Episode 531: Neal and Toby talk about the arrival of Trump’s sweeping 25% tariffs on Mexico, Canada, and China that, many analysts believe, could cause prices to soar, especially cars. Then, the public rift between President Trump and Ukraine’s President Zelensky has caused an upswing of European defense stocks as the continent prepares for the worst. Also, chip maker TSMC announces a $100 billion investment on US plants to avoid tariffs. Meanwhile, Toby shares the trend of stuffed pizza crusts. Finally, a rundown of the headlines you need to know. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow There are risks involved with investing in ETFs, including possible loss of money. ETFs are subject to risks similar to those of stocks. Investments focus in a particular sector, such as technology, are subject to greater risks and are more greatly impacted by market volatility, than more diversified investments. The Nasdaq-100 Index® includes the 100 largest non-financial companies listed on the Nasdaq. An investment cannot be made directly into an index. Invesco is not affiliated with TikTok or YouTube. Invesco Distributors, Inc. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the new tariffs imposed by Trump?
Then, turns out that the biggest Trump trade of them all was European defense stocks. It's Tuesday, March 4th. Let's ride.
If you watched the Oscars Sunday night, you saw Adrian Brody give a really long speech after winning Best Actor for his role in The Brutalist. You may not have known you were also watching history. Clocking in at 5 minutes and 40 seconds, it was the longest acceptance speech in Oscars history, topping the previous record, Greer Garson's set, in 1943 by 10 whole seconds.
When it was clear Brody was going well into overtime, the orchestra tried to play him off, Brody dismissed them, saying, I will wrap up, turn the music off, I've done this before, and promise to be brief, which turned out not to be the case. Toby, this probably disqualifies him from being tapped for any future best man speeches.
That is the worst part of it all. is that a fair amount of words of this speech were dedicated to talking about how he didn't want to go on too long, how this wasn't his first rodeo, to shushing the orchestra. If you're going to have a speech that long, at least use the words wisely, just to put his 5 minutes and 40 seconds spiel into perspective.
That's nearly three times as long as the Gettysburg Address, which clocked in at about two minutes. A speech so long, it should have had an intermission, like the Brutalists. Now a word from our sponsor, Invesco QQQ. Neil was looking at my screen time report the other day, and it was a little bit shocking. I thought you deleted TikTok.
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The great North American trade war has begun. Effective today, President Trump has slapped heavy tariffs on the U.S. 's three largest trading partners, 25% tariffs on most goods from Canada and Mexico, and an additional 10% on China, doubling the rate to 20% and affecting a total of $1.5 trillion in annual imports.
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Chapter 2: How are the tariffs affecting the automotive industry?
Trump has accused these countries of not doing enough to stop the flow of migrants and fentanyl into the United States and is taxing their exports as punishment. The impact of these tariffs will be massive, dwarfing all of the tariffs Trump applied during his first term and raising the average U.S. tariff rate to their highest levels since the 1940s. And the view from Wall Street was not good.
Investors clearly showed they viewed this move as reckless for the economy. After Trump confirmed yesterday afternoon that tariffs on Canada and Mexico would go ahead, stocks tanked. with the S&P posting its worst day of the year, down nearly 2%, and Nvidia pledging 9%. Canada and China quickly responded overnight with retaliatory tariffs of their own.
China will place additional tariffs of up to 15% on U.S. agricultural products, including chicken and soybeans, while Canada will impose immediate 25% tariffs on more than $20 billion of U.S. imports, with $86 billion more to come in three weeks. Toby, turns out Trump was serious about tariffs and the business world is scrambling.
In the global Catan game, the U.S. is looking like a very cantankerous trading partner right now, which is creating a lot of uncertainty for business owners. Yesterday, if you looked at the ISM manufacturing report, which is
Based on a survey of manufacturing companies looking at things like new orders, production, hiring, et cetera, almost every single comment in it was about uncertainty, was about hesitancy in doing business on account of these tariffs. Tariffs are creating a lot of uncertainty on both sides. They create rising input costs, which represents a challenge for manufacturers.
But there's also this backdrop of potentially shrinking orders, which suggests that demand is at risk of retreating. So they really are in a rock and a hard place right now. I have often cited the snip-snap meme from The Office. Michael is talking about getting a vasectomy, but businesses are living out this meme in real life when it comes to their investments.
How can you plan on investing in the future without knowing what your costs will be going forward? So that is one thing that these companies are just looking at the current landscape and saying, I don't know what to do right now because these input costs are just going to rise so much. We don't know how to plan for the future.
And it's worth noting just how dramatic the shakeup is to place tariffs on Canada and Mexico, which we've had a free trade partnership with going back to NAFTA in the 90s. Borders had virtually evaporated because transportation costs were so low. There was no taxes to send your goods across borders. So these three countries had started to trade a ton with each other. You had the United States,
making things that they do well, say like Florida orange juice or beef in the Midwest. We send that to Canada and Mexico. Meanwhile, in Quebec, they have really cheap hydropower, so they send that to Vermont, New York, and New Hampshire. In Mexico, they make avocados that are bought by Chipotle, and a lot of us
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Chapter 3: Why are European defense stocks rising?
But then this crazy Monday reading, which saw negative 2.8% growth, was also driven by the fact that we had that soft manufacturing report that I had spoken about at the beginning of this segment. So it looks like data is coming in thick and fast. The Atlanta Fed is saying, whoa, it's not looking too great right now. We're seeing a lot of imports front-loaded.
We're seeing a lot of slowdown in the manufacturing front, which is why we see a Trump session potentially looming on the horizon here. Moving on, European defense stocks have emerged as the apple of investors' eye early in 2025 as investors bet on a big surge in military spending across the region.
As the Russian-Ukraine war stretches into a fourth year and Europe's decades-long security relationship With the U.S. looking shakier than ever, governments are gearing up for what looks like a major rearmament push.
That has sent stocks soaring, with Europe's Aerospace and Defense Index climbing nearly 8% yesterday, good for its biggest single-day jump in nearly five years, and it's now up 30% on the year. At the heart of the rally is a harsh new reality. Europe may not be able to count on its longtime ally, the U.S., to come to its aid in a future conflict.
The uncertainty was underscored by the tense White House meeting between Trump and Ukrainian President Vladimir Zelensky, in which Ukraine, essentially Europe's front line against Russian aggression, pushed for firm security guarantees from the U.S. and got nothing in return. Companies like Francis Thales, Germany's Rheinmetall, Italy's Leonardo, and Sweden's Saab
all jumped 11% or more yesterday and are now some of the best performing companies in the world so far this year. So maybe the real Trump trade was European defense all along.
Take Rheinmetall, for example. This is a German company that makes military equipment. It's climbed more than 80% in 2025. That makes it the best performer in the stocks Europe 600 index. Meanwhile, if you go to the United States, what's the best performer in the S&P 500? It's CVS, which is up 3%. Forty six percent. So these companies are in an absolute tear.
And that's because Europe is doing this huge push to rearm in the face of America pulling back. You saw that in stark relief yesterday. Donald Trump ordered a pause on all U.S. military aid to Ukraine yesterday, said we're not going to do any of that until Zelensky and other Ukrainian leaders do. say that they want to have peace.
Of course, they're probably not going to do that because they don't want to cede so much territory to Russia. And then you had the EU come out also this morning saying that we're going to unveil a plan that requires $841 billion more in spending. Where is that $840 billion going? It's going to defense companies. And that's why you're seeing these stocks hit record highs.
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Chapter 4: What is TSMC's investment strategy in the US?
Let's go down the conga line, Neil, because this is another one to add to the list. Oracle, OpenAI, and SoftBank pledged to invest $500 billion into building AI infrastructure in the U.S. under that Project Stargate deal.
Last week, Apple said it plans to spend more than $500 billion over the next four years to expand its manufacturing footprint in the U.S., and now here is this $100 billion pledge by TSMC. One of the big sticking points with TSMC setting up its Arizona factory was They were only building their legacy tech here. They weren't building their cutting-edge chips.
They were reserving that technology for their home base in Taiwan. They are now saying that they will kind of scale up that manufacturing to make its most advanced chips, which is a big win for the U.S. as it tries to reshore some of its chip industry that it had outshored over the last decades or so.
It's curious to see the different strategies applied by the two recent administrations because both of them wanted more chip production happening here in the United States because they cited it as very important for national security. The pandemic put that into stark relief when there was that huge chip shortage. The car, you know, automakers couldn't get enough chips to make cars.
And there was, you know, snarled supply chains all over the globe. The Biden administration went with the carrot. They put out the Chips Act, which dangles $52 billion in grants and loans to chip companies to come to the United States and build factories. That led to a lot of investment, including from TSMC, which got a $6.6 billion grant.
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Chapter 5: How are companies responding to US tariffs?
Trump is going more with he's ditching the carrots, going more with the stick by threatening tariffs on on semiconductors. Twenty five percent. You know, those haven't really come to pass. But just the threat of the stick has led TSMC, at least, you know, for one, come to invest more in the United States.
Up next, it is time for Toby's Trends. So Neil, how'd you do on the morning market trivia quiz?
I got 3432, which put me at number 14 on the leaderboard last time I checked.
That's pretty good. I ended up getting 3,133. I wonder how the rest of our listener scores compared to ours.
Well, they can find out when they take the quiz. Head over to morningbrew.com slash morning-market-trivia to put your trading knowledge to the test and see how you stack up. It takes only a few minutes to complete, but be mindful of the time because speed contributes to your overall score.
And if you land at the top, you'll win bragging rights, a $200 Amex gift card, a newsletter feature, and a special prize. It's a win-win. Have fun and good luck. We'll see you on the leaderboard. This message is a paid partnership with Apple Card. Did you know you can earn up to 3% daily cash back on every purchase when you have an Apple Card? I said what I said, up to 3% on every purchase.
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