Team Favorite: Entry-Level Jobs at Risk, CEOs Face Uncertainty, Tariffs & Textile Companies, Powering Data Centers 

26:07But it better be not just an agenda based on fairness as opposed to fairness and growth. Who will help guide the Democratic Party away from a very obvious alternative, which is to go to the other extreme? I mean, some people think we're seeing that right now with you could name names AOC or Bernie Sanders or even Memdani. There's a natural reaction to say, OK, we've got to compensate. If we've got right wing populism over here, let's go left wing populism. How will the Democratic Party avoid that if, in fact, it should? So I'm quite confident that the Democratic Party has enough voices across the spectrum that by the time we get to the election, we will have a strong group of candidates.

26:51We'll reflect the thinking of most Americans, which is less about political ends of the spectrum, more about just getting tomorrow food on the table, getting a good job, raising your family the right way. and I believe that the party always should focus on all ends of the spectrum, but I do believe it will end up unifying on what matters most, solving people's issues. Next, we turn from the C-suites of some of America's largest companies to one specific modest-sized company that depends on imports and exports for its textile business. We go to Bend, Oregon and hear from Jeff Bowman, CEO of Kokona Labs.

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29:48This is a story about friendly fire. President Trump has embraced tariffs as a way to protect domestic U.S. businesses from unfair foreign competition. I might go up with that tariff in the not-too-distant future. The higher you go, the more likely it is they build a plant here. Last week, we brought you the story of a music accessories company that is finding new ways of getting the supplies it needs and maintaining its export business despite those tariffs. But for some industries, that's easier said than done.

30:27Jeff Bowman, CEO of Kokona Labs, which makes a compound used in fabric. We have a technology called 37.5 Technology. The purpose of it is to remove humidity from the microclimate next to your skin. That helps you stay more comfortable in both warm and cold weather conditions. And it helps you stay more comfortable It helps you operate at a peak performance if you're an athlete. You can operate at peak performance longer. And what we do is we mine a mineral in the United States. Essentially it's a volcanic sand. We convert that into what's called master batch, which is a concentration of that mineral that's then put into the spinning operations for things like nylon and polypropylene and polyester.

31:13They make filaments and yarns out of that. Those yarns and filaments are then made into fabrics. Those fabrics are made into clothing or bedding or footwear. And we make money by selling the master batch, which we make in the United States. Primarily, we export that because most yarn spinners are outside of the United States. And then we also license the technology to brands that use it. Sleep Number for bedding, Men's Warehouse for clothing, Solomon for technical clothing. If they're hunters, they know First Light. So there's well over 100 brands that we license the technology to. And that's a proprietary process?

31:59It is. It's very difficult to take a water-loving mineral and put it into manufacturing operations that hate water. So we have patents on it and a ton of trade secrets. You know, we're very cognizant of keeping those trade secrets secret. The United States is the world's second largest exporter of textiles. It used to be first, employing one and a half million workers. But now it employs only about 470 ,000, as China has risen to become the number one producer. We do have customers in the United States. Generally, the spinners outside the United States are more competitive from a price standpoint.

32:40and they've got more capacity, more infrastructure. You know, decades ago, most of that did reside in the United States. It eventually moved outside of the United States. China, at one point in time, decided that it was a strategic industry. So they worked with their business people to develop that infrastructure. And that's primarily where most of it's done today. India is also a big export country for us as well. The tariffs being imposed by the Trump administration affect a textile business like Kokona Labs. both in the cost of its raw products and, ironically, in its exports to places like China.

33:16People are not placing orders because they're uncertain in terms of what the ultimate pricing is going to be. I spent this morning, all morning, talking to my team about a business that we're working on right now with one of the largest hotel chains in the United States. They're looking to incorporate our technology in their betting. And one of the questions that we're getting from our Chinese partners who would be spinning the yarn for that is how should they price the yarn based on the tariffs? And of course, that's a very difficult question for us to answer. We did export some product to China last week.

33:53We ate the tariff ourself of about 16.5%. We actually ate 10 % of that. Previously, there was 6.5 % tariff in place already. So it's kind of a wait and see right now, but in the short term, it is reducing the amount of business that's out there. And it's reducing the amount of investment that people are willing to make in new products. Specific to us, because we're a small company that exports as opposed to imports from China and India and those other places, the reciprocal tariffs also impact us. And when Trump first announced the large tariffs on China, China retaliated with a 145 % tariff. That would have been a killer for us.

34:38It would have killed our business. We just happened to have a bunch of our product in our Shanghai warehouse at the time. So within 36 hours, we were able to sell that to our customers, move it out of the warehouse, and that bought us a few months tariff-free. We're waiting to see what's going to happen with the tariffs. It impacts our business in several ways. We're also trying to develop a domestic business in those countries. So this shirt is an example. It's a shirt made in China, and it's sold to Chinese customers. And when the price of the yarns increase, then it impacts the price of the finished products, and it impacts our business.

35:18They charge us, we charge them. In pursuing his approach to tariffs, President Trump has said again and again, And one of his main goals is to bring manufacturing back on shore in the United States. Would that work out that way in your business? No, definitely not. You'd have to cut and sew this garment or bedding or any other garment. You'd have to make that garment in the United States. And people just don't want those jobs, number one. And number two, the cost of labor here is so much higher that the price of those goods would dramatically increase if they're made in the United States. So it would make everything much more expensive.

35:57You know, even the deal with Vietnam is a case in point. I don't think most people understand that those goods coming into the United States already had a tariff on them. In the case of clothing coming from Vietnam, as an example, there was a 16.5 % tariff before Trump. With the additional 20 % that was just negotiated, that means that there's a 36.5 % tariff on apparel now coming into the United States from Vietnam. Some of that's going to get passed on. There's no question about it. So the price of goods will go up. With the increase in the price of goods, the amount of business will go down.

36:32I mean, Trump and I both went to the same business school, Wharton. And apparently he didn't take the tariff class because certainly the teachings and the empirical history shows that when you impose tariff, The net effect is that you reduce the amount of business that takes place. And we're seeing that happen already. Costs go up. Consumers pay the price eventually. And there's just less business being conducted. Whatever proves out from President Trump's tariffs, at this point, it appears there are going to be tariffs. We already see 15 percent effective. And in some places, it could be higher than that.

37:09So assuming that happens, let's assume it's 15 to 20 percent effective tariff. What do you do to change your business to make sure it's still a good business? It's viable. Well, what we have been doing is, number one, making sure that our customers have options. So we ship Master Batch around the world. We ship it to Turkey. We ship it to India, Taiwan, China, Korea, et cetera, making sure that they have options so we can mitigate the tariffs, hopefully, in any one country. That's the first thing that we're doing. And second is, you know, we're looking at, in some cases, potentially moving some of our manufacturing out of the United States into China, something that we're loath to do, just to reduce the reciprocal tariffs that are being placed on our goods.

38:01You know, ultimately, it will help the cost of goods coming back to the United States. It'll certainly help even more with the goods that are being sold into those countries. We're worried about tariffs. I mean, candidly, we shipped a master batch to China two weeks ago. We paid 16.5 % tariff on it. We ate 10 % of that. That's not sustainable for us long term. You know, we'd have to raise our prices. When we raise our prices, it will ultimately affect the amount of volume that's being sold. So it's not good. How elastic or inelastic is that demand for your product? I mean, what pricing power do you have to pass along some or all of those increases?

38:39You know, we have to pass on some, otherwise we'll go out of business. And there's that trade-off, and that's a fact of what I was talking about this morning. Our Chinese partners are trying to figure out how to price their yarn for this very large hotel chain opportunity. And they want to know how to account for the tariffs. And we don't have an answer for them, candidly, other than to tell them that we're not going to eat that tariff. We may eat a portion of it. I think we're waiting to see what ultimately happens. and what the tariffs actually end up being. And then we'll adjust accordingly, as best we can.

39:16There will be collaboration, I'm sure, throughout the supply chain. Ultimately, you'll see higher prices at the consumer level. And if, in fact, these tariffs continue, what's going to happen to your employment situation? In general, we don't lay anybody off. We were actually voted one of the top 50 small companies in the United States to work for last year. So we value our employees greatly and try to hold on to them, definitely. During COVID, everybody took a pay cut for a period of time just so that we could survive. So we'll do what we have to do to survive. We'll do what we have to do to hold on to our employees.

39:53Ideally, we'll do what we have to do to continue manufacturing in the United States. We're very adaptable. As difficult as the tariffs may be for Kokona Labs' business, Bowman does believe they deserve to have a role in economic policy, just not quite as broad a role as they are being given. If you got to sit down with your fellow Wharton graduate in the White House and give him a piece of your mind about what he should be doing, what would you advise him? Well, I think tariffs are a strategic tool. I think if they're used surgically, they can help. I think broad-brush tariffs don't work, in my opinion, so I would encourage him to be surgical about it.

40:35We're a small American company trying to do business in China, where historically there has been very little tariff of our goods going into China. It's still very difficult to do business in China because of the non-tariff barriers to doing business. Things like the banking laws and the marketing laws and the administrative issues that you have to deal with on a daily basis. And it's not clear to me that this tariff war that we're in is going to impact any of that. All I see happening is that we're going to increase the price of goods coming into the United States. We're not going to address the fundamental issues that are making it difficult for companies like mine to do business in places like China.

41:17And that's those non-tariff barriers to doing business. Whether it's to break down barriers to U.S. exports or to discourage production abroad, one of President Trump's main goals is increasing U.S. manufacturing overall. all, something special contributor Larry Summers of Harvard says tariffs will not accomplish. This isn't a debate about whether manufacturing is important or not. That's an important debate to have as we go forward. But even if you take as given the central importance of cutting-edge manufacturing, taxing inputs, alienating partners, and enraging those who control the external markets can't possibly be the right strategy for rebuilding American manufacturers.

42:14Look, I take another way of looking at this. We think of ourselves, we think of automobiles as like a traditional industry that we're trying to protect in a good way. But this is slashing General Motors profits. This is slashing. All the automobile companies are complaining about our tariff policies because what they mean for integrated production in North America. So even for the people who were the traditional constituency for this kind of policy, they're not seeing it as a positive. So this is not some debate between the coastal people who like finance and movies as businesses and the people in the middle of the country who are focused on the heartland of manufacturing, even if you just look at what you're doing for the heartland of manufacturing, higher priced inputs, much more uncertainty for investors, and alienating of customers can't be the right strategy.

43:44There's a winner here. There really is a winner here in the strategy that we are pursuing. His name is Xi Jinping, and I hope we'll stop. Up next, data centers may be the path to an AI future, but what if a community isn't sure they want more data centers? We go to Warrington, Virginia to find out.

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46:04PayPal Open, built for all business. Visit paypalopen.com to get started. That's paypalopen.com.

46:18This is a story about needs and wants. Sometimes what we need may not be what we want. We need more productivity from AI, but we don't want young college graduates going unemployed. And at least some of us may not want our local communities transformed by the building of all those data centers we need for AI.

46:44Warrington is a tiny town, 10 ,000 people. We'll picture Norman Rockwell pictures, picture Mayberry and Andy Griffith. Cindy Burbank lives in Warrington, Virginia. She took us to what would have been a data center. Down this weeded pathway is the 42-acre site that Amazon purchased to build a data center on. Without data centers to process, store, and distribute information, we don't have AI. With everything from Internet search... We are on an exponential curve. and a relatively steep one. To drug discovery and approval. It's going to propel the biological research, AI, in unprecedented ways. To reap all the benefits AI has to offer, global data center capacity is expected to grow at a rate of 15 % per year, and even that may not be enough to keep up with demand.

47:39Christine Wood is the data center practice lead at Burns and McDonald and consults with companies building data centers. Power is becoming the long pole in the tent to be able to find a data center site. And so it really starts with that is the power puzzle that we're seeing associated with the data center sites. But supplying all that power can cause disruption to the communities where data centers want to be located. Not everyone wants a data center for a neighbor. We're situated about 45 miles to the west of Washington, D.C. Carter Neville is a native of Warrenton, Virginia. He has been the mayor of the town since 2019.

48:19We are heavily dependent upon our meals taxes, and our largest meals tax provider is Chick-fil-A. We are very fortunate to have, as residents, very low taxes in terms of real estate taxes. And so pretty much our largest employer is the school board, followed by the hospital and Walmart. Warrington's data center journey began in 2023, when the town council voted to consider an Amazon data center on a 42-acre site. On the upside, we provide a significant amount of revenue, which we are desperately in need of. Our infrastructure is aging. We're behind the eight ball in a lot of our improvements needed to our water treatment and wastewater treatments especially.

48:57We have parts going back that can't even be produced anymore, parts dating back to the 1950s. And we're in desperate need of upgrading that facility for the safety of our community. But even the economic benefit couldn't outweigh the town's concerns. Our frustration was the fact that we were being kept in the dark. Then finally, a year and a half later, we learn about it because Dominion is proposing these massive transmission lines. And that is what was like throwing a match onto a powder keg. The citizens exploded. And first against the transmission lines in Dominion, and then they learned it was tied to the data center.

49:39Then we learned from our neighboring jurisdictions what data centers were and the impacts they had. A lot of noise, huge energy generation, monster size to dominate your landscape, and bringing transmission lines and other problems. We did a Freedom of Information Act for the town records. How many people spoke up or wrote in support of the Amazon Data Center? How many opposed it? And the result was, I'll show you this number, 2 ,389 of our citizens, our residents, took the time to oppose the data center. They came to the town council meetings. They wrote emails to the town council and so forth.

50:3211, only 11 people here wanted that data center to happen. And yet we were ignored because Amazon had cut a deal with our elected officials before we even knew about it. As the opposition grew, it got very, very heated. It got very, very emotional. I think that there was a lot of information that was selectively put out to the community. and so by the time it came to a vote, it was a very divided community and I'm grateful for the council members that had the courage to do what they believed was right. Last month, Warrington's city council voted unanimously on a zoning change that effectively bans data centers altogether.

51:15Among the citizens' concerns is the amount of power a data center needs, which would eat up their own access. I think the biggest concern and the one that the industry itself really needs to address is the energy usage. That is just huge. And that is something, as I've pointed out to many people, the data centers are coming. Whether one community says yes or no does not ultimately impact the demand on energy. The industry and the energy producers have got to figure that out. They've got to find a better way of providing that energy without hitting the rate payers like you and me. Fifteen years ago, a 12 megawatt data center was a huge data center.

51:51Now with AI, what we're seeing on the development side is more than a gigawatt on the campus. And to put that in real terms for you, I'm sitting in Dallas. Dallas takes about 3 gigawatts to 5 gigawatts, depending on the time of year, to power the entire city. One alternative to drawing the needed power from the grid is small, modular nuclear reactors. But even they may not be enough to keep up. When it comes to AI data centers, they are an order of magnitude more power hungry than the data centers we're used to since the internet age. K.R. Sridhar is the founder and CEO of Bloom Energy, which just signed a deal to provide power to Oracle for its infrastructure data centers.

52:38In the United States, is there an overall approach to addressing that enormous demand for power? Today, it is a scramble for the AI data centers. Collectively, they're investing more than$600 billion just this year. That's the publicly uttered commitments. That's mind-boggling, right? Almost$2 billion a day to feed this beast. Sridhar's Bloom Energy was created to do just that, provide clean energy on-site, eliminating the need for transmission lines and traditional power generators. The world is completely digital dependent. Not having power, even for a millisecond, is not an option. Because critical life functions depend on it.

53:29Like a surgery happening in a hospital, for example. So we said, power needs to be extremely reliable. You cannot get that redundant reliability at very high nines, unless you have on-site power. If you're going to have on-site power because you're going to be breathing that air when you're sitting in your office or when you're in your bedroom, by definition it needs to be clean. And it needs to be very efficient and it needs to be quiet. So this is the principle on which we founded Bloom Energy. For the citizens of Warrington, Virginia, finding that optimal solution of providing data center power in ways the community can tolerate has been elusive.

54:15But that has real fiscal consequences for the town. We are so revenue strapped, but we're facing about$91 million of investment in our wastewater and water treatment plants. And so, you know, that money is just going to have to come out of debt unless we find revenue streams. Our streets are cracked. You know, we have things that are falling apart and we're just kind of trying to keep the lights on. Amazon declined to comment on the status of the Warrington Data Center. For now, the fate of the project will have to be decided by the courts. There's a March hearing date on that. There's a citizen group that challenged it in court.

54:47And so we are waiting to see what that decision is in March. And I believe that Amazon has probably moved on. But I do expect that if they remain, if the courts favor the town and Amazon, that they will eventually build there. But as of now, I'm not sure where it stands. The transformative power of AI means that we need to have it. And that means we need to have data centers, even with their enormous power demands. The question now is where they will go. And whether we can find ways to make them the good neighbors that people in towns like Warrant and Virginia will welcome. That does it for us here at Wall Street Week.

55:28I'm David Weston. And see you next week for more stories of capitalism.

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