's right. This is a movie we've seen play out so many times over. Our duties have been in place since 1930, the Smoot-Hawley Tariff
Act of 1930. So, you know, the average import duty on a consumer good is 1.8 percent to 1.9 percent. Our average duty is 12 percent. And we peak
at 70 percent. So the thought of adding 25 percent on top of a 70 percent tariff plastic shoe that sold at mass retail for working families, just
seems unfathomable to us because we are already so heavily taxed when not all consumer goods can say the same.
[09:35:05] CHATTERLEY: Now, I understand that labor costs in China are significantly lower than, say, here in the United States or elsewhere.
But, you know, the President's counter to this would be, "Look, I don't want you manufacturing. I don't want you importing items from China into
the United States. I want to reassure that business and bring it back here." How easy is it for companies to even if they don't bring it back to
the United States to say fine, we're not going to import from China, we shift our supply chain elsewhere.
PRIEST: Yes, it's not that easy at all. Footwear is very labor intensive, very capital intensive. So it takes a lot of infrastructure, a lot of
planning, and a lot of support to make these changes, and you can't do it overnight.
In fact, a decade ago, 93 percent of our footwear came from China, and today that number is 69 percent. And so we've been moving away from China
anyway, because of rising labor costs, labor shortages in China and potential trade disruption.
And so we've been trying to move as quickly as we can. But the fact of the matter is, China still provides a vast majority of children's shoes, almost
100 percent of children's shoes sold in the U.S. are made in China, a vast majority of the shoes that are sold at places like Walmart and Target. And
so you can't just pick that up overnight, move it like you could for other types of products. And that's where the big concern is, if this switch
gets flipped on over the summer and consumers are going to start feeling that price pressure almost immediately, and that's a big concern for us.
CHATTERLEY: I mean, these are incredible statistic. So 100 percent of children shoes imported from China, 69 percent, overall, imported from
China, in a best case scenario, how low do you think that percentage could go over the coming years, even just to offset some of the challenges that
these companies have faced?
PRIEST: Yes, we think in the next five years, Julia that we're looking at, maybe we can get to about the 60 percent, 61 percent, 62 percent of volume
coming from China. And that just shows you how slowly things move as you look to move for production around the world.
And in the thought of actually moving it back to the United States, unfortunately, is not a reality. There is footwear production here in the
U.S., but it is for very niche markets, for very high-cost footwear that meets a certain need, and the fact is, when you have less than 4 percent
unemployment, and you don't have the capacity, or the labor -- the skilled labor -- that's necessary to produce 2.3 billion pairs of shoes is what we
import in every single year, you know, it's a pipe dream to think that you can bring that back and serve a 21st Century American consumer.
CHATTERLEY: Yes, it makes perfect sense. Matt, do these companies, though, understand that that China does need to be tackled here to some
degree, even if they disagree with the method at which -- upon which the White House is using here in the form of tariffs, because for some of these
big brands like Nike, like Adidas, like Under Armour, they suffer with their own effective intellectual property theft from China with counterfeit
products as well. Do they believe that China needs tackling just perhaps not this way with doing it?
PRIEST: Yes, I don't think you'll find anyone who disagrees with the fact that the U.S. government needs to engage with China on intellectual
property. The fact, as an organization, that's been our 75th year, we spend every single year, we send in comments to the U.S. government
outlining intellectual property challenges in China specifically.
And so that's a huge concern. But the administration set out under its investigation to tackle forced technology transfer, intellectual property
in certain areas of the China 2025 policy. And so as we've looked through this process, we support the ends by which they're seeking this, but the
means have been, we think, overly burdensome. The uncertainty is absolutely driving our members crazy.
And so that's just one of the challenges we face as you're trying to make sourcing decisions for spring of 2020 and not knowing what the costs will
be, not knowing if there's going to be 25 percent additional tariff added on to the cost of the goods that you've already agreed the prices on.
That's just very difficult to plan for and that's where our biggest concerns lie.
CHATTERLEY: Yes, huge business impact. Matt Priest, fantastic to have you on the show. Thank you so much for bringing us your insight on this.
PRIEST: My pleasure. Thank you, Julia.
CHATTERLEY: Trade, of course, the impact on the U.S. consumer, the U.S. economy, all subjects that I'm going to be discussing in an exclusive
interview that I'll bring you tomorrow with Eric Rosengren, the President of the Boston Federal Reserve. That's going to air tomorrow at 9:00 a.m.
here in New York, 2:00 p.m. in London, so watch this space for that. I'm really excited.
We're going to take a quick break, though, here on FIRST MOVE. Still to come. Weakened steel. British Steel blaming Brexit uncertainty for
pushing it to the brink. We will bring you the latest on the company's fight for survival. Just ahead, stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE. Will the British government ride to the rescue? That's the question 25,000 workers will be asking
themselves right now as British Steel teeters on the brink of bankruptcy.
The U.K. government says it is in talks with the steelmaker which blames Brexit uncertainty for its plight. Anna Stewart joins me now from London.
Gut feel on this one, Anna, it is it all about Brexit because it's a pretty challenged industry and a sector, never mind with Brexit involved.
ANNA STEWART, CNN REPORTER: I mean it's a great point. Brexit of course accentuates all of its problems, but it's far and it's far from the only
thing we have rising raw material costs particularly iron ore, cheaper steel from China. That's been a problem for this industry particularly in
Britain for decades.
However, Brexit is a problem, and I'll tell you why. Seventy percent of British Steel's products do get sold to the E.U., to North Africa, to
Turkey, all of those customers have been pushed off perhaps from buying from British Steel given that a hard Brexit is still possible with all the
tariffs and customs costs that come with it. And that deadline, of course, has moved a few times. That's now at the end of October, so you can see
why they might not sign on contracts.
But if we look at the overall issue here on whether the government will step in and it said, if it doesn't stamp up 13 million pounds, that's $38
million, today or tomorrow, this company will be forced to enter administration, but it's facing huge political pressure which is why the
U.K. government may well act particularly as the company says it is all to do with Brexit.
Now we haven't had a verdict yet from the British government, but we did hear earlier today from the British Business Minister, take a listen to
what he had to say.
(BEGIN VIDEO CLIP)
ANDREW STEPHENSON, BRITISH BUSINESS MINISTER: We have been in ongoing discussions with the company and I am sure the House will understand that
we cannot comment in details at this stage. We will, however, update the House when there is more information available.
I can, however, we assure that House that subject to strict legal bounds, the government will leave no stone unturned in its support for the steel
industry.
(END VIDEO CLIP)
[09:45:06] STEWART: "The government will leave no stone unturned," that certainly suggests that the government may act it and it's interesting
because the Conservative Party traditionally does not prop up failing businesses or industries that allows market forces to take over. This is
much more like the Labour Party's policy of nationalization and helping businesses.
However, it is seriously under pressure, not least, as the party also faces the prospect of an E.U. Parliamentary elections coming up in the next few
days -- Julia.
CHATTERLEY: Yes, I would have made exactly the same points. Nationalization versus a bailout for the private owners versus the timing
here with European elections. Anna Stewart, yes, bottom line.
More to come on FIRST MOVE. The budding business, the company that stepping in where the regulators aren't to help set the standards in
cannabis related products. Stay with us. That's to come.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to FIRST MOVE and a look at today's "Boardroom Brief." The Chairman of oil giant, BP says the world's energy consumption
is on an unsustainable path.
Helge Lund says BP is transforming itself to meet the challenges of climate change, though he didn't spell out any new measures that the company is
taking. The firms says it is facing investor pressure at today's annual meeting to be clear about how it will make his business more sustainable.
Snap has appointed a new chief financial officer. The owner of Snapchat has been shaking up its leadership after seeing user numbers fall following
a disappointing redesign. Its share price has more than doubled this year and revenue grew faster than expected in the first quarter.
In Britain, celebrity chef, Jamie Oliver's restaurant business has gone into administration. His chain of 25 outlets employs more than a thousand
people. The group had been seeking a buyer in recent months amid growing competition in the U.K. market for casual dining.
All right, let's move on. The cannabis gold rush has seen a lot of hype about something known as CBD, you may be familiar with it. It's the
chemical compound found in hemp and marijuana and it's showing up in everything from shampoos to gummy bears.
Standard Dose is one of the retailers to offer the product, pitching them as a natural way to improve health and wellbeing. I asked the company's
chief executive, Anthony Saniger to explain what's in his products and why there are no psychoactive ingredients, that's the illegal bit. Listen in.
(BEGIN VIDEOTAPE)
ANTHONY SANIGER, CEO, STANDARD DOSE: Cannabis is the family of plants, then you have industrial hemp underneath and you also have marijuana.
Industrial hemp according to the 2018 Farm Bill is any cannabis that is grown with less than 0.3 percent THC. Marijuana has high concentrations of
THC. THC is the psychoactive compound that actually gets you high, while CBD has no psychoactive properties.
CHATTERLEY: So as long as it is below 0.3 percent.
SANIGER: Exactly, then it's industrial hemp.
[09:50:04] CHATTERLEY: Exactly, and therefore it's okay to use and it's fine.
SANIGER: Exactly.
CHATTERLEY: So you are tackling issues like pain, sleep, anxiety. Talk to me about the kind of products that you were testing because you've gone
through everything to try and help consumers select the right things. And you were finding all sorts of exciting things where people have not tested
the products. There is zero regulation in this space. And that's one of the big challenges, too.
SANIGER: Exactly, I mean, I think for me, the FDA hasn't ruled, there has been no conversations today to kind of like what is next for this whole
industry. Meanwhile, consumers are faced with all of these issues -- pain, sleep, anxiety -- we have a big anti-pharma movement that's really
happening in the country. And I think that's really important to take note of, because I think that's also fueling this.
I mean, at the end of the day, we're talking about a plant. It comes from nature. It comes from the ground and it's only been illegal since 1937.
CHATTERLEY: And certainly, we've been around for thousands of years.
SANIGER: Yes.
CHATTERLEY: Used for thousands of years.
SANIGER: Exactly. And I think you know, for me personally and for Standard Dose as a brand, we do not support kind of a cannabis culture, as
you will, of what has been stigmatized as. We really want to take and think about cannabis from a medicinal purpose.
So for our customers, it's really pain, sleep and anxiety, how combinations of CBD sometimes with less than the 0.3 percent THC? How are products
created that actually can help customers feel better?
(END VIDEOTAPE)
CHATTERLEY: The CBD floodgates opened after President Trump signed the Farm Bill into law back in December, it legalized the production of hemp,
but as you just heard, the products are still not regulated in the United States. And I asked Anthony whether he would welcome more oversight.
(BEGIN VIDEO CLIP)
SANIGER: I think definitely, regulation on the THC side, we do know it has some psychoactive abilities. So I do think that on the THC side, over a
certain limit. There should be some regulation and also some rules that you need to go through to actually be able to obtain this, but I think on
the CBD side, you know, there are no psychoactive compounds, and it does help with inflammation, it does help with pain, it does help with some
anxiety.
So I think utilizing it in those three categories, under a certain milligram of CBD, I do think that the consumer should be able to access
that similar to a nutritional supplement like you're getting vitamin C or vitamin D, we have an endocannabinoid system in our body, and the
endocannabinoid system in our body is deficient of CBD. And so by adding it, that's actually what's causing the benefits.
CHATTERLEY: It's a supplement ...
SANIGER: Yes.
CHATTERLEY: ... to your body's own workings and its own system. What conversations are you having with consumers about it, and perhaps the
conversations that they need to be having here in the United States at the state level, to make sure that their senators and their representatives
actually understand because there are other benefits as well? There's tax benefits as well if this industry is allowed to flourish.
SANIGER: I think no matter what happens, I think the IRS will have to step in and really start to say, hey, there's a lot of tax dollars sitting on
the table. Consumer understands the benefit. We have customers coming to the site and buying one sleep patch, and then coming back and buying 30
more.
So I know for these consumers, it's working, and they're buying the product, and it's helping them live a better life. So I think at the end
of the day, if the FDA doesn't regulate soon, I think the IRS should really step in and say, hey, there's a lot of tax revenue sitting on the table
that we can be collecting. And it's a whole new market that we can open up and untap.
(END VIDEO CLIP)
CHATTERLEY: Finally, we talked about what the future holds for his company. He is now raising money. I also asked him what the feedback has
been from investors at this stage in the company's growth.
(BEGIN VIDEO CLIP)
SANIGER: Really, for us, it's about an experiential retail destination. That destinations more holistic wellness. So right now for consumers, if
you want products, you're running over to Sephora to maybe get your beauty products, you are running to Whole Foods to get nutritional supplements.
Maybe GNC, right? You're running to all of these different companies.
And then you have to go to your yoga class, or you have to go over to Equinox for working out. So what we're really trying to do is create a
holistic wellness hub that's centered around plant-based medicine. I think what we put inside our body is as important as what we put on our body.
And so that's really the messaging that we're saying.
So we do things like daily yoga classes, daily meditation, we have a beauty bar where you can try on any of the products, wash your hands, wash your
face, you can sample any products within the retail experience. We have yoga on the roof. So it's a really cool experience.
CHATTERLEY: Holistic
SANIGER: Yes.
CHATTERLEY: What are investors saying to you? Potential investors?
SANIGER: Yes. I mean, I think there's two sides, right? There's straightforward cannabis investors who are looking at a gold rush. And
they're saying, well, this market is growing superfast. How can we get involved? How can we be a part of that? And there are other people that
are focusing more on wellness and those investors are the ones that are most interesting to me because they understand the long-term benefits.
One in three millennials actually suffer from anxiety disorder, according to a recent study and the CDC actually said that sleep is a national
emergency. So because of that, I think it's really important that we take a step back and we look at how can we incorporate plants? We eat processed
food. We eat unhealthy things all over and then we're taking prescription drugs, right?
[09:55:10] SANIGER: So let's step back to plants, and let's bring them into our life, and I think that those type of investors that are interested
in that part and in that messaging, those are fewer, but those are the ones that I think will have the long-term success and not just ride the fad.
CHATTERLEY: Have you raised money, personally, as a company?
SANIGER: We have, yes, so we closed a seed round of funding end of last year. We worked with a private equity firm and when we're opening up the
Series A now.
(END VIDEO CLIP)
CHATTERLEY: My big takeaway from this interview was how little I actually understood and knew about the products and the fact that there simply are
no standards. So the takeaway, I think, is be careful what you're buying if you're investing in these products, because they don't always have what
it says on the label.
All right, let me give you a look at what we're seeing as far as that market movements are concerned. This morning, we were seeing a more
positive start to the session. We've continued with that.
Right now, some six tenths of a percent higher for the S&P 500. Keep an eye on what we're seeing in the tech sector, in particular, too, as a
reaction to the relaxation of restrictions on Huawei. More to come on "The Express," but that's it for FIRST MOVE. Thank you for watching.
(COMMERCIAL BREAK)
[10:00:00]
END
