Transcript: Nightly Business Report – April 4, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Take that. China slaps
possible tariffs on $50 billion worth of American goods just hours after
the U.S. hit Chinese products. We have the fallout and what could come
next.

What trade war? Wall Street freaks out at the open, but then does a big
about-face and marches higher by the close.

But what about me? If you are feeling confused and maybe nervous about a
possible trade war, we have some advice on how to protect your portfolio.

All that and more tonight on NIGHTLY BUSINESS REPORT for this Wednesday,
April the 4th.

And we bid you good evening, everybody, and welcome. I`m Bill Griffeth.
Sue has the evening off.

It certainly was not a day for the faint of heart on Wall Street today.
Stocks started sharply lower on the open this morning following China`s
announcement of new tariffs on U.S. goods. The Dow was down more than 500
points early on, fearing this to be a significant escalation that could
spread.

But then something happened. The market staged a major comeback,
suggesting perhaps that investors may see the back and forth between the
U.S. and China as nothing more than part of the negotiation process. Now,
that is all of course speculation. But one thing is certain, it was a wild
ride for stocks today.

In the end, the Dow rose by 230 to 24,264. The Nasdaq climbed by 100. And
the S&P added 30.

Now to those tariffs, China retaliated with proposed levies on $50 billion
worth of U.S. goods a day after the White House imposed its own tariffs on
Chinese goods.

Kayla Tausche sorts it out for us.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: A trade tit-for-tat
unfolding over tariffs, China unveiling the revenge it would exact if the
U.S. goes through with its latest set of tariffs.

China`s retaliation against soybeans, wheat and manufacturing targeting
America`s heartland and Trump country.

CUI, TIANKAI, CHINA AMBASSADOR TO THE U.S.: Well, in accordance with the
Chinese laws, take measures to fight back, maybe with the same intensity,
the same scale.

TAUSCHE: The announcement in response to the U.S. polishing a detailed
breakdown of 1,300 Chinese exports the U.S. would target with tariffs as a
punishment for intellectual property theft. The lists ranging from cash
registers and copy machines to consumer goods like dishwashers and flat-
screen TVs.

While China is readying its response, market strategists say it`s not a
trade war just yet.

BEN MANDEL, JPMORGAN GLOBAL MARKET STRATEGIST: So, what we worry about in
terms of does this is this a meaningful trade war is to the — you know, is
it to the point that it`s affecting business confidence in a meaningful
way, and I don`t think it`s sufficient to do so.

TAUSCHE: Some White House officials have doubted China would actually
retaliate. China hawk Peter Navarro says China can`t afford to risk its
relationship with the U.S.

PETER NAVARRO, DIRECTOR OF THE OFFICE OF TRADE AND MANUFACTURING: We come
in peace here. The thing everybody on Wall Street needs to understand is
just relax, if you look at the negotiating posture of this country. All
these countries that are running huge trade surpluses with us have no
incentive to rock that boat.

TAUSCHE: Bilateral talks between the U.S. and China on trade are still
happening behind the scenes. Commerce Secretary Wilbur Ross said the
public escalation belies a possible resolution.

WILBUR ROSS, SECRETARY OF COMMERCE: Even shooting wars and with
negotiations, so it wouldn`t be surprising at all if the net outcome of all
this is some sort of a negotiation. Whether that happens by May or it
happens at some other time, that`s another whole question.

TAUSCHE: Top trade official Robert Lighthizer is convening a mid-May
hearing on the tariffs and treasury is studying whether to put new
investment restrictions in place, giving the two countries until June to
work out their differences.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.

(END VIDEOTAPE)

GRIFFETH: Now, China`s reaction is telling in that it shows that they are
not taking this trade rift lightly.

Eunice Yoon got a glimpse into the government`s thinking when she spoke to
China`s vice finance minister in Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: I got a window into
how the Chinese are thinking about the tariffs in my conversation with Vice
Finance Minister Zhu Guangyao.

Minister Zhu has oversight over a working group on economic affairs for
President Xi Jinping and his message for American businesses and investors
is that China will not be bullied by the United States.

ZHU GUANGYAO, VICE FINANCE MINISTER: China never yields to the outside
pressure and we hope based on mutual respect, we can constructively found
way to solve the problem.

YOON: He said outside pressure only emboldens China to act.

The second message from Minister Zhu is that China sees itself as the hurt
party. For example on intellectual property, he said that China is making
progress on intellectual property rights, but that the Trump administration
is only taking this confrontational approach.

ZHU: China recent years so hard work to promote multilateral system. I
think not any reason to blame China for any cause of global protectionism
and that`s a fact.

YOON: And finally, China sees its tariffs as an equal response to the
U.S.`s. Beijing feels it`s only responding but that it`s not the
aggressor. The vice minister said that that`s why China chose to include
U.S. aircraft on the list since the Trump administration put Chinese
aircraft on their list.

However, despite all the tough talk, China is leaving the door open. The
vice finance minister told me that China would welcome any top U.S.
official, including Steve Mnuchin or Bob Lighthizer to come for further
negotiations.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

GRIFFETH: Now, we have been throwing this word tariff around a lot lately.
What are they exactly and how do they work?

Eric Chemi has a refresher for us tonight.

(BEGIN VIDEOTAPE)

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tariffs, that`s the
word of the day. So what are they really? It`s just as simple as a tax on
goods. You can think of it like a sales tax if you want, but these taxes
get assessed at the point of customs when goods come into the country.

By the time we see those items on the shelves at the store, it`s already
baked into the price you pay. Different goods have different tariff rates.
Many goods have no tariff at all.

Countries use tariffs for a variety of reasons. One purpose is simply to
raise money. Before income taxes were commonplace in America, tariffs were
the main way for the federal government to raise money.

Another reason is to protect domestic industries from foreign competition.
That can especially matter when a country wants to promote a growing
industry to give it a chance to survive.

Tariffs can also be used to punish foreign countries by raising the final
price of their goods, which would discourage consumers from buying them.

Many consumer items currently have tariffs imposed on them right now,
including certain kinds of clothing, shoes and accessories like leather
handbags — typically around 10 percent to 15 percent, so that $200 handbag
could wind up costing you $230.

For NIGHTLY BUSINESS REPORT, I`m Eric Chemi.

(END VIDEOTAPE)

GRIFFETH: Clearly, China`s tariffs would have a huge impact on two
particular industries that export a lot of goods to China. That would be
autos and airplanes.

Phil LeBeau explains now why China`s plan could be especially painful for
investors and workers in those businesses here in the U.S.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: At BMW`s plant in
Spartanburg, South Carolina, almost one out of every five SUVs coming off
the assembly line will be loaded onto a ship and sent to China, where it
will be sold for 25 percent more than the same model here in the U.S. And
that`s before an additional tax China is proposing that would push tariffs
on some popular SUVs in China up to 50 percent.

Fact is auto exports from the U.S. to China have soared over the last
decade and now total more than a quarter million vehicles every year. That
demand is one reason Mercedes and BMW have expanded production at their
plants in the southern U.S. If there`s a trade war and sales slump, will
automakers pull back on plans to hire more workers?

It`s the same question being asked at Boeing (NYSE:BA), where it`s been
expanding production of its popular line, with many of them headed for
China, which is expected to order more than a trillion dollars in new
planes over the next 20 years. Will order slowdown if some of those planes
cost 20 percent more?

For now, Boeing (NYSE:BA) says it`s still assessing what tariffs if any
China may impose. As for the automakers, they`re taking the same approach,
aware that the U.S. and China could still avoid a trade war.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

GRIFFETH: The tech industry would also be greatly affected by the Trump
administration`s list of products hit by new tariffs. And as you can
imagine, Silicon Valley is not happy about that.

Josh Lipton has their reaction tonight.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The list is out. The
Trump administration formally announcing which products could get hit with
these new levies. There are a lot, 1,300 product categories, including
many high-tech products like industrial robots and semiconductor machinery.

Consumer electronics are included too like flat panel televisions and
certain kinds of cars both electric and gas powered, though notably the
list leaves out certain other consumer favorites like mobile phones.

The USTR says this action is, quote, commensurate with an economic analysis
of the harm caused by China`s unreasonable technology transfer policies to
the U.S. economy.

The tech industry`s response: not happy. The ITIC, the industry`s trade
association, whose members include Apple (NASDAQ:AAPL), Amazon
(NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) calls the tariffs
counterproductive, saying they will raise costs for both tech companies and
consumers.

JOSH KALLMER, THE INFORMATION TECHNOLOGY INDUSTRY COUNCIL: Some would be
felt by consumers immediately again through prices on products, many of
them would be felt through the cost structure of companies that are
incorporating inputs and building things and employing people and finding
that the cost that they face to do all of the those things are going up.

LIPTON: The Chinese released their list of 106 U.S. products that will get
new tariffs and there were not many tech products on it. Still, American
tech companies, everyone from Apple (NASDAQ:AAPL) to H.P. have many of
their products assembled in China and rely on access to that market so the
threat remains.

Kallmer agrees with the administration that the Chinese don`t play fair
when it comes to American tech, but he thinks the smarter response would be
coordinated action with allies to pressure Beijing, not tariffs.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

GRIFFETH: Now, two of the tenets of the Trump administration have been
increasing growth and reducing trade deficits at the same time. But did
the two go hand-in-hand?

Steve Liesman digs in.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Trump
administration`s theory of the trade case that trade deficits should be
reduced and it will help U.S. growth sparking criticism from economists.
The criticism comes after China stopped retaliatory tariffs on 106 U.S.
products in response to $50 billion in U.S. tariffs levied the day before
on China.

Commerce Secretary Wilbur Ross reiterated on CNBC the administration`s view
that trade deficits are a negative for the U.S. economy.

ROSS: We have had a big problem with trade deficit for a long, long time.
This is the president who`s going to get us out of it. He`s determined to
go forward and this response should not have really surprised anyone.

LIESMAN: The trouble for the administration is this, as growth increases,
trade deficits increased too. The more growth, the more the U.S. imports
from expensive French wines, to German cars, to Chinese electronics. As
the chart shows, when the economy contracts, imports fall. When the
economy booms, imports boom.

MARK ZANDI, MOODY`S ANALYTICS CHIEF ECONOMIST: You have bigger trade
deficits when the economy is strong, because we`re buying everything.
We`re buying everything we produce and everything everyone else produces.

LIESMAN: When President Trump came into office, the deficit was running at
around $510 billion dollars at an annual rate. In January, it grew to $576
billion or a 13 percent increase in part because the U.S. economy grew
more, so people brought more from abroad.

It may be possible to grow the economy and lower imports, but that`s a
theory that so far defies decades of past history.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GRIFFETH: Craig Dismuke joins us now to talk more about tariffs and the
cost, what it might be to the U.S. and the consumer. He`s chief economist
at Vining Sparks.

Craig, good to see you. Thanks for joining us tonight.

CRAIG DISMUKE, VINING SPARKS CHIEF ECONOMIST: Good afternoon, Bill.

GRIFFETH: Clearly, we`re only at the proposal stage, so maybe Wall
Street`s getting a little bit ahead of itself. But even if we were to see
25 percent tariffs imposed on both sides, you still feel that at that
point, it wouldn`t have that much of an impact on the economy. Why?

DISMUKE: Well, if you — correct. So, if you look at — if you have a 25
percent tariff on $50 billion of imported goods, your net cost is about
$12.5 billion to U.S. consumers or businesses, and that will be absorbed by
one of those two. That`s — in context, it`s about one tenth of a percent
of GDP, less than a tenth of a percent of GDP. If you add it to the
tariffs that were already put in place on steel and aluminum, you`re still
at less than a tenth of GDP.

Just for context, it`s the equivalent of about a 12 cent increase in
gasoline prices. So, it`s not going to completely damage the economy.
There is a small price that you`ll feel.

GRIFFETH: Right.

DISMUKE: But it`s not going to undermine the economy.

GRIFFETH: So, it`s that proverbial soup can that Wilbur Ross has been
holding up recently to talk about the aluminum imports, tariffs that
they`ve been imposing there.

But you feel though we could see an impact though if there were extended
trade wars, a second or a third imposition of tariffs, yes?

DISMUKE: Yes, absolutely, and I think that`s what the risk is and that`s
why you saw the markets open down like they did this morning. You know,
they`re very — the markets are very jittery when it comes to this, because
they`re not used to this style of negotiation I think. But if you were to
see an escalation, if you were to see exactly what we saw today with a tit-
for-tat response, then I think that would become more of it — and
especially if you got other countries involved, then it becomes more of a
concern for us.

But at this point, it`s not a concern.

GRIFFETH: Where do you stand on this issue that Steve Liesman just tackled
here? And as we grow the economy, is it wise to try and reduce trade
deficits or not at the same time?

DISMUKE: Well, so, you know, a trade deficit is one thing. When you look
at trade barriers so a tariff is a trade barrier, it`s something that
prevents free trade. You know, those are negative for an economy. They`re
negative for the global economy.

But they exist in many different forms, and you can have — you can have
tariffs, you can have quotas, you can have the government subsidize a
certain industry, which makes your industry more competitive than other
countries. You can have currency manipulation.

All of those things are negative. They weigh on global growth. They weigh
on global innovation. They weigh on the global quality of life.

So, I think in total, tariffs — any trade barriers are negative, trying to
manage a trade deficit is I think really dangerous because that simply
reflects the strength of your economy versus another economy.

GRIFFETH: Very quickly, we should bear in mind that one of the president`s
goals is to try and bring more production back to the United States.
That`s one of the ideas he has in imposing these tariffs. Do you think
that`s going to happen?

DISMUKE: Maybe in some sectors we`ll see a few jobs return, and you know,
right now, the job market or the labor market is very hot. I don`t know
that we need that.

But remember when China puts tariffs on the U.S. goods in response, we`re
going to lose jobs in those industries. So, I think it`s — you know, I
don`t know if it`s a one-for-one calculation but certainly we`ll — we
might gain a few jobs or we`ll probably lose a few in the — in the
process.

GRIFFETH: Craig Dismuke with Vining Sparks, thanks again for joining us
tonight, Craig. Thanks.

DISMUKE: Thank you.

GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

Goldman Sachs (NYSE:GS) downgraded shares a Whirlpool (NYSE:WHR) today to
sell from neutral. The firm`s saying that the North American appliance
industry has become very fragmented and faces tough competition from abroad
as foreign companies ramp up production in response to us tariffs on
washing machines. The price target their also cut to $135 from $164. And
today, Whirlpool (NYSE:WHR) closed at $151.60. It was actually up 37
cents.

Deutsche Bank lowered its rating on Domino`s Pizza (NYSE:DPZ) to hold from
buy. The Deutsche analyst says that the stocks run up over the last few
years makes the valuation a little high and the company is also facing
increasing competition. The price target unchanged at $235 a share.
Domino`s fell nearly 1 percent today to $231.45.

And Cowen is upping Boston Beer (NYSE:SAM) Company to market perform from
underperformed, citing what it called surprisingly strong results from the
maker of Sam Adams in its cider and flavored malt products. Price target
raised to $195 from $150. Shares finished the day at $204.50. That was up
5 percent.

Coming up, now if you`re concerned about a possible trade war, we have one
strategist offering up potential protection for your portfolio.

(MUSIC)

GRIFFETH: Some mixed economic data out today payroll processor ADP says
that private companies added 241,000 jobs last month. That was better than
Wall Street`s actually expectations they were only looking for about
205,000. And the nation`s service sector slowed a bit in March with the
Institute for Supply Management`s non-manufacturing index coming in below
estimates and below February`s reading.

Higher prices helped results at Lennar (NYSE:LEN) and that`s where we begin
tonight`s “Market Focus”.

The home builder group profits and revenue as it sold more properties for
higher prices, orders also increased and the company said it expects to
sell more homes this year than initially had thought. Investors like the
upbeat forecast, sent the shares up 10 percent to $62.82.

Carmax reported weaker quarterly results and profits as the used car
retailer experienced a drop in customer visits. Revenue and same store
sales also disappointed. Shares still rose though more than 4 percent to
$62.73 per share.

Dow DuPont warned that its agriculture division could be negatively
affected by the ongoing U.S. trade dispute with China. The chemicals
giants that the proposed terrorist by China on imports of U.S. soybeans
could weaken market prices and hurt U.S. farmers. Shares of Dow DuPont
rose fractionally though to $63.69.

And Facebook (NASDAQ:FB) now says as many as 87 million people have their
information improperly shared by research firm Cambridge Analytica. That`s
up from the previous estimate of about 50 million users and Facebook
(NASDAQ:FB) also admitted that most of its users could have had their
profile data accessed. The company currently has more than 2 billion
monthly active users. Facebook (NASDAQ:FB) shares were off a fraction
today at $155.10.

Now, if all this talk about a possible trade war between the U.S. and China
has you nervous and worried, our next guest has some moves that could
provide some protection to your portfolio.

Joining us tonight, Paul Schatz is president and market strategist at
Heritage Capital.

Paul, always good to see you. Thanks for joining us tonight.

PAUL SCHATZ, PRESIDENT & MARKET STRATEGIST, HERITAGE CAPITAL: You, too,
Bill.

GRIFFETH: It — what do you make, first of all, of this knee-jerk actions
the Wall Street seems to have every time there`s talk of tariffs between
the U.S. and China.

I think it really fits in with the market`s performance over the first
quarter in the beginning of the second quarter. Look, volatility has been
a huge theme all year. It`s my number one theme for 2018. This just kind
of fits in with it.

The market volatility is going up. It`s been suppressed for so long. The
volatility genie is out of the bottle she`s not going back in the bottle
any time soon. We`re returning to old volatility or the old normal.

So, regardless of what the news is, I think volatility is here to stay
perhaps not as great as we saw today, but clearly volatility is going to
continue to be heightened for a while.

GRIFFETH: Now, we keep talking about industries that could be affected by
a trade war of some kind, agriculture, you know, autos, you know,
transportation sectors, agriculture — are those sectors that you see
opportunities in or would you avoid them until things sort themselves out?

SCHATZ: So, first, I think you have to have some kind of baseline view of
what you think the tariffs will end up. So, my personal view is, I think
if we get anything, it`s going to be a watered down version, a negotiated
version of what we`re hearing from both China and the U.S. right now.

Certain areas, I would let the smoke clear. Any sector that`s had somewhat
of a meteoric rise into January and is now declining off that, that`s one
area — those areas that I would avoid.

GRIFFETH: Right.

SCHATZ: You mentioned agriculture. I think for the long-term investor who
— real agriculture, wheat, corn, soybeans, they haven`t had their heyday
in so long. I think that presents an opportunity.

So, I think it really depends — you have to boil down the sector, figure
out where it is price-wise, figure out where that value lies. But the ones
that have melted up, I`m probably not interested in right now.

GRIFFETH: OK. Now, quickly then, what about those areas of the market
that you feel could be protected or wouldn`t be affected as much by
tariffs? I keep hearing about domestic small and medium-sized companies.
Do you agree with that?

I do and if you look since — you know, the market peaked in January, small
caps have done fairly well. They lag for several months and they kind of
got up off the mat. They have led. It`s been led by small cap growth.

Remember, small cap companies do most of their business in the United
States. So, in theory, you think they`re more protected.

Now, if the trade is as bad or worse than it`s painted right now, that
declining ship, the sinking ship, everything`s going to go down. But
regardless, small cap value which hasn`t had its day in the sun yet is one
area that the individual investor should at least look at, because there
should be opportunities going ahead for a sec that has not led yet.

GRIFFETH: All right. Paul Schatz with Heritage Capital, always good to
see you. Thanks again for joining us tonight, Paul.

SCHATZ: You too, Bill. Thank you.

GRIFFETH: All right.

Coming up, you know, Hamlet once told Ophelia, get thee to a nunnery.
Well, she might want to head to one particular former nunnery that is now a
$50 million mansion. We`ll take you inside, coming up.

(MUSIC)

GRIFFETH: Finally, tonight, a former convent in the famed Hamptons, east
of New York City, recently sold for a whopping $50 million. Now, it`s been
widely reported that the location was owned and remodeled by the late
fashion icon Vince Camuto.

Our Robert Frank was given a rare tour inside this sprawling estate.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Behind these wrought
iron gates sits one of the most exclusive properties in the Hamptons called
Villa Maria. Believe it or not, this sprawling waterfront estate used to
be a convent for Catholic nuns. Now, it`s on the market for $72 million,
and we`re getting a rare glimpse of some of the mansion`s signature
features.

CODY VICHINSKY, BESPOKE REAL ESTATE: This is the first time cameras have
ever been allowed in this house and it`s probably going to be the last.
Let me take you through.

The owners purchased the property in 2005 for $35 million. They invested
an additional $40 million over the course of six years, making it what you
see today.

FRANK: Broker Cody Vichinsky can`t reveal his client`s name, but it`s
widely reported the summer residence belongs to the family of the late shoe
designer and co-founder of Nine West, Vince Camuto.

VICHINSKY: If you look up, you`ll see a dome imported from Italy that is
centuries old.

This wrought iron balustrade custom made in Austria by a gentleman whose
sole job is to make this look like it`s been here for a hundred years.
This beautiful adorning column has been here for a hundred years.

Let me take you to the master suite. It`s 2,700 square feet made up of six
rooms and spans the entire western wing of the house.

The office, you notice that all the furniture was custom-made for the
house. It`s meant to evoke Hampton chic.

This marble tub was cut from a single piece. It weighs about 4,000 pounds
and was creamed in.

FRANK: A few weeks after Cody took us on this exclusive tour, the property
changed hands for just under 50 million bucks. And we`ll bet the buyer is
thrilled that Villa Maria was restored to the nines.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: Oh boy.

One last look at the day on Wall Street today, a very volatile day from
bottom to top. A 700-point swing for the Dow which in the end was up 230
points, was down more than 500 at one time today. The Nasdaq climbed by
100. The S&P added 30.

That is NIGHTLY BUSINESS REPORT for tonight. I`m Bill Griffeth. Thanks
for watching. See you tomorrow.

END

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