Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. The
Speaker 1: expert controls that are being invoked are quite confrontational, but
Speaker 1: if they're difficult to enforce, that could prove counterproductive on
Speaker 1: all sorts of levels. Stephen Mim on the current spate
Speaker 1: of US issued export controls and the effectiveness of these
Speaker 1: actions through history. Also, there won't be a bumpy road
Speaker 1: to find a new equilibrium between China's rich basically big
Speaker 1: tech billionaiers and powerful basically the government. Julie Ran on
Speaker 1: China's rich and China's powerful not necessarily one of the same.
Speaker 1: We'll also speak with Alexis Leander's as we had towards
Speaker 1: the final month of the calendar year, what you should
Speaker 1: consider before December thirty one in order to reduce your
Speaker 1: capital gains taxes, assuming you have any this year. First,
Speaker 1: to the markets. We got the minutes from the f
Speaker 1: O m c's latest meeting this week and plenty of
Speaker 1: FED speak as we waited out until December four teens.
Speaker 1: I asked Bloomberg Opinions Jonathan Levin if there is something
Speaker 1: the FED wants to communicate to the market in preparation
Speaker 1: for that meeting. Yeah, I think it could really tricky
Speaker 1: for them. I think obviously they're still trying to keep
Speaker 1: financial conditions relatively tight, and I think that their messaging
Speaker 1: efforts to do just that are getting away from them
Speaker 1: a little bit. Certainly, in the last few weeks we
Speaker 1: saw tip Space ten year really yields trading at just
Speaker 1: about one point four percent, so near the lowest since September.
Speaker 1: That's a pretty obvious indicator that maybe conditions are ceasing
Speaker 1: to be as tight as they would prefer. So, you know,
Speaker 1: you may see some of these FED officials, certainly Powell himself,
Speaker 1: do a little bit of classic jaw boning maybe try
Speaker 1: and get those real yields on the ten year up
Speaker 1: a little bit. But quite frankly, it's going to be difficult,
Speaker 1: because everybody knows that their data dependent. Here, they're going
Speaker 1: to take everything he says before the next CPI with
Speaker 1: a grain of salt and really just see what the
Speaker 1: data shows us. And this all comes back to this
Speaker 1: balancing act they're trying to do, where they're trying to
Speaker 1: slow down the pace but without letting financial conditions loosen
Speaker 1: too much. And and they're kind of doing an okay
Speaker 1: job at that end, they're in a difficult position where
Speaker 1: I'm not exactly sure what they could be doing better here,
Speaker 1: but conditions are getting a little bit looser than they
Speaker 1: have to be comfortable with. Would they go so far
Speaker 1: as to hint the possibility that they might change their
Speaker 1: minds back to seventy five basis points, You know it's possible,
Speaker 1: but I don't think that they can really go there.
Speaker 1: I think the risk there becomes potentially losing credibility, and
Speaker 1: I think, you know, the set is just going to
Speaker 1: have to get comfortable with the fact that this is
Speaker 1: going to be a game time decision. We're going to
Speaker 1: get two key pieces of data in the next few weeks.
Speaker 1: In some ways, I think average hourly earnings coming on
Speaker 1: December two might actually be the more important one because
Speaker 1: there are so many cross currents in this inflation data.
Speaker 1: But if you do get average hour early earnings coming
Speaker 1: in again month on month at something like zero point three,
Speaker 1: and you get another beat in cp I, it's really
Speaker 1: hard to see anything preventing them from going fifty. Here.
Speaker 1: At this next meeting, you say that, you know, maybe
Speaker 1: market pricing is getting away from the FED a little bit.
Speaker 1: Can you think of anything that the FED might do
Speaker 1: between now and December fourteens in order to reverse that trend. Yeah,
Speaker 1: I mean, the main thing that they can do is
Speaker 1: really just focus at this point on how long they
Speaker 1: intend to stay higher. I really think that there's very
Speaker 1: little to debate at this point in terms of the pace.
Speaker 1: Everybody knows that they're they're stepping down. We've talked about
Speaker 1: this a lot before on this program. They just have
Speaker 1: to take the velocity down so that they can find
Speaker 1: the right setting as they get to their ultimate destination point.
Speaker 1: And frankly, I don't even think that there's much room
Speaker 1: left for debate in terms of the destination point. When
Speaker 1: you hear the FED speakers out on the circuit, really,
Speaker 1: you know, the range of opinions is pretty firmly between
Speaker 1: four seven five and maybe five point two five, So
Speaker 1: buying some dramatic change, it really doesn't feel like there's
Speaker 1: a lot of wiggle room there. I think it really
Speaker 1: is just all about communicating if this is indeed their intention,
Speaker 1: the idea that they are going to stay higher for longer,
Speaker 1: maybe until the very very end of December. Maybe even
Speaker 1: come out and say something along the lines of even
Speaker 1: if we slip into a recession, provided it's not historically
Speaker 1: bad one, we're going to stay there. Apart from average
Speaker 1: hoarity earnings. What might put a spanner in the works
Speaker 1: in terms of CPI data or the job's reward. I mean,
Speaker 1: are you anticipating that will continue to see CPI coming
Speaker 1: down even though I know the last CPI reward you
Speaker 1: thought might be reflecting better conditions that are actually out
Speaker 1: there because of medical costs. Yeah, so we've had a
Speaker 1: couple of head fakes in the past, say twelve to
Speaker 1: eighteen months, there were two big ones, right, and after
Speaker 1: each of those they proved to be just that a
Speaker 1: head fake, right, and the month of months inflation bounced
Speaker 1: right back. We do know that this quirk in the
Speaker 1: data involving health insurance and the medical care abroad is
Speaker 1: going to be a repetitive feature here. So I do
Speaker 1: think there are a lot of reasons to suspect that
Speaker 1: there may be a bounce back after this extremely extremely
Speaker 1: good print last month, but it may still look reasonably good,
Speaker 1: And it's all going to come down to how good
Speaker 1: is reasonably good? Is everybody pretty much in agreement at
Speaker 1: this point, then, Jonathan, it sounds like you think that
Speaker 1: is the case, except for maybe the tips market, which
Speaker 1: might be just a little bit behind, or you know,
Speaker 1: what's going on with the tips market that there is
Speaker 1: an agreement. I mean, I think tips market is in
Speaker 1: agreement insofar as it's reflecting a loosening of financial conditions.
Speaker 1: You know, I think that that's really what's going on
Speaker 1: across the board. You know, this is where it gets
Speaker 1: sort of tricky, right, so at the short end of
Speaker 1: the curve, things remain reasonably tight, but people don't actually
Speaker 1: borrow at the short end of their or the mortgage
Speaker 1: is priced off of the ten year and j Paler
Speaker 1: himself actually talked about this after the last said meeting,
Speaker 1: And so that's where it gets tricky. And I'm not
Speaker 1: exactly sure what the FIT can do short of drastic
Speaker 1: steps like selling bonds off of the portfolio, which will
Speaker 1: clearly clearly spooks the market in ways that the FED
Speaker 1: is probably not prepared to do. So, you know, it's
Speaker 1: basically it's going to come down to what is the
Speaker 1: data show, and they may have to come up with
Speaker 1: a new playbook if financial conditions feel like they're getting
Speaker 1: much looser from here. Bloomberg Opinions Jonathan live In Stay tuned.
Speaker 1: Alexis Leonder's next with a reminder that your losses this
Speaker 1: year can be put to use, and later Shuli ran
Speaker 1: on China's offering to and from big tech. This is
Speaker 1: Bloomberg Opinion. It's time to start thinking about tax season. Yep,
Speaker 1: we might be four months out, but you want to
Speaker 1: start thinking about taking those elves now before December thirty one.
Speaker 1: Goodness knows, it's been an easy year to rack them
Speaker 1: up well. Bloomberg Opinions. Alexas Leander's has poured over the
Speaker 1: rules on loss harvesting. We asked her for a user's guide,
Speaker 1: and it turns out those losses may not be so
Speaker 1: painful after all. Alexis, it's a fascinating time to be
Speaker 1: in the markets. It's also a fascinating time to take
Speaker 1: losses because you might just end up with more cash
Speaker 1: than you think. Explain to us what you discovered when
Speaker 1: you went looking to see what it means for your
Speaker 1: taxes to quote unquote harvest losses. It's been a painful
Speaker 1: year for most stock investors. There's really no way around it.
Speaker 1: And you know, a twenty plunge in the Standard Ports
Speaker 1: five index is rough, but there is a small consulation prize.
Speaker 1: Given the downturn in the market, you do have one
Speaker 1: of the best opportunities in years to lower your tax bill.
Speaker 1: The US tax code allows you to do something called
Speaker 1: tax loss harvesting, and that's basically where investors sell off
Speaker 1: poor performing stocks and then you use those investment losses
Speaker 1: to offset any capital gains from selling better performing assets
Speaker 1: than those can be stocks or bonds, even a home
Speaker 1: or a business. And to take it a step further,
Speaker 1: if your losses exceed your gains, you can even deduct
Speaker 1: up to three thousand dollars against your taxable income. And
Speaker 1: if you have losses beyond three thousand dollars, any losses
Speaker 1: beyond that can be carried forward every year until death
Speaker 1: to offset gains in future years. Incredible. Now, there's something
Speaker 1: just a little bit counterintuitive about selling something that you
Speaker 1: still think might go up, right, So how do you
Speaker 1: get around the psychology of that, right, No, that's a
Speaker 1: great point. So basically what you do is sell those
Speaker 1: per performers, lock in those losses, don't just sit on
Speaker 1: paper losses, but then make sure you buy either a
Speaker 1: similar stock or a sound right away so you can
Speaker 1: keep your portfolio balance and stay invested if and when
Speaker 1: the market starts to turn around. Now, if you do that,
Speaker 1: you have to be really careful because the I R
Speaker 1: S has something called the wash sale rule. And basically
Speaker 1: what that is. It says, if you sell a security
Speaker 1: and you buy the same security are one that's considered
Speaker 1: quote unquote substantially identical thirty days before or after selling
Speaker 1: the stocking question, then it can't be considered an investment
Speaker 1: loss and you won't be able to use that loss
Speaker 1: against any of your capital gains. So you have to
Speaker 1: be very careful and either have a good accountant or
Speaker 1: read the rules very closely exactly exactly, and and keep
Speaker 1: in mind you won't get fined if you run a
Speaker 1: foul of the rules, but you won't be able to
Speaker 1: get the tax right off. So if the whole point
Speaker 1: of tax offs harvesting is to get that right off,
Speaker 1: then you obviously want to be careful and make sure
Speaker 1: you're following the Washdales rule. Now, I'm sure many professional
Speaker 1: investors know these rules backwards and have been using this
Speaker 1: to their advantage all their investing careers. But for people
Speaker 1: who may not be fully aware of it, is there
Speaker 1: a place they can go to figure out exactly how
Speaker 1: much they can harvest. Definitely, So a brokerage firm will
Speaker 1: typically flag for you anything that's disallowed to make sure
Speaker 1: that you're in apportance with the Washdale rule. They always
Speaker 1: spend a ten ninety nine form, typically in January, that
Speaker 1: will detail all of your gains and losses from transactions
Speaker 1: during the prior year. So it's on that form there'll
Speaker 1: be a special column about wash sale stuff, So anything
Speaker 1: that's disallowed should be listed there. But it's important to
Speaker 1: raise that there's some markiness around what substantially identical means.
Speaker 1: And you know, some of the tax experts and accountants
Speaker 1: I spoke to you said there's not that much in
Speaker 1: the ways case while explaining it, So I raised the
Speaker 1: example like, if you buy one share class of Alphabet Inc.
Speaker 1: And then you sell it and you buy a different
Speaker 1: share class of Alphabet Inc. Is that substantially identically. Or
Speaker 1: if you have mutual fund shares and you sell those
Speaker 1: mutual fund shares and that mutual fund that you previously
Speaker 1: had tracked a specific index but was say a Vanguard
Speaker 1: index on if you sell that, but you buy another
Speaker 1: fund that's operated by Black rock or fidelity, but it's
Speaker 1: tracking the same indexes that qualify, so there is a
Speaker 1: little bit of it could be confusion, and there obviously
Speaker 1: could be people who may interpret these things a little
Speaker 1: bit more aggressively than others. Now, did you find out
Speaker 1: any answers to those questions or does everybody have a
Speaker 1: different answer? Everyone pretty much has a different answer, UM,
Speaker 1: But I would say my rule of them is basically,
Speaker 1: you're better off being more conservative and just wait for
Speaker 1: that in total sixty one day waiting period because it's
Speaker 1: thirty days before and after the sale of the security,
Speaker 1: and then buy what you really want back, especially considering
Speaker 1: you know, treating fees are pretty low. We obviously have
Speaker 1: sites like Roberton and others that make trading these pretty negligible.
Speaker 1: So because of that, I think the best kind of
Speaker 1: advice is to just be pretty conservative and then after
Speaker 1: that waiting period, you know, swap back in if you
Speaker 1: really wanted to have that share class of Google, or
Speaker 1: you really wanted to have that specific mutual fund, stick
Speaker 1: with that. Now, Alexis, we've been talking about single stock
Speaker 1: US names. Do the rules change if we're talking about
Speaker 1: a different geography? UM? In the U S specifically, like
Speaker 1: if you're talking about a single stock or a mutual fund,
Speaker 1: the same rules apply UM and for mutual fund investors specifically,
Speaker 1: if you tax boss harvest this year, UM, you know,
Speaker 1: the benefits of doing so are amplified. That's because it's
Speaker 1: a little complicated, but basically, the way mutual funds are structured,
Speaker 1: it's other investors to sell their shares. The fund often
Speaker 1: has to sell appreciated holdings to meet those redemptions, but
Speaker 1: the investors who remain in the fund are basically on
Speaker 1: the hook for any gains the fund makes from selling
Speaker 1: those shares. So you may be in a fund that's
Speaker 1: gone down, that has negative returns, but you could end
Speaker 1: up getting these capital distributions in December, which is someone
Speaker 1: I was speaking to described it as a real kick
Speaker 1: in the teeth. Not only did you lose money, but
Speaker 1: you're also receiving this capital gains distribution, but you didn't
Speaker 1: actually get any money, And even if you reinvest the
Speaker 1: gains back into the fund, you're still on the hook
Speaker 1: for taxes. So that's why selling your losses and then
Speaker 1: using those to offset these capital gains distributions can be
Speaker 1: can be really helpful. Now you raise a very interesting
Speaker 1: question because many retail investors have been involved in crypto
Speaker 1: in some form or another. Are the rules the exact
Speaker 1: same for crypto? Um, they are not exactly the same.
Speaker 1: You can, in fact use crypto. You can sell crypto
Speaker 1: losses and use any of those losses to offset gains
Speaker 1: in that way, it's similar. But crypto investors have a
Speaker 1: really big advantage. Um. The wash scale roll that I
Speaker 1: was speaking about, it doesn't apply to digital assets. So
Speaker 1: if you're a crypto investor and you sell something, you
Speaker 1: can basically turn right around and buy the same coin,
Speaker 1: especially if people leaeve in that coin. You know you
Speaker 1: want to stay invested. Um, you don't have to have
Speaker 1: that sixte day waiting period. Um. But there's a catch.
Speaker 1: There are some you know, tax experts who say crypto
Speaker 1: investors could get burned by a separate principle called the
Speaker 1: I R S is economic substance doctrine. That role basically
Speaker 1: says you can't do something just for a tax benefit,
Speaker 1: you have to expose yourself to some sort of market risk. Um.
Speaker 1: So then the question is, okay, well how long do
Speaker 1: I have to expose myself to market risk? You know,
Speaker 1: to then justify turn around and buying that same coin,
Speaker 1: and you know, whether it's ten minutes or ten days,
Speaker 1: I think is really anyone's guest. But again my advice
Speaker 1: goes back to, as with stocks, are on the side
Speaker 1: of caution just because it DIRS does in fact audit you.
Speaker 1: And the whole point of what you're doing is to
Speaker 1: try to, you know, take advantage and make the next
Speaker 1: April a little less painful. You know, you don't want
Speaker 1: to then have to backtrack and be you know, having
Speaker 1: to account for the things that you ended up spelling
Speaker 1: and Alexis this all has to be done by December
Speaker 1: thirty first, obviously, yes, year end, So basically any losses
Speaker 1: have to be locked in by year end and that
Speaker 1: will count for your two tax returns, which are due
Speaker 1: next day. Bloomberg Opinions Alexis Lee on us China's president
Speaker 1: Cheese and Ping has been making small but potentially pivotal
Speaker 1: changes recently. They may go some way that is towards
Speaker 1: patching up the COVID battered economy. Certainly investors think so,
Speaker 1: but they are skittish. I ask Bloomberg Opinions Shulely Wren
Speaker 1: to give us a snapshot of China's current pretty precarious
Speaker 1: fiscal and social positions, So surely we're seeing a new
Speaker 1: approach from China's government. We're also seeing some deaths. What
Speaker 1: does it all mean for the reopening story? I think
Speaker 1: investors were painting too much hope on the China reopening store.
Speaker 1: Keep in mind that for the rest of the world,
Speaker 1: that reopening was never an easy, smooth process. Even Singapore,
Speaker 1: which is very very well run, they went through a
Speaker 1: zigzag open, closed, prolonged process, and we're going to see
Speaker 1: very similar situations playing out in China. But directionally, China
Speaker 1: is going to reopen because, as Bloomer Opinion has written
Speaker 1: quite a few times, the Chinese government physical coppers are
Speaker 1: getting empty. They will have no choice but to open.
Speaker 1: And another thing I think investors can watch is that
Speaker 1: for all the Chinese cities, it's going to be one city,
Speaker 1: one policy. You're going to see big cities such as Shanghai,
Speaker 1: guangjoch and do they're going to have very different responses.
Speaker 1: And some of the cities that do very well, their
Speaker 1: city mayors are going to be promoted within the China
Speaker 1: bureaucratics and they're going to be present hiding things. New
Speaker 1: project is going into twenty three and twenty twenty four.
Speaker 1: So you're saying cities could actually be in competition with
Speaker 1: each other to reopen more successfully than the next. Absolutely.
Speaker 1: I mean cities have been competing with each other over
Speaker 1: fiscal dollar, over human talent, over all other things, and
Speaker 1: that they are going to this time compete with each
Speaker 1: other to reopen in the smooth way because the city
Speaker 1: mayors they will be promoted. Well, there's so many strands
Speaker 1: to the story that are happening simultaneously. Another thing that
Speaker 1: the market is watching very closely is the methods that
Speaker 1: the authorities are using to punish tech firms, and markets
Speaker 1: are taking that well in the sense that these punishments
Speaker 1: might mean that these tech firms will finally be out
Speaker 1: of the corner. If you like, we'll be back in
Speaker 1: the good books of the Chinese authorities. Tell us a
Speaker 1: little bit about what's going on here. It's a realization
Speaker 1: from the Chinese government that they're stuck in the arranged
Speaker 1: marriage with the big tech companies. I mean, the last
Speaker 1: one year to half, the Chinese government was like a
Speaker 1: leading down big tech. They didn't want olligogues, they didn't
Speaker 1: want them to be too powerful, right, But at some
Speaker 1: point they start to realize tech companies they are the
Speaker 1: major job creators young people, young Chinese. They don't want
Speaker 1: to go work in the factories, they want to work
Speaker 1: for tax firms. But going forward, I think what's going
Speaker 1: to happen is the Chinese government will still advertise and prosperity,
Speaker 1: and the tech companies also need to think about this
Speaker 1: notion of effective altruism. They have to think about how
Speaker 1: to help the local governments where they do business, generate
Speaker 1: fiscal income, provide social welfare. And what you see with
Speaker 1: j D for instance, is that the j D see
Speaker 1: executives they're going to cut their own pay so that
Speaker 1: they can provide housing for younger twenty three twenty four
Speaker 1: year old so that they can climb the middle class
Speaker 1: social letter and we're going to see a lot of that.
Speaker 1: Instead of direct tax payments big tex they're going to
Speaker 1: try to find a way to help local governments work,
Speaker 1: perhaps in the form of private public partnership, perhaps providing
Speaker 1: housing to the young. Yeah. I mean it's fascinating because
Speaker 1: it's in line with the pursuit of common prosperity, and
Speaker 1: it allows season things in some ways to do a
Speaker 1: U turn and sort of allow the tech companies to
Speaker 1: distribute their own profits in order to lift up the
Speaker 1: lower middle classes. Is it a U turn? If this
Speaker 1: was what season things going to do, why didn't he
Speaker 1: do it originally? Well, keeping mind that when China started
Speaker 1: they tack and develop a crackdown, it was in the
Speaker 1: middle of one and the Chinese government discore coppers worked
Speaker 1: by food. China's economy were doing pretty well back then.
Speaker 1: That's when they started a crackdown. And the things have changed.
Speaker 1: The government has no more money, and then the developers
Speaker 1: are no longer buying land. That right less, there is
Speaker 1: a big string of revenue for Chinese government. So at
Speaker 1: some point they realized that they have to step back
Speaker 1: in their cracked down towards big tech and then let's
Speaker 1: big tech pay more taxes and provide jobs. Yeah, and
Speaker 1: it sort of works to everyone's advantage because of big
Speaker 1: tech is allowed out of the sandbox back into the
Speaker 1: markets for real. Then presumably at some point demand will
Speaker 1: be created and jobs will be created again, and so on.
Speaker 1: I guess that's how she's in paying in the b
Speaker 1: BOC are thinking of it. At least doesn't work like that. Actually,
Speaker 1: I think that's what a lot of market participants are
Speaker 1: hoping for as well. But it will be tricky. It
Speaker 1: will be a bumpy road to find a new equilibrium
Speaker 1: between China's rich basically big tech billionaires and powerful basically
Speaker 1: the government just like trying to reopening. I think we're
Speaker 1: going to see a bunch of zigzags and public outcries.
Speaker 1: But the greater trend is that I think going to three,
Speaker 1: there will be equilibrium, new equiliber and your social contract
Speaker 1: between big tech and big summon. Well, and it's not
Speaker 1: just big tech. I mean, is this the first line
Speaker 1: of industries. Will we suddenly see gaming industries, for example,
Speaker 1: do the same thing. Will we see the education companies,
Speaker 1: the online education companies that are also cracked down upon,
Speaker 1: suddenly become wealth distributors. I think education companies their best
Speaker 1: days are over. Unlike gaming education companies. They will never
Speaker 1: be able to create as many jobs as the likes
Speaker 1: of tens and some of them are already coming back.
Speaker 1: So instead of teaching Chinese lessons, they're hosting debate cut right, um.
Speaker 1: But there will be smaller bloomberg opinions. Shulei Rehn, Stay
Speaker 1: tuned the University of Georgia's Stephen Mim next with thoughts
Speaker 1: on how export controls will impact U S China relations.
Speaker 1: By the way, you do send us your thoughts and opinions.
Speaker 1: I'm at v Quinn at Bloomberg dot net and don't
Speaker 1: forget We're available as a podcast on Apple, Spotify or
Speaker 1: your favorite podcast platform. This is Bloomberg Opinion. The International
Speaker 1: Monetary Fund says the rise of trade barriers against China
Speaker 1: and other countries over the past year could cost the
Speaker 1: global economy one point for trillion dollars one and a
Speaker 1: half percent of GDP Managing director Krystelina Georgieva told Bloomberg
Speaker 1: the potential loss for Asia could be double that. For
Speaker 1: Asia the loss is much more significant because as she
Speaker 1: is so integrated in global value. Chase I spoke with
Speaker 1: Bloomberg Opinion columnist Stephen Mim, history professor at the University
Speaker 1: of Georgia about the history of export controls out of
Speaker 1: the United States and whether the intended outcome is worth
Speaker 1: the loss to global productivity. So, Stephen, export controls originated
Speaker 1: with the Trading with the Enemy Act of nineteen We
Speaker 1: should maybe think of export controls under that rubric right,
Speaker 1: because while the language might seem maybe softer, certainly the
Speaker 1: actions of the Biden administration as under Donald Trump are
Speaker 1: quite hostile towards the likes of China. That's right. So
Speaker 1: export controls like the ones that the Biden administration slapped
Speaker 1: on China relative to advanced computing technologies, specifically semi conductors
Speaker 1: and like, are without a doubt a fairly hostile action.
Speaker 1: And as you point out, they began with an act
Speaker 1: passed on the eve of World War One called Trading
Speaker 1: with the Enemy Act, which, as the title suggests, is
Speaker 1: not exactly a conciliate story feature of legislation. And while
Speaker 1: they were applied someone fairly limited or light touch at
Speaker 1: that time, they did end up being applied on a
Speaker 1: much wider scale by FDR during World War Two, and
Speaker 1: then even more significant and relevant for our own moment,
Speaker 1: during the early years in the Cold War, when the
Speaker 1: ease and enthusiasm with which the State Department and the
Speaker 1: President from Truman onward applied expert controls is really quite extraordinary,
Speaker 1: and it became a real powerful tool in fighting the
Speaker 1: Cold War and its attempt to deny Communist countries access
Speaker 1: to advanced American technology now, isn't the case for certain
Speaker 1: that without access to U S technology, China is going
Speaker 1: to have problems? Yes, So this is the real, real
Speaker 1: looming question hanging over a lot of this. When export
Speaker 1: controls were previously imposed during the late forties and nineteen fifties,
Speaker 1: the world was literally divided. It's not like, you know,
Speaker 1: there were huge numbers of Soviet students studying in the
Speaker 1: United States as there is now with Chinese students in
Speaker 1: the United States, and so access to these technologies could
Speaker 1: be more readily shut off than they can be today.
Speaker 1: And this is worrisome because on the one hand, the
Speaker 1: export control that are being invoked aren't quite confrontational, but
Speaker 1: if they're difficult to enforce, that could prove counterproductive on
Speaker 1: all sorts of levels. And it works both ways. I mean,
Speaker 1: it's the obvious thing to point out, but at some
Speaker 1: point the US won't have access to certain technologies and
Speaker 1: certain engineers. And you don't see this ending well, do you. Well?
Speaker 1: There are several things to keep in mind about this
Speaker 1: action that are noteworthy that stand out as potentially watershed moments.
Speaker 1: Donald Trump as president had imposed limited export controls, but
Speaker 1: they were much more selective and somewhat discriminating in their impact.
Speaker 1: That could have been written off as a one off.
Speaker 1: But the fact that an ideologically quite different president, Joe Biden,
Speaker 1: is not only following that lead, but ratcheting up significantly
Speaker 1: and imposing blanket controls on certain technologies is truly noteworthy
Speaker 1: and suggestive that we've entered into something eerily familiar to
Speaker 1: those of us who have studied the Cold War, that
Speaker 1: there was a time of quite tense relations and the
Speaker 1: likelihood of retaliatory action was very high, and unlike China
Speaker 1: or the Reunion, then China has more power to hit
Speaker 1: back in all sorts of ways. And so this is
Speaker 1: worrisome on multiple levels. Whether it will end badly, it's
Speaker 1: hard to know. And they also force the Chinese to
Speaker 1: the negotiating table. Who knows. Maybe it will have a
Speaker 1: de escalating effect, you know, escalate to de escalate or argument. Well,
Speaker 1: you would hope so, especially if you were a globalist,
Speaker 1: I guess. But it will at some point have an
Speaker 1: adverse effect on the balance of payments situations. It certainly
Speaker 1: probably will, and that's incidentally why export controls fell out
Speaker 1: of favor in the late sixties and seventies was aside
Speaker 1: from de Pont and lowering of the temperature in the room,
Speaker 1: during the Cold War, it was starting to hurt US
Speaker 1: technology companies, automakers and you know, any I'm working in
Speaker 1: any kind of technology because they were being shut out
Speaker 1: of markets. So that's something similar might happen here when
Speaker 1: the balance of payments issue becomes ascending again and forces
Speaker 1: the reckoning. So when we talk about technology decoupling, how
Speaker 1: far does it go? Steven? Is it partially done already? Well,
Speaker 1: the fact that there are so many partnerships between US
Speaker 1: tech companies Chinese and conversely so many Chinese students studying
Speaker 1: IS undergraduates and graduates in the US, the decoupling has
Speaker 1: a really long ways to go on that level, but
Speaker 1: one could imagine that it could accelerate quite quickly if
Speaker 1: this continues. Being is actually somewhat indicated that China is
Speaker 1: starting to turn inward, becoming more a targetic, which may
Speaker 1: mean that they will take measures to cut those ties
Speaker 1: as much as the United States. The f teams run up.
Speaker 1: Ruhar said recently that countries and companies need redundancy and
Speaker 1: sourcing these days, and that executives are going to have
Speaker 1: to read think the idea that excess inventory is bad
Speaker 1: and maybe even just in time supply chains or a
Speaker 1: thing of the past, is that overstating it slightly or
Speaker 1: is going to be so? I actually think that spot on.
Speaker 1: It's staggering sometimes to realize how sophisticated and complex just
Speaker 1: in time inventories and supply chains became at the peak
Speaker 1: moment of globalization pre COVID, pre trade war with China,
Speaker 1: and the fact that they crack so badly under that
Speaker 1: stress test would probably indicate that we really do need
Speaker 1: to rethink them, because in all likelihood, given current events,
Speaker 1: the war in Ukraine or other geopolitical tensions that are
Speaker 1: starting to bubble up, we can't depend on this kind
Speaker 1: of moment or phase of globalization lasting indefinitely where you
Speaker 1: can't construct this kind of intricate supply chain system. So yes, absolutely,
Speaker 1: I think that we need to rethink inventory and rethink
Speaker 1: a lot of things. And as you also point out
Speaker 1: that having multiple suppliers backup suppliers is essential as well
Speaker 1: as obviously reshoring some of this back to the United States.
Speaker 1: It really is amazing how things have been changing and
Speaker 1: how attitudes have been changing as executive actions get taken.
Speaker 1: You talk about the chance of normalizing trade relations what
Speaker 1: is a normal trade relationship, Steven Well, a normal trade
Speaker 1: relationship in the system that prevailed unto quite recently, it
Speaker 1: was relatively few tariffs and low barriers to trade and
Speaker 1: in some measure of reciprocity at least between nations that
Speaker 1: were participating in this postcode war. And the idea is
Speaker 1: that that made us safer, right, and that's why export
Speaker 1: controls are in the hands of national security. Right. Absolutely
Speaker 1: didn't make it safer just because we were trading chips
Speaker 1: and chip technology and chip making abilities. Arguably not. And
Speaker 1: part of what you're seeing, I think with the rise
Speaker 1: of the export controls is a fundamental rethinking the leafs
Speaker 1: about the transportative power of American technology. There was a
Speaker 1: kind of ninety belief. In my own opinion, it leaves
Speaker 1: that by sharing technologies via American corporation, this would generate,
Speaker 1: through some magical process, a kind of development model where
Speaker 1: countries like China that have been communist and oppressive would
Speaker 1: suddenly become liberal democracies. I mean, that's an exaggeration, but
Speaker 1: there is. If you look back at what people were
Speaker 1: arguing back in the nineties. That's what they were arguing.
Speaker 1: If they can get this technology and trade with US
Speaker 1: and we lower trade barriers, well everyone's gonna you know,
Speaker 1: start acting better and and and China will become this
Speaker 1: team player within the geopolitical system. That's probably I don't
Speaker 1: think it would be hard to argue that that's happened.
Speaker 1: Given what we've seen out of China just in the
Speaker 1: last five years or so, it seems to be heading
Speaker 1: in the opposite direction. Even in things like vaccines. We've
Speaker 1: seen that sometimes China it doesn't even ask for access
Speaker 1: to technologies that have been developed in the United States
Speaker 1: or want them necessarily and eventually develop its own correct
Speaker 1: and partly out of a kind of national pride, arguably
Speaker 1: too with bad consequences for China itself. In other words,
Speaker 1: you know, some of the zero COVID policy that's been
Speaker 1: put in place is clearly a reflection of the fact
Speaker 1: that there are significance for us of the population that
Speaker 1: haven't been vaccinated at all with an effective vaccine in China.
Speaker 1: So you have this odd like authoritarian attempt to control
Speaker 1: the virus when there was another way of controlling it
Speaker 1: with Western vaccine. But that was a no. Note. This
Speaker 1: is significant. When that came down. I was blown away.
Speaker 1: When I read the order, I was like, good lord.
Speaker 1: And it was interesting because you know, you may have
Speaker 1: anticipated something like this under Donald Trump, but it wasn't
Speaker 1: necessarily going to be obviously the case under President Biden. No,
Speaker 1: Like I really would have bet that Biden would have
Speaker 1: been all about normalization, you know what I mean, that
Speaker 1: there would have been this kind of like let's just reset.
Speaker 1: So I don't know what, you know, you've got to
Speaker 1: assume that they know things we don't. Maybe there's really
Speaker 1: profound instances of espionage or stated attentions to acquiring the
Speaker 1: technology for military purposes. I mean, one thing is that
Speaker 1: the real vexing issue here is what's called dual use technologies,
Speaker 1: things that have peacetime applications but could just as readily
Speaker 1: be put towards authoritarian or imperialistic ends. So for example,
Speaker 1: like quantum computing, well, like you could argue it's great
Speaker 1: for the tech sector, could also they'll be used for
Speaker 1: missile systems and things like that. And so the question
Speaker 1: of how to like keep civilian technology that has military
Speaker 1: applications out of the hands of China seems to be
Speaker 1: a growing and abiding preoccupation of finding administration and the
Speaker 1: Widen administration doesn't seem to be giving China the benefit
Speaker 1: of the doubt. You know it is not, and that
Speaker 1: alone is significant and interesting actually and also maybe suggestive
Speaker 1: that hopes for reset are probably fading and that we're
Speaker 1: moving towards some other kind of geopolitical equipment that is
Speaker 1: not dominated by open borders and the free flow of
Speaker 1: goods and ideas Bloomberg Opinions. Stephen Mim, history professor at
Speaker 1: the University of Georgia, Well that doesn't for this week's
Speaker 1: Bloomberg Opinion. Do get in touch with us. We love
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