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Speaker 1: Yelda. I'm Chelsea Daniels and this is a bonus episode

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Speaker 1: of The Front Page, a daily podcast presented by The

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Speaker 1: New Zealand Herald. A week after announcing his Liberation Day

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Speaker 1: tariffs and causing global market chaos, US President Donald Trump

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Speaker 1: has done a one eighty. He has announced on social

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Speaker 1: media that he has paused tariffs against seventy five countries

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Speaker 1: for ninety days, but has doubled down on a trade

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Speaker 1: wark with China, announcing a one hundred and twenty five

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Speaker 1: percent tariff on goods from the country. US stocks rocketed

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Speaker 1: higher after the declaration. The S and P five hundred

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Speaker 1: posted its best day since two thousand and eight, the

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Speaker 1: Nasdaq its best day.

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Speaker 2: Since two thousand and one.

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Speaker 1: So what's behind the sudden backtrack and what could all

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Speaker 1: of this mean for New Zealand?

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Speaker 2: Today?

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Speaker 1: On the Front Page, Where's Your Waned once again by

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Speaker 1: Nsitt Herald Business Editor at Large, Liam Dan.

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Speaker 2: Liam, we only caught.

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Speaker 1: Up with you a few days ago on tariffs, and

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Speaker 1: here we are again. Did you expect there would be

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Speaker 1: such a backtrack so quickly? And what do you think

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Speaker 1: motivated this decision?

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Speaker 3: Well, I've given up expecting or not expecting things out

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Speaker 3: of the current scenario then the current US president, so

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Speaker 3: anything was possible, and it was never clear to what

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Speaker 3: extent these tariffs were a negotiating tactic. There was a

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Speaker 3: lot of messaging from the White House that they were

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Speaker 3: dead serious, but really what's happened is he's had to backtrack,

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Speaker 3: except for China so far because of the financial market

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Speaker 3: reaction and not so much just the share market sell off,

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Speaker 3: which was bad enough, but what we've seen in bond

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Speaker 3: markets in the last twenty four hours seems to be

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Speaker 3: the real reason that they've backed down.

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Speaker 1: Right, So when we're all looking at share markets and

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Speaker 1: looking at the SMP and the NASDA and everything, what

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Speaker 1: was happening with bonds.

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Speaker 3: In the wake of the initial announcement. There was so

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Speaker 3: much fear that we're heading into a recession and things

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Speaker 3: that the bond yields actually fell that the standard model

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Speaker 3: was that when we say bond yields, we're talking about

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Speaker 3: effectively the interest rate on debt. So bonds are a

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Speaker 3: product that is effectively sold, is that they're the debt market.

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Speaker 3: The bond market is the debt market for the world.

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Speaker 3: There's a something crazy like one hundred and thirty trillion

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Speaker 3: US dollars of debt in the world. The world runs

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Speaker 3: on debt, and these bond markets are widely considered to

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Speaker 3: be the most powerful political force in the world. They're

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Speaker 3: the thing that can stop presidents in their tracks. They

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Speaker 3: effectively force the resignation of the UK Prime Minister is

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Speaker 3: Trusts when she sort of unveiled some economic policies which

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Speaker 3: didn't make sense to bond markets. So if you cop

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Speaker 3: a serious reaction from bond markets, effectively a self a

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Speaker 3: sell off of bonds, the price goes down, the yield

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Speaker 3: goes up, and the cost of borrowing in your country

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Speaker 3: starts to spy, and that is a big problem. You've

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Speaker 3: reserved bank or your federal Reserve can come in and

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Speaker 3: try and push back against that by cutting interest rates,

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Speaker 3: cutting the official cash rate. But effectively, if markets are

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Speaker 3: saying that at the pricing a higher cost of borrowing,

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Speaker 3: it just means everything slows down in your economy because

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Speaker 3: you know, people can't afford to borrow to do things.

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Speaker 1: In a speech at the National Republican Congressional Committee President's dinner,

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Speaker 1: Trump made some pretty scathing comments about his allies.

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Speaker 2: I'm telling you, these countries are calling us up kissing

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Speaker 2: my ass.

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Speaker 1: They are dying to make it your.

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Speaker 2: Please, please make it your I'll do anything. I'll do anything, sir,

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Speaker 2: Do we have to kiss his ass? Slam?

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Speaker 3: Well, there's two approaches. Some countries have decided that it's

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Speaker 3: better to negotiat. I think New Zealand, having copped just

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Speaker 3: the baseline ten percent tariff, as we're not retaliating, we're

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Speaker 3: not really in that negotiating framework. I mean, we can

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Speaker 3: talk about the ten percent, but that's going across all

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Speaker 3: the countries, so it's not scific to New Zealand. We'll

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Speaker 3: have our trade officials go and talk to them and say, hey,

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Speaker 3: this is a bit weird and can we get some clarification.

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Speaker 3: But I don't think we're trying to negotiate in the

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Speaker 3: same way say Japan would be trying to negotiate right now.

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Speaker 3: We just have to wait and see what happens to

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Speaker 3: the whole thing. But then the other tactic, as we've seen,

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Speaker 3: is China has absolutely retaliated and we've got this you know,

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Speaker 3: standoff that's got to a sort of I guess a

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Speaker 3: mutually assured self destruction, you know, like kind of it's

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Speaker 3: like a nuclear level standoff. Now between China and the US,

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Speaker 3: and I suspect that in that case, both sides are

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Speaker 3: looking for a way to start talking. But both sides

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Speaker 3: need to look like they're not backing down. So my

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Speaker 3: hunch is that they're trying to find a way to

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Speaker 3: get some talks going because it's not a sustainable position.

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Speaker 3: It's disastrous for the US economy to have tariffs of

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Speaker 3: whatever it is, one hundred and twenty five percent on

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Speaker 3: Chinese goods, but it's also going to be a big

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Speaker 3: problem for China. I would imagine something's going to have

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Speaker 3: to move in the next few days.

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Speaker 1: Trump's top trade official, Jamieson Grea, was testifying before Congress

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Speaker 1: when the ninety day pause was announced, and it doesn't

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Speaker 1: seem like he knew about it.

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Speaker 2: When asked about it, he said, well, I understood the

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Speaker 2: decision was made a few minutes ago.

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Speaker 1: Now this just confirms to us that these decisions seem

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Speaker 1: to be made on the fly, doesn't it.

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Speaker 2: How dangerous is that?

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Speaker 3: It's very dangerous. I mean, Trump's playing a really high

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Speaker 3: stakes game of poker with really the very notion of

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Speaker 3: the US economy being that the primary or dominant economy

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Speaker 3: in the world. So trust in the US economy is

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Speaker 3: fundamental to their dollar being the primary currency for trading

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Speaker 3: in the world, and to come back to them again

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Speaker 3: to the bond market. So when you have a big

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Speaker 3: sell off of equities around the world, or if something

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Speaker 3: bad happens COVID, you know whatever, US bonds are seen

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Speaker 3: as the safe place you go there where you put

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Speaker 3: your money to stay safe. Now, what's happened in the

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Speaker 3: past couple of days is that we've seen US bonds

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Speaker 3: sold off quite significantly, so that the bond yields have

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Speaker 3: gone up. So it's just important to remember that there's

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Speaker 3: this inverse relation between the bond price and the bond

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Speaker 3: yield or the interest rate on the bond. So I

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Speaker 3: always think it's a bit like trying to back a trailer.

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Speaker 3: I always have to stop and just get it right

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Speaker 3: in my head each time, because it's not as straightforward

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Speaker 3: an equation as it is for equity markets. But around

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Speaker 3: the world countries have either been selling off bonds or

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Speaker 3: just stopped buying them. There's a lot of talk about

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Speaker 3: the fact that this could be done as a deliberate

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Speaker 3: retaliatory tactic. So China holds about a trillion dollars of

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Speaker 3: American bonds, and if they were to start selling them rapidly,

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Speaker 3: that would have a significant impact on the market. Now

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Speaker 3: it's not clear whether they were, or maybe they are

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Speaker 3: at some level, but there's probably a wider sell off

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Speaker 3: going on. And the pace at which the yield was

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Speaker 3: going up. It wasn't taking yields up to the highest

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Speaker 3: we've seen them in the past year or two, but

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Speaker 3: the pace at which the yield was rising was spooking

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Speaker 3: people in the US. There's a famous quote. It was

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Speaker 3: Bill Clinton's economic advisor, James Claville. He was the guy

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Speaker 3: who said it's the economy stupid, and they coined that phrase.

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Speaker 3: But he once said, after a sort of probably much

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Speaker 3: more mild crisis, that he used to think if he

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Speaker 3: was reincarnated, he'd want to come back as a president

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Speaker 3: or a pope to be powerful, But now he'd just

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Speaker 3: rather come back as the bond market, because that's the

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Speaker 3: most powerful thing there is out there. They're not well understood,

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Speaker 3: they're not a popular topic in the just the general

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Speaker 3: world of the public, but underpinning everything, it's that debt

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Speaker 3: and the price of debt that keeps our economy functioning

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Speaker 3: and flowing and so to sort of blow up the

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Speaker 3: established world order on that is a very high stakes game.

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Speaker 1: Indeed, and you mentioned Liz Trust before as well. Is

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Speaker 1: it true that so the bond market it can't lie right?

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Speaker 1: So you look back in twenty twenty one when Liz

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Speaker 1: Trust's tax cut policy tanked the markets and she had

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Speaker 1: to backtrack and eventually resign ultimately the markets in the

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Speaker 1: bond market in particular, does that make or break these policies?

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Speaker 3: Yeah, look at will do. I mean, sheer markets possibly could.

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Speaker 3: But you can sort of wear a shear market crash

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Speaker 3: because you know, you can say, oh, well it's paper money.

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Speaker 3: You know, we've we've lost so many trillion, but it

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Speaker 3: might come back next month. With the bond yields rising

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Speaker 3: to a certain point, there's a real world effect of

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Speaker 3: seizing up financial markets like we saw in the GFC.

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Speaker 3: You know, you just if the overnight borrowing rates go

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Speaker 3: through the roof, that the whole system can seize up.

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Speaker 2: Come it's less forgiving, Yeah.

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Speaker 3: Because companies that thought they had an okay amount of

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Speaker 3: debt to carry on suddenly find out that the amount

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Speaker 3: of debt they've got is too big. With these new

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Speaker 3: higher interest rates, and you know, in the GFC that

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Speaker 3: meant that some banks, big banks started falling over, so

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Speaker 3: you know, and then you've got a global financial crisis.

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Speaker 3: So I guess what we're saying is that there's a

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Speaker 3: risk if this all spirals, that you get another global

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Speaker 3: financial crisis. And I don't think even Donald Trump has

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Speaker 3: the stomach for that. And that's probably what's forced this

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Speaker 3: partial back down and hopefully some sort of resolution in

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Speaker 3: the near future with the China standof.

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Speaker 1: And is that why we should be looking at the

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Speaker 1: bond markets not the share markets, because there have been

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Speaker 1: some record days for the share markets and people would

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Speaker 1: be looking at that thinking that's surely a good sign, right, Yeah.

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Speaker 3: I mean it's very reactive the share market, so it

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Speaker 3: came off a lot. People don't have clear signals, you know,

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Speaker 3: you can't predict what's going to happen, what's going to

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Speaker 3: come out of the White House. So the share markets

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Speaker 3: are very erratic, very volatile. They have bounced a lot

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Speaker 3: this morning that there's still in correction territory. They've bounced

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Speaker 3: back from around twenty percent losses this year to sort

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Speaker 3: of being I don't know, probably still down about ten

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Speaker 3: or twelve percent a lot of the share markets this year,

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Speaker 3: so it's still not been a great run. I guess

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Speaker 3: share market investors are hoping that we're back from the brink.

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Speaker 3: I mean, addedly, it's just a ninety day pause, so

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Speaker 3: it doesn't make the uncertainty go away. Perhaps you could

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Speaker 3: argue that this is all a softening, you know, to

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Speaker 3: get to where Trump wants to be with a new

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Speaker 3: world Order of tariffs. You go through this turmoil and

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Speaker 3: wherever we land is a bit soft and slowly the

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Speaker 3: will gets used to the idea of what's coming, and

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Speaker 3: markets priced in, and he lands somewhere that's not quite

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Speaker 3: so terrifying. But yeah, I think it is the bond

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Speaker 3: market that's really going to decide it, and that's where

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Speaker 3: we should be looking.

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Speaker 1: China, of course, remains Trump's main target. He said that

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Speaker 1: the increased tariffs there are because of a lack.

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Speaker 2: Of respect Beijing has shown.

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Speaker 1: Will the measures against China have a trickle down effect

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Speaker 1: for New Zealand and others?

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Speaker 2: How will that affect us?

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Speaker 3: Yeah? So if this really does play out, if these

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Speaker 3: tariffs stay in place, it's going to be bad news

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Speaker 3: for the Chinese economy. It's going to cost them as well,

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Speaker 3: so that will affect growth. Now you get into a

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Speaker 3: game of who can take the most pain and who's

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Speaker 3: got the most ability to sort of maybe stimulate their

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Speaker 3: economy through that, you could have you know, central banks

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Speaker 3: on both sides sort of unleashing stimulus like they did

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Speaker 3: during COVID. That's not great long term, but in the

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Speaker 3: short term. Yeah, the expectation is that it's quite serious

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Speaker 3: for the global economy and probably quite serious then for

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Speaker 3: New Zealand's recovery. It's a headwind. It slows that. I

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Speaker 3: think the Finance Minister's called it a significant event. She's

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Speaker 3: obviously weary of calling it a crisis at this point.

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Speaker 3: Yesterday we had the Reserve Bank cutting the official cash

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Speaker 3: rate by the sort of two twenty five basis points,

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Speaker 3: which was what was already planned, but the tone was

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Speaker 3: that they could go further and they'd be ready to

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Speaker 3: go further if things go bad for the economy. So

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Speaker 3: that could mean that we see the official cash rate

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Speaker 3: go lower than expected. Here, I mean's lower mortgage rates

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Speaker 3: to try and try and offset the downside. And then

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Speaker 3: you know, the other part of any stimulus or help

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Speaker 3: that you could get for the New Zealand economy would

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Speaker 3: be the government part, and that's where the Finance Minister

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Speaker 3: has so far tried to say, look, no, we're holding

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Speaker 3: the course. The budget's the same, we're still trying to

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Speaker 3: get out of deficit, get the books into surplus on

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Speaker 3: the same pathway, but also saying she's not prepared to

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Speaker 3: do more cuts. But if the numbers don't add up,

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Speaker 3: if the New Zealand economy, if the growth is slower,

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Speaker 3: the tax and you will be lower and the government

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Speaker 3: could face some hard choices. So it may be that

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Speaker 3: if this spirals and the budget's sort of almost written now,

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Speaker 3: but there could be some emergency revisions to the budget,

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Speaker 3: they may have to relax their fiscal constraints and allow

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Speaker 3: a bit more government money into the economy. It's not

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Speaker 3: certain yet, but if things keep turning in a negative fashion,

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Speaker 3: then that is an option for the government as well.

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Speaker 3: I mean, they're wary of borrowing more to do that.

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Speaker 3: But then you'd have to look at it in the

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Speaker 3: context of a world where probably governments around the world

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Speaker 3: are having to do this sort of thing.

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Speaker 1: And Trump has said China wants to make a deal,

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Speaker 1: they just don't know how quite to go about it.

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Speaker 1: What could he mean here? And what deal could China

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Speaker 1: possibly bargain? Do they need to?

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Speaker 3: Well, this is what I mean about. I think there's

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Speaker 3: a lot of saving face here on both sides. Trump

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Speaker 3: says it as if it's just China's issue, but I

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Speaker 3: think America is quite quite keen to make a deal too,

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Speaker 3: was hoping that they would make a deal. And China's

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Speaker 3: the second biggest economy in the world. It sees what

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Speaker 3: these you know, sees this tariff policy as an attack

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Speaker 3: on itself, and so it's standing up and yeah, look,

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Speaker 3: it is a bit like a sort of a Cold

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Speaker 3: war nuclear moment. You take it to the brink, and

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Speaker 3: then at some point, you know, you just hope that

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Speaker 3: there is going to be a way there. You know,

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Speaker 3: both both leaders and both countries will say, oh no,

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Speaker 3: we've got the other sides back down, But there has

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Speaker 3: to be a way for them to both save face

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Speaker 3: with their own public and get to the negotiation table

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Speaker 3: and dial it back to something that is manageable, because

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Speaker 3: you know, at the moment, you know, those kind of

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Speaker 3: tariffs when you consider the complexity of the trading relationships

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Speaker 3: and the manufacturing relationships on everything from iPhones to cars

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Speaker 3: and just all the goods that are connected between China

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Speaker 3: and the US. It would be a disaster and really

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Speaker 3: inflationary for both economies.

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Speaker 2: Thanks for joining us, Liam, Yeah, thank you.

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Speaker 1: That's it for this episode of the Front Page. You

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Speaker 1: can read more about today's stories and extensive news coverage

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Speaker 1: at enzedherld dot co dot enz.

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Speaker 2: The Front Page is produced by Ethan.

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Speaker 1: Sills and Richard Martin, who is also a sound engineer.

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Speaker 2: I'm Chelsea Daniels.

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Speaker 1: Subscribe to the Front Page on iHeartRadio or wherever you

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