Morning Brew Daily: Can Cooling Inflation Withstand Tariffs? & Prada Buys Versace for $1.4B
Released on April 11, 2025

Hosts:

• Neal Freyman
• Toby Howell

1. Escalating US-China Trade War and Its Economic Impact

The episode delves deep into the intensifying economic conflict between the United States and China, often described metaphorically as a "divorce" between the world's two largest economies. Hosts Neal Freyman and Toby Howell explore the ramifications of escalating tariffs and the broader implications for global trade.

Key Points:

• Tariff Escalation: President Trump has significantly increased tariffs on Chinese goods to 145%, citing unfair trade practices by China. In retaliation, China has imposed nearly equivalent tariffs of 125% on American exports.

• Economic Consequences: This tit-for-tat tariff battle is freezing trade between the two nations, leading to disruptions across multiple industries. The trade deficit remains a critical issue, with the US importing $438 billion worth of goods from China compared to exporting $144 billion.

Notable Quotes:

• Neal Freyman [04:55]: "We are watching a nasty divorce unfold between the world's two major powers whose deep trading relationship has defined the global economy in the 21st century."

• Toby Howell [07:21]: "Tariffs are over 60% on clothes from China means that back to school spending and just your Zara halls are going to get more expensive."

Impact on Industries:

• Entertainment: Chinese restrictions have reduced Hollywood's market share in China from 9% to 5%, affecting American film exports.

• Technology and Consumer Goods: Companies like Apple could see significant price hikes, with potential increases of $350 on the next iPhone. The bike and E-bike industries are also vulnerable, with input costs potentially spiking by up to 50%.

• Automotive and Apparel: Car prices may rise due to increased tariffs, and apparel brands like Zara will face higher costs, impacting consumer spending.

2. Inflation Trends Amidst Tariff Pressures

The hosts examine the recent easing of inflation figures juxtaposed against the looming threat of renewed tariffs, painting a complex picture of the current economic landscape.

Key Points:

• Recent Inflation Data: In March, the Consumer Price Index (CPI) fell by 0.1% month-over-month, marking the first decrease in nearly five years. Year-over-year inflation dropped to 2.4%, below economists’ expectations of 2.6%.

• Driving Factors: The decline was primarily driven by a significant reduction in gas prices, which fell by 6.3%, and a drop in airline fares by 5.3%. Additionally, hotel prices saw a sharp decline as consumers opted for staycations amid economic uncertainty.

• Future Outlook: Despite the positive short-term figures, economists warn that the ongoing trade war could reignite inflation pressures in the coming months. The initial dip in inflation may serve as a baseline to measure the impact of future tariffs.

Notable Quotes:

• Neal Freyman [10:22]: "We're going to get higher inflation out of these tariffs and prices will go back up."

• Toby Howell [09:08]: "If absent of this trade war, everything looks like it's heading in the very correct direction. But obviously, there's just that massive question mark."

Additional Insights:

• Consumer Behavior: The drop in travel-related expenses suggests a shift towards local tourism and delayed international travel due to economic uncertainties.

• Egg Prices Paradox: While wholesale egg prices plummeted from $8 to $3 per dozen between February and March, retail prices remained stubbornly high, highlighting discrepancies in supply chain adjustments.

3. Prada’s Strategic Acquisition of Versace for $1.4 Billion

In a significant move within the luxury fashion sector, Prada has acquired Versace for $1.4 billion, marking the largest luxury deal of the year. The hosts analyze the strategic motivations behind this acquisition and its potential impact on the global luxury market.

Key Points:

• Strategic Intent: Prada aims to establish a robust Italian luxury consortium that can rival French giants like LVMH and Kering. This acquisition symbolizes a commitment to building a “made in Italy” luxury powerhouse.

• Historical Context: Capri Holdings, the previous owner of Versace since 2018, failed to achieve the desired growth, with Versace's revenue declining from $843 million in 2020 to $813 million in the previous year, resulting in a $700 million loss.

• Prada’s Advantage: Unlike Capri Holdings, Prada has demonstrated recent financial resilience, growing its revenue by 17% last year despite a downturn in the luxury sector. Sub-brands like Miu Miu have seen retail sales surge by 93%, indicating strategic growth areas.

Notable Quotes:

• Neal Freyman [14:09]: "Prada is dead set on building a made in Italy luxury house that can compete with the French giants like LVMH and Kering."

• Toby Howell [15:13]: "Prada has just cracked the code in recent times... Retail sales of that brand grew 93% last year."

Future Expectations:

• Market Positioning: Prada’s acquisition is expected to rejuvenate Versace’s brand presence and operational effectiveness in Milan, potentially reversing past failures under Capri Holdings.

• Competitive Landscape: This move could spark a wave of luxury nationalism in Italy, emphasizing the preservation and growth of Italian craftsmanship against foreign conglomerates.

4. Stock of the Week: Pharma Stocks and Bazooka Brands

The podcast segment “Stock of the Week” highlights two contrasting choices: pharma stocks as the dog of the week and Bazooka Brands (the maker of Ring Pop) as the stock of the week.

A. Dog of the Week: Pharma Stocks

Key Points:

• Tariff Threats: Pharmaceutical companies like Eli Lilly, Novartis, Merck, and AstraZeneca are under pressure as President Trump vows new tariffs targeting drug imports to incentivize domestic manufacturing.

• Supply Chain Challenges: The pharma industry relies heavily on global supply chains for active ingredients. Tariffs could disrupt these complex networks, leading to higher drug prices and reduced R&D budgets.

• Market Volatility: Although pharma stocks initially avoided the market downturn, the looming tariffs have left the sector vulnerable to future declines.

Notable Quotes:

• Neal Freyman [18:16]: "The pharmaceutical supply chain is a hypercomplex, interconnected web that crisscrosses the globe... companies are warning that it won't be so easy to simply flip a switch and start making medicines entirely in the US."

• Toby Howell [19:26]: "Analysts are saying that they're possibly expecting higher than the April 2 figures to be applied to these, you know, industry of pharma."

B. Stock of the Week: Bazooka Brands

Key Points:

• Ring Pop Factory Expansion: Bazooka Brands is investing in a new Ring Pop factory in Music, Pennsylvania, replacing the original Scranton facility. The new factory quadruples production capacity to 1.5 million candies per day.

• Sales Growth: Ring Pop sales have increased by 7% year-over-year, positioning it as the flagship brand within Bazooka’s portfolio.

• Market Trends: The resurgence of traditional candies like Ring Pop aligns with current consumer preferences for "edible entertainment," combining candy consumption with playful interactions.

Notable Quotes:

• Neal Freyman [21:16]: "Ring Pop is the closest thing we have to Willy Wonka in real life... the play value, there's viral value."

• Toby Howell [21:51]: "There is this kind of backwards looking vibe to it, but there is edible entertainment."

5. Additional Headlines

A. Trump’s Executive Order on Shower Heads

In a lighter yet noteworthy headline, President Trump signed an executive order to enhance water pressure in showerheads. This move is part of his ongoing efforts to redefine standards:

Key Points:

• Regulatory Changes: The order redefines showerheads to boost water pressure, reversing Biden-era regulations.

• Practical Impact: According to the Appliance Standard Awareness Project, low water pressure is typically due to home plumbing or limescale buildup, rendering the regulatory changes largely symbolic.

Notable Quotes:

• Neal Freyman [23:43]: "If you can't boost tariff rates any further, you might as well boost water pressure."

• Toby Howell [24:32]: "Low flow. You cannot deal with low flow."

B. SNL UK Spin-Off

The podcast also touches on the news that Saturday Night Live is launching a British version set to premiere next year on Sky. Hosted by Lorne Michaels, the show will feature local comedians and mirror the original’s format.

Key Points:

• Global Expansion: While other international adaptations have had mixed success, the UK version hopes to leverage the strong comedy culture in Britain.

• Format: Similar to the US version, featuring sketches, recurring hosts, and musical guests.

Notable Quotes:

• Neal Freyman [25:14]: "It will look a lot like the SNL of the USA, just five hours in the future."

• Toby Howell [25:14]: "Maybe the funniest attempt though came from France where it only lasted one a single episode aired."

Conclusion

This episode of Morning Brew Daily provides an in-depth analysis of the escalating US-China trade war and its multifaceted impact on the global economy, highlights strategic moves within the luxury fashion industry with Prada's acquisition of Versace, and offers insightful stock evaluations. Additionally, it touches on lighter news items, showcasing the hosts' ability to balance serious economic discussions with engaging and varied content. For listeners seeking a comprehensive overview of current business and economic trends, this episode serves as a valuable resource.

Credits:

• Executive Producer: Emily Milian
• Producer: Raymond Lu
• Associate Producers: Olivia Graham and Olivia Lake
• Audio: Garrett Peck
• President: Devin Emery
• Show Produced by: Morning Brew

For more information or to share feedback, email Morning Brew Daily at MorningBrew.com.