1 00:00:05,880 --> 00:00:09,000 Sean Aylmer: Welcome to the Fearing Greed Business Interview. I'm Sean Aylmer. Nearly 2 00:00:09,039 --> 00:00:12,920 Sean Aylmer: three weeks since Donald Trump's Liberation Day tariffs. In two weeks 3 00:00:12,920 --> 00:00:16,000 Sean Aylmer: since many of those tariffs were paused, the initial shock might 4 00:00:16,040 --> 00:00:19,440 Sean Aylmer: have worn off, with markets gradually adjusting to the reshaping 5 00:00:19,520 --> 00:00:23,000 Sean Aylmer: of global trade. But big challenges remain, obviously, including the 6 00:00:23,040 --> 00:00:26,840 Sean Aylmer: negotiation of either reduced tariffs with the US or new 7 00:00:26,880 --> 00:00:29,920 Sean Aylmer: trade deals between other countries, which might present an opportunity 8 00:00:30,200 --> 00:00:33,080 Sean Aylmer: for places like Australia. Tom Kenny is a senior international 9 00:00:33,120 --> 00:00:36,479 Sean Aylmer: economist at ANZ. Tom, welcome to Fear and Greed. 10 00:00:36,840 --> 00:00:38,040 Tom Kenny: Hi Sean, thanks for having me. 11 00:00:38,600 --> 00:00:40,559 Sean Aylmer: Have you ever lived through a three weeks like the 12 00:00:40,600 --> 00:00:43,479 Sean Aylmer: last three weeks at least in your professional life. 13 00:00:44,200 --> 00:00:46,640 Tom Kenny: No, it doesn't feel like it. Yeah, it's pretty crazy. 14 00:00:46,680 --> 00:00:49,600 Tom Kenny: I mean I kind of liken it to the initial 15 00:00:49,680 --> 00:00:53,720 Tom Kenny: days of COVID and the GFC. Yeah, it's pretty frenetic. 16 00:00:54,120 --> 00:00:58,560 Sean Aylmer: So where do we stand at the moment? Is uncertainty 17 00:00:58,680 --> 00:01:03,240 Sean Aylmer: still the overwhelming a kind of feeling and therefore we 18 00:01:03,280 --> 00:01:05,320 Sean Aylmer: have to wait and see or do we have a 19 00:01:05,360 --> 00:01:07,720 Sean Aylmer: little bit more kind of knowledge of where we're going. 20 00:01:08,360 --> 00:01:12,920 Tom Kenny: No, I think the uncertainty is still very elevated. Trump's 21 00:01:12,959 --> 00:01:16,440 Tom Kenny: just been backwards and forwards on his tariff announcements, you know, 22 00:01:17,240 --> 00:01:21,320 Tom Kenny: excluding some items, including other items, you know, changing attact 23 00:01:21,440 --> 00:01:24,760 Tom Kenny: on his you know, on his tariffs. I think the 24 00:01:25,240 --> 00:01:29,240 Tom Kenny: issue is he issued these tariffs using the executive orders 25 00:01:29,280 --> 00:01:32,640 Tom Kenny: on national security ground. So it's very difficult to pinpoint 26 00:01:32,959 --> 00:01:35,800 Tom Kenny: exactly why you know, he's putting down some of these 27 00:01:35,840 --> 00:01:39,960 Tom Kenny: tariffs in some instances, and the whole reciprocity of the 28 00:01:40,560 --> 00:01:43,040 Tom Kenny: tariffs I think was very confusing to a lot of nations. 29 00:01:43,040 --> 00:01:47,560 Tom Kenny: Were promised, you know, a fairly detailed costing of you know, 30 00:01:47,800 --> 00:01:50,080 Tom Kenny: for US ex borders, the costing of doing business and 31 00:01:50,120 --> 00:01:52,480 Tom Kenny: foreign countries, and in the end, it just turns out 32 00:01:52,520 --> 00:01:54,840 Tom Kenny: that it's as simple with the larger the surface you 33 00:01:54,920 --> 00:01:57,800 Tom Kenny: run with the US, the bigger the tariff. And and 34 00:01:57,880 --> 00:02:00,520 Tom Kenny: I think that you know, therein lies the different for 35 00:02:00,520 --> 00:02:04,320 Tom Kenny: for countries going to sort of negotiate with the US 36 00:02:04,400 --> 00:02:07,480 Tom Kenny: on how they're supposed to sort of lower those tariffs, 37 00:02:07,560 --> 00:02:10,280 Tom Kenny: because it's difficult to know how you've put the tariff 38 00:02:10,320 --> 00:02:11,400 Tom Kenny: at that particular level. 39 00:02:11,680 --> 00:02:12,360 Sean Aylmer: Yep, yep. 40 00:02:13,080 --> 00:02:14,959 Sean Aylmer: I want to this morning talk to you about sort 41 00:02:14,960 --> 00:02:17,840 Sean Aylmer: of the drivers of global growth, and we might not 42 00:02:17,880 --> 00:02:21,440 Sean Aylmer: talk about China, but of the Western economy, so that's US, Europe, 43 00:02:21,480 --> 00:02:26,120 Sean Aylmer: and Japan. What's the prognosis for the US? At the moment? 44 00:02:28,120 --> 00:02:31,679 Tom Kenny: The US was entering this year with fairly good momentum. 45 00:02:31,840 --> 00:02:35,400 Tom Kenny: US household balance sheets are pretty solid. We'd had built 46 00:02:35,480 --> 00:02:39,040 Tom Kenny: up and financial wealth considerably since COVID. Actually you know, 47 00:02:39,200 --> 00:02:42,320 Tom Kenny: very little movement in leverage, but quite a good deal 48 00:02:42,320 --> 00:02:45,200 Tom Kenny: of increase in financial asset worth, a good increase in 49 00:02:45,800 --> 00:02:49,560 Tom Kenny: household values as well. So household balance sheets were looking 50 00:02:49,880 --> 00:02:53,560 Tom Kenny: pretty solid. They were dealing with the inflation, higher prices, 51 00:02:53,600 --> 00:02:56,919 Tom Kenny: which they didn't like, but the consumer was certainly spending 52 00:02:56,919 --> 00:02:59,560 Tom Kenny: and driving a lot of the US growth above trend 53 00:02:59,600 --> 00:03:04,080 Tom Kenny: growth over the course of twenty twenty four. And you know, so, 54 00:03:04,360 --> 00:03:06,720 Tom Kenny: I mean our prognosis going forward, I guess is that 55 00:03:07,160 --> 00:03:10,519 Tom Kenny: you know that sentiment's a bit shaky. There's not really 56 00:03:10,560 --> 00:03:15,079 Tom Kenny: a strong relationship between sentiment and spending. But I think 57 00:03:15,120 --> 00:03:19,320 Tom Kenny: the longer sentiment stays depressed or down, then the more 58 00:03:19,400 --> 00:03:23,320 Tom Kenny: likelihood that's going to be reflected in spending habits going forward. 59 00:03:23,680 --> 00:03:27,560 Tom Kenny: And just I think this overwhelming uncertainty about where policy stands, 60 00:03:27,600 --> 00:03:31,240 Tom Kenny: it's very difficult or challenging for both households and businesses 61 00:03:31,320 --> 00:03:33,320 Tom Kenny: knowing what they're going to know, how do they go 62 00:03:33,360 --> 00:03:36,160 Tom Kenny: about planning something if they're not sure what the policy on, 63 00:03:37,000 --> 00:03:38,600 Tom Kenny: what Trump's policies are going to be doing. 64 00:03:39,480 --> 00:03:43,080 Sean Aylmer: So, what's the likelihood of the US slowing down potentially 65 00:03:43,120 --> 00:03:44,080 Sean Aylmer: even for a recession. 66 00:03:44,920 --> 00:03:48,800 Tom Kenny: Well, look, we just recently revised growth forecast for the US, 67 00:03:49,240 --> 00:03:52,560 Tom Kenny: So we had previously been thinking around about two percent 68 00:03:52,560 --> 00:03:55,160 Tom Kenny: for twenty five. We've scaled that back to one and 69 00:03:55,200 --> 00:03:58,840 Tom Kenny: a half percent. So that's virtually almost like a stalling 70 00:03:58,840 --> 00:04:01,160 Tom Kenny: and growth for the rest of his year, so very 71 00:04:01,200 --> 00:04:06,000 Tom Kenny: sharp slowing in consumer spending and business spending. Look, we 72 00:04:06,080 --> 00:04:09,200 Tom Kenny: put potentially put the odds of recession in the US 73 00:04:09,360 --> 00:04:12,480 Tom Kenny: at the moment at forty percent. That could go high. 74 00:04:12,720 --> 00:04:15,760 Tom Kenny: That's based on the current tariff for regime at the moment. 75 00:04:15,800 --> 00:04:18,640 Tom Kenny: But if we get all these reciprocal tariffs coming back 76 00:04:18,640 --> 00:04:22,280 Tom Kenny: in in the next whatever sixty days it is, then 77 00:04:22,360 --> 00:04:25,680 Tom Kenny: that probably raises the odds of a US recession. 78 00:04:26,400 --> 00:04:29,160 Sean Aylmer: Tom, just give us a sense of why the US 79 00:04:29,400 --> 00:04:33,320 Sean Aylmer: matters so much to economies like Australia and the global 80 00:04:33,360 --> 00:04:34,360 Sean Aylmer: economy generally. 81 00:04:35,480 --> 00:04:39,080 Tom Kenny: Well, it's the single largest importer in the world, so 82 00:04:40,320 --> 00:04:43,760 Tom Kenny: if you're trying to look for an alternative market in diversifying, 83 00:04:43,880 --> 00:04:46,560 Tom Kenny: it's as slim pickings and trying to find another market. 84 00:04:46,600 --> 00:04:49,640 Tom Kenny: So the US is very important for global trade, being 85 00:04:49,880 --> 00:04:54,200 Tom Kenny: being the largest importer. So if that if demand there 86 00:04:54,279 --> 00:04:56,160 Tom Kenny: drops off, it's going to be quite a shock to 87 00:04:56,200 --> 00:04:57,080 Tom Kenny: the global economy. 88 00:04:57,480 --> 00:05:03,680 Sean Aylmer: Stay with me, Tom, we'll be back in a minute. 89 00:05:06,800 --> 00:05:09,960 Sean Aylmer: I'm speaking to Tomic Kenny from ANZ. We spoke about 90 00:05:09,960 --> 00:05:12,279 Sean Aylmer: the US, and we always talk about the US, but 91 00:05:12,360 --> 00:05:16,400 Sean Aylmer: let's talk about the other big Western powerhouses at least, 92 00:05:16,720 --> 00:05:19,920 Sean Aylmer: starting with Europe. We've heard that Australia has started again 93 00:05:20,360 --> 00:05:27,040 Sean Aylmer: if free trade negotiations with that economy, I mean, what's 94 00:05:27,080 --> 00:05:31,080 Sean Aylmer: the prospect for Europe given the tariffs and then how 95 00:05:31,080 --> 00:05:33,560 Sean Aylmer: will that play out for economies like Australia. 96 00:05:34,640 --> 00:05:36,960 Tom Kenny: Yeah, well, I guess with the free trade agreement that 97 00:05:37,720 --> 00:05:42,480 Tom Kenny: is I think an interesting or exciting opportunity for Australia 98 00:05:42,520 --> 00:05:47,160 Tom Kenny: going forward. At present, Europe imposes a number of tariffs 99 00:05:47,520 --> 00:05:52,000 Tom Kenny: like minerals and medals, and it also has some quotas 100 00:05:52,040 --> 00:05:55,880 Tom Kenny: on agriculture goods. So if we move towards a free 101 00:05:55,880 --> 00:05:58,640 Tom Kenny: trade agreement, those kind of barriers to doing trade will 102 00:05:58,640 --> 00:06:02,360 Tom Kenny: come down. I think overall that would be you know, 103 00:06:02,400 --> 00:06:04,600 Tom Kenny: what we've seen in the past with free trade agreements 104 00:06:04,640 --> 00:06:07,840 Tom Kenny: is that you do see an increase in trade relations 105 00:06:07,839 --> 00:06:11,200 Tom Kenny: and investment flows between those two countries. So that would 106 00:06:11,200 --> 00:06:15,120 Tom Kenny: be our expectation of moving towards a free trade agreement there. 107 00:06:15,440 --> 00:06:18,600 Speaker 2: What about Europe as an economy, It seems to have 108 00:06:18,640 --> 00:06:20,520 Speaker 2: been a bit of a laggard for a long time. 109 00:06:20,960 --> 00:06:24,560 Tom Kenny: One of its prospects well, at the moment, things are 110 00:06:24,600 --> 00:06:29,440 Tom Kenny: a little bit down. Economy slowing or has been pretty 111 00:06:29,440 --> 00:06:32,800 Tom Kenny: weak for a while now, but interest rates coming down. 112 00:06:32,839 --> 00:06:35,880 Tom Kenny: We're expecting further cuts there, and it looks as though 113 00:06:36,480 --> 00:06:39,400 Tom Kenny: across the region there will be a bit of increased 114 00:06:39,440 --> 00:06:44,880 Tom Kenny: fiscal spending there to support the economy. So prospects are improving. 115 00:06:45,480 --> 00:06:49,520 Sean Aylmer: How important is it for the EU to negotiate a 116 00:06:49,560 --> 00:06:52,080 Sean Aylmer: decent deal with the US? 117 00:06:52,920 --> 00:06:57,039 Tom Kenny: Look, I think that's pretty important, But I think I 118 00:06:57,040 --> 00:07:01,560 Tom Kenny: think it's a broader relationship game than just the two countries. 119 00:07:01,600 --> 00:07:06,080 Tom Kenny: You can't it's it's based on national security issues as well. 120 00:07:06,600 --> 00:07:10,680 Tom Kenny: There's with NATO, there's issues there, and there's also issues 121 00:07:10,720 --> 00:07:13,520 Tom Kenny: with you know, it looks as though the US is 122 00:07:13,560 --> 00:07:18,040 Tom Kenny: trying to drive a decoupling agenda with China, So there 123 00:07:18,040 --> 00:07:21,560 Tom Kenny: will be a lot of negotiations around how much you know, 124 00:07:21,720 --> 00:07:24,960 Tom Kenny: Europe should or shouldn't be trading with China. So looking 125 00:07:25,000 --> 00:07:29,080 Tom Kenny: at the just the US Europe is just its broader 126 00:07:29,120 --> 00:07:29,640 Tom Kenny: than that, I. 127 00:07:29,600 --> 00:07:32,480 Sean Aylmer: Think for the two economies to just delve into that, 128 00:07:32,600 --> 00:07:34,600 Sean Aylmer: because really only the last two or three days have 129 00:07:34,640 --> 00:07:38,920 Sean Aylmer: we heard much about this whole kind of third party 130 00:07:39,000 --> 00:07:42,200 Sean Aylmer: issue which Trump is trying to push Europe for in 131 00:07:42,240 --> 00:07:46,080 Sean Aylmer: this instance, to not yet trade as much with China. 132 00:07:46,160 --> 00:07:48,880 Sean Aylmer: And he'll say he'll penalize people who are doing trade 133 00:07:48,880 --> 00:07:51,520 Sean Aylmer: deals with China. How much of a worry is that? 134 00:07:52,520 --> 00:07:55,680 Tom Kenny: I think that's extremely worrying, and that's that's the big 135 00:07:55,680 --> 00:07:58,640 Tom Kenny: element of unknown. I think he's done it in the 136 00:07:58,680 --> 00:08:02,440 Tom Kenny: past with you people that have dealt with Venezuela. Has 137 00:08:02,440 --> 00:08:07,600 Tom Kenny: punished people there. If it's China, we're obviously China's tentacles 138 00:08:07,600 --> 00:08:11,200 Tom Kenny: spread a lot further than Venezuela. So I think that 139 00:08:11,200 --> 00:08:14,720 Tom Kenny: that would be pretty dire if the US wants to 140 00:08:14,800 --> 00:08:18,400 Tom Kenny: direct who and who they can't other nations can trade with. 141 00:08:19,200 --> 00:08:22,120 Sean Aylmer: What about Japan, big trading partner of ours in Australia, 142 00:08:23,080 --> 00:08:27,000 Sean Aylmer: Japan's economy looks like it was springing to life, and 143 00:08:27,160 --> 00:08:30,680 Sean Aylmer: springing might be overstating it, but it was sort of 144 00:08:30,680 --> 00:08:33,160 Sean Aylmer: coming to life at least. What about now? Is that that 145 00:08:33,280 --> 00:08:35,719 Sean Aylmer: still the case or are these tariffs likely to stop it? 146 00:08:36,240 --> 00:08:39,760 Tom Kenny: Oh? Look, I think tariffs there are a big concern 147 00:08:39,920 --> 00:08:43,200 Tom Kenny: for Japan. They obviously have a heavy exposure to the 148 00:08:43,320 --> 00:08:48,040 Tom Kenny: US market, particularly with motor vehicles. Trade features quite strongly 149 00:08:48,080 --> 00:08:51,720 Tom Kenny: in its overall GDP. So you know, the prospects for 150 00:08:51,880 --> 00:08:55,480 Tom Kenny: Japan I think going forward will be could potentially be 151 00:08:56,040 --> 00:08:58,920 Tom Kenny: damaged if they don't sort of negotiate a much lower 152 00:08:58,960 --> 00:09:03,280 Tom Kenny: tariff rate with the US. In terms of opportunities for Australia, 153 00:09:03,320 --> 00:09:06,400 Tom Kenny: I guess you know, our largest import from Japan would 154 00:09:06,440 --> 00:09:09,320 Tom Kenny: be motor vehicles. They account for roughly about two thirds 155 00:09:09,320 --> 00:09:12,880 Tom Kenny: of our imports. Potentially we might get to see cheaper 156 00:09:13,520 --> 00:09:16,720 Tom Kenny: motor vehicles in Australia, but I'd be more concerned about 157 00:09:16,760 --> 00:09:21,920 Tom Kenny: what's happening with global demand than worrying about cheaper car Well. 158 00:09:22,080 --> 00:09:24,800 Sean Aylmer: I just had two way trade relationship with Japan. We 159 00:09:24,840 --> 00:09:28,080 Sean Aylmer: imported a lot of vehicles. Are we still selling basically commodities, 160 00:09:28,120 --> 00:09:29,800 Sean Aylmer: coal and things like that to Japan? Is that? 161 00:09:29,880 --> 00:09:33,760 Tom Kenny: Yeah? Minerals and or make up the bulk of our 162 00:09:33,800 --> 00:09:37,640 Tom Kenny: exports to Japan, and really that's largely dependent on our 163 00:09:37,960 --> 00:09:42,079 Tom Kenny: you know, our endowments of those particular items, and you 164 00:09:42,120 --> 00:09:44,520 Tom Kenny: know Japan's need for those. 165 00:09:45,280 --> 00:09:47,600 Sean Aylmer: Once ninety days is and we're a couple of weeks 166 00:09:47,640 --> 00:09:49,640 Sean Aylmer: into that ninety days. That's the nine to day pause 167 00:09:49,720 --> 00:09:54,440 Sean Aylmer: on tariffs. What would you like to see, Tom, Rather 168 00:09:54,440 --> 00:09:57,360 Sean Aylmer: than it's a crystal ball, I get that, But what 169 00:09:57,360 --> 00:09:58,400 Sean Aylmer: would you like to see? 170 00:09:59,360 --> 00:10:02,320 Tom Kenny: Well, I'd like to see some good faith coming from 171 00:10:02,360 --> 00:10:05,720 Tom Kenny: the US administration in terms of trying to negotiate those 172 00:10:05,760 --> 00:10:09,640 Tom Kenny: tariffs down. If that doesn't happen, then I'm quite concerned 173 00:10:09,679 --> 00:10:12,600 Tom Kenny: about what will happen to financial markets. We did see 174 00:10:12,640 --> 00:10:15,840 Tom Kenny: a couple weeks back that pretty much all across the board, 175 00:10:15,880 --> 00:10:19,760 Tom Kenny: all US ass that's were being sold as investors lost 176 00:10:19,760 --> 00:10:23,160 Tom Kenny: confidence in the US economy. And I think if that 177 00:10:23,440 --> 00:10:26,960 Tom Kenny: were to be the case, it would be pretty you know, risky, 178 00:10:27,080 --> 00:10:29,600 Tom Kenny: dark outlook if that were to be the case going forward. 179 00:10:30,400 --> 00:10:32,160 Sean Aylmer: Not Tom, thank you for talking to fear and greed, 180 00:10:32,480 --> 00:10:32,920 Sean Aylmer: no worries. 181 00:10:32,920 --> 00:10:33,480 Tom Kenny: Thanks very much. 182 00:10:33,920 --> 00:10:37,079 Sean Aylmer: That was Tom Kenny, senior international economist at a n Z. 183 00:10:37,360 --> 00:10:39,600 Sean Aylmer: This is the fear and Greed Business Interview. Join us 184 00:10:39,640 --> 00:10:42,040 Sean Aylmer: every morning for the full episode of Fear and Greed 185 00:10:42,360 --> 00:10:44,480 Sean Aylmer: Business news but people who make their own decisions. 186 00:10:44,559 --> 00:10:46,439 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.