Tariff Uncertainty Weighs on U.S. Stocks and Business Leaders

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0:23Robert McMillan:Anthropics says Chinese AI companies are using Claude to train their own models. Plus, stocks slump on tariff uncertainty while U.S. business leaders scramble for answers.

0:34Chip Cutter:President Trump's announcements on Friday and Saturday, reiterating that tariffs are still a big part of his agenda, I think has left many executives struggling to understand, where do we go from here? What does this mean for our companies? Do we get refunds back? Do consumers ask for them?

0:49Robert McMillan:And in the weight loss drug market, Novo Nordisk's fortunes fall while Eli Lilly's rise. It's Monday, February 23rd. I'm Alex Osoloff. The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:08U.S.

1:09Robert McMillan:stocks have fallen sharply today. Among the major indexes, the Dow led the losses, dropping 1.7 percent with declines in American Express, Goldman Sachs, and JP Morgan pulling down the benchmark. The Nasdaq lost 1.1 percent and the S &P fell 1 percent. WSJ Markets reporter Hannah Aaron-Lang says there are a few factors driving the sell-off. So you didn't see huge swings in the market in the immediate wake of the Supreme Court decision. However, you've seen the president talking about finding new ways to impose tariffs. And I think that introduced this source of volatility back into the market where investors are once again wondering what options the president might pursue and which companies might be impacted.

1:49Robert McMillan:So that's a part of what's going on today. You have a few other factors as well. There's concerns about conflict in the Middle East.

1:57Chip Cutter:And then another really interesting thing that happened was this viral Substack post from Citrini Research, which outlined a scenario just a couple years in the future where artificial intelligence has been successful.

2:11Robert McMillan:And it's actually totally disrupted huge chunks of the economy. The unemployment rate is really high. So this post outlined what could be some really devastating consequences of artificial intelligence, and that spooked investors.

2:29Robert McMillan:The recent uncertainty around U.S. tariffs, the Supreme Court's decision on Friday that President Trump's global tariffs were illegal, and then Trump's declaration of a new global tariff of 10 percent and then 15 percent, is having ripple effects around the world. In the European Union, lawmakers have agreed to shelve talks on the bloc's trade deal with the U.S. Members of the European Parliament were going to vote on approving two legal texts that are part of a trade agreement the bloc reached with the U.S. last year. Now, that's on pause. A spokesperson for the European Commission told reporters today that officials need more clarity before deciding on any next steps.

3:05Robert McMillan:Meanwhile, in the U.S., business leaders are left with a flood of questions. To answer them and to try to predict what's coming next, many business leaders spent the weekend digesting legal briefs and the president's response. Chip Cutter covers workplace and management for the journal and has been in touch with a number of them. Chip, how are business leaders feeling right now? Do they feel like this latest tariff news is good for them or bad for them or something else?

3:28Chip Cutter:They're confused. They felt initially a little bit of a jolt of relief, feeling like, hey, this was good news. We've been worried about these tariffs for so long. Now, potentially, they're going away after the Supreme Court ruling. But of course, President Trump's announcements on Friday and Saturday, reiterating that tariffs are still a big part of his agenda, I think has left many executives struggling to understand where do we go from here? What does this mean for our companies? Do we get refunds back? Do consumers ask for them? Some companies realize they may need to file litigation to get this.

4:01Chip Cutter:Some lawyers have said that this will not be automatic and perhaps it's going to take longer than many companies might have expected.

4:07Robert McMillan:And I would imagine with a legal fight, there are pros and cons to doing that. Some of the cons being, of course, money and time. But are there political concerns for some of these business leaders?

4:17Chip Cutter:Absolutely. I mean, many companies are really reluctant to even talk about this because they don't want to ruffle the Trump administration, which has staked so much of its economic agenda on these tariffs.

4:29Robert McMillan:Business leaders have been here before, right? We had Liberation Day. We had the time before that and after that. So do they feel like they know how to handle this kind of uncertainty now, or does everything feel like it's on the line?

4:42Chip Cutter:They've really developed this muscle. Companies have war rooms now that have been built and have stood up now for months and months that just meet regularly to deal with the kind of ever-changing trade parameters. I talked with the CEO of Boston Consulting Group, Christoph Schweitzer, and he made this point that many big multinationals had set up systems and task force and algorithmic models that really let them put in all these different trade parameters and spit out answers, sometimes within a matter of hours. And so he had made the case to me that companies could simulate the output of the U.S.

5:14Chip Cutter:ruling really quickly. But if you're a small mom and pop type of business, this is all just really tricky and you're kind of throwing your hands up right now. So one example of all of this is Dariana Bridal and Tuxedo in Pennsylvania. It's a bridal wear company that had seen bridal wear prices rise an average of 8 to 14 percent after the tariffs took effect. And one of the company's co-owners told one of my colleagues that his first thought was, oh, my God, every customer on Earth is going to demand a refund on their tariffs. And so you can see that fear among business owners right now, just wondering what are consumers going to ask and how do we respond?

5:53Robert McMillan:That was Journal reporter Chip Cutter. Thanks so much, Chip.

5:57Chip Cutter:Thank you.

6:03Robert McMillan:Shares of Danish drugmaker Novo Nordisk fell more than 16 percent today after a study found that its next generation obesity treatment failed to outperform Eli Lilly's Zepbound in a head-to-head study. The results are a setback for Novo Nordisk and its efforts to regain ground lost to Eli Lilly. Meanwhile, Lilly shares closed up 4.8 percent after the company received regulatory approval for a label expansion for ZepBound. The company said the drug can now be offered in a multi-dose pen that delivers four weekly injections from a single device, as opposed to the single-dose vials it had been available in before.

6:37Robert McMillan:Coming up, how U.S. officials and Iranians are preparing for a possible U.S. attack on the country. That's after the break.

6:51Chip Cutter:Agentic AI uses intelligent systems, or agents, that can reason, plan, and act with minimal human input to achieve defined goals. Jason Garzadas, CEO of Deloitte U.S., says businesses are already leveraging the possibilities. Whether that's in software and code development or contact-centered processing, standardized processes with existing data that can be highly automated are where we're seeing the most impact. It's a way to empower teams to reimagine business processes in a way that can be really energizing and differentiating for organizations.

7:27Robert McMillan:Peter Mandelson, the former UK ambassador to the US, was arrested today on suspicion of misconduct in public office, as the revelations linked to Jeffrey Epstein continued to send shockwaves through Britain's establishment. Files released by the US Justice Department appear to show that Mandelson emailed confidential government correspondence to Epstein, and that Epstein separately wired$75 ,000 to Mandelson. Police didn't comment on what their investigation was focused on. Mandelson hasn't responded to requests for comment, but he's previously said that he had no recollection or record of receiving the funds.

8:00Robert McMillan:Separately, the Pentagon is raising concerns to President Trump about an extended military campaign against Iran. Current and former officials say that the warnings have largely been voiced by General Dan Cain, the chairman of the Joint Chiefs of Staff within the Defense Department and during meetings of the National Security Council. But he's not the only one. Some officials said that such discussions are always part of the contingency planning process before military operations, but that Cain is seen as an aide who Trump trusts, and that the issues will be a factor in the president's decision on whether to attack Iran and how.

8:32Robert McMillan:A White House spokeswoman said that Cain is, quote, a talented and highly valued member of President Trump's national security team, and that the president listens to others' opinions before making a decision. Following media reports on Cain's warnings, Trump posted on social media saying Cain is not against a war with Iran, but that, quote, if a decision is made on going against Iran at a military level, it is his opinion that it will be something easily won. And in Iran, many locals are bracing themselves for the chaos and violence that might unfold if the ruling regime is actually brought down.

9:02Robert McMillan:Some who are worried about their physical safety are already making plans to leave Tehran, which they expect will bear the brunt of any airstrikes.

9:15U.S.

9:16Robert McMillan:artificial intelligence startup Anthropic put out a blog post today accusing three Chinese AI companies of stealing secrets from its Claude AI model. Anthropic said that the three companies, DeepSeek, Moonshot AI, and Minimax, prompted Claude more than 16 million times to train and improve their own products. Representatives from DeepSeek, Moonshot, and Minimax didn't respond to request for comment. For more, I'm joined now by Robert McMillan, who covers computer security for the journal. Bob, the report says that the Chinese AI companies are using a process called distillation here. What does that entail and why are they doing it?

9:49Chip Cutter:The easy way of understanding it is Claude acts like a teacher and the other model acts like a student. And it basically asks a bunch of preordained questions to Claude and Claude gives it the answers. And based on those answers, the people operating the little model can then tweak what are called the weights on their model. So it's kind of an end run around the very cumbersome and very expensive process of building a large language model.

10:16Robert McMillan:Anthropik said the activity by the Chinese developers raised national security concerns for the U.S. How exactly does that work?

10:24Chip Cutter:The U.S. companies have taken great effort to make their models safe, right, to prevent them from being used for fraud or from being used for terrorism or criminal activity. And what they're alleging is that if you can basically clone Claude using this distillation technique, you basically have another version of it that might not have the guardrails that Claude has. And so the allegation is basically like once we have the intelligence of Claude transferred onto another model, it's out of our control and it could be used for bad.

10:57Robert McMillan:I'm sure copying effectively their model means that these Chinese companies could also be presenting a business risk to Anthropic. How much of a threat is that?

11:07Chip Cutter:That's a big threat, right? If you could clone a product that costs tens or hundreds of millions of dollars to make for a fraction of that, then you can sell it for a lot less and then you can sort of get a wedge in. The ins and outs of how good these distilled models are, We don't know the answer to that, but you might remember a year ago when DeepSea first burst onto the scene, everyone was amazed at how good it was. And people almost instantly started wondering if it had used distillation to be created because it was so good and also because it had been created for a lot less money than the sort of state-of-the-art AI models created at the time.

11:47Robert McMillan:And is Anthropik the only company that's dealing with this distillation issue?

11:53Chip Cutter:No, I mean, probably all of the AI companies are worried about it. OpenAI last week sent a memo to U.S. lawmakers basically alleging the same thing, alleging that DeepSeek was using distillation to mimic OpenAI's products.

12:08Robert McMillan:That was WSJ reporter Bob McMillan. Thanks, Bob.

12:11Chip Cutter:Hey, Alex. Thanks so much for having me.

12:13Robert McMillan:And that's what's news for this Monday afternoon. Today's show is produced by Pierre Bien-Aimé and Anthony Bancey, with supervising producer Jana Heron. I'm Alex Osola for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

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