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First Move with Julia Chatterley
Huawei's CEO Reveals The Cost Of Its Fight With The U.S.; Iran Says It Will Exceed The Stockpile Limits Of Low-Grade Uranium Enrichment; How Companies Are Avoiding The Tariffs By Shifting Production Lines. Aired: 9- 10aET
Aired June 17, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Live from the New York Stock Exchange, I'm Alison Kosik, and here is what you need to know. A $30
billion ban. Huawei's CEO reveals the cost of its fight with the U.S. A 10-day warning. Iran says it will exceed the stockpile limits of low-grade
uranium enrichment; and not made in China? How companies are avoiding the tariffs by shifting production lines. It's Monday and this is FIRST MOVE.
Welcome to FIRST MOVE and a Happy Monday to you. Let's begin with a check of the markets.
Here on Wall Street, it looks like futures are reporting to a flat to modestly higher start to the trading week with the NASDAQ set for the
biggest gains. All the major averages finished last week in positive territory for the second straight week. The S&P 500 is about two percent
away from its all-time high, and it's up almost five percent so far just this month.
This week's big event for the market takes place on Wednesday. That's when the Federal Reserve releases its latest policy statements, and Fed Chair,
Jerome Powell will hold a news conference. Many believe the Fed will begin cutting interest rates as soon as the summer to help ensure against a trade
related downturn. The Fed could begin laying groundwork for those cuts this week.
Meantime, U.S. Commerce Secretary Wilbur Ross said once again this weekend that the U.S. could slap new tariffs on China if trade talks go nowhere.
President Trump and China's President Xi could meet to discuss trade at the G-20 Summit that's happening later this week.
All right, let's get straight to the drivers. Iran says it is accelerating low grade uranium enrichment and will pass the limit it is allowed to
stockpile in 10 days. It's the latest step Tehran is taking away from the International Nuclear Deal. It was signed almost four years ago, after the
U.S. unilaterally withdrew from it in May of last year.
Let's get to Fred Pleitgen. He has got the latest from Tehran. So glad you're there for us because we're trying to get an idea here of where Iran
is going with this. What is Iran hoping to accomplish with this move?
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, I think essentially what the Iranians are trying to do or why they're doing this,
Alison, is because they feel that the European nations are stalling.
The Iranians are saying, look they signed the nuclear agreement -- all the parties that are still part of the nuclear agreement, which is of course
everybody who signed it except the United States -- all of them have commitments under the nuclear agreement. And they feel that they have been
sticking to their commitments, which also the International Atomic Energy Agency has said that Iran is complying by that agreement, but they feel
they're not getting back from the Europeans, what they are old under this Agreement.
Keep in mind that when the U.S. decided to leave the nuclear agreement, the Europeans told the Iranians they would try to make up for any losses that
the Iranians would havebecause they would obviously lose a lot of American business.
Now the Iranians are saying, look, so far, the Europeans have been all talk and very little action, because so far, the Iranians still basically can't
export any oil because of U.S. sanctions, and of course, businesses aren't really coming here from Europe, or from anywhere else because they fear
American sanctions.
Let's listen into a little bit of what the spokesman for Iran's Atomic Energy Agency had to say, as he was announcing the fact that the Iranians
are scaling back their commitments and what he wants to see the Europeans do. Let's listen it.
(BEGIN VIDEO CLIP)
BEHROUZ KAMALVANDI, IRANIAN ATOMIC ENERGY AGENCY: And I have said that we are counting down, in 10 days' time, we will overpass, of course, the
limitation of keeping to arranged legal arms of stockpiles of LEU enriched uranium inside the country.
And of course, there will be other measures later on if the Europeans will not do their part.
(END VIDEO CLIP)
PLEITGEN: There you go. If the Europeans will not move. Of course, one thing that the Europeans, Alison have been saying is they say they want to
put together an investment vehicle to try and get around American sanctions. So far that really hasn't taken off.
The European say that there is headway being made that it's still in the works, but so far, it simply isn't in practice yet.
Now so far, we've seen from the Europeans, there are some reactions. The Brits have been very critical of the Iranian statement. We're waiting to
hear more from the European Union from other European countries as well -- Alison.
KOSIK: Okay, we will look to you for their comment. Thanks so much, Fred Pleitgen, live for us in Tehran.
Huawei names that the cost the company's founder says the U.S. ban on its products will slash sales by get this, $30 billion over the next two years
and has alreadyled to a 40 percent drop in overseas handset sales.
[09:05:12] KOSIK: Sherisse Pham joins us live from Shenzhen, China. You know, it's only been four weeks that Huawei has been blacklisted. These
are some big estimated losses.
SHERISSE PHAM, CNN BUSINESS REPORTER: These are huge losses, Alison. This is really the starkest terms yet that Huawei has laid out for how this
U.S.-led pressure campaign is hurting its bottom line.
The $30 billion drop in sales over two years, 40 percent drop in overseas smartphone sales, and let's not forget a lot of American viewers out there,
they may not be very familiar with Huawei, because Huawei has been locked out of the U.S. market for the better part of a decade. But our European
viewers, you know, Huawei very well because that's where hallway sales have been growing.
Almost half of our smartphones sales came from overseas markets last year. Those are markets outside of China. And look, Huawei is the world's number
one telecommunications maker, telecommunications equipment maker and the number two smartphone brand and Ren Zhengfeisaid today that he always knew
that the company would become a target when it became big, but he said he had no idea that this U.S.-led campaign was coming. Have a listen to what
he had to say.
(BEGIN VIDEO CLIP)
REN ZHENGFEI, FOUNDER, HUAWEI (through translator): What we didn't foresee was that the U.S. strategic determination to attack us would be so great
and could be so unwavering. We also didn't foresee that the U.S. would strategically attack us on so many fronts. However, I don't think this
will stop us from moving forward.
(END VIDEO CLIP)
PHAM: He doesn't think it will stop the company from moving forward. He is still predicting that the company will survive these geopolitical
headwinds.
But of course, this is a massive setback for the company. Washington put Huawei on this trade blacklist about a month ago. It means that U.S.
companies can't sell things like software and chips to Huawei, and without access to popular apps like Google Maps and Instagram, Huawei smartphones
become a lot less attractive to international consumers.
Ren saying the company will survive, but analysts say if this ban is in it for the long haul, Huawei's global business will really be threatened --
Alison.
KOSIK: Yes, I mean, the company will survive he says but how does he go ahead and handle these losses as they go forward? Because Huawei will
remain on this blacklist?
PHAM: Huawei has said that it's been diversifying its supply chain for a while and that they've been stockpiling parts, so they do have some
contingency plans in place. They've been trying to build their own operating system for the last little while. So that's something that could
replace the Android operating system.
And you know, Ren said today, and the numbers bear this out is that while smartphone sales overseas are on the decline, and they really had this drop
since the entity ban came into place, smartphone sales for Huawei are growing in China and China is one of the biggest markets out there so they
can survive domestically. It will remains to be seen what their global business will look at if this U.S. ban stays in place for much longer.
KOSIK: All right, CNN's Sherisse Pham. Thanks so much for that. All eyes are on Boeing at the Paris Air Show. The U.S. jet maker and its European
rival Airbus, they typically use this industry event to announce new orders for hundreds of aircraft.
But this year, things are going to be a little different because Boeing hasn't announced the commercial order in over two months.
Melissa Bell is live for us at the air show in Paris. So I've been reading and I know that Boeing already kicked off the event with another apology
with Dennis Muilenburgapologizing, reiterating that when the MAX gets back to service, it will be one of the safest airplanes to ever fly, but I can
only imagine how awkward that is for Boeing.
MELISSA BELL, CNN PARIS CORRESPONDENT: This was always going to be an extremely important test. We're here on the tarmac at Le Bourget just
outside of Paris. This is the air show where Airbus and you can see there some of them lined up here along the tarmac and Boeing go head to head, and
it's all about the orders. It's all about the numbers of contracts they're going to get.
You have the big aircraft makers, you have the big airline companies, you have the military also represented but it is that battle between the two
giants of the aviation industry.
This year, of course made very different by what Boeing has gone through over the course of the last year with its 737 MAX, and it was all this
morning when we heard from Boeing about contrition.
(BEGIN VIDEO CLIP)
KEVIN MCALLISTER, EXECUTIVE VICE PRESIDENT , BOEING: Bottom line, we will employ every resource across Boeing in a comprehensive effort to make sure
we get this airplane safely return to service and when it does, the MAX will be one of the safest airplanes ever to fly.
(END VIDEO CLIP)
[09:10:07] BELL: In the meantime, of course, Alison and perhaps, no surprise, the Airbus is using this event to really put the knife in
announcing the contract worth a hundred planes and $11 billion this morning, of which 27 aircraft being made by Airbus that were launched here
this morning, the A321XLR.
This is a new version of their A321that will go further than the previous one and that directly competes with Boeing's plan for a new mint on an
aircraft that was to have launched by 2025. That is now in doubt.
So bold has Airbus's move bid into this mid-market section with this new Airbus launch and again, a hundred planes sold today - that was their
announcement today. They really wasted no time in using Boeing's woes to make sure that they can get ahead in this crucial extremely competitive
market.
KOSIK: All right, Melissa Bell live for us in Paris with many planes flying overhead.
These are the stories making headlines around the world. China's President Xi Jinping will pay a visit to North Korea invitation of Kim Jong-un.
That's according to the Chinese news outlet, Xinhua, and it says the visit will take place this Thursday and Friday.
Crowds are once again filling the streets of Hong Kong demanding the Chief Executive's resignation. This was the scene on Sunday when organizers say
around two million people took to the streets.
Chief Executive Carrie Lam has apologized for introducing the controversial Extradition Bill, but demonstrators want her to step down. Ivan Watson
joins me live from Hong Kong now.
You know, you think about the small steps toward with -- you know these little steps toward a win for these protesters for those who are against
this Extradition Bill. Discussion of the bill, action of the bill has been suspended. But still falling short of totally scrapping the bill, right?
IVAN WATSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, it's a temporary suspension, and so the demonstrators that are still out in much smaller
numbers I might add tonight around me here by the Office of the Chief Executive of Hong Kong, they want that bill completely scrapped, but
they've also added additional demands. They want the resignation of Beijing's hand-picked leader here in Hong Kong, this basically lifelong
bureaucrat, Carrie Lam.
And they want people who were detained and arrested throughout this very dramatic week, eight days of street protests to be released. And they want
accountability from what they say are allegations of police brutality.
And so what we're hearing is taking place now is you have some pro- democracylegislators lawmakers who are gathering here trying to figure out ways to try to push their demands forward with the city's authorities.
I do have to stress thoughthat that the concessions that the leadership here has made in the last couple days are really quite striking. That
apology that came in increments, from Carrie Lam, ultimately coming in written form, in response to the tremendous sea of protesters dressed in
black that coursed through the streets of the city on Sunday.
It is a fascinating dynamic that is playing out here, the most dramatic week that Hong Kong has seen in years -- Alison.
KOSIK: I mean, manywould see it as a shocker that the bill was even suspended, and as you said, that apology came. What do you think is the
likelihood that Carrie Lamcould resign?
WATSON: You know, judging by what happened five years ago, when protesters occupied this park and streets around it for more than two months before
they were ultimately pushed out. At that time, the Chief Executive and they were calling for his resignation, then he stayed in power for some
time afterwards and still enjoyed the support of the Chinese central government.
So if, if we're going to see a repeat of the same approach, we could see the same thing right now. And one of the challenge that the opposition
faces right now ishow do you keep that energy? How do you keep people mobilized? It is pretty startling, pretty unprecedented the arguably
millions that we saw out in the streets over the course of the last eight days, but it's very hard to catch that lightning in a bottle moving
forward.
KOSIK: Ivan Watson live for us in Hong Kong. Thanks so much for that great reporting. President Trump is accusing The "New York Times" of quote
"virtual treason" after the paper reported that the U.S. is stepping up cyberattacks on Russia.
According to the paper, the U.S. is targeting the Russian power grid and has placed potentially crippling malware inside the Russian system.
[09:15:11] KOSIK: Stay with us on FIRST MOVE. Still to come, playing the Trump card, India raises tariffs on dozens of U.S. imports, and opening up
about privacy, Google's CEO says big tech must take responsibility for how it uses your data.
(COMMERCIAL BREAK)
KOSIK: Welcome back the FIRST MOVE live from the New York Stock Exchange. Let's take another look at Wall Street futures, and it's looking like a
mostly flat start for all the major averages.
Trading could be subdued early this week until the Fed releases its much anticipated policy statement that's happening on Wednesday. The statement
should give investors new clues into whether the Fed expects to make a so- called insurance rate cut to help keep the economic expansion going.
All right. For more on the markets, Paul Christopher joins me now. He is the Head of Global Market Strategy at the Wells Fargo Investment Institute.
I couldn't have picked a better week for you to be here.
Let's start off by talking about the Fed because if you look at the economy, many would see that it's less weak than previously thought, but
yet you have investors screaming for a rate cut and you have the predictions of one maybe even two rate cuts this year. Are rate cuts
justified and if so why?
PAUL CHRISTOPHER, HEAD OF GLOBAL MARKET STRATEGY, WELLS FARGO INVESTMENT INSTITUTE: We think so eventually, but probably not this month, and maybe
not even until later in the year. Actually, the Fed we think is going to be watching the data very closely. You had a pretty good retail sales
report last week, pretty decent industrial production number. We think the Fed will not be in a hurry but will be patient.
KOSIK: How do you think the year -- the rest of the year -- is going to shake out? I know that Wells Fargo put out its mid-year outlook report.
What do you see going forward?
CHRISTOPHER: Yes, our view is that the economy is not at imminent risk for recession. The labor market is still pretty solid. Consumer household
spending looks pretty good to us.
[00:05:09] CHRISTOPHER: The real weakness comes on the corporate side in terms of corporate spending on plant and equipment that has been very
lackluster, and it has been even more so around the world and that's probably going to continue as long as we have these trade disputes going
on.
So you've got the economy -- the global economy and the U.S. sort of firing on just that one piston household spending right now.
KOSIK: But that one challenge ahead. That could be a biggie, especially for the market?
CHRISTOPHER: Well, yes, you're not going to work out all of the details of the trade dispute with China overnight, or even very quickly. But we do
think there will be a preliminary deal. And once the markets start to get a sense for how negotiations may go, and frankly, needing to see the two
sides or even willing to make some kind of compromise, then there could be some let up in some of this pessimism.
KOSIK: How much is the inverted yield curvea concern for you? How important is to get that thing normalized?
CHRISTOPHER: Well, it's a very important indicator, it has been associated with the coming of recessions in the past, not right away, of course,
several quarters it takes after the inversion. It is one indicator.
But what we think is going on right now is perhaps the bond market has reacted a little bit strongly to the trade dispute and the slowing in the
global economy. And we think that rates probably will pick back up a little bit in the coming months.
KOSIK: Okay, so many would say, look, the bull market at this point is very long in the tooth. What are ways to invest in this kind of
environment where many see the bull continue to run?
CHRISTOPHER: Well, you want to make sure that you have your income. A lot of our clients need to have income with yields this low around two percent
on the 10-year. You really need to make sure that income is in place. We still like dividend paying stocks. Rates will also give you some -- a real
estate investment trust will also give you some of that income and once you've got your income taken care of, the next thing is to protect that
capital a little bit.
And one of the best ways to do that is a really big basic investing technique called rebalancing. Our target right now for the S&P yearend is
2,850. The market is a little bit above that. We should be looking at taking some profits, put some cash aside and when we get the next little
bit of bad news or worries, you look to put that money back to work. That's how you're going to make money in stocks.
KOSIK: And you talk about bad news and worries? Look, trade is really one of the biggest headwinds, and it's the most unpredictable headwind, you
know, we've got that next tranche of tariffs possibly going to affect, the $300 billion, how do you trade knowing that that could be down the pipe?
CHRISTOPHER: Well, you have to make sure that you're well diversified in the first place, make sure that you have some cash on the sidelines and be
disciplined about it.
We are going to get some disappointing news at some point or another. But we do believe there will be a deal. So if you keep that out there on the
horizon, then when you do get those disappointing days, those will be days to look to put some money back to work.
KOSIK: What about emerging markets, very quickly before we go?
CHRISTOPHER: We do like emerging markets here. We think they've probably been oversold in all of the trade disputes stuff. We think that China will
more or less -- well, let's put it this way, more than anything, keep its economy stable going forward. That's going to be a good sign for emerging
markets. It looks attractive to us on a valuation basis.
KOSIK: Okay, Paul Christopher of the Wells Fargo Investment Institute. It's so good talking with you today.
CHRISTOPHER: Thanks for having me.
KOSIK: Thanks very much. Okay, turning now to another battle ground for the Trump administration. As we talked about trade -- India, ramping up
tariffs on U.S. imports.
In just the past 24 hours, it's hit 28 American products with increased duties. Relations between the two countries have soured in recent weeks.
John Defteriosis live for us with more.
All right, so I want to talk about the timing of this. Why now? Because it seems that much delayed response by India for the American tariffs on
Indian steel and aluminum.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Well, I don't want to read too much into it, Alison. But I think after the resounding victory
by Prime Minister Narendra Modi that took place in India, he is feeling a little bit more emboldened at this stage.
This is a huge market of 1.3 billion consumers. It is not China. But the application of the tariffs is more symbolic than a real bite here. It
covers 28 products, you'd think, "Wow," mostly foreign products. But it only covers about a quarter of a billion dollars. I think it is an effort
by the Modi administration to send a signal to Washington here.
But if you go back to the meeting in June of 2017 between Prime Minister Modi and President Trump, they sounded like the reformers, those who are
pro-business that will make things happen between the two countries, particularly as President Trump started to challenge China. But this
bromance never really materialized here.
And in fact, I was in India over the last two and a half weeks and the weekend that Modi won the election, the U.S. decided to lift this general
preference for trade, which covered about $6 billion worth of exports from India into the United States.
Now, India is a promising market, the big, fast-growing market, but the trade between India and the United States is about $142 billion bilateral
trade. It is about a sixth of what we see with China. But it was the future of Indian trade with the United States that everybody was betting on
and why U.S. companies are not happy about China, but also not happy about the trade tensions between the U.S. and India right now.
[09:25:16] KOSIK: John, you know, some may consider this a real high risk strategy for India picking a fight with its biggest export market, the
U.S., especially when growth is slumping.
DEFTERIOS: You make a very good point because the last quarter in India, while it sounds good on a global level of 5.8 percent is far from the days
of heady days of eight to nine percent; we're recently getting used to seven percent.
And then the government came out and announced that growth is perhaps about two and a half percent above those high margins before because of a
recalculation.
I know again, on the ground, having been in India, Prime Minister Modi is concerned about the jobless rate. It hit a 45-year high, I said that
correctly, 45-year high against not very high, 6.1 percent. But criticism of the government not generating enough jobs.
Now politically, making India as a huge campaign on the ground in India. They want to make their own electric tuk-tuksand two wheelers right now,
and the infrastructure to be built by Indian companies, perhaps with U.S. and European expertise.
So this is a domestic play by Prime Minister Modi looking tough on Washington right now, and we know that the Trump administration has
complained about the tariffs on motorcycles and medical devices and even whiskey.
So the latest move by the Modi administration, even though it's symbolic in terms of the overall dollar amount, does send a very strong message to
Washington right now. Don't mess with China, but also don't mess with India at the same time.
KOSIK: All right, John Defterios, thanks so much for your reporting.And we've got the opening bell coming up right after this break. We'll see you
on the other side.
(COMMERCIAL BREAK)
[09:30:00] KOSIK: And there you have it. That's the opening bell on this Monday morning right here at the New York Stock Exchange. U.S. stocks look
like they're mostly flat in the opening trading moments. It looks like tech stocks are set to make some modest gains.
Meantime, oil is trading lower. Both Brent and U.S. crude are down more than half a percent. We are watching oil as it continues to stabilize
after Thursday's spike of about four percent that follows the twin attacks on tankers in the Gulf of Oman.
All right, let's take a look at some of the global stock movers that we're seeing on this Monday. We begin with drugmaker Array Biopharma. Shares
are rallying after a buyout offer from Pfizer. Pfizer is buying the company for more than $10.5 billion dollars. Array sells drugs to treat
skin cancer and it has other cancer treatments in the pipeline.
Shares of Sotheby's are rallying. It's been taken private by a company called Bidfairin a deal worth $3.7 billion. That's a 60 percent Premium
from Sotheby's share price on Friday.
Bidfair is owned by Patrick Drahi, a media and telecom entrepreneur, and we're keeping an eye on shares of Chewy, they are lower in early trading.
The internet arm of retailer Pet Smart went public on the New York Stock Exchange on Friday. Shares popped almost 80 percent, but it looks like
they are giving back some of those gains today.
Shares of Alibaba are higher. The company's board has approved a one to eight stock split and has set a shareholder vote to happen on July 15th.
Alibaba says it wants to boost available shares to give it flexibility for future market activities. It is seen as a sign that Alibaba is going ahead
with a public listing in Hong Kong later this year.
Corporate America is about to get its say on the prospect of more tariffs against China. Hundreds of company executives and trade groups are set to
testify in Washington this week. Clare Sebastian has the latest on that. Good morning, Clare.
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Hi, Alison, yes, this is the first day of seven straight days of hearings that the U.S. Trade
Representative is holding. That's about this $300 billion in extra tariffs in Chinese goods that the President has proposed.
I want to bring up just some of the companies that are set to testify today on day one just so you get a sense of the types of industries represented
here: BestBuy and Roku -- so electronics is a big one. Kenneth Cole, fashion and apparel another big importer from China that could set to be --
it could be set to get hit.
New Balance is an interesting company. They make shoes. They have supported the trade war, but now they find that the parts they use in their
manufacturing in the U.S. could get hit and interestingly, also Element Electronics. They once also supported the President's trade war, but they
are now also lobbying against it.
So you get a sense of just how far this has come out, Alison, with minds being changed, but they are not just lobbying the government, some of these
companies out there, Alison. Some companies are now making fundamental changes to their supply chains to try and avoid these tariffs. Take a
look.
(BEGIN VIDEOTAPE)
ARNOLD KAMLER, CEO, KENT INTERNATIONAL: Aluminum handlebar, aluminum handlebar stand, aluminum suspension fork -- this is all from China.
SEBASTIAN (voice over): To Arnold Kamler, this is no longer just an eight speed mountain bike. It's a reminder almost every part of his business is
caught up in the U.S.-China trade war.
(BEGIN VIDEO CLIP)
SEBASTIAN (on camera): Would these have all been subject to tariffs?
KAMLER: Everything in this building.
(END VIDEO CLIP)
SEBASTIAN (voice over): Kent International is one of the largest bicycle and bike part wholesalers in the U.S. supplying Walmart, Amazon and other
major retailers.
(BEGIN VIDEO CLIP)
KAMLER: So on a million dollar shipment, which is a normal shipment for us where a year ago, we would have paid $110,000.00 of import duties. This
year, it would be $360,000.00 in import duties.
So, it's quite expensive to handle.
(END VIDEO CLIP)
SEBASTIAN (voice over): So expensive that after more than three decades of manufacturing and sourcing in China. He is shifting gears.
(BEGIN VIDEO CLIP)
KAMLER: We don't want to move away from our main suppliers. And so we're working together to build a fairly substantial factory in Cambodia. It's
their money. It's a little bit of our help and advice.
(END VIDEO CLIP)
SEBASTIAN (voice over): Kent is part-owned by its Chinese manufacturing partner. Last year, they purchased this plot of land in Cambodia, and when
hopes of a trade deal fell apart in early May, construction plans were fast tracked.
They now hope to have the factory completed by early next year.
Kent is just a small part of what experts say is one of the biggest shifts in global supply chains in years accelerated by tariffs.
(BEGIN VIDEO CLIP)
PETE GUARRAIA, PARTNER, BAIN & COMPANY: For the last decade or practically two decades, China has been the factory of the world, and we've
seen everything shipped there from nails to cell phones.
What's happening now is people are stepping back and saying as labor rates are increasing and as there is uncertainty with tariffs, we need to rethink
this sort of nature of the totality of our supply chain.
(END VIDEO CLIP)
SEBASTIAN (voice over): Shoe designer Steve Madden, GoPro, even iPhone maker Foxconn are all shifting or considering shifting some production away
from China to avoid the tariffs.
(BEGIN VIDEO CLIP)
KAMLER: It's a beautiful front suspension mountain bike.
(END VIDEO CLIP)
SEBASTIAN (voice over): Arnold Kamlersays the irony is before the tariffs hit, he wanted to move more production back to the U.S. expanding this
assembly plant he set up in South Carolina in 2014. The tariffs on parts have made that too expensive.
(BEGIN VIDEO CLIP)
KAMLER: We believe that we have the opportunity to bring back the American bicycle industry, which was decimated by China 25 and 30 years ago and
bring it all back here. But we need some help from the government.
(END VIDEO CLIP)
SEBASTIAN (voice over): So for now, this century old family business is heading into uncharted ground.
(END VIDEOTAPE)
SEBASTIAN: So Alison, I would, from what we've found speaking to these companies, early May was certainly a turning point when we saw President
Trump raise that tariff rate on $200 billion worth of Chinese goods.
I would argue that the next two weeks could also be a turning point. We have these hearings in Washington, followed by another week of written
comments.
We've also got the potential for a meeting between President Trump President Xi at the G-20. So a lot could change in the next couple of
weeks.
But meanwhile, it's clear that these tariffs are hitting home already, and are starting to lead to what could be a fundamental shift in the landscape
of global trade.
KOSIK: Yes, Clare, I absolutely agree with you. We are at a crucial time right now in the next two weeks. Clare, thanks so much for your report.
And President Trump has threatened to slap more tariffs on Beijing if the Chinese President doesn't meet him at the G-20 later this month. I want to
discuss more now with Chris Campbell. He is the chief strategist at the consultancy Duff & Phelps. And it's fantastic to have you on because you
have been working with the Trump administration over the past couple of years.
Your exact title here, let me get this right, you were Assistant Secretary of the U.S. Treasury for Financial Institutions, but you have a great point
of view here. Where do you think the Trump administration is going to go with this last tranche of tariffs? Do you think they'll go ahead and slap
the last bunch on?
CHRIS CAMPBELL, CHIEF STRATEGIST, DUFF& PHELPS: Look, this President, I think has proven time and time again, that when he issues a threat, he will
back up the threat and issue it and going through and imposing terrorists. I see nothing different now, as I believe that, you know, he will -- if the
Chinese don't meet him halfway or don't make moves to get to a place where they are going to get to a yes in this negotiations, I think you will
impose tariffs.
KOSIK: You know, we're talking about this week kicking off these public hearings where these companies are having a chance to sort of state their
case.
If you think that the Trump administration, that President Trump is going to go ahead and put these tariffs into effect, what's the point of having a
public hearing if it's just sort of falling on deaf ears?
CAMPBELL: Look, I think it's important for everyone to have a say and have a perspective. But look, I look at this from a perspective of the 15 years
I spent in Washington, D.C.
Look at the Obama administration, the Bush administration, the Clinton administration -- all of them whom I worked with, to try to get China to a
place in coming to yes on meeting us halfway to getting to a fair and free trade agreements. They haven't done it. Just they've been able to slow
walk the United States in conversation after conversation. And this administration has taken a different perspective, a different viewpoint and
the Chinese are reciprocating.
They're there at the table in a significant way. They're sending over high level envoys. They're trying to find a way to get to yes. They have
domestic challenges. They see what's happening in Hong Kong and China right now and other issues. They certainly have to their own domestic
pressures they have to navigate.
But the end of the day, the Chinese government and Chinese businesses must have access to our U.S. consumers. Without them, Chinese markets and the
Chinese economy is in a real trouble.
KOSIK: Do you see China actually coming to some sort of agreement? Knowing that they according to the Trump administration -- backpedaled on
an agreement recently?
CAMPBELL: Look, I think, yes, it depends on who you ask, you know, who backpedaled who, but what I can say is that the Chinese government from our
perspective, and what we started advising our clients, yes, they have to get to yes, because without it, they cannot -- have you seen the GDP
growth? The numbers they have to have in order to maintain the level of job growth that they have and that they need domestically.
You know, without the global job growth, we're going to see more of Hong Kong and you could see Hong Kong and Beijing, that's going to be a real
problem for the Chinese government.
KOSIK: Yes, let's get to those implications of it if these tariffs go into effect. Already, you're seeing retailers, as we saw in Clare's piece,
struggling to figure out what to do with their supply chain.
You know, for some companies, it's a little easier, but it's really hard to bring that supply chain to America, where it costs more for laborand it's
hard to find that production area for their needs. What is a company to do?
CAMPBELL: Look, we're advising our clients to look at secondary markets as far as supply chainsand many of them are choosing Vietnam.
You know, if Congress is able to ratify the new NAFTA, I think that you know, within our region would be fantastic while China and Mexico, our
great alliesand we have significant economic relationships with them, but elsewhere in the world.
But right now, there is a bit of this instability with China and so clearly, factors should be looking at secondary supply chains.
[09:40:10] CAMPBELL: Because again, I don't know how long this is going to last, but I do know that this administration is serious when they come.
They're imposing new threats and imposing new tariffs. I believe they'll continue.
KOSIK: Okay. Chris Campbell, chief strategist at Duff &Phelps. Thanks so much for your perspective. I really appreciate it.
CAMPBELL: Appreciate it.
KOSIK: Okay. Going public about going private Google's CEO speaks out about data and how big tech should be using it.
(COMMERCIAL BREAK)
[09:43:37] KOSIK: Here's today's "Boardroom Brief."The wife of former Nissan head, Carlos Ghosn has appealed to the U.S. President to help her
husband.
Speaking in a BBC interview, Carol Ghosn urged Donald Trump to raise the case to Japan's High Minister at the G-20 Summit next week. She said she
has not been able to speak to her husband since early April.
Shares of Lufthansa are trading more than 10 percent lower after it issued a profit warning. The German airlines says it is facing intense price
competition on shorter flights within Europe from budget airlines. The company says its longer flights continue to perform well.
Chief Ethics Officer, that's how SundarPichai described himself. In an exclusive interview, the Google CEO talked to Poppy Harlowabout the thorny
issue of privacy and why big tech needs to take responsibility for the way private data is used.
(BEGIN VIDEO CLIP)
POPPY HARLOW, CNN ANCHOR: Tim Cook recently said privacy, in itself, has become a crisis. Do you agree?
SUNDARPICHAI, CEO, GOOGLE: I think it's very, very - you know, given the scale at which information is flowing. I don't think users have a good
sense for how their data is being used. And so, I think they've put the burden on users to a large extent and I think we need better frameworks
where users get the comfort that they -- that they are in control of their data, how it's usedand they feel like they have agency over it.
And so, I think it's an important moment for all of us to do better here.
[09:45:17] HARLOW: That's really interesting because you say, you know, we, as big tech have put the burden on users and we need to change that,
and I'm interested in sort of how you balance that, right?
As you grapple with that, how do you also balance that with the fact that so much of Google's business and what drives the profit relies on having
more and more data about the user? Advertisements? AI? What do you think?
PICHAI: Most of the data we need is actually just to provide better services to our users. You know, the data we need for advertising is
actually really small. You know, when you type digital cameras into Google, you know, when we show advertisements, we know you're looking for
digital cameras and that is you know, most of the data we need.
For advertising, there is little value in holding data for long periods of time, because your buying interests, you know, just constantly evolve. And
so the most of the data we use is on behalf of our users to give them information back.
But we want it to be their choice. Different people want different ways, and so we're working hard to make it easier for users.
HARLOW: And you don't think that will fundamentally harm Google's business?
PICHAI: I've never felt, you know, our business is not dependent on having lots of data on people that -- you know, it's -- I think it's a
misconception.
HARLOW: You do?
PICHAI: Yes.
HARLOW: You recently wrote an op-ed and you wrote, "Privacy cannot be a luxury good offered only to people who can afford to buy premium products
and services."Were you talking about Apple?
PICHAI: I included even subscription services. We, today for example, we offer YouTube as a subscription service. It doesn't have ads, if you
choose to use it. But we don't want to save our privacy protections only for that.
Most people around the world will need to use some services for free, and it's important privacy works in those situations as well.
And you know, we don't use data from your e-mails or your photos for advertising. You know, we use -- we store photos so that we can give it
back to you when you need it and that you have peace of mind around your photos.
HARLOW: Do you think that big tech -- Google -- should have Chief Ethics Officers to grapple with all of these things that we're talking about?
PICHAI: You know, I view it's the job of the CEO to be the Chief Ethics Officer, you know, given the scale at which technology impacts society, so
I view it as a fundamental part of my role, but I think ethics needs to come at all layers of the organizations and you know, people are developing
work engineers and the marketers working on it.
And so, you know, I'd rather write our ethical principles, hold ourselves accountable to it and consult, both internally and externally to get
feedback on how we make progress.
(END VIDEOTAPE)
KOSIK: Still to calm, the backlash bites. UBS reportedly loses a huge contract in China as controversy rages over its Chief Economist's comments
about swine flu.
(COMMERCIAL BREAK)
KOSIK: Welcome back, UBS has been dropped from advising on a large bond sale in China amid the growing fallout over comments by one of its top
economists. That's according to reports, Paul Donovan's remarks about swine fever in China sparked an angry backlash in Beijing.
Both he and the bank have apologized. But the controversy has mushroomed. Hadas Gold is with us with more now. Walk us through how this even
transpired, Hadas.
HADAS GOLD, CNN BUSINESS REPORTER: Yes, Alison, you could call this as a really serious case of lost in translation with some really serious
consequences. So this all started at with a podcast, a UBS podcast that was published last week and on that podcast, their Global Chief Economist,
Paul Donovan, was talking about pork prices and how they've been going up a little bit because of swine flu.
And in that podcast, I want to put up the quote of what Paul Donovan said. He said, "Chinese consumer prices rose. This was mainly due to sick pigs.
Does this matter? It matters if you are a Chinese pig."
Now, according to some Chinese speakers, if you look at the translation into that, then what it actually means could be perceived as something
offensive. And actually this caused an uproar on social media. The topic was trending on the Chinese version of Twitter called Weibo. Two-state
party newspapers also blasted the comments, I'll pull up a tweet from "Global Times."This is a state party backed by English language newspaper.
They say, "UBS Chief Global Economist, Paul Donovan used distasteful and racist language to analyze China's inflation in a recent UBS report
sparking upper across Chinese social media. Chinese netizens called for an official apology from UBS."
Now, UBS has now officially apologized and they've actually even placed Paul Donovan on leave. They say, "We apologize unreservedly for any
misunderstanding caused by these innocently intended comments. We have removed the audio comment from circulation. To be clear, this comment was
about inflation and Chinese consumer prices rising, which was driven by higher prices for pork."
Now, some people have questioned whether this -- as it was stated -- an innocent remark has been purposely sort of perceived as something more
serious in China because of not only recent tensions between China and the West, but because UBS has an important foothold in China and they're trying
to expand it.
Maybe this is something about Chinese firms trying to push back and making sure that this foreign firm doesn't get so much influence, but it goes to
show you right now how these comments that for an English speaker might be nothing, but for a Chinese speaker might perceived as very offensive. How
in these very, very tense times something as simple as a few words can cause what we're now seeing reported from Reuters in "The Financial Times,"
UBS being dropped from this bond deal.
KOSIK: Absolutely. Words matter. That is the lesson here. Hadas Gold, thanks so much. Meantime, touting rather better relations with China's day
is the U.K.
China's Vice Premier is in London meeting the British Chancellor. His visit coincides with the long awaited launch of a program to link the
London and Shanghai Stock Exchanges. Our Anna Stewart is live for us in London.
So the London Shanghai Stock Connect Project is four years in the making and will allow companies to list on both exchanges, right?
ANNA STEWART, CNN REPORTER: Yes, and it's been long awaited. There have been delays here. And I have to say, both China and the U.K. are hailing
this as groundbreaking, at least on the government side I would say, and I'll tell you why.
I mean, this means that companies as you say from each country can raise capital in each other's markets. Secondly, for the first time ever,
international companies can actually list in mainland China, so you can see why this has been heralded as groundbreaking.
It's great for China, which needs more capital inflows, particularly as the trade war with the U.S. really rages on. However, Alison, there is some
skepticism here, at least from people I've been speaking to in the markets in London.
There's still some pretty big administrative barriers between the two markets, they're still pretty different. So firstly, the scheme doesn't
actually allow international investors to directly invest in Chinese shares, but instead, a depository receipt which represent those shares.
Secondly, there are trading limits in Shanghai, a 10 percent daily trading limit. London has none. Thirdly, to participate, if you're a Chinese
company, you have to have a market cap over $2.9 billion. So it's certainly not as wide and broad as it possibly looks like at first reading.
But I would say, however, you cut this is a great example of the U.K. and China working ever closer together really cooperating at a time when
China's relationships with other countries like the United States is really frayed at the edges.
KOSIK: Oh, I certainly agree with you on that. Very quickly, what else do you think is going to be discussed here while the Chinese delegation is in
town, Anna?
[09:55:08] STEWART: This is always my favorite topic because you know what? What's most interesting is often not what's actually on the agenda,
but what they talk about around the side.
I think China will want to discuss Huawei. The U.K. government is still deciding whether or not to allow Huawei to be involved in its
5Ginfrastructure. It's under pressure from the U.S. not to allow Huawei to be part of that.
Obviously, China would really like to push it otherwise. I think Brexit will be a big discussion point for the U.K. because the U.K. wants to
ensure a closer and closer trading relationship with China post-Brexit, but at the same time crucially, not upsetting its relationship with the United
States.
So plenty to work on, not at least, Alison, the fact that the government officials that China are meeting with right now might not be the government
officials of the future because we are undergoing change at the top with Prime Minister Theresa May set to step down in a few weeks.
KOSIK: Never a shortage of things to talk about. Anna Stewart, thanks so much.
And that's it for the show. Thanks for watching. I'm Alison Kosik. International Desk with Christina Macfarlane starts right after this short
break. Thanks for watching.
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[10:00:00]
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