US and China Trade Talks Impact Tech Ecosystem

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1:41Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech coming up. Apple closes a retail store in China for the first time ever what this means for the iPhone makers plan to revive sales. Plus, US and Chinese officials continue talks to extend the tariff truce beyond a mid-August expiry with tech export controls under the microscope. And we discussed SoFi's second quarter earnings with the CEO, Anthony Noto, as the stock surges. Apple's kind of softer, down 7.10 to 1%, a big points drag at the index level, closing a store in China, which we can get to, and then headlines in the last hour from the Wall Street Journal that JP Morgan is now the front runner to take over that Apple credit card business.

2:31There's a lot to discuss. There is. And there's a person to do it with. Bloomberg's Tom Giles joins us now. And Tom, just first of all, this signal that we're getting, pulling back from one particular area, bricks and mortar in China, is it a big deal for Apple? China is a huge deal for Apple. Let's put it in perspective. This one particular store, there's a question mark about this mall. You've had other retailers, U.S.-based retailers like Coach Hugo Boss, have gotten out of there. So I'm not sure how much to read into this one particular mall. But let's dial the lens back and talk about the big picture in China.

3:09China is a huge market for Apple, and they have seen sales declining there for a whole host of reasons. Most recently, you have to look at the domestic economy in China. There are deflationary pressures. There are questions about how much the tariffs are going to affect that economy. Remember, exports are a huge part of China's global economy. So demand there, how big is demand for products like Apple's iPhone? That's what Apple needs to take into consideration. We're going to be hearing from them in the next couple of days to see how things are going in China. And don't forget, there's a lot of competition domestically in China from names like Huawei and Oppo and Vivo.

3:49We talked about them before, but the competition there is real And people are looking for alternatives to Apple because of this whole all these questions about U.S.-China relations and whether and how much pressure the government is putting on domestic markets to to focus on China names and not Apple. That sets us up really well for earnings where I think analysts consensus is that they will swing back to revenue growth on a year on year basis in greater China. So we wait for that. The headline this morning is from the Wall Street Journal and that J.P. Morgan, in a pack of many, is now the frontrunner to take over the credit card business.

4:27Interesting in the sense that services for Apple is important, but what do we need to know? Well, remember that this is an important relationship for the banks. Goldman tried it with Apple. It fizzled. There are questions about Goldman's consumer strategy and whether that was the right mix for them. It's a big deal for J.P. Morgan. gives them an opportunity to push financial service products to a whole new legions of Apple customers. Big deal for them. Bloomberg Senior Executive Editor for Tech, Tom Giles, here in San Francisco. Thank you very much. Let's stick with that China story. U.S. and Chinese officials are in their second day of trade talks in Stockholm, this to extend their tariff truce beyond an initial 90-day period.

5:10Let's get over to Stockholm, where Bloomberg's Oliver Crook is standing by. Oliver, what's the latest? Yeah, that's right. We're just in the briefing room here. We're expecting Treasury Secretary Scott Bessent at any moment now in the next couple of minutes. Jameson Greer, who have been locked in discussions with their Chinese counterparts for the last two days with the vice premier of China. Five hours yesterday, about six hours so far today in terms of the trade negotiations. And the ambition, as you say, Ed, is to extend that trade truce that currently stands between the United States and China.

5:38Those tariffs from the U.S. have dropped down to 30 percent. Twenty percent of those are fentanyl related. Ten percent of those sort of baseline tariffs. And that's down from the 125 percent level we reached at the sort of fever pitch of the trade war between the two sides. That is set to expire on August the 12th. And that is what they're sort of locked in the discussions to try to extend over another 90 days. There are a planoply of other issues, Ed, as you cover every single day that they have to discuss. The question will be, will they make progress on any of those things? Is there enough progress to give a kind of timeline on when a comprehensive framework could potentially be happening with the Chinese?

6:11Could there be something of a timeline on a meeting between Xi Jinping and Trump? These are going to be all of the questions that are going to have for Treasury Secretary Scott Besson. And probably a few other questions on other issues of trade, the deal with the EU. There's still some open questions about steel tariffs, about pharmaceutical tariffs. So a great many questions to put to the Treasury Secretary when he comes out here in the next few minutes. There certainly is. Oliver, just going back to our sweet spot of tech, there has been a lot been made of rare earth metals, whether or not they've actually been able to get more swiftly from China into the United States.

6:41And of course, there was that offering that olive branch of H20s going back from NVIDIA. Yeah, that's right. And that's really kind of the only place you've seen a great deal of olive branches extended from the U.S. and from China to one another. And we should say these are not just sort of acts of goodwill. These are two sectors in which each side is dependent on the other, whether it's the Chinese who have a stranglehold on those rare earth metals, on those magnets, or whether it's the United States that has a stranglehold on those advanced AI chips. And they've made those concessions, but not necessarily out of the goodness of their heart.

7:11There is going to be a question about whether or not those deliveries, those rare earth metals, have been flowing. I'm sure that will be one of the questions to Treasury Secretary Scott Besson. So we will get a little bit more detail on that, Caroline, in the next couple of minutes. So stay tuned, and we'll hear from the Treasury Secretary quite soon. We'll be coming back to you, Oliver Crutt. Thank you from Stockcom. Look, let's get you broader context now. Michelle Guider is with us. She is the CEO of the Krak Institute for Tech Diplomacy at Purdue, served as Assistant Secretary of State for Global Public Affairs under the first Trump administration.

7:40That was 2018 to 2020. And Michelle, the context now is one of which U.S. and China are setting themselves up for this race, whether it be in AI, whether it be in manufacturing, whether it be in energy. Which is the most important outcome, do you think, in terms of where we take trade going forward? The most important outcome is going to be American security, prosperity and leadership. And that's what all of these trade negotiations are about. They're a means to that end. China has built a massive manufacturing economy. The United States has built a massive consumer economy. So they make stuff and we consume it and we buy it.

8:14And now being a consumer at that scale is a big vulnerability when your largest supplier is an adversary. And we buy and consume$300 billion more stuff from China than they buy from us. And that matters when it's not just toys at Walmart and it's not just home appliances. We are consuming things independent on them for things that are really important to our national security. As you had just mentioned, rare earth magnets, it's batteries, it's pharmaceutical ingredients, it's the ability to make ships across the world that have a commercial and a defense implication. So rebalancing our trade relationship is key to making sure that we are re-incentivizing our ability and making it more attractive to buy and to build these things at home than to rely on China to do those things.

8:58It's interesting. We, of course, had MP materials with an announcement that they, as one of the only rare earth metal miners here in the United States, are going to be supplying Apple in some way. But are there enough incentives? Well, what is ultimately a very dirty process? Do we want to bring that home, Michelle, more broadly? Well, China is either going to do it in a very dirty process because we have seen that the Chinese Communist Party does not have a lot of regard for the environment, or we can incentivize American companies to do it here in a much cleaner and more efficient and effective way.

9:28And so I think having America lead in these things, rare earth processing and other critical minerals is going to be really important. We'll do it much cleaner, more effectively, safely and trustworthy than the Chinese Communist Party. Michelle, good morning. It's Ed in San Francisco. I don't want to go broad. That meeting that's happening right now in Stockholm between Chinese trade officials and American trade officials, who is currently on top? in this negotiation? Well, I think what we've seen is that everything is on the table and the United States has a lot of leverage. As you said, they want a lot of things from the United States, including our chips and including our consumer economy, because they are largely export-based.

10:10And so we matter to them as much as they matter to us. And so I think everything's on the table. And ultimately here, the goal is to walk out with a better deal for the United States so that we are more prosperous, more free, more secure, and we can incentivize building the sectors here that are going to be important to American leadership. The president last week just talked about our big AI action plan and wanting the world to run on American tech. And so we need to incentivize the industries that are going to make that possible. And one of the pillars of that plan is for America to export technology to the world.

10:41How important an export market is China for the American technology stack? Well, the jury is still out. on whether or not China is going to be an economy that wants the American technology stack. If you listen to what Xi Jinping has said, he wants an independent, controllable AI hardware and software foundational system. That means a Chinese tech stack. And so we'll see whether or not Xi Jinping and the Chinese economy wants American tech. It's all the more reason that deals with our allies, like the EU that just happened, like Japan that just happened, matter. Because if you look at the U.S. and our top 10 Democratic allies, the EU included, that's like 60 to 70 percent of global GDP.

11:24What a great place to start for us to deploy American technology as the backbone of the global economy and the free world and then start to work out from there. Michelle, that's almost the one area of bipartisanship has been a hawkish nature towards China. But I think about a potential ban on TikTok currently not happening. when we think about a potential meeting between Trump and Xi Jinping. Some China hawks, some of the most ardent in the current administration, feel frustrated that actually President Trump is giving away too much for a deal. What do you make of it? Well, I think the big picture is all of these things are chips in the bargaining tools.

12:01They're all on the table and up for negotiation so we can ultimately get to a deal that does make us more secure and more prosperous. And so we've seen back and forth on TikTok. talk. We know that the H20 chips from NVIDIA were under export controls in April, and then in July there were assurances that those licenses would be granted to export them. But all of these things are in flux, and it's part of the high-stakes negotiations that are taking place. Ultimately, though, we want to get to a place where we are incentivizing American leadership and security first. And that takes regulation here at home as well.

12:33The AI Action Plan meant to foster growth, particularly when it comes to the underlying language models and indeed the infrastructure. What's interesting is there is this game of cat and mouse and China, yet more and more sophisticated models, open ones, coming to the fore. How do you measure how far China is in the generative AI race? Well, I think it's how many countries and partners across the world are adopting Chinese tech versus American tech. And our goal is to have more countries and more companies adopting American tech and in some cases allied tech if we're not the category leader so that the tech stack across the world is trusted.

13:09And so having a scorecard where we track how many companies and countries are adopting U.S. and allied technology versus Chinese technology is really important. And I think as the president laid out in his AI action plan, what the administration is going to start to do is put together exportable AI packages to start to facilitate that more effectively. Michelle Guider of the Crock Institute of Tech Diplomacy at Purdue. Thank you very much. Now coming up, Spotify shares drop as the music streaming company disappoints investors with a surprise second quarter loss. We'll have the details next. This is Bloomberg Tech.

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15:27Spotify shares having their worst day in two years as the company reported a loss in the second quarter. Let's get more on Spotify's earnings with Bloomberg's Ashley Carman. The seal seems to be about employee pay in some ways and taxes upon that. Yeah, in some ways Spotify is a victim of its own success. They've basically said that because they've been doing so well in the stock market, they've had to pay out a lot more than they anticipated to employees for payroll taxes and whatnot. And so that ended up in a loss in earnings per share. There's a lot of like earnings mechanics and financial wizardry around this kind of stuff.

16:00Is there a kind of core Spotify story, Ashley, of how streaming audio is going for them and maybe a little bit about their video strategy as well? Yeah, so Spotify keeps adding subscribers, users, like they keep growing every single quarter. It's pretty remarkable. But what's sort of been a challenge for them is figuring out what their next verticals are and seeing that through successfully. So they've really made a push for advertising that hasn't really panned out. They said now they are going to be kind of rethinking that approach with advertising. Their head of advertising actually stepped down.

16:33Yesterday, he's taking a job at DoorDash. So they sort of suggested that this is going to be a direction that they're going to change course. And then they're making a very concentrated push into video. And on today's earnings call, they said, one of their co-presidents said that this is, you know, a very exciting opportunity, but it's not a necessary opportunity. So I think they're still kind of figuring out where they want to move next. It's interesting that the weak dollar, of course, plays into all of this, and the third quarter forecast not looking that pretty either. Ultimately, they are building more and more users.

17:01As they say, it's sort of growing like a weed, so that's got to be a positive momentum story for many in the longer term. Yeah, I think that that's how they're trying to position this, is that in the long term, they seem very bullish, they're excited, they feel like they've had a really great product. It's just these short-term issues that they're kind of dealing with, and investors will see how they're feeling about it. The stock's down almost 11%, which intraday is the biggest drop since early April. But if it closed there, it would be the biggest drop since June of 2023. So it's a strong reaction.

17:29I'm going to ask you something I ask you every single quarter, because this is how I listen to podcasts. How is Spotify doing in podcasts? They've really pivoted into video podcasts, and they've been trying to recruit more video creators to the platform. So they really have not focused on these audio podcasts anymore. I've reported quite a bit on how this initiative is going for them. They're still missing quite a few of the largest podcasters on that service for video, but they're still pushing. They're still trying. Where is the audience for them? Or where's the growth story, at least? It seems like it's developing markets, but then also just trying to get people to spend more time on the platform, watch these videos, which they compensate based on consumption rather than ads.

18:09They're really trying to get people to spend more time through audiobooks and maybe up-level them to different tiers of subscriptions. So I think that's where they're eyeing some possible growth. Bloomberg's Ashley Carman on the streaming and Spotify beat. Thank you very much. We have another earnings story in PayPal. Look at shares of the company down significantly on track for their biggest drop in almost six months. In part, it's just the basics that they're seeing slowing growth in payment volumes. but what happened in the morning session was that the CEO on the call was talking about US retail spending and sort of softening economic consumer data, that kind of thing.

18:44But he was basically saying that they see a slight deceleration and that's kind of worried people a little bit. It's going to be interesting later in the hour, Carol, when we have SoFi because it's somewhat analogous, right, that we might get a similar or maybe different read on the strength of the consumer through the fintech lens. Well, from a share performance, there's a very different story for SoFi, which is up a whopping 13 % right now. That interview to come, but right here, right now, coming up, we've got OpenAI-backed startup Amiens Healthcare. It's reaching a$1 billion valuation. We speak with the co-founder, Nikhil Badouma.

19:14That's next. This is Bloomberg Tech.

19:27OpenAI-backed startup Ambience Healthcare has announced it's raised$243 million in a new funding round, valuing the administrative AI company at more than$1 billion. For more, Nikhil Badouma, Ambience Healthcare co-founder and chief scientist joins us. It's really interesting. You know, I actually go back two, maybe even three years, and this is where a lot of people said the promise in the near term was AI and health care, you know, the administrative task. But the round is big. I mean, what do you need$243 million to do? Yeah, I think this round,$243 million values the company,$1.25 billion.

20:04Now that round is led by Oak, HCFT, Andreessen Horowitz, and with participation from OpenAI. I think it's a testament to this platform that we've built for health systems, which liberates clinicians from the administrative burden and enables them to focus on their patient. And a big part of it is we've built this sort of best-in-class platform, which in practice, what it does is before the patient walks into the room, the system actually summarizes all the context for the clinician so they know what's going on with that particular patient. In the visit, it's listening in the background. It's generating the documentation automatically for the clinician on behalf of them, as well as a summary for the patient and their families.

20:37and then afterwards it's automating all the downstream sort of revenue cycle, coding and billing, prior authorization workflows, which is how health systems get paid. I think it's allowing us to essentially work with many more institutions. We work with some of the largest healthcare organizations, academic medical centers in the country, Cleveland Clinic, UCSF, Houston Methodist. I think this round is a testament to that work. Nikhil, what's the company's core competence? I understand the platform, but what is it that you're good at that's allowed you to build the platform? I think a big part of it is we've built an incredibly deep working relationship with OpenAI and other foundation model makers to build the most capable foundation models for healthcare and medicine.

21:14And we've taken that and packaged that into a series of workflows to help clinicians. So I'll give you one example. We work with Cleveland Clinic, one of the most subspecialized academic institutions in the country. They have 100-plus different specialty and subspecialty areas. And you can imagine every single one of those specialists practices different medicine. They have different workflows. there's different administrative rules and so what we've been able to do is create a platform that services the needs of every single one of those specialists over 80 % of clinicians at Cleveland Clinic use the technology in clinic every single day for over 70 % of those visits and that's more than two to three times some of the other alternatives in the market.

21:52Nikhil go to that relationship that working relationship that you want to invest in further with OpenAI what makes your business defensible versus OpenAI just building it themselves? I think a big part of it is, as you think about sort of the gap between general purpose reasoning models and models that are actually clinical grade and compliance grade, there's a massive gap between models that truly understand the medicine that's happening in every single visit. We talked about Cleveland Clinic and other academic medical centers, just the level of depth in clinical reasoning that's happening across 100 plus different specialties and how that's different from primary care to if you have to go see an oncologist to even an oncological subspecialists who might specialize in a particular type of cancer.

22:31And it's bridging that gap in sort of the understanding and reasoning capabilities of these models that ultimately allows us to build software that really solves the problem for clinicians on the front lines. We are currently, as we speak, just also seeing live pictures of President Trump, who is currently in Scotland. He's opened, of course, a new golf course, but he's also been negotiating with the EU, continues to be discussing relationships with the UK going forward. We're going to be diving into that as and when necessary for you. But let's just return to you, Nikhil, as we hear, of course, what President Trump has been doing.