♪ >> this is frankly nuts. canada and mexico far our largest trade partners. >> this signals he is sending, he sees values and tariff beyond even their negotiating leverage. >> it could change on a dime but i think once they are on, it is hard to take them off. >> we think this could actually be highly disruptive to supply chains, potentially inflationary because of that disruption. this could weigh on growth and inflation in a more meaningful way. announcer: this is "bloomberg surveillance." with jonathan ferro, lisa abramowicz and annmarie hordern. jonathan: live from new york

city this morning, good morning, good morning. "bloomberg surveillance" starts now. the underperformance on the russell, the small caps negative by more than 2%. one industry with a major cloud hanging over, the automakers the lantus, ford, gm trading lower. down by 6.5%. the winner from the weekend action, the u.s. dollar. the best day for the u.s. dollar since the day after the election, stronger across the board against the mexican peso the canadian loonie. and the euro-dollar down, negative by more than 1%. below since 2022. lisa: and parity is all but certain, that is what people are saying heading into the remaining couple of weeks and months ahead. the question is, our markets

fully pressing and the idea of these tariffs that were announced over the weekend sticking, and if not, i they really selling off or being disrupted enough to really act as that check on donald trump policies? that they had a seat at the table, do they? jonathan: the number one question, your question, the scope for negotiation, one thing we do know after hearing the president shortly after he got on board a helicopter, there are going to be some calls later on today between him and the mexican leader, and the canadian leader. annmarie: but then he said this, i don't expect anything very dramatic. you put tariffs on, they owe us a lot of money and ensure they're going to pay. so he said he doesn't think it will be anything dramatic which basically signals that these tariffs may come into effect as he said just after midnight tomorrow, but when it comes to canada and mexico, is there a

scope potentially for negotiation? goldman sachs said that while the outlook is unclear, they do think this will be short-lived. lisa: basically everyone is saying this won't be here very long. meanwhile talk about the u.s., the u.s. is visibly enough to look past this session, that is basically the base case. you take a look at them of the projections, george called this something that was in magnitude about brexit for both what we could see for canada and mexico and met a could really force them into a recession in the next few weeks and months ahead. jonathan: for the markets, remember the progrowth story. this is the first test if trump is good for stocks and we might not like the answer. equity features negative by 1.4%. we begin with a top story. donald trump slapping 25% tariffs on canada and mexico and 10% on china.

some: we may have short-term a little pain, and people understand that, but long-term the united states has been ripped off by virtually every country in the world. we have deficits with almost every country. not every country, but almost we are going to change it. that's why we are owed $36 million. we have deficits with everybody, we've been helping everybody for years, and to be honest i don't think they appreciate it so we are going to change that. jonathan: canada planning a 25% levy against american. mexico preparing a response and china's ministers a corresponding countermeasures that they going to affecting fewer than 24 hours. your team coverage starts right now. tyler, first of all to you, a big question for later on today, they will be a series of cause

between the president of the u.s. and the leaders of mexico and ended up. what can they do to avoid these tariffs going to affect? >> 80 question, what is the metric of success he is looking for in order to lift these tariffs? when it comes to reaction to what is going on, of course we see now i stop president trump they are supporting this because it will help tackle this immigration agenda and also fentanyl, but it is not that easy for all republicans, particularly when you look at them republicans that represent top agriculture producing state such as senator john thune, the majority leader who has said he would only support tariff that they were done in a targeted way. another midwest republican senator asked scott bessent how he's going to protect american farmers when it comes iteris. he said he was looking to some sort of catch-up provision that would help bring beijing negotiating table when it comes to purchase agreements that they

made under the phase one trade deal which has since lapsed. so the questions remaining particularly if these nations can come together when it comes to expanding or addressing these to buy president trump. annmarie: when it comes to canada we do know that justin trudeau announced and promised retaliatory tariffs but in a more gradual response. potentially of the government looking for an offramp to negotiate right now? >> that is what it really sounds like. $30 billion of goods right away will be taxed and then they are looking at consultation bring on the rest of the $70 billion or more of goods. i think that having a call today, the fact that there were a lot of canadian officials visiting trump and the white house last week, it does sound like they are trying to give some breathing room and some kind of space in order to be able to pull some of this back or at least negotiate a figure out if anything can really be done.

the question really becomes can something actually be done? is trump going to just stay put and not budge? how much this can actually have to give in to the white house and trump in order to be able to remove this, if even possible right now. lisa: we are expecting the from claudia sheinbaum later this morning about a plan b that mexico has to the retaliate more specifically. what are we expecting to hear? >> we don't know exactly what that means. there is an indication perhaps that she talking that some of these working groups that she's been posing on the border and for security measures between the three countries. so that would be more of a conciliatory type measure. we would expect some snakes of carrots and sticks.

it's not going to necessarily be a wholehearted italian tory after, but perhaps a mix of some good and bad. jonathan: it seems to go further in places like mexico and i would love the response from you particularly on the foreign relations side. this is an administration that went after the cartels and wanted to deem them as terrorist organizations. and within the fact sheet we saw over the weekend and the keys of the next a government of providing safe haven for those very cartels. just how quickly is it escalating on that front? >> very. that is probably the thing that president sheinbaum responded to most forcefully over the weekend with the idea that the government is somehow giving shelter to the cartels. she was defiant on that point, flatly denied it and said that was an unfair assertion by president trump. that is the sort of thing -- jonathan: we are going to leave it there, thank you, sir.

on that very subject, it feels like there is a lot of tension building. i don't want to wonder too much but the next step might be. annmarie: pete hegseth i believe that the font and friend that everything pretty much is on the table, intentionally even using the u.s. military. trump has made very clear when it comes to canada and mexico what he is so focused on is illegal immigration and the flow of fentanyl and if you look at the data when it comes to fentanyl coming from mexico specifically, we are talking about in 2024 more than 21,000 pounds of fentanyl coming across the border into the u.s. jonathan: joining us to have the market conversation is lori from rbc. another interesting monday morning. the market pointing in the same direction. you've heard this story a million times, that the president is transactional and he is regulated by the stock market. has that changed? >> i think there is still some

of that in the price right now. futures are down. they're not down a ton and as a look at the commentary on the streets it's friday there still seems to be a lot of hope that there is still some window for negotiation and that if these tariffs go on, it going to be short-lived. some of the things are low odds, low chances. i think that is somewhat misleading to investors. they may not be taken directly into my outlook but i feel like the risks are much higher than people appreciate. lisa: this is a difficult party more than a science but how much more could markets take off if they took it seriously that tariffs are here to stay? >> the first phase is what i call the garden-variety pullback. that could be a pullback for any reason. and i think we are overdue for one of those right now frankly.

if you look at where sentiment was late last year, it looks like we had a set up for that regardless of if it is tariffs or something else. if you go from 10% and you break them more than that, typically don't stop before you get to 15. if we get to a point where tariffs are going to happen, the expectations are disappointed, we don't think that is really going to damage economic growth too much, maybe just hit profit margins and the painful, maybe just pushes down to a level of growth we don't love. that is a drawdown. and he started to see investors really question the economic growth impacts, that is when you could flip down into the 50% level. that is how i think we need to worse. lisa: if you look at all the commentary, people are saying the u.s. economy and balance sheets are strong enough to withstand the potential growth impact from any of these tariffs, even if they were to stake.

based on what you are seeing in terms of momentum, do you agree? >> i do think resiliency case to get underestimated, and that is sort of a body of this environment. that is very much a learning that is very much a learning the people took from the post-gf world where forecasters have to dial everything down. now we start out as to pessimistic and dial everything up. if you look at company commentary, i to not think they are prepared for the episode we are about to start. we got a lot of comments at conferences where they were talking about the lessons of the china trade war and saying don't worry, we've got this and by the way we reduced the china footprint. but where did that footprint go? it has gone to some of the places being targeted now. so when we seen the commentary in the season, tariffs are still probably the dominant issue especially on this policy discussion.

the companies are saying well, wait and see. well, we've got some teams working on this. i do think we have to give companies credit for managing three crises. i they prepare for this one today? i don't think so. they can get there, but it might take a little time to figure that out. annmarie: why the complacency? >> it is really puzzling to the. we did see was somewhat back in 2016 and 2017, the idea that that is not good for the economy, this can't possibly happen. i think there are other motivating factors here. what i've seen really is just this idea that they can't possibly do that, it's just a negotiation tactic, they are not going to go through with it. this has seemed to be more like a core belief. i think there is a conflation between economic policy and foreign policy that people

thought quite appreciate and we also have a president that is not up for reelection. jonathan: you are dead on, it is so different this time. it was not reciprocity with china. this is that the southern border. people have said on this program repeatedly that the economy is more prone to inflation this time around. we have to drive to station between who pays the tariffs, the importer, let's not waste any time on that. the debate is going to be a how cost is distributed. we know that it could be eaten across the supply chain for margins or in some cases it may be passed on immediately to the. how are you thinking about margin for corporate america now on the s&p 500? >> if you look at the bluebird dave that monitored the bottom of consensus, they can falling since last july, so they are still looking pretty healthy. but they have been quietly getting reined in and even before this tariff issue, companies have already been -- i

wouldn't say raising the alarm bell but they have been reminding and that all the cost pressures already out there and again, the one commonality i see in these discussions, we will pass the price along. some companies are other company customers so that is going to show up in the margins. as we dig into the details, inflation expectations around been can rid themselves have also been perking up, so that is a problem. the other stat i fascinated by is the small business optimism index. uncertainty levels of come down a little bit but are still really high, so i think on wall street we all assume that we all know these things in the average guy on the street isn't aware. i know i had a discussion with my in-laws on saturday night about tariffs, and one of my colleagues told me his daughter cable from school and she had six homework questions on tariffs. i think the idea that this is

not filtering into main street, i think we need to check ourselves without one. -- with that one. jonathan: several years of the above target inflation over the federal reserve. lisa: mohamed el-erian had one of the most salient things to say on this. a lot of companies have removed those stickers. they you today have stickers saying retail price is this. they don't exist anymore because they are all prepared for dynamic pricing in real-time to pass it along. jonathan: good to see you, you're going to be sticking with us. equity featured on the s&p at the moment negative by 1.3%. automakers down across the board. yahaira: it's the main story today, donald trump following through on his promise to put tariffs on america's biggest trade partners. the announced tariffs on canon and mexico and 10% on china all set to go into effect just after midnight tonight.

the president admitting american consumers may take a hit. meanwhile on the fed, trump said the fomc was right to pause its rate cutting last week. when he arrived in washington the president said i'm not surprised holding the rates at this point with the right thing to do. it marks a shift from a decision calling on the central bank to cut rates. and cruise i set to begin lifting the american airlines jet from the potomac river today. this coming five days after the plane and army helicopters collided in a fiery crash that left no survivors. the army corps to the process could three days to complete. donovan: up next, carrot confidence. from: tara don't cause inflation, they cause success. we are going to have great success. there could be some temporary short-term disruption and people will understand that. jonathan: maybe not as expensive

as you might expect. we are down, but not down too hard. from new york city this morning, good morning. ♪

jonathan: what a way to start a trading the. equity think that down across the board. negative by 1.4. on the nasdaq by 1.6. under surveillance this morning, trump tariff confidence. 6 >> are you concerned about the market reaction? from: no, the word tariff is a very misunderstood word. you heard me say it. it's one of the most beautiful words in the dictionary. tariffs don't cause inflation, they cause success. they cause big success and we are going to have big success.

people will understand that. jonathan: president trump doubling down on his decision to impose tariffs on mexico, canada and china. indicating he's not too concerned about the market reaction. with that reaction is manus cranny. manus: i've gone for gm in the first instance. $25,000 cut. chevrolet, $25,000. you can be pretty dime sure they are not paying that. you and i probably will. not my kind of truck. the u.s. imports 3.6 million cars including pickup trucks. 22% of the total from south of the border, with the big company that took the pain is vw. this is a european company, they bring in their cars from mexico, and that is where 43% comes from. so what happens to apple?

do they get a car back from china or in terms of any other exceptions? right now this is about operating margin. there's lots of different ways to think about these tariffs, the potential for them. 60% of their sales come from china. jonathan: thank you, sir. check out the automakers, down across the board you. let's start with the automakers. are there certain sectors that will be on the edge of on investable because what is happening here? >> we price in all risks and you don't quite see it translate to the broader index and i think that is what the market is doing right now. i may have said that about health care a few months ago and it has actually been doing pretty decently so far this year.

so maybe just with heightened policy risk or heightened risk for quite some time is how i would think about. lisa: we were talking about automating factors that i was looking at some of the retaliatory tariffs coming from the likes of canada and mexico. they are targeted. things like whiskey from kentucky, plaintiffs in south carolina. what are these all have in common? they are already states talking about a harley-davidson plane. in pennsylvania, i seriously do you have to take that? >> we sit here are the things we are wanting in one of the things we are watching our divides those are corporate and consumer vibes. going back to the sentiment surveys, we just haven't seen this big pot and excitement that we were led to believe we were going to see this year and i think all of this does way. i think it is that vibes pieces that we have to be really careful about going forward. annmarie: trump is not just all sticks, he is also carrots.

how do you weigh both of these issues? >> there's just not a lot of information out there on what is tax burden is going to look like. we kind of know some things from the campaign, no taxes on tips. we know that they want to extend the tax cuts. how much more is coming, i'm not quite sure. i will tell you as we go to the company commentary and seeing a lot of excitement on regulations. things like m&a going back to this anticipated uptick in the five. a lot of concern on tariffs. very few countries are mentioning tax. i think that is where there is an opportunity if we can get some interesting news. jonathan: the tariff story is one piece of the overall policy platform. the rest of it is kind of complementary. you could sit here and disagree with that, you could say it is the wrong thing to do, you could say it is going to have negative consequences but ultimately they said everything they want to do. they want to put the walls up,

they want to run things really optimistically. you tell people that if they want to sell in america they got to be in america and to entice that you got the drop corporate taxes pretty aggressively. he said repeatedly they would do that, and alongside that there the a domestic production target. but if you want 15% you got to produce the goods here. i think he got to see a much fuller policy platform to really think about the economic consequences of what they are doing here. annmarie: also about the consequences of these tariffs, are they a negotiating tool or are they going to be used as an offset and a revenue raiser for this package if they want to get through congress. they might be here to stay. jonathan: then there may be nothing if there is tax cuts to offset later this year. lisa: i'm curious whether the u.s. have the people to manufacture some of this. i'm curious about the labor market required to achieve policy goals that you laid out it might be there, and might

actually be something that people of pricing and seeing this rearrangement as being a cap leading to growth. this is one of the questions. donovan: it takes a long supply-sider the economy. it's a lot to take years, or months. lisa: so how is this country going to do that at a time when the borders are increasingly closed? jonathan: a big week ahead of us all. the conversation continues. we will catch up with a council of economic advisors in the president of furman is just around the corner, jason furman. ♪

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jonathan: markets may now need to take the tariff agenda literally rather than just seriously. taking it literally this morning, kind of. equity futures down across the board. 1.4% on the s&p. small caps take much of the pain. check out the bond market. two-year, 10 year, 30 year, what makes the move? we recalibrate things. feds not cutting interest rates anytime soon. maybe consider hiking interest

rates later this year. at the long end of the curve, what do you do with a 10 year yield, 4.54? lisa: how do we understand this? this is just not a stock market selling off that significantly. the risk move is not that great. that is sort of the copout way of not giving any credence to this whatsoever. there's another way of reading this. a lot of people do not see this as much of a growth hit as people expected and longer-term term inflation could remain elevated. that could be what is happening to the 10 year. we need a couple more weeks. jonathan: i sense a tug-of-war taking place. the demand shock and the supply shock that could lead to inflationary consequences. have to figure out what the future might look like if these stay up. lisa: that's a much more diplomatic way of saying it,

tug-of-war. people just have no clue. the dollar is a haven, the bond market is not. the moves are big enough that you normally would get a bid into this particular security. jonathan: the dollar is stronger against the mexican peso, against canada, europe, europe will get it as well. this is what president trump has said repeatedly. europe doesn't need any more problems. euro-dollar down. let's face it, parity is just around the corner. lisa: we are looking at the lowest levels going back to 2022. what would hold donald trump back? the fact that you see inflation came in higher than expected. what ammo does the ecb have to combat this? jonathan: in this market, president donald trump ramping up terror threats saying levees will definitely happen.

not specifying a level or timeline for any action against the european union. for china, now with corresponding counter measures. china including export controls on critical minerals and market access restrictions to some american firms. we will wait to see what they do and what mexico does as well. that will be a big one a little bit later. lisa: the president mexico outlining plan b. that might be more salient considering they don't want to blow all of their ammunition now . jonathan: if we weren't talking about trade we probably would've opened with this. doge team shutting down some payments to federal contractors. musk posting the corruption and waste is being routed out in real time. lisa: a lot of questions

surrounding this and if they even have the authority to do this. congress mandates the money that gets spent. he tweets that he has gained access to some of this. he also sketched out plans for aggressive cuts overnight and was talking about dissuading concerns of bond investors saying he and jamie dimon were discussing that this week. jonathan: president trump said to speak with leaders of canada and mexico today, tariffs going into effect tomorrow. jason furman of the harvard kennedy school saying it's hard to decide if this is worse economic policy or foreign, we'll see if trump caves to the market. thanks for making time for us. how different these actions are compared to what we saw in his first term. jason: i thought there were too many tariffs in his first term.

this is just at a massive scale relative to those. these are against close allies. this is two weeks in to the administration. he promised us he is just getting started. lisa: it seems like on wall street the people think it is strong enough to withstand the growth hit from these tariffs, do you agree? jason: it doesn't look to me like wall street has priced in these tariffs going into effect on a sustained basis. i hope wall street is right about that. some things are crazy enough that you touch the hot stove and you pull your hand away. that's what wall street thinks will happen. you can't look at the market right now to confirm what would happen if over the next year we keep these tariffs on, escalate them in response to their responses, add tariffs to the european union, all of that.

i have no doubt would be quite a big hit to growth. lisa: usmca is up for negotiation. how much are these tariffs a part of that approach for renegotiation with canada and mexico? jason: usmca was president trump's trade agreement, it's ironic. he campaigned on tearing up nafta. he ended up doing a renegotiation of that, that was pretty good and got everyone on board. this time he did not campaign against nafta or usmca. he straight out of the gate with tariffs, i don't see this as part of a ploy to have a better usmca negotiation. lisa: he did campaign on making sure he put a halt to illegal immigration and fentanyl flow.

21,000 pounds was seized at the size of -- southern border. 43 pounds from canada -- 40 3000 pounds from canada. two milligrams is lethal. if that is the direction trump is taking and it comes to national security do you see this administration using tariffs instead of sanctions? jason: you just said the number four canada was tiny compared to the number from mexico. do you think they should be putting tariffs on us to stop that flow? absolutely we need to put pressure on mexico. it's not like they have a switch. this has been a big issue for them, it has undermined a lot of their country. destabilizing the mexican economy is going to increase the

amount of immigration into the united states, not reduce it. lisa: there's a larger theory that the u.s. needs to produce more of its goods at home for national security and to give jobs to people in areas that got beat up during the globalization shifts. what you ticket would take to bring production back and how long would it take? jason: what would take is to have an integrated market in north america where inputs for american manufacturers could come in tax-free and auto parts could go in across the border multiple times. that's the way you have an american auto industry. you don't make every piece that goes into the car, you have a lot of the value-added, a lot of the key stages of the process. i will spread production out around the world. that's what makes the american economy so incredibly successful.

look at u.s. productivity growth , it has been much higher. globalization has been a key part of that. jonathan: could you make the argument that globalization destroyed american manufacturing? jason: productivity growth has been the biggest factor in reducing american manufacturing. manufacturing jobs have fallen in china, germany, united states, you could make things with fewer people. you want more manufacturing jobs, you don't raise input prices for manufacturing, you don't strengthen the dollar to hurt exporters. you don't encourage them to put tariffs on manufacturing. every single aspect of this is bad for manufacturing. jonathan: just on prices, by

definition, let's put that all to one side. what's your base case on how the cost will be distributed? jason: there will be a little bit of it eaten by the canadians and mexicans. some of it eaten by margins. i see something like an extra half point on inflation. if you go from 2.5% to three 3% inflation that is a big jump. jonathan: jason furman there. big if of course if it stays on, it could push inflation up by half of one percentage point. the federal reserve in a sticky spot, that is the significant adjustment for them. lisa: white two year yield is actually increasing more than the 10 year yield.

that is the cleanest readthrough in the short term. jonathan: spending some time on energy, 4 million pounds of oil a day comes from canada into the united states. a bulk of that gets refined in the midwest. that will cause some problems. annmarie: there are some refiners that only take canadian crude. he understood this effect because he didn't do 25% across-the-board for canadian crude along with the other goods canada exports. he brought that down to 10%. you see the market reaction with u.s. gasoline futures higher. if this hits consumers at the pump you might have to rethink this. jonathan: it was a conservative leader that made the point, when a tariff was lower for china and it was for the north american neighbors, how do you explain that? lisa: someone could say it's on top of the 25% tariffs he previously implemented. second of all he closed a huge

loophole. this has not been talked about enough. packages under a certain amount were exempt. now your shein and temu will not be exempt from some of these tariffs. that change would be enough. annmarie: any package under $800 is not exempt. it will hit china e-commerce. this is coming from the trump administration clearly looking at fentanyl. there's a lot of reports that this is how it is smuggled into the country. jonathan: your t-shirt goes up a dollar. lisa: that's what i hear. jonathan: equity futures right now negative by 1.5%. let's give you update on stories elsewhere. yahaira: president trump's tariffs are threatening those

across north america. hitting a quarter of the 60 million sold in the u.s. each year. estimating it could raise the average price of a new car by about $3000. panama is promising free passage for u.s. warships through the panama canal. this comes after secretary of state marco rubio blasted the government during his visit yesterday. canada's president -- panama city said they would withdraw from china signature lending program. he reiterated his country won't give up the canal. elon musk is running the government efficiency planning cuts to spending including wiping out the u.s. agency for international development. he claims to have president trump's blessing to end usaid as a standalone agency and fold up what's left of it to the state department. jonathan: more in about 30

minutes time. up next, trump's tariffs hits oil. president trump: mexico and canada have never been good to us on trade. we don't need the products that they have. we have all the oil you need. jonathan: the energy market up next on the program. you are watching bloomberg tv.

jonathan: stocks are down across the board, negative by 1.5% on the s&p 500. down by 1.7 on the nasdaq. the stocks to watch, there are many. keep one eye on the automakers throughout the session. they had such a painful week

last week. decent numbers, how theissen outlook -- half decent outlook. lisa: they rely so much more on mexico to the north of mexico away from china, the reason why they are being penalized on 25% tariffs on mexico. jonathan: trump's tariffs strike oil. president trump: mexico and canada have never been good to us on trade. they have treated us very unfairly on trade. we will be able to make that up very quickly. we don't need the product they have. we have oil, trees, lumber. jonathan: do we have the kind of oil we need? oil prices jumping as donald trump places tariffs of 25% on mexico and canada. mike: you put your finger on the

big problem. we have a lot of oil but not the kind of oil you need in parts of the country, particularly the midwest. it is heavy crude that comes down from canada. about 23% of u.s. refiners in that area. they use that heavy crude. it is not easily substituted. patrick of gas buddy says that could add up to $.20 per gallon. there has been a jump in oil prices in the last week or so that hasn't been reflected in the midwest. they are likely to see a very large nontariff related jump over the next week or so. there is going to be some pain in the midwest, definitely. there's a wildcard out there. that is new england. new england gets a lot of power from canada, new york as well.

this is electricity, how do you measure it? there's a question on whether it could be tariff or not. there is natural gas and oil that comes in from canada. companies are already saying they will raise prices. passing the entire cost of the tariffs on to their customers in new england. massachusetts governor forecasting $200 million to the states economy from all of this. energy is a big issue. it's something that's going to play out very quickly in the economy. jonathan: more from mike later on this morning. what does a 10% tariff on 4 million pounds of crude a day due to this energy market? amrita: the 10% tariff itself doesn't break u.s. refining.

the margins are not great to begin with. even if they stayed off the tariff you still lose about one dollar from midwest margins. a critical thing to watch for is the canadian dollar. that has weakened a lot. that helps some of the tariffs. ultimately yes you will hit on the midwest margins also the west coast margins. we see more of the canadian floor on the pipeline to asia instead. the u.s. will have to pay up for alternatives. it's a 25% on mexico. that's going to be the much bigger problem given the imports of about 400,000 barrels and another 200,000 will be very hard for them to replace and it's a high-end tariff as well. lisa: exporting more to asia,

how easy is it for canada and mexico to shift its export lines to direct more of it to china rather than the united states? amrita: it would have been a lot harder with tmx it gives them more functionality. these tariffs have essentially handed a boom to asian responders -- refiners. one of them is using product exports when it is also boosting european refining margins. given that it is meant to be america first. i'm not sure that was the intended consequence, that is how it will play out. lisa: how long before the united

states could produce crude that would be good before refining and the energy that donald trump was talking about? amrita: they can't. the reserves are light shale. it's a geology problem. every refiner on the gulf coast and a lot of them in the midwest are complex refiners. that's why they were designed. they had availability of canadian and mexican heavies. gulf of mexico produces some crudes. it is not the heavy material they need. it is a geology problem. the u.s. has all of the oil the refiners require. lisa: where could they import this type of crude if it won't be mexico or canada? amrita: i think the canadian imports will continue. the 10% tariff, it is split between the refiners in canada.

the challenge will be on the gulf coast. we do see barrels arriving potentially from iraqi and saudi arabia. it will be a tough ask. we don't know if mexico will retaliate. if it does, u.s. gulf coast refiners say 850,000 barrels will not find a home and they will have to. that is what to watch for. annmarie: we also have opec-plus members meeting today, is this enough for them to want to add barrels to the market? amrita: today is not an opec ministerial meeting. it just takes stock of where fundamentals are. we have maintained our view that they would have to see the supply destruction, not what is happening right now before they change course. we maintain the view that the earliest --

jonathan: brent crude up by 1.7. about $77 per barrel. annmarie: this will be a big deal with those landlocked states. canada implicit in trump's 10%, he realized how important that is. nearly 500,000 is coming from mexico and they are getting to 25%. where do they go? maybe as far as i rock -- iraq. we may have to get creative when it comes to these trade routes. jonathan: it could be pretty immediate. this could be one of those where it is pretty fast. lisa: a reason why it was just a 10% tariff. will canada turn to these exports to the united states and have retaliatory tariffs? that would be the nuclear option. jonathan: i want to hear from

the treasury secretary. i really want to hear from governor waller of the federal reserve who believes these tariffs won't be inflationary. i would love to have it faced the same thing. lisa: i don't see him speaking today, you will have to just wait. it is too early to say. it is sort of equal measures which is what the 10-year is saying. they made the right decision. jonathan: i still think all of this gets negotiated away. 1.5 percent move on the s&p. the former nec deputy director, the former st. louis fed president, a whole lot more. the second hour of "bloomberg

surveillance" up next.

>> this is frankly nuts, canada and mexico are our two largest trading partners. >> he sees values and tariffs beyond our negotiating average. >> it could change on a dime. once they are on, it is harder to take them off. >> we think this could be highly disruptive to supply chains. this could weigh on growth and inflation in a more meaningful

way. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, annmarie hordern. jonathan: equities down across the board, -1.4% on the s&p. on the nasdaq we are down as well. likewise on the russell. small caps down by more than 2%. single names, let's pick out three, ford, stellantis, gm trading a whole lot lower. general motors, four day losing streak, make it day five. the winner in all of this, the u.s. dollar, the best day since the day after the election. the euro-dollar negative by more than one full percentage point. 1.0252. here's the big take, it's important to say this, for a lot of people in this market they

believe this will be negotiated away. the outlook is unclear, these tariffs are likely to be short-lived. lisa: this is not a market actually pricing in these tariffs, they are pricing in the idea of tariffs. now they don't believe they are going to stick. there wasn't a theory at 2025. the market acts as a check on donald trump. the stock market isn't reacting with enough of a tantrum. there's a real question about whether that put that there. the leader of canada, the leader of mexico, there is potentially the market baking and this hope that they could walk this back. if not, how much lower would we see on this market come tomorrow morning. we are talking about broad-based

tariffs, what i have been hearing is the negotiating less so when it comes to china, they only got 10%. jonathan: the president is progrowth, what is good things for investors. do you question that this morning? lisa: they basically came out and said this just shows the trump put isn't as big as what people thought. if this is as much of the market freaks out, it is really checking any of these policies? lisa: this is a president who came in with a mandate on immigration and is not running for reelection again. a lot to get done before the midterms potentially. maybe they do stick. he has been talking about immigration for months.

jonathan: let's begin with our top story. president trump with 10% on china. president trump: we may have short-term little pain. people understand that. long-term the united states has been ripped off by every country in the world. not every country but almost. we are going to change it. that is why we owe $36 trillion. we help everybody, we have been helping everybody for years. i don't think they appreciate it. we will change that. jonathan: for many of you, the trade war begins right now. canada planning a 25 percent levy against $106 billion of american goods. mexico planning a response. china vowing countermeasures.

the tariffs at to go into effect in fewer than 24 hours. i want to go straight to you, we talked about the calls that will take place between the u.s. leader and his mexican and canadian counterpart. we want to understand if this goes through negotiation and also for the companies affected by this, will there be any carveouts? >> these are still some of the questions that remain to be seen. waiting for what that benchmark of success is that president trump needs to see when it comes to address immigration over the border and also fentanyl coming in. a memo was circulated to us with potential benefits when it comes to tariffs and downplaying inflationary concern when president trump suggested americans could feel a little bit of pain. trying to hone in on this idea that it would boost u.s. manufacturing, something president trump cannot lean

heavily on. it represents about 14,000 u.s. businesses. in a statement obtained it would have severe ripple effect for its members. annmarie: claudia is talking about her plan b, in terms of retaliation, what does that involve? >> i wish i could tell you a straight answer. they have been behind closed doors. it's a long weekend in mexico here, it's a federal holiday. we know it some mix of retaliatory tariffs and nontariff action. we think that might be gestures towards cooperation on security and closing the border. we should hear more details in the coming hours as she rolls out her plan and the finance minister meets with investors. lisa: we have seen some response in retaliatory tariffs coming from canada, and particularly

goods from red leaning states, what do we know about that and what could potentially follow should the tariffs go into effect and stay there for a while? derek: on tuesday there will be tariffs, there's the second phase, a much larger phase that is canadian, 125 billion dollars including the really big ticket items like cars, steel, aluminum. there's a three-week process for canada between now and when those tariffs would come on. that is to allow companies some time to adjust but also perhaps gives time for a bit of an offramp. in ottawa, that is very clear what those negotiations -- it is very unclear what those negotiations would look like at

this point. annmarie: what could canada offer? justin trudeau will get on the phone this morning with president trump. derek: i think you could summarize that justin trudeau is somewhat frustrated because the evidence on fentanyl and the illegal migration coming into the u.s. is fairly thin to be honest. there is some, there are drugs that move both ways across the border. there are no issue -- it's not that there are no issues at the border. they have offered a security package to sort of beef up some of the weak spots around quebec and new york state. i think there is a bit of frustration that they don't know what they could offer at this point. jonathan: this note just dropped

. goods import makes up 11% of u.s. gdp, 43% of imports come from canada, mexico, china. 5% of u.s. gdp is directly impacted by higher tariffs. this is meaningful when annual gdp growth is normally around 2%. lisa: it makes an eager bit -- even bigger difference for canada and mexico. about 80% of their exports, i keep going back to what they wrote. we see this trade shock, far larger in economic magnitude. we expect both countries to enter a recession in coming weeks. jonathan: the likes of mexico and canada plunging into recession. the door just slammed shut. lisa: you see that priced into the short end of the yield curve, no one has a clue. you could see that at the long end.

that said there wasn't really pressure for them to cut rates. donald trump doesn't seem to be pressuring to cut rates saying they made the right call. jonathan: probably the most surprising thing we have heard. lisa: i was shocked it shows he actually cares about inflation and wants to tamp down long-term inflationary expectations. jonathan: we will leave that one there. for those of you just tuning in, maybe not familiar with the sarcasm, very sarcastic. good to see you. a big change over the weekend. the day after the election, we called out with you a positive demand shock of all of these things we see from the incoming administration. we now price in a negative supply shock and how different is that? >> everyone knows president trump will put tariffs on.

we are adopting what we call the stoic strategy. back to the ancient greeks. we do not pay attention to what president trump says. he says anything at any time. we want to pay attention to how he act. we don't often find ourselves in agreement with the wall street journal op-ed page, their title, the dumbest trade war in history really applies here. we think these tariffs are going to stick. trump needs money. this is a money grab to fund the tax that -- cuts. as you just pointed out, growth down, inflation up. we will not have any more bigger ones in my view. secondly, china now knows what's going to happen.

the global growth launch cycle with stimulus from europe and asia extends and broadens up the global growth cycle which supports global equities. we want to pay attention not to the news but to the reaction to the news. this is muted. there's a reason for that. therefore what we talk about our earnings. this does reduce the growth shock, the upside to earnings. the u.s. is priced for exceptionalism. the double non-us returns. non-us is outperforming the u.s. led by china and europe. annmarie: how does that continue if the rest of the world is treating tariffs put on by the

united states as a much bigger growth shock for the rest of the world? >> i think that's wrong. it's just going to be wrong. the rest of the world has the ability to act. who has physical space in the global economy? china's debt to gdp, 65%. the other thing where we disagree strongly is the view that this is dollar positive. we believe this is setting up for the big fear that we have is a crack in the dollar. the u.s. is putting gates up and barriers up and deals with the rest of the world. at a time where there is no country more exposed to international capital flows reversing themselves then the u.s.. the u.s. has never had more foreign money invested in

treasuries, corporate credit. if that starts to go elsewhere, we think capital repatriation will be a big term. money is going to go back to fund japan's stimulus. to fund china stimulus. that means if it starts to get going, the dollars action. what wins? commodities. what broke out in the last month ? commodities outperforming equities, bonds. emerging markets. china. for all of the negativity on china, we have talked about this over a year. we have been constructive and exposed. china is outperforming u.s. in equities. for all of the negativity, deepseek was a week ago. stuff comes fast.

china tech is completely under owned. there is a massive location trade out of u.s. tech into china tech. it is world-class yet sells at a 50%-70 5% discount. jonathan: the state might take it over at any minute. >> what might happen here? what happened to gm today? just knocked the heck out of it. not really any different. jonathan: you think these tariffs hold? they stick? >> yes. it's a money grab. trump needs money for tax cuts. it's that simple. that's why it's coming now. jonathan: they can't negotiate on the call later this morning? >> if they do, big deal, that means tax cuts don't happen and that's probably not all that negative. inflation and rates are probably not that bad in the economy is ok.

what trump is trying to do is thread the needle. lisa: you said you look at what he does and not what he says. what we have seen is he threatened tariffs when he came to columbia. columbia ended up taking the deportation flights out of the united states. isn't there a chance for a deal here? >> big deal. our view is we want to be in the non-us equity markets. we are at the beginning of a multi-year move out of the u.s. into non-us. commodities breaking out supports the idea of global growth expanding. what we want to see now is non-us equity breaking out to support the idea that is where the action will be. they are all right there. europe, china, emerging markets all at important technical levels. if they break up, probably not

today. going forward they break up and out, the money that will follow that will be tremendous. absolutely nobody is invested. jonathan: equity futures down by 1.6% with an update on stories elsewhere, here's your bloomberg brief. yahaira: president donald trump says he will have separate calls regarding tariffs today with canadian prime minister justin trudeau as well as mexican president claudia sheinbaum. 25% retaliatory tariffs have been proposed on $100 billion worth of u.s. goods. he says trump's actions risk job losses and higher prices for americans. a u.s. citizen was one of the three hostages released by hamas over the weekend. the release was part of a fourth hostage prisoner swap with israel releasing 183 palos tinian -- palestinian prisoners. benjamin netanyahu is meeting with president trump tomorrow at

the white house. deepseek is the most downloaded mobile app globally with india accounting for the biggest percentage of new users according to app figures. its total users pale in comparison to chatgpt. there may be more hurdles for growth as companies and government weigh risks associated with the chinese ai app. that is your bloomberg brief. jonathan: more in about 30 minutes time. up next, the risks of trump's tariffs. >> if over the next year we keep these tariffs on, escalate them in response to their responses, the european union, universal tariff, all of that, i have no doubt it would be quite a big hit to growth. jonathan: equity futures negative across-the-board. from new york city, you are watching bloomberg tv.

jonathan: equities down across the board. we are -1.6%. we are down by two percentage points, europe not spared. in the session down about 1.7 percent. under surveillance this morning, the risk of trump's tariffs. >> it doesn't look to me like wall street has priced in these tariffs going into effect on a sustained basis. i hope wall street is right about that. you can't look at the market right now to infer what would happen over the next year, keep these tariffs on, escalate them with tariffs to the european union. all of that i have no doubt would be quite a big hit to growth. two weeks into the

administration, he is just getting started. jonathan: is there scope to negotiate the tariffs going into effect in fewer than 24 hours. jay i want to go straight to it, let's bring up the foreign-exchange mood this morning. if you look across-the-board it is dollar strength against the canadian move, against the mexican peso. the euro-dollar down to 1.0260. where does that change come from? jay: first of all the u.s. is priced for exceptionalism. that has brought in is tech. what just happened last week? u.s. tech was exposed by china as being not as exceptional. that is an inkling of what we

think will happen policy wise as we go forward. here in the u.s. we have policy chaos. trump is trying to thread the needle between raising tariffs without raising inflation, lowering growth or affecting the stock market. i'm not sure he will be successful. outside of the u.s., who has the physical space to stimulate? germany and china. we expect both to stimulate. germany after the elections, china with its npc meeting in the spring. now they know what trump will do. trump has moved because he has to get going on the tax bill, he asked to extend the tax cuts by the end of the year. now china could add knowing what the president is going to do. money follows that. you know i love that. [laughter] lisa: discuss the slide.

here's my question, ultimately if you end up with this type of scenario, how much conviction do you have two have very little to no exposure with u.s. dollar access? u.s. equities, just going to germany and china right now. jay: let's be straight forward. we run a global multi-asset model. we are overweight. we are 70% equities, 10% fixed income. we have zero treasury exposure for over two years. what is outperforming year to date? commodities are breaking out. we are at the beginning of that. look at what the tariffs are doing to oil. we are triple, quadruple-weighted emerging markets with double to triple the weight of china. we think china, we think em will

lead non-us because of a weak dollar supporting emerging markets, we are expecting money to follow the action. the best-performing markets year to date are europe and china. as much as people want to say china is horrible and europe can't do anything, the market is telling us different. it is smarter than me, us, everybody. when we look at that we see markets breaking out, we want to follow that action, no one is invested in these spaces. china is on investable. it is the opportunity. that money repatriate. we are reassuring jobs, production, why should we not reshore capital. the u.s. is telling everybody we don't really care. we are doing what we need to do for ourselves. if they decide we have to do

what's best for us and that's going back home because we are finally getting our act together, the dollar starts to roll over and there's a lot of room for the dollar to fall because it's massively over owned. jonathan: we will be back in a month and check the scores. very different view of financial markets. annmarie: germany and europe had -- lisa: germany and europe has a lot of investment to do. jonathan: this feels personal. are you really going after infrastructure? lisa: the system of germany and austria. jonathan: is that how this works? that is not trading advice. from new york, this is bloomberg. ♪ asking smart questions about opportunities like clean water. and what promising new treatment advances can make a new tomorrow possible. better questions. better outcomes.

jonathan: two views. here is the less constructive. run that. things might be less than investors appreciate. the flow of fentanyl, the rationale for imposing the terrace might be the reason they are short-lived and have minimal impact. which one you choose is a judgment call this morning. how long this lasts, that's a key question. equity futures are down across the board, we are negative by 1.6%. underperformers, the russell, down. with your movers this morning,

manus cranny. menace: for gm, cars and flatbeds are assembled here in the u.s., so it is about the relative exposure. $25,000 truck will costs $3000 more than it did at the close of business tonight. this is about the scale of import. the u.s. imports 3.6 million autos from canada and mexico. worst case scenario? rbc, we've done the numbers, double digits on earnings, down 21% for gm. the biggest bruiser is a european company, volkswagen, exporting 500,000 autos from mexico into the united states of america. german auto suppliers operate 330 sites in mexico. this is about a deficit vicariously transferred from

europe into mexico and the united states of america. it's a triangulation. consolation? it's possibly going to get more expensive. they import these mexican beers into the u.s. what's the margin? the stock was downgraded from usual to overweight with a pt drop at $200. we are a little bit away from that. as you say, it's about whether you take the bid on the offer for short-term margins or is there something much longer term with a harder to define offramp? jonathan: thank you, sir. consolation brands, down in the premarket. top story this morning, donald trump said that he spoke with the -- is set to's speak with the canadian and mexican prime minister's later today. what we all want to know is -- what can they do in the next 24 hours to stop this from happening? lisa: we don't know yet.

trump talking about it has not given in offramp and we don't know what would constitute success from canada or mexico to pull back on the tariffs that would take place after midnight in less than 24 hours. what is interesting is the timing. does this phone call happened before or after? she talked about a plan b, but we don't know yet what it entails. looking back at trump one point know, when it came to aluminum coming to the united states from mexico, they went after things like pork and other measures from red states, as lisa has been talking about. jonathan: you mention timing. it's a few days before the super bowl. lisa: people are calling at the super bowl tax. survey suck, guacamole, it will be a couple of dollars more. on the talk shows that's what the democrats are saying. let's see if it goes into effect. people said he wouldn't do it right before the super bowl? guess what, here we are. jonathan: half of vegetable and

fruit imports come from mexico. numbers are staggering. lisa: cherry tomatoes. toy trucks. load up on toy trucks if you want to get ahead of these tariffs. psa this morning. jonathan: who's that for? the children watching? the five-year-olds out there who are very angry about the toy trucks? i hear you. equities are down by 1.6 percent on the s&p. i mentioned movers, automakers are the ones to watch. stellantis is leading declines in europe with exports from mexico under threat. stateside, ford and gm are under pressure. tariffs could add $3000 to the price of a new car. another stamp for you, airbags in seaport -- seatbelts, 80% of imports come from our neighbors. lisa: this shows why general motors is in such a precarious situation. shares are down 7% this year

without the premarket move that we are seeing today. i just wonder, from a political standpoint, do you want to do this to detroit? that is where some people question the popularity of some of these moves and what happens if you have some of the epicenter of swing states that went for trump seeing their businesses really hammered. i just think about that in particular with these companies that are getting hit the hardest. annmarie: it's a very integrated supply chain. highly skilled labor, cheap resources, and when you look at car components they sometimes cross the border eight times going back and forth before they go to the car and then your dealership. how much is that going to costs? eight times, half of a dozen times going across the border? jonathan: these are important calls later today. the market hasn't capitulated.

jake made the point that it's not surprising or shocking, he said it repeatedly on the campaign trail. but do you believe that this is the market reaction to 25% tariffs on mexico and canada? is this the market reaction of 25% tariffs if you look at the automakers? i would have thought that if you truly believed this hold, the moves would have been bigger than that. lisa: pretty much everyone would agree with you. i would argue according to analyst notes that they expected to be walked back. data track took out a report, a january 30 first survey to see how many people believed the tariffs would even go into effect february 1. some 38% of clients thought that they would be announced february 1. the market has categorically rejected a lot of what trump has said as rhetoric and not fact. jonathan: into some extent they continue to look through it. columbia folded and to some extent so has panama, offering concessions after a visit from

marco rubio. the country promising free passage for warships through the panama canal, vowing to leave the chinese belt and road initiative. annmarie: michael waltz took to twitter and called it a step in the right direction, a big deal that panama after this one visit saying that they would pull out of belt and road and they wouldn't reinitiate belt and road 2026 and they might pull out sooner than later. this comes as rubio wrote in the journal that basically in the realm of diplomacy, it means paying closer attention to our own neighborhood, the western hemisphere. he's on this entire push, the whole idea to push china out. lisa: in november i was in peru. the chinese presence was palpable all over south america. this is the opening salvo of saying -- hey, wait a second, maybe not the strategic areas. curious to see where it goes. jonathan: down to big push back.

mike mckee has the latest on these moves. mike? mike: good morning, john. we know that you will be paying more money and we talked about what mr. waller thinks down at the fed. it's a question of how long the tariffs go and how they are applied over time. while the president puts out 25% tariffs on canada and mexico, americans will pay it, they won't pay 25%. importers have charged it at the border and they can absorb some of that, if they want to. the rest gets passed on to you, the average american who buys the product. it depends on the products you buy and over what amount of time. imports will get cheaper because the dollar is getting stronger. u.s. companies may also raise prices. we saw that with the steel tariffs. that means more that you've got to pay on this end. you have companies like irving

oil, who owned a refinery in newfoundland, passing 100% of the tariffs on to their customers in new england. the other thing to keep in mind is that we all pay for some things all the time, but you don't buy a car every day. the impact isn't as straightforward as it seems. most analysts at this point think americans will be paying about $800 to $1200 more a month because of these tariffs. this is just on canada and mexico and to an extent, china. it's not europe where the rest of the world yet, he says those are coming. we have looked at some of those projections from analysts. goldman sachs thinks we will see's .7%. morgan stanley, less than that. bloomberg economics, .7%, that's what it's going to do to inflation. just these tariffs. gdp, there's a wide range of estimates in terms of hits to gdp and it depends on what you buy and when you buy it, going

forward. jonathan: if it stays up, i've read the same notes, they'll say the same thing, this happens if they stay on it. goldman made the point over the weekend that it might be short-lived. continuing the conversation, the former senior white house trade advisor to trump saying it's a high risk high reward proposition and if it works it will be a new era of foreign policy where a broader set of economic tools are on the table. welcome to the program. going back to the first term, we all familiar set up -- familiarize ourselves with national security, 300 one, unfair trade. this was new over the weekend, using the international emergency economic powers act. what do people need to know about the use of that tool and how it might be challenged? >> thank you for having me back on. it's an interesting monday for a company operating in the united states, canada, mexico, and china.

this is the first time that a president has invoked tariffs on the bears -- basis of a national emergency. this is a national security authority. different than 232 or section 301 that supported the steel and aluminum china tariffs, which had an investigation that made findings about the threat of imports, discrimination, and unfair trade practices. this is about a pure emergency national security issue that the president has identified as fentanyl and illegal immigration. annmarie: when the threat is resolved, what happens next, do the tariffs get lifted? kelly: presumably. if you look at the executive orders from saturday, the legal basis for expanding the national emergency is the illicit flow of fentanyl and migration. when those issues are addressed, presumably the legal basis for sustaining tariffs would no longer be there, so my

expectation is that these tariffs are targeted at this national security issue and as soon as canada, mexico, china, and the united states are able to agree on resolution, they would go away. come annmarie: having been in the room, what are the chances that it gets resolved today? kelly: there is always a chance. this is a negotiation. the u.s. is requesting something from all three countries and we have a call set up with prime minister trudeau and sheinbaum today, which i do think is a good sign. these conversations have progressed to the top. what was striking to me on saturday following the presidential announcement in the issue of these executive orders was the press conference in which he said he hadn't had conversations with the president about this specific issue all week. so, i think a call is trending in the right direction. whether or not canada and mexico offer the united states enough,

that will be a decision by the president and the president alone. lisa: markets not responding as much as people expected, that could change of the tariffs go into effect tomorrow and continue for the foreseeable future. neal dunn up at this out, saying that the most important thing that trump has said is that he doesn't care with the markets do. based on your time with president trump, how much do you think he cares about the market response? kelly: the markets are something that he watches closely but he watches a number of numbers every day. 26 all-time highs of the market in the first trump, which she was proud of, but he also watches jobs, inflation, trade deficits and other economic figures. i think that what you are seeing play out right now is his emphasis on border security. he ran on the border and on inflation of course and is taking extraordinary steps to do something to tackle the number one priority, addressing the

illicit flow of fentanyl and illegal immigration and is willing to take the punch. you saw that in his comment yesterday on truth social in the comment he made to a press gaggle that there might be some pain. again, he is prepared for that, for whatever the markets might do. once again the tariffs are designed it to be short-lived and result in an outcome on national security areas of priority and would not stay in place indefinitely. that is how the president and his team are likely to view them. lisa: to that point, if it comes down to fentanyl, how much does it make sense that canada has that same tariffs as mexico given the disparity of imports from that nation? kelly: yeah, i think if you look at the executive orders themselves, the one on canada actually addresses this, making the point that the challenges are primarily at the southern border, but that there are mexican cartel activities now

happening in canada and other things the president is seeking in terms of concessions from canada and addressing the illegal flow of fentanyl. i think this is a stick, not a scalpel. he is taking a maximalist approach to canada and mexico in terms of this 25 percent across-the-board tariff, but it is something new and we haven't seen it in modern u.s. history in terms of using tariffs and tying them specifically to national security objectives. you are seeing it now and it is partly experimental and we see how will that how it plays out. jonathan: we will. thank you, kelly. the former senior advisor to donald trump. equity futures right now, a lot of you are tuning in just a work out where the markets are, down on the s&p 500 and with an update on stories elsewhere, here is your bloomberg green. >> the trump tariff on major u.s. trading partners led to a selloff in cryptocurrency markets with smaller tokens

experiencing steep declines. the crypto market total value slipped by $360 billion so far today with bitcoin holding up better than the other tokens. meanwhile, president trump said the u.s. would halt funding to south africa because of their new land expiration laws that allows the state to seize private land and the public interest and in some cases without compensation, trump claiming it would lead to the confiscation of land and mistreatment of certain group. rory mcelroy was the winner of the pro-am in california, shooting 666 yesterday to win his first tournament of the 2025 season, including an ace from 119 yards out, winning the tournament by a two shot lead, taking home the 3.6 million dollar prize. that is your bloomberg green of, jon. jonathan: the 27th pga tour win for rory mcelroy, good to see him back.

lisa: that was your moment of zen. jonathan: therapy for me over the weekend. it's beautiful. have you seen the gulf coast? absolutely gorgeous. i knew what was coming monday morning and this was it. up next, tariffs complicating the fed path forward. >> we don't know what will happen with tariffs and with immigration, with fiscal policy and with regulatory policy. we will have to let those policies get articulated before we can even make a plausible assessment of what the implications are for the economy. jonathan: it's fair to say they have been articulated. that conversation continues from new york. you are watching "bloomberg markets -- surveillance." ♪

jonathan: a quick check on stocks and bonds.

stocks down across the board. off the lowest, but it's not pretty. in the bond market, we will spend more time on this in the next hour, four basis points on the front, down four with active 450 so watch that space later. under surveillance, tariffs complicating the fed path forward. >> the committee isn't very much in the mode of waiting to see what policies are enacted and we don't know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. we need to let the policies be articulated before we can begin to make a plausible assessment of what the implication is for the economy. jonathan: the levees could add zero point 7% to core inflation. joining us now to discuss is jim bullard. jim, welcome to the program. the fed chair wants to wait to

see the policies articulated and i think it is fair to say that they have been over the weekend. from your perspective in your time at the fed, once they were articulated did you just assume that they would stay? >> it's one salvo in a trade war and i think there is much more to come in various directions. this is mostly based on the fentanyl issue in the immigration issue. it seems like the countries affected could take action along those dimensions and that this phase would be ended. obviously, the presidential campaigned on a trade war and there is far more uncertainty in the future. lisa: how much of a template is 2017 and 2018 in terms of the inflationary impact of the trump tariffs until now, when there are more goods being tariff but also a greater degree of the

inflation baked into the system? >> i think the lesson was the gdp effect. blanket tariffs across the board, 25%, were met by other countries, that would have a big impact on gdp and it would dominate everybody's thinking about the inflationary impacts, if there would at all be a one time a one time effect that was relatively minor. that's what happened in 2018 when the economy slowed down precipitously in the fed reduced rates at that time. lisa: 2018, 2 thousand 19, i knew how much god -- gas would caused me. what a bagel wood costs. now people don't have a sense of where the prices are to that same granular degree. is there that same risk that companies have the ability to

pass along price increases in a much more direct and consistent way because of how conditioned people are post-pandemic? >> tariffs at this level, you have to think about them a bit differently. if you go to the bar in there is beer for sale and the canadian beer costs three times as much as all of the others, i suppose you could buy one of the other ones and not by the canadian beer. prohibitive type tariffs just shut down trade altogether. for cars as well, maybe it's not a good time to buy a car if it costs 3000, 6 thousand dollars more, the numbers that people are tossing around. they can delay those purchases. there is all this substitution that occurs with tariffs at this level. annmarie: trump also discussed putting tariffs on the european union. can you view this as a one-off increase in price level or because he is talking about more

tariffs, warning other countries , is this an ongoing inflation threat? >> first of all, this order is about the national emergency on fentanyl and immigration but if you want to argue the economics, let's say with the eu, i think that is, what is that response going to be? a simple response would be for them to lower tariffs to the average level of the west and that would make a lot of sense. these are big economies. i don't see why the average has to be that different between the places. it is something the president has argued for and maybe it seems like now is the time to talk about that and think about that. jonathan: any reason the federal reserve wouldn't just be looking through short term inflation shock and second order effects? >> as we have talked about many

times, inflation expectations are critical. perhaps they go up a little bit. i do think that that is a little bit concerning. as i say, the lesson from before was that the growth affects are large or can be large and it tends to dominate one time increases in the price level. jonathan: jim, appreciate your time there. maybe some of that is getting picked up on the bond market with yields down on the long end. lisa: the concept of bear flattening with long-term reduced growth, the hit being the dominant thought that jim had to. jonathan: were you looking to see if canadian beer is on sale? lisa: i was actually looking at the 10 year. and maybe people really like canadian beer? or for mexico? annmarie: i think josh wingrove. jonathan: we will find out, next. james vickery hello, stephen

stanley, sinton dare, and more on the bond market. up next. ♪

>> this is frankly nuts. canada and mexico our are two largest trading partners. >> he sees values and tariffs

above and beyond their negotiating leverage. >> it could change on a dime but i think once they're on it is harder to take them off. >> we think this could be highly disruptive to supply chains and potentially inflationary. this could weigh on growth and inflation in a more meaningful way. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: global equities heading south. 25% tariffs on mexico come on canada. an additional 10% on china. we are down across the board into the opening. equity futures down 1.7% on the s&p, and the nasdaq down 2%. on the russell -2.35%. the next stop for the federal reserve is march 19. how long will these tariffs last? will they still beyond when they get together on the 18th? they need to put together

forecast at that meeting. yields are up in the front end. lisa: what is going to be most compelling is what jim bullard had to say. he's these this is a greater growth shop than in inflationary shock. if that is the case, does this indicate the fed cannot cut rates and that a downturn is more likely than some sort of resurgence and inflation? jonathan: in the fx market the dollar is stronger against canada and mexico and against the euro. later on today there'll be a conversation between the president of the united states and the leaders of mexico and canada. what can they do to stop this from happening? annmarie: trump did not offer and offramp of solutions that would assuage his concerns on national security issues when it comes to illegal immigration and federal. he did say after he would be getting on the phone with these leaders, i do not expect anything dramatic, i am sure they are going to pay.

we will hear from mexico's president at 8:30. she is talking about a plan b. jonathan: i that mexico is different because of foreign what could happen next. follow the road of where things are going right now. the first move from this administration, they get into power and they start talking about putting a terrorist designation on the cartels. that over the weekend they accuse the mexican government of providing the safe haven for those cartels. things are ramping up beyond tariffs between mexico and the united states. annmarie: and pete hegseth has said all options are on the table including a defense option. where is he going today? he is making his first trip to the southern border as the head of the pentagon. jonathan: coming up we will catch up with katie kaminski as stocks slide on trump's tariffs threats. james of bnp paribas on the outlook for automakers and

stephen stanley of santander on the fed's next move. donald trump slapping 25% tariffs on canada and mexico and 10% on china. from tumbling down, renewing his threat on europe. bloomberg's tyler kendall at the white house. mike mckee standing by for more on the economy. those calls between the president and the united states and leaders of mexico and canada, do we know when they take place? tyler: we are waiting for further guidance from the white house. as president trump is rolling out these terror plans and using them on this -- these tariff plans and using them on this wide basis also rebalancing trade, new questions about whether this could hit one of his biggest campaign priorities which has to do with tackling inflation considering he told reporters americans can expect to feel a little bit of pain. bloomberg economics saying that while the immediate impacts might come right off the bat but consumer spending will not see

the squeeze over the medium and long-term. whether that could ramp up pressure as we see retaliatory impacts from canada targeting trump allies and also republican states remains to be seen. annmarie: when it comes to the impact of these tariffs, we just talked to james bullard who was talking about the fact he sees more of an impact on gdp that inflation. does the fed just looked through in terms of inflationary concerns and it is just one hit? michael: the fed looks through it right now. the idea is it would be a one time hit to the price level if this would be it which is one reason economists penciling this out are in agreement on what we are going to see in inflation. around a .60 .7 boost to pce. if he puts tariffs on the rest of the world that adds to the whole thing. growth will be a bigger issue because it is a longer time in which you buy these things.

there is a wide dispersion between goldman sachs, which things will see growth down about .4% and bloomberg economics which thinks it could be as bad as -1.2%. lisa: at a certain point of the dollar strengthening offsets the potential inflationary impacts. how much are people looking at that as one absorption tool, the depreciation of currencies can really take on a lot of the increase in prices? michael: that is the main argument trump officials are making for why this won't hurt americans all that much. the dollar has been strong for some time. the movement we will get may not be that great overall. that might keep things a little bit less good news for overall american people. jonathan: mike mckee alongside tyler kendall. watch this space. we will hopefully catch up with

tyler later. we are waiting for those calls between the president and the leaders of mexico and canada and also following with the leaders of the provinces across canada are doing. this comes from ontario. the premier dug ford and a post saying on x they will ban u.s. companies from government contracts and also going on to say ripping up ontario's contract with starlink. is that going to be the perceived weak spot of this administration? going after the company's of elon musk? annmarie: it is a vulnerability given that elon musk has an office in the old executive building. he has proximity to power that no other executive has. maybe this is the way they can try to needle their way into the oval office. doug ford has been sporting a hat that looks like a mega red hat but it is blue and it says canada is not for sale. lisa: it is all trying to appeal to potential factions that could

influence trump. it is going after red states and products. it is going after elon musk. canadian leaders are saying where are the adults? someone rein him in. why can't you get on board? they are going after specific people that could get donald trump's ear. jonathan: saw this playbook from china in 2018. is it going to work this time? lisa: may be down the line but right now the market is not responding in a way that could force that pressure on some of the allies of donald trump. annmarie: i would say china is still using that playbook. it was a few weeks ago that we reported that elon musk -- that it was elon musk china thought would be a good shepherd for tiktok. jonathan: just to confirm, that headline we just got across the bloomberg terminal, ontario government canceling its contract with starlink. check out what is happening with

two year, 10 year come in 30 year yields. so far yields are up on the front end, there little bit lower on the long end. katie kaminski needs to explain what is going on. let's start with the long end. is this bullish or bearish for bonds? katy: i would say it is a bearish signal in the sense you are seeing risk off today. what i'm thinking about the bond market, i am thinking about the market reacting to concern and fear about inflation, to fear about the impact of these tariffs. in theory if we worried about inflation we would expect yields to go up but i think the short-term response is fear, is people buying long-term debt because they are concerned about the trajectory of the equity market. lisa: do you think this market seems more concerned about a growth shopper inflation shop based on the trendlines you are looking at? katy: this is a really tough

question. the reason i'm glad you asked is because that is what we are tried to figure out. is it inflation or will this be something that impacts growth if we have enough negative impacts? right now just looking at how market reactions cross asset today, the biggest theme is risk off. that does not mean that over the next couple of days as we start to parse through the implications of this that that might shift somewhat more towards a growth narrative, what is the impact on growth? lisa: my head is trying to grapple with all of the implications. the dominant move has been strong dollar across the board. you see that continuing at a time where if the dollar continues to strengthen that becomes a headwind to international companies in the united states, it becomes a headwind to earnings, it becomes a headwind to some of the exceptionalism people have been

talking about. katy: definitely. what is interesting is if you look at the dollar over last couple of months we were worried about this trend has already gone so far in the u.s. dollar, the u.s. dollar is up so much, and then having the reaction we had today, that will put the dollar in an even more favorable position which will make things very expensive for purchasing and it will also impact commodity prices globally. i think in some sense there is going to be a pressure point if the dollar goes far enough it actually has a big impact on export and demand. annmarie: when you look at market reaction this morning to these tariffs, 25% on mexico and canada as well as 10% on china, but they are only going to happen after midnight tonight. you that the market is pricing in an 11 hour deal? katy: it is possible. if you look at how the market

has reacted to this news it was much more extreme initially. i think we will have to keep watching tonight. we might see more extreme movements but then things tend to subside. there could be movement tonight. that could be because people are hedging on whether or not there might be some side deal her way to negotiate around some of these decisions. annmarie: where you think people should look to hide? katy: this is a good question. where people are hiding is by buying the dollar and buying long-term debt as something to potentially hedge against the shorter term impacts on the equity market if this becomes the pain point that was already mentioned in terms of it might cost americans more. clearly fixed income in the short-term seems to be the solution the market is leaning to and also the u.s. dollar and energy prices as well, so things that will benefit from inflation

or protection. jonathan: i want to gauge sentiment. do you think the next move will be a hike or cut based on what we heard over the weekend? katy: this is a good one. if this becomes a growth story and the growth story bullard was talking about, i would say no can't. if we see inflation growing and we have that threat than no cut. but if we see detrimental economic impacts of these tariffs, then we might pivot to having a cut for that concern. that is where it is really tricky. there are multiple avenues we can go based on these decisions. jonathan: appreciate it. we are all trying to process the same thing in different ways. katie kaminski. of the headlines was this is about drugs, it is about a drug war come is not about tariffs. the issue is about drugs coming out of trade war.

the issue is this is something they have to say because they use the international emergency economic powers act and justify this act by making about fentanyl and the border. annmarie: they made it about national security. if you look at the fentanyl numbers from mexico, this is a huge problem, it is something trump has run on. he thinks immigration is the reason why he has one, not when it comes to things like inflation although these tariffs could be inflationary. lisa: it raises the question what can mexico do to have the tariffs removed and eliminate the threat? that prescription has not been laid out and it is one reason why people do not understand what the offramp is. jonathan: if there is one. can we negotiate this? equity futures on the s&p doing ok relative to the losses earlier on in the session. we are down 1.5% on the s&p 500. with an update on stories elsewhere with your bloomberg brief. yahaira: investigators have

uncovered more about last week's plane crash in washington, d.c. ntsb officials told reporters the blacktop army helicopter was flying more than 100 feet higher than authorized and we also learned the unit was on a training mission to evacuate government officials in the event of a catastrophe. president trump's tariffs against canada and mexico are threatening production for automakers across north america. the duties would hit almost a quarter of the 16 million vehicles sold in the u.s. each year. wolfe research analysts are estimating it to raise the average price of a new car by $3000. a big night for beyonce. she won her first album of the year at the grammys with her album cowboy carter and became the first black artist to win best country album. kendrick lamar won record and song of the year while chappell roan was named best new artist. jonathan: thank you. more in about 30 minutes.

up next we will get morning calls plus will catch up with james from bnp paribas on the pressure facing the automakers with gm down 7%. from new york, this is bloomberg. ♪

jonathan: the opening bell one hour and 12 minutes away. equity futures attempting to recover but still down 1.5%. on the russell down 2%. that is the price action. luke capital down grading fedex to hold, highlighting further weakness in cross-border flows

from tariffs, that stock down 2.3%. da davidson downgrading lifetime brands to neutral siding week european profitability. that is down close to 6%. piper sandler downgrading constellation brands to neutral noting pressure from donald trump's tariffs. another name down about 4% in early trading. u.s. carmakers slumping in premarket trading as they prepare for the impact of trump's tariffs on canada, mexico and china. james from bnp paribas out writing "we could be looking at a total tariff cost of about $46 billion in we get to an average price increase of $2900 per vehicle." james joins us for more. let's go with a $2900 number. how much of that will be passed on to the consumer. just assume for the purpose of these chat that the tariffs will stick. james: 40% of that will be

supply chain costs. the few suppliers that have reported their earnings have discussed the topic of tariffs and have said they need to pass that on to their customer, the automaker. of course the automaker is left with this decision -- they will have to try to pass on whatever costs they incur. the interesting thing is a $2900 price increase, you add on the 10% tariff levy against china auto parts, that is another $100 per vehicle. you get to this $3000. the only reason the industry grew there u.s. sales in 2024 was because oem started to price discount, they started to discount their pricing through incentive spending. think now for 2025 we are conceiving price increases, there is almost no weight the industry would be able to sustain growth. lisa: gm has been hit the hardest. it is down 7% this year and down

6% in premarket trading. i am curious going forward about what they could do to potentially offset the tariff risks at a time when mary barra said she does have a game plan but has not outlined it? james: the linchpin will be excess u.s. capacity. the average capacity utilization for u.s. automotive plant is 65% . 63% to be exact. there is a lot of excess capacity existing plans and i think the negotiating lever will have to be oem's committing a portion of their canada and mexico production and bringing it back to the u.s.. that is the only negotiation chip the automakers have because of 25% tariff -- it brings into the question an existential threat. annmarie: how much will that cost? the reason they big the cars in mexico -- the reason they build

the cars and mexico is because the labor is cheaper. james: if we go through the 25% tariff with gm not doing a single thing, that is at least by my calculations $7 billion in tariff costs if they do not do anything. then you add on $4 billion or $5 billion of supply chain cost. if they move 300,000 vehicles from mexico into the u.s., which would be about half of their total imports from mexico and canada, that would be -- the major cost differential would be labor and that is only $1 billion. we say only $1 billion because we just walked through wiping off their entire -- jonathan: you said an existential threat if this stays on. are you suggesting if we keep these tariffs one of these companies is going bust? james: pay tier two or three or four supplier, company we do not

know of goes bust. it just takes one component, one subsystem to throw a wrench into the entire production line. that is where it will start. that it will cascade all of the way up. lisa: is there a precedent for this? james: during trump's first administration the first threat was 25% tariff. we all imagined the rewrite of nafta. the original threat was 25%. what ultimately happened, we have something to point to in terms of a favorable negotiating outcome between trump and these partners. what ultimately happened was there was no additional tariff and there was a very manageable additional sourcing requirement in terms of the u.s. value at, very manageable, no oem has talked about it since. that is the president. annmarie: ultimately do you

think that is what he is trying to do? bring up the renegotiation of usmca? james: he clearly wants more. usmca he negotiated. he wants more. the 25% tariff will get every automaker with exposure to the negotiating table. i think ultimately -- we import 4 million vehicles from canada and mexico. if gm commits 300,000 and other oems get a portion you get to one million units, a court of total imports that get moved to the u.s. i think the aesthetics of that would be a great win for the administration and the costs are manageable to each automaker. it is not a net positive but they are manageable. jonathan: you still have an outperform rating on gm? james: i do. jonathan: nothing you've said makes me feel like you have an

outperform rating. james: i am playing for the $1 billion additional labor cost. jonathan: is there an underlying assumption the tariffs do not hold? james: that is the underlying assumption now. lisa: where the jobs go if gm were to move jobs from mexico and canada to the united states? what location, what states are those plans in? james: i have all the plants mapped out in my head. it would be a host of plants. one in michigan, i'm forgetting the states. there are three or four gm plans that produce the same nameplates, the same platforms as those produced in mexico. it would be a seamless transition, not cost free, not interruption free because suppliers also need to retool for that additional volume. it falls under manageable. jonathan: as an analyst, how long to they have to stay on

before you have to stay on -- before you have to change your mind that they are staying on permanently? would you revisit this in two months? james: it will be a day-to-day thing. we are forced to be in that situation. jonathan: we will be right here every single day. good to see you. it is difficult to make calls given their a lot of people that think this could be negotiated away in the few days. lisa: that has been the previous president. there is no precedent for this staying on at this level. jonathan: up next we will catch up with stephen stanley of santander and i know you will have questions about the bond market. earl davis of bmo is just around the corner. ♪

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jonathan: at some point today, there will be a call between the president of the united states and the leaders of mexico and canada. it could move markets. how this goes one way or the other we will see. right now futures are down and down hard. we are heading south, negative by 1.5%. on the russell down by more than two percentage points. >> personification of the test of endurance and therein lies the conversation you had with bnp paribas on g.m. how long will these tariffs last? when does it push a double digit drop in terms of earnings? that's the view from us.

double digit hit from tariffs, 21% on g.m. to give you some context, chevrolet costs $25,000. as of tonight, that goes up by $6,000. you heard from bnp paribas, three main plants have the same assembly line and structure. will it come to pass? when it comes to mexican beers, corona and pacifica imported from mexico into the united states of america. what is the margin hit? people say they move from neutral to overweight on this. this is the reality. the reality of the potential of tariffs, what you import from south of the border to the united states of america. nvidia definitely under pressure and if we continue on this from a jectry -- trajectory, last week down 15%. if you continue at this pace, there is a real risk that you re-enter a bear market. premarket, very closely dip

towards that. a bear market from last monday to this monday from deep seek to chips, that is the consequence. down almost 20%. where is the yolo? that's what i want to know. the skew is very elevated. the market is racing relentlessly to protection on the down side. good morning. jonathan: nvidia is down another 4% this morning. thank you. the focus of the world right now with regards to financial markets and the global economy very much on one thing, trump's tariffs on canada, mexico and china and the prospect of throwing more at the european union. stephen stanley of santander saying tariffs are likely negative for growth. stephen joins us for more. good to see you. stephen: good to be here. jonathan: chairman powell said he would wait to see poll policy articulated. what does he do now? stephen: you have to wait. this is a day-to-day thing. president trump is speaking with the leaders of canada and

mexico. there's at least a nontrivial chance we never see these 25% tariffs. >> given that a lot of companies aren't sure what to do with this, the former st. louis fed president was earlier on and says he sees this as more of a growth shock than inflationary shock. based on everything you have read and seen so far would you agree? stephen: totally agree. so the inflation story has been the one that's gotten the most run in terms of tariffs. the problem with that story is that tariffs are a one-time change in the price level. it's not a persistent change in the rate of change of prices which is inflation. and so in theory the fed is supposed to look through that. i realize easier said than done but if you go back to 2018, i know very different economic landscape but the main issue back then was growth, not inflation. it had a significant impact on growth. >> the argument people make

against this is the u.s. economy is so strong and this is such a minor hit that the u.s. will power through it and it will barely show up. why do you disagree? stephen: we may get through it. i don't think this would necessarily be inflationary given that the economy does have a lot of momentum but i do think the growth hit would be significant. we would notice it for sure and i think again if you go back to 2018, 2019, it seems to me that the biggest takeaway from that experience at least for me wasn't so much the tariffs themselves, it was the uncertainty in the environment and i think a lot of businesses were taking a step back until they had a better idea of what was coming at that time. and now i think businesses are already in that mode. they're waiting for tax changes, regulatory, in addition to tariffs, and if i am a businessperson i am not making any big decisions anytime soon.

annmarie: what if there is a 15% corporate tax rate if you produce in the united states? isn't that the carrot and stick approach? stephen: this is what the president is aiming for. he wants to bring production home. i think that's realistic perhaps for some industries and not so much for others. but yeah, it is a mix. i think that if you look at the administration's proposed polic, the tax piece and the regulatory piece are likely to be very positive for growth. on the other side, you have tariffs and maybe to some degree immigration. you know, he is leading with tariffs, which it seems to me maybe not the right way to goes because that's the one that has the potential to be negative for growth. we will see how that plays out. i think it's -- i am not a political analyst but my sense is that for him this is all a negotiation. the point of this isn't to slap tariffs and slow the economy down.

it's to get what he wants from canada, mexico, china and others. annmarie: he is flirting now with the european union. he said last night it will definitely happen with the european union. so in that sense, how do you mod all of this if it's basically just going 0 be paralysis, businesses waiting on the sideline? they could be waiting for months or years. stephen: it's a moving target. you think about are the tariffs going to happen? are they not going to happen? if they are, next question, are there going to be exemptions? are certain industries going to get -- that happened a lot, there were a lot of exemptions in trump's first term. how do our trading partners respond? are they retaliatory? do they want to deal? how does the broader economy respond? do producers and retailers pass everything through? do they eat some of the margin? there are so many questions that i think it's impossible to have a precise estimate.

i think we know the direction, but i don't think -- the magnitudes are very difficult. you can throw numbers out there, but it's all very tentative. jonathan: can we throw numbers out there? just a few. let's go back to 2018. we know a whole range of things can happen. exporters can drop prices. we can eat it on the margin. it doesn't all have to get passed through to the consumer. you would be the first to say that's dependent on what goods and sectors and i would agree. what did we learn about what corporations did then? stephen: i think the difficulty is that the environment is very different now. i think back then inflation expectations were incredibly low. firms had little pricing power. in many cases, they were forced to eat some of the cost increases. this time around, firms have a lot of muscle memory raising prices when their costs go up. jonathan: do they have pricing power now? stephen: we will see. i think consumers are probably -- the evidence is that

consumers have started to fight back a little bit. but at the same time, again consumers have muscle memory in paying higher prices and if it feels like tariffs is a good reason, maybe they're more inclined to accept it now than they would have been in 2018. jonathan: if they still have tariffs by friday what am i looking at the payrolls report for? is it of any use? stephen: i don't think it's irrelevant but it's going to be the case that the markets are going to be paying less attention to the normal data flow than they would have otherwise. jonathan: that's for sure. stephen, thank you sir. appreciate it. let's go to mike mckee. that jobs report is around the corner. mike: you and steve did a good job of undercutting what i was going to say about how important this week is. as long as the tariffs stay in place, that will be the focus. the idea, it's really hard to put numbers on this is very important. we get some numbers this week that normally would be very

important. we get i.s.m. today, the manufacturing numbers. on wednesday we get the services numbers. we also get a.d.p. and how people trade on that. and on friday the payrolls report. do these things matter at this point? the fed is going to be watching tariffs as well as the markets. they've got to figure out what the impact is going to be. we don't have a good idea. we do get a lot of fed speak this week. that's something to focus on, including your friend chris waller speaking on thursday. it's not on the economy specifically, but he might make some remarks. then we get two from vice chair jefferson. a lot to watch for this week in terms of the fed and the economy. it's a question of how much it's going to matter. jonathan: that's an important calendar, i agree with you. looking forward to that later this week. need to get some comments on this bond market. the two-year yield is higher by

four basis points. if you go further along the curve, you will notice the yields are down by a basis point on a 10-year. 452. is that what you were expecting this morning? let's cross over to earl davis. welcome to the program. i have asked this question a few times already. is this bullish or bearish for treasuries? which one, earl? earl: it's bullish for tips, not treasuries. tips will outperform on the rally as we are seeing today and the 10 year sector and they will outperform on any sell-off. the reason why it's hard to answer that question ultimately other than tips is that the market only has the ability to focus on one narrative at a time. there's four possible narratives that could happen now. one is inflation. two is growth. three is risk off. four is fiscal. two of those, inflation and fiscal cal, are negative on bond yields of the two are bullish, risk off and growth.

the risk off is exa we are seeing -- what we are seeing now. jonathan: do you think on the tax that actions like this make it more likely than not we will get bigger tax cuts than some people expect? earl: yeah, it could go both ways. there are so many unknowns. our approach is we expect nothing. we plan for everything. so that we can take advantage of it now. so it's possible, but there are so many unknowns. what is the revenue actually used for? how long does this last? if it's a short-lived tariff war, then we can expect to be more -- see more pressure on fiscal. if it's longer lived, then it does help to fund tax cuts and other spending choices. lisa: do you have a base case going into this evening? after midnight they're coming on unless there is an 11th hour deal. earl: it's one of those things where you hope for the best, prepare for the worst.

so our base case basically is -- we don't have a base case but it's to react to the market, to acknowledge when a narrative has run out. i named the four things we are looking at. the way i believe i see this going is first you have your risk off trade. you are seeing that through a rally in nominals and tips even though tips are rallying more than treasuries. so we will have this risk off first. then if the tariffs are implemented and grow, there will be inflation fears. the reason why i feel there will be inflation fears, covid has conditioned consumers to accept price hikes faster. so i believe there will be a rapid flow through of any price increases of tariffs into prices here. so you'll have that inflationary aspect. but as your previous said, this is more of a growth shock as it stands now than inflation shock. i think the second half of year you start getting that tremendous rally in bonds.

so it's very interesting, the possible sequencing of this. one thing i do want to highlight, there's one thing where it changes this to an inflation shock to a growth shock. i believe it is a growth shock, but what changes it to an inflation shock is if you get money printing. if you get q.e. again because that's putting more cash into the system which would fuel inflation and fuel growth. so it's one thing to watch out for where it could pivot from a growth shock to an inflation shock. >> do you think it could be more inflationary as well if we get more tariffs? trump is talking about the fact that they're going to be coming when it comes to the european union. earl: yeah, it's a very interesting thing. this is why i brought up q. esm. if you think of the economy, u.s. economy as a pie, the pie is not changing shape without any q.e. or q.t.'s. one solid size. now you bring in tariffs. people have to spend more so the bigger piece of the pie is going for tariffs than for inflation.

that means there is less that goes into investment. that's why without q.e. you do get a growth shock ultimately. but there is a very large poe potential for something more stim la tiff -- stimulative is the risk off. you start getting a sell-off in risk assets, i think the fed is in play. that is adding stimulus to the market. so there are so many dynamics here. you have to -- there's opportunity as well. as long as you map it out and look and wait for the opportunity and right time to strike, that's what we are doing. jonathan: briefly though, do you think the threat, the mere possibility of inflation picking up again, does constrain the fed's bias to ease? earl: no, not at all. the reason why is because we are still -- not at the peak of inflation. we are not where we were in 2022. so they still have room. the reason why it's in play is because of that poe teption

growth shock. -- potential growth shock. they could say we are looking through this supply shock because we do see the press demand and we will address the press demand because we believe inflation will ultimately end up in the range that we want, 1% to 3%. raryl earl, you are one of the best. appreciate your time. thank you. earl davis. big debate about what means for the u.s. economy and the federal reserve and u.s. fixed income. at the moment, not my opinion, based on the opinion of market participants, there is no debate. this is just bad for growth and ultimately could lead to further disinflation. if you put the because up in america and have to eat the overcapacity coming out of china it's the europeans that will do a lot of that eating. yields are down across the curve in germany. the two-year is seven basis points. the 10-year is down six. that speaks volumes this morning, whether there is confusion about what it could mean for treasuries, there is very little confusion about what all of this would mean for the european bond market.

let's give you an update elsewhere. let's cross over to yahaira. >> president donald truch says he will have separate calls regarding tariffs with the canadian prime minister as as well as mexican president claudia sheinbaum. trudeau has pledged 25% retaliatory tariffs plus ontario's premier is ending its contract with star link. president trump's tariffs include plans to get rid of an exempt shop for packages worth less than $800. retailers including shein have exploited the loophole to quickly expand in the u.s. the flood of packages from china is hard to monitor and may contain illegal ordaining dangerous goods. it's a trade most are calling the most shocking in nba history. the dallas mavericks sent their star forward luka doncic to the lakers for anthony davis. it's the first time in league history that two reigning

all-nba players were traded for each other during the middle of the season. that's your bloomberg brief. john? jonathan: thank you. i am told by my producer this is the worst trade in nba history. >> mavericks fans are going nuts. they do not understand why they would do this trade. for them, it makes no sense. maybe we will find out why. jonathan: up next on the program, we will set you up for the day ahead. you are watching "bloomberg surveillance." ♪

jonathan: the opening bell is 40 minutes away. what a start to february. decent gains in january.

eurostocks up by 8%. massive rally in european equities. as you look at these moves, down across the board on the s&p, the russell. you look at the losses in europe, positioning was part of the story. but also i remember the first week of trump's second term. we are sitting there at the world economic forum and people are hopeful because we didn't get tariffs in the first week, that we might not get them at all. >> there was a feeling that this was a president who was willing to negotiate and not going to be as harsh. today that basically has been shattered. just wait. it's a question of what can he get done sooner versus what he will get done later? annmarie: he still may be willing to negotiate. there is a phone call this morning. i think we should see what -- read out of that phone call. the tar tariffs are set to take place at midnight. jonathan: you have heard the bullish argument. does it still stand? he is transactional in nature,

constrained, driven by the equity market to some extent. the backdrop for the economy is good. does all of that still hold after the weekend's actions? lisa: he did say the u.k. is immune to potential tariffs which i thought was notele. not sure exactly how he got on his good list. jonathan: a brexit win. lisa: all right. anyway we don't have to get into that. but it sort of erodes the argument but i think stephen stanley's point about the uncertainty and how much that weighs on business confidence as well as the strong dollar and what that does to corporate earnings might be the most salient story as we wait for more certainty. annmarie: the european union are an atrocity according to president trump. that's what he said last night. but i wonder when you see the s&p 500 down 1.6%, is that enough for him to say time to walk in and negotiate or maybe he will look at that and say they're not completely tanking and actually double down on

place like the european union. jonathan: i don't know but we did see a much bigger draw down in 2018. this is nothing. lisa: people are treating this playbook like 2018. is that truly the case and if it's not, how long does this go on before you start to see major jifts shifts by corporate executives? jonathan: we are hitting the ground running. your week ahead kicks off like this. later on today we will have two calls with the leaders of mexico and canada. the president of the united states. that's it. they are the big ones to watch a little later. how much scope is there for negotiation? on tuesday, if we don't get any of this sorted these tariffs go into effect on china, on mexico, on canada, and then look out for this too. the israeli prime minister is visiting the white house. that could be a busy day on tuesday. on wednesday, we get the jobs report, some disney earnings. on thursday another round of

jobless claims. plus the bank of england rate decision. on friday, it's the major one. on friday, outside of all the earnings, the jobs report is just around the corner. bloomberg's tyler kendall joins us at the white house ahead of the conversations between president trump and the leaders of canada and mexico. this is the big focal point for the market later on today. you caught up with the national economic council director. what did kevin have to say? tyler: i pressed him on what sort of bench marks of progress mexico and canada would need to meet in order for president trump to ease or lift these tariffs, and he said he didn't want to get ahead of the president's calls with the foreign leaders this morning as we still await guidance and a readout on what might have been said during those. but he did want to make clear that the administration says they don't feel that this is a trade war. they feel this is a war against illegal immigration and drugs coming over the border. when i asked him what sort of economic impacts that americans might be feeling particularly after president trump told reporters yesterday that there

might be a little pain, he said he feels that inflation will go down due to supply side shocks. it's clear this white house is trying to bank on a boost to u.s. domestic manufacturing from these tariffs. but as we spoke about earlier in the show not everybody agrees with that. the national association of manufacturers, which represents 14,000 businesses here in the u.s., made a statement that these tariffs will send ripple effects and severe impacts for all of their members nationwide. >> did you get a sense if it is that last point, boosting american manufacturing, or it is using iepa a national security concern? what is driving these tariffs? tyler: it's clear that there is this one-size-fits-all tariff when it comes to president trump to address mult multiple of his campaign priorities, rebalancing trade and immigration. the trump white house is going to put forward that they are going to enact these under emergency powers and invoke this national emergency. whether or not that holds up to legal scrutiny we will have to wait and see.

but it is clear they're trying to paint this in a positive light for u.s. manufacturers. we saw for example some republican senators get onboard with that, senator moreno in ohio said his state is open for business. they're a big producer of steel. we are also watching other senators. i got a statement from senator ted cruz for example, texas is the largest trading partner with mexico. he told me in a statement last night that he actually wants to see trade expanded between the u.s. and mexico. that all the players need to come to the negotiating table for that to happen. jonathan: tyler kendall outside of the white house. tune in tomorrow. lots of earnings this week. the former deputy u.s. trade representative joins us. so the trade war begins. 25% tariffs on mexico, on canada. 10% levied on chinese products. the big question, how long will it last? will it even start? from new york city this morning, good morning to you all.

this was "bloomberg surveillance." ♪

>> 30 minutes until the start of trading. i am katie greifeld. sonali: i am sonali basak. matt miller is off today. "bloomberg open interest" starts right now. katie: after weeks of threats, president trump makes good on his pleng to impose tariffs on mexico and canada. threatening to hobble the u.s. economy and push up prices for consumers. businesses and investors bracing for that fallout.