1 00:00:02,360 --> 00:00:06,640 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:06,760 --> 00:00:08,920 Speaker 2: Also, I think the question that becomes all the sequencing 3 00:00:08,960 --> 00:00:11,040 Speaker 2: we're going to get from a President trub administration and 4 00:00:11,080 --> 00:00:13,440 Speaker 2: sort of when that winds up affecting equity markets. Right, 5 00:00:13,440 --> 00:00:16,360 Speaker 2: you have tax cuts versus tariffs, Right, you have immigration 6 00:00:16,960 --> 00:00:20,160 Speaker 2: versus deregulation. Like what comes first could also dictate thats. 7 00:00:20,000 --> 00:00:22,440 Speaker 1: And I think the market might be waiting a little bit. Obviously, 8 00:00:22,520 --> 00:00:25,439 Speaker 1: the inauguration here in the United States is until January twentieth. 9 00:00:25,480 --> 00:00:27,319 Speaker 1: Then we have to kind of see whether he makes 10 00:00:27,360 --> 00:00:29,680 Speaker 1: good on all those promises or whether it was just 11 00:00:29,720 --> 00:00:30,040 Speaker 1: all talk. 12 00:00:30,160 --> 00:00:31,680 Speaker 2: Yeah, so let's get a little bit into that. Because 13 00:00:31,680 --> 00:00:34,360 Speaker 2: Bloomberg Economics crunch the numbers on what would happen to 14 00:00:34,600 --> 00:00:37,880 Speaker 2: GDP in different countries based on whether or not all 15 00:00:37,960 --> 00:00:40,760 Speaker 2: partners retaliated in an event of a trade war, or 16 00:00:40,800 --> 00:00:43,880 Speaker 2: only if China retaliates, And you can see Mexico getting 17 00:00:43,920 --> 00:00:47,120 Speaker 2: hit the hardest right after Canada with a GDP wiped 18 00:00:47,120 --> 00:00:50,000 Speaker 2: out by about two percent. The US comes next with 19 00:00:50,000 --> 00:00:52,960 Speaker 2: about one and a half percent negative to GDP. And 20 00:00:52,960 --> 00:00:54,920 Speaker 2: the question that becomes we talk all about China and 21 00:00:54,960 --> 00:00:57,680 Speaker 2: what it means for Europe, but the impact on the 22 00:00:57,720 --> 00:01:00,400 Speaker 2: rest of North America could be huge, particularly for any 23 00:01:00,440 --> 00:01:03,800 Speaker 2: sort of goods coming in from China through Mexico and Canada. 24 00:01:03,840 --> 00:01:06,360 Speaker 2: So joining us now to discussed at Eshwar Prasad Tolani, 25 00:01:06,480 --> 00:01:09,360 Speaker 2: Senior Professor at Trade Policy at Cornell University and Senior 26 00:01:09,400 --> 00:01:13,560 Speaker 2: Fellow at New Century Chair International Economics at the Brookings Institution. 27 00:01:13,880 --> 00:01:16,120 Speaker 2: It's great to get your perspective. Thank you for joining us, 28 00:01:16,360 --> 00:01:19,200 Speaker 2: Happy New Year. What's your bas case for trade wars? 29 00:01:19,200 --> 00:01:19,800 Speaker 2: This year. 30 00:01:21,200 --> 00:01:25,600 Speaker 3: Trump has gotten increasingly specific about the amount of titles 31 00:01:25,640 --> 00:01:27,600 Speaker 3: he is going to Levy, the country, city is going 32 00:01:27,640 --> 00:01:31,040 Speaker 3: to Levy Ton right off the bat. So I suspect 33 00:01:31,040 --> 00:01:34,440 Speaker 3: this is not all bluster. Now for the rest of 34 00:01:34,480 --> 00:01:36,399 Speaker 3: the world, I think this could be seen as a 35 00:01:36,400 --> 00:01:39,240 Speaker 3: bit of a bargaining stance. And the reality that is 36 00:01:39,959 --> 00:01:43,240 Speaker 3: quite different from the first Trump administration is that the 37 00:01:43,400 --> 00:01:46,280 Speaker 3: US is on a very strong footing because economy here 38 00:01:46,280 --> 00:01:50,000 Speaker 3: has been doing remarkably well over the last few years 39 00:01:50,000 --> 00:01:53,960 Speaker 3: in the COVID period. But in addition, the rest of 40 00:01:53,960 --> 00:01:57,640 Speaker 3: the world is really floundering in terms of economics performance. 41 00:01:57,640 --> 00:02:03,360 Speaker 3: If you look at China, Europe, including powerhouses like Germany, Japan, 42 00:02:03,440 --> 00:02:06,840 Speaker 3: and even India, which was roaring along until recently. None 43 00:02:06,880 --> 00:02:09,600 Speaker 3: of these countries can really withstand the effects of a 44 00:02:09,639 --> 00:02:13,440 Speaker 3: significant increase in trade sanctions around the world, so they're 45 00:02:13,480 --> 00:02:15,000 Speaker 3: going to be on the back foot. So it's going 46 00:02:15,000 --> 00:02:18,080 Speaker 3: to be a very interesting bargaining game. But my bet 47 00:02:18,480 --> 00:02:20,600 Speaker 3: is that we're going to see at least a small 48 00:02:20,680 --> 00:02:25,960 Speaker 3: increase in tariffs, perhaps some symbolic amounts, but especially targeted 49 00:02:26,000 --> 00:02:29,040 Speaker 3: towards China. And what the world does to retaliate, I 50 00:02:29,080 --> 00:02:32,000 Speaker 3: think is the key question at hand exactly. 51 00:02:32,240 --> 00:02:35,080 Speaker 2: And if we just focusing on North America for a moment, 52 00:02:35,639 --> 00:02:37,040 Speaker 2: I can make an argument that, you know what, it's 53 00:02:37,120 --> 00:02:39,400 Speaker 2: legit because if you have stuff coming from China through 54 00:02:39,480 --> 00:02:41,320 Speaker 2: Mexico and Canada, you're not going to want to get 55 00:02:41,360 --> 00:02:43,519 Speaker 2: that into the US Versus the other side, which is 56 00:02:43,560 --> 00:02:46,960 Speaker 2: you're really going to hurt your partners in trading within 57 00:02:47,040 --> 00:02:50,360 Speaker 2: North America. What do you think the downside potential is 58 00:02:50,400 --> 00:02:50,919 Speaker 2: here for that? 59 00:02:52,280 --> 00:02:55,600 Speaker 3: Now, for the US, there are some significant downsides. The 60 00:02:55,600 --> 00:03:00,200 Speaker 3: imposition of tariffs generally ends up with the customers a 61 00:03:00,240 --> 00:03:03,200 Speaker 3: significant portion of the tariff, so that could, along with 62 00:03:03,320 --> 00:03:07,919 Speaker 3: the reduction and immigration flows, lead to an increase in 63 00:03:07,919 --> 00:03:10,320 Speaker 3: inflation in the US. On the other hand, you could 64 00:03:10,360 --> 00:03:14,400 Speaker 3: have a stronger dollar resulting from the imposition of tariffs, 65 00:03:14,400 --> 00:03:18,280 Speaker 3: which are at least partially offset the increase in prices. 66 00:03:18,600 --> 00:03:20,840 Speaker 3: But the bigger concer really is going to be about 67 00:03:20,840 --> 00:03:24,080 Speaker 3: the disruption in global trade. And here too, there are 68 00:03:24,120 --> 00:03:27,920 Speaker 3: some very important differences. You know, in the previous Trump administration, 69 00:03:28,639 --> 00:03:31,800 Speaker 3: there was this notion of the US imposing tariffs not 70 00:03:32,080 --> 00:03:36,520 Speaker 3: just on rivals like China, but even on traditional allies 71 00:03:36,920 --> 00:03:41,320 Speaker 3: including Canada, Mexico, and Europe, and we're seeing some rumblings 72 00:03:41,320 --> 00:03:44,040 Speaker 3: of that as well. In the past, China and these 73 00:03:44,080 --> 00:03:47,160 Speaker 3: other countries could perhaps take on the US together, But 74 00:03:47,360 --> 00:03:50,520 Speaker 3: right now China's economy is not doing very well and 75 00:03:50,600 --> 00:03:53,120 Speaker 3: whatever growth they're getting is really coming from the production 76 00:03:53,240 --> 00:03:55,800 Speaker 3: side rather than the consumption side. So the rest of 77 00:03:55,840 --> 00:03:58,760 Speaker 3: the world is very concerned about becoming the dumping ground 78 00:03:58,800 --> 00:04:02,680 Speaker 3: for export export some China, which it really needs in 79 00:04:02,760 --> 00:04:07,040 Speaker 3: order to sustain growth. So there is a fracturing of 80 00:04:07,080 --> 00:04:10,800 Speaker 3: the potential alliances among other countries, which again puts the 81 00:04:10,920 --> 00:04:14,360 Speaker 3: US in a strong position. But certainly disruption in supply 82 00:04:14,520 --> 00:04:16,599 Speaker 3: chains and in production is going to be at cost 83 00:04:16,880 --> 00:04:20,320 Speaker 3: with US manufacturers and manufacturers around the world are going 84 00:04:20,360 --> 00:04:20,760 Speaker 3: to have to. 85 00:04:20,720 --> 00:04:23,200 Speaker 1: Bear with some of those governments, though, the ones that 86 00:04:23,240 --> 00:04:24,840 Speaker 1: have to deal with China, for that matter, the ones 87 00:04:24,839 --> 00:04:27,040 Speaker 1: that have to deal with the US. Is there any 88 00:04:27,040 --> 00:04:30,240 Speaker 1: sense here that they will be able to find some 89 00:04:30,240 --> 00:04:32,320 Speaker 1: sort of common ground between the two, meaning are they 90 00:04:32,320 --> 00:04:34,520 Speaker 1: going to have to choose between a relationship with the 91 00:04:34,600 --> 00:04:37,440 Speaker 1: US versus a relationship with China, or is there a 92 00:04:37,440 --> 00:04:39,279 Speaker 1: way that they can sort of thread that needle and 93 00:04:39,320 --> 00:04:40,400 Speaker 1: appease both nations. 94 00:04:41,600 --> 00:04:45,280 Speaker 3: That's a very complicated issue for many countries that are 95 00:04:45,320 --> 00:04:48,200 Speaker 3: stuck in the middle. For some countries, like India, it's 96 00:04:48,320 --> 00:04:52,320 Speaker 3: somewhat easier because they're not that reliant on exports and 97 00:04:52,360 --> 00:04:56,760 Speaker 3: they could benefit from this geopolitical realignment which shifts foreign 98 00:04:56,760 --> 00:05:00,160 Speaker 3: direct investment flows to India and away from China. But 99 00:05:00,200 --> 00:05:03,880 Speaker 3: the reality is that moving supply chains away from China 100 00:05:03,960 --> 00:05:07,159 Speaker 3: to other countries is going to be very difficult, especially 101 00:05:07,160 --> 00:05:09,680 Speaker 3: in the very shortened but the margin we are beginning 102 00:05:09,680 --> 00:05:12,000 Speaker 3: to see changes now. A couple of the other things 103 00:05:12,000 --> 00:05:14,880 Speaker 3: that the Trump administrations likely do is to shut down 104 00:05:15,600 --> 00:05:19,680 Speaker 3: the ability of China to reroot it's exports through countries 105 00:05:19,720 --> 00:05:23,640 Speaker 3: like Vietnam and Mexico, which have benefited actually from investment 106 00:05:23,680 --> 00:05:27,200 Speaker 3: flows from China in order to undertake that routing. So 107 00:05:27,279 --> 00:05:29,400 Speaker 3: those channels are going to be shut off as well. 108 00:05:29,600 --> 00:05:31,960 Speaker 3: So I think it's going to be difficult for many 109 00:05:31,960 --> 00:05:33,359 Speaker 3: of these countries caught in the middle. 110 00:05:33,520 --> 00:05:36,520 Speaker 1: Well, I'm glad you brought that up here, because whenever 111 00:05:36,560 --> 00:05:38,360 Speaker 1: we talk about TIFF, so you always sort of look 112 00:05:38,400 --> 00:05:40,840 Speaker 1: at it from that blunt instrument aspect of it, and 113 00:05:40,880 --> 00:05:43,240 Speaker 1: the idea that it's just some blanket percentage that they 114 00:05:43,320 --> 00:05:45,120 Speaker 1: put on goods. But there are a lot of areas 115 00:05:45,160 --> 00:05:49,360 Speaker 1: that the Trump administration could exploit, so I guess create 116 00:05:49,360 --> 00:05:51,560 Speaker 1: a little bit more pain for some of those importers. 117 00:05:51,560 --> 00:05:54,280 Speaker 1: And the idea that doing what you just did, which is, 118 00:05:54,320 --> 00:05:56,800 Speaker 1: like I said, closing out some of those loopholes, but 119 00:05:56,920 --> 00:05:59,359 Speaker 1: even certain things like kind of this obscure you know, 120 00:05:59,400 --> 00:06:02,480 Speaker 1: postal war that allows companies like Timu and others to 121 00:06:02,560 --> 00:06:05,120 Speaker 1: kind of ship kind of lower price goods, if you will, 122 00:06:05,160 --> 00:06:07,200 Speaker 1: to the US at basically no cost, or at least 123 00:06:07,240 --> 00:06:10,920 Speaker 1: marginal costs. That's something that could be relatively quickly close. 124 00:06:11,720 --> 00:06:13,200 Speaker 1: I think he still has to go through Congress, but 125 00:06:13,240 --> 00:06:16,080 Speaker 1: it is something that he could do relatively easy. 126 00:06:17,360 --> 00:06:19,760 Speaker 3: That's exactly right. I think even if he doesn't raise 127 00:06:19,839 --> 00:06:24,640 Speaker 3: tariff's closing many of these loopholes will significantly affect China's 128 00:06:24,680 --> 00:06:28,159 Speaker 3: ability to reroot trade through other countries into the US, 129 00:06:28,200 --> 00:06:30,800 Speaker 3: and that's going to hurt countries like Mexico and Vietnam, 130 00:06:31,080 --> 00:06:36,400 Speaker 3: which have recently been benefiting from this trade diversion. Now, 131 00:06:36,440 --> 00:06:39,479 Speaker 3: there are many countries that are very strong relationships with 132 00:06:39,520 --> 00:06:42,080 Speaker 3: the US and with China would like to maintain them, 133 00:06:42,320 --> 00:06:44,400 Speaker 3: but I think at the moment, one of the key 134 00:06:44,520 --> 00:06:47,560 Speaker 3: factors driving the dynamic in this relationship is that it 135 00:06:47,640 --> 00:06:50,800 Speaker 3: is the US consumer. There is powering growth in the 136 00:06:50,800 --> 00:06:54,640 Speaker 3: world economy, Chinese consumers are really not stepping up to 137 00:06:54,680 --> 00:06:57,720 Speaker 3: the plate, so you have substantial access capacity building up 138 00:06:57,720 --> 00:06:59,840 Speaker 3: in China. So I think much of the world is 139 00:07:00,120 --> 00:07:04,680 Speaker 3: much warier about China using them as dumping around so 140 00:07:04,800 --> 00:07:08,040 Speaker 3: it's exports, than they are about US tabs. But certainly 141 00:07:08,360 --> 00:07:11,000 Speaker 3: for countries in the middle, they're getting pinched from both sides, 142 00:07:11,040 --> 00:07:14,040 Speaker 3: and it's going to be a very complicated situation, not 143 00:07:14,120 --> 00:07:16,080 Speaker 3: just in the short term but in the years to come. 144 00:07:16,360 --> 00:07:18,320 Speaker 2: Right, which also makes it difference from back in twenty 145 00:07:18,360 --> 00:07:20,400 Speaker 2: eighteen when it was a different consumer and a different 146 00:07:20,400 --> 00:07:24,160 Speaker 2: fed hiking cycle versus cutting for example ashwar. When you 147 00:07:24,200 --> 00:07:26,680 Speaker 2: take a look at the profound effects of this, the 148 00:07:26,720 --> 00:07:29,520 Speaker 2: whole point is to nearshore stuff or to bring industry 149 00:07:29,520 --> 00:07:31,720 Speaker 2: home to the US. Is this all going to work. 150 00:07:33,280 --> 00:07:35,120 Speaker 3: It's going to happen in the long term, and we 151 00:07:35,160 --> 00:07:37,880 Speaker 3: are seeing those changes already. Like I mentioned, we are 152 00:07:37,880 --> 00:07:41,840 Speaker 3: seeing greater investment flows into India from countries that are 153 00:07:41,880 --> 00:07:44,200 Speaker 3: more closely aligned with the US. China, on the other hand, 154 00:07:44,320 --> 00:07:46,800 Speaker 3: is trying to invest more in countries that are more 155 00:07:46,840 --> 00:07:49,160 Speaker 3: closely aligned with it. So we're going to see a 156 00:07:49,240 --> 00:07:54,400 Speaker 3: fragmentation of foreign direct investment flows and perhaps other types 157 00:07:54,400 --> 00:07:58,480 Speaker 3: of financial flows, including equity flows as well, because countries 158 00:07:58,600 --> 00:08:01,480 Speaker 3: like China and many other rivals of the US are 159 00:08:01,600 --> 00:08:04,640 Speaker 3: concerned that the sort of sanctions that Russia has been 160 00:08:04,640 --> 00:08:07,160 Speaker 3: subjected to could be applied to them as well. So 161 00:08:07,240 --> 00:08:10,520 Speaker 3: I think this geopolitical conflict is going to spill over 162 00:08:10,560 --> 00:08:13,960 Speaker 3: into the economic dimension, both in terms of trade and finance, 163 00:08:14,000 --> 00:08:16,800 Speaker 3: which is going to lead to much more fracturing of 164 00:08:16,880 --> 00:08:20,760 Speaker 3: both trade and finance along geopolitical lines, which may not 165 00:08:20,920 --> 00:08:24,160 Speaker 3: be great for global stability down the road. 166 00:08:24,760 --> 00:08:27,520 Speaker 1: All right, Always an insightful conversation with you. We'll have 167 00:08:27,520 --> 00:08:30,280 Speaker 1: to leave it there. Eshwar Prasad, a professor of trade 168 00:08:30,280 --> 00:08:33,320 Speaker 1: policy over at Cornell University. A closer look here at 169 00:08:33,320 --> 00:08:36,800 Speaker 1: the incoming presidential administration here in the US and what 170 00:08:36,840 --> 00:08:38,280 Speaker 1: it could mean for trade and tariffs.