Chipmakers Could Be Hit With Both U.S. And China Tariffs: Ovide

the United States and China is technology. For example, Micron Technology said a ban on the sale of some of its products in China is unfair but won't hurt its earnings. Here to tell us more about how chip makers are trapped in the US China crossfire is our own Shira Oviday, technology columnist for Bloomberg Opinion, and of course you can

follow Shira on Twitter at Shira over Day. All right, Shara tell us about the chip companies and why this has been a back and forth because it has to do not just with tariffs, but then it has to do with the imposition of bands about what kinds of products can be sold between the two countries. Right, So there's two issues at play here that involve computer chip makers.

US chip makers. So I think, much to the surprise and chagrin of US chip makers, on the list of the first wave of US tariffs of goods coming from China are some products that impact US chip makers. So again, they trade group for the chip company said, we're in this weird position where some of the products that are come from US chip companies that get sent to China force sort of testing or some minor assembly, and then sent back to the U S or other countries, they're

being subject to this tariff. Right, So you have US tariffs that are trying to protect US companies that are then being forced to absorb tariffs in some of these cases. Um, which I think again was surprising to US chip companies. Now, let's just take maybe just one example, because I know that you know, not all chips are created equal, right, um, Micron, which has been the sort of the post child for this whole thing. It has to do that the issue with Micron has to do with a Taiwanese chip maker

as well, United micro Electronics. They're based in Taiwan, correct, right, So the the issue that Micron has is somewhat separate from the tariff issues. So they have been sued Micron, which is based in Boidi, Boise, Idaho, that makes these kind of memory chips are essential and basically anything that has a computer brain, so that includes smartphones, that includes supercomputers and everything in between. So they've been sued for patent infringement in China by both a Chinese company and

a Taiwanese company. And what Micron says is this lawsuit which is basically accusing them of stealing um, you know, proprietary technology from this Taiwanese and China for their graphics cards, right computer graphics cards. So what Micron says is basically this lawsuit is a ruse um too to cover up

for Chinese intellectual property theft of Micron's own technology. So and Micron believes that this is politically motivated, that this is part of China's kind of attempts to develop a homegrown computer chip industry, and that part of that effort, Micron says, is to kind of steal from American companies, and they feel like Micron feels like they're caught in this kind of US China battle over the future of technology. Okay, so that's Microns case. Now let's go to another patient.

This has been to do with Qualcom. It wants to acquire an XP semiconductor, but like in any situation, you

have to get government approval, right, Yeah, that's right. So Qualcom again, like Micron, feels like it's kind of caught in the crossfire between the U S and China trade war that they have been trying to buy this Dutch chip maker and XP for eighteen months I think, and the last regulatory approval is the Chinese antitrust body, and Qualcom has said with some justification that they believe that regulatory approval in China is being held up because of

retaliation perhaps for the us UM essentially banning or imposing a death sentence on z T, which is this um Chinese telecom company that broke us UM us by selling goods to Iran and other band countries and then lying about it. It looks like z T s back in the U S government's good graces after you know, a big fine and some management changes. So we'll see if that impacts the speed of regulatory approval for the Qualcom

n XP deal. Do you have a big whiteboard by your desk in order to sort of diagram all of the connections here because I'm gonna because I'm gonna go even deeper here, which is that the chips that Micron makes are very likely sold or shipped to China and then put into products maybe let's say smartphones, right, that are then sold to customers in the United States and Europe. Correct. Yeah,

it is very complicated. And I was asking folks in the chip industry yesterday, is it possible that they could be hit by tariffs on both side of this trade war? Could they be subject to US tariffs on some products and Chinese tariffs on some products? And the answer that I got was, They're not really sure, but it's possible, which would be mind blowing. And the companies that we've just talked about, Micron, Qualcom, and XP, they're not the only ones. We've got broad Calm, Texas Instruments, A m

D microchip technology, Intel, and video and analog devices. All of these companies produce a decent amount of revenue in China. Yeah. I mean, look, China is right now the world's biggest buyer of computer chips. Um that if you look at US exports by revenue, computer ships are number four, behind

things like airplanes and cars and oil. So you know, this is a big U s export with a lot of powerful and big US companies and computer ships are also again the you know, the beating heart of China's made made in China initiative to develop more homegrown technology.

So it's inevitable that these US chipmakers are getting kind of caught in this power play between the US and China, where China is both the their biggest customer in many cases and also this kind of source of tension between their home country, the United States, and their biggest market, China.

Is it worth noting that nobody forced these companies to put their production Let's say, if they have production in China in China, they went there because the scale and the cost makes it possible to then buy a smartphone that costs whatever it is but allows everybody to make a decent profit on it. Yeah, and that's a that's a totally fair point. That Look, the supply chain for a lot of products, including computer chips, is very global.

That you do have these huge factories in China that have developed expertise over the years in you know, certain discrete elements of the computer chip manufacturing process. And the same is true in Vietnam. And Malaysia and the United States and other countries. You know, they have developed these um specialties and certain aspects of smartphone manufacturing, testing and assembly.

And right now, I think what you're seeing in the computer chip industry is some questioning about do we need to adjust the supply chain as it has developed over the last decades to kind of reflect this fear of globalization being crimped in various corners of the world. So it's it's really interesting right now, a little a little bit of an irony when you think of all of the sort of market driven decisions that are made and yet they end up being political in terms. Everything is political.

Everything is political now. Thanks very much. Shira Oviday our technology columns for Bloomberg Opinion. Check out all her stuff on Bloomberg dot com, slash opinion, and follow her on Twitter at your over Day. The unemployment rate moved to hire in June from an eighteen year low. Steady hiring and an increased number of job seekers continue to support the labor market. US non farm payrolls rose a seasonally

adjusted two d and thirteen thousand in June. Here to tell us more about the report and its implications is Chris leu. He is a senior fellow at the University of Virginia Miller Centers, a former Deputy Secretary of Labor under President Barack Obama. He can be followed on Twitter at Chris lout four All Chris lou forty four. I want to focus first on wages and the increase that we saw. I believe it was two point seven percent. Do you believe that at that level we could get

to a four percent annual g d P rate? I don't, uh, And I think that is really the concerning part of an otherwise strong jobs numbers we have been in this kind of two point five. I think we were up to two point eight percent increased last month. Two point seven is just not enough, and particularly when you consider that inflation right now is running two point eight percent, that effectively means that most workers aren't seeing any more

money than they did a year ago. And so we we are in a very difficult situation right now where the said um hasn't quite decided where they want to go on rates, which will have an effect on wages. We're starting to wonder whether this jobs market is different than what we have always thought, which is if you're down in this level of unemployment, you would expect ways

to be going up much much faster. So um, you know, I think it's concerning, and I think many of us are starting to wonder what this economy is fundamentally different than what it used to be. Well, take that a little bit further and tell us if you had to explore that idea of a fundamentally different economy, what do you mean by that. Well, Look, you would think when you have normally a tightening labor market, a couple of

things happen. People come off the sidelines, which is what happened this month, and it's one of the reasons why the unemployment rates picked up from three point eight to four percent. And that's a good thing. But you would also think that in this tightening job market, employers would have to pay more uh to entice workers to come there, and it just doesn't happen. And you know, we know

that there are some solutions to this. Obviously, job training is important in helping people advance the more skilled jobs. High paying jobs like manufacturing and construction are another good answers, and it's one of the reasons why infrastructure is always a bipartisan policy idea raising the federal minimum wage and

state minimum wages would have an effec as well. But we also may be trapped in a situation where we now have a perpetual class of people who are doing relatively unskilled labor at basically minimum wages who just can't get out of that trap right now. And that's concerning well to your point. In June, the share of American adults working or looking for a job rose by two

tenths of a percentage point. That number now is sixty two point nine percent, and it is up from that low of sixty two point three that wasn't in But it's like it's like the smallest share of adults participating since the late nineteen seventies. This is not something that

is brand new, is it. No, that's exactly right. I mean, throughout most of the Obama administration and now the Trump administration, the figure you're sighting, the labor force participation has basically been between about sixty two percent and sixty three percent, and that's declined steadily since the mid nineteen seventies. Now, in part it's because of changes in the Democrat six of the workforce. We have a lot of people retiring earlier, we have more people in school, so and that's a

good thing. We you know, we're looking at labor force participation which goes all the way down to people aged sixteen, so we don't necessarily want all of them in the workforce. But it does suggest that we have far too many people on the sidelines right now, either because they couldn't find jobs, which was the case a couple of years ago, or because the jobs weren't there, or because they're not trained for the jobs. And that second part, if that's true,

is something that we really need to address as a country. Okay, So would it be possible to address that more efficiently if the Department of Labor and the Department of Education work combined. Well, look, that's actually one of the theories of the president's reorganization proposal that he came out with

a couple weeks ago. Um. Look, there there is certainly a synergy between education and training UH in the in the federal government, but there are also about nine different federal agencies that deal with training UH, and the overlap between the as agencies is actually relatively small. And having been at one end of UM looking at that, we function very Well, the bigger problem is we're not actually

investing enough money. The share of money that we put in as the settled government into job training pales in comparison to what Germany and other countries put in. We don't really have a national job training strategy. It really has done state by state, and we haven't invested sufficiently improven job training methods like apprenticeships, which are wildly popular and successful in Europe. Why haven't we been successful at that? Is it just money? Well, it is money, but it's

also the way that employers operate. Employers tend to um train their own workers, UH, and there's less incentive, frankly to create a broader pipeline of workers. So what companies will do in an industry is that they will fight over a share of the pie instead of working collaboratively to increase the pie, which is what UH companies do

in other countries. They invest in job training programs that let's say, create more plumbers than the Chinas, understanding that they may not be able to hire those people, but that's good for the overall industry. So companies need to start thinking about job training in a more collaborative way. Do you believe that that may also be a result of states, individual states competing with each other in order to grab businesses because they think of it just as

a state's issue rather than of national issue. Well, that's exactly that's a fantastic point. Far too often when states are trying to lure companies there um, they just dropped their tax rates. They provide tax and sentence to companies, and far too often when you talk to companies, they'll say, look, tax low, tax rates are fantastic, but it doesn't help when we get there and we can't find the train

workers we need to fill our factories. And so far more now come states are starting to understand if we really want to attract companies, we need to have a uh integrated job training program, and it's one of the reasons why you continue to see more companies going to more urban areas where they can find the train workers for the work they need. Thank you very much. Chris lou Senior Fellow, University of Virginia Miller Center. He's the

former Deputy Secretary of Labor under President Barack Obama. You can follow him on Twitter at Chris lou Well. Turning out of the shares of biogen they are up more than fourteen and a half percent, as comes after Bargin and its Japanese partner revealed results of a study of a drug that is designed to raise hopes for the

treatment of Alzheimer's to battle this disease. Here to tell us more about it is Drew Armstrong, or healthcare reporter for a Bloomberg News and you can follow Drew on Twitter at Armstrong Drew Okay Armstrong, Drew, what is the

breakthrough that we're seeing and learning about? Well, I wouldn't describe what we saw today or I guess late last night technically so much as a breakthrough, but a glimmer of hope for a medical research field that has seen a lot of glimmers of hope before followed by what ultimately turned out to be disappointing failures. So late last night we saw this data from biogen um n as I basically saying, hey, we looked at this drug. It's an experimental drug in mid stage testing, and it looks

like it helped people. There are a lot of caveats. UM they're using a different measure of whether or not it helped people than than other drug makers have before. UM that the systems that appeared to give patients in slowing the progression of Alzheimer's didn't show up when they when they looked at this in at the twelve months twelve months along in the study. This is just an eighteen months, so they took a little bit longer than expected.

And they haven't announced yet. This is really important. One of the things they're not saying so far that's really important. They haven't announced that, Hey, this is great and we're going to take this to the next stage. A lot of times when you're a drug maker and you have blockbuster good news, you say, great, phase two trial worked, onto phase three, Let's get this in a bigger population that we can use to get this drug approved by the FDA. That is not in the statements that they

have given. And I think that should probably sound a note of caution for people here. Okay, well put and and really useful information through the target of this specific drug. They're going after what are what is called beta amyloid. And I know that there's another disease, there's hereditary amoloid assists and so on, but this has to do with the build up of a protein. Is that correct? Yeah, that's exactly right, and and if I can kind of

explain the science here. One of the things that research of notice researchers have noticed for a long time is that if you take an image of an Alzheimer's patient's brain, or if after they die you dissect it, you see these little tangles of protein, essentially like plaque build up in the brain that for a long time. It's it's definitely known as a hallmark of the disease. You look at people who have this disease and their brains all have this. I think what hasn't been understood is is

it also the cause? You know, is this a is this something that is causing the disease or just something that happens to go along with it. And when if it is, if this is what's damaging people's brains, when does it start. Does it start building up silently when we're forty or fifty years old, only kind of rearing its head in actual Alzheimer's a decade or two decades later, or is it something that you know, you are at an elder age and you begin to show science and

that's when the damage begins. But the theory has been that if you can do something to eliminate these plaques or to even stop them from building up, that you might somehow be able to slow Alzheimer's disease. That is exactly so. And so if you can do that, you this might be potentially a a drug that could you know,

actually alter the course of the disease. But so far, even though a lot of drugs have shown success in reducing the amount of plaque, you haven't actually seen the kind of corresponding you know, decreases in the rate of dementia or incognitive decline, those things that actually matter. I mean, it's all, it's all well and good to treat a biological thing, but if it doesn't help the patient, it

doesn't mean anything for these folks. So the question has always been does this drug work on this thing, this plaque, and does that also translate into a benefit. And so there have been some signs in the studies that maybe that's the case, But I think the big question is going to be does it bear out in a wider study, Does it really true, really alter the course of this disease, or is there somewhere else the drug makers need to be looking. Just quickly, a couple of the companies still

looking for drugs to combat Alzheimer's. Right. Yes, Roche is in this space, um Eli, Lily and a number of other folks have looked at some different approaches. You know, drug makers look at this as probably the last great, massive untreated disease in in the world. I mean, this affects millions of people. It costs billions and billions of dollars. It is a personal and tragedy for families when it's

struck by them. So this is a huge opportunity for someone to try and do something about that has had so many failures. Thank you very much. Drew Armstrong, healthcare reporter from Bloomberg News. Follow him on Twitter at Armstrong Drew for his continued insights and analysis and reporting about the health care industry. Very interesting. My co host and colleague Lisa Abramwitz on a well deserved holiday vacation. He's

not on vacation. He's Scott Wren. He's a senior global equity strategist for Wells Fargo Investment Institute Assets Center Management one point nine trillion dollars based in St. Louis. Scott Rent always a pleasure, you know, looking at the performance of the SMP five hundred. It's up three and three and a quarter percent so far this year. Compare that to the NASDAC up over eleven percent, the Dow basically unchanged.

What kind of market does this remind you of? Well, you know, I tell you, Tim we Um, we have been positive on the market, technology has done. We backed off our overweight and technology last year, so we left a little money on the table, no doubt about that. UM small caps are doing a little bit better than what we thought they would this year, and I think that's almost solely due to the fears over a trade war.

But you know, really this this this market reminds me of periods when it's it's fairly narrow and you're you're toward the back end of certain cycles. But saying that there are there are numerous other characteristics. One is overwhelming enthusiasm, uh and chasing the market that I think are not um, you know, they're not present right now, so it it largely in narrowness, so to speak. It reminds me of

later stages of cycles. Well, when you talk about the lack of enthusiasm, does that mean that you just can't get people interested in stocks? Could that be a real secular change because of the way that investments are made using exchange traded funds. I think that that could be

part of it. But really, to be honest with you, and if you look at at our science, and I mean we cater to retail investors, um, most of them, let's say you're north of sixty, Um, most of them, at least on paper, they were burned in the tech bubble, and then they were burned on when in the financial crisis. And now they are older and they and they think in terms of g I don't have the time to make this money back there. They are concerned about, you know,

being down on their portfolio. They are concerned about outliving their money. And so I think I think the secular change, really, to be honest with you, is that with all this money on the sidelines in past cycles, and I'm talking you know, you look back over the last forty years, Um, you know, if the market had moved this far over this time by this time, there'd be a lot of chasing, there'd be a lot of exuberance, um. Those types of things.

And so I think, really the secular change, at least in my opinion, the stronger secular change is that you have money on the sidelines that in no way, shape or form is going to make it back into the market. So if I go back all the way to January of this year, January eight, for example, that seems like a long time ago, doesn't it. Yeah, But I mean, but where that's like ten points away from where we

are now on the SMP. That's where fifty nine. Yeah, I just you know, and really for us, you know, and you and I had talked, you know, in multiple times, but you know, we thought we were going to see a pullback, a reasonable pullback um the second half of seen. Uh. It didn't come until the month of February, and it happened very very fast. It happened for many of the same reasons that we had been looking for. But you know, really the market had not had, uh had a ten

percent pullback for for basically two years. And I think, you know, we are over we you know, we were overdue. And and I think the trigger um, which often happens late in the cycle, is things about wage inflation, general inflation, margin squeezes and what's the FED going to do about it? So, you know, this cycle has been very different in a lot of different ways. But as we move into what is likely the later you know, third if you know,

third of the cycle or so. Uh, some of these concerns that are causing the volatility outside of the trade war um potential um are really things that you see late in virtually every cycle. Okay, if that's the case, where's the best place to put money late in the cycle. I tell you, I think really, you know, industrials have taken it on the chin here. As as as the trade war rhetoric has has been pretty strong. I still think that there's a relatively low probability that we're going

to have an all out trade war. Certainly the rhetorics jumped up a little bit lately is probably the probability. But you know, we want to take advantage of this weakness and industrials. We've been overweighted industrials. We still want to be overweight industrials. We want our clients on weakness and industrials. Consumer discretionary financials. Clearly, if you look back over the last three years, financials have done really well,

but obviously over the last six or twelve months they've stumbled. Um. But you're looking forward, you know, we think that's still going to be a good place to be. We think it's too early to hide. So we've been underweight utilities, we've been underweight staples. Now have those sectors done well here since February second, early February when the markets started to get the more chopping and we had to pull back,

Sure they have. But but I think when you look ahead over the course of the next twelve months, you want to be assertive. You want to lean towards those sectors that are going to continue to benefit from a continuation of this economy. You do not want to hide. Someday, you know, somewhere out there on the horizon will be

time to hide. But I don't think it's now. When you mentioned industrials, you just want to make sure we're talking to about the companies such a and I'm not saying that you're recommending them, just saying companies such as Honeywell International shares down four and a half percent so far this year. Shares of Eaton Corp. Also uh lower? Uh this, you know my four percent this year. Those are the kinds of companies, Yeah, machinery and you know, those those kinds of things. I mean, you know, if

you look in a lot of these. Uh, if you look at a lot of these these companies, I mean, they are backlogged well into and now if you talk to any industrials analysts, they will tell you that the managements of the companies that they cover, they are nervous about the potential for trade war, potential for acceleration in this trade rhetoric which would negatively affect their businesses, you know.

But the fact is um through this year and into um you know, they are booked up and and and most industrial analysts, the guys who are in the in the trenches covering the individual companies, they'll tell you that you will not really be able to tell if the tax code change was really helpful in terms of capex until nineteen at least in the industrial sector. But you know, certainly these capex numbers we saw in the fourth quarter before the thing even kicked in, we're good. First quarter

was pretty darn good. And I suspect, based on these I S M surveys and some other things that we're doing, that that we're going to see some decent capex through the balance of the year as well. I want to thank you very much for joining me. Scott Wren senior Global equity strategist for Wells Fargo Investment Institute. He's in saying louis helping to manage one point nine trillion dollars of customer assets. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pimp box, I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio