U.S. Economic Growth Relies on Rich Americans More Than Ever

Summary

WSJ What’s News: U.S. Economic Growth Relies on Rich Americans More Than Ever
Release Date: February 24, 2025
Host: Alex Osila
Contributors: Costas Paris, Rachel Ensign

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Introduction

In this episode of WSJ What’s News, hosted by Alex Osila from The Wall Street Journal, the discussion revolves around pivotal developments impacting global economics and the U.S. economy. The episode delves into U.S.-Russia relations, escalating trade tensions with China, cybersecurity threats, and the increasingly critical role of affluent Americans in driving economic growth.

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U.S.-Russia Economic Development Deal

[00:03 - 02:06]

The episode opens with President Trump's announcement of ongoing talks with Russian President Vladimir Putin aimed at finalizing an economic development deal. This potential agreement signifies a notable shift in U.S.-Russia relations, which have been strained since Russia's invasion of Ukraine in February 2022. The U.S. had previously responded with sanctions and other punitive measures. An economic pact would represent a significant policy reversal, although the White House has not yet commented on these developments.

Following a recent meeting with French President Emmanuel Macron, Trump declared a strategic departure from President Biden's policies. He highlighted the administration's efforts to secure a deal with Ukraine that grants the U.S. access to the country's natural resources, asserting that U.S. taxpayers could "recoup some of the billions spent defending the Eastern European nation" ([01:42]).

French President Macron echoed this sentiment, emphasizing Europe's responsibility in bearing the "cost and burden of securing the peace" ([01:42]).

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Escalating U.S.-China Trade Tensions

[02:06 - 05:23]

The discussion shifts to the Trump administration's intensified trade war with China. The U.S. is proposing substantial new port fees targeting Chinese shipping companies and vessels built in China. Announced by the Office of the U.S. Trade Representative, these fees could impose millions of dollars in additional costs each time a Chinese vessel enters a U.S. port. The proposal, a response to a U.S. probe initiated under President Biden in 2024, is open for public comments until a hearing on March 24.

Costas Paris, a senior shipping reporter, elaborates on the implications:

• Economic Impact: The proposed fees could add $50 to $100 per container to shipping costs ([03:16]). For context, current container shipping rates hover around $2,500. This increase, combined with potential delays, could disrupt the entire logistics chain ([03:40]).

• Affected Companies: Major American importers and exporters, including giants like Amazon, Walmart, Home Depot, and Target, would be most impacted. These fees would affect a wide range of consumer goods, from electronics to furniture ([04:13]).

• Administrative Goals: The primary objective is to curb China's dominance in shipping and shipbuilding, a strategy previously attempted during the Biden administration. This move serves as a negotiating tactic in ongoing tariff and trade discussions with China ([04:43]).

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Cybersecurity Threats: RNC Email Breach

[02:06 - 04:07]

A significant cyber breach has been uncovered, where hackers with alleged ties to the Chinese government infiltrated the Republican National Committee (RNC), accessing internal communications and emails for several months. This revelation comes from an upcoming book by reporter Alex Eisenstadt, which The Wall Street Journal has verified after reviewing an excerpt. The RNC has declined to comment, and the Chinese Embassy in Washington has stated that Beijing "opposes and combats cyber attacks."

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The Rising Economic Dependency on Affluent Americans

[07:22 - 11:09]

Rachel Ensign, a wealth reporter for The Wall Street Journal, explores the critical role of the top 10% of earners in the U.S. economy. Amidst widespread inflation and economic strain on lower and middle-income families, households earning approximately $250,000 or more are experiencing significant financial growth. According to Moody's Analytics, these affluent consumers now account for nearly half of all consumer spending, a historic peak since 1989.

Key Insights:

• Sources of Increased Wealth: The affluent have benefited from substantial savings accumulated during the pandemic, bolstered by government stimulus and rising asset values. Property and stock portfolio appreciations have contributed to their enhanced financial standing ([08:21]).

• Spending Patterns: Wealthy individuals are channeling their funds into luxury goods, travel, and high-value purchases. Bank of America data indicates that the top 5% of households increased their spending on luxury goods abroad by more than 10% compared to the previous year ([09:18]).

• Impact of Inflation: While inflation has significantly affected the bottom 80%, the top 10% remain largely insulated. Ensign notes that affluent consumers prioritize essential expenditures like organic groceries, maintaining their purchasing power despite rising prices ([09:48]).

• Economic Implications: The Moody's Analytics report highlights a potential vulnerability: if affluent spending declines, it could severely impact overall economic growth, as this group is currently the primary driver of consumer expenditure in the U.S. ([10:17]).

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Market and Corporate News

[05:23 - 07:22]

The podcast provides a brief overview of recent market movements and corporate developments:

• Stock Market: Major U.S. indexes showed mixed performance, with the Nasdaq dropping approximately 1.2%, the S&P 500 declining by half a percent, and the Dow experiencing a minor rise of less than 0.1%. Notable stock declines included Palantir, Constellation Energy, and China's PDD.

• Elizabeth Holmes: The founder of Theranos, Elizabeth Holmes, has lost her bid to overturn her conviction on four counts of defrauding investors. She is currently serving an 11-year sentence in Texas, with limited legal options remaining.

• Starbucks Layoffs: Starbucks announced layoffs exceeding 1,000 corporate employees and plans to leave hundreds of positions unfilled. CEO Brian Niccol attributes these cuts to the need to streamline corporate structures and focus the company's efforts amid declining quarterly sales and shifting consumer behaviors.

• Apple's Investment Plans: Apple revealed a commitment to invest over $500 billion in various initiatives over the next four years. This includes expanding its manufacturing footprint in the U.S., increasing spending on domestic chip production, establishing a new server factory in Houston for its generative AI system, and hiring approximately 20,000 new employees.

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Additional Highlights

[07:22 - 11:09]

Towards the end of the episode, the discussion briefly touches on China's global influence through its Belt and Road initiative, highlighting how China leverages economic cooperation to advance its interests across 150 countries with investments exceeding a trillion dollars in infrastructure projects like dams, bridges, and railways.

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Conclusion

The episode underscores the multifaceted nature of current global economic dynamics, emphasizing the shifting alliances and trade strategies between major powers like the U.S., Russia, and China. Additionally, it highlights the pivotal role of wealthy Americans in sustaining economic growth, raising questions about sustainability and potential vulnerabilities should this trend reverse. Coupled with ongoing cybersecurity threats and significant corporate maneuvers, these developments collectively shape the economic landscape heading into 2025.

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Notable Quotes:

• Alex Osila: "The American economy depends more than ever on rich people." ([00:03])

• Rachel Ensign: "While everyone else is kind of feeling pretty pinched with prices up so much, affluent people are in a really different situation because they look at the value of their homes, their stock portfolios, and, you know, they're up like 45%." ([00:18])

• Costas Paris: "It would certainly hit US Importers and exporters. To put it in practical terms, as far as container vessels are concerned, which move consumer goods, it will add about 50 to $100 to the cost of shipping a container to the United States." ([03:16])

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For more in-depth analysis and updates, tune into the WSJ What’s News podcast daily on weekdays, with extended wrap-ups and deep dives available on weekends.

Transcript

[Alex Osila]

President Trump says he's working on an economic development deal with Russia. Plus the US Is proposing huge port fees on Chinese shipping companies and Chinese built vessels. And the American economy depends more than ever on rich people.

[Rachel Ensign]

While everyone else is kind of feeling pretty pinched with prices up so much, affluent people are in a really different situation because they look at the value of their homes, their stock portfolios, and you know, they're up like 45%.

[Alex Osila]

It's Monday, February 24th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world today. President Trump has said he was in talks with Russian President Vladimir Putin about an economic development deal. It's the latest sign of thawing of relations between the two countries after Russia invaded Ukraine in February 2022. The US has sought to Moscow through sanctions and other measures. An economic deal with Moscow would mark a significant reversal of that policy. The White House didn't immediately respond to a request for comment about Trump's plans. Following a meeting today at the White House with French President Emmanuel Macron, Trump said that his administration is making a decisive break with Biden's approach and is on the verge of inking an agreement with Ukraine that would provide the US with access to that country's natural resources. Key to the deal, Trump said, is that U.S. taxpayers can quote, unquote, recoup some of the billions spent defending the Eastern European nation. He also welcomed European involvement in securing a peace deal.

[Costas Paris]

I'm also pleased that President Macron agrees that the cost and burden of securing the peace must be borne by the nations of Europe, not alone by the United States. And Europe must take that central role in assuring long term security of Ukraine, which they want to do.

[Alex Osila]

Hackers with ties to the Chinese government breached internal communications at the Republican National Committee and had access to their internal emails for months. That's according to people familiar with the matter. The previously unreported breach is revealed in a forthcoming book by reporter Alex Eisenstadt. The Wall Street Journal viewed an excerpt of the book, which will be published next month, and and verified the hack. The RNC declined to comment. A spokesman for the Chinese Embassy in Washington said that Beijing opposes and combats cyber attacks. Meanwhile, in other China related news, the Trump administration is escalating its trade war with China with a plan to impose new shipping fees. The proposal, which was unveiled Friday by the Office of the US Trade Representative, would impose millions of dollars in new fees each time one of these vessels enters a U.S. port. The plan is in response to a U.S. probe that began under President Joe Joe Biden in 2024. The proposal is open to public comments until a March 24 hearing when the Trump administration will decide whether to impose the new fees. For more on this, I'm joined now by Costas Paris, who covers shipping for the Journal. Costas, tell me, just how big a deal is this?

[Costas Paris]

Well, it is quite a big deal for shipping. If any of this is adopted, it will certainly hit US Importers and exporters. To put it in practical terms, as far as container vessels are concerned, which move consumer goods, it will add about 50 to $100 to the cost of shipping a container to the United States.

[Alex Osila]

Would 50 to $100 on top be a real big hit to these companies?

[Costas Paris]

It would be a significant hit because rates are very, very volatile. They could go down to around $2,500. And it is not only the 50 to the $100 will be added, it is also delay, which creates more expenses and more charges. The whole logistical chain is going to be rattled by this.

[Alex Osila]

And in terms of the companies that are likely to be affected by this, which ones are kind of first up.

[Costas Paris]

It will mainly affect American importers and exporters, not so much Chinese companies. Amazon, Walmart, Home Depot, Target, all the big American retailers and everything else that comes from abroad. Everything from spare tires to electronics to furniture, basically everything we have in our house or in our car or in our office.

[Alex Osila]

So what's the administration looking to accomplish with this proposal?

[Costas Paris]

The whole purpose of this was to try to stop the dominance of Chinese shipping and Chinese shipbuilding. That has happened a number of times in the past. The last time was during the Biden administration. So the Trump administration took that probe, that study, and they moved it forward. And now it looks like it's going to be more of a negotiating card in the tariff and the trade talks between the United States and China.

[Alex Osila]

That was WSJ senior reporter Costas Paris. Thank you, Costas.

[Costas Paris]

Thank you.

[Alex Osila]

Major US Indexes were mixed today as many technology stocks remained in a slump. Individual stocks that led declines included Palantir, Constellation energy, and China's PDD. The Nasdaq fell about 1.2% and the S&P 500 dipped half a percent, while the Dow rose less than a tenth of a percent. In other news, Elizabeth Holmes, the founder of defunct blood testing company Theranos, lost her bid to overturn her conviction. Holmes had been convicted of four counts of defrauding investors in early 2022. She's currently serving an 11 year sentence at a federal prison camp in Bryan, Texas. Her loss today narrows her legal options. Starbucks said it would lay off more than 1,000 corporate employees and not fill hundreds of open roles. CEO Brian Niccol said in a message that the cuts would remove corporate layers and would help the coffee company become more focused. Starbucks has been struggling with a string of quarterly sales declines as customers have sought out cheaper coffee or balked at long lines. The layoffs are among the largest rounds of cuts in Starbucks history. And Apple said today it plans to spend more than $500 billion over the next four years in a mixture of new and existing initiatives that it said will expand its manufacturing footprint in the US the company's announcement included increased spending on chips manufactured in the US By Apple's partners and a new factory in Houston that would produce servers supporting Apple Intelligence, the company's generative AI system. The announcement also said that Apple plans to hire around 20,000 people over the next four years. Coming up, why it matters that the economy these days is even more dependent on the wealthy. That's after the break. 150 countries, more than a trillion dollars for dams, bridges, railways China's Building Influence.

[Rachel Ensign]

It really is important how big your friend circle is.

[Alex Osila]

So what is Beijing getting from Belt and Road?

[Rachel Ensign]

You're going to find ways to cooperate.

[Alex Osila]

Economically that help China advance its interests. And what's the US Doing about it? The Western world has come up with only partial answers. Check out Building Influence Sundays on the Wall Street Journal's what's News podcast. While lower and middle income families in the US Are cutting back on their spending because of things like inflation, the top 10% of earners households making about $250,000 a year or more are splurging. According to Moody's analytics, those consumers now account for nearly half of all spending, a record in data going all the way back to 1989. Here to tell us more is Rachel Ensign, who covers wealth for the Wall Street Journal. So Rachel, what is going on with that top tenth of earners that they're able to spend so much? Where's that money coming from?

[Rachel Ensign]

The main reasons for this are two really big factors. First is that in the pandemic, people across income groups saved a lot and then a lot of it was also government stimulus and people saved a lot of money across the board. But obviously there's been a lot of inflation and working class and middle class people have pretty much spent most of that extra money, whereas well off people haven't. So they're sitting on all this extra savings. And then on top of that, well off, people are more likely to own homes, have stock portfolios, and those have gone up in value tremendously. So while everyone else is kind of feeling pretty pinched with prices up so much, affluent people are in a really different situation because they look at the value of their homes, their stock portfolios, and, you know, they're up like, 45%.

[Alex Osila]

Okay, so they have all this extra money. What are the kinds of things they're spending it on?

[Rachel Ensign]

So they're spending on all sorts of stuff. Travel is a big category. A lot of folks are like, well, I didn't get to travel for four years. Years. Time is precious, and I'm going to splurge now. And then. Bank of America has data on spending, and they found that the top 5% of households spent more than 10% more on luxury goods abroad compared to a year earlier.

[Alex Osila]

It sounds like inflation isn't really hitting this group much at all. Is that right?

[Rachel Ensign]

These people are often pretty highly educated. They're aware of inflation, and they notice it. There was one family in the story where they know that their grocery bill is higher, but buying organic is just important to them, and they can afford it. So the bottom line is, inflation has had a tremendous impact on people in the bottom 80%. But the top 10%, they know that it's. It's happened, but they're fine. In fact, they're better than they were before.

[Alex Osila]

Okay, so that purchasing power, as we discussed, comes from the stock market and housing. But of course, those things could change at any time. So if that happened, what would be the impact on economic growth?

[Rachel Ensign]

Right. Well, that is. That is the risk. Right. Because in the data analysis that we have from Moody's analytics, what they found is that last year, the bottom 80% of earners cut spending and the top 10% increased spending by 12%. So this group is really driving the economy. And if they start to feel less confident, it could be a big hit to economic growth in this country because they're pretty much the only ones who are living large these days.

[Alex Osila]

That was WSJ reporter Rachel Ensign. Thank you, Rachel.

[Rachel Ensign]

Thank you.

[Alex Osila]

And finally, here's something to spice up your fantasy football group chat if it's gone a little quiet in the off season. Thursday kicks off the NFL scouting combine, the showcase for new talent. It's a hopeful time as teams begin to build up their roster for the season ahead. But some of that hope might already be starting to dim. This year, an unusually high number of NFL teams need a new quarterback. And it also just so happens that this is a year when there are simply not as many of them to be had. Teams desperate for a QB upgrade will have to sift through a draft class that's considered one of the weakest in years. And consider free agents who are mostly guys who flopped on other teams or are old enough that they're merely band aids for football fans. That's something to keep an eye on ahead of the draft in April. And that's what's news for this Monday afternoon. Today's show was produced by Pierre Bienname and Anthony Banci, with supervising producer Michael Kosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.