WSJ What’s News - Tariffs Are About to Separate Retail’s Winners and Losers

Episode Date: May 14, 2025

A.M. Edition for May 14. We head to a gathering of top global retailers to hear why this week’s 90-day tariff rollback by the U.S. and China isn’t delivering the long-term certainty businesses are looking for. Plus, President Trump met with the new president of Syria, marking a major turning point in global recognition of the country’s leadership. And the U.S. reverses Biden-era export controls on advanced AI chips. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Republicans voice national security concerns over Qatar's proposed gifting of a luxury jet to President Trump. Plus the U.S. scraps a Biden-era rule limiting AI chip exports to other countries. And we'll hear why a 90-day tariff rollback isn't delivering the long-term certainty retailers are looking for. If we're a global player, do we need to have multiple supply chains effectively servicing different geographies? All that is incremental cost. So I think we're heading into a higher product cost environment under pretty much every scenario.

It's Wednesday, May 14th. I'm Luke Vargas for The Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. President Trump met this morning with the new president of Syria, marking a major turning point in global recognition of the country's leadership. On the sidelines of a regional summit in Saudi Arabia, a US official said that Trump spoke with Ahmed al-Sharah, a one-time insurgent aligned with Islamic State and al-Qaeda in Iraq and who is still designated by Washington as a terrorist. Al-Sharah led the overthrow of long-time dictator Bashar al-Assad in December.

A US spokesman said it was the first meeting between the presidents of long-time dictator Bashar al-Assad in December. A US spokesman said it was the first meeting between the presidents of the US and Syria in 25 years, which came after Trump announced he would lift crippling economic sanctions on the war-torn country as he kicked off his four-day Middle East tour in Saudi Arabia. Meanwhile, the president hasn't escaped the growing criticism in Washington over his potential acceptance of a $400 million luxury airplane from the government of Qatar. Democrats have raised legal and ethical concerns, and now Republican lawmakers are questioning the potential security risk and cost of retrofitting the plane for use as the next Air Force One.

On his way to Qatar, national security reporter Alex Ward told us the blowback could overshadow today's state visit. The criticisms coming from Democrats and Republicans are actually basically the same. They are ethical, political, legal. The ethics, you know, can a foreign government really provide a gift of that size, not only physically, but in terms of cost to Trump in a way that does smack of corruption or is trying to influence him. And then there's the foreign policy aspect. Is Qatar using this plane to really grant Trump's favor? And is Trump making a visit here in part because he's expecting such lovely gifts and investments from Qatar?

And then there's genuine national security concern, which I think is actually somewhat animating Republicans, which is when a president goes on Air Force One, that thing is basically a fortress in the sky. It's a White House in the sky and the plane that the Qataris are going to give doesn't seem like it's going to be fitted with that kind of equipment and security measures, in which case the plane isn't that free. It's going to cost millions of taxpayer dollars to retrofit it for the president's purposes." On social media, Trump said only a fool wouldn't accept the plane as a gift, and has repeatedly expressed frustration about delays to a contract with Boeing for a new set of presidential planes. Elsewhere in the region, Israel says an airstrike that struck near a

hospital in Khan Yunis yesterday was targeting a top Hamas leader in Gaza, Mohammed Sinwar. He effectively took over as the head of Hamas in Gaza after Israel killed his brother Yahya Sinwar in October. Gaza's health ministry said six people were killed and more than 40 injured as a result of the attack. And Israeli officials said it could still take days to determine whether the strike killed Sinwar.

Back in the US, we are reporting that White House and agency officials are pushing back against a bid by Health Secretary Robert F. Kennedy Jr. to label pesticides as harmful to health. There's concern the move would disrupt the food supply chain. People familiar with Kennedy's Make America Healthy Again report due out next week said it's expected to single out two problematic toxins, glyphosate, the active ingredient in Roundup made by Bayer, and atrazine, an herbicide used on grasses and corn. It's not clear where President Trump stands on the issue, though he pledged to investigate

pesticides on the campaign trail as part of an effort to win support from Kennedy's backers. The US has scrapped its AI diffusion rule implemented under President Biden, which limited chip exports, claiming that it undermined diplomatic relations with friendly nations. The Trump administration said it aims to keep AI tech from adversaries, warning against using US chips for Chinese AI models. Journal reporter Sherry Queen says the rule change benefits American AI players like NVIDIA. We saw NVIDIA has already signed deals in the Middle East. It looks like a first step toward more deals coming.

But if they can duplicate the success we have seen in the Middle East, that remains the question. So we don't know who will really benefit from this revamp now. But it seems like US chipmakers, Nvidia, Intel, AMD, they could get some breathing room while they're redrafting the rules." NVIDIA's stock rallied in off-hours trading following the announcement. Microsoft is laying off thousands of employees, or around 3% of its workforce. The effort to become more streamlined impacts various divisions around the

world and will result in fewer managers as the company focuses on high-performing teams. And turning to earnings, tariffs are still hurting forecasts of major companies. As this morning, Japanese electronics giant Sony warned that annual profit is expected to drop 13% even as its movie and music business boosted first quarter earnings. Similarly, Taiwanese electronics maker Foxconn also cut its forward guidance. That said, it still expects revenues to be higher than last year thanks to its work building AI servers for US tech giants like Amazon and Nvidia.

Coming up this week's Tariff Truce has lifted markets and kicked off a rush by businesses to place orders from China. But as global retailers tell me, their long-term outlook remains as uncertain as ever. That's after the break. Hey, wouldn't it be great if life came with remote control? You know, you could hit pause when you needed to, or hit rewind, like that time you knocked

down that wasps nest. Well, life doesn't always give you time to change the outcome, but prediabetes does. With early diagnosis and a few healthy changes, you can stop prediabetes before it leads to type 2 diabetes. To learn your risk, take the one-minute testagain, off-again U.S. tariffs, I stopped by the World Retail Congress taking place this week in London, where one word kept coming up. The volatility of the tariffs creates a lot of uncertainty and it's changing day by day.

The uncertainty that we have is prohibiting putting in longer term solutions. There's so much uncertainty what's happening because one day there's something, another day could change again. Uncertainty in and of itself is having a negative impact on business spending, on consumer spending. The mood among manufacturers and retailers was more buoyant than I expected, thanks in large part to Monday's tariff rollback. But executives weren't ready to sound the all clear. And there were two main reasons why.

And the first is that the aftershocks of Liberation Day are still being felt, even if China US trade is about to pick up. You've got a lot of products and containers ready to go and I'm sure they'll be on ships soon. The next issue with that of course is, are there enough containers, are there enough ships? So my guess is we're going to get into some sort of congestion. Ian Bailey is the chairman of Anko Global, a product development company that sells over 1.5 billion

items a year, primarily in Kmart stores across Australia. He told me that retailers that waited until this week's tariff news to place orders could be disappointed. So they just haven't ordered. And in the US, you'll see that in the next two or three months, there'll be increasing amounts of empty shelves in retailers because there's a lag effect between not ordering and it getting through the system is showing up in the retail stores." As importers race to bring in cargo during the 90-day tariff rollback, carriers have already started raising transpacific shipping prices with the cost of some June departures more than double current prices.

It's the kind of handbrake turn in trade wins that Bailey told me is keeping everyone on their toes. If you're in the rest of the world, there's actually pretty good deals to be done with China right now. For us to buy products to sell to Australia, it's even easier from China because there's more capacity available because order volumes have dropped going to the U.S. Now, in the last two days that may have changed because of the alleviation of the level of tariffs. Of course, what the shipping companies will do is they'll divert more ships to the US to serve that market, which means less sailings to other parts of the world. So you then get a supply chain disruption because of that imbalance of that global supply chain. That could be an issue for you?

It could be. So that is lesson chain. That could be an issue for you? It could be. So, that is lesson one. This week's dialing back of US-China tariffs isn't the end of the story. Aftershocks will persist, and even the best-laid plans might need to be torn up in short order. Which brings me to the second thing I learned, that trying to reduce supply chain vulnerability is expensive, a fact likely to widen the gaps between retail's winners and losers. In order to meet the customer needs, we have to have product on the floor. So we were not one of the retailers that chose to leave product in the ports or at the factories.

We brought it in. We have full stores. Breanne Olson is the CEO of teen retailer PacSun, which is riding the success of having a hit product among Gen Z customers. We've sold almost 200,000 pairs of the Baggy Jean on TikTok Shop over the last 12 months, which is pretty significant and we've made an effort to bring in the product that we need to continue to drive those sales. Olsen said she's convening a tariff task force every week in order to work out sourcing

strategies that may need to shift by the quarter. For now though, things are running smoothly enough that she broke the news to us the brand is expanding into the Middle East. Taking PacSun on a global scale has been something that we've been wanting to do for many years and it does feel like an exciting moment to do so. And so we're also exploring other international territories. But the California sun isn't shining for everyone. So it's quite a tough situation.

The impact on the financial bio-buy-buy of many retailers in the next 12 to 24 months will be the knock-on impact of what's happening now as well. Palak Seth is the founder and executive vice chairman of India-based apparel manufacturer PDS Limited. A decade ago, 70 to 80 percent of its manufacturing was in China. Now that's around 40 percent thanks to a de-risking strategy dating back to President Trump's first term that's seen it expand across South Asia, Central America, and Africa. But Seth told me it's his customers he's now anxious

about. We are very worried about the creditworthiness of our customer base. In the fashion industry around the world, US retailers are quite vulnerable. If you look at the market cap, some of the large retailers in the last 12 months have reduced so drastically. Many of the brands, many of the physical retailers, they're trading at such low multiples, it's quite worrying. Some of the largest retailers in the US, they're taking a view of the physical retailers. They're trading at such low multiples, it's quite worrying. Some of the largest retailers in the U.S., they're taking a view of the good ship from China, and they'll pay their tariffs because they don't want their shelves to be empty, whereas many other smaller or not as financially strong retailers will not be able to survive this crisis,

and they'll have empty shelves. So, you know, the bigger readers are seeing this option to gain market share as well. Geography could determine other winners and losers too. Ira Kalish is the chief economist at consulting giant Deloitte. If you look, for example, at what happened in the first quarter, the GDP numbers showed that business investment in equipment was up dramatically because it was front-loading in anticipation of tariffs. But business investment in structures, factories, warehouses was flat. So that tells me businesses were already pausing strategic decisions because of the uncertain

environment. And don't forget that more than half of what the U.S. imports are intermediate goods, not consumer goods. So this is a cost increase for U.S. companies that their competitors don't see. So they're facing a loss of competitiveness. And for them, where they source those things may have to change, but they don't know in what way." And of course, the fortunes of retailers depend on the health of consumers.

Kalish said the middle class in particular remains spooked by tariffs in ways that could dent discretionary spending even if the S&P 500 is back into the black for 2025. The Conference Board recently found Americans now expect inflation to reach 7% next year. And even if things don't get that bad, Ian Bailey told me that retailers should be bracing for a shakeup. Okay, so follow this bouncing ball. Where does that take us to? Healy told me that retailers should be bracing for a shakeup. more and more customers dropping into value retail, who might have previously been mid-market or even high-end. In every environment there's winners and losers, I think value retail will be the winner. And that's it for What's News for this Wednesday morning. Today's show was produced by Daniel Bach and Kate Bullivant. Our supervising producer is Sandra Kilhoff, and I'm Luke Vargas for

The Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening.