Leverage in the U.S. & China, Affirm CEO Max Levchin 5/9/25

0:00Bring in show music, please. This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's episode, a trade deal with the UK, a potential trade deal with India, and trade talks with China starting this weekend in Switzerland. Michelle Caruso-Cabrera fresh off her trip to China on the trade war de-escalation in progress. We're not predicting their collapse. It's just when it comes to leverage, I think we have more. They have an economy that has been reliant on investing in real estate and exports. And buy now, pay later company Affirm has a unique view of the consumer's pocketbook, what CEO Max Levchin sees in the spending economy.

0:46There is a real inconsistency in the vibe where people are stressed out about the economy, yet they're shopping, they're buying, and they're paying their bills. At least they're paying their bills back to us on time. Plus, the Trump administration is considering raising taxes on top earners to pay for the GOP tax package. But Emily Wilkins reports it's complicated. Previously, they cast doubt on this idea. They didn't think it was viable. But right now, lawmakers really need to find revenue raisers. It's Friday, May 9th, and Squawk Pod begins right now. Stand Becky by in three, two, one, fuel, please.

1:26Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. Reuters reporting that India has now offered to slash its tariff gap with the U.S. to under 4 % from nearly 13 % under a potential trade deal. The report says that India has asked the Trump administration for an exemption from all current and future tariffs, and it's ready to give preferential access to 90 % of U.S. goods. So potentially, maybe there is some deal to be had. We will see. You know, that preferential treatment, that sounds like the same thing that the U.K.

2:04deal is kind of laying out to cut through the bureaucratic red tape and open things up more quickly, too. Don't do anything on beef. No. Or chicken that's washed in. Those are some big issues. It's been mad cow for a while, I think. It was mad cow, but then there are issues in the E.U. where they won't allow hormones or different things that have gone through. Chlorine washed chicken, even though no one... Yeah. Meantime, let's tell you about the U.K. trade deal because President Trump unveiling the broad outlines of that trade deal with the United Kingdom, a fact sheet released by the White House saying that the deal will create a$5 billion opportunity, they say, for new exports for U.S.

2:40farmers and other producers. They'll adjust tariffs on British cars and commit both countries to working together, they say, to enhance industrial and agricultural market access. 10 % blanket U.S. tariff on the U.K. imports will remain, though. President Trump saying more details will follow in the next few weeks. U.S. Trade Representative Jameson Greer spoke to Power Lunch yesterday about that agreement. What does this mean for other countries? Is this a framework? This certainly is the framework. I've been talking to dozens of countries, and I tell them this. I walk through different buckets where we need to talk about tariffs, non-tariff barriers, economic security, etc.

3:17And this is the right framework, and other countries should look to this as a model. I should mention some negative reaction to the deal from U.S. automakers in a statement the American Automotive Policy Council saying the following. We are disappointed that the administration prioritized the U.K. ahead of our North American partners. Under this deal, it will now be cheaper to import a U.K. vehicle with very little U.S. content than a U.S. MCA-compliant vehicle from Mexico or Canada that is half American parts. So there's still a lot of confusion about some of this, but I think even more importantly, this idea that there's effectively going to be a 10 percent tariff on everything coming into this country going forward, no matter who you are.

3:58That seems to be the. I think that's a big deal that U.S. automakers who are following U.S.MCA are going to get with harder tariffs than a Range Rover or a Bentley or something coming in. I mean, unless you can afford an Aston Martin. On the China front, investors are awaiting news from this weekend's meeting in Switzerland between Treasury Secretary Scott Besant and trade rep Jameson Greer and their Chinese counterparts. President Trump saying that he expects substantive negotiations and predicted yesterday that 145 percent U.S. tariffs on China would come down. This morning, Bloomberg is reporting the White House is weighing a dramatic tariff reduction during this weekend's talks, perhaps below 60 percent as a first step that China could match.

4:44New Chinese data today showing that that country's exports surged in April thanks to a jump in shipments to Southeast Asian countries. That offset a sharp drop in exports to the United States as new tariffs kicked in. But again, Scott Bessent has been very upfront about how they are looking at this or he is looking at this as a de-escalation. It's hard to imagine getting there without at least dropping those initial tariffs. We are the 145 percent. We have one. 25. It's going to 50. Right. Which gets us back to where we were about a month ago. But a couple of days ago, President Trump was saying, no, he wouldn't lower them at all.

5:21It's hard to imagine any progress if that doesn't happen. High stakes. We'd like to get the Treasury Secretary on next week, but it's all up in the air. I know we're trying, but it's all up in the air. Let's see how it goes. I guess what I was thinking was I was watching yesterday, and the president outlined the U.K. trade deal. And, you know, coming from him, it's one thing. But then on the phone, we've got Keir Starmer. And it was a total love fest. Keir Starmer got on it. No, this is God. We love the United States. United States loves us. It's our greatest, you know, one of our greatest trading partners.

5:54It was really a great deal for us. Both sides are great. But Keir Starmer needed a win, too. Their sluggish economy in the U.K., but it was a total just watching. It was like Michelle Caruso Cabrera just spent three weeks in China. And we're going to talk to her about her impressions about the Chinese economy when she comes in. And just a little weeks in China, one Friday afternoon. Yeah. Oh, no, it's Philadelphia. I don't know. I think it's Philadelphia. Trump administration now reportedly considering, once again, raising taxes on some of America's highest earners. Emily Wilkins joins us now from Washington.

6:29There are some some twists to the new proposal, Emily. There are lots of twists, Joe, and we are following them all. The latest news, yes, is that Trump's ramping up pressure on Congress. He had a call with Speaker Mike Johnson asking him to raise taxes on the highest earners in that upcoming tax package. We have the details of the White House proposal. They're asking for a 39.6 percent tax rate on individuals making two point five million dollars or more. Of course, current rate, 37 percent. The proposal from the White House would also include a carve out for small business owners who count the income from their business on their personal taxes.

7:07And that addressed some concerns that lawmakers had. they did not want small businesses to be penalized by a higher tax rate. Now, you know, GOP leaders in the House, we've discussed this before. Previously, they cast doubt on this idea. They didn't think it was viable. But right now, lawmakers really need to find revenue raisers in order to pay for not just extending that 2017 tax law, but all the other things that Trump wants, like no tax on tips. And this package is going to cost a lot. The Peter G. Peterson Foundation estimated that extending the 2017 law and then giving Trump most of the items he wants could cost more than$9 trillion.

7:45And that's one of the middle of the road estimates. We've seen estimates that have gone higher. The top tax writer in the Senate, Senator Mike Crapo, told Hugh Hewitt yesterday that he is actually not a fan of this higher tax proposal, but he notes that other lawmakers in the House and the Senate do support it. And he said, if Trump really does weigh in and push this, it's going to have a major impact in suggesting that there is a path forward to get this into the final bill. Now, Republicans are still fighting over the details of the tax bill. A proposal to raise the SALT cap to$30 ,000 for both individual and joint filers was shot down last night by four House Republicans, all New Yorkers.

8:24They said in a statement that the proposal risked derailing the entire bill, calling a higher SALT cap not not a luxury, but a matter of fairness and suggesting they'd vote against a package if they didn't see a higher cap. And of course, these small margins in the House, it means that those four lawmakers could sink the bill if there's not a change. We're going to expect to see a few more details soon on the tax package. It's expected to get its first vote in the House next week on the Ways and Means panel. We're expecting that to begin Tuesday and a lengthy markup expected to go into the night.

8:58And that will be the first hurdle that this tax bill is going to clear, but certainly not the last. Guys? I've been against that all along. The carve out for small businesses makes a big, a big difference. The top marginal rate that was cut from 39.6 used to start at what number, Emily? Like much lower than two and a half million dollars. It was down and they weren't really weren't much higher. Yeah, especially in In certain states, they weren't high earners at all that when it went to 37. So going back to two and a half million and five million for joint filers wouldn't be the end of the world necessarily.

9:37If you're doing it, it does redistribute which segments of Americans are carrying what type of load for taxation. So I can see how it almost you can almost make a case for it. I think Trump is going to go with it. That's what I'm hearing anyway. Trump is already behind it. The question is, will they get the votes in the House? Well, he wasn't behind it. But when you go to two and a half to five with with and then you carve out small businesses, that makes it different. And you're doing all those other. I was what was interesting what you said, Emily, was that the 30 ,000 cap. It's not that they're saying, no, we can't you know, we can't blow out the deficit with more giveaways with the with the salt cap.

10:21They don't like it because the cap is too low. So they want it actually higher than that, which would be even more costly to make that cap higher. And this is the balance, Joe. This is the balance they're having to deal with. If they want to do things like a higher sell cap, if they want to do things like no tax on tips, benefits for seniors, all this other stuff that's been proposed, all of that cost. And they have to, the way that they've structured their framework that got passed the other month, they can't go over a certain limit. they have to find some revenue raisers somewhere. And carried interest too, right?

10:54Yeah. Right now, they'll say everything is on the table. I've heard some pushback on carried interest, folks saying it just doesn't go far enough, it doesn't bring in enough revenue. But at this point, I would say it is absolutely still on the table and something that the White House does appear to be pushing for. Yeah, I read yesterday the White House was behind me. I know, I've had some conversations where it's definitely something, yeah. I guess the question is whether it's still going to be enough in terms of raising revenue to appease the deficit hawks. You're going to have to say growth.

11:28You're still going to have to fall back on the growth. And will there are there Republicans who will who have been deficit hawks who will go along with that to rely on the growth? It depends on how much you credit the 2017 cut in the rate to the growth that we saw. Was it individuals now they're getting at least they won't do it to businesses. It's a little better, but, you know, George H.W. learned no new taxes. That didn't work for him. Thanks, Emily. Cheese will be next. Next on SquawkPod, buy now, pay later. The payment plan business is alive and well. Groceries, concert tickets, a firm is gaining traction.

12:07CEO Max Levchin, a co-founder of PayPal, says the payment world is still evolving. Insofar as people become more comfortable with tools that don't look as traditional as things that work for their parents, yes. I think the secular trend is towards using things like Affirm to replace credit cards.

12:29Welcome back to Squawk Pod from CNBC with Joe Kernan, Becky Quick, and Andrew Ross-Sorkin. Up on Becky. Q. We've got the latest CNBC Survey Monkey Small Business Survey out today. It shows that confidence has declined in the quarter, down to 51 points from 56 in the previous quarter. 30 % of small business owners describe the economy as good or excellent. That's a drop of about 10%. The views vary sharply, though, by political affiliation. Only 8 % of Democrats say the economy's in good shape compared to 51 % last quarter. Optimism among Republican small business owners is up to 52 percent, and that's a jump of 21 points.

13:13So much of this influenced by your political perspective on all of it. Inflation and tariffs are the top concerns for small business owners. Seventy percent believe that the U.S. is headed towards a recession. Fifty nine percent are worried about the ongoing impact of tariffs on their businesses. And one more note for you. Women, small business owners are less optimistic than men about the economy. 21 % of the women say that the economy is excellent or good compared to 34 % of men. Meantime, check out shares of Buy Now, Pay Later. The platform Affirm moving lower this morning after the company provided.

13:48He's sitting right here, so it hurts me to say weaker than expected revenue guidance. Joining us right now with more on the quarter and beyond, Affirm's CEO, Max Levchin. Good morning to you. Good morning. Okay, so let's understand what's going on in the last quarter, and then let's try to understand what's going on with the guidance and what you're actually seeing. Last quarter, judge for yourself, 36 % year-over-year volume growth. Revenue growth, also 36%. RLTC, which is a fancy term for profit measure that we'd prefer, 53 % growth. It's pretty good. It's pretty good. Pretty good. Guide forward, I think really strong numbers.

14:23We think we're going into uncertainty. We are offering our shareholders a sense of we're going to do just fine. And you think that it's just the market to the extent that the market's not even open, but obviously down 6 % as we're looking at it in the futures. I cannot pretend to understand how the market thinks. I can tell you that it took consumers and merchants and the universe about a decade to figure out what we are and just how different and important what we have found to work really is. This whole buy now, pay later thing. 13 years ago, people were telling me not charging late fees is nuts, not compounding interest is crazy.

15:03When you say 0%, you're supposed to have an asterisk where there's the fine print. That's where the business model lives, and we said no such thing. And it was slow for a while, and not all at once. And my plan or my wish for the market is to eventually be like, wait a second, this is really good. What is your sense just of the strength of the consumer right now? You know, it's pretty good. I think there is a real inconsistency in the vibe where people are stressed out about the economy, yet they're shopping, they're buying, and they're paying their bills. At least they're paying their bills back to us on time.

15:35Our credit print, actually, from last quarter, and you can see it every month because a lot of our credit results are reported every month. Really solid, very, very consistent with our expectations, not rising. I mean, that's really interesting. We heard from Bank of America Institute this morning, and they said the same thing based on all the data they see from their customers. Do you think that this is the consumer worrying about things, but they're not changing their behavior at this point? I mean, our guest this morning tied it back to the idea that there's still a very strong jobs market and that wages continue to rise.

16:05That's exactly right. The only metric that I really care about running a credit business is employment. If employment is strong, everything's going to be just fine. And employment has been really strong. The last job print was fantastic from my point of view anyway. And so I don't see anything in the water yet that makes me. Is there any shift in terms of the kind of purchases that people are making, the amount of money that they're spending? Are they upgrading from a 75-inch TV to an 85-inch TV? Or are they downgrading from an 85-inch TV to a 65-inch TV? I mean, to the extent that that means anything.

16:39You know, we delve into this data every single day. And the short answer is we saw really strong growth across every category. Yesterday, somebody asked me on an earnings call, so where did you see particular strength? And I was scrambling through numbers like, you know, everywhere. The number from this morning, I think you quoted 1 % increase in credit card and debit cards. spend, 36 % increase in a firm spend. You know, there's some difference here. But it's also that you're stealing market share. You're building your customer base. We are helping people understand that not paying interest, revolving interest excessively is a good thing.

17:12And yes, we're taking share from credit cards. But right now, the economy appears to be on solid footing. Can I ask you a sort of a crypto-related question of sorts, which is in a stable coin world or a crypto world, how does that ultimately affect you? And what do you think that, how will that like change your business if you think that the world moves in this direction? You and I have been on stage together talking about crypto a little while ago. And my views remain about the same. I think Bitcoin in particular is a fantastic store of value. I think that's proven to be the case. And today's numbers are one good proof point.

17:50Stablecoin has really nailed this exceptional use case of very fast foreign cross-border money transfer, and I think that's very useful. And as a company that's now expanding internationally, we just went live in the UK, went live in Canada a little while ago, so it becomes more and more relevant to our business. In terms of folks paying for things, I think we're still very heavily dollar-centric here, and I'm not sure that's gonna change. But will that whole universe ultimately break the banks and put you into a position where all of a sudden you are the credit, I mean, you are trying to be the credit card, right?

18:23Trying to replace the credit card. But I would assume that that would accelerate in a sort of stable coin oriented universe. Insofar as people become more comfortable with tools that don't look as traditional as the things that work for their parents. Yes. I think the secular trend is towards using things like a firm to replace credit cards. And in terms of merchants and just bringing more merchants on board, you know, the idea of who's exclusive to you, who's not exclusive to you, you know, how that even works. Obviously, Klarna's playing a big role in the universe. I don't know what's going on with Walmart.

19:00Maybe you can explain. But I think we're all trying to get a sense of this. So merchants are also doing quite well. I think a fair number of them are posting really strong results. And part of those results is the fact that consumer is really choosing a firm at the point of sale. Done really well. The thing we highlighted actually on the call yesterday and last quarter, merchants are really leaning into 0 % promotions where they are essentially paying the interest that consumers would be otherwise paying. And so it's a true, you know, it's a great value. You're paying for something that is quite expensive over time but not paying any interest on it at all.

19:38And even if you are late by a day or miss a payment, you know, you're still not paying any penalties. That was a huge driver of growth for us, both last quarter and the one we just reported. Many merchants have reached out to us and said that really worked for us over the holiday season. Let's do it again. That's a fair amount of the growth that we saw comes from that. Certainly not my place to comment on competitors, but we seem to be growing somewhere between 50 % and 100 % faster than just about anybody else in the industry. So I think we're doing really well. Max, who is your customer? What are their demographics?

20:10Because I think of like an Amex customer. They've got a pretty high-end customer who doesn't tend to feel the pinch as quickly as a lot of others. But I get the sense that if I'm doing buy now, pay later, maybe it's a customer that's not quite as wealthy. Am I just wrong in thinking that? You know, I think that's a misconception that it skews lower income, lower credit. It's actually much more middle of the road. If you imagine sort of a tensile of American consumer, we start helping folks that are about a third of the way up the credit and run out of things to say by the last tensile. So if you're independently wealthy, you may not care whether you're paying interest or not because you're just settling out of your trust fund.

20:53Or maybe you're paying cash for the most part or using a credit card that you pay off immediately. But a vast majority of our consumers are what's called prime near prime. We actually pointed out that last quarter's growth, a fair amount of it came from Prime and Super Prime because of these 0 % promotions. So they're getting a bargain at that point. You don't have to be poor or rich to realize that not paying interest over a long period of time is actually pretty great. Smart, right. I guess my question would be, do they get their credit score improved by paying off stuff on time with you, too?

21:26great prompt. So we just announced a couple. So we've always reported credit results on our longer term transactions. So monthly transactions is something that we felt was really important to report to the credit bureaus exactly to help folks build their credit history and ultimately improve their credit score so long as, of course, they pay on time. We just expanded that program with Experian and TransUnion delivering basically all the information we have on consumers about their repayment precisely because we really care about credit history building. For those folks who were just thinking about what this company looks like three or five years from now.

21:55In your mind, what is it? How does it change beyond just just simply just growing across the board? It's gonna grow. I feel pretty good, pretty confident in that. It's a payment network. You will see more Affirm logos, not just on your favorite website, but also on a hopefully convenience store door. It'll be online and offline. It will also be a feature or functionality provider to other debit cards. We have our own debit card that's been growing better than doubling year over year, really taking off. It's a great product that I'm just very, very happy with. We are now starting to talk to people embedding Affirm in debit cards that are issued by other folks.

22:36So you may yet, you know, three years from now have a debit card issued by your bank or your favorite fintech with Affirm functionality embedded in. Okay, and one news you can use question. Do you use Affirm? Absolutely. Every single day. How so? Buy a cup of coffee with my You do? Oh, yeah, absolutely. It works both for PayNow and the one. So PayNow settles against my bank account. Right. If I take a couple of friends to a really fancy dinner, I sometimes test the functionality of paying for that expensive dinner over time, anything from six weeks to six months, but every single day. Curious.

23:10Thanks. Coming up on SquawkPod, trade talks between the U.S. and China kick off this weekend, But who has more leverage walking in? We'll hear from CNBC contributor Michelle Caruso-Cabrera. Remember, in democracies, you have your fights out loud and in public. You don't think the knifing, you know, in the back of other people is happening over there. Of course it's happening in there. It just happens behind closed doors.

23:41You're listening to Squawk Pod. You're watching Squawk Box right here on CNBC. I'm Andrew Ross Sorkin, along with Joe Kernan and Becky Quick. Treasury Secretary Scott Besant and U.S. Trade Representative Jameson Greer will meet their Chinese counterparts in Switzerland this weekend for trade talks. There is a first sit down that this will be taking place since President Trump hit 145 percent tariffs, hit China with 145 percent tariffs. The president saying that he expects substantive negotiations this weekend. And joining us right now to talk more about it is Michelle Caruso Cabrera, MCC Global Enterprises CEO and a CNBC contributor.