Legality of Tariffs, Business Leaders on Mamdani, Pediatrics Under Pressure, Protein Boom

0:13Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

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1:35This is Wall Street Week. I'm David Weston bringing you stories of capitalism. Much of Wall Street joined the rest of New York this week, heading to the polls to elect a new mayor. We explore what Mamdani's win means for the financial capital of the world and specifically for real estate in the Big Apple. Plus, RFK Jr. says pediatricians are making out like bandits by pushing vaccines on children. We tell the story of why the business model is having the opposite effect and driving doctors away from ministering to the young. And everyone's looking for more protein in their diet. We explore the booming business of protein supplements and whether they're more than just another diet fad.

2:18But we start with this week's big Supreme Court argument over whether President Trump can keep those tariffs he imposed on much of the world. Jennifer Hillman of the Council on Foreign Relations takes us through what it could mean for the president to lose. I think what's really at stake most of all is whether or not the president has violated the Constitution. Because, again, we have to go all the way back to the founding of our country. You know, no taxation without representation is on that license plate on everybody in the District of Columbia. And what it really is saying is the Constitution gives to the Congress, not to the president, the power to impose taxes or tariffs.

2:58The Constitution gives to the Congress, not to the president, the right to regulate foreign commerce.

3:09all of these tariffs, again, this huge increase in taxes on Americans, without the Congress. The Constitution explicitly gives to Congress the authority to impose tariffs. Yes. Can Congress delegate that authority and has it in this statute? Right. And so the issue that is really before the court is whether or not the Congress has handed over this power that it has. It has the power to impose tariffs or duties or taxes. Did it grant that authority, hand it over to the president through the passage of this law, the International Economic Emergency Powers Act? And the decision will largely turn on one phrase in this IEPA statute, the phrase that says that the Congress delegated the authority to regulate importation or exportation.

4:02And so the issue is, can you read the word regulate to be the same thing as tax or tariff? And the argument that most people are making, that many members of Congress, that many of the business groups and many of the others that say the answer to that question is no, no, Congress did not hand over the authority, point to the fact that nowhere in this IEPA statute does the word tariff or duty appear. If the Supreme Court upholds what the president has done, then it's clear what happens. We keep charging the tariffs. What if it actually strikes it down? What is the remedy if, in fact, the court rules that these tariffs were illegal or unconstitutional?

4:42So if the court rules that the tariffs were illegal from the get-go, then the tariffs must be refunded to those that have paid them. And if we look, you know, today through at least the end of August, that means about$88 to$100 billion. dollars worth of tariffs would need to be refunded to the importers that paid those tariffs in the first instance. Because if they're unlawful, then everyone is entitled to a refund with interest. Is there a mechanism for doing that? That sounds like an enormous undertaking. There is a mechanism, but you are correct. It is an enormous undertaking. And it basically splits out into whether or not the particular import of this particular item in this particular shipment, whether or not all of the paperwork that customs has to do about those has closed or not.

5:30In the end, does all of this really matter? And we've heard from the administration, they have alternatives. I mean, you know the numbers better than I do. Section 301, Section 201, Section 337. They have a lot of different routes that they can impose various regulations and tariffs under. Yes. And again, I do think it's very clear that the president loves tariffs. And so I think if the stream court strikes down these tariffs, I do think you will see the president take up a number of these other laws and try to reimpose tariffs. But for me, there would be a pretty important distinction between them.

6:04First of all, with the one exception of the statute that's called Section 122, that would allow the president to declare that there is an emergency because we are experiencing a major balance of payments problems or currency difficulties, that would allow the president to impose a 15 percent across the board tariff on goods from every country limited to 15 percent and limited to 150 days in length unless the Congress renewed it. All of the rest of the authorities that the president could turn to are going to be different than what he's done. In the normal course, we will likely get a ruling from the Supreme Court either later this year or sometime next year on this important question.

6:47At the same time, sometimes the court likes to, as it were, duck the problem. What are the routes available to the Supreme Court? Such as, for example, there's a dispute over subject matter jurisdiction. What are the chances the Supreme Court will say, you know what, we don't need to decide this, we'll remand it for further proceedings? That can happen. To me, if the Supreme Court is going to try to take a little bit of an off-ramp, a little bit of a compromise, and again, I think you've clearly seen the Chief Justice try to find, is there some compromise? I think the compromise there may be in whether or not the court rules that there is no authority to do tariffs ever under IEPA or whether the court takes, as it's a little bit of an off ramp, a view that IEPA permits some tariffs, but potentially, for example, not the trade deficit tariffs.

7:35I mean, the court could, in essence, say we could read this word regulate importation to permit some tariffs. But what the president did in imposing this worldwide tariffs as a result of the trade deficit, he cannot do because the Congress has given him this separate authority under Section 122. The one thing that I think ought to give the court real pause about interpreting this phrase, regulate importation or exportation, is the fact that it is well established as a matter of law that you should read a word to have the same meaning within the statute. And in our Constitution, there is a ban on putting tariffs on exports.

8:18And the phrase within IEPA is regulate importation or exportation. So what the Trump administration is asking the court to do is to read that phrase. Regulate imports means tariff imports, but don't tariff exports, because that would be unconstitutional. And so they're asking the court to read that word regulate to have two entirely different meanings in the exact same phrase of the exact same statute. And that, at least to me, is a very tall order. So when I step back from it and say, you know, how likely is it that the court is going to say, yes, Trump, you can do this? I think the answer is I think they're going to say no.

9:01And I think they're going to say no largely because there are other statutes in which the president can impose tariffs. He doesn't need to twist and bend and torture this IEPA phrase in order to impose tariffs. And secondly, it is really hard to see how you read this one word regulate as having diametrically opposed meanings in the exact same phrase of the exact same statute. And yet that's what the Trump administration is saying that the court should be doing. The IEPA case is foremost one of law, but it could have enormous consequences for businesses and consumers. Former Treasury Secretary Larry Summers says the economic argument in favor of tariffs is hard to make.

9:48Look, I think the tariffs are unwise economic policy. I think on net, they push up prices. On net, they take money out of the hands of consumers, which slow the economy down. And they're, in that sense, a self-infected supply shock that makes the Fed's job, makes everybody in the economy's job harder. So I think they are, for the most part, bad policy. I don't think we've used them successfully to get important other benefits from other countries. And so the world will be better. The United States, in particular, will be better off. Indeed, the American manufacturing sector will be better off without these tariffs.

10:32The two magic words in the statute, extraordinary and unusual, it says, is what we need to do to declare this national emergency. That is at least largely a factual question. How extraordinary or unusual are these balance of trade deficits, which the president invoked? As an economist, how unusual are these trade deficits? I mean, I want to be fair, David, and recognize that there have been a lot of emergencies defined over time for a lot of different purposes, not all of which would be the kind of thing that if they happened in my family, we would call an emergency. So I think we do need to pay attention to the statutes and the history as well as that.

11:14And that's what the lawyers do and what the Supreme Court will deal with. But if you ask, is the United States in some kind of unprecedentedly disastrous situation of borrowing that is related to a lack of tariffs? The answer is absolutely not. If you ask the question, according to economics, are tariffs the right response to a foreign borrowing emergency? If there was a foreign borrowing emergency, the answer is no. The right measures would involve reducing the budget deficit, increasing the country's level of savings, for example. So I think it's pretty difficult to say that there's some aspect of the economic situation that's present today that hasn't been present for most of the last 25 years that would justify the invocation of emergency.

12:21However we got here, we certainly have a large and growing deficit and debt. One of the arguments that President Trump is making is these tariffs are helping us with that. It's bringing in revenue to reduce that debt and deficit. Just on that limited issue, is he right? The tariffs certainly are bringing in revenue, not nearly as much as he said they would. And I don't think the forecasts the administration makes that they'll get a trillion dollars of revenue over the next year or two are likely to pan out. But yes, they are bringing in revenue, but they are also having other effects. They're holding interest rates higher than they would otherwise be.

13:05They are also slowing the economy. And those things make the deficit position worse. So I'm not sure that there's an important improvement in the budget deficit as a consequence of these tariffs. And certainly if you think of the budget deficit as some kind of emergency, these tariffs would be a very odd response to that kind of emergency. Coming up, what Mayor Memdani could mean for the business of New York and particularly a real estate business that was showing signs of coming back.

13:52What's driving the markets this week? What's on investors' minds as they look ahead? Find out on the Markets Podcast from Goldman Sachs. A breakdown of market moves and macro signals in 10 minutes or less. The Markets Podcast from Goldman Sachs. Listen now.

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15:18This is a story about turnarounds, for better or for worse. This week, New York City elected its next mayor. Zoran Mamdani will take office on New Year's Day with promises of big changes to come. The future is in our hands. The business community is kind of taking a wait-and-see attitude. He's a new phenomenon. And until he won the primary election in June, they really didn't know or care who he was. He was an anonymous assemblyman. Catherine Wilde is the president and CEO of Partnership for New York, a group that represents businesses in the city. The fact that, you know, what they say is, would you hire a 33-year-old kid to run a 300 ,000-person business?

16:06And the answer is no. But this is politics. He's been elected mayor. And so now the question for the business community is how to make sure he's successful and that the city thrives under his leadership. And there are two parts of being successful. One is what he wants to do and one is whether he can do it. Start with the first, because this is a really tough place to run, as you know. What does he need to be able to effectuate whatever he wants to get accomplished? Well, he wants to make the city more affordable, and he equates that to lower price of groceries, universal child care, free buses, and he talks about freezing the rent.

16:45When it gets to all of those issues, obviously the question is how you accomplish them. If you try and do it by raising taxes, which he's talked about, then the affordability crisis just gets worse because the cost of rising taxes is passed along to businesses who pass it along to consumers and all New Yorkers will pay. So we've got to find some better solutions. I was encouraged last night in his acceptance speech when he was announced as the mayor-elect with 50-plus percent of the votes. The first thing he started with, and he never mentioned raising taxes last night, he started with, well, I'm going to make a more efficient government.

17:26And that business likes to hear. One of the things we have in this country is the ability to vote with your feet, to actually leave and go someplace else. That's one of the questions we're asked more often than the other. Is it likely that particularly some of the more wealthy members of the business community will actually leave for other places like Florida? What do you think? I don't think it's likely. I mean, the real question is, will we be able to continue to attract top talent to the city? I mean, New York is a place that people want to be. There's a lot of benefits to being in New York.

17:59And as long as people don't feel they're being abused and taken advantage of, demonized, the biggest challenge right now for us is really that other states and countries are competing for our jobs, for our tax dollars. And we have to show that New York is, again, a reasonable cost place to do business and to live. The premium in the financial industry, the premium for somebody doing the same job here in New York or doing it in Tennessee or Florida or Texas, is more than 20 percent more than employers have to pay for talent to have a comparable lifestyle in New York. That's a pretty big delta. Mr.

18:45Memdani was elected in no small part on his pledge to make New York City more affordable, particularly when it comes to housing and other real estate, including a promise to freeze the rent for the two million New Yorkers living in rent-stabilized apartments. There are a number of things we can do to get the cost of rent down, the cost of building operations down, I should say. And he has said and has amended his original oversimplified one-liner, freeze the rent. I said to him months ago, how do you freeze the rent if you can't freeze the costs? And we had a discussion about how 30 % of the rent is real estate taxes.

19:28And he subsequently amended his comments to say, I understand that real estate taxes on rental housing have to come down. And said, I will be the mayor who reforms property taxes. Now, that is good news. That will help the rent stabilized units, of which there are over a million in New York City. And so that's a lot of tenants that will benefit. A mandate for a city we can afford. And a mandate for a government that delivers exactly that. I think Mamdani's brilliance is he has tapped into something that New Yorkers are frustrated by and really care about, which is costs. It's expensive to live here, particularly housing is expensive.

20:18I have young adult children in New York that are dealing with this. Owen Thomas is the CEO of BXP Properties, the largest publicly traded developer, owner, and manager of premium offices in the United States. In terms of what he's trying to do, which is bring down costs, you know, BXP, myself, we'd be fully aligned with that goal. We would welcome it and would like him to do it. I think the issue is some of the policies that he describes on how he wants to do that, I don't think are the right ones to accomplish the objective. So, for example, putting in rent controls. If you put in rent controls, that is going to prevent private capital from coming into the market and building the housing that's going to be required.

21:00New York needs hundreds of thousands of housing units. That capital is not going to come from the public sector. It has to come from the private sector. So the government needs to put in place some incentives and rules to allow that private capital to come in and fund these projects. And if that's done, I think it can be very successful. Building new apartment buildings is one way to get the price of housing down. Another is to take some of the underused office buildings and convert them to residential. After the pandemic, offices inside some of the most iconic buildings in the New York City skyline have remained vacant.

21:38Some developers say that's where they see an opportunity. There's a very broad spectrum of buildings that are out there. There are brand new AA buildings, and like you said, they are doing extraordinarily well. But there are also buildings that are older, but are loft-like, that are in places like Soho or Tribeca or Union Square. It's a lot about location. It's a lot about the physical qualities of the building. It's a lot about the owner of the building and if they've upgraded them or added amenities. So the office market is a spectrum. One of two light wells that we created, which go 25 stories down in the building.

22:14Brian Steinwurzel is the co-CEO of GFP. His firm is behind the conversion into rental apartments of J.P. Morgan's former headquarters just off Wall Street. So we are at 25 Water Street. It was a 1.1 million square foot office building that was designed to look like an IBM punch card. So it had very few windows around the building. and we bought this building at the end of December 2022 and we turned it into 1 ,320 apartments. We did this by removing most of the brick on the outside of the building and carving two light wells into the building and that allowed us to create all of these apartments and it also allowed us to take that extra floor area and build 10 stories on top of the building.

23:02We had a very ambitious plan when we bought the building and we feel very fortunate that it's come to fruition. Steinwurzel was early to the conversion business. Now the pipeline of conversions totals 81 million square feet as of May, up from 71 million square feet just months ago. An incentive called 467M gives developers like GFP a tax break for taking on the capital-intensive challenge of converting offices into apartments. What that says is, is if you start a conversion of an office building to residential, I think the project has to break ground by the middle of 26. If you do that, you can have a tax abatement for 30 years.

23:44And as a result of that rule and the oversupply of office, there are about 13 million square feet of office buildings today in New York that are being converted to residential. So I think that's a terrific example of the private sector and the public sector working together on a plan. And these conversions are perfect, right? We certainly need less office. We need more housing. The city ultimately will get more tax revenue. There's more vibrancy. There's more affordability. And there's less of an environmental impact by basically reusing a building as opposed to tearing one down and building one from scratch.

24:20And I hope this program will grow. Now, one thing that really helps with these conversions in New York is rents are so high. So you can put in the base building at a higher per square foot value and still have all the numbers work for a private investment. And that also helps. But the local regulation definitely helps as well. Although office to residential conversions could be a step in the right direction, that alone is not enough to take care of the problem. Over the last decade plus, we've recognized that we are not building enough housing in New York City. and let's face it, we're very fortunate that people want to live in New York City.

24:55This is a city that continues to grow. There are more jobs in New York City now than there ever have been in the history of the city. And so with all of these people that want to live here, we need to create more housing. And the challenge is it's still New York City. So it's very expensive to acquire land or buildings. It's very expensive to build here. And it's very complicated. We have a lot of people that live in a very close proximity to each other. And so we need to be careful about how we build so that we're becoming part of the community and not upsetting it. But with that recognition that we need to build more housing, there is much more focus on it.

25:30And we're happy to be part of the solution to these New York City's problems of creating housing. But we need a lot more than just converting office buildings to residential in order to solve this problem for our city. Mayor-elect Memdani pledges to add thousands of apartments to New York City. To have a hope of succeeding, he's going to need a good deal of help from those working under him in his new administration. We're always waiting and seeing what a new administration does. There are a lot of people that work in a city administration that make it happen. Cutting the amount of time it takes to build housing is probably one of the top things that they can do.

26:09So putting people in office that are willing to empower their departments and their divisions to actually make decisions, to review plans, to issue permits quicker are going to be things that we'll be looking to see? Or are they putting people in place that are looking to add regulation, to add obstacles or hurdles that will make creating housing more difficult? Up next, if all of us care so much about the health of our children, why do we have a business model that's driving doctors away from pediatrics? It turns out that the answer is not one that RFK Jr. wants to hear.

26:50This is Special Agent Regal, Special Agent Bradley Hall. The time is approximately 11.15 a.m. About to start consensual telephone call with Dr. Daiwa Zhang. China's Ministry of State Security is one of the most mysterious and powerful spy agencies in the world. But in 2017, the FBI got inside.