Tariffs Are About to Separate Retail’s Winners and Losers

Summary

WSJ What’s News: Episode Summary – "Tariffs Are About to Separate Retail’s Winners and Losers"

Release Date: May 14, 2025
Host: The Wall Street Journal

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1. Global Political Developments

Historic US-Syria Relations

The episode opens with a significant geopolitical advancement as President Donald Trump meets with Ahmed Al Sharra, the newly recognized president of Syria. This marks the first such meeting between US and Syrian presidents in 25 years, signaling a major shift in global relations.

"This 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."
— Luke Vargas [00:53]

This diplomatic move was made on the sidelines of a regional summit in Saudi Arabia, indicating the US's strategic interests in stabilizing the Middle East.

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2. US Domestic Policy Changes

Controversy Over Qatar's Luxury Jet Gift

A focal point of the episode is the debate surrounding Qatar's proposed gifting of a $400 million luxury airplane to President Trump. Republican lawmakers, alongside Democrats, have raised concerns about the ethical, legal, and national security implications of such a high-value gift.

"Can a foreign government really provide a gift of that size... in a way that does smack of corruption or if trying to influence him?"
— Alex Ward [02:25]

The plane, intended to serve as the next Air Force One, would require extensive retrofitting to meet security standards, potentially costing millions in taxpayer dollars. This issue has ignited bipartisan criticism and could overshadow President Trump's state visit to Qatar.

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AI Chip Export Rule Reversal

The Trump administration has reversed a Biden-era policy that limited AI chip exports to other countries, aiming to retain AI technological advantages and prevent adversaries from accessing advanced US AI models.

"The Trump administration said it aims to keep AI tech from adversaries, warning against using US for Chinese AI models."
— Luke Vargas [05:13]

This policy shift benefits American AI companies like Nvidia, which has already seen positive market reactions following the announcement.

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3. Impact on Technology Sector

Nvidia's Market Rally and Microsoft’s Workforce Reduction

Following the reversal of the AI chip export restrictions, Nvidia's stock surged in after-hours trading, reflecting investor confidence in the company's strengthened market position.

"Nvidia's stock rallied in off-hours trading following the announcement."
— Luke Vargas [05:13]

Conversely, Microsoft announced significant layoffs, reducing its workforce by approximately 3%. This move is part of a broader strategy to streamline operations, focus on high-performing teams, and enhance profitability.

"Microsoft is laying off thousands of employees, or around 3% of its workforce... focusing on high performing teams."
— Luke Vargas [05:45]

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4. Tariffs and the Retail Sector

Tariffs' Ongoing Impact on Retailers

A central theme of the episode is the limited effectiveness of the recent 90-day tariff rollback between the US and China. While the rollback has temporarily lifted some market pressures, it hasn't provided the long-term certainty that retailers need.

"A 90 day tariff rollback isn't delivering the long term certainty retailers are looking for."
— Luke Vargas [00:17]

Major corporations like Sony and Foxconn have reported declining profits and adjusted their forecasts due to persistent tariff-related uncertainties.

"Japanese electronics giant Sony warned that annual profit is expected to drop 13% even as its movie and music business boosted first quarter earnings."
— Luke Vargas [05:13]

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5. Supply Chain Challenges

Post-Rollback Supply Chain Disruptions

The tariff rollback has led to a surge in import orders from China, causing significant strain on global shipping logistics. Container shortages and increased shipping costs are creating bottlenecks, delaying the flow of goods to retail shelves.

"As importers race to bring in Cargo during the 90 day tariff rollback, carriers have already started RA Trans Pacific Shipping prices with the cost of some June departures more than double current prices."
— Luke Vargas [09:07]

These logistical challenges are compounded by fears of container congestion, potentially leading to empty shelves in physical stores within months.

"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 and showing up in the retail stores."
— Ian Bailey [08:52]

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6. Retailers' Strategies and Market Shifts

Adaptation Strategies Amid Tariff Uncertainty

Retail executives are grappling with the volatile tariff environment by implementing flexible sourcing strategies and expanding into new markets. Brianne Olson, CEO of teen retailer PacSun, exemplifies proactive adaptation by establishing a tariff task force and expanding operations into the Middle East.

"We've sold almost 200,000 pairs of the Baggy Jean on TikTok shop over the last 12 months... we're exploring other international territories."
— Brianne Olson [10:42]

However, not all retailers are equally equipped to navigate these turbulent times. Larger retailers may leverage their financial strength to absorb tariffs and seize market share, while smaller players risk falling behind.

"Some of the largest retailers in the U.S. they're taking a view, let the goods ship from China and they'll pay the tariffs because they don't want their shelves to be empty."
— Palak Seth [12:02]

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7. Economic Insights

Economic Implications of Tariff Policies

Ira Kalish, chief economist at Deloitte, highlights the broader economic ramifications of ongoing tariff policies. Business investment in equipment has surged in anticipation of tariffs, yet investment in infrastructure remains stagnant amid uncertainty.

"Businesses were already pausing strategic decisions because of the uncertain environment."
— Ira Kalish [12:45]

Moreover, the cost increases driven by tariffs on intermediate goods diminish the competitiveness of US companies, potentially leading to a loss of market share internationally.

"More than half of what the US Imports are intermediate goods, not consumer goods... they're facing a loss of competitiveness."
— Ira Kalish [13:31]

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8. Consumer Behavior and Market Outlook

Shifting Consumer Preferences Towards Value Retail

Amid economic uncertainties and rising product costs, consumer sentiment is tilting towards value-oriented retail options. Brianne Olson anticipates a significant shift as more customers gravitate towards discount and value stores, diverging from mid-market and high-end retailers.

"Value Retail will be the winner."
— Brianne Olson [13:59]

This trend underscores the divided landscape of the retail market, where only those able to offer competitive pricing and value will thrive, while others may struggle to maintain their foothold.

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9. Conclusions and Future Outlook

The episode concludes with a somber reflection on the enduring challenges posed by tariff policies. While short-term adjustments like the tariff rollback provide temporary relief, the long-term landscape remains fraught with uncertainty and volatility. Retailers must continue to innovate and adapt to survive, with only the most resilient and flexible businesses poised to emerge as winners in this evolving market.

"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."
— Luke Vargas [10:00]

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This summary encapsulates the key discussions and insights from the WSJ What’s News episode, providing a comprehensive overview for those who haven't listened.

Transcript

[Reba McEntire]

Viking committed to exploring the world in comfort. Journey through the heart of Europe on an elegant Viking longship with thoughtful service, cultural enrichment and all inclusive fares. Discover [e-mail].

[Luke Vargas]

Republicans Voice national security concerns over Qatar's proposed gifting of a luxury jet to President Trump. Plus the US scraps a Biden era rule limiting AI chip exports to other countries and we'll hear why. Why? A 90 day tariff rollback isn't delivering the long term certainty retailers are looking for.

[Reba McEntire]

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.

[Luke Vargas]

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 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 Sharra, 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 longtime dictator Bashar Al Assad in December, a U.S. 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.

[Alex Ward]

The criticisms coming from Democrats and Republicans are actually basically the same. They are ethical, political, legal, the ethics. 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 if 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 animated 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.

[Luke Vargas]

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 planes. Presidential planes. Well, 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 Sinhuar. Back in the U.S. 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 glycophate, the active ingredient in Roundup, made by Bayer, and atrazine, an herbicide used on grasses and corn 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 for Chinese AI models. Journal reporter Sherry Queen says the rule change benefits American AI players like Nvidia.

[Brianne Olson]

We saw Nvidia has already signed deals in 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 chip makers Nvidia intel amd they could get some breathing room while they're rejecting the rules.

[Luke Vargas]

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, 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.

[Reba McEntire]

Isn't home where we All Want to Be? Reba here for realtor.com, the Pro's number one most trusted app, Finding a home is like dating. You're searching for the one with over 500,000 new listings every month. You can find the one today, download the realtor.com app cause you're nearly home. Make it real with realtor.com Pro's number.

[Luke Vargas]

One most trusted app based on August 2024 proprietary survey. Over 500,000 new listings every month based on average new for sale and rental listings February 2024 through January 2025. To learn more about how retailers are coping with on again, off again U.S. tariffs, I stopped by the World Retail Congress taking in London, where one word kept coming up.

[Brianne Olson]

The volatility of the tariffs creates a lot of uncertainty and it's changing day by day.

[Reba McEntire]

The uncertainty that we have is prohibiting putting in longer term solutions.

[Palak Seth]

There's so much uncertainty what's happening because one day there's something another day could change. Again.

[Ira Kalish]

Uncertainty in and of itself is having a negative impact on business spending, on consumer spending.

[Luke Vargas]

The mood among manufacturers and retailers was more buoyant than I expected, thanks in large part to Monday's tariff rollb. But executives weren't ready to sound the all clear, and there were two main reasons why. The first is that the aftershocks of Liberation Day are still being felt even if China US Trade is about to pick up.

[Reba McEntire]

You got a lot of products in 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.

[Luke Vargas]

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.

[Reba McEntire]

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 and showing up in the retail stores.

[Luke Vargas]

As importers race to bring in Cargo during the 90 day tariff rollback, carriers have already started RA Trans Pacific Shipping prices with the cost of some June departures more than double current prices. It's the kind of handbrake turn in trade winds that Bailey told me is keeping everyone on their toes.

[Reba McEntire]

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 US 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 will 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.

[Luke Vargas]

That could be an issue for you.

[Reba McEntire]

It could be.

[Luke Vargas]

So that is lesson one, that 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.

[Brianne Olson]

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.

[Luke Vargas]

Brianne olson is the CEO of teen retailer PacSun, which is riding the success of having a hit product among Gen Z customers.

[Brianne Olson]

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.

[Luke Vargas]

Olson 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.

[Brianne Olson]

Taking Pakistan 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.

[Luke Vargas]

But the California sun isn't shining for.

[Palak Seth]

Everyone, so it's quite a tough situation. The impact on the financial viability of many retailers in the next 12 to 24 months will be the knock on impact of what's happening now as well.

[Luke Vargas]

Palak Seth is the founder and executive vice chairman of India based apparel manufacturer PDS Ltd. A decade ago, 70 to 80% of its manufacturing was in China. Now that's around 40%, 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.

[Palak Seth]

We are very worried about the credit worthiness of our customer base in the fashion industry around the world. The US Retailers are quite vulnerable. If you look at the market cap, some of the large retailers in the last 12 months, it's 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 U.S. they're taking a view, let the goods ship from China and they'll pay the tariffs because they don't want their shelves to be empty. Whereas, you know, 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 retailers are seeing this opportunity to gain market share as well.

[Luke Vargas]

Geography could determine other winners and losers too. Ira Kalish is the chief economist at consulting giant Deloitte.

[Ira Kalish]

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 and add to the 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 US Imports are intermediate goods, not consumer goods. So this is a cost increase for US 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.

[Luke Vargas]

And of course, the fortunes of retailers depend on the health of consumers. Kalisch 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. And even if things don't get that bad, Ian Bailey told me that retailers should be bracing for a shakeup.

[Reba McEntire]

Okay, so follow this bouncing ball. Where does that take us? To the importance of finding great value for both retailers and manufacturers. I think is going to be the big trend and I think you'll start to see it in discount stores, in value stores, because we're going to see 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.

[Luke Vargas]

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. Until then, thanks for listening.

[Reba McEntire]

Isn't home where we all want to be? Reba? Here for realtor.com, the Pro's number one most trusted app. Finding a home is like dating. You're searching for the one with over 500,000 new listings every month. You can find the one today. Download the realtor.com app cause you're nearly home. Make it real. Deal with realtor.com pro's number one most.

[Luke Vargas]

Trusted app based on August 2024 proprietary survey. Over 500, 000 new listings every month based on average new for sale and rental listings February 2024 through January 2025.