← Wall Street Week
Wall Street Week
Chrystia Freeland, Wine Tariffs, Ecuador’s Cocoa Boom, Israel Defense Technology
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This is Wall Street Week. I'm David Westin bringing you stories of capitalism. President Trump threatens draconian tariffs on French wines. Again, what that could mean for the US Companies in the business. Plus, you may have to get your favorite chocolate from some new places around the world. And countries are buying more weapons from Israel than ever before, even as many condemn its actions in Gaza. But we start in Europe as Presidents Trump and Zelensky met this week in Davos while the war in Ukraine continues apace. Christia Freeland is former deputy prime minister and foreign secretary of Canada and recently became an unpaid economic adviser to to the Ukrainian president. She was there for the Trump Zelensky meeting. So, Christie, you spent the week in Davos in part as an unpaid economic adviser to President Zelensky of Ukraine. He had a meeting on Thursday with President Trump. Did you get a readout on that meeting and how it was perceived?
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So I'm not speaking for Ukraine, David, but as let's say, as a friendly observer, what I am hearing, and I think what everyone else is hearing from the Ukrainians, from the Americans, and indeed from the Europeans, is that at this point, the Ukrainians, the Americans and the Europeans are all pretty much on the same page when it comes to this negotiation. And that's actually a remarkable outcome when you think about how rocky the path has been to get here. So, you know, feels like there is quite a lot of optimism from Ukrainians, from Americans, from Europeans, and I really Think the bottom line is that the ball is in Putin's court.
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You have been focused for some time on what comes after the war in the economic rebuilding of Ukraine. And you're advising President Zelensky now on that subject. At what point do we make that pivot?
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I think we need to start making that pivot now. And, you know, I really think, David, you know, for the past four years of war, we have been, quite rightly, I think, focused on Ukraine as the virtuous victim. But I think this is going to be the year when we pivot to seeing the Ukrainians quite differently and when we start seeing them as a really strong ally, as Europe's military shield, as Europe's arsenal, the country that knows how to build, knows how to wage modern war, and knows how to build the weapons for modern war. And in addition to all of that, as a huge economic opportunity, the opportunity has started now. There are a lot of companies in Ukraine investing particularly in defense technology. One investor described defense tech as Ukraine's oil. So the investor said, you know, what oil has been to the Gulf States. Defense technology is going to be to Ukraine. It is now. And when the war ends, that will be even more the case. And I think that's absolutely true.
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What level and type of investments required? First have Ukraine play that role in the defense area, but then presumably to go beyond that in its economy, to have a more diversified economy beyond high tech warfare,
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it's going to take a lot of money. I think the good news is we've seen what happens when countries in the Warsaw Pact in the former Soviet Union reformed their economies and joined the European Union. You know, in 1990, when the Warsaw Pact collapsed, when the Soviet Union collapsed, Poland and Ukraine had roughly the same per capita GDP. Today, Poland's per capita GDP is five times the per capita GDP of Ukraine. In 2004, you had countries of Eastern Europe and the former Soviet Union join the eu, and those countries saw their GDP triple. One of the most important things about the economic opportunity for Ukraine is that Ukraine is now on a clear path to EU membership.
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When you say it's going to take a lot of money, how much of that will come from private investment as opposed to governments such as the United States and various European governments? How much is public? How much of it will be private, do you think?
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There is a lot to rebuild, and there is a very significant commitment already from the European Union to support Ukraine. The World bank has been doing a lot. Ukraine right now is negotiating an IMF program of support as well. And it is going to take some public money, some public support from Ukraine's allies around the world. And you know, I think it's very impressive the degree to which the EU is there. But what I think, and I think people get that, I think people understand that Ukraine is going to need the support to rebuild. The opportunity that I don't think people are fully focusing on right now is there's going to be a tremendous economic opportunity. And we've seen this story before. Some of the great investment opportunities in the world happened in Poland, in Eastern Europe, when you had the collapse of communism and the building of a market economy and then joining the eu. And you're going to see a version of that happening with Ukraine. Some of it can, some of the investment can start now. What I'm hearing from a lot of investors is the big investments are going to come when the war ends and that security is a precondition for major investment. And I think that makes sense. But I think the smart players are starting to look at Ukraine and see this is going to be a place where you can really make some very significant investments, earn some really, really significant returns. Defense tech, I think, is going to be a really, really hot sector in Ukraine. And the smartest players are already there. But I think you're going to see people looking also at agriculture and agri food. I think you're going to see people looking at forestry. I think you're going to see people looking at technology more generally. Ukraine is a very high tech society. It's part of the reason that they've been able to do so well in the drone wars. And so I think you're going to see investments in technology more generally, including some technologies going from military use into civilian use, including with AI. And then I think you're going to see a really big privatization program. Ukraine has 3,000 state owned enterprises. It has a plan to privatize them. So, you know, I think this is going to be a version of the emergence of market economies in Eastern Europe in the 1990s, at the beginning of this century. And that is going to be a huge opportunity for investors and also really great for the people of Ukraine.
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We began your week in Davos focused really on Greenland and what President Trump was saying about Greenland and dealing with the Europeans. That seemed to have shifted on Wednesday when President Trump said that they had a framework for an agreement of some sort. What is that allied reaction? You talk to all of the allies, the European countries, what is their reaction to the drama we saw over Greenland this week?
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You know, it was a very volatile week, and I think there were a lot of experts here and across Europe who suddenly became experts in Greenland. There were a lot of ups and downs. I would judge the mood of the Europeans to be right now a feeling of relief and that a bullet has been dodged. And I think people are very happy that an off ramp seems to have been found. But I do think the whole episode has been another has been just the latest wake up call for Europe. And I think, you know, what the Europeans are feeling more and more is that they have to become united, that they have to strengthen their ability to militarily, ability to militarily defend themselves, that they have to strengthen their economy, economies to do that. You know, I would say the most popular writer and philosopher this week in Davos has been the Greek general who wrote the about the history of the Peloponnesian Wars. The Athenians said, look, we're stronger than you. We're going to do whatever we want to you. The strong do what they will and the weak suffer what they must. This is the line everyone is repeating. And Ukraine actually fits in here because I think the Europeans are now seeing Ukraine not just as needing to be defended because the rule of law needs to be defended, not just needing to be defended because Ukraine is on Europe's border. But the Europeans are really starting to see Ukraine as a very important state strategic ally. I've heard a lot of people saying, you know, Ukraine actually has the strongest army in Europe. Ukraine has held off the Russians for four years. We need the Ukrainians right now as much as they need us.
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Coming up, President Trump ended his first year back in office the way he started it.
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I'll put a 200% tariff on his wines and champagnes.
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Threatening tariffs on European wine this time because of France's reluctance to join his Board of peace. We revisit what that would mean for us Producers and distributors if he follows through.
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I'm Barry Ritholtz inviting you to join
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Safeway and Albertsons have made saving easier than ever with great savings on family favorites this week. 16 ounce sweet strawberries are two for $5 member price. And don't miss the incredible deal on Signature select boneless skinless chicken breast meal value packs for $2.97 per pound limit. One plus medium avocados or mangoes are five for $5 member price. Fresh and delicious savings for every meal. Hurry in. These deals won't last. Visit safewayoralbertsons.com for more deals and ways to save.
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This is a retelling of a story we've heard before about the bottled poetry we call wine. President Trump put prohibitive tariffs on European wine back on the agenda this week when he lashed out at President Macron for refusing to pony up $1 billion to join the Council for Peace he's putting together to rebuild Gaza.
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Well, nobody wants him because he's going to be out of office very soon. So, you know, that's all right. What I'll do is if they feel like Costo, I'll put a 200% tariff on his wines and champagnes and he'll join.
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Stocks reacted dramatically with shares of Paris based luxury goods maker LVMH tumbling after the comments. If it all sounds a bit familiar, that's because it is. Last March, President Trump threatened similar tariffs, prompting our story about the business of wine and what tariffs could mean for the people who make and sell it, people like Victor Schwartz.
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It's been a mess.
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In New York, importer Victor Schwartz has spent nearly 40 years supplying restaurants and wine shops with hand picked bottles, small European vineyards. Now tariffs threaten to upend the business.
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It's 20%. Then it was 10% and they threatened 50%.
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How different is the effect on your business of a 20 versus a 10?
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I mean, in our industry, end of the day we might make 5% as a, as a net profit, 5 to 10%. So obviously we can't afford 10%. We can't afford 20%. But 20% is really, really egregious. 20%. I mean, think about what that does. God, you know, it makes a $20 wine, you know, $25 basically because, you know, there's kind of a multiplier effect as it goes through the system. You know, it's a much bigger impact. And don't forget, when we raise a price, it's not as if the consumer just accepts it.
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Where do American customers for wine go if they decide the price is too high? I'm not going to buy that.
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Where are you going to find champagne? Where are you going to find Chateauneuf du Pape? Where are you going to find Chianti? You're not going to find it in Oregon or California. A Finger Lakes wine, let's just be clear, is nothing like a Napa Valley wine, nothing like a wine from southern Italy or northern Italy or the center of Spain, et cetera. My gist is that these products are so connected to their place, and that's what's wonderful and interesting about wine. Otherwise, there'd be the wine company of the world, and it will come out of a spigot, red, white and sparkling. Done right. But that's not why we love wine.
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And Americans do love their wine. In 2023, we consumed just under 900 million million gallons of it, more than any other country in the world, with a value of over $107 billion. More than a third of that is shipped in from abroad, making tariffs a real issue for importers. But those in the business say it's not just the imports that will be hit, it's the entire wine ecosystem. Ben Aniff is president of the US Wine Trade Alliance. He has a shop in Tribeca that sells fine wine, which typically goes for over $20 per bottle.
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Distributors and importers, even those, by the way, that represent U.S. domestic wines, about 75% of their revenue comes from imported wine. So that's one of the really interesting things about this. On the tariff front, all of the major domestic wine producing organizations, from Wine Institute to Napa Valley vintners to Wine America, they're all against tariffs on imported wine because they understand their domestic growers, their producers rely on healthy wine distributors for access to market.
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Put another way, because state laws prevent domestic vineyards from supplying restaurants and wine shops, they need distributors. And the distributors rely critically on selling importance alongside their domestic wines. That's why those who import fine wines, like Victor Schwartz, and those who sell it to us, like Ben Anuff, have no doubt that tariffs will cripple their business selling both foreign and domestic wines. But there's another part of the business, the value wine business, where a bottle or its equivalent typically costs less than $11. And producers for this segment, like Stuart Spencer in California's Central Valley, say they need protection from multinational companies bringing in cheap, subsidized imports that force American growers out of business.
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There is a lot of what we call Bulk wine coming in these big 20 foot bladder containers. And it is this bulk wine that is really undercut In California grape growers.
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There is a lot of talk about the difference between free trade and fair trade. From your experience as a grower, but also from your dealing with Lodi, are there unfairnesses in some of the exports to the United States?
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I mean, it's a completely unfair market. I mean, we are competing in a global marketplace. The European Union spends over 2 billion year between EU money and member state money propping up their wine sector. They are not only paying growers to and vintners to distill excess wine and buy it up, but they are also paying them to plant new vineyards. And they spend hundreds of millions of dollars in market promotion all around the world. And the US Is the number one target market. They also have trade barriers. So it gets really complex when you get in the weeds. But we are not playing on a level field.
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Last year, California wineries, which make nearly 90% of US wine, were stuck with more than 500,000 excess tons of grapes. Now 77 million gallons of wine are sitting in storage tanks.
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You can still see some of the grapes on the vines from. We have thousands of acres of grapes that are being torn out right now. And we have small farms and family businesses that are up for sale because there's just not a prospect for them moving forward. My family's been in this for 50 years and I talked to old timers that have been in it for multi generations and they've never seen it as challenging as we are now. 70% of all wine sales in this country is controlled by about a handful of five to six large multinational companies. They're bringing wine in bulk. They're blending it in with California wine up to 25% and calling it American appellation. It's a federal loophole. We have, you know, millions of gallons filled up in tanks right now in California that don't have a home. But simultaneously, 24 million gallons of bulk wine is poured into California, coming in at super low prices and undercutting the California grape grower.
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Are you in favor of the tariffs that President Trump is talking about?
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Well, I think if I was to speak to our 700 grape growers that I represent, I think many of them would support the tariffs to help level the playing field. And I think what we would really hope is this would bring these other trading partners to the table to negotiate fairer trade. The challenge we see with what's going on with a lot of the trade negotiations now is wine is just a pawn in a larger story, and the issues are about bigger issues. But I think none of us, you know, want to see tariffs in place permanently. I think what we really want to see is really free and fair trade.
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Some domestic producers, particularly in California, complain about unfairness from Europe because there are subsidies given to vineyards over in Europe. Are tariffs an effective way to deal with that problem?
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I feel really, really, really bad for those guys. But a tariff is not going to solve their problem. Farmers that grow grapes to sell until, for instance, grocery store boxed wine, and that's terrific for them and it's a great product for, you know, certain customers. The demand for those products is collapsing. You know, people aren't buying bulk wine the way they used to.
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Whether tariffs could give some relief to bulk wine producers or not, they certainly would have unintended effects on the American economy overall. You have spent some of your time down in Washington trying to explain to lawmakers, policymakers, exactly what this would mean for the wine business. What would you want them to understand that maybe they don't understand right now about the business and the effects of tariffs?
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The United States has been talking about their concerns with respect to a trade deficit. We import more European wines than we sell American wines to Europe, but the reality is we have a huge economic surplus on the sale of European wines in the United States. States. You know, we import about $5.3 billion worth of wine from the European Union into the United States, but American businesses make almost $23 billion from the sale of those products, making a big margin on wine for a restaurant. It is not a luxury. It is an absolute necessity for their very survival.
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If in fact tariffs do get imposed, what are the likely long term effects on the wine business?
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Contraction. And then you know what that means. Contraction means American businesses closing and firing all their employees.
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What about the uncertainty itself, quite apart from the tariffs?
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I mean, I'll tell you, I had phone calls from, you know, wine distributors who said, you know, my grandfather started this business. We were in terrific shape and growing and hiring in January. And now I might have to decide if I'm going to close the doors in two weeks. You know, when they're, they're put into this position, when their choice is either to pay a tariff that they cannot afford because these are, these are small businesses, or don't bring in wine. Don't bring in the wine that represents 75% of the revenue for your next three or six months. You know, we had restaurants from South Florida, say in the summertime we need Sancerre, and that's what keeps our businesses alive. And there really is no substitute for these products. One of our favorite, Riojas.
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So in your wine store, you have Bordeaux. If you can't get the Bordeaux, will a customer say, that's okay, I'll take the cab?
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The answer flatly is no.
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We talk about terroir. It's a word that gets bandied about. It sounds fancy, it's foreign, but it really all it means terroir, land, terror. It just means the place, right? It's just geography. Part of terroir is the human element, the culture, the civilization, the people. The people who've been on this piece of land in southern Italy for multiple generations. They cook certain kinds of food, they make certain kinds of wine that go with those food. And it's very specific, right? I mean, don't you love to drink an Italian wine when you're having your spaghetti and meat sauce?
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Schwartz is trying to hold off the administration as the lead plaintiff in a lawsuit challenging the tariffs. The US Court of International Trade ruled in his favor, but the case has been consolidated with Learning Resources v. Trump, the Supreme Court case on the President's use of emergency powers to levy tariffs. If the tariffs go into effect for European wines, how long will it take before we see it in our lives?
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You're going to start seeing those prices come now. You're going to start seeing a lot less choice. There are importers and distributors that have halted all of their shipments because they're not sure they can afford to bring them in now. At the same time, they have no substitutes for them. They're not buying more domestic wine, for instance. They can't afford to. They need to sell these European wines in order to buy more American wines. In a nutshell, American businesses are incredibly good at selling European wine, and they support huge numbers of jobs in the United States. Some of the most famous importers actually got into the business because they were in France or Italy during World War II, said, oh, my God, I love this. This is what I want to do with my life. And their classic American entrepreneurial success stories. As a matter of fact, many of the most famous European wines in the world, they're famous today because they were discovered by American wine importers. They were brought back, they tasted 10,000 wines, said, these three are the best. And they were right. Funny story. One of the first guys to do that, by the way, was Thomas Jefferson. You know, he went to Burgundy. He bought Monrochaise and Merceau Cout d' or for he and George Washington. He bought Chateau d' Chemes for he and George Washington. And today those are still some of the greatest wines on the planet. He had a pretty good palette, I think.
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And now ironically, Americans affinity for European wines nurtured by the likes of George Washington and Thomas Jefferson may be challenged by the most recent occupant of their high office and perhaps make it more difficult for us to enjoy that bottled poetry they discovered 250 years ago in fine French. Win.
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Next.
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Hot chocolate is a nice treat when it's cold outside, but hotter weather may get in the way of growing the cocoa beans we need for our treats. How a warming planet is creating new winners and losers in the chocolate growing business.
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This is a story about what happens when it gets too hot for your chocolate. A warming globe is making weather less predictable and changing where we can grow our food. With some areas becoming too hot for certain crops, allowing other regions to come in and compete. Our colleague Scarlet Fu traveled to Ecuador to bring us the story.
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In the foothills outside the port city of Guayaquil, the economic capital of Ecuador, just 150 miles south of the equator, the landscape is dominated by the leafy green cacao plant. This is a ripe cacao fruit, right?
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Yes, this is a ripe cacao fruit.
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That's.
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Wow.
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And these are the beans are inside, right?
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Yes, those are the beans.
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And around them it's the pulp.
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This is a golden age of cocoa production in Ecuador, with output expected to reach 800,000 tons by 2030, more than double 2023 levels. The reason stems back to the changing climate. So if there's an extreme heat event, it can kill plants. Extreme rains can prevent farmers from planting or harvesting their crops. And things like dry soils or overly moist soils can affect the quality of plants that are grown. Back in 2010, there was a major heat wave across Russia the that affected wheat production in sort of the global breadbasket for wheat, which severely affected wheat prices as well. Just a few years ago in the United States, there was really widespread spring flooding across the Midwest that caused millions and millions of dollars in crop losses. Cocoa is grown in a narrow band of the tropics. And when extreme weather in West Africa, home to about 70% of the world's cocoa beans, collided with outbreaks of swollen shoot disease in 2024, the industry was hit hard. Christina Dahl is vice president for science at Climate Central. She tracks how climate change is pushing cocoa growing conditions past their comfort zone. There's an optimal range for cacao trees, and that range goes up to about 32 degrees centigrade or 90 degrees Fahrenheit. We looked into how often climate change is causing hot temperatures that exceed that optimal temperature range for the cacao trees. And what we found is that over the last 10 years or so, because of climate change, there's an additional three weeks worth of days each year that are above that optimal temperature range in the West African region. And what does that mean for the growth of those cacao trees?
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Then?
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These hot temperatures cause the leaves of the tree to shrivel, and then those leaves don't provide adequate shade for the pods in which the cocoa beans actually are produced. And so that can cause the pods to rot, to dry up. And all of that affects the yield that you get from those trees and ultimately, ultimately down the line, how much cocoa there is in the global market. The result, A shortage of beans that triggered a historic price spike. In the span of just a few months, cocoa surged almost 80% past $12,000 a ton. In the US market, though prices have since fallen back to around $5,000 a ton, they're still more than double where they were three years ago. And as West Africa's production struggles, growers across the Atlantic, especially in Ecuador, are stepping in to fill the gap. Cacao is believed to have originated in the upper Amazon in what is now Ecuador and made its way to Africa in the early 1800s. It's now come full circle as Ecuadorian farmers ramp up production, Putting the country in position to soon surpass Ghana as the world's number two producer.
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F
And right now, Ecuador is the is in the old chocolatiers formula in the world because for our volume, that offer to the market we sell to Europe, to United States, to Asia, to Japan, to everywhere. Ecuador is recognized for the very good cocoa producers for different parts of the world.
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Yvonne Anteneda is chairman of Ecuador's Cocoa Exporters association, as well as CEO of Eco Cacao, one of the country's largest exporters. He says Ecuador is also vulnerable to the changing climate.
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2024, it was a very challenging year for everybody around the world in the industry, for the farmers, for the sporters, for the traders and for the industry. Because never seen the prices over $10,000 for metric ton. Ecuador has two seasons, rainy seasons and sun seasons. No more. But in the last two years that are changing a lot.
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How are you preparing your members of your association to work with that and to address that challenge?
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F
I think we need to continue to invest in genetics because if you see the problems right now in West Africa is about disease. We Ecuador need to prepare for some disease as well.
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But there are some ways Ecuador is looking to safeguard its cocoa industry from the changing climate. Climate. The genetics it currently relies on is CCN 51, a high yield cacao strain developed in the 1980s, prized for its productivity and relative hardiness, making it a go to for growers like Johan Zeller. How long will this mountain of beans sit here for?
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Until next week.
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And then it all gets put into big burlap sacks.
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That is correct.
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We move anywhere between 300 to 1,000 tons per week.
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It's not just the strain of cacao, but also the way Ecuadorian farmers grow the crop that can reduce risk. They plant cacao alongside other trees and shrubs, a more sustainable method that also helps prevent disease, a problem frequently associated with monoculture farming, as seen in West Africa.
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So in months where there's a lot of wind, the leaves get too dry.
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So if you have bigger trees around,
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then it's going to prevent them from getting too dry.
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B
I see.
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And it's going to increase yields.
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The second thing that happens is that
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cacao gets eaten here by squirrels.
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So if you have tall trees, you get hawks and the hawks will eat the squirrels.
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B
And that also helps life cycle. Okay, I got it.
- [34:26]
A
And overall health of the farm.
- [34:28]
F
I mean, you want to keep the ecosystem them as vibrant and moving as you can.
- [34:36]
B
In addition to growing cacao, Zeller also processes the fruit on site, serving as a key link for chocolatier Oded Brenner's latest venture, a company called Blue Stripes. Brenner, who turned chocolate retail into an immersive theater experience around the globe with his Max Brenner chocolate concept. Stores in the early 2000s has since pivoted to building a new cacao business. Why do you use cacao from Ecuador solely as opposed to West African cacao or Indonesian cacao?
- [35:04]
F
Ecuador? For us, they were really innovative and cooperative with discovering the cacao fruit. And it happened. I mean, it just happened. Somebody introduced me to somebody in Ecuador. I came here, this guy, Johannes Zeller. He was already working with cacao fruit and trying to do things with cacao fruit and trying to penetrate the US market. Then he kept on investing and we kept on investing and together it just took off. So in general, people say that Ecuador's cacao is one of the best in the world in terms of quality.
- [35:45]
B
It's not just a changing climate that's driving Ecuador's cocoa boom. As the middle class grows rapidly across the developing world, chocolate is one of the first products to see a surge in demand. One way Blue Stripes hopes to meet that demand is by using more of the fruit.
- [35:59]
F
Look at this fruit. It's a giant, almost like a football sized fruit that they grow this entire fruit and use only the little seeds to make chocolate. This was maybe okay when the world was less than billion people, but when the world is 9 billion people, 8 billion people, and everybody loves chocolate, is it okay to use only the little seeds and throw 75% when you can do so much with it? Let's use everything that we put the energy, the effort, the money, the time for us, because it's so delicious and nutritious.
- [36:36]
B
Extreme weather has become a recurring risk around the world and agriculture, including cocoa, is, is among the most exposed. What's your single biggest concern when it comes to the impact of climate change on the chocolate industry?
- [36:48]
F
There's not going to be cacao. I mean, talk to farmers here. You know what, it's scary because when I came first to Ecuador four years ago, I could see how the seasons and how the climate is. I could see it in my own eyes. I can see that the rainy season is not coming. I could see that suddenly cacao from if cacao season was almost ending at end of December, January, suddenly there is cacao until whatever end of January, beginning of February. But then you don't have cacao. It's already June and there is no cacao. There is less cacao on the trees. You see it in your own eyes.
- [37:29]
B
What does the cocoa story tell you about where climate and agriculture are headed in the next 10 years, 20 years? So as a planet, all of us who consume chocolate essentially rely on a small handful of nations that have a climate today that's suitable for cacao production. The decentralization of cocoa production would help to make the market more robust because, for example, if you have a year when West Africa is being heavily affected by erratic heavy rains at the wrong time of the year, it's unlikely you're going to be having the same thing happening halfway across the globe in Ecuador, where conditions are different. And so being able to source cacao from many different parts of the globe would help to make for a more resilient commodity overall. Unfortunately, with continued climate change we can we can expect to see more shocks to our global crops like we saw with cocoa production in 2024.
- [38:38]
D
Coming up, the horrific war in Gaza has caused nations to condemn Israel's actions. But have those countries curbed their appetite for Israeli made weapons?
- [38:53]
E
Foreign
- [38:56]
B
I'm Carol Massar.
- [38:57]
D
And I'm Tim Stanweck. Inviting you to join us for the Bloomberg businessweek daily podcast.
- [39:01]
B
Now every day we are bringing you reporting from the magazine that helps global leaders stay ahead.
- [39:06]
D
We've got insight on the people, the
- [39:08]
A
companies and trends that are shaping today's complex economy.
- [39:11]
B
That's right Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the US Market.
- [39:18]
D
Close.
- [39:19]
B
Got to say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.
- [39:25]
A
We also have a lot of fun doing it. Bloomberg businessweek also brings you the analysis
- [39:30]
D
behind the headlines through conversations with our
- [39:32]
B
expert guests and we are doing this all live each weekday and then we bring you the best analysis in our daily podcast.
- [39:38]
D
Search for Bloomberg Businessweek on YouTube, Apple, Spotify or anywhere else you listen.
- [39:43]
B
Check it out on your way home from work to catch up on the conversations that you miss during the business
- [39:47]
D
day and on the weekend. Check it out for a complete wrap up of your business week.
- [39:51]
B
That's the Bloomberg Business Week Daily Podcast. I'm Carol Massar.
- [39:54]
D
And I'm Tim Stanovec. Subscribe today wherever you get your podcasts. This is a story about walking the Walk. Last week we told you about how the Israeli tech sector has fared in the world wake of the war in Gaza. This week we focus on the defense tech industry specifically and how it's been affected by over 150 countries around the world speaking out against Israel for the way it has prosecuted the war with some imposing sanctions.
- [40:35]
C
We are at war.
- [40:40]
D
It was a war born out of the worst terrorist attack in Israel's history, and the ensuing conflict left tens of thousands dead. With much of Gaza in ruins, countries around the world say they have had enough.
- [41:01]
F
Two years of unspeakable suffering endured by
- [41:04]
D
the Palestinian the urgent approval of a royal decree law that legally consolidates the
- [41:12]
C
arms embargo on Israel.
- [41:14]
D
Despite talking the talk of criticizing Israel, what have countries actually done to walk the walk since the war began? Well, it turns out that the world wants more Israeli weapons than ever before. In 2024, defense exports were valued at nearly $15 billion. That's the highest in the country's history. And though much of that demand comes from the United States, it's far from the only country lining up at Israel's door.
- [41:42]
C
Chancellor Merz in Germany has said that his goal by 2030 is to have Germany be the most powerful army in Europe. The problem is something like 40 to 50% of young Germans say they don't want to serve in the army. So if they don't have the personnel, what exactly is Germany going to be investing in? They're going to be investing in technology capabilities, and Israel is on the cutting edge of those technology capabilities.
- [42:05]
D
Dan Senor is host of the Call Me Back podcast and authored Startup Nation and the Genius of Israel. How do you square the continued strength and even growth of the tech startup sector in Israel with some of the denunciations from other countries during the war? Even calls for boycotts?
- [42:25]
C
I think a lot of those calls for boycotts have been largely performative. So for instance, at the height of the war, you had countries like France and Germany say, we are going to stop supplying arms to Israel. We're going to change our defense relationship with Israel. Now, the reality is most of those countries that you heard make those performative statements weren't selling much to Israel.
- [42:48]
F
I would say that an embargo is never, never the way to impose things on another company.
- [42:58]
D
Boaz Levy is the CEO of Israel Aerospace Industries, the second largest defense contractor in Israel. IAI was the company to make the largest arms export deal in Israel's history, selling the Arrow 3 missile defense system to Germany for $3.5 billion late last year.
- [43:17]
F
We are not afraid of embargo, but we don't like it as well. So when the German applied on Israel, we first understood that Germany is an ally to Israel as an allies. Sometimes we can think different, but in general, it's a big and strong partnership. That's why it never influenced our capabilities. It never stopped the project, it never reduced any effort. And that's why after Two years, on the very same day that we promised that the system will be deployed on German soil. We did it and we did it very successfully.
- [44:01]
C
Keep in mind there are two laboratories today for the future of warfare. It's Ukraine and it's Israel. Many governments in many countries, they may be critical of how Israel conducted some of its war fighting, some of its defense, but at the end of the day, they all find it extremely impressive. They understand it's the future of warfare and they want to piggyback onto Israel's success because it has implications for their own countries.
- [44:25]
D
It's not just Europe turning to Israel for its defense needs. India has developed increasingly strong ties with Israel as well.
- [44:33]
F
I is working in India in the last 40 years. A lot of capabilities that we've moved over there and a lot of tenders that we are working toward the requirements of the Indian air force, navy or Army. I believe that the relationship between Israel and India is very strong and is based on this commercial capabilities that we've built together.
- [45:01]
C
When Modi came to power in India, he basically said India should be working closely with Israel. The diplomatic tensions were long behind them. India really had Israel's back during the last two years of this war. I know Israel sees India as one of the key customers of many of the interesting technologies. Israel can provide the technology and the capabilities to this big country with a big population.
- [45:27]
D
As with all business, it's a question of both demand and supply. The demand for armaments is up in places like Europe and Israel is supplying more and better weapons in response to the urgent needs of the battlefront.
- [45:41]
F
We're always in conflict and constantly fighting
- [45:44]
C
and that allows us to have a battlefield lab.
- [45:47]
D
Colonel Yishai Cohen is the head of planning, economics and IT at the Israel Ministry of Defense.
- [45:54]
F
All our systems are always going through this conflict and really being tested in the field.
- [46:00]
C
So that learning curve that we always
- [46:02]
F
improve our systems during that conflict allows
- [46:05]
C
us to really reach not only combat proven systems, but combat improving systems, that
- [46:10]
F
is that they've been improved throughout the course of the conflict and we reach
- [46:14]
C
the next phase with a better system.
- [46:17]
F
What's happened during the last war, I believe that we demonstrated to ourselves and to the world that this technology really worth, it's worth to invest in that because at the end of the day it gives you some superiority. And now we take those systems that are combat proven and actually deliver them to the world in order to protect their people against ballistic missiles against other threats as well.
- [46:46]
C
Israel is known to be the startup
- [46:47]
F
nation and many of These startups have
- [46:49]
C
a lot to bring to the entire
- [46:51]
F
ecosystem in the world.
- [46:52]
C
With the rise of many defense startups here in Israel, I'd say we are currently engaging with more than 300 startups. Just before the war the number was almost half of that was 170.
- [47:04]
D
One of the defense technology companies born of the war in Gaza is Eyes Atop. Launched by UDI Oster, Eyes Atop is
- [47:13]
A
a platform we built to help bring new drones technology into the battlefield. We want to bring the best technology that exists out there to the warfighter edge. And I believe many of the other western countries realize it's not just about who has the best technology, it's who is capable of bringing the best technology that is out there to the hands of the soldier who actually needed.
- [47:38]
D
Oster was inspired by his brother who died on the Lebanon war front.
- [47:42]
A
This is my younger brother, eitan. He was 23 years old, almost 23
- [47:48]
C
years old when he was killed in action.
- [47:51]
A
His team was the first one to go into Lebanon and he was basically the first casualty of the war in the northern front after the ground invasion started. And the story,
- [48:03]
F
sorry,
- [48:08]
A
One of the things we learned after the fact, with all the technologies that Israel has, evacuation was impossible. You can bring chopper to save him because of the clouds and the topography. So his evacuation took six hours of
- [48:21]
F
heroic effort from his teammates until they
- [48:24]
A
were able to bring him back. And that's where Eisenhower is trying to kind of bridge this gap.
- [48:28]
D
The Israeli multi front war drove Israelis like Oster to create new companies. But for others it's meant redirecting their efforts from civilian to military purposes.
- [48:41]
F
Before October 7th. If you ask me what will be our focus, I will never tell you that defence will be part of our portfolio of product.
- [48:51]
D
Moshe Bitton is the CEO of Ideonics, a company that focuses on optimizing batteries. He pivoted to working in defense tech right after the war in Gaza started.
- [49:02]
F
You can always look on the bright side on anything that you have in life. And we are looking on that specific part how we can maximize the success. Maybe it's a bit. It's not fair and I agree. From that very dark moment, we want to grow and to build positive and to bring light to the world.
- [49:23]
A
Being in San Francisco, everybody talks about mission. So we in our previous company called
- [49:29]
C
Topingo, we basically got college students in
- [49:32]
A
America their food faster, right? But the vibe or the narrative was
- [49:36]
F
we're changing the world.
- [49:38]
A
And I think in a sense we did make some changes, but it was very different. And now where we're actually dealing with human lives. I think it changes a lot.
- [49:48]
D
For defense primes like IAI and Elbit Systems, the demand is higher than ever. Coby Kagan is Elbit Systems CFO.
- [49:57]
F
We have $3 billion increase in our order book from around $22 billion to $25 billion, mostly from international orders, which we just two weeks ago announced. The $2.3 billion. This is the biggest order Albit has ever received. An additional $1.6 billion order from a European customer, which we announced back three months ago. That is an evidence to the growing interest in our solutions in the international market. IAI is delivering 80% of its goods to overseas. Only 20% is for Israel requirements. So we are doing a lot of export, we are doing a lot of production for our customers overseas. And we kept doing that during the war as well. In third quarter of 2025, we could see there $27 billion of new orders. And this is actually the largest backlog we ever had.
- [51:02]
D
Despite all the talk around the world about condemning Israel's prosecution of the war, it turns out that when it comes to defense, what really matters for any country is walking the walk of protecting its people. And that comes down to what will work and what's been proven to work in combat situations.
- [51:21]
F
We've seen our technology working and we've
- [51:24]
C
seen that qualitative edge that I speak of working. Whether it's with air defense systems versus
- [51:29]
F
ballistic missiles versus UAVs and drones, whether
- [51:32]
C
it's space capabilities and whether it's attack
- [51:35]
F
systems, those are all technologies that worked excellently.
- [51:39]
A
You want to save the lives and
- [51:41]
C
protect the lives of your civilians.
- [51:43]
A
And if the best technology that does it is built in Israel, you will buy the technology.
- [51:48]
F
And whether you do it beneath the
- [51:50]
A
table, this is happening. So for us, I think from a
- [51:54]
F
Zionism standpoint, the best thing we can
- [51:56]
A
do in this company is build the best technology ever.
- [51:59]
F
October 7th was a horrific date, and we should be aware and we should be well prepared. And technology is the name of the game. From one hand, we don't want to be in war, we are seeking for peace. On the other hand, we are happy that we've been able to take this technology and to defend our population.
- [52:24]
D
That does it for us. Here at Wall Street Week, I'm David Westin. See you next week for more stories of capitalism.