Is Trump bluffing?
President Trump’s tariff threats have perplexed and rankled foreign leaders and C.E.O.s for some time now as they fear the unleashing of a tit-for-tat trade war.
Investors apparently feel relieved that he has held off so far, with S&P 500 futures gaining this morning. But a growing number of analysts and business leaders fear tariffs are inevitable (more on that below). There’s one theory gaining traction: Trump sees levies not just as a negotiating tactic, but also as a way to make money.
A recap of Trump’s latest threats: Canada and Mexico could face 25 percent tariffs as soon as Feb. 1, and China could be hit with a 60 percent levy — or perhaps just 10 percent.
“It is tempting” to see Trump’s statements as a signal that he views tariffs as “a transactional tool,” George Saravelos, a foreign-exchange analyst at Deutsche Bank, wrote in a research note on Tuesday.
Saravelos added, “But the only explicit reference to tariffs in Trump’s inauguration address was with respect to their use as a strategic revenue tool.”
That would most likely be a job for the External Revenue Service, an agency that Trump has proposed creating to collect what he said in his inaugural address would be “massive amounts of money pouring into our Treasury coming from foreign sources.”
That’s despite a number of questions about the potential new organization, including how it would act differently than U.S. Customs and Border Protection, which is currently responsible for collecting tariffs, and whether Trump could even create the agency without an act of Congress.
Still, analysts are taking him at his word. Trump is hunting for revenues and cost savings wherever he can find them, especially if he is to pull off extending a major tax cut that won’t dent the U.S. credit rating.
Finance experts have been warning that widespread new levies would have serious consequences, including accelerating inflation and crimping economic growth. Economists at Goldman Sachs now place 70 percent odds on Trump’s slapping some kind of tariff on China, and a 25 percent probability on his enacting levies on goods from all countries.
HERE’S WHAT’S HAPPENING
Elon Musk’s government-spending effort changes shape. What once was described as a nongovernmental panel is now an official unit — the “United States DOGE Service” — within the president’s executive office, along with “DOGE teams” embedded within federal agencies. The DOGE task forces will still advise on potential cuts, though many things remain unclear, including how big a budget Musk’s teams will have.
Goldman Sachs picks its next generation of leaders. The investment bank promoted a crop of top executives to its management committee on Tuesday, and named new leaders for its equities, fixed-income and banking divisions. It’s the biggest wave of such promotions in years, though the percentage of women on the management committee will shrink.
“Squid Game” and the N.F.L. give Netflix a big boost. The streaming giant reported its biggest ever quarterly subscriber gain on Tuesday, drawing 19 million new customers and booking $10 billion in operating profit for the fourth quarter. The company also announced that it was raising prices for U.S. customers.
Tariff defense plans
Even among executives optimistic about the new Trump presidency, there’s one risk that worries them: tariffs. That has led to a guessing game at the World Economic Forum in Davos, Switzerland, this week: Just how serious is President Trump about tariffs?
American executives are already planning their own responses, DealBook’s Lauren Hirsch reports.
Business leaders are setting up tariff war rooms. Companies have already lived through an inflationary period in which consumers began to push back on price increases, so they’re aware of the limits to further rises.
While they’ve done this kind of scenario planning before, there’s more urgency now, given the potential magnitude of any tariffs and the uncertainty under which companies are now operating. For weaker companies, it’s more a question of how long they can survive a trade war.
The game theory: Should they pass the higher costs on to their customers? Or do they hold off while competitors raise prices, in hopes of gaining market share?
Companies are also weighing changes to their corporate structures. Some European multinationals are looking for ways to get around tariffs. For instance: Can a company with production facilities in the United States re-domicile there?
Bankers tell DealBook that private European companies are increasingly talking about going public in the U.S. — not only to get a higher valuation but also to potentially sidestep tariffs. Intriguingly, Chinese companies have been discussing this too, though it’s unclear if those conversations will lead to actual listings.
The tech giant missing from a $100 billion A.I. initiative
President Trump announced a $100 billion joint venture between OpenAI, SoftBank and Oracle to create computing infrastructure needed to power A.I. technologies.
That enormous figure spotlights the global race to build a new kind of data center that can push artificial intelligence to higher heights. Today’s most powerful data centers were built at a cost of around $5 billion — but this venture makes those facilities look cheap by comparison.
Another noteworthy thing about the announcement is who isn’t involved, The Times’s Cade Metz reports for DealBook: Microsoft, which has a partnership with OpenAI.
The new effort, called Stargate, could eventually pump as much as $500 billion into the project. Trump can now claim some success in his efforts to accelerate the development of A.I. in the United States, as China races to catch up. Sam Altman of OpenAI, Masa Son of SoftBank and Larry Ellison of Oracle were on hand for the announcement.
It’s an important move for OpenAI. To build A.I. technologies like its popular ChatGPT bot, the start-up has to buy access to huge data centers from giants like Oracle and Microsoft. OpenAI struck an agreement in 2019 to purchase this raw computing power exclusively from Microsoft, its largest investor. (The Times has sued OpenAI and Microsoft for copyright infringement, which the companies deny.)
Over the past year, OpenAI has asked for more power than Microsoft could supply. So last summer, OpenAI negotiated a one-time deal for $10 billion in additional computing power from Oracle.
That’s why this joint venture is significant. If Microsoft can’t provide what it needs, OpenAI can get it from the Stargate project, though Microsoft will have the right of first refusal.
Given how much OpenAI is spending, Microsoft wants to stay in the mix. But ever since Altman was unexpectedly fired by OpenAI’s nonprofit board in late 2023, the relationship between the two companies has been strained.
In an interesting bit of timing, just hours after The Times and other outlets reported on the joint venture, Microsoft announced separately that it would continue to provide computing power to OpenAI, even after the Stargate data centers are up and running. For the first time, the tech giant revealed that its agreement with OpenAI runs through 2030.
Postcard from Greenland, investor edition
Even before President Trump announced his renewed interest in striking a deal for Greenland, Beijing had been circling, as have Western businesses and entrepreneurs including Jeff Bezos and Bill Gates.
Rare-earth resources, tourism and even water exports are in play in Greenland, a vast territory that is part of Denmark, Vivienne Walt writes for DealBook.
Denmark has dismissed all talk of selling. Trump has not ruled out military force to annex the territory, leaving the fate of its 57,000 inhabitants as one of the big geopolitical puzzles in the new Trump era. Mute Egede, Greenland’s prime minister, said on Tuesday that he wanted to meet with Trump to “calmly” talk.
Here’s what’s happening on the ground:
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The island is rich in minerals needed to make batteries for smartphones and electric vehicles. China dominates the global supply chain in those resources and announced last week that it had found a giant new mineral source.
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Critical Metals, a New York-based mine developer, has announced an all-stock bid to acquire a rare-earth mine near Greenland’s capital, Nuuk, that is operated by Tanbreez of Australia. The U.S. company calls the mine a “game-changing” asset. The Biden administration had urged Tanbreez to rebuff offers from Chinese bidders because the mine’s gallium has potential military applications.
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Bezos and Gates are investors in KoBold Metals, a company that is using A.I. to hunt for rare earths on Greenland’s western coast.
Greg Barnes, Tanbreez’s chief geologist and managing director, told DealBook that Greenland “should be producing tens of millions of dollars’ worth of mining products, but it’s not.” One reason, he added, “is the perception that Greenland is full of igloos and polar bears.”
That perception could soon change. In June, United Airlines is set to begin direct flights from Newark. It will be Greenland’s first direct connection to the U.S., potentially bringing in more investors.
“The greatest barrier to economic development has been Greenland’s lack of connectivity with the world,” Dwayne Menezes, director of the Polar Research and Policy Initiative, a London-based think tank, told DealBook.
Another business opportunity: Greenland’s ice sheet holds about 20 percent of the world’s supply of fresh water. Menezes’s organization, for one, is exploring ways to export iceberg chunks and ship them to parched parts of the world. “We talked initially about India and Africa,” Menezes said. “But look at California and what has happened there.”
Greenlandic, the island’s language, was added to Google Translate last year, thanks to A.I. But there’s a catch: “The curse words are really badly translated, so if you are trying to curse in Greenland, you are out of luck,” Barnes said.
THE SPEED READ
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Goldman Sachs and JPMorgan Chase are reportedly the next target of conservative activists opposed to corporate D.E.I. programs. (WSJ)
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Meta is said to be working on a wider range of smart glasses — including an Oakley iteration — and other devices to expand its range of artificial intelligence products. (Bloomberg)
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