WEBVTT - US-China Decoupling Threat

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. You're listening to Bloomberg

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<v Speaker 1>BusinessWeek with Carol Masser and Tim Steneveek on Bloomberg Radio.

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<v Speaker 2>You gotta talk to China. I mean, okay, so the

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<v Speaker 2>President did announce a ninety day pause on higher reciprocal

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<v Speaker 2>tariffs that hit dozens of trade partners. After midnight, Tho'll

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<v Speaker 2>raise duties on China to one hundred and twenty five percent.

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<v Speaker 2>Shazad Kazi is COO and a managing director for China

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<v Speaker 2>Bagbook International. The company provides data that tracks the Chinese economy.

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<v Speaker 2>He joins us here in the Bloomberg Interactive Brokers Studio.

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<v Speaker 2>This is a very big trading partner of the United

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<v Speaker 2>States that was not affected positively by today's announcement. Still,

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<v Speaker 2>we saw Stock's link to China move higher. We saw

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<v Speaker 2>Apple move higher today. How does the how does the

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<v Speaker 2>fight between the US and China?

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<v Speaker 3>And yeah, that's a big question. I don't think it does.

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<v Speaker 3>This is a new era for sure, or I don't

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<v Speaker 3>think there's a very high chance of there being what

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<v Speaker 3>I call a deal for the ages of centuries between

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<v Speaker 3>these two. You know, where they decide they're going to

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<v Speaker 3>make structural changes to their economy, and they're going to

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<v Speaker 3>you know, get rid of you know, market barriers for

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<v Speaker 3>American companies, et cetera, et cetera. You know, start buying

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<v Speaker 3>a lot of commodities. Perhaps they'll buy a lot of commodities.

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<v Speaker 3>Perhaps they'll buy a lot of advanced chips if you

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<v Speaker 3>sell it to them. But those that big deal concept,

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<v Speaker 3>it doesn't happen. Instead, maybe what you get are a

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<v Speaker 3>series of mini deals between the two countries, and then

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<v Speaker 3>you're still on a course where these are two hostile powers. Decoupling.

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<v Speaker 4>Is it happening.

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<v Speaker 3>Decoupling is absolutely happening. It's happening in complicated ways. Obviously.

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<v Speaker 3>One thing is you see you know, bilateral trade for example,

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<v Speaker 3>between the two if you know, on paper, looks like

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<v Speaker 3>it has come down a bit. But you have the

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<v Speaker 3>problem of transshipment, which is essentially China has completely re routed.

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<v Speaker 3>It's traded the US through Southeast Asian countries, which by

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<v Speaker 3>the way, means that you could go from the one

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<v Speaker 3>hundred and whatever percent to you know, one thousand and

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<v Speaker 3>some percent, and it may not make a difference because

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<v Speaker 3>at this point you're relying on transhipming to get the

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<v Speaker 3>goods to the US anyway, so that number at some

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<v Speaker 3>point is less impactful.

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<v Speaker 4>How vulnerable is the Chinese economy right now? In this

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<v Speaker 4>what right now is a trade war between the United

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<v Speaker 4>States and China.

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<v Speaker 3>Big picture, the economy is obviously slowing down. They didn't

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<v Speaker 3>have a very hot March. That said one month of

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<v Speaker 3>week data. You know, it may bother markets, it does

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<v Speaker 3>not bother the Communist Party or sheet. I think they

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<v Speaker 3>have the capacity to weather the storm for now. Let's

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<v Speaker 3>keep in mind that counter to what we were hearing

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<v Speaker 3>all of flast fall, there was no big bang stimulus

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<v Speaker 3>bazooka this and that. People like to hear that Turma.

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<v Speaker 3>It didn't happen. They have the firepower in reserve because

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<v Speaker 3>they knew they're going to need it this year and

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<v Speaker 3>next year.

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<v Speaker 4>Probably is he also willing, President g willing to deal

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<v Speaker 4>with a little bit of pain in order to kind

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<v Speaker 4>of have a spine here, and.

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<v Speaker 3>Which they have.

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<v Speaker 4>He's obviously already shown in terms of the retaliatory tariff

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<v Speaker 4>like will to kind of go the distance, even if

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<v Speaker 4>it does mean some pain at home.

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<v Speaker 3>President she is not afraid of pain, as we've seen

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<v Speaker 3>with what he's done to his own economy right, and

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<v Speaker 3>China cannot capitulate. As far as he's concerned personally, and

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<v Speaker 3>as far as I think the Communist Party is concerned,

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<v Speaker 3>they will not come to Bision with the begging bowl.

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<v Speaker 3>They're not going to pick up the phone and beg

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<v Speaker 3>for a deal.

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<v Speaker 2>The move today from Apple has been a little puzzling

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<v Speaker 2>to me, and I've been talking to everybody about it.

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<v Speaker 2>I've been asking everybody about it. I know you don't

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<v Speaker 2>cover individual companies, but Apple is a very important company

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<v Speaker 2>in China. It had its best day since nineteen ninety

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<v Speaker 2>eight today, shares rallied by fifteen point three percent. Is

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<v Speaker 2>the optimism that Apple could see an exemption, Is the

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<v Speaker 2>optimism that Apple could move production outside of China and

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<v Speaker 2>more into India, at least for US bound smartphones. You're

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<v Speaker 2>nodding a little bit. Is it all of the above?

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<v Speaker 2>Like why is there optimism for a company that is

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<v Speaker 2>so enmeshed in China when it comes to its supply chain?

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<v Speaker 3>You know, my gut feeling is that markets still don't

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<v Speaker 3>really take this US China tariff war seriously, that there

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<v Speaker 3>is this continuing. Let's keep in mind they did not

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<v Speaker 3>think Trump was going to do all of this. The

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<v Speaker 3>market was ultimately caught by surprise when the big tariff

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<v Speaker 3>announcement in the Rose Garden happened. And I think a

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<v Speaker 3>big chunk of people ultimately think that there is a

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<v Speaker 3>big US China deal that's going to happen, like a

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<v Speaker 3>phase one or a phase two, of course, and things

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<v Speaker 3>are going to go. But I think part of it

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<v Speaker 3>is that sentiment out there. It could be just overplaying

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<v Speaker 3>the thing that the manufacturing can be moved out of

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<v Speaker 3>the India. Stuff is very short term and you know,

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<v Speaker 3>again you're going to recreate you know, iPhone city somewhere else.

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<v Speaker 3>That's going to take a very very long time. So

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<v Speaker 3>I don't truly buy the optimism as much as I

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<v Speaker 3>can understand it.

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<v Speaker 2>Do you not buy the optimism as a whole for

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<v Speaker 2>the market not understanding the ramifications of this trade where

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<v Speaker 2>like you still say that the market doesn't fully grasp

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<v Speaker 2>the tension with China, Yeah that's not price then.

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<v Speaker 3>Well, of course that was a big positive reaction because

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<v Speaker 3>global tariffs is essentially paired back to a large degree.

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<v Speaker 3>So I get it. But the next few days, the

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<v Speaker 3>next few weeks, if the tension with China remains at

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<v Speaker 3>this level or intensifies, I don't think the market should

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<v Speaker 3>be getting much relief in that.

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<v Speaker 4>In that case, Shiza, let me throw out some numbers.

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<v Speaker 4>It was in a story buyer and a curran who

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<v Speaker 4>follows the global economy and knows China really well. Two

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<v Speaker 4>economies US and China, with a combined GDP of forty

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<v Speaker 4>six trillion dollars locked in a game of chicken. His

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<v Speaker 4>words at stake, almost seven hundred billion dollars in two

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<v Speaker 4>way annual goods trade, China's estimated one point four trillion

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<v Speaker 4>dollars of portfolio investments in the United States, and less

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<v Speaker 4>obvious but no less significant variables such as people to

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<v Speaker 4>people links forged over decades at businesses and universities, and

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<v Speaker 4>public opinion that's seering on both sides. I've said this

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<v Speaker 4>a lot on air. I started my career and it

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<v Speaker 4>was all about global companies wanting to get into the

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<v Speaker 4>Chinese market. President Clinton the wto the fight to get

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<v Speaker 4>China in there. It was all about tapping the domestic

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<v Speaker 4>economy in China. That's what everybody wanted to do. They've

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<v Speaker 4>set up shop, they made deals. Is all of that

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<v Speaker 4>at risk? Is that all of that likely to go away?

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<v Speaker 4>And is should we think that that US China relationship.

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<v Speaker 4>It's just kind of this is the beginning of the end,

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<v Speaker 4>or maybe it's already started a few years ago.

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<v Speaker 3>You know. I don't think this all goes away. But

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<v Speaker 3>one point to consider is have US companies have these

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<v Speaker 3>CEOs really contemplated what their own future in China looks like,

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<v Speaker 3>because it seems like that they never understood that China

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<v Speaker 3>would actually do the technology transfers, do the jvs, et cetera,

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<v Speaker 3>and ultimately have its local companies prop up that would

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<v Speaker 3>be competing with their American counterparts and would be heavily

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<v Speaker 3>subsidized and would eventually go on to grab a bigger

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<v Speaker 3>and bigger share of the domestic market. Foreign companies in

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<v Speaker 3>general are struggling against local companies and various sectors in

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<v Speaker 3>China today. So what does that future look like? I

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<v Speaker 3>would suggest the CEOs contemplate that, But no, I don't

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<v Speaker 3>think this means everything's coming to an end and no

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<v Speaker 3>American companies in China.

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<v Speaker 4>All right. Chazak Ka Kazi, of course, the chief operating

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<v Speaker 4>officer and Managing director for China Facebook International