Is Trump bluffing?
President Trump’s tariff threats have confused and vexed foreign leaders and CEOs for some time now, as they fear the looming trade war.
Investors seem relieved that it has held off so far, with S&P 500 futures gaining this morning. However, a growing number of analysts and business leaders fear that tariffs are inevitable (more on that below). There’s a theory gaining ground: Trump sees the levies not just as a negotiating tactic, but as a way to make money.
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’s tempting” to see Trump’s remarks as a signal that he sees tariffs as a “trading tool.” George Saravelos, currency analyst at Deutsche Bank, wrote in a research note on Tuesday.
Saravelos added, “But the only explicit reference to tariffs at Trump’s inauguration was in relation to using them as a strategic revenue tool.”
That would probably be a job for the Internal Revenue Servicean agency Trump proposed creating to collect what he said in his inaugural address would be “tremendous amounts of money flowing into our Treasury Department from foreign sources.”
And that’s despite several questions about the potential new agency, including how it would operate differently from US Customs and Border Protection, which is currently responsible for collecting tariffs, and whether Trump could create the agency without act of congress.
However, analysts are taking him at his word. Trump is chasing revenue and cost savings wherever he can find them, especially if he wants to extend a big tax cut that won’t hurt the U.S. credit rating.
Financial experts have warned that widespread new levies will have serious consequences, including accelerating inflation and shrinking economic growth. Economists at Goldman Sachs now place a 70 percent chance of Trump imposing some sort of tariff on China and a 25 percent chance of tariffs on goods from all countries.
HERE’S WHAT’S GOING ON
Elon Musk’s push for government spending is changing shape. What was once described as a non-governmental panel is now an official unit—the “United States DOGE Service”—in the executive office of the president, along with “DOGE teams” embedded in federal agencies. DOGE task forces will continue to advise on potential cuts, though many things remain unclear, including how big of a budget Musk’s teams will have.
Goldman Sachs is selecting its next generation of leaders. The investment bank promoted a host of top executives to its management committee on Tuesday and named new leaders for its equities, fixed income and banking divisions. It is the biggest wave of such promotions in years, although the proportion of women on the management committee will shrink.
‘Squid Game’ and the NFL give Netflix a big boost. The streaming giant posted its biggest quarterly subscriber growth ever, bringing in 19 million new customers and posting $10 billion in operating profit for the fourth quarter. The company also announced that it is raising prices for US customers.
Tariff Defense Plans
Even among executives who are optimistic about the new Trump presidency, there is one risk that worries them: tariffs. That led to a guessing game at the World Economic Forum in Davos, Switzerland, this week: How serious it is President Trump on tariffs?
US executives are already planning their own responses, reports DealBook’s Lauren Hirsch.
Business leaders are creating tariff war rooms. Companies have already experienced an inflationary period in which consumers began to push for price increases, so they know the limits to further increases.
While they have done this kind of scenario planning in the past, it is now more urgent given the potential size of any tariffs and the uncertainty under which companies are now operating. For the weaker companies, it’s more a question of how long they can survive a trade war.
The theory of the game: Should they pass on the higher costs to their customers? Or are they holding out while competitors raise prices, hoping to gain market share?
Companies are also weighing changes to their corporate structures. Some European multinationals are looking for ways to circumvent tariffs. For example: Can a company with manufacturing facilities in the United States relocate 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 avoid tariffs. Interestingly, Chinese companies have discussed this as well, although it is unclear whether these talks will lead to actual listings.
The tech giant is missing a $100 billion artificial intelligence initiative
President Trump announced a $100 billion joint venture between OpenAI, SoftBank and Oracle to build the computing infrastructure needed to power artificial intelligence technologies.
This huge number highlights the global race to build a new kind of data center that can push artificial intelligence to greater heights. Today’s most powerful data centers were built at a cost of about $5 billion — but this undertaking makes these facilities look cheap by comparison.
Another notable thing about the announcement is who is not participating, The Times’ Cade Metz reports on 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 artificial intelligence in the United States, as China struggles to catch up. OpenAI’s Sam Altman, SoftBank’s Masa Son, and Oracle’s Larry Ellison were on hand for the announcement.
It’s a major move for OpenAI. To build AI technologies like the popular ChatGPT bot, the startup has to buy access to huge data centers from giants like Oracle and Microsoft. OpenAI struck a deal in 2019 to buy 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 energy than Microsoft could provide. So last summer, OpenAI negotiated a one-time deal for $10 billion in additional computing power from Oracle.
That is why this consortium is important. If Microsoft can’t provide what it needs, OpenAI can get it from the Stargate project, although Microsoft will have the right of first refusal.
Given how much OpenAI is spending, Microsoft wants to stay in the mix. But since Altman was unexpectedly fired from the nonprofit OpenAI board in late 2023, the relationship between the two companies has been strained.
In interesting timing, hours after the Times and other outlets reported on the joint venture, Microsoft separately announced 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 has revealed that its deal with OpenAI runs until 2030.
Postcard from Greenland, investors issue
Even before President Trump announced his renewed interest in reaching a deal on Greenland, Beijing had been running circles, as had Western businesses and entrepreneurs such as Jeff Bezos and Bill Gates.
Rare earth resources, tourism and even water exports are at play in Greenland, a vast area that is part of Denmark, writes Vivienne Walt for DealBook.
Denmark rejected any talk of a sale. Trump has not ruled out military force annexing the region, leaving the fate of its 57,000 residents as one of the great geopolitical puzzles in the new Trump era. Mute Egede, Greenland’s prime minister, said on Tuesday he wanted to meet with Trump to talk “calmly”.
See what’s happening on the ground:
-
The island is rich in minerals needed to make batteries for smartphones and electric vehicles. China dominates the global supply chain in these resources and announced last week that it had found a huge new source of the mineral.
-
Critical Metals, a New York-based mining developer, has announced an all-out bid to acquire a rare earth mine near Greenland’s capital, Nuuk, operated by Australia’s Tanbreez. The American company calls the mine a “game-changing” asset. The Biden administration had urged Tanbreez to reject offers from Chinese bidders because the mine’s gallium has potential military applications.
-
Bezos and Gates are investors in KoBold Metals, a company that uses artificial intelligence to hunt for rare earths off the west coast of Greenland.
Greg Barnes, chief geologist and CEO of Tanbreez, 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 US, potentially bringing more investors.
“The biggest obstacle to economic development has been Greenland’s lack of connectivity to the world,” Dwayne Menezes, director of the Polar Research and Policy Initiative, a London-based think tank, told DealBook.
Another business opportunity: The Greenland ice sheet holds about 20 percent of the world’s fresh water supply. Menezes’ organization, for example, is exploring ways to extract chunks of icebergs and ship them to parched parts of the world. “We talked initially about India and Africa,” Menezes said. “But look at California and what’s happened there.”
Greenlandic, the island’s language, was added to Google Translate last year thanks to artificial intelligence, but there’s a catch: “Curse words translate really badly, so if you’re trying to curse in Greenland, you’re out of luck,” Barnes said.
READING SPEED
Offers
Politics and politics
The best of the rest
-
Goldman Sachs and JPMorgan Chase are reportedly the next targets of conservative activists who oppose corporate DEI programs. (WSJ)
-
Meta is said to be working on a wider range of smart glasses – including the Oakley iteration – and other devices to expand its range of AI products. (Bloomberg)
We’d love your feedback! Send your thoughts and suggestions to dealbook@nytimes.com.
