Global Trade This Week – Episode 256
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Keenan Brugh 0:01
You're watching Global Trade this week with Pete Mento and Doug Draper.
Doug Draper 0:08
Hello, and welcome to another edition of Global Trade this week. Here's the exciting news, everybody. We got Keenan front and center. He's on the front of the camera, not behind the camera. Pete is tied up. He's on assignment, and then Keenan he sent this text this morning that said he's on holiday the next couple days. I'm like, okay, very European of you, my friend.
Keenan Brugh 0:33
He must be chatting with European friends going on vacation because yeah, they do they do call it holidays. Well, good for him. I know he works very hard, and it's important to be able to get some time off.
Doug Draper 0:45
Yeah, yeah, for sure. So I joke. I said, "Hey, in America, it's called a vacation. So let's get that straight. Anyway, we we got a tight show, and we'll just get this thing hammered out. I think we're going to skip halftime this week, Keenan, just so we can get these topics and and keep it flowing. So that being said, I'm going to let you start off. Let you rip it.
Keenan Brugh 1:07
Yeah. So topic number one is economic D Day. So the U.S. has now announced secondary sanctions on Iran. So obviously things have been going on for a while directly with Iran and directly with the Strait of Hormuz, and now this is a major escalation where Treasury Secretary Scott Besant is announcing sanctions on any partners around the world who are still trading with Iran, and so that impacts other major countries like China who buy a lot of Iranian oil, this is all a very fluid topic. So keep an eye on the news for the latest information. But from what I've heard and read, it sounds like China's already hit back. Of like they will fight back if these tariffs and trade implementations hit their firms. So I don't know if they're planning on removing away from oil with Iran and staying compliance with U.S. trade requirements, or if they're just they're ready for an active trade escalation war of what this is all going to look like. You know, I believe they announced these expanded sanctions, but haven't implemented or maybe have pushed back the implementation, similar to what we saw. I know this will get into your topic with Canada, but those ones did actually hit. So it's not all just bluster. There is actually real things happening, and so it kind of raises the stakes or raises the likelihood of rabor saddling turning into actual more hot economic warfare. Oil again is a big part of the China aspect, and obviously the U.S. and China do a lot of trade back and forth with each other, and so there's a lot of economic goods and services at risk here. Besides the oil, I think another big aspect pushing on this economic D-Day is crypto and sanctions on the crypto assets. Now, there's a certain element of crypto that is totally off on its own and kind of like below board system or like bearer bond, kind of like you have a little USB drive. However, a lot of the capital flows still have legitimate on ramps, right? So it kind of reminds me of what Obama had done during his era. Was it FATCA foreign accounts where you had to follow certain reporting aspects if an American business or citizen had a Swiss bank account, and on and on and on. So it's kind of like that, where I don't think anyone's going to be able to totally quash all of crypto exchange type stuff, especially the bearer bond equivalent hard asset. But for the large capital flows or getting large capital into above board systems, whether it's somewhere in the Middle East like the UAE, who still trades in some regards with Iran or a major exchange within China, there are elements that could be known by U.S. authorities of, hey, you're bringing in crypto from Iran. We know this came from oil or whatever it is, and we're going to now put new sanctions, new trade tariffs, or new fees or different things. And so, seems to be an active, an active week this week, which is maybe why we don't have Pete. So I apologize. I don't know as much as he does, but I do keep up to date on this sort of stuff, and it is fluid. So while we don't have all the answers here right now today, we are bringing this topic to us to discuss and to you, the audience, to be aware of to keep an eye on it. It is. It is some major happenings going on with economic D-Day. So, Doug, did you see this? What were some of your first takes or thoughts, concerns or hopes? Will this just go away, or is this some serious stuff for us to be paying attention to?
Doug Draper 4:55
Yeah. Well, of course, serious stuff to pay attention to. But here's my jaded. On everything,
Speaker 1 5:01
okay,
Doug Draper 5:01
Keenan. I'm
Keenan Brugh 5:02
ready. I'm
Doug Draper 5:04
good with analogies to dumb it down for this Kansas boy, right? But this is related to exports and the oil outside and who's purchasing and buying it. You ever go on a hiking trail and you're hiking and a tree falls? That doesn't mean you stop and turn around. It means that you just kind of go off to the left or go off to the right, and you can see the track where people have done it multiple times, and the grass is mushed down. May not be dirt, but people find their way around it. So my point is, is that they're not going to stop. And I'm specifically not to the sanctions of people that do direct business, but oil will continue to flow. In my opinion, it'll just be circumvented a little bit, right? I mean, if people want to buy it, they're going to buy it. They're going to figure it out. They've done that for the last couple months with the Strait of Homer's ghost ghost sailings and stuff like that. So that's related to you know the the sanctions of exports, if you will. As far as penalizing others that do business, you know, I always say that rules are very important until they're no longer convenient. So this is a pretty broad net, pretty generic, and so if there's carveouts that need to be made for the benefit of the U.S. those certainly will be made. One of which is China, because they're coming over to to meet with us. I think it's in like a month, right? So the president of China is coming over. So what happens there? Do you want to create riffle or you know ripples in the in the negotiation? But I think the net has been cast wide enough and vague enough that there'll be some carve-outs, and when those sanctions are no longer convenient to the United States, then there will be changes. Things move so quickly nowadays, right? And it seems like every single day things move more quickly. And I kind of spoke about this in a post last week. Pete and I had a great topic about Canada, and by the time the thing we spoke about it, and when it dropped, things changed 180. Right, that was within like less than 24 hours, and so that's my two take on those on those on those topics. So anyway, maybe that's a little bit jaded, but I think it sits in a little bit in reality.
Keenan Brugh 7:16
I think that's right. You know, they often call economics the dismal science, and when you throw in extra politics or even kinetic warfare type things on top of it with Iran, it does get complicated. And sometimes it is bluster, but sometimes real things also happen. So good for us to be informed and follow these things, even as there's whiplash, straights open, straights closed, on and on and on. How many different times, or you know, trade deals like, hey, maybe this thing with Canada, but like it's probably not going to happen. But then I think, and maybe that's a good segue here for you in the next topic. But that has changed since last week.
Doug Draper 7:55
I know, I know. So I'm going to just touch on this one very briefly. So you know, my topic is kind of like the, or it is not kind of. It is the the tit for tat that's going on in Canada and the U.S. Right, things cratered pretty substantially over the weekend, and the way both countries came out throwing haymakers, it obviously ended pretty pretty negatively behind the scenes there. Right, so you know, $20. So I'm not going to go into all the nuances, right? But we did the 50% on like 20 billion dollars worth of of goods. What I understand is that most of the Canadian goods still qualify under USMCA, so they remain tariff free. So these other, you know, 20 billion dollars is. I had heard strange things like honey, textiles, which I get hockey sticks. You're buying hockey sticks from Canada. Look out, they're going to be more expensive. Paper and electronics, right? And then the big threat that's coming on january 1 of 2027. Oh my God, that's like five months away. So who knows what's going to transpire in that time frame, but 50% on autos, trucks, and auto parts-that that is big. But again, we got five months to tit for tat that thing back and forth. Basically, if you're USMCA compliant, from what I looked at this morning, and really, it's like, is the U.S. government going to start closing the exemptions for that? Right. So, hey, all this stuff is exempted of this 50% tariff, but we're going to carve this out, and we're going to carve this out, and we're going to carve this out. So that that should be interesting. But you know, the two points that caught my attention is one, I saw an article that farmers and we speak about those the ag industry quite a bit. They're going to get crushed if these things happen. Fertilizer, fuel, machinery, right? Fertilizer, fuel, machinery. That's like 80% of what a farmer needs to succeed. It's like the hard, you know, the the work ethic is kind of what. What's left behind. So I think, excuse me, the work ethic is all that remains not left behind. I think farmers are going to get hit, and then this was kind of a the second thing is this was kind of a subtext where Canada is unveiling like seven and a half billion dollars worth of support, kind of a support package to employers. We're and kind of small to medium-sized entrepreneurs, to help mitigate the impact of these tariffs and and the trade. So Canada says we're ready to support you, and here's some money that we're going to put into to keep things stable and do the best. So the the support package that Canada is coming together, and then I think the U.S. farmers are going to be really impacting. So
Keenan Brugh 10:50
absolutely, I mean, you mentioned auto farmers. There's so many industries that our three countries in North America have historically traded back and forth for some of the goods. You know, fertilizer inputs. A lot of those come from Canada, or you know, a lot of Canadian products are sold into America. Those all add up, and I think you're right with the framing of tit for tat. I think I'm reading here that Canada's retaliating on with $20 billion in tariffs on 700 U.S. goods, including a 50% on American steel and aluminum. So there are some of these like strategic areas that now Canada is going to have to try to pay to keep their industries and their companies up and running, while also all this uncertainty. And so uncertainty is expensive for a lot of us in the shipping world who require movement of goods from point A to point B, and then yeah, if this is kind of upchanging or upsetting and changing the long term structure, what does that mean? You know, when the start of a lot of this trade type talks with China, people were kind of nearshoring into Mexico and Canada, and so far from the what I've read, Canada or U.S. and Mexico have been making progress on their talks, but then the talks kind of got to a standstill with Canada. Then now both sides are slapping new things on, and so even though you know we're no longer doing the automatic renewal of USMCA, and there's a little bit of time on that, there's also some faster things happening too, which is pretty big for a lot of current business and things that need to to move. And I think you're absolutely right. Agriculture may may be impacted as well. Many industries, auto, and all sorts of other things. But with that, that could, if this doesn't get resolved quickly, that could lead into more inflationary pressures for the farmers, and then ultimately for us buying food from a grocery store or from a restaurant.
Doug Draper 12:46
Yeah, for sure, for sure. Well, Keenan, as I said, we're going to skip halftime this week.
Keenan Brugh 12:52
I do have one quick one, just because I saw this and thought of you. So many, many halftime, right? Did you happen to see the robot that beat Usain Bolt's 100 meter dash time. So while there's lots of hilarious robot fails, there's also robots doing things that humans can't do and beating human best Olympic record type efforts. And so just good to be aware of that. Even as there's some funny fails and things happening in the robotics world, they're also having some success.
Doug Draper 13:23
Yeah, yeah, I did see that. I think it was like two tenths of a second, something that that that they did that. So, speaking of which, since we're kind of in a in a small halftime, I just saw my wife laughs at me because I'm a Reddit guy, right? I'll just death scroll Reddit, and I saw something, and I just literally saw it. I hate to say Keenan like five minutes ago when I was very
Keenan Brugh 13:47
fresh, very fresh, very
Doug Draper 13:49
fresh. So I don't have all the details, but there was an individual that jumped out that did the the highest world record for the highest parachute jump. It just happened like on the 22nd of August, 30 basically 38,000 feet, and he free falls for two and a half minutes, and he was like in this spacesuit, and you know he was on the cusp of being out out in space, and it was pretty cool. So I don't remember the gentleman's name, was not an American, but if you check that one out. It's got a pretty good video that accompanies it.
Keenan Brugh 14:24
Nice. I'll have to hunt that down and throw it in here for us to see that because no, I did not hear about that. But always love those like you know Red Bull or other just world record attempts in the world of Reddit and social media. Sometimes people have to do more and more extreme things in order to get a spot on that feed, but as long as they're safe and doing it effectively that way, it's good. It's good content.
Doug Draper 14:48
Yeah, yeah, for sure. So, anyway, Keenan, I want to say thank you and Cap Logistics for putting the show on every single week. Means a lot. You give the platform to to the show for us to talk about whatever we want and. Means a lot, man. So I just want to thank you for that.
Keenan Brugh 15:02
And the appreciation goes both ways. I learn so much from you and Pete on a weekly basis. Plus, we get to have fun. So my pleasure, Cap's pleasure. That'll take us here to the second half on the topic of trade deals. There's been a trade deal between Europe and some South American countries in talks for a while, and as these trade deals normally go, there's been negotiations and talks slowly for like decades. At this point, there has been a renewed push and interest on this, as South American countries and the EU, you know, don't have the same set of rules or trading partners as they may have had in the past with China or the U.S. Or you know, what if what if God forbid things heat up more so with China, and then we apply we as the U.S. apply a similar sort of you're not trading with China, are you? And put Europe in a hard spot. And so, I think from the European side, they're looking to gain access to probably several different things. But a big one is minerals, critical minerals, rare earth minerals, things that the South American countries have mining that don't exist in Europe. There are definitely some rare earths mined in Scandinavia and different things, but not only because of regulations and environmental type stuff. I think just what is in the ground and the amount of ground available to pull it out. There's plenty more in South America, and so with a little bit of the chaos going on, I think there's a renewed interest with EU and Mercosur countries that trade deal and implementations getting renewed deal making push, and so I don't know that there's like crazy ink is signed type of news to report on, but these groups are now feeling more motivation to find a European and South American trade agreement that they can they can trust and rely on, and hopefully set their economic blocks up for success. So I don't know if anything on that jogged your mind of something you read or something you've seen before, or thoughts on EU and South America.
Doug Draper 17:13
Yeah, well, great call out on this one, right? There's so much tariffs about Canada and China and things of that nature. So this is a great callout when I saw when I saw this one. So the two things that popped out at me is number one, just for a high high level recap, is that EU's basically saying, or we'll give you more access to our market for ag products, but you have to buy more industrial exports, right? So, basically, hey, buy the Europe is saying we want to sell you more stuff in industrial exports, and we want more access to ag, rare earth materials, and stuff like that. So that's that's the highest level that that I could summarize for everybody. But the bigger picture, in my opinion, is the EU is basically building preferential trade agreements or bridges in South Africa. At the same time, when the U.S. like you said, is just building walls, tariff walls, right? So it's like we need to diversify our trading blocs. So let's go to South America, which has become very popular. Open access, a two-way street, and it'll be interesting to see. I think this will not be the first that we'll see of other large trading partners with the U.S. to say we need to diversify. We talked about a China plus plus strategy with with sourcing in Asia. This is kind of like, hey, we we got to diversify and look at other trade agreements, and I think they're going to be pretty robust and pretty amicable for both parties. But those were the two things that caught my attention.
Keenan Brugh 18:51
Definitely interesting times. May we live in interesting times, and that kind of ties in a little bit to to your next topic, huh?
Doug Draper 18:59
Yeah, a little bit. Yeah, we spoke about this. I don't even. It was either last week or the week before, and I don't want to belabor a topic, but there was an article that came out that the Rhine River is starting to have some struggles related to drought. So this is about drought, water, transportation, right? So water is becoming more and more important with transportation capacity, right? So I'm going to talk about Panama first. I didn't real realize this is that the water, right, is comes from a lake. I can't remember the the the the name of the lake, but they use that fresh water, right? It comes in, and that's what allows the barges to go up and down, right, to move them through through the canal, and then about all that water goes into the into into the ocean. So it's fresh water that's doing the work in the Panama Canal. And then it just gets kicked off into the ocean. Well, they're able to to recycle and repurpose about 60% of that fresh water, but that's only 60% So that means 40% is basically going and salinated into into the into the ocean. Oh, by the way, that same lake is what people in Panama use every single day, they're drinking water, agriculture, everything else. So here's this fresh water. Meanwhile, there's drought. There's not enough fresh water. They need the fresh water to move the vessels through. So they're slowing things down, right? They're like, we can only handle so much. So that's a different spin on just hey, there's not enough water. Some of the water we're using is fresh water, which has a demand here, or excuse me, in Panama as well. The Rhine, right? We spoke about, or the Danube is what we spoke about. But that kind of hits, I don't know, eight or 10 countries as it goes down, and you know that waterway can only support so much whenever it's down, and it's supporting things like steel manufacturing, chemicals, and you just-I joke that you never turn off a cow, right? So you got to you do something with the liquid if it doesn't sell, and you powder milk, right? Well, you never turn off some of these productions and and and the energy and the steel and the general manufacturing. So if that's continued to flow, a lot of that moves on the water, you can only move so much on the water because the level's low. You got to put it somewhere, so you're putting it on trucks and on rail and stuff in the ground. And that infrastructure is not designed to support the overflow from those barges when things go down, right? So it's kind of really becoming a resource allocation with it, and I think that you and I in America may not directly impact. You know, hey, okay, the water level's low in the Danube River and the Rhine River doesn't really affect me. But globally and trade-wise, I think it's becoming bigger and bigger. And the whole freshwater use to do the work that needs to be done in the Panama Canal, and that water goes into into the ocean, and there's multiple people buying for that fresh water. That was really interesting to me, and maybe I'm a little naive. I didn't didn't know that that level of detail, but it's a big deal. I just can't verbalize it enough, but the drought-we talk about it here in Colorado all the time-but it's impacting things all over the world.
Keenan Brugh 22:30
Absolutely, I mean the Danube and the Rhine-that's kind of the equivalent over there of our Mississippi-and so much agricultural goods are shipped within the U.S. out to the Gulf and up over to the east eastern part of the country or down through the Panama, and so we're facing a little bit of that here, where it's lower water, maybe not quite as tight as what Panama and Germany and surrounding countries are seeing. But even when it goes down a little bit, that can increase the shipping costs. I'm just reading right now. Apparently, freight rates from St. Louis are up 77 above the three-year average, and that's because of low water. It's not that bad here in America yet, but it adds up. And what they're facing over in Europe and down with the the Panama Canal; those things raise costs. Things have to find a new way around. Those reroutings end up filling trucks that would otherwise be available and open elsewhere. Drives up the price. All of this, I mean, could drive a lot of food inflation too. I mean, if people can't move grain, I'm forgetting the name of the port, but wasn't there just another like Ukraine attacked some port that's going to cut off a lot of wheat? You know these low waters in the systems. Whether it's a 77% increase here in America, or it's not able to go through the Panama Canal, it's just going to cost a lot more to move all these inputs, whether it's the phosphates or the nitrogens or the end products of the raw commodity good. And these commodities, like in normal times, they're operating on pretty thin margins. I would expect this to result in higher and higher food prices, and you know I can't 100% predict which countries or which people will be most affected, but I think this is happening in multiple places at once. Low water in the U.S. I mean, we see it in Colorado, but hitting the Mississippi too, definitely hitting Germany and Europe. Those countries over there and Panama. Things could get more expensive. We don't like to see that, but that seems to be something people should be aware of.
Doug Draper 24:43
Yeah, yeah, crazy stuff. All right, man. I think we're going to wrap this thing up. Keep it short and sweet. I want to thank Cap Logistics for making all this happen. Specifically, you, Keenan. It wouldn't do it without you, and you get my namaste for the week. So, anyway, appreciate our audience. Every single week on global trade this week, and if it's happening in global trade, and oh my gosh, global trade is is I can't even think of the right word. It's just permeated day to day conversations, you know, and it pivots so quickly. So thanks for listening us, and if that's happening, we're going to talk about it week in and week out. So that's it, my friend. Thanks for joining in this week. I appreciate it.
Keenan Brugh 25:23
Absolutely. Thanks, Doug, and thanks everyone for watching. And we'll catch you next week on Global Trade this week.