P&L: Trump's Tariff Threat Would Violate NAFTA

SoundCloud and at Bloomberg dot com. President elect Donald Trump had threatened to impose tariffs on automobiles made in Mexico by g M, and as part of the automotive industry's response to President elect Donald Trump, Ford Motor Company has decided that it will not spend one point six billion dollars to create a new manufacturing plant in San Luis

Potoso in Mexico. Well, Shannon Petty Pieces are White House correspondent, and she joins us, Now, I know you're at the Trump Tower in Midtown Manhattan todaytion and but you're focusing on the NAFTA regulations that would prevent the imposition of tariffs. Can you explain a little bit more about this contradiction? Right? So, under NAFTA, um, you know, uh, goods are able to flow tariff free between Mexico and the US and Canada.

In the US and vice versa and so forth. Um. Yesterday Trump tweeted, uh, you know, called out GM for importing a car made in Mexico into the US. UM, and you know edited with you know, something along the lines of, you know, uh, if you import products here, you're gonna have to pay a big border tax. Well, under NAFTA border tax, the tariff on goods coming into the US from Mexico is in violation of that agreement.

So if Trump is going to carry through on his commitment that he made on the campaign trail knights continuing to read right now about putting attacks on goods coming in through Mexico, then that it's going to be in violation of NAFTA. And if you violate NAFTA, which uh no presidents violated a trade agreement since the eighteen hundreds. So, UM, we don't know exactly what would happen, but one possibility is, you know, Mexico rule would retaliate then with its own

set of tariffs. UM, and then you get into the trade war, and uh, you know, a whole variable of things can play out from there. But uh, that's sort of what we talk about when we see uh President electrov going on, and you know, discussing things like a border tax, uh, you know, from imports to Mexico. Well, indeed, in your most recent story, Shannon, you have a quote from Republican Senator Rob Portman of Ohio. Tell us what

he was talking about. Well, the concern here with you know, putting a border tax on with exiting NAFTA or you know, getting into a trade war is that, Um, the okay? So sure, you know, it would make cars made in the US more competitive, It might encourage companies to make more products in the US, but also means goods coming in from Mexico go up in price. So all the Mexican made goods that we buy that are sold in stores like Walmart are going to go up in price.

And also if you're a US manufacturer and you're importing you know, let's say the fabric or the styrofoam when your seek cushions for the chairs that you're going to be manufacturing in the US, the price of those important manufactured goods go up. So uh, that's the concern of what could happen here. Of course, there's there's ways to do this. NAFTA could be renegotiated. Um, we you know, could have a trade war and the air and prices of stuff from Mexico go up, but there's taxes or

other incentives to offset it. I mean, there's there is a lot of variables that could play out. But the concern is that you know, you put tariffs on cars coming in from Mexico, Mexico retaliates and the cost of all sorts of good starts going up. And also the I should mentioned yeah, then the US manufacturers exporting UH good to Mexico also get hurt. Now, the authority of the president when Donald Trump, after he's inaugurated on January twenty, his power will be what I mean, will he be

able to He doesn't. He has to forward any changes to treaties UH to the Senate. Right though, under there's a clause, a very short clause in the NaSTA agreement that would give the power of the president to just completely exit the agreement altogether. And he has said on the campaign trail that he could use that article of the agreement to exit NAPTA. UM. He has said, rather, what he'd like to do is renegotiate it and get us a really a really great deal and much better

terms for the US as part of the agreement. But if Mexico and Canada did not play along, he could exercise that powers and just withdraw from the treaty. And also the president would have what the ability to impose a duty for one days, claiming what is described as a balance payments emergency. What is that? Yeah, So, so then let's say we did exit from NASA. UM Trump said he'd want to put a thirty percent tariff on

goods coming from Mexico. Um, he would not be able to do that because even if we did, I guess at least legally, uh, even if we did exit NASA, then in ports of Mexico would have a four percent tariff on them under the most Favored Nation status, they would get this four percent tariff. Um he could put a higher trap, that fiercent tariff on but only for

a limited period of a hundred days. Longer term, the most terror and the biggest therapy will be able to put on would be four percent, unless, of course, you know, at least with his with the unilateral powers of the presidency. Indeed, all right, well, we'll be watching this story, and thank you for covering at Shannon Petty piece are White House correspondent for Bloomberg News. Today, she is at Trump Tower in Midtown Manhattan. He decided to build a better bank,

and he did so. Frank Sarantino is the chief executive officer of Connect One Bank. They're based in Englewood Cliffs, New Jersey, and he joins me. Now, Frank, thanks for coming in great to see this idea that do you built the bank. You went through kind of a start where you know, you had traditional bankers in charge, and now you know you've been running the bank for a while. What is different about having a person who was formerly a customer run a bank than just someone who is

only in the banking industry. So you know, from my perspective, it's just bringing more of an entrepreneurial spirit to to to the business itself. And this is a highly regulated industry and for many many years, the things the way they've always been done, and so we just think a little bit differently about everything we do connect One Bank. We think about the customer and everything we do. We we assume the customer is in every one of our meetings.

Whenever we have a conversation about what to do, what to do next, how we're going to run our organization. Uh, and I think that that pervades the entire thought process of how we do things. We we really work hard to work with a sense of urgency to get things done quickly at the speed that business demands. All right, well let's let well and it's a little bit different, then let me then let's go to some specifics if

we can. For example, regulatory reform and Dodd Frank legislation is certainly a topic in Washington, d C. I'm sure it's a topic in your office is as well. What do you expect to happen and what effect will it have. So there's lots of talk in the industry today about a complete repeal of Dodd Frank. That's probably unlikely. What's more likely is a real cost benefit analysis. This is an industry that has always operated with regulations and will

continue to op rate with regulations. We're not going to be the Wild West with no regulation. But there are lots of regulations that were put in place specifically since Dodd Frank that really have no cost benefit analysis and really may not benefit anyone. And and the amount of data that needs to be collected and reported upon really doesn't reflect the risk that's in the marketplace, and so

I think we're gonna look at more sensible regulation. Would be an example of one regulation that you feel is not necessarily beneficial to either you or to the customer. So let's take it right to main street and the ability for a banker to make what used to be known as a character loan. I know you, I knew your family. You know we know you had the store in town for the last forty years. You've never uh

never not paid your debts. Yet if we don't have every single piece of financial documentation that can demonstrate that not only can you make the payments, but you can pay off the loan at maturity, we can't make that loan to you. And so today that's a that's a challenge, and that's hurting small business. On the flip side of that, you know, someone who wants to buy a home with the qualified Mortgage standards UM is making it much more difficult today for first time home buyers to purchase that

at home. The bank doesn't have as much discretion as it used to have in the past about deciding who is a qualified borrower and who isn't based on the bank uh Now it has to be a standard that we can apply across the entire fifty states in the United States, and I don't think that's I don't think that's appropriate. And I think we're seeing the impact of that. We're seeing home ownership leg uh for for the reasons

that people can't come up with the down payment. Now there are other reasons as well, but this is certainly one of the reasons. Has bureaucracy replaced common sense? Absolutely, we've definitely, I think the pendulum swings, and in this particular case, I think we have swung the pendulum to the place where, uh, it's more important to think about what the rules say as opposed to what makes sense. Uh. And you know there's also this happens in business, but

clearly in banking, there's a fear of failure. We can never have a bank ever fail, and I don't think that's the standard. I think I think we this is you know, this is a a capitalist society, and I think people make decisions, and we have the appropriate amounts of capital required to charter a bank, but I think it's up to management in those boards to make those decisions. I also believe we should never have an institution that's too big to fail, right, that we could never have

that that failure take place. But the notion that no bank should ever fail under any circumstances, I think it is really harming the industry. It sounds like a good sounds like a good thing to do, right, it sounds like it makes sense. But at the end of the day, UH, think about any other industry where you would say, under

no circumstances can there be a failure? UM, that'd still be a lot of buggy with businesses and other industries today that I'm not so sure you'd want around interesting point talk about tax reform and what you perceive is likely. So I think UM tax reform is probably one of the most likely outcomes of the recent election. I think

it will benefit certainly in the short term UM. Many companies banks included banks paying enormous People don't realize, but banks pay a tremendous amount of tax for both federal and state taxes UH, and so any reduction in those tax rates will not only benefit other companies. But as you know, if if a bank benefits and has more UH net income, that goes to capital and allows banks to make more loans. So I think that will benefit

the economy greatly. On top of which, if everyone has is stated, gets some sort of a tax break, that's money coming into the economy. And I think we're seeing signs that the markets already reacted to that. The market has already reacted that. Do you think the market is overreacted to that? Well, that's that's to be seen. Right There are those who say we're just getting going, and there are those who say it's overreacted, and there's still lots of forces that will bring the market back to

back to earth. I'm of the I'm in the camp that I think this is the a a great amount of liquidity that we're going to need today, and I think the market is reacting appropriately to what it sees is the most probable outcome to whether or not we get tax reform. I just want to bring this headline to you that President elect Donald Trump has named Jay Clayton to head the Securities in Exchange Commission. Jake Clayton is a lawyer, and he would succeed Securities and Exchanged

chairman Mary Joe White, another lawyer. Clayton met with Trump in early December and is a partner at Sullivan and Cromwell, where he worked on the initial public offering of Ali Baba Group. UM. Frank last point to business sentiment more loans,

less loans, kinds of loans. Give us some details. So in keeping with the tax discussion, Certainly, people feeling that they're going to have more money, whether it's a person or even businesses that think that they're going to either have more wages or more in the way of net income. UM certainly feel better about out the future. And we're seeing that our client base to connect one definitely has

been coming back to us. UH. Certainly those that are any way affiliated with any type of infrastructure building right engineers, environmental firms, architectural firms, UH, investors, real estate people are very very optimistic about what the future looks like to them, and we're starting to see that sentiments spill over into the request that we're seeing today, and I think people are willing to stretch a little bit based on what they believe the future looks like. Thanks very much for

coming in. Always great give us some details about the banking industry and about what might change in in this year. Frank Sorrentino is the chief executive officer of Connect One Bank. They're based in Englewood Cliffs, New Jersey. Is also the founder of the bank. All right, let's get smart when it comes to healthcare in the United States with Brian Ry. He is our senior healthcare policy analyst for Bloomberg Intelligence

for their government team. Joining us from Washington, d C. Home to Bloomberg and one oh five point seven h D two. Brian, there is a battle going on right now in Washington, even before President elect Donald Trump is inaugurated, having to do with the Affordable Care Act perhaps a better known as Obamacare. What is happening and what are we witnessing? Oh? I guess you know, happy New Year and here we go, thanks for how quick? Uh? You know?

The Republicans, you know, campaigned on a promise for the last six years of repealing and replacing Obamacare, and for the last six years it's sort of been a toothless promise because President Obama had a veto thread in the office in the in the White House that's going away now. And so now they're sort of the dog that's caught the car. What are you going to do with it now that you've actually caught it? Uh? And you have

to actually back up those promises. So the Hotter fifteenth Congress UH was sworn in yesterday, So they are ready to go there looking to using looking at using a process and we'll get into details, but a budget reconciliation process that won't repeal Obamacare, award for word, but it can repeal or at least terminate several key provisions, the insurance mandates, the Medicaid expansion, a lot of the taxes

imposed by the law. Um. But then the question becomes, well, Okay, you've done that, what are you going to replace it with? And how long is it going to take for that transition to take place. Well, clearly there's going to be a debate about it, because the President Obama has just left the or is leaving the capital after a strategy meeting with Democrats. I don't know what went on in the meeting, but I would imagine it has to do with providing a defense for many of the provisions of

the Affordable Care Act. Well, that's it, and I think at the end of the day, you're going to see you actually several of those provisions remain in whatever replacement vehicle Republicans come up with, such as protections for those with pre existing conditions being able for you know, kids to stay on their parents plan until age six, um.

But you know how long that actually takes in Well, how can you get there without having the the unpopular parts of the law, you know, the mandates and the penalties and and the rising premiums that that you know, frankly, you know have been an effect. And I think that's one of the reasons why we have a president elect Trump and a Republican controlled Congress, unlike what happened in

two thousand ten when Democrats controlled everything. Is the law hasn't quite worked as well as the Democrats would have hoped, but they do have some things they can point to that people do like. And if there's any disruption along the way, that's certainly going to create some political headwinds, because you're right, Democrats are going to shine as bright as spotlet as they possibly can on any stories about people losing their coverage along the way, um, whatever the

Republicans claim they're trying to do. I just also want to mention that president of Vice President elect that Mike Pence visited the capital earlier four meetings on the healthcare bill. Presumably that is about Republicans put putting forth the contrary plan. Can you tell us are there any Republicans that would need to be won over in the Senate in order to change provisions of the Affordable Care Act? Or they all on board? I think they're all conceptually on board.

But you know, when push comes to shove, they have you know, a majority of fifty two uh in in the Senate, so not much room to spare. I think, Steve, the topics of discussion are going to be, Okay, you know, how long are we going to let people linger if we're going to say, okay, we're gonna repeal everything now, but not come up with a replacement plan until I think you might see some a few senators be on

the edge about that, um. But conversely, I think others are wary of jumping into soon and causing a lot of disruption and sort of um calling, shooting themselves in the foot before they can get out of the starting gate. So I think there's certainly going to be discussions, um.

And that's why you know, when when push comes to shove, Congresses is extremely efficient kicking the can down the road, and I would look for them to for all the talk and bluster that we're hearing today for this to not be a smooth process and this to take months and maybe even years rather than the weeks not that

they're talking about now. So if you're an investor in either hospital corporations like h c A or indeed health insurer such as UH Community, UH Molina for example, or Sentien, what investors should be what should they be worried about and how fast should they worry? Yeah, I think the the insurance that you mentioned, the Senteens, the Molina's, I think they're worried about an aspect of the law of

the Medicaid expansion. Um. You know, that was part of the a c A. That is one thing that through this budget reconciliation process that Republicans can end pretty quickly, and that's been a good source of revenue for those insurers. So that's something that could go away. And then anything that increases the number of uninsured Americans, well that's the problem for the hospitals you outlined, because if you don't

have insurance, you're not able to pay those bills. That increases their bad debt expense can hurt their bottom lines as well. So those of the I think you touched on the two groups that are most most eager and most anxious about what's going to happen now. At the same time, a lot of insurers have been leaving the existing Obamacare exchanges, so it's not like that's been a great business deal for them on those state exchanges. So I think they're eager to see some changes to maybe

draw them back in. And Republicans certainly have an incentive to try and UNFOS as stable as possible. Always a pleasure. Brian Rye expert when it comes to healthcare policy. He is our senior healthcare policy analysts for Bloomberg Intelligence for the Government team, which is one of two hundred thousand attendees at the Consumer Electronics Show. Sandy Rowland is the chief financial officer of Harmon. Harmon International, it's being acquired

by Samsung. Sandy, thank you for being with us having how's the time in Las Vegas? Is everybody already geared up for computing and taking selfies inside their own automobiles? Wow? I mean the energy out here is just amazing. Um Our booth opened about thirty minutes ago, and uh, the lines are already forming. We're so excited to be hosting customers from all around the globe this week. Tell us some of the items that are on view at your booth and what that means for the future of the

connected automobile. Yeah, well, this we're really excited that this year we've moved the conversation from connected to intelligent and intuitive UM. And this year it's all about innovation that delivers an immersive, personalized experience, whether it's for the automobile, for the enterprise, or for the home. So what would be some of those things, for example, navigation, h embedded infotainment, telematics, What would be some of the details, Yeah, absolutely, all

of the above. UM. What we're excited about in the automobile this year, it's all about customization and personalization. So once the car is connected, there's so much more that you can do with it. So, for example, one of the things that we're showcasing this year is how we've brought in Microsoft solutions into the car. UM. The driver can have access to their calendar, the driver can make

access conference calls seamlessly, UM. But if they don't want to do work, UM, we've brought in entertainment solutions that you can convert the car. UM really into an IMAX theater. UM you can have individual sound zones where each and every driver can have a totally different listening experience. UM. All of these are examples of how we're customizing the solutions for the car. You've also put together a package of lane departure indicators, pedestrian detection, also camera based navigation,

rear view three sixties surround view solutions. This is UH going to take a lot of power, battery power in order to keep running. What is the the sort of demand from an automobile now in terms of battery used to start the car and and maybe like the interior, but that's it's a far that's a far cry from

where we are today. Yeah, for us, it's it's not only about the battery, but it's about how many lines of code our solutions bring into the car UM, and the lines of codes are in the millions, over twenty five million lines of code to bring in some of these solutions into the into the car. And of course one of the things that we're really proud of is that we've been focused a lot on cyber security and you cannot have a connected car without a robust cyber

security solution. UM We have a solution that we call five plus one UM and it's been tested by the University of Michigan and NIZA and it's come out as the number one solution for UH cyber security solutions for the automobile. Now, I don't know whether you heard, but I'm sure you are aware of the efforts on the part of Ford, Motor and Toyota to come together in a nonprofit consortium in order to make available the open source software that would allow third party developers to write

apps for the automobile. Is that I know that you are part of that consortium as well. What what is that going to bring to your offering? Yeah, you know. I think one thing that's very important is that collaboration is essential. As technologies continue to advance, no one company has all the goods UH. The smartest partnerships will decide who the winners and losers are. So UM, for example, we have partnerships with Microsoft to bring in Quartana into

the car. We have UM partnerships with Apple and Google to bring their solutions into the car. UM. No one company can can do it along and do it alone. And we recognize that, and we see that lots of the leading O E M s are also recognizing that there's also an effort on the part of harmon I understand to enhance vehicle to via goal communications as well as vehicle to infrastructure communications. Tell us more about that, Yeah, absolutely, UM.

One of the key requirements is that you need to take advantage of the cloud, and that's one of the things that we are doing. It's one of the reasons we acquired Symphony Teleca two years ago. You have to bring in UM the bridge to the digital ecosystems and take advantage of the power of software in the cloud. Yeah. You've also built a reputation on audio, specifically UH speakers, j b L as well as other high end audio components.

Is there going to be a change in the way that they are integrated into the automobile, because, as you say, if you're looking at customizing the experience, having just you know, speakers and radio are not necessarily going to be enough anymore. You're absolutely right. So, UM, it's not only about having

a solution that sounds good, UM and looks good. We're very proud of our industrial design and the sound solutions that we have UM, but they also have to be smarter now and that's why we're partner partnering with a lot of different companies to bring in the artificial intelligence into these solutions. Well, you're also more than partnering being acquired by Samsung. What what do you believe will be some of the changes that we can see at Harmon

after the acquisition is completed. Yeah, this transaction we are obviously very excited about UM. I think that the companies are very complementary. We both have a mindset about around speed and innovation UM. So we think it's going to be a terrific match and we think that the combination of Harmon and Samsung will allow us to take our vision around the connected car UM all the way through autonomous driving UM at a much more accelerated pace. Sandy,

do you like heads up displays? Absolutely? Absolutely? Well, because I know that I want you to tell us about a partnership that you have with a company called navty, UH for aftermarket heads up driving. Yeah, that's uh. You know, one of our strategies has been to take some small investments in small start up companies that have interesting technologies, and so our partnership with navty will allow us to bring an after market solution to drivers who don't have

those solutions embedded into their car. UM. Also this year at c e S, we're showcasing a car of the future which has a total um windscreen head up display that covers the end to end wind shield. Wow. And what what car is it? Um? This is called the Ring Speed car and it's it's every year at c e S we've been partnering with rin Speed to showcase what we think a car may look like in and this particular car with WRIN Speed is one that is

all about shared mobility and autonomous driving. Well, I think you probably have already put your order in for one. Thank you very much. Sandy Rowland is the chief financial officer of Harmon International, coming to us from the Consumer Electronics Show in Las Vegas. The Future of the Digital Automobile. Thanks for listening to the Bloomberg pian L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out

there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.