OECD Warns of Recessions If Iran War Drags On

0:00So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. We'll take stock of yesterday's primaries as vote counting continues in California and the president's pick to be Iowa's next governor falters.

0:42Plus, the U.S. proposes new tariffs on top trading partners and the OECD warns of multiple recessions if the war in Iran continues. If it stretches well into 2027, then you would see severe slowdowns in global economic growth. And that would make it the weakest year this century, with the exception of COVID and the global financial crisis. It's Wednesday, June 3rd. I'm Luke Vargas for The Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin in California, where Republican Steve Hilton and Democrat Javier Becerra are leading in the race to succeed Governor Gavin Newsom.

1:27Results from yesterday's primary are still coming in, though Hilton, a former Fox News host, was optimistic of his chances of emerging as one of the top two vote-getters and leaned into his endorsement from President Trump. The most important thing is the results that the next governor gets for the California people. And I think it's going to be very helpful in a practical way to have a governor that has a good constructive relationship with the administration in Washington. Former Health Secretary Becerra has taken a surprise lead in a crowded field of Democrats, and if elected, would become the state's first Latino governor since the late 1800s.

2:03California is bigger than Trump. Our values are undeniable and undeportable. Meanwhile, in L.A.'s mayor's race, incumbent Democrat Karen Bass has advanced to a runoff election. It's not yet clear who she'll face in that vote, though former reality star and Republican candidate Spencer Pratt is currently in second place as counting continues. And in a close Republican gubernatorial primary in Iowa, Trump-backed Representative Randy Feenstra has come up short against businessman and farmer Zach Lane, marking a rare rebuke for the president. Lane had won the backing of Charlie Kirk-founded Turning Point Action and campaigned on an Iowa-first message, which he emphasized at a victory rally last night, heard here courtesy of KCCI-TV.

2:52I'll tell you this, but nobody thought this could be done. We were outspent, opposed by the establishment, told to wait our turn. Well, tonight, the people of Iowa had something to say about that, that we're not going to wait anymore. Lane is set to face Democratic state auditor Rob Sand in November, a race that analysts have rated a toss up. The U.S. Supreme Court has allowed Alabama to use a congressional map that eliminates a Democratic-leaning seat, giving Republicans the upper hand in a redistricting battle after a similar court win in Virginia. Despite those judicial setbacks, political analysts say that Democrats still have a strong chance to win the U.S.

3:33House, driven by President Trump's negative approval ratings. The effect fell from the Iran conflict and greater enthusiasm among voters for a party out of power. And veteran 60 Minutes correspondent Scott Pelley was fired by CBS News on Tuesday after publicly attacking the leadership of editor-in-chief Barry Weiss and new executive producer Nick Bilton at a staff meeting. Pelley claimed he was terminated for political reasons, accusing management of eroding the show's standards to, quote, curry a moment of favor with the Trump administration. A spokeswoman for CBS parent Paramount didn't immediately comment.

4:11Coming up, the Trump administration proposes new tariffs for 60 countries, including several top trading partners. That and the rest of the day's news after the break. The real challenge of AI isn't the pilot. It's what happens when organizations try to scale it across the enterprise and things start to break. In a new episode of Tech Fluential, Cisco's Liz Santoni and former Humana CIO and Capital One executive Sam Deshpande explore why AI needs a total redesign of how work gets done. They share how to move from experiment to transformation and build a culture that's ready for the challenge. Where technology and influence converge, new opportunities can emerge.

4:49That's Tech Fluential, a podcast from Deloitte and Custom Content from WSJ.

4:58The U.S. is proposing tariffs of at least 10 % on major trading partners, including Canada, Mexico, the U.K., and EU. following an investigation into goods allegedly produced by forced labor. The report from the Office of the U.S. Trade Representative also proposed a 12.5 % tariff on a raft of other countries, including China, Japan, India, and South Korea. And here to break this down is friend of the pod, Dow Jones Economics Editor Paul Hannon. Paul, we mentioned actually on yesterday's show that these exact Section 301 tariffs could be coming, so I guess they're far from a surprise. and yet it's one thing to talk about them in the abstract and yet another when they are formally proposed.

5:38What should we make of these findings from the USTR? Well, yes, it's not a surprise because these investigations were launched in March under what's called Section 301, which is a new way of authorizing or making legal the tariffs that the administration is currently collecting. This is primarily a legal process to underpin the tariffs as other justifications have been removed. If you remember, AIPA was ruled illegal by the Supreme Court. These are Trump's tariffs enacted under emergency economic powers. That's correct. They were widely known as reciprocal tariffs and announced last April on what was called Liberation Day.

6:21The Supreme Court subsequently judged that there was no legal basis for charging those tariffs. The administration then found an emergency justification that had a six-month lifespan that expires in July. So it needs a new legal rationale for collecting these sums from U.S. businesses who are importing goods from overseas. All right. So we're sort of swapping out one batch of tariffs for another. And yet it's not a direct copycat here. For one, the rates are lower than what some of these countries were facing in those Liberation Day tariffs last year. And this approach gives trading partners a bit more time to respond.

7:01Well, the rates are lower on this segment. There's another investigation underway, and there are likely to be others. So I don't think this is necessarily a shift down in the overall tariff rate. Other countries do have time to respond, but I'm not sure that they will necessarily want to argue too much about this as long as the tariff rates that we end up with are within the limits set under previously existing agreements. So for example, the EU has an agreement with the US which sets the maximum tariff level at 15%. What we've seen overnight comes in below that. You have to wonder why the EU would necessarily have an issue with that tariff level, even if it might argue with the justification for charging the tariff, which is that the EU does not offer sufficient protection against the use of forced labor.

7:53And finally, Paul, while tariffs have been a drag on global growth over the last year, it seems that concerns are now more centered on the impact of the conflict in the Middle East, which we should say is as hot now as it's been in several weeks. The U.S. and Iran traded heavy fire overnight. Iran fired ballistic missiles at some American bases in Bahrain and Kuwait, which brings us to the updated global economic outlook we got this morning from the OECD, which basically predicted that continuing fighting would lead to several recessions potentially. Yeah, absolutely. And the OECD has said that tariffs have actually ended up having a less negative impact on the global economy than they had anticipated.

8:34I mean, that's partly because the effective tariff rates ended up being lower and also because of the artificial intelligence boom, which has actually boosted world trade to quite high levels. But that now pulls into significance compared with the impact of the conflict in the Middle East. The OECD sort of bases its forecast on the idea that this conflict will come to an end relatively soon, in which case the economic damage is significant but not terrible. And for the US, for example, they leave their growth forecast at 2%. It becomes problematic if it stretches well into 2027, which they say is not something they think is likely.

9:14Then you would see severe slowdowns in global economic growth, particularly next year. and that would make it the weakest year this century with the exception of COVID and the global financial crisis. And they say it would involve recessions in some countries. They don't provide country by country forecasts for that scenario. I think you have to look at the economies that are already growing weekly, right? That's more likely to be Europe and those countries in Asia that are heavily reliant on energy supplies from the Persian Gulf. Paul Hannon is the economics editor for Dow Jones Newswire. Paul, always a pleasure.

9:55Thanks so much. Thanks, Luke.

9:59In markets news, UK regulators say that publishers can opt out of having their content scraped by Google's AI tools, potentially putting them in a stronger position to negotiate with the company as AI overviews rapidly reshape online search. Google didn't immediately respond to a request for comment. Shares of Chinese tech giant Baidu have rallied this morning after its CFO forecast healthy revenue growth on the back of AI income, even as its legacy internet search and ad business remains weak. The company, once called China's Google, is also planning to list its chip unit in Hong Kong by year's end, a roadmap Baidu's finance chief said remained on track.

10:40Meanwhile, shares of Dutch paintmaker Axo Nobel have fallen sharply after rivals Sherwin Williams and Nippon Paint dropped their more than$14 billion takeover bid. Axo Nobel's management and boards are instead recommending a merger with American peer Exalta Coding Systems. Zara owner Inditex is reporting a nearly 12 % jump in its quarterly sales, despite rising shipping and material costs fueled by the Middle East conflict. That growth is outpacing those of fellow apparel retailers who've struggled amid worsening consumer sentiment. And Novo Nordisk's Wegovi weight loss pill has gone on sale in the United Arab Emirates after regulators there approved it earlier this week.

11:22It is now the second country to offer the pill after it rolled out in the U.S. in January. And that's it for What's News for this Wednesday morning. Today's show was produced by Hattie Moyer. Our supervising producer was Sandra Kilhoff. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening.

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