Inflation Ticks Up, U.S. Lifts China Chip Ban & The Department of Defense Teams Up with Big Tech

Summary

Prof G Markets Podcast Summary Episode: Inflation Ticks Up, U.S. Lifts China Chip Ban & The Department of Defense Teams Up with Big Tech
Release Date: July 16, 2025
Hosts: Scott Galloway and Ed Elson
Network: Vox Media Podcast Network

---

I. Market Recap: Navigating the Latest Capital Movements

In this episode, hosts Scott Galloway and Ed Elson kick off by reviewing the latest shifts in the capital markets. The S&P 500 and the Dow Jones Industrial Average closed lower as investors grappled with new inflation data and a series of bank earnings reports. Despite most bank stocks declining due to cautious future forecasts, Citigroup emerged as an exception, soaring to its highest level since 2008 after reporting a 25% profit increase and announcing a buyback plan (01:08).

Additionally, trading revenues for JP Morgan and Citigroup saw significant boosts, increasing by 15% and 16%, respectively. Meanwhile, the NASDAQ reached a record high, propelled by a rally in chip stocks. Conversely, Bitcoin experienced a downturn as cryptocurrency-related legislation stalled in the House of Representatives (01:09).

II. Inflation Report: A Worrisome Uptick

The episode delves into the June inflation report, revealing that consumer prices rose by 2.7% year-over-year, up from 2.4% in May (03:10). This uptick aligns with Wall Street's expectations but poses challenges for the Federal Reserve's anticipated rate cuts. FedWatch now estimates only a 2.6% probability of a rate cut in July. In response to the inflation data, the yield on 30-year treasuries surpassed 5% for the first time in over a month (03:25).

Host Ed Elson probes whether this rise in inflation is a transient phase or indicative of a deeper economic issue. He highlights that while certain sectors like flight tickets and internet services saw price declines, imported goods such as home appliances, furniture, toys, clothes, and coffee experienced notable price hikes. This pattern suggests that tariffs are beginning to exert pressure on consumer prices.

III. The Tariff Debate: Unpacking Their Economic Impact

The discussion intensifies around the role of tariffs in the recent inflation surge. Elson presents data showing that goods subject to tariffs are driving the price increases. Items like furniture rose by 1%, toys by 2%, and coffee by over 2%, outpacing the overall monthly increase of 0.3% (04:00).

To provide expert insight, Claire interviews Nicole Servey, an economist at Wells Fargo. Servey confirms that the Consumer Price Index (CPI) is beginning to reflect the impact of tariffs, particularly in the food at home category. She explains that while some sectors have managed to mitigate price increases through inventory stockpiling, perishable items like fresh fruits and vegetables are experiencing unavoidable price growth. Servey anticipates that core inflation may rise to around 3% by the end of the year, complicating the Fed's objectives (05:32 – 08:52).

IV. Lifting the China Chip Ban: A Boon for Tech Giants

A significant development discussed is the U.S. government's decision to lift export controls on AI chips to China, allowing companies like Nvidia and AMD to resume sales after previous bans cost them approximately $8 billion and $700 million, respectively (08:52). This move has had a favorable impact on their stock prices, with Nvidia up 4% and AMD up over 6% the day following the announcement. The Commerce Department justified the lift by stating that concerns over China's use of these chips for building supercomputers—previously cited as a national security threat—are no longer pressing.

Scott Besant is quoted expressing skepticism about the transparency of the negotiations:
"You might say that it was a negotiating chip. It was all part of a mosaic. They had things we wanted, we had things they wanted." (09:30)

Vivek Arya, a senior semiconductor analyst at Bank of America, elaborates on the implications for Nvidia and the broader semiconductor industry. He anticipates an incremental $5 billion in quarterly sales from Nvidia once licenses are granted and highlights the strategic importance of maintaining U.S. leadership in the AI technology stack. Arya also notes that the future success will depend on the continued balance between restrictions and sales opportunities (12:11 – 15:35).

Following the discussion, Nvidia's market valuation surged by $150 billion, positioning it as the most valuable company in the world at $4.16 trillion (15:35).

V. Big Tech and the Department of Defense: A New Alliance

The episode shifts focus to the Department of Defense (DoD) awarding up to $200 million in contracts to several AI companies, including Anthropic, Google, OpenAI, and Xai. These contracts aim to accelerate the integration of AI capabilities into national security initiatives. This marks one of the largest collaborations between the DoD and software providers to date.

Ed Elson provides context on how this partnership signifies a departure from Big Tech's previous stance against collaborating with the military. Historically, companies like Google and Meta had strict ethical guidelines prohibiting such collaborations. However, these restrictions have been scrapped, allowing these tech giants to freely build AI solutions for defense purposes.

Elson criticizes the inconsistency between Big Tech's proclaimed ethical principles and their actions:
"You state a mission, you update your charter, you make a big PR event about it, and then as soon as that mission gets in the way of making money, you cave." (17:08)

He emphasizes that profit remains the primary driver for these companies, overshadowing their stated ethical commitments. This collaboration with the DoD raises questions about the true motivations behind Big Tech's strategic partnerships and highlights the ongoing tension between ethical guidelines and financial imperatives.

---

Notable Quotes:

• Nicole Servey, Wells Fargo:
  "You are seeing signs of tariffs, particularly with food at home. This is something we've discussed many times." (05:32)

• Vivek Arya, Bank of America:
  "We think it's a positive step for Nvidia, of course, but also a lot of their semiconductor peers... broadly speaking, I do think it's a positive step." (12:11)

• Ed Elson:
  "You state a mission, you update your charter, you make a big PR event about it, and then as soon as that mission gets in the way of making money, you cave." (17:08)

---

Conclusion

This episode of Prof G Markets provides a comprehensive analysis of current economic indicators, regulatory changes, and significant shifts in corporate strategies within the tech and defense sectors. From the nuanced impacts of rising inflation and tariffs to the strategic lifting of export controls on AI chips and the evolving relationship between Big Tech and the Department of Defense, Scott Galloway and Ed Elson offer insightful commentary to help listeners navigate the complexities of today's capitalist landscape.

Transcript

[Host 1]

Support for the show comes from Adobe Express. These days there are a million different ways to reach your customers, but that can also mean a million different pieces of content. It can be overwhelming. Adobe Express can help with templates, brand kits, and generative AI that's safe for business. Your team can create its own content and will always be polished and professional. When everyone can create content themselves, it's easier to get on brand content out in the world faster. Go from cookie cutter to class of its own. Switch to the quick and easy app to create on brand content. Adobe Adobe Express. Learn [e-mail] Express Business True story I have used Adobe Express and I was shocked how easy it is to use and produce content.

[Host 2]

Today's number $10 million. That's how much the original Birkin bag sold for at a Sotheby's auction last week, making it the most expensive handbag in history. The Tokyo based buyer said they will not be reselling, thus redefining what it to be the bag holder.

[Vivek Arya]

Money Market.

[Host 2]

If money is evil, then that building is hell welcome to Property Markets. I'm Ed elson. It is July 16th. Let's check in on yesterday's market vitals. The S and P and the Dow ended the day down as investors digested the latest inflation data and and a batch of earnings from banks. Despite beating expectations, bank stocks mostly fell after the companies issued soft forecasts for the rest of the year. The outlier was Citigroup, which hit its highest level since 2008 after the bank reported a 25% rise in profit and announced a buyback plan. And as we predicted on Monday, trading was a major highlight. JP Morgan and Citigroup saw increases of 15 and 16% in trading revenues, respectively. Meanwhile, a rally in chip stocks drove the NASDAQ to a record high. We'll talk more about that later. And Bitcoin fell as the crypto bills we discussed on yesterday's episode hit a roadblock in the House of Representatives. Okay, what else is happening? The June inflation report is out, and while the data was roughly in line with Wall Street's expectations, consumer prices did increase last month. This print complicates the Federal Reserve's path towards a rate cut this summer. According to FedWatch, interest rate traders are now pricing just a 2.6% probability of a rate cut in July. After the report, the yield on 30 year treasuries climbed above 5% for the first time in more than a month. Okay, let's examine this inflation data. We're up to 2.7% year over year in June. In May, it was 2.4%. In April, it was 2.3%. So inflation appears to be picking back up, not in a huge way, not in a way that we need to start panicking, but certainly in a way that is at least material. We can also look at this on a monthly basis. Between May and June, prices rose 0.3%. That is the largest monthly gain since January. So there is no question here prices are rising. But the big question that we probably need to address is whether or not this is just a blip in the data. Is this just transitory? I mean, prices rise and prices fall. It could be that this is some natural moment in the economic cycle that is possible. Or are prices rising because of, you know who and you know what? This is something we've discussed many times. The argument from the administration is that tariffs are necessary for America and more importantly, that they will not raise prices. In fact, according to Scott Besant, the tariffs are actually moderating prices. That is what he said after we saw that positive inflation report back in April. But now prices are coming back up. And so what we need to know is, is it because of the tariffs or is it because of something else? Well, let's look at the data first. There were many items that did decline in price. Things like flight tickets and Internet services and public transport. All of those things got cheaper last month. But of course, none of those things are really affected by tariffs because we don't really import those things from abroad. So when you look at the things that we do import, things that probably would be more sensitive to tariffs, things like home appliances and furniture, toys, clothes, coffee, all of the stuff that is imported from abroad. You look at that, and what you find is that last month, the prices on those items rose more than anything else in just one month. Furniture prices rose 1%, toy prices rose 2%, coffee prices rose more than 2%. And you compare that to the overall monthly increase of all items in America, as I said, all items rose by only 0.3%. So put another way, the items that are pushing up inflation the most right now are the ones that are exposed to tariffs. And so it is very clear to us from this report that, yes, the tariff impact is beginning to take effect. The tariffs are beginning to raise prices. That was our takeaway at least. But we did want to get a second opinion. So Claire spoke with Nicole Servey, an economist at Wells Fargo.

[Nicole Servey]

So what we're seeing from the CPI report is kind of those initial signs of tariffs being passed through to consumer prices that the Trump administration started levying tariffs kind of in full force in April. And so there was a little bit of a lag. This is the CPI report for June. And so a little bit of a lag between when those tariffs actually got implemented to when we're actually starting to see them get passed through to consumer prices. But some of that can be explained away by just the inventory stockpiling that we saw ahead of the tariff implementation. During the first quarter, you had a lot of businesses who knew that tariffs were coming. And so they built up inventories to the extent that they could, so that when they actually had to start paying tariffs, they could start to raise their prices kind of gradually in an effort not to alienate your consumers. And so that's one of the reasons that this consumer price index, we did see a little bit of signs of tariff pressure, but again, it's still pretty muted. If you look underneath the surface, it's primarily coming from core goods. So looking at goods excluding food and energy. Food and energy prices tend to be pretty volatile on a month to month basis. So economists like to look at core inflation, which excludes those components to get a better read of the underlying trend. You are seeing signs of tariffs, particularly with food at home. I looked up kind of ahead of the report. Apparently some avocados, for instance, are not covered by the USMCA trade agreement, so they are subject to tariffs. And you did see a little bit of fresh fruits and vegetables. There was pretty strong price growth there. Those are items where you can't really see stock up inventory. Right. They're a little bit perishable. And so you're going those grocery stores especially, who are running on kind of razor thin margins, you're starting to see some price growth there. Where you're not really seeing it is vehicles. And that's one of the reasons that you've seen that core goods inflation in particular has been kind of tame over these past few months as vehicle prices are actually declining. So we'll start to see probably tariff pass through in that category, I'd say in the second half of the year. But those are the elements where we're seeing most of the price pressure right now. Is this just the beginning for tariff driven inflation? What do you think we can expect in the coming months? This is kind of the first sign. We had some inklings of it over the past few reports, but this report in general felt like more of the first broad based sign of consumer price inflation actually picking up on top of tariffs. So by the end of the year we look for core inflation to hit around 3%, and that's higher than spot right now. But if you think about where we've been with core inflation kind of overall since the pandemic, it's not nearly as high as it was in the summer of 2022, but it is another bump in the road. You are going to see core inflation, which may be in an alternative universe, would have been trending back down to 2% in the absence of tariffs, going to be probably trending higher to close to 3% by the end of the year. And so when we pull that back to the Fed, this bump from tariff inflation is going to keep overall price growth away from their 2% target.

[Host 2]

That was Nicole Servey, economist at Wells Fargo. It sounds like we agree the tariff impact hasn't fully hit us yet, but it has officially begun. The Trump administration will ease export controls on selling AI chips to China. Nvidia and AMD can now resume the sale of their chips to China after the bans cost them roughly $8 billion and $700 million respectively. Last quarter, both stocks rallied on that news, with Nvidia up 4% and AMD up more than 6%. So US chips are now back up for sale in China. You might remember back in April, the administration banned American companies from selling any chips to China. That was a big blow to AMD and also to nv. But according to the Commerce Department, the ban was necessary to, quote, safeguard our national and economic security. They were very concerned that China was going to use those chips specifically to build a supercomputer. That was their big concern, which they believed would harm U.S. interests. Well, that concern is apparently no longer a concern. The ban has been lifted. We're going to keep selling AI chips to China. China has the green light to go full steam ahead on AI. Now, you'd think that something happened that triggered this decision. Some evidence that, I don't know, China wasn't building a supercomputer or that they are no longer a national security threat. You know, a reason, but as far as we can tell, as of now, there is no reason, or if there is one, it doesn't really make any sense. Scott Besant was asked about this yesterday. He said, quote, you might say that it was a negotiating chip. It was all part of a mosaic. They had things we wanted, we had things they wanted. That's what he said. Well, we know what they wanted. They wanted Nvidia chips, and now they've got them. As for what we wanted, I don't know what we Wanted. I mean, it can't be Rare earth. We got that weeks ago. So, you know, what was the trade here? What was the deal? And the answer is, we don't know. And it would appear that this is the same thing that we keep seeing with these negotiations, and that is you get chaos, you get conflict, confusion, and there's no real purpose, no real motivation, and no real outcome that comes of any of this. In fact, the only real outcome we've seen is that Nvidia has gone from 90% of the chip market in China and now after those export controls, it's down to 50%. Great. So that's the policy side of this. Now, the other side of this is Nvidia. What does this mean for Nvidia, who can now sell their H20 chips to China again? Well, the stock kind of speaks for itself. This is great news for Nvidia. China makes up 13% of Nvidia's business. That is $17 billion per year. That business was just switched off in April, but now has been switched back on basically overnight. So, for more on this, Claire spoke with Vivek Arya, a senior semiconductor analyst at bank of America.

[Vivek Arya]

We think it's a positive step for Nvidia, of course, but also a lot of their semiconductor peers, amd, Broadcom and others, because of three reasons. One is that I think it just broadly signals another step towards lowering of trade tensions between US and China. That's very important because, as you know, US is the largest designer of chips and China is the largest buyer of chips. So having a fruitful dialogue between the two countries is extremely important. Number two, as it relates specifically to AI, I think it does help Nvidia and AMD remain engaged with Chinese software developers who are extremely innovative, despite all the restrictions. We have examples such as Deepseek, where they have managed to do extraordinary things because of their range of innovation and the kind of data that they have available. So it's always useful as an industry to stay engaged because AI is kind of this symbiotic relationship between hardware and software. So it always helps the hardware side to stay engaged with improvements on the software side. And then the third reason, I do think it helps the US overall to maintain its leadership over the AI technology stack and not really give too much opportunity for Chinese competitors such as Huawei. Now, the success of this, I think, will really depend on the level of restrictions going forward. But, no, broadly speaking, I do think it's a positive step.

[Nicole Servey]

So assuming Nvidia obtains a license to resume selling into China, what kind of incremental sales are you expecting from Nvidia?

[Vivek Arya]

So at least for the second half of this year, we have estimated there is the chance for an incremental 5 billion in quarterly sales from the time the licenses are granted. Because at this point it's about the Chinese customers going and asking the US Department of Commerce for a license to buy the chip. Right? So from the time they are given this license to the time Nvidia makes the product available, you know, a quarterly run rate is about $5 billion. Because if you look at what Nvidia was doing before, it was seven or eight billion a quarter. But I do think at that time maybe some of the sales were front end loaded because I think customers in China were expecting these kind of restrictions. So they were probably buying a little bit above the trend line in the first half of the year. So I don't think we can just use that trend line from the first half. So we estimated it's in that 4 or 5 billion quarterly range in the second half. When it comes to 2026, I think as I mentioned before, it depends on the level of restriction because the product that Nvidia is selling to China, the H20 product, is already a handful of generations older and be featured relative to the best in class Nvidia can make today, which is the black belt generation. So will China want to buy an older generation product even in 2026? I think that that's going to be the debate and whether Nvidia can keep on pushing the envelope to have the Department of Commerce, yes, be a few steps behind the best in class, but at least keep pace with what the best in class is in any given year.

[Host 2]

That was Vivek Arya, Senior Semiconductor analyst at bank of America securities. More taco happening, but also more good news for Nvidia. Nvidia was up 4% yesterday, which translates to an additional $150 billion in market value that was created in just one day. As of market close, the company is now worth $4.16 trillion. The most valuable company in the world now by a $400 billion margin. Just incredible. Okay, after the break, the defense industry teams up with big tech. Stay with us.

[Host 1]

Fox Creative.

[Advertiser Voice]

This is Advertiser content from Adobe. Our real estate consulting business is always marketing to new clients. Real estate is still about relationships and first impressions matter. We need to project credibility, style and a personal touch. It's my job to make sure our team has the tools they need to create standout content quickly and easily. That's why I decided to use Adobe Express. From business cards to social media, the templates in Adobe Express keep our team looking polished and on brand.

[Host 2]

As a creative on the marketing team, I'm always looking for ways to make our content break through the noise. The generative AI in Adobe Express is.

[Nicole Servey]

Safe for business, so I can create.

[Host 2]

Graphics and videos that even our lawyers love.

[Advertiser Voice]

From landing new clients to taking projects over the finish line, Adobe Express helps us break new ground Adobe Express the quick and easy app to create on brand content. Learn [e-mail] Business.

[Host 1]

Support for the show comes from Adobe Express. With social media, email and a growing variety of online ads, there are more touch points than ever between your business and its customers. Adobe Express is here to make sure your smallest touchpoint is as polished, impactful and on brand as the biggest. The brand kits and express make following design rules a breeze. Templates for flyers, banners, emails, social posts and more have all the professional quality Adobe is known for. And generative AI that's safe for business gives everyone the ability to make images, rewrite texts, and produce effects. Using simple text prompts, you can create campaigns, resize ads with a click, and even translate content automatically. Work that used to take weeks now takes minutes or even seconds. Adobe Express also makes collaboration, approval and sharing easier so any team can become a well oiled content machine. And if you're leading your team, you can monitor it all from your admin console. That means you have one centralized place where you can ensure that every asset is right and that everyone is synced. Go from fragmented to business friendly. Switch to the quick and easy app to create on brand content. Adobe Express learn more at adobe.comexpress/business True story I've actually used Adobe Express and I was genuinely impressed with how easy it is to create professional content that you can immediately push out.

[Host 2]

Foreign we're back with property markets. The Department of Defense announced it is awarding up to $200 million in contracts to several AI companies, including Anthropic, Google, OpenAI and Xai. The goal of these awards is to help accelerate the adoption of AI capabilities to address critical national security challenges. And these are some of the largest contracts that the DoD has ever issued to software providers. But this isn't the first time that AI companies have partnered with the government. Last December, OpenAI announced it would be partnering with Anduril to advance America's automated aerial defense systems, and Meta opened up its llama model to US national security agencies and defense contractors last fall. The bottom line Big Tech and the Department of Defense are getting a Lot closer. Now, I want to be clear, I am generally not against tech companies working with the DoD. I know a lot of people don't like this. They don't like the idea of Pete Hegseth joining forces with Mark Zuckerberg. They especially don't like him joining forces with Mecca Hitler. That is, of course, Xai's chatbot, or the name it created for itself. I get it. But at the same time, defence is an increasingly technological domain. We've talked about this with Scott, and so this idea of just cutting it off from Big Tech seems like a bad idea. Having said that, it is quite remarkable the extent to which Big Tech has reversed course on this issue, because people forget this. But once upon a time, the general rule in Big Tech was that you never partner up with defense, you never partner up with military. And it was especially important, at least to Big Tech, when it came to AI. That was the big concern. And it was so much of a concern that these companies even wrote it into their constitutions, per Google's ethical guidelines. They said that applications they will not pursue include, quote, technologies that cause or are likely to cause overall harm and quote, unquote, weapons or other technologies whose principal purpose or implementation is to cause or directly facilitate injury to people. Those rules were, by the way, scrapped this year and you look at Meta's acceptable use policy. Prohibited uses included, quote, military warfare, nuclear industries or applications, and espionage. Those rules, by the way, were also scrapped. So now they've scrapped those rules and Google and Meta are now free and clear to build AI for the Department of Defense. But it's not just Big Tech, it's the startups too. Just last month, Anthropic carved out a list of contractual exceptions that they felt were needed to adapt to, quote, the unique needs, missions and legal authorities of governments. Meanwhile, OpenAI, although they never explicitly forbade military contracts, their mission statement kind of implied as much. The purpose was to, quote, advanced digital intelligence to benefit humanity as a whole, unconstrained by a need to generate financial return while they're now doing $10 billion in ARR and they have multiple deals with the military and with defense contractors. Another great quote, by the way, from the OpenAI charter. Quote, we commit to avoid enabling uses of AI or AGI that harm humanity or unduly concentrate power. Unless, of course, you get a call from Andrill or Palantir or now the Department of Defense. So look, this isn't to say tech companies shouldn't work with the military. Some people may have that view. And fair enough, it's not our view. However, this is a great reminder to never trust these mission statements or these values or these ethical principles that these big tech companies come up with because they never actually hold up. You know, we saw it with content moderation, we saw it with DEI, we saw it with OpenAI calling themselves a nonprofit and then a for profit, and now we're seeing it again with defense. It's the same thing over and over. You state a mission, you update your charter, you make a big PR event about it, and then as soon as that mission gets in the way of making money, you cave. And that's what we're seeing here. So big tech loves talking a big game about principles. But let's just be real. They only have one principle and it is money. It's profit. And we've said it on this podcast. That's okay. That's not a problem. That's what capitalism is about. We're not necessarily against that, but at the very, very least you could at least be honest about it. Okay, that's it. The for for today, thanks for listening to Property Markets from the Vox Media Podcast Network. I'm Ed Elson. I'll see you tomorrow.

[Host 1]

Support for the show comes from Adobe Express. With Adobe Express, you don't need a degree in graphic design to create polished and professional content. You just need to know your products and know your customers. Adobe Express will take care of the rest. They've already helped teams at major corporations around the world create the content they need quickly, easily, and at scale. Now that you've heard how Adobe Express can help businesses with all their content needs, it's time to go try it out for yourself. Go from flying solo to full support. Switch to the quick and easy app to create on brand content Adobe Express. Learn [e-mail] Express Business True story. I have used the product and was genuinely impressed with how easy it is to create on brand elegant content and then push it out really easily.