US Tariffs Start Today & Euro Defense Stocks Take Off

0:26Race the rudders! Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, tariffs on Mexico, Canada, and China have gone into effect, sending shockwaves through global trade. Then, turns out that the biggest Trump trade of them all was European defense stocks. It's Tuesday, March 4th. Let's ride.

0:53If 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 set in 1943 by 10 whole seconds. When it was clear Brody was going well into overtime, the orchestra tried to play him off, but Brody dismissed them, saying, I will wrap up, turn the music off, I've done this before, and promised to be brief, which turned out not to be the case.

1:30Toby, 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 five minutes and 40 second 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.

2:06Now 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. I did, but I spent an embarrassing amount of time in my brokerage account. It's been wild out there and I can't stop looking. Hyper fixating on daily market moves is so 2020. Have you heard of Invesco QQQ? It's an easy way to access NASDAQ 100 companies. So no more ticker fixation. QQQ is a ticker to remember. Now you can put your screen time to better use. Like upvoting every single episode we've ever posted on YouTube. Sure. Or, you know, working.

2:41Yeah. Rethink possibility with Invesco QQQ. Before investing, consider the fund's investment objectives, risk, charges, and expenses. Visit Invesco.com for a prospectus with this information. Read it carefully before investing. Full disclosures in podcast description. Eczema isn't always obvious, but it's real. And so is the relief from EPCLIS. After an initial dosing phase, about four in 10 people taking EPCLIS achieved its relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing. EbGliss, Librikizumab, LBKZ, a 250 milligram per two milliliter injection is a prescription medicine used to treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema.

3:26Also called atopic dermatitis that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies. EbGliss can be used with or without topical corticosteroids. Don't use if you're allergic to EpGliss. Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EpGliss. Before starting EpGliss, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EpGliss and visit epgliss.lily.com or call 1-800-LILY-RX or 1-800-545-5979.

3:56The 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 percent tariffs on most goods from Canada and Mexico, and an additional 10 percent on China, doubling the rate to 20 percent and affecting a total of one point five trillion dollars in annual imports. 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.

4:33tariff 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 percent, and NVIDIA plunging 9 percent. Canada and China quickly responded overnight with retaliatory tariffs of their own. China will place additional tariffs of up to 15 percent on U.S. agricultural products, including chicken and soybeans, while Canada will impose immediate 25 percent tariffs on more than 20 billion dollars of U.S.

5:12imports, 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 cretankerous 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, etc., 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.

5:49They 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.

6:30We don't know how to plan for the future. A lot of uncertainty out there. 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.

7:11So they send that to Vermont, New York and New Hampshire and Mexico. They make avocados that are bought by Chipotle and a lot of us. So this architecture had formed through free trade where each each country did what they do best. and then traded with each other because there were no taxes on imports. Now that those are going up to 25%, it sends everybody scrambling to change their supply chains. I'm glad that you mentioned Chipotle there for a second because it's a good segue into how businesses are approaching this new environment. Some companies are just going to eat the extra costs and not try to pass it on to consumers.

7:46Chipotle CEO Scott Boatwright said for now, they intend to keep costs the same for consumers, even as some of its cost of goods moves higher. So that is one approach. Not everyone can do that, obviously, because other industries, let's look at specifically the car industry, that is really going to raise the cost of the input of what it takes to make cars, because these tariffs don't just raise the cost for foreign, it also raises the cost for U.S. built vehicles, because domestic cars include a lot of parts from abroad, from places like Mexico specifically. So these levies on Mexico and Canada alone could add about$3 ,000 to the average U.S.

8:25car price. So if you're looking to buy a car right now, maybe get it done today because those input costs are going up, which will make the cost go up altogether. And so we'll see how this all plays out on Wall Street today. Yesterday was a really bad day on the stock market as investors showed that they think that this new tariff regime will lead to slower economic growth, less business investment overall, less employment. Everything's just going to contract. And you saw that in this Atlanta Federal Reserve GDP tracker. Now, this thing keeps a running tally of how much it expects GDP to grow or shrink in the current quarter.

9:04It's very volatile, goes up and down. But yesterday, it showed a pretty remarkable reading. Yeah, these estimates are published pretty regularly as new economic data is released. So they can be quite volatile. That is kind of the precursor here. But Friday had this shock reading of negative 1.5%, which was led by a$153 billion trade deficit that was reported in January. That showed that firms were likely front-loading imports ahead of tariffs. 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.

9:41So it looks like there's 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, you know, 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.

10:13looking 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 frontline against Russian aggression, pushed for firm security guarantees from the U.S.

10:52and got nothing in return. Neil, companies like France's 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 46%.

11:27So 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, you know, say that they want to have peace. Of course, they're not 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 that requires eight hundred and forty one billion dollars more in spending.

12:08Where is that eight hundred forty billion dollars going? It's going to defense companies. And that's why you're seeing these stocks hit record highs. Yeah, European defense companies have been strong performers since Russia invaded Ukraine all the way back in 2022. But that trade has certainly accelerated in the face of Trump's view on American support for Ukraine. Last year, EU nations spent about 2 % of their combined GDP product on defense. French President Emmanuel Macron has come out and said that he wants the bloc to aim for closer to 3 % to 3.5 % of GDP. The Secretary General of NATO also said he wants European military spending to be north of 3%.

12:46Right now, only 23 of 32 NATO members hit that 2 % goal. So a 3%, 3.5 % spending of GDP would correspond with a much bigger defense outlay. So you have these catalysts for these companies to trade a lot higher. And the European Stocks 600 Index is now beating the S &P 500 in year-to-date returns, which I don't think anyone saw coming when we entered 2025. Moving on, more of the chips powering your smartphones and AI chatbots are going to come with a Made in the USA tag. Yesterday, in an announcement alongside President Trump, the world's top chipmaker, Taiwan Semiconductor Manufacturing Company, or TSMC, said it will invest$100 billion over the next four years to build chip production plants in the United States.

13:36That comes on top of the$65 billion the company had already committed to building out facilities in Arizona. Bringing more chip production onto U.S. soil has been a top priority for American leaders on both sides of the aisle who say their use for military applications and other key products is a national security concern. So why is TSMC pledging all this money now? The threat of tariffs has a lot to do with it. Trump has floated steep tariffs on semiconductors coming from Taiwan, TSMC's home country, which could devastate its economy that is dependent on chip exports. Trump has repeatedly claimed that Taiwan stole chipmaking dominance from the United States, so this U.S.

14:15investment promise could be a way to placate the president and avoid tariffs. Toby, there's been a distinct pattern of corporate giants lining up one by one to announce major investments in the United States under the new administration. 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.

14:50One 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, you know, reshore some of its chip industry that it had outshored over the last, you know, decades or so. It's curious to see the different strategies applied by the two recent administrations, because both of them want more chip, wanted more chip production happening here in the United States because they cited it as very important for national security.

15:30The pandemic put that into stark relief when there was that huge chip shortage and 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. Trump is going more—he's ditching the carrot, is going more with the stick by threatening tariffs on semiconductors, 25 percent.

16:06And, 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. Tuesday on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you.

16:45Make the best idea win! On brand with Jimmy Fallon. Series premiere Tuesday on NBC.

16:54When did making plans get this complicated? It's time to streamline with WhatsApp. The secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. Domino's has finally caved. No, they aren't getting rid of the pizza tracker. That's the greatest piece of technology ever. But they are putting stuffed crust on the menu, looking to rake in a dough like their rivals.

17:33in what I am dubbing the cheesiest Toby's trends we've had so far this year. The country's top pizza chain is rolling out Parmesan stuffed crust starting yesterday, hoping to appeal to younger customers willing to shell out extra cash for ooey-gooey cheese-filled edges, something the chain has previously resisted. Pizza Hut has been on the stuffed crust bandwagon for 20 years now. Papa John's and Little Caesars have also joined the cheesy arms race years ago, but Domino's is hoping to make up for lost time, looking to appeal to a new generation of pizza lovers that have never known a world without the stuffed delicacy.

18:09The delay in hopping on the trend has actually confused eaters. One survey found that 73 % of Domino's customers already thought stuffed crust was on the menu. We're still 13 million customers a year were absconding to other chains just to get their stuffed crust fix. Neil, that is a lot of mozzarella leaving the bottom line, but now Domino's is finally trying its dairy best to recapture some of that business. But the thought process behind why it took 20 years to get to this point is actually really fascinating. Pretty fascinating insight into business strategy here. So when Papa John's rolled out that stuffed crust pizza in 1995, they actually did so with an ad from a person named Donald Trump.

18:50Domino's saw that happening and they said, ah, that's a gimmick. I don't think this is going to be a long-term trend. It's going to fizzle out. But Stuffed Crust has turned out to be a huge moneymaker. When Pizza Hut launched it, it generated$300 million in sales in its first year. Papa John's came along in 2020. That boosted sales by nearly 30 % in the quarter that it launched. Domino's is looking at Stuffed Crust and saying, this is the only gap we have in the menu between us and our competitors. At a time when sales are stagnating because people are pulling back on spending and looking for more value, They said, okay, maybe this is the time we need to actually dive in.

19:30And it hasn't been this willy-nilly effort either. Their chief marketing officer said it's been one of the longest development efforts in company history. First, they did extensive market research. And they found that a lot of StuffCrest customers are actually, you know, those apex predators of the pizza ecosystem. They often spend more per transaction. They buy pizza more frequently. So they were missing out on that really big customer base. And then they also went through eight potential iterations of how to find not just the right recipe for Parmesan stuffed crust, but to how to best assemble it.

20:01Because one of the big problems with stuffed crust is it's a delicate process. You don't want that cheese oozing out of the edges. You don't want to, you know, sacrifice the structural integrity of the pizza. So Domino's did a lot of training. It spent 12 weeks training franchisees at 7 ,000 stores on how to make it properly. They do not want the rollout to stumble at the finish line here. So I do think that Domino's, just speaking as Toby Howell here for a second, they got the best crust around already. Who are you speaking as otherwise? That's a good point. But just my own personal preferences are coming out here.

20:36I do think they have the best tasting crust already. So adding some cheese in that, I think will do quite well in their foray here. All right, let's sprint to the finish with some final headlines. A shocker in aisle five, Kroger CEO Rodney McMullen abruptly stepped down yesterday following a board investigation of his personal conduct. The country's largest supermarket chain by sales said that McMullen's conduct was not related to its financial performance or operations, but it was, quote, inconsistent with the company's business ethics policy. McMullen had been at Kroger for more than four decades, beginning as a stock clerk at a Lexington, Kentucky location before working his way up to CEO in 2014.

21:16The surprise leadership shakeup adds more turmoil for Kroger, which is still nursing a failed acquisition of smaller rival Albertsons. Yeah, this was a shocker. McMullen did not issue a public statement. Kroger also declined to further comment. So I started searching around. I went to Reddit to see what they had figured out. And they are stumped too. So right now things are being kept pretty tightly under wraps, but it is a pretty big shift here because McMullen was this lifer at this company. It's been there for four decades, and it is just the hits keep coming right now for Kroger because they tried to buy Albertsons.

21:52It didn't work. And then just to zoom out here, we have seen a particularly turbulent time for CEOs in corporate America over the last few years. CEO departures hit a record high in 2024, and we're already pacing faster than that this year, just a few months into 2025. So things are rocky. We've already talked about the uncertainty earlier in the show. It looks like Kroger is entering a period where they're gonna face similar sort of uncertainty. Yesterday, Anthropic announced a$3.5 billion funding round, bringing its valuation to$61.5 billion, because when you're making frontier models, the money printer never runs out of ink.

22:29Founded by former OpenAI execs, the company's Claude Chatbot has quickly become an industry favorite alongside ChatGPT. The funding comes as Anthropik's revenue has started to mature, recently hitting an annualized$1 billion in December, a 10x increase year over year, thanks mostly to enterprise clients like Zoom, Snowflake, Pfizer, and Novo Nordisk. It also struck a deal with Amazon to power its souped-up Alexa Plus, which we spoke about on the show last week. Neil Anthropic is now the second biggest AI startup behind OpenAI, passing Elon Musk's ex-AI with this latest round. We're in a total arms race right now where these companies are raising so much money.

23:08I don't know about the rest of the startup world, but as you mentioned, if you're an AI company making a top-line model, I mean, VCs are just writing you a blank check, essentially. OpenAI is still the leader in the field. They are raising money right now at a$300 billion valuation from folks like SoftBank. But Anthropic thinks that it's taking a more safety-focused approach, and it thinks that that competitive advantage might help it weasel in past OpenAI. And these partnerships with Amazon, which has invested many billions of dollars, including a recent$4 billion investment, will help it surge past its rivals.

23:50Well, the Oscars numbers are in, and they are brutalist. Just under 18.1 million people tuned into the Academy Awards on Sunday, a 7 % decrease from the year before. That total comes from a combination of normal linear viewership on ABC plus live streams on Hulu, which could help explain why the show had its first viewership drop in four years, because Hulu fumbled the Oscars bag hard on this one. First, people had issues logging in with Down Detector, spiking with reports as the red carpet wrapped up. But then Hulu inexplicably shut off the live stream before the awards were given out for Best Actress and Best Picture.

24:29So instead of watching Mikey Madison and Enora give thank you speeches, viewers saw a thank you for watching message that falsely claimed the live event has now ended. Neil, disaster level performance from Hulu here. Really a disaster. And it recalls the 2018, the Super Bowl, which I wasn't watching on Hulu, but it ended early in some markets before the game even ended. That was 2018. I think you could get away with a streaming company having some technical glitches then. But now, you know, as streaming has almost overtaken linear TV and how people consume television, it is a bit baffling that companies have not, you know, had their IT ducks in order.