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First Move with Julia Chatterley
G7 Leaders Discuss Price Caps on Russian Oil; China Cuts Quarantine Time for International Travelers; NATO Chief: All NATO Allies are Committed to Reducing their Greenhouse Gas Emissions; Political Dead Lock Stalls U.S. Semiconductor Investment; China's Post-Pandemic Recovery; U.S. Stocks Move Higher, Energy Stocks, Big Banks Rally. Aired 09-10a ET
Aired June 28, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move", this Tuesday the final day of the G7 Summit in Southern Germany with an
important NATO gathering just around the corner. Both meetings laser focused on keeping critical military as well as economic aid flowing to
Kyiv.
As the battle for Eastern Ukraine intensifies, and Russia steps up its attacks on innocent civilians, condemnation being expressed around the
globe after a Russian missile strike on a crowded mall in Central Ukraine Monday that killed at least 18 people. We've got you all the details on the
latest on that in just a moment's time.
In the meantime, the economic consequences of war and sanctions are on display in Russia debt agency, Moody's ruling Monday that Russia is
formally in default, for the first time in more than a century, the result of a missed payment on $100 million worth of foreign debt.
The White House also arguing that the default drama is proof that Western sanctions against Moscow are causing real pain for Putin and it wants to
inflict more. G7 leaders also pondering a price cap on Russian oil exports a move that could hamper Russia's ability to continue to fund the war. The
practicalities, however, are challenging, and we'll discuss that shortly in a moment too.
Oil in the meantime, rising today amid new concerns about global supply. The UAE admitting it has little room to pump more French President Macron
says Saudi Arabia's production is stretched to the limit as well. Energy stocks moving higher on the news helping U.S. and European markets recover
after a softer session on Monday.
Asia, also higher too, a day of reopening rejoicing, let's call it that after China slashed its mandatory COVID quarantine period for incoming
travelers by more than half all the details on that story just ahead. But first President Joe Biden due to land in Spain ahead of what could be the
most consequential NATO Summit since the Cold War?
It comes hot on the heels of a G7 meeting in Germany where all price caps and output challenges topped the agenda. Let's bring in Fred Pleitgen for
all the latest there. Fred, you and I were talking about it yesterday the practicalities here are a challenge as much as perhaps the theory may make
sense.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, I think that's exactly I think the practicalities certainly are a big challenge.
And then also there are the European G7 members who they really seem lukewarm, if you will, to this idea, because they also fear that it could
actually backfire.
Now, first of all, the big problem with a cap on prices for Russian oil is obviously how do you enforce it on a global scale? And that's certainly
something that is being asked here at the G7 Summit, certainly something especially the European nations are asking.
They're also saying if a move like that is announced that could backfire and actually drive oil prices up even higher than they already are today.
And of course, especially Europe right now is really reeling from those very high energy costs of Russian gas, but of course, also of Russian oil
as well.
And then you have the problem of unity within the European Union, it was quite interesting, because Olaf Scholz was actually asked both about a gold
embargo against Russian gold. And then also about this price cap for Russian oil. He said it's something that really needs to be discussed in
the European Union if European countries are going to make a move on that.
But of course, we remember that the European Union has already formally put in place an embargo on Russian oil, but that has so many loopholes in it
because of countries like Hungary that want to continue to buy Russian oil, that it's really not as effective as many other countries would like.
So it certainly seems very, very difficult. And you know, being here in Germany, a country of course, that is very dependent on Russian fossil
fuels, and is really feeling the pain right now. And the fear of possibly having this giant industrial apparatus that you has here and the most
industrialized country in all of Europe.
It really is something where they want to be very, very careful on how they trade and if they try to make a move like that, like for instance at a
price cap, they already seem to be uncomfortable with banning Russian gold as it is Julia.
CHATTERLEY: Yes, and the last thing that they want to do really is take a measure that increases the economic pain for buyers, perhaps more than the
seller, in this case, Russia, particularly at a time where unity amongst the group is so important and at times could be increasingly fragile.
The reality is while they debate while they procrastinate, Ukrainians continue to die and we saw that just the latest today with the shopping
mall that was attacked. What was the leaders' response on that Fred?
PLEITGEN: We are all of them were outraged by what happened there in Kremenchuk, they called it an abomination you heard the French President
obviously the British Prime Minister as well finding some very strong words after that took place.
[09:05:00]
PLEITGEN: And then of course all of them said that they are going to continue to support Ukraine militarily as long as is necessary with of
course, first and foremost, military assistance. Now, they didn't really go into the details as to what exactly will be provided.
But there were certain things that certainly did seem to seem to come through and did seem to become clear. Like, for instance, the U.S. possibly
buying a missile defense system that could help the Ukrainians prevent things like what happened there in Kremenchuk from happening in the first
place, because of course, we have seen a big uptick in Russian missile strikes throughout the territory of Ukraine.
And obviously, some pretty key areas of Ukraine and some cities, quite frankly, of Ukraine have been hit over the past couple of days especially.
And then you have countries like Germany, like France, of course, which were seen as a little bit reluctant to provide some of that heavy weaponry.
But that actually is coming through now as well.
The Germans obviously providing some pretty heavy and sophisticated howitzers that have now reached the frontlines in Ukraine. Of course the
French for a while now have already been providing howitzers as well, the U.S. also saying they want to provide additional multiple rocket launching
systems, of course, they had four in that first batch of those rocket launchers called High Mars high mobility artillery rocket systems, and they
say they want to provide four more of those in the not too distant future.
And that training is actually already ongoing. But I expect more details are going to happen there at the NATO Summit because of course, as far as
military things are concerned, that will be the main focus there as that summit is set to get underway with President Biden arriving very soon,
Julia.
CHATTERLEY: Literally as you're speaking, Fred, we are seeing and showing you live pictures of Air Force One landing in Madrid, ahead of that summit.
So the timing of your comments that couldn't be more apt I think as you can see it there the Air Force One plane just joined to a closer and moving
down the runway ahead of that meeting. Fred, fantastic to have you with us, thank you for your context, as always Fred Pleitgen there!
As Fred were saying, G7 leaders condemning Russia's airstrike on a shopping mall in central Ukraine calling the act abominable and a war crime? 18
people are now known to have lost their lives in an attack President Zelenskyy said was caused by "Totally Insane Terrorists". He's now calling
for a UN Security Council meeting to discuss recent events. CNN Reporter Salma Abdelaziz is in Kyiv for us. Salma what more do we know about this
attack?
SALMA ABDELAZIZ, CNN REPORTER: Yes, yet another horrifying attack on innocence Julia, and we understand rescue operations are still underway to
try to pull people out of the ruins of that mall. A couple of dozen are still missing. These search and rescue operations could take up to two
days.
And what we understand happened and this is according to President Zelenskyy is yesterday afternoon there was air raid sirens that were heard
about 1000 people were inside that mall they started to evacuate they started to fleet that's when Russian missiles struck the building, of
course causing huge explosion, setting it on fire. So far 18 people killed, as you mentioned, several others wounded. But the fear is that those
numbers could increase. They could escalate as the search operations are underway.
Now Russia claims it was targeting a weapons depot. But President Zelenskyy has been clear here. He says this is an act of terror meant to terrorize
the people of Ukraine. He's called for an emergency UN Security Council meeting and that is going to take place.
But Julia, this is really a continuation of a trend that we've seen all through the last few days as these world leaders have been gathering for us
for the G7 and today for NATO. What Russia has done is they have escalated their attacks. They have intensified their assault on Ukraine.
They have fired dozens of missiles all across this country, including some that hit here in Kyiv. It feels like a message directly from President
Putin to these world leaders that he can strike Ukraine anywhere, anytime. And yes, Ukraine does have some air defense systems. But clearly they're
not enough to protect the civilian areas.
And I want to point out Julia, this mall where it was nowhere near the frontline, nowhere near the battle zone far from where the fighting is
taking place. So again, that sense that nowhere in Ukraine is safe, you're going to hear President Zelenskyy and he is expected to address those NATO
members. You're going to hear him plead for more air defense systems.
We are expecting later this week the United States to announce a purchase one such advanced system for Ukraine, but it's all a matter of time here on
the ground. It can't arrive soon enough. There is a true feeling that Russia has the momentum, and it's using it to terrify Ukrainian civilians,
Julia.
CHATTERLEY: And the hope I think is that these heartbreaking images focus minds elsewhere in providing more support. Salma Abdelaziz thank you for
that! Meanwhile, between talking tough on inflation while attempting to ease recession fears central banks around the world are walking a
tightrope.
During a speech Tuesday European Central Bank President Christine Lagarde downplayed the risk of a slowdown in the Eurozone but called inflation a
huge challenge for monetary policy.
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(BEGIN VIDEO CLIP)
CHRISTINE LAGARDE, PRESIDENT OF EUROPEAN CENTRAL BANK: In this setting, we need to act in a determined and sustained manner, incorporating our
principles of gradualism and optionality. This means moving gradually, if there is uncertainty about the outlook, but with the option to act
decisively to any deterioration in medium term inflation, especially if there are signs of a de anchoring of inflation expectations.
(END VIDEO CLIP)
CHATTERLEY: Anna Stewart joins us now on this. Christine Lagarde there the European Central Bank seemingly leaving all options open as far as rate
rises are concerned, whatever it takes to tame inflation, little detail, I heard there on the tool that they're going to use this mechanism to prevent
dramatic widening, in terms of the borrowing costs for different nations? But I can give you one wild guess Anna, what you think it might be?
ANNA STEWART, CNN REPORTER: This is so sad Julia, you and I are far too excited by the anti-fragmentation tool. But the ECB did hold an emergency
meeting to announce it a week or two ago. And this is what people want detail on. They probably won't get it till next month now, raising costs
for borrowing across the bloc.
But keeping a lid on the bond yields of some countries, particularly Italy, of course, which has high debt levels is no mean task. How do you do both
at the same time given this will be as the ECB completely ends its Asset Purchase Program?
Well, the guess is Julia of course the sterilization of bond purchases. Now that is what's widely expected to be announced next month. This has
happened before and we always have to look back, don't we in the history books of the ECB and other central banks? What are they used before what
works and what frankly, works without ever having been used?
Sometimes it's just the announcement itself. Now this is likely according to Reuters, and they are citing unnamed sources to look a little bit like
the SMP the Securities Markets Program, which if anyone can remember was introduced in 2010. It was the precursor to another acronym, that OMT. And
essentially, this would be a way of buying some bonds.
But without injecting new stimulus into the system, it would probably been be offset using the banking system. So no details we have in a moment. But
I can tell you looking at the bond spread between Italy's BTB and the Bern, the tenure; it has closed significantly just since they announced this
tool. And that's really the beauty, isn't it of the central bank mechanisms? Sometimes it's just the announcement that goes quite a long way
to the solution.
CHATTERLEY: Yes, you don't find a buyer that's got a limitless balance sheet. That's the message are quite potent. The verbal intervention can be
in the promise of bond buying, even if you don't have to do much or any at all. Anna Stewart thank you for that!
OK, let me bring you up to speed with some of the other stories making headlines around the world. In a major easing of COVID-19 rules, China says
quarantine time will be cut for international travelers. New arrivals and domestic close contacts of COVID cases will now have to quarantine for
seven days in a government facility then for three days at home strict lockdowns of handicaps China's economy and infuriated millions of people.
CNN's Selina Wang joins us now from Beijing. Selina, for most people, the idea of spending seven days in government mandated quarantine and you don't
get any choice on that, as you've well told us before plus three days at home is prohibitive. But this is a lot less than what was demanded before.
Talk us through the new regime and when it will begin do we know?
SELINA WANG, CNN CORRESPONDENT: Yes, Julia well authorities are announcing this new measure which is a huge sigh of relief to the business community.
But still, even though China is slashing the quarantine time for these international travelers, this is not a shift in zero COVID authorities are
very clear that they're sticking to zero COVID. This does not count as a loosening of restrictions.
So we don't know yet when this is going to be implemented? But the government is saying that all international arrivals they will only need to
spend seven days in a government quarantine facility and then an additional three days at home that is down from 14 or 21 days in some cases in a
government quarantine facility and then in some cases, additional time of home quarantine.
And we had spoken at the end of April when I was in a 21 day quarantine myself these are strict harsh quarantines, no opening the door no turning
on the A.C. only opening the door to get those COVID tests or those food pickups.
So yes, while this is a major reduction for many businesses, seven days is still an inconvenience, it is still a hassle. And many are saying that for
this policy to actually be effective China also needs to increase its flight capacity, as well as increase the number of flights going in and out
of the country.
Because right now flights going in and out are extremely limited plus, they were extremely expensive. There's also concern about how this ruling is
going to be implemented across the country how long it's going to take? How evenly these quarantine restrictions are going to be reduced?
[09:15:00]
WANG: You know on top of that people's lives here people's movements here within China are still very much restricted for the parts of China that are
considered risky areas. Well, residents from those areas, they still have to do additional days of quarantine just to travel to another province or
city within China.
In addition to that the government has banned all non-essential travel overseas for China's residents. So this is severely limiting to the ability
of most people here in the country to go in and out. Of course, in major cities, like here in Beijing, we've also got to get a recent COVID tests in
order to enter any public areas, as well as show our green health code.
So yes, this is definitely a step in the right direction, especially for these businesses that have been really struggling to get their employees in
and out of the country but no shift here when it comes to that stringent zero COVID policy in this country, Julia.
CHATTERLEY: I mean, the first point I'd make here is that it doesn't stop you being trapped at a moment's notice too if somebody in your building has
COVID. I mean, even if you can get there with just a week, or 13 days, whatever it is, 10 days sorry, seven and three days quarantine you still
have that fear of being caught if someone has COVID.
So, as far as I'm concerned, just to get this to be clear on this. This is not a loosening of restrictions, zero COVID policy is going to be
maintained, but it is a loosening of restrictions Selina Wang--
WANG: Exactly that's thrown into a facility is always here at all times Julia no matter what this international policy travel changes?
CHATTERLEY: Yes, it's still a huge challenge. Selina, thank you! OK, a U.S. Congressional Committee will hold a surprise hearing today on Donald
Trump's efforts to overturn the 2020 election. Sources tell CNN lawmakers will hear testimony from Cassidy Hutchinson, an aide to Former White House
Chief of Staff Mark Meadows.
It's not clear what topics they will focus on but the panel said it would present recently obtained evidence. And a reminder you can watch the entire
Congressional hearing right here on CNN, starting at 1 pm in Washington, that's 6 pm in London 1 am in Hong Kong.
A railroad crossing in rural Missouri is opened again following a deadly derailment. At least three people were killed, dozens more injured on
Monday after an Amtrak train struck a dump truck near the City of Mendon. Preliminary reports indicate the intersection didn't have warning lights or
motion gates.
The Jordanian Government says a toxic gas leak in the port of aqua is now under control. Officials say at least 13 people were killed and more than
250 injured after a tank filled with chlorine gas fell while being transported causing an explosion wow.
OK, still ahead on "First Move", show me the money that's what U.S. chip makers actually, I'm going to pass you over to NATO now because the
Secretary General is making his opening statements, let's listen in.
JENS STOLTENBERG, NATO SECRETARY GENERAL: Climate change poses a serious risk to us all. So therefore, I'm very pleased to be with you today at the
first high level dialogue on climate change and security, bringing together NATO allies with partner nations and other stakeholders from around the
world.
And I thank you all for being here today. From the high north, to this a hell climate change is a crisis multiplier, more extreme weather,
devastates communities, and fuels tensions and conflicts. Climate change matters for our security. So it matters for NATO. That is why NATO is
determined to set the gold standard on addressing the security implications of climate change.
Here in Madrid, leaders will endorse a new strategic concept, the Madrid Strategic Concept. It will state that climate change is a defining
challenge over time. For NATO, this means three things, increasing our understanding, adapting our alliances and reducing our own emissions.
First, increasing our understanding today I am releasing our first ever assessment of how climate change affects our security, our military assets,
installations and activities, as well as our resilience and civilian preparedness? Climate change deeply affects the environment in which our
women and men operate.
[09:20:00]
STOLTENBERG: From extreme heat in our training missions in Iraq to melting ice in the Arctic and from rising sea levels, and storms that threaten our
naval bases, to the hurricanes that disable our airfields, the list is long, there are many ways climate change affects our security.
So second, we must adapt, providing our armed forces with the equipment, they need to operate in extreme heat and extreme cold, training them to
assist in disaster relief, reinforcing our coastal facilities against rising water levels, and addressing the security implications, or more
economic and military activity in the high north.
We have identified the initial steps in our adaptation; we now take account of climate change when planning our operations and our missions and when
developing new capabilities. This way we make sure we remain effective in increasingly harsh environments.
And third, we must reduce the impact of our military activities on the climate. We cannot compromise our military effectiveness. NATO is about
preserving peace to a credible deterrence and defense. Nothing is more important. If we fail to preserve peace, we will also fail to fight climate
change.
At the same time, we also have a responsibility to reduce emissions. To this end, we have developed a first methodology for measuring NATO's
greenhouse gas emissions, civilian and military. It sets out what to count and how to count it. And it will be made available to all allies to help
them reduce their own military emissions.
This is vital, because what gets measured can get cut. Based on this new methodology, I can announce today the first emission targets for NATO as an
organization. By 2030, we will reduce emissions by at least 45 percent reducing to net zero by 2050. We have conducted thorough analysis of how to
do this, it will not be easy, but it can be done.
A big part of this will be our transition away from fossil fuels. All allies are committed to reducing their greenhouse gas emissions as part of
the Paris Agreement, adapting their militaries will contribute to this, including greener tech, such as renewables, climate friendly, synthetic
fuels, and more energy efficient solutions. There is a technological revolution happening right now a green energy revolution on one that can be
of huge benefit for our militaries.
All that is today, the best new cars are actual electric cars. And I believe that in the future, the most advanced military vehicles are the
most resilient, armed forces will be those do that do not rely on fossil fuels. By making our equipment more efficient, and by taking full advantage
of new technologies, we can improve our militaries and strengthen our security, as well as help tackle climate change.
It will also increase our resilience. The war in Ukraine shows the danger of being too dependent on commodities from authoritarian regimes. The way
Russia is using energy as a weapon of coercion; highlights the need to quickly wean off Russian oil and gas. At the same time, we must not swap
one dependency for another. Lots of new green technologies and the rare earth minerals they require come from China.
[09:25:00]
STOLTENBERG: So we must diversify our energy sources and our suppliers. Another risk is creating a patchwork of incompatible systems, where all 30
NATO allies follow their own separate path towards energy security, and adoption of new technologies. This would present serious risks to our
interoperability.
Instead, we should work together to ensure that national policies enhance our collective military strength. And NATO is the ideal platform for allies
to coordinate our efforts. By setting shared benchmarks and standards, we can innovate together while maintaining our operational effectiveness.
So therefore, I will ask NATO civilian and military authorities to develop a new energy transition by design initiative, and presented at the next
high level dialogue meeting next year. These high level meetings will be held annually, establishing NATO as the nexus between climate and security.
Climate change is not a threat that exists far beyond the horizon, or long into the future. We see its impact on our security right now.
We now have a plan with concrete actions to address the security risks of climate change, to ensure our alliance adapts to the new challenges, and to
protect NATO's 1 billion citizens. Thank you so much.
CHATTERLEY: We've just been listening to the NATO Secretary General Jens Stoltenberg there talking in Madrid, Spain ahead of two days of talks.
Interesting that he made climate change the focus of his presentation and the fact that it's a crisis multiplier that it affects our security, he
tied it to what NATO is going to do over the coming years to move towards net zero by 2050.
But also said it poses a number of risks and that the most military, most resilient militaries are those that aren't so reliant on fossil fuels,
we've seen what energy reliance on Russia has meant, not only for NATO, of course, but for other nations as well.
And he pointed to the fact that a lot of these cleaner technologies rely on rare earth minerals from China and other potential security risks. And that
pulls us to the heart of what's going to take place in the next two days. And this reshaping, repositioning of what nature represents in terms of
security defenses, and where they see some of the big threats?
Russia, of course, first and foremost central to that but China also going to be talked about really for the first time too, in terms of what their
rising power represents. Let's talk more about what this is going to mean, for NATO today and in the future, of course?
I want to bring in our next guest, who is Ambassador Will Taylor, U.S. Ambassador, Former U.S. Ambassador to Ukraine, William Taylor, sir
fantastic to have you with us. Ambassador, we can talk about climate change and the relevance and I think it is very potent, actually, for the
challenges that we've seen and faced in recent months with the war in Ukraine.
But what do you see in terms of the pivot that they're going to discuss over the next couple of days in particularly ramping up forces on the
Eastern Flank of NATO nations. What that will mean, for Russia today and in the future?
WILLIAM TAYLOR, FORMER U.S. AMBASSADOR TO UKRAINE: Julia, you're exactly right. NATO over the next two days will demonstrate to themselves to Russia
and to the world, that the NATO is focused on the major threat; the biggest threat to security, global security at this point is clearly Russia.
And the NATO Summit will address that by moving troops by pledging assistance to Ukraine. For as long as it takes, as they said in the G7 this
will be a commitment that will be important for the Ukrainians to hear as they battle the Russians. And we see that every day the attacks by the
Russians on Ukraine. And so the NATO response is going to be very important over the next two days.
CHATTERLEY: I mean, just in the last 24 hours we've seen this attack on the shopping center in Central Ukraine and President Zelenskyy saying, look, I
want the UN Security Council to be talking about this. It does focus minds. But the ripple effect around the world of higher prices.
The energy security issues is something that when President Biden walks into this group, again, he has to hold these nations together at a time
when they're looking at their own domestic situation and thinking is perhaps compromise at some point in the near future the answer and clearly
that's perhaps not the best way of tackling Russia at this moment. How does President Biden walk into these meetings and thread that needle because it
will pose an increasing challenger I think maintaining unity?
[09:30:00]
TAYLOR: Julia, it's clearly a big challenge. But so far, President Biden has led this coalition, this international coalition at NATO, in Europe,
indeed, with the East Asian allies. I mean, we see the Australians and the South Koreans and the Japanese, the New Zealanders all part of this
alliance.
So President Biden will try to maintain that alliance and keep the focus on. Your exactly right there challenges the energy prices, the food
problems. The problem for all of that is Mr. Putin. And President Biden will make it clear that it is Putin that is the cause of these problems,
and that the way to address Mr. Putin is for Ukraine to win. And he will maintain that focus. President Biden will get that security and the focus
right there that Ukraine has to win and that will be the issue for NATO.
CHATTERLEY: How do you think President Putin perceiving what we'll see from NATO over the next couple of days, as we've mentioned the heightened
security the promise of increased financing significant escalation of troop numbers on the border as well, it's the sort of the opposite antithesis of
what he was hoping for and what he wanted to see. Does it change the calculus? Do you think as far as the war in Ukraine is concerned?
TAYLOR: It should, Julia, you're exactly right. So NATO is seen now is demonstrating that it's stronger, more unified. It's about to be larger
than ever. And the support that NATO is giving to Ukraine I'm sure has surprised President Putin is probably surprised other autocratic leaders
around the world.
I'm thinking of President Xi, who was probably surprised at the strength of the response of the Western alliance to the aggression by the Russians
against Ukraine. So this is having a big effect. President Putin will have to decide when he backs off when he looks for a way out? And the way to
push him to find a way out is to have the Ukrainians push him back in Ukraine push him back towards the boundaries that he violated on the 24th
of February.
CHATTERLEY: That's why NATO so pivotal, and to your point about enlargement as well, of course discussions between Finland, Sweden and Turkey set to
take place over the next couple of days too and to see whether there's a breakthrough there on Turkey's concerns about the further enlargement of
NATO? We shall see.
William Taylor, Former U.S. Ambassador to Ukraine Ambassador thanks you so much for your time today, great to talk to you!
TAYLOR: Thank you Julia.
CHATTERLEY: OK, after the break, there's radio silence from Washington on a lifeline for the semiconductor industry it's called "The Chips Act" but
what happened did it get frozen or fried we'll discuss?
(COMMERCIAL BREAK)
[09:35:00]
CHATTERLEY: Welcome back to "First Move"! From supply chain challenges to the cost of living crises, exacerbated by the Ukraine war, the global
economy has much to contend with right now. Yet one rare victory for American manufacturing was heralded as a $50 billion investment opportunity
for the semiconductor industry as it struggles to meet worldwide demand.
The bipartisan deal known as "The Chips Act" was announced a year ago too much fanfare, but since then, there seems to have been little progress that
political paralysis is now starting to bite. Intel postponing a groundbreaking ceremony in Columbus, Ohio, in a project worth up to $20
billion also waiting for the act to pass us based Global Foundries the world's largest U.S. based independent semiconductor foundry with
facilities in Vermont, New York, Germany and Singapore.
And Thomas Caulfield is a Global Foundries CEO and he joins us now. Thomas, always fantastic to have you on the show. You know, the politics aside, and
we can't set it aside but I will. I can't help but feeling this is a little ridiculous, either there's an emergency and the chip shortage is a threat
to national security, which the government has said it is or it isn't. Why don't we get this deal done?
THOMAS CAULFIELD, GLOBAL FOUNDRIES, CEO: Yes, I know, I couldn't agree more. This is a national security issue, supply chain issue, and an
economic issue for the country. I'm probably more optimistic than most that this will get done before the August recess. I will tell you on the other
end of that, if it doesn't get done by August, we probably lost it another year in the process.
CHATTERLEY: How optimistic are you?
CAULFIELD: I'd say very optimistic. I would handicap it that is more of a more an opportunity for this to get passed and we can start moving forward
versus it not happening. Look for us on--
CHATTERLEY; No, please go on.
CAULFIELD: I'm sorry for us and others. I think it's about accelerating creating capacity, not necessarily doing or not doing it. And GF will
continue to invest in our in our global footprint worldwide, including the U.S. but for the U.S. to catch up they'll need to help with this catalyze
an acceleration of capacity.
CHATTERLEY: OK, so there are two things there. So I'll take them in turn. The first thing is competitiveness. And then the second thing is
investment. I mentioned in the introduction that Intel had decided to suspend its groundbreaking plans in Ohio while it waited to get further
clarity on what's going to happen here because it is we're talking over $50 billion worth of investment for the sector.
You also have planned investment in Malta, New York City, as I mentioned, in New York State. Are you rethinking that? If this deal doesn't happen are
you going to adjust your plans for that investment? Are the consequences that big?
CAULFIELD: Yes, I mean, the consequences are now the rate and pace at which we would expand at U.S. foot print.
CHATTERLEY: Right.
CAULFIELD: You know, over the coming decade, of course, we will. We need to continue to grow our capacity to meet, you know, the industry needs our
customer needs. But to accelerate where we make those investments, the U.S. Chip Acts is important, right? It would make us prioritize investments in
U.S. versus other regions of the world where we have a global footprint, as you noticed.
And by the way, as you see, maybe from my backdrop, I'm actually at that New York facility in upstate New York, broadcasting today with you.
CHATTERLEY: Yes, so is there, it's just waiting for further investment. To your point, you do have other options. You've already in the past year
announced further increases in investment in Singapore. Germany is also an option.
And that circles back to my point that you made which is about competitiveness, the EU has managed to sign their own version of the Chips
Act, other of your competitors are ramping up investment in Europe in particular as a result, Thomas, is that the option?
Do you pull some of the investment that you would have made in the United States and say, hey, we'll do more in Singapore or we'll make - do more in
Germany, if necessary?
CAULFIELD: So, a couple of things let me unpack it. First is I think one of our competitive advantages we already have a global footprint and that is
very important for supply chain security around the globe, others are going to try to get caught up on that, that global footprint. And for us, we look
at the economics to create capacity.
[09:40:00]
CAULFIELD: So we can do it in the most capital efficient way for ourselves and our customers. And you mentioned last week, I was in Singapore, we
broke ground a year ago in a new factory. Amazing what the team has done, we put the first manufacturing tool in that facility just last week.
In Dresden, we've made a number of investments too, you know, more than tripled our output there over the last three years. And so now we're
looking for where's that next opportunity to create capacity for GF? We have a global footprint. We will always do something within that footprint.
And the opportunity for the chips bill is to make that acceleration in our U.S. footprint.
CHATTERLEY: What do you want U.S. Congress to know about this decision? To your point, you're saying if this doesn't get done by the August recess,
then the likelihood is with the midterms and perhaps the challenges here in the United States? This decision doesn't get made for a year, it could even
be longer. Let's be honest, Tom, what does Congress need to know over the next few weeks about the importance of this decision?
CAULFIELD: Yes, I've heard the expression. This is kind of, you know, our Pearl Harbor moment, this is the time to act. And let me tell you why? If
you look at since these discussions started 2019 to where we are today, if we look at the capacity that's been announced and added, the rest of the
world has added more capacity in the U.S.
So we started with a problem, where 50 percent of the worldwide demand for semiconductors comes through U.S. headquartered companies but only 12
percent manufactured here. We've actually lost ground on that over the last three years. And another year delay is not going to make that any better.
So the sense of urgency really needs to be there. This is the time, let's get it done. And then the rest of us can do our part at that capacity.
CHATTERLEY: You and I've spent spoke many times now about the supply demand imbalance and the time it takes to sort of untangle some of the wrinkles in
the supply chain. I spoke to Intel CEO back in January, and he said, look, he sees the problem pushing out now into 2024.
Do you agree is that the kind of timeline we're talking about short term issues rather than the longer term as we've just been discussing?
CAULFIELD: Let me - instead of trying to predict the time, let me tell you the dynamic. We entered this year as an industry with I'd say 89 percent
mismatch more that much demand and supply, the world's putting on capacity at the rate of about 5 percent growth compounded over the coming years.
But at the same time demand is growing about that same amount or twice that. So I see that for the better part of the next 8 to 10 years, you
know, the supply demand mismatch will get better. But it's going to take time for it to actually close where there's a perfect balance there. And
that's why it's important for the acceleration of these investments to create the supply the world needs.
CHATTERLEY: Yes, I mean, that's the plays out the challenge, I think perfectly at this moment and the business prospect, of course, for your
business, very quickly. What we have seen, though, is yours and other tech companies chipmakers share prices take a real pummeling over recent weeks.
And I think part of that is concerned that the economic slowdown that we're facing the rising rates Central Bank's trying to take action too entertain
prices is going to weigh on demand. The sort of counter to that, of course, is that it perhaps helps that supply demand imbalance that we're talking
about?
How much of a dent do you see in demand as a result of the potential and slowing that we're already seeing Tom? Or is it too insignificant to worry
about amid the greater challenges of supply shortages?
CAULFIELD: Yes, look, it's a great question. I would say it the following way at our earnings call not too long ago, from our first quarter results.
We pointed to the fact that we started this year with a huge amount of unfulfilled demand.
You know, almost 20 to 25 percent have more we could have done this year for our customers. So any of the softness, we're all seeing in say low end
handsets, and personal computer is being more than offset to kind of carry more capacity for the customers who we were woefully under supporting.
And so, you know, as we look forward, we're still trying to produce as much as we can our factories are running it, you know, 100 percent utilization
and still trying to catch up to the demand in front of us.
CHATTERLEY: Yes, no shortage in that certainly, Tom, great to have you with us and fingers crossed. You're right with what you're hearing on hopes for
this Chips Act in the very near term. Thank you, the CEO of this year, great to chat as always!
CAULFIELD: Thanks Julia.
CHATTERLEY: OK, after the break zero COVID lockdown hurt China's economy. I speak to the CEO of the largest in country collector of private data in
China, what's really going on? And what does the road to recovery look like? Stay with us.
(COMMERCIAL BREAK)
[09:45:00]
CHATTERLEY: Welcome back to "First Move"! China has eased stringent lockdown measures overnight it said quarantine times are being slashed for
foreign visitors and people who have had close contact with COVID patients.
The big questions, of course now are how damaging were those lock downs really to the economy and to jobs? How quickly can it recover? And what
will it mean for global supply chains and the global inflation crisis?
Who better to discuss this with Leland Miller, CEO of the China Beige Book the largest in country collector of private sector data in China? Leland
fantastic to have you on the show? You know, we spent a lot of time on this show talking about the lock downs in Beijing and in Shanghai, but your data
suggests it was far worse and broader. What does your data tell us about the impact?
LELAND MILLER, CEO CHINA BEIGE BOOK: Well, we talked about conditions in April and May almost everyone was talking about Shanghai, Shanghai,
Shanghai, because you had a huge, nearly roughly two month major lock down some of it still continues a bit.
And so everyone thought this is about a couple of big cities. But what was interesting in the national data is to see all the secondary implications
of these lockdowns not just in the ports, not just on the coast, but basically nationally.
So you had much lower growth in other regions were not which were not part of the highlights for these COVID lock downs. And what that means is that
growth in the second quarter was actually much weaker than what was being reflected a lot of the data.
Particularly data that basically focuses on a couple of big cities on the coast and then you're the assumption is everything else was OK, everything
else was not OK in April and May. And even though things may get better in June, this is still quite a hole to dig. They don't need to dig themselves.
CHATTERLEY: How bigger hole because to your point it was broad in terms of sectors as well the services sector the manufacturing data? And it gives us
a very different picture I think from the traditional data that we received from China about the negative impact of what we saw.
MILLER: Right. Well, the assumption is that in lock downs are ending in June or ended in June and so you're going to have this powerhouse bounce
back as the country gets back up to speed and back to normalcy.
That did not happen in the June data. So you have an issue where all this talk about a month to month improvement. Sure things got better from May to
June but you're going to have - you don't have the bounce back that a lot of people are talking about.
And secondly, when you're talking about the second quarter growth overall, things were significantly deeper and darker in April in May so you have a
contraction and growth for the second quarter.
[09:50:00]
MILLER: There's no possibility the Beijing announces that, you know, there's probably going to see a relatively strong GDP numbers simply
because officials in recent weeks have declared that there shall be reasonable growth, there will be these readings. And so you're going to
have economic numbers reflect that political sensitivity.
CHATTERLEY: Yes. And there is disconnect between the underlying fundamentals and what appears on the surface? I think the assumption in
these kinds of conditions is that stimulus will follow credit conditions will loosen.
But your data suggests not only a lack of support from looser lending conditions, but actually, for a significant chunk of some of these small
and medium sized enterprises, prohibitively higher borrowing costs. So we've not seen the stimulus and actually credit conditions have tightened?
MILLER: Right. One of the ways to guide this narrative forward, if you're trying to and guide money into the Chinese market, right now, it's the same
big stimulus is happening, the recovery is happening. And so you're seeing monetary and fiscal stimulus and just claim its happening.
You know, we track this very closely. And on the fiscal stimulus side, which has gotten a lot of attention. We're not seeing this - we did not see
any type of Q2 jump.
Well Jury's out on Q3, you know transportation construction, which is our fiscal spending proxy, it decelerated or other construction sub sectors
they decelerated. Copper, steel decelerated, aluminum fall off a cliff.
So we were not seeing fiscal stimulus spending in any significant way in the second quarter, monetary stimulus, also very tight conditions. So there
is improvement, we know there will be improvement going forward. But there's not the stimulus wave that people are claiming its happening. It's
just not happening right now.
CHATTERLEY: And this has political consequences, too, ahead of vitally important meetings in the final quarter of this year. And my concern for
the global economy is if we're not seeing this bounce back in activity in China what happens to the global inflationary picture and the supply chain
imbalances that we're still dealing with, when suddenly China wakes up and starts stimulating, perhaps, and it adds fuel to the fire of all of these
things? Is that a possibility?
MILLER: Well, yes, so that's a really interesting question. You know, if you look in our inflation data for the second quarter, we shot domestic
disinflation, simply because demand was crushed by the lock downs.
But the concern, as you were mentioning, outside China is that there will be a surge of inflation coming from China, either, because supply shocks,
from the lock downs, have strangled, supply and cause inflation elsewhere particularly, you know U.S. parts of the supply chain a second.
Secondly, though, if you do see a major economic bounce back in China, that would lend itself to greater demand commodities, inflation et cetera. So
there's the threat of there's a dual headed threat of inflation coming from China.
Our second quarter data were actually pretty miraculous, and they seem to thread the needle. So the Federal Reserves can be very happy to see this.
There was not, you know, the supply shocks tamp down, but the demand didn't rock it up as sort of a moderate recovery compared to some of what you're
reading about.
And so the inflationary dynamics coming out of China in terms of China, exporting inflation were rather mild all in all, but this could change
dramatically. China could get much better in the third and fourth quarters and you could see that surge in inflation or you could see a return of
COVID lockdowns, supply get crunched again you can see inflation from that direction. So this is a very tenuous balance right now, but it just happens
to look good this moment.
CHATTERLEY: Yes, another tight right. We need to see your next month's data. Leland come back and see us soon. Leland Miller the CEO of China
Beige Book thank you sir, more after this.
(COMMERCIAL BREAK)
[09:55:00]
CHATTERLEY: Welcome back to "First Move". And a green starter for U.S. stocks today energy stocks in fact leading the charge; we've also got major
U.S. banks rallying after boosting dividends tech as you can see the relative underperformer.
However it is a special day in the tech world Elon Musk the world's richest man turning 51 improving the world is a task he does not shun and his plan
for Mars alone continues to stun his bot battle with Twitter however not yet one perhaps this year he'll even ponder a political run and as for the
fabulous Musk well she must be one proud mom of all of her children of course but Happy Birthday Elon Musk and that's it for the show. "Connect
The World" with Becky Anderson is up next we'll see you tomorrow.
(COMMERCIAL BREAK)
END
