1 00:00:03,120 --> 00:00:09,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:10,360 --> 00:00:11,680 Speaker 2: Bred what's going on with the yen? 3 00:00:14,120 --> 00:00:17,280 Speaker 3: Well, it's, uh, there's a bit, a bit of an intervention. 4 00:00:17,520 --> 00:00:20,400 Speaker 3: The intervention took it from roughly one sixty to one 5 00:00:20,560 --> 00:00:24,360 Speaker 3: fifty two, and now it is drifting back up towards yes, 6 00:00:24,520 --> 00:00:27,400 Speaker 3: like round one fifty five. Broadly, the yen is just 7 00:00:27,520 --> 00:00:31,680 Speaker 3: really really, really really weak. Obviously, that's because Japanese interest 8 00:00:31,720 --> 00:00:34,920 Speaker 3: rates are very low relative to US and European rates, 9 00:00:35,360 --> 00:00:38,000 Speaker 3: and they the end reached a level where the Japanese 10 00:00:38,000 --> 00:00:42,240 Speaker 3: Ministry of Finance, which has Japan's reserves, started selling dollars 11 00:00:42,280 --> 00:00:45,360 Speaker 3: buying yen to try to try to limit how we 12 00:00:45,440 --> 00:00:46,560 Speaker 3: can become. 13 00:00:47,240 --> 00:00:49,760 Speaker 1: Joe, I gotta say I hate currencies. They are my 14 00:00:49,880 --> 00:00:53,680 Speaker 1: most hated a class locus everything No, because everything's relative. 15 00:00:53,880 --> 00:00:56,080 Speaker 1: So it's like, the yen is down. But is it 16 00:00:56,120 --> 00:00:59,200 Speaker 1: dollar strength or is it yen weakness? It sounds like 17 00:00:59,320 --> 00:01:01,800 Speaker 1: from what brad Is said, it's more yet weakness. But 18 00:01:02,000 --> 00:01:04,040 Speaker 1: I'm sure there's someone out there who will argue that 19 00:01:04,080 --> 00:01:04,920 Speaker 1: it's actually the dollar. 20 00:01:07,920 --> 00:01:15,559 Speaker 2: I did a deadlift one, okay, uh barges. This isn't 21 00:01:15,560 --> 00:01:17,160 Speaker 2: after school special, except. 22 00:01:16,880 --> 00:01:19,440 Speaker 1: I've decided I'm going to base my entire personality going 23 00:01:19,480 --> 00:01:22,720 Speaker 1: forward on campaigning for a strategic pork reserve in the US. 24 00:01:22,800 --> 00:01:24,520 Speaker 4: Where's the best with imposta? 25 00:01:24,720 --> 00:01:27,280 Speaker 1: These are the important question. Is it robots taking over 26 00:01:27,319 --> 00:01:27,880 Speaker 1: the world? No. 27 00:01:27,959 --> 00:01:30,840 Speaker 2: I think that like in a couple of years, the 28 00:01:30,920 --> 00:01:33,120 Speaker 2: AI will do a really good job of making the 29 00:01:33,120 --> 00:01:36,600 Speaker 2: odd launch podcast. And people say, I don't really need 30 00:01:36,640 --> 00:01:38,280 Speaker 2: to listen to Joe and Tracy anymore. 31 00:01:38,520 --> 00:01:42,240 Speaker 4: We do haveing perfect. 32 00:01:42,920 --> 00:01:45,120 Speaker 2: Welcome to lots more? Will we catch up with friends 33 00:01:45,120 --> 00:01:46,839 Speaker 2: about what's going on right now? 34 00:01:47,200 --> 00:01:50,960 Speaker 1: Because even when odd Lots is over, there's always lots more. 35 00:01:51,320 --> 00:01:54,120 Speaker 4: And we really do have the perfect guest. 36 00:01:56,480 --> 00:01:56,680 Speaker 1: You know. 37 00:01:56,800 --> 00:01:59,560 Speaker 2: We had our friend Hugh Hendry on the show just 38 00:01:59,600 --> 00:02:02,160 Speaker 2: this week and he was all telling this dollar story. 39 00:02:02,800 --> 00:02:05,600 Speaker 2: But like, is there something wrong with Japan? Should we 40 00:02:05,680 --> 00:02:09,079 Speaker 2: be scared? Or is this just a natural repricing due 41 00:02:09,120 --> 00:02:10,399 Speaker 2: to the interest rate differential? 42 00:02:11,520 --> 00:02:15,560 Speaker 3: I mean, I don't think there's anything structurally or fundamentally 43 00:02:15,960 --> 00:02:19,320 Speaker 3: wrong with Japan. I mean, Japan obviously has had difficulty 44 00:02:19,400 --> 00:02:23,519 Speaker 3: generating sustained inflation over time, and the Bank of Japan 45 00:02:23,680 --> 00:02:26,799 Speaker 3: is determined to kind of get inflation up this time, 46 00:02:27,440 --> 00:02:30,560 Speaker 3: and so the Bank of Japan has been, you know, 47 00:02:30,760 --> 00:02:33,280 Speaker 3: running a monetary policy that's a bit at odds with 48 00:02:33,360 --> 00:02:36,880 Speaker 3: the policy of the Fed and the ECB. I mean, 49 00:02:36,919 --> 00:02:39,400 Speaker 3: clearly this is a case of yen weakness, because you 50 00:02:39,400 --> 00:02:41,760 Speaker 3: can look at the yen versus the dollar or the 51 00:02:41,840 --> 00:02:44,160 Speaker 3: yen versus the Euro, and either way it is weak. 52 00:02:44,919 --> 00:02:49,040 Speaker 3: But it has reached a level of kind of extreme weakness. 53 00:02:49,080 --> 00:02:51,800 Speaker 3: In real terms, the yen is back to its levels 54 00:02:51,840 --> 00:02:55,240 Speaker 3: of the early nineteen seventies, and so, you know, like 55 00:02:55,440 --> 00:02:58,160 Speaker 3: if you think of Japan's economy in the early nineteen seventies, 56 00:02:58,680 --> 00:03:03,440 Speaker 3: that is, before Pan's electronics industry took over the you know, 57 00:03:03,520 --> 00:03:07,880 Speaker 3: took on the world, before Toyota's export wave and the 58 00:03:07,919 --> 00:03:12,640 Speaker 3: globalization of Japanese automakers. It's just it's returned Japan to 59 00:03:12,800 --> 00:03:16,480 Speaker 3: a level of purchasing power that does seem a bit 60 00:03:16,520 --> 00:03:19,800 Speaker 3: at odds with the underlying strength of its economy. But 61 00:03:19,880 --> 00:03:21,560 Speaker 3: that's I guess, you can. You know, the debate is 62 00:03:21,600 --> 00:03:25,239 Speaker 3: whether that's a natural consequence of interest rate differentials which 63 00:03:25,280 --> 00:03:28,600 Speaker 3: are large and now there's less of an expectation that 64 00:03:28,639 --> 00:03:31,720 Speaker 3: the Fed's going to cut, so the interest rate differential 65 00:03:31,760 --> 00:03:35,080 Speaker 3: will persist, or whether the yen has overshot a little bit. 66 00:03:35,160 --> 00:03:36,920 Speaker 4: It's reached such. 67 00:03:36,720 --> 00:03:40,880 Speaker 3: An extreme level of weakness that it is divorced even 68 00:03:41,000 --> 00:03:45,000 Speaker 3: from an interest rate differential that supports a weekend. 69 00:03:45,560 --> 00:03:48,360 Speaker 1: So we're speaking to Brad Setzer, senior fellow at the 70 00:03:48,360 --> 00:03:51,320 Speaker 1: Council on Foreign Relations and someone we like to talk 71 00:03:51,360 --> 00:03:54,320 Speaker 1: to to connect a lot of different things that are 72 00:03:54,320 --> 00:03:56,280 Speaker 1: going on in the world. And I'm just going to 73 00:03:56,320 --> 00:03:59,480 Speaker 1: ask one more question on the yen. And maybe it's 74 00:03:59,600 --> 00:04:03,280 Speaker 1: sort of rephrasing Joe's question about should we be worried? 75 00:04:03,840 --> 00:04:09,520 Speaker 1: But we have seen all the talk about yen intervention recently, 76 00:04:09,760 --> 00:04:13,600 Speaker 1: and since that supposed intervention, it looks like the yen 77 00:04:13,680 --> 00:04:16,839 Speaker 1: is weakening again. Is that something to worry about? 78 00:04:17,640 --> 00:04:20,000 Speaker 3: I guess it depends on what you mean by worry. 79 00:04:20,720 --> 00:04:23,919 Speaker 3: If you're the Ministry of Finance, you would rather that 80 00:04:24,040 --> 00:04:26,800 Speaker 3: the yen sort of just stay in a like a 81 00:04:26,960 --> 00:04:30,200 Speaker 3: range of one fifty to one fifty four. So if 82 00:04:30,200 --> 00:04:32,839 Speaker 3: you're the Ministry of Finance, I think you are worried 83 00:04:32,880 --> 00:04:36,240 Speaker 3: because the yen is drifting back towards one sixty, or 84 00:04:36,400 --> 00:04:39,360 Speaker 3: drifting back towards levels where you'd be expected to intervene 85 00:04:39,400 --> 00:04:43,160 Speaker 3: again the goal of intervention. Some people argue the goal 86 00:04:43,200 --> 00:04:46,360 Speaker 3: of intervention is to change the direction and go from 87 00:04:46,480 --> 00:04:50,120 Speaker 3: yen weakness to yen strength. I think that's an unrealistic goal, 88 00:04:50,120 --> 00:04:52,159 Speaker 3: and I don't think that is Japan's goal. I think 89 00:04:52,200 --> 00:04:55,560 Speaker 3: the goal of the Ministry of Finance is to limit, 90 00:04:55,800 --> 00:04:59,120 Speaker 3: to set a floor under how weak the yen is. 91 00:05:00,080 --> 00:05:03,719 Speaker 3: As the yen continues to depreciate, as it gets closer 92 00:05:03,720 --> 00:05:07,800 Speaker 3: to one sixty, I think there'll be increasing expectations of intervention. 93 00:05:08,640 --> 00:05:10,800 Speaker 3: And you know, in the short run, the intervention works, 94 00:05:11,279 --> 00:05:13,440 Speaker 3: and I think the longer one, I mean it works 95 00:05:13,440 --> 00:05:15,880 Speaker 3: in the sense that it will move the market back 96 00:05:15,920 --> 00:05:19,120 Speaker 3: towards one point fifty, and then it becomes a question 97 00:05:19,200 --> 00:05:22,520 Speaker 3: of whether the Ministry of Finance has to continuously intervene, 98 00:05:23,040 --> 00:05:25,840 Speaker 3: in which case eventually you will have a question about 99 00:05:25,880 --> 00:05:30,640 Speaker 3: whether it's running out of firepower, or whether the Bank 100 00:05:30,680 --> 00:05:35,120 Speaker 3: of Japan needs, if it's really worried, needs to join 101 00:05:35,400 --> 00:05:38,520 Speaker 3: the Ministry of Finance and adjust short term rates in 102 00:05:38,600 --> 00:05:39,360 Speaker 3: Japan as well. 103 00:05:39,480 --> 00:05:42,080 Speaker 2: Tracy, can I say something that has always bothered me? 104 00:05:42,480 --> 00:05:45,160 Speaker 2: And I don't mean Brad, don't listen to this part 105 00:05:45,240 --> 00:05:48,520 Speaker 2: because I'm going to question something that a professional economists 106 00:05:48,560 --> 00:05:52,479 Speaker 2: say all the time. But I'm always confused, and oh, 107 00:05:52,680 --> 00:05:55,200 Speaker 2: they didn't have enough inflation. They can't generate like we 108 00:05:55,279 --> 00:05:58,200 Speaker 2: have inflation now in the US. It doesn't seem that great. Meanwhile, 109 00:05:58,320 --> 00:06:01,119 Speaker 2: Japan doesn't have much inflation. I don't know, it doesn't 110 00:06:01,120 --> 00:06:03,560 Speaker 2: seem that bad to me, Like, maybe just don't worry 111 00:06:03,560 --> 00:06:05,640 Speaker 2: about making inflation higher, doesn't wait. 112 00:06:05,440 --> 00:06:07,520 Speaker 1: I do want to hear Brad respond to those. 113 00:06:08,200 --> 00:06:10,600 Speaker 3: Look, I actually think it's a real debate in Japan. Okay, 114 00:06:11,839 --> 00:06:14,200 Speaker 3: you know, Japan's economy did function for a while. 115 00:06:15,360 --> 00:06:18,000 Speaker 2: I've never been there, but every time I've looked pictures, 116 00:06:18,080 --> 00:06:22,599 Speaker 2: it seems like a peaceful, prosperous society with great consumer 117 00:06:22,720 --> 00:06:27,800 Speaker 2: and food and not inexpensive housing and working rail and 118 00:06:27,839 --> 00:06:30,720 Speaker 2: all these things that we supposedly want. Like, okay, so 119 00:06:30,760 --> 00:06:32,080 Speaker 2: it's not there's not much inflation. 120 00:06:32,160 --> 00:06:32,640 Speaker 4: Who cares. 121 00:06:33,040 --> 00:06:36,760 Speaker 3: I mean, it did generate some you know, it was 122 00:06:36,839 --> 00:06:41,000 Speaker 3: perceived to generate some significant problems. I mean, zero interest rates. 123 00:06:41,520 --> 00:06:44,800 Speaker 3: Zero inflation and zero interest rates doesn't leave much scope 124 00:06:45,200 --> 00:06:48,280 Speaker 3: for monetary policy to respond to downturns, and then it 125 00:06:48,320 --> 00:06:53,280 Speaker 3: makes wage adjustments more difficult. If some sector needs a 126 00:06:53,360 --> 00:06:57,640 Speaker 3: reduced real wage, you have to accept weaker nominal wages 127 00:06:57,800 --> 00:06:59,640 Speaker 3: and that yeah, that's just hard and people don't like 128 00:06:59,680 --> 00:07:03,240 Speaker 3: seeing there the dollar or yen value of their paycheck fall. 129 00:07:03,839 --> 00:07:06,600 Speaker 3: That said, I do think that there is a question 130 00:07:07,279 --> 00:07:11,880 Speaker 3: about whether whether low interest rates in a global environment 131 00:07:11,960 --> 00:07:14,400 Speaker 3: where other central banks have much higher interest rates, and 132 00:07:14,440 --> 00:07:17,960 Speaker 3: so your main transmission mechanism in theory is a week en, 133 00:07:18,520 --> 00:07:21,920 Speaker 3: about whether that's generating the right kind of inflation In Japan, 134 00:07:22,440 --> 00:07:25,760 Speaker 3: it's pushing up the price of imports. Imports in Japan 135 00:07:26,040 --> 00:07:30,280 Speaker 3: feed into consumer prices. They're also an input into some 136 00:07:30,440 --> 00:07:35,320 Speaker 3: Japanese industry. But in general terms, a weekend raises the 137 00:07:35,360 --> 00:07:38,280 Speaker 3: cost of imported energy and food and reduces real wages, 138 00:07:38,320 --> 00:07:41,640 Speaker 3: which we've seen. There was a headline yesterday about falling 139 00:07:41,680 --> 00:07:45,440 Speaker 3: real wages for close to two years in Japan. And 140 00:07:45,520 --> 00:07:47,920 Speaker 3: so it isn't clear that if the main effect of 141 00:07:47,960 --> 00:07:51,120 Speaker 3: a week in is reduced real wages and you have 142 00:07:51,280 --> 00:07:55,880 Speaker 3: less fewer yen to spend on Japanese services, you can't 143 00:07:55,880 --> 00:07:58,680 Speaker 3: go out as much because you're spending more on imported oil, 144 00:07:59,000 --> 00:08:03,200 Speaker 3: whether that will generate rate a healthy, self sustaining process 145 00:08:03,200 --> 00:08:06,880 Speaker 3: of appreciation. The winners of a week yen in Japan 146 00:08:06,960 --> 00:08:11,320 Speaker 3: are the multinationals the big exporters, some of the financial 147 00:08:11,360 --> 00:08:14,960 Speaker 3: investors who had long dollar position in their portfolio. But 148 00:08:15,000 --> 00:08:18,520 Speaker 3: there isn't any immediate transmission from a big company which 149 00:08:18,560 --> 00:08:22,000 Speaker 3: is making more gives me more yen on its operations 150 00:08:22,040 --> 00:08:27,000 Speaker 3: in Thailand in the United States to real wages in 151 00:08:27,080 --> 00:08:31,720 Speaker 3: Japan to increase spending in Japan. So it hasn't yet 152 00:08:31,840 --> 00:08:36,280 Speaker 3: generated the kind of inflationary dynamics that you've seen in 153 00:08:36,320 --> 00:08:39,160 Speaker 3: other economies. And so I do think there is a concern, 154 00:08:39,440 --> 00:08:42,600 Speaker 3: and that's why the Ministry of Finance is intervening and 155 00:08:42,640 --> 00:08:46,440 Speaker 3: trying to separately limit yen weakness. There's a concern that 156 00:08:46,520 --> 00:08:51,080 Speaker 3: yen weakness isn't actually helping reflate Japan's economy. 157 00:08:51,600 --> 00:08:55,480 Speaker 1: Brad, you mentioned wages there, real wages, and I was 158 00:08:55,520 --> 00:08:58,200 Speaker 1: just thinking back to my wage when I was in 159 00:08:58,240 --> 00:09:01,560 Speaker 1: grade school in Japan, and I used to get one 160 00:09:01,600 --> 00:09:05,560 Speaker 1: thousand yen every week for my allowance, which was ten dollars. 161 00:09:05,840 --> 00:09:09,040 Speaker 1: And I have to say that exchange rate is forever 162 00:09:09,160 --> 00:09:12,199 Speaker 1: fixed in my mind as like what the yen should be. 163 00:09:12,280 --> 00:09:15,240 Speaker 1: It should always be around like one hundred to the dollar. 164 00:09:15,400 --> 00:09:17,840 Speaker 1: And when I look at the chart now, it's really 165 00:09:18,360 --> 00:09:21,800 Speaker 1: kind of stunning. To me, But you also mentioned imports 166 00:09:21,840 --> 00:09:24,439 Speaker 1: getting more expensive, and this is something that we wanted 167 00:09:24,480 --> 00:09:26,559 Speaker 1: to speak to you about. Did you see the China 168 00:09:26,720 --> 00:09:28,440 Speaker 1: export data that came out this morning. 169 00:09:28,960 --> 00:09:29,280 Speaker 3: I did. 170 00:09:29,360 --> 00:09:33,959 Speaker 1: Yeah, So exports going up more than expected. I think 171 00:09:34,040 --> 00:09:36,240 Speaker 1: it was like a one point five percent increase in 172 00:09:36,280 --> 00:09:40,280 Speaker 1: dollar terms versus a forecast for one point three percent. 173 00:09:41,000 --> 00:09:45,160 Speaker 1: And this has kind of burst into the public consciousness 174 00:09:45,200 --> 00:09:48,960 Speaker 1: of at least finance Twitter recently, this idea that China's 175 00:09:49,040 --> 00:09:52,560 Speaker 1: exports have been relatively strong and this is one of 176 00:09:52,600 --> 00:09:56,439 Speaker 1: the few bright spots perhaps in the Chinese economy. Can 177 00:09:56,480 --> 00:09:58,280 Speaker 1: you talk a little bit more about that. Some people 178 00:09:58,320 --> 00:10:00,840 Speaker 1: are couching this as like a China a shock that 179 00:10:00,880 --> 00:10:02,679 Speaker 1: we should be worried about that the rest of the 180 00:10:02,720 --> 00:10:04,959 Speaker 1: world will struggle to respond to. 181 00:10:06,160 --> 00:10:08,240 Speaker 3: So I guess you know, if you just look at 182 00:10:08,240 --> 00:10:11,480 Speaker 3: the headline increase in dollars, an increase of one or 183 00:10:11,520 --> 00:10:16,040 Speaker 3: two percent doesn't seem that dramatic. So there's another important component, 184 00:10:16,320 --> 00:10:20,560 Speaker 3: which is that Chinese export prices have been falling quite significantly, 185 00:10:20,640 --> 00:10:24,920 Speaker 3: you know, because of yuan weakness, because of lower price 186 00:10:24,960 --> 00:10:28,800 Speaker 3: war for electric vehicles, a price war for solar panels, 187 00:10:28,800 --> 00:10:31,440 Speaker 3: a price war for a lot of China's exports, so 188 00:10:31,559 --> 00:10:34,680 Speaker 3: export volumes are actually up more like ten percent. I mean, 189 00:10:34,720 --> 00:10:37,280 Speaker 3: I don't think the numbers yet available for April, but 190 00:10:37,360 --> 00:10:40,240 Speaker 3: that was certainly the case for the first quarter, and 191 00:10:40,320 --> 00:10:43,960 Speaker 3: so it is in that context that one can think 192 00:10:44,280 --> 00:10:48,160 Speaker 3: of a new China shock. I think that the notion 193 00:10:48,200 --> 00:10:51,200 Speaker 3: of a new China shock is very much tied to 194 00:10:51,600 --> 00:10:55,760 Speaker 3: the auto sector and both the electric vehicle sector and 195 00:10:55,920 --> 00:11:00,200 Speaker 3: traditional combustion engines, where China has gone from basically being 196 00:11:00,840 --> 00:11:05,280 Speaker 3: a source of import demand. China imported high end luxury 197 00:11:05,920 --> 00:11:09,559 Speaker 3: cars from Germany, not so many from Japan, but few 198 00:11:09,600 --> 00:11:12,360 Speaker 3: from Japan, a lot from Germany, and five years ago 199 00:11:12,400 --> 00:11:15,040 Speaker 3: it wasn't a big export or not of cars. Produced 200 00:11:15,040 --> 00:11:18,679 Speaker 3: some trucks for export, but not much. Past few years, 201 00:11:18,720 --> 00:11:22,160 Speaker 3: that's changed. China is now the world's biggest exporter of cars. 202 00:11:22,800 --> 00:11:27,640 Speaker 3: It's electric vehicle manufacturers are exceptionally competitive. They're taking market 203 00:11:27,640 --> 00:11:31,640 Speaker 3: share from the foreign joint ventures in China, and they're 204 00:11:31,679 --> 00:11:34,880 Speaker 3: really starting to try to export. And then some of 205 00:11:34,920 --> 00:11:39,720 Speaker 3: the old capacity that made traditional internal combustion engine cars 206 00:11:39,760 --> 00:11:43,840 Speaker 3: in China is being repurposed to serve global demand. So 207 00:11:43,920 --> 00:11:49,000 Speaker 3: this is just combining to really push up export volumes 208 00:11:49,440 --> 00:11:54,120 Speaker 3: in autos in an important way. There's also just enormous 209 00:11:54,120 --> 00:11:58,840 Speaker 3: capacity inside China to produce solar panels, to produce batteries, 210 00:11:59,559 --> 00:12:04,400 Speaker 3: and so you know, China can meet global demand for 211 00:12:04,600 --> 00:12:08,599 Speaker 3: these products as it expands out of its existing capacity, 212 00:12:09,080 --> 00:12:12,480 Speaker 3: which makes it very difficult for other countries who want 213 00:12:12,520 --> 00:12:14,679 Speaker 3: to build up their own solar industry or their own 214 00:12:14,720 --> 00:12:18,400 Speaker 3: battery industry to get those industries going. I think that's 215 00:12:18,440 --> 00:12:24,240 Speaker 3: the sense in which China's exports are a bit of 216 00:12:24,240 --> 00:12:26,720 Speaker 3: a shock to the global system and why there's been 217 00:12:26,760 --> 00:12:30,559 Speaker 3: a bit of pushback. There's some technical factors as well. 218 00:12:31,240 --> 00:12:34,200 Speaker 3: We all remember that during the pandemic, everybody bought a 219 00:12:34,200 --> 00:12:37,240 Speaker 3: lot of computers, bought a lot of household appliances. That 220 00:12:37,320 --> 00:12:40,040 Speaker 3: drove China's exports up to a really, really high level. 221 00:12:40,040 --> 00:12:42,600 Speaker 3: Two years ago, they kind of dip back down and 222 00:12:42,600 --> 00:12:45,880 Speaker 3: now they're coming back up. But there's a dynamic around 223 00:12:46,000 --> 00:12:50,920 Speaker 3: China's traditional exports, and then there's a separate dynamic around 224 00:12:51,440 --> 00:12:54,400 Speaker 3: cars and clean energy exports, and I think the China 225 00:12:54,440 --> 00:13:06,720 Speaker 3: shock is much more now around cars and clean energy. 226 00:13:11,400 --> 00:13:14,640 Speaker 2: You know, I remember in the post twenty ten environment, 227 00:13:14,679 --> 00:13:17,439 Speaker 2: and there's a lot of talk about, you know, currency wars. 228 00:13:17,679 --> 00:13:20,600 Speaker 2: In this idea, everyone doing this beggar thy neighbor policy 229 00:13:20,800 --> 00:13:22,920 Speaker 2: of trying to have their currency weaker so that they 230 00:13:23,000 --> 00:13:26,520 Speaker 2: could sell more. Is that still a dynamic because the 231 00:13:26,640 --> 00:13:29,559 Speaker 2: end can fall, can keep falling. But it doesn't mean 232 00:13:29,600 --> 00:13:32,520 Speaker 2: they're going to have a national BYD. In fact, Toyota 233 00:13:32,559 --> 00:13:34,880 Speaker 2: isn't even really that into evs as far as I 234 00:13:35,000 --> 00:13:37,640 Speaker 2: can tell, or the Malaysian ring it is pretty weak. 235 00:13:37,640 --> 00:13:41,120 Speaker 2: But they don't have a BYD either, or a Shoumi 236 00:13:41,360 --> 00:13:44,000 Speaker 2: or a comac or whatever. It is, Like, how much 237 00:13:44,120 --> 00:13:49,000 Speaker 2: do currencies today play and trade competitiveness or in an 238 00:13:49,080 --> 00:13:51,880 Speaker 2: environment in which the big source of action seems to 239 00:13:51,920 --> 00:13:56,000 Speaker 2: be non commodity more cutting edge technological exports. 240 00:13:56,679 --> 00:14:00,560 Speaker 3: I'm super retro on this question, Okay, in my view, 241 00:14:00,600 --> 00:14:01,679 Speaker 3: still matter, they matter. 242 00:14:02,280 --> 00:14:03,880 Speaker 4: There's our headline, you know. 243 00:14:04,000 --> 00:14:07,760 Speaker 3: Oh, I'm really going out on a limb there. I look. 244 00:14:07,800 --> 00:14:12,480 Speaker 3: I think the response of Japanese exports to yen weakness 245 00:14:12,559 --> 00:14:15,079 Speaker 3: has been relatively modest. I think there's a lot of 246 00:14:15,120 --> 00:14:18,280 Speaker 3: different reasons for that. I think Toyota has wanted to 247 00:14:18,400 --> 00:14:22,240 Speaker 3: protect its transplants, its factories in the United States. It 248 00:14:22,280 --> 00:14:24,920 Speaker 3: hasn't wanted to engage in a price war. It has 249 00:14:25,080 --> 00:14:28,800 Speaker 3: preferred to basically take the yeek week in as a 250 00:14:28,840 --> 00:14:32,440 Speaker 3: source of greater profit rather than really engage in a 251 00:14:32,520 --> 00:14:35,560 Speaker 3: fight for volume. If you look at the weak Korean 252 00:14:35,640 --> 00:14:36,960 Speaker 3: wand which is also veriry. 253 00:14:36,800 --> 00:14:38,520 Speaker 2: Which always going to bring up because it sort of 254 00:14:38,560 --> 00:14:40,640 Speaker 2: shows that there is this commonality and it's not just 255 00:14:40,680 --> 00:14:41,320 Speaker 2: a yen story. 256 00:14:41,360 --> 00:14:44,600 Speaker 3: But yes, anyway, you know, if you look at Hyundai's 257 00:14:44,720 --> 00:14:46,960 Speaker 3: sales in the US and they're exports to the US, 258 00:14:47,160 --> 00:14:50,280 Speaker 3: they've responded very clearly to the to the week one. 259 00:14:50,480 --> 00:14:53,000 Speaker 3: You know, there's been an enormous actually increase hasn't gotten 260 00:14:53,000 --> 00:14:56,800 Speaker 3: a lot of attention in Korean auto exports to the US. 261 00:14:57,600 --> 00:15:01,000 Speaker 3: And I also think the fact that in real terms, 262 00:15:01,040 --> 00:15:04,400 Speaker 3: because Chinese inflation has actually been very low relative to 263 00:15:04,440 --> 00:15:07,160 Speaker 3: inflation and the rest of the world, and the yuan 264 00:15:07,280 --> 00:15:10,000 Speaker 3: has come down against the dollar, you know, there's been 265 00:15:10,040 --> 00:15:15,760 Speaker 3: a roughly ten percent weakening of the yuan in real terms, 266 00:15:16,280 --> 00:15:18,440 Speaker 3: and I think that is one of the factors that 267 00:15:18,560 --> 00:15:21,440 Speaker 3: is contributing to this export boom. You see all these 268 00:15:21,480 --> 00:15:26,280 Speaker 3: comparisons of China's EV prices versus prices of evs elsewhere, 269 00:15:26,720 --> 00:15:28,440 Speaker 3: and of course part of that is just you know, 270 00:15:28,840 --> 00:15:32,240 Speaker 3: byd had got really good at making evs really fast. 271 00:15:32,960 --> 00:15:36,360 Speaker 3: But part of it is that the Chinese yuan is 272 00:15:36,440 --> 00:15:39,080 Speaker 3: below where it was fifteen years ago against the dollar, 273 00:15:39,480 --> 00:15:43,080 Speaker 3: and inflation differentials are now bringing cost in China down. 274 00:15:43,760 --> 00:15:45,920 Speaker 3: My rule of thumb is that if the Chinese yuan 275 00:15:46,120 --> 00:15:49,320 Speaker 3: is not going up, if it's not appreciating, China tends 276 00:15:49,320 --> 00:15:51,840 Speaker 3: to gain global market share. And I think that is 277 00:15:51,920 --> 00:15:54,680 Speaker 3: a general rule that's held over time, and I think 278 00:15:54,680 --> 00:15:58,800 Speaker 3: it's asserting itself now. The interesting thing about China is 279 00:15:58,840 --> 00:16:02,440 Speaker 3: that it is not giving up its old competitive advantages 280 00:16:02,920 --> 00:16:06,600 Speaker 3: as it is introducing these new advantages. It's just exporting more. 281 00:16:06,960 --> 00:16:08,640 Speaker 3: And I think that is in part a function of 282 00:16:08,680 --> 00:16:13,640 Speaker 3: the week you on. So there's been some weirdness. Certainly 283 00:16:14,320 --> 00:16:17,840 Speaker 3: a lot of relationships broke down during the pandemic. But 284 00:16:17,960 --> 00:16:20,640 Speaker 3: my baseline thesis is that you're going to see a 285 00:16:20,680 --> 00:16:26,600 Speaker 3: reassertion of the traditional, well established relationship between currency values 286 00:16:26,600 --> 00:16:31,520 Speaker 3: and export volumes pretty clearly over the next couple of years. 287 00:16:31,880 --> 00:16:35,080 Speaker 1: Wait, this is my chance to ask you about Chinese 288 00:16:35,880 --> 00:16:41,680 Speaker 1: excavators and what they maybe say about what's driving the 289 00:16:41,760 --> 00:16:45,040 Speaker 1: export boom and the debate between you know, interest rate 290 00:16:45,080 --> 00:16:49,840 Speaker 1: differentials and maybe currency contributions versus excess capacity, because that's 291 00:16:49,880 --> 00:16:51,920 Speaker 1: the other thing that people are talking a lot about, 292 00:16:52,040 --> 00:16:55,400 Speaker 1: this idea that, well, there's so much excess capacity in 293 00:16:55,440 --> 00:16:59,320 Speaker 1: the Chinese economy. If you can't sell into your domestic market, 294 00:16:59,360 --> 00:17:02,120 Speaker 1: then you're going to try to sell more outside of it. 295 00:17:03,160 --> 00:17:07,000 Speaker 3: Look, the reality is the two those factors tend to 296 00:17:07,040 --> 00:17:10,359 Speaker 3: go together. If you've got weakness in your domestic market, 297 00:17:10,400 --> 00:17:12,200 Speaker 3: you're going to have low interest rates and a weak 298 00:17:12,200 --> 00:17:17,280 Speaker 3: currency as a general rule, and that exchange rate signal 299 00:17:17,880 --> 00:17:22,440 Speaker 3: helps you take products that previously were produced for your 300 00:17:22,440 --> 00:17:24,760 Speaker 3: own market and sell them to the rest of the world. 301 00:17:24,840 --> 00:17:29,720 Speaker 3: They're not mutually exclusive explanations. A weak currency helps you 302 00:17:29,920 --> 00:17:34,240 Speaker 3: take excess capacity and sell it globally. There's two different 303 00:17:34,240 --> 00:17:36,800 Speaker 3: things that have happened with excavators, which are like the 304 00:17:36,800 --> 00:17:40,040 Speaker 3: big construction equipment with like a backo that helps you 305 00:17:40,119 --> 00:17:43,400 Speaker 3: dig out the foundation of a new building or help 306 00:17:43,400 --> 00:17:47,760 Speaker 3: build a road. They're like the base construction equipment you 307 00:17:47,800 --> 00:17:50,359 Speaker 3: know in the US would be like the thing Caterpillar makes. 308 00:17:51,040 --> 00:17:54,600 Speaker 1: It's the thing that every guy I've ever met always 309 00:17:54,680 --> 00:17:56,280 Speaker 1: dreams of operating. 310 00:17:55,960 --> 00:17:56,720 Speaker 3: Because they're cool. 311 00:17:57,560 --> 00:18:01,320 Speaker 2: Exactly by the way, So on the point, sorry to intervine, 312 00:18:01,800 --> 00:18:04,000 Speaker 2: but on this point, Tracy, you know, I'm going to 313 00:18:04,080 --> 00:18:06,760 Speaker 2: Las Vegas next week to see Dead and Co. With 314 00:18:06,840 --> 00:18:09,400 Speaker 2: a few friends at the sphere, and we're looking at 315 00:18:09,440 --> 00:18:11,320 Speaker 2: a few of the things that we can do, like 316 00:18:11,359 --> 00:18:13,560 Speaker 2: we're gonna go see the big dam that's out there 317 00:18:13,600 --> 00:18:16,560 Speaker 2: and other stuff. One of the things that possibly will 318 00:18:16,560 --> 00:18:19,440 Speaker 2: be on our itinerary is this big amusement park where 319 00:18:19,480 --> 00:18:22,600 Speaker 2: adults and kids can dig up stuff with excavators. 320 00:18:23,080 --> 00:18:24,680 Speaker 1: So you may get a business model. 321 00:18:24,720 --> 00:18:25,320 Speaker 4: You may get a. 322 00:18:25,240 --> 00:18:28,560 Speaker 2: Picture of me in about a week from today sitting 323 00:18:28,720 --> 00:18:30,480 Speaker 2: in an excavator or in the bucket part of it. 324 00:18:30,520 --> 00:18:33,440 Speaker 4: Anyway, So yes, confirmed, all right, gor. 325 00:18:33,280 --> 00:18:36,240 Speaker 3: And in my youth, I think I had a Lego 326 00:18:36,320 --> 00:18:38,840 Speaker 3: set that where you had like the fancy gears and 327 00:18:38,880 --> 00:18:41,000 Speaker 3: you could like make it move and it was an 328 00:18:41,000 --> 00:18:43,960 Speaker 3: excavator and it was the total list. There's something amazing 329 00:18:44,080 --> 00:18:48,359 Speaker 3: about the mechanics of an excavator excavator. But you know, 330 00:18:48,359 --> 00:18:51,239 Speaker 3: two things have happened. Like twenty years ago, there were 331 00:18:51,280 --> 00:18:54,640 Speaker 3: a lot of excavators made in China. Even then, those 332 00:18:54,680 --> 00:18:58,000 Speaker 3: excavators were often made by Caterpillar or Komatsu. The big 333 00:18:58,080 --> 00:19:02,120 Speaker 3: Japanese construction equipment company. And so over the past twenty years, 334 00:19:02,359 --> 00:19:07,080 Speaker 3: Chinese companies have sprung up, developed, been able to produce 335 00:19:07,119 --> 00:19:10,320 Speaker 3: at a lower cost point, probably gotten a little local preference. 336 00:19:10,560 --> 00:19:12,800 Speaker 3: You know, if you're a state back construction company, you're 337 00:19:12,840 --> 00:19:16,199 Speaker 3: probably going to use a Chinese excavator if it is 338 00:19:16,320 --> 00:19:22,520 Speaker 3: price competitive. And so inside the Chinese market, the Chinese companies, 339 00:19:22,560 --> 00:19:25,760 Speaker 3: the Chinese marks have gained at the expensive foreign companies. 340 00:19:26,440 --> 00:19:28,800 Speaker 3: And then the second thing that happened is that as 341 00:19:28,960 --> 00:19:32,200 Speaker 3: China went through, you know, one of the world's biggest 342 00:19:32,240 --> 00:19:35,960 Speaker 3: property booms, there was just a lot of demand for excavators. 343 00:19:35,960 --> 00:19:40,160 Speaker 3: So capacity increased and China was producing a lot of excavators. 344 00:19:40,200 --> 00:19:42,800 Speaker 3: Chinese companies were producing a lot of excavators that were 345 00:19:42,960 --> 00:19:47,400 Speaker 3: mostly being used in China as part of the construction boom. 346 00:19:47,640 --> 00:19:51,160 Speaker 3: Construction boom turned to construction busts. Chinese companies are making 347 00:19:51,880 --> 00:19:56,840 Speaker 3: competitive excavators, and guess what those excavators are being exported globally. 348 00:19:57,680 --> 00:20:00,440 Speaker 3: Same dynamics a little bit in steel. It is not 349 00:20:00,560 --> 00:20:06,840 Speaker 3: just a clean tech ev dynamic. The set of inputs 350 00:20:06,960 --> 00:20:12,680 Speaker 3: old industry inputs into construction. You know, construction activity in 351 00:20:12,760 --> 00:20:16,880 Speaker 3: China's down. It's going to go down further, given all 352 00:20:16,920 --> 00:20:20,760 Speaker 3: the difficulties in the property development sector, and given the 353 00:20:20,760 --> 00:20:22,639 Speaker 3: fact that China's overbuilt and you're going to have to 354 00:20:22,640 --> 00:20:28,600 Speaker 3: have an extended period of much reduced property construction. Those 355 00:20:28,600 --> 00:20:31,600 Speaker 3: inputs are in some small part being exported. I mean, 356 00:20:31,720 --> 00:20:35,240 Speaker 3: China could export more steel, but Chinese steel exports now 357 00:20:35,280 --> 00:20:39,159 Speaker 3: exceed US steel production. I think they exceed Japanese steel production. 358 00:20:39,800 --> 00:20:43,480 Speaker 3: I mean, that's just a and that has not exhausted 359 00:20:43,560 --> 00:20:47,760 Speaker 3: Chinese export capacity. There's still capacity to export more. So 360 00:20:47,800 --> 00:20:50,920 Speaker 3: that's the kind of thing that makes a lot of 361 00:20:51,240 --> 00:20:55,199 Speaker 3: China's trading partners nervous. You know, China's can export one 362 00:20:55,240 --> 00:20:58,200 Speaker 3: hundred million tons of metric tons of steel and still 363 00:20:58,240 --> 00:21:02,840 Speaker 3: export another one hundred million. China's exporting five million vehicles, 364 00:21:03,000 --> 00:21:06,360 Speaker 3: but there is clearly capacity inside China export ten wow. 365 00:21:06,640 --> 00:21:09,240 Speaker 3: And you know five is more than Japan, it's more 366 00:21:09,240 --> 00:21:14,000 Speaker 3: than Germany. Ten would be record breaking. So it's that 367 00:21:14,480 --> 00:21:16,960 Speaker 3: forward looking concern is very real. 368 00:21:17,480 --> 00:21:18,840 Speaker 4: Tracy two things. 369 00:21:19,440 --> 00:21:22,240 Speaker 2: I'm on Alibaba dot Com right now, and there's apparently 370 00:21:22,280 --> 00:21:25,080 Speaker 2: excavators you can buy for two thousand dollars from China. 371 00:21:25,400 --> 00:21:26,879 Speaker 2: I don't understand how that has. 372 00:21:26,760 --> 00:21:28,679 Speaker 3: To be any man. 373 00:21:28,800 --> 00:21:30,960 Speaker 2: Yeah, but they look like something. But then the other 374 00:21:31,000 --> 00:21:33,240 Speaker 2: thing is like, you know, Tracy, just I just had 375 00:21:33,240 --> 00:21:35,399 Speaker 2: this light bulb moment where, you know, when the Internet 376 00:21:35,440 --> 00:21:38,000 Speaker 2: bubble happened in the US, everyone is like, well, yeah, 377 00:21:38,000 --> 00:21:40,199 Speaker 2: but there were some good spillovers because we got all 378 00:21:40,280 --> 00:21:43,240 Speaker 2: this unused fiber optics and that laid the groundwork for 379 00:21:43,240 --> 00:21:47,199 Speaker 2: the next twenty years China real estate bubble, creating this 380 00:21:47,359 --> 00:21:51,240 Speaker 2: incredible unused capacity of excavator and I know how to 381 00:21:51,280 --> 00:21:53,119 Speaker 2: make excavators for the rest of the world. 382 00:21:53,160 --> 00:21:53,679 Speaker 4: So there you go. 383 00:21:54,080 --> 00:21:57,520 Speaker 1: Okay, Brad. The other thing we wanted to ask you about, 384 00:21:57,800 --> 00:22:00,240 Speaker 1: we could just turn this into an excavator. 385 00:21:59,720 --> 00:22:01,679 Speaker 2: At the We got to get that guy on TikTok 386 00:22:01,680 --> 00:22:04,360 Speaker 2: who sells the Chinese excavators sometime. 387 00:22:04,560 --> 00:22:05,240 Speaker 1: That would be fun. 388 00:22:05,880 --> 00:22:06,160 Speaker 2: Brad. 389 00:22:06,160 --> 00:22:07,719 Speaker 1: The other thing we want to ask you, and this 390 00:22:07,840 --> 00:22:11,280 Speaker 1: kind of ties into the discussion around well, it very 391 00:22:11,359 --> 00:22:14,840 Speaker 1: much ties into the discussion around China's export boom. You 392 00:22:14,960 --> 00:22:17,879 Speaker 1: just published a paper at the French Institute of International 393 00:22:17,920 --> 00:22:22,239 Speaker 1: Relations called Power and Financial Interdependence, and you're sort of 394 00:22:22,320 --> 00:22:27,320 Speaker 1: tackling this idea of the China and US financial systems 395 00:22:27,359 --> 00:22:30,800 Speaker 1: being intertwined so China buys a lot of US treasuries 396 00:22:30,960 --> 00:22:33,400 Speaker 1: because it has to, basically because it's exporting a lot 397 00:22:33,400 --> 00:22:36,400 Speaker 1: to the US. But you make the point that there's 398 00:22:36,440 --> 00:22:42,080 Speaker 1: a difference between financial intertwining or interdependence versus the sort 399 00:22:42,119 --> 00:22:45,479 Speaker 1: of real economy interdependence. Could you talk a little bit 400 00:22:45,480 --> 00:22:46,080 Speaker 1: more about that. 401 00:22:46,800 --> 00:22:50,480 Speaker 3: Well, I mean, I think the paper has an ambitious title, 402 00:22:50,560 --> 00:22:54,080 Speaker 3: so hopefully people will read it as a paper with 403 00:22:54,119 --> 00:22:59,200 Speaker 3: some ambition, even if the conclusions are nuanced. I guess 404 00:22:59,240 --> 00:23:02,440 Speaker 3: I make a number of different observations about the link 405 00:23:02,480 --> 00:23:07,159 Speaker 3: between financial interdependence and real economic interdependence. One is the 406 00:23:07,200 --> 00:23:11,560 Speaker 3: one you made that if there is an enormous trade imbalance, 407 00:23:12,160 --> 00:23:15,080 Speaker 3: by definition, there has to be offsetting financing, and there 408 00:23:15,080 --> 00:23:18,119 Speaker 3: will be a financial imbalance, even if that imbalance is 409 00:23:18,160 --> 00:23:21,159 Speaker 3: a bit hidden, and even if it is hard to trace. 410 00:23:21,640 --> 00:23:24,560 Speaker 3: And one of the clear trends over the past fifteen 411 00:23:24,640 --> 00:23:27,639 Speaker 3: years is that China has gone from more or less 412 00:23:28,160 --> 00:23:31,280 Speaker 3: taking its export surplus, having the central bank buy it up, 413 00:23:31,320 --> 00:23:34,679 Speaker 3: buy up the dollars in investing in treasuries and agencies 414 00:23:35,040 --> 00:23:37,440 Speaker 3: doing a lot of more diverse things with its foreign 415 00:23:37,480 --> 00:23:40,879 Speaker 3: exchange reserves. There's a phrase that safe uses which I 416 00:23:41,000 --> 00:23:44,680 Speaker 3: like called the diversified use of foreign exchange reserves, which 417 00:23:44,720 --> 00:23:48,000 Speaker 3: actually it would be putting them things into financial assets 418 00:23:48,040 --> 00:23:52,080 Speaker 3: that are in no way foreign exchange reserves. And then 419 00:23:52,640 --> 00:23:56,720 Speaker 3: because of low interest rates, right now, the accumulation of 420 00:23:56,760 --> 00:23:59,399 Speaker 3: financial assets on the Chinese side has moved to the 421 00:23:59,400 --> 00:24:03,280 Speaker 3: export to the private side of China's economy, and so 422 00:24:03,359 --> 00:24:07,760 Speaker 3: it doesn't show up as this huge sustained bid for treasuries. 423 00:24:08,200 --> 00:24:11,440 Speaker 3: So that's kind of one theme. The other theme is, hey, 424 00:24:11,720 --> 00:24:16,160 Speaker 3: if you're thinking about the exercise of power, there are 425 00:24:16,200 --> 00:24:19,480 Speaker 3: conditions when you really need financial assets. If you have 426 00:24:19,600 --> 00:24:23,000 Speaker 3: an overvalue currency and you want to defend that currency, 427 00:24:23,000 --> 00:24:24,840 Speaker 3: you don't want the currency to weaken, or if you 428 00:24:24,880 --> 00:24:28,160 Speaker 3: have foreign currency denominated debts that you really want to pay, 429 00:24:28,600 --> 00:24:32,160 Speaker 3: you need financial assets, and losing access to financial assets 430 00:24:32,720 --> 00:24:37,440 Speaker 3: can be a very powerful sanction. But China buy and large, 431 00:24:37,520 --> 00:24:41,560 Speaker 3: doesn't need access to its legacy financial assets to do 432 00:24:41,640 --> 00:24:44,840 Speaker 3: much of anything right now. It's got this big ongoing 433 00:24:44,880 --> 00:24:49,160 Speaker 3: trade ser plus, it doesn't have much foreign currency external debt. 434 00:24:50,000 --> 00:24:53,880 Speaker 3: Obviously it does help with respect to intervention, but if 435 00:24:53,960 --> 00:24:56,560 Speaker 3: at the end of the day, the worst outcome that 436 00:24:56,760 --> 00:24:59,960 Speaker 3: for China from losing access to your foreign exchange reserves 437 00:25:00,520 --> 00:25:07,280 Speaker 3: is a weak Chinese yuan, that's probably something China can manage. Actually, Conversely, 438 00:25:07,400 --> 00:25:10,720 Speaker 3: those countries that are selling financial assets to China, they're 439 00:25:10,720 --> 00:25:14,359 Speaker 3: receiving real goods and surfaces, mostly goods, and if you 440 00:25:14,440 --> 00:25:19,440 Speaker 3: lose access to real goods in a crisis in certain contexts, 441 00:25:19,480 --> 00:25:24,200 Speaker 3: that can be quite devastating. You lose access to imported components, 442 00:25:24,280 --> 00:25:27,920 Speaker 3: and then the rest of your production process can't continue 443 00:25:28,000 --> 00:25:31,120 Speaker 3: until you find an alternative source. And for some products 444 00:25:31,119 --> 00:25:34,119 Speaker 3: there is no alternative source that's also not Chinese. So 445 00:25:34,200 --> 00:25:37,240 Speaker 3: I think you have to worry a little bit in this. 446 00:25:37,400 --> 00:25:40,520 Speaker 3: In a world where you know, so called interdependence has 447 00:25:40,520 --> 00:25:45,440 Speaker 3: been weaponized, and the US has weaponized interdependence chip export 448 00:25:45,480 --> 00:25:48,840 Speaker 3: controls or the classic example, financial sanctions or the other. 449 00:25:49,359 --> 00:25:56,280 Speaker 3: China has weaponized interdependence economic coercion, not buying commodities or 450 00:25:56,280 --> 00:25:59,280 Speaker 3: at least some commodities from countries where it don't say 451 00:25:59,359 --> 00:26:03,919 Speaker 3: nice things about China, famously with Australia are squeezing Korean 452 00:26:03,960 --> 00:26:08,440 Speaker 3: automakers after Korea agreed to the deployment of a powerful 453 00:26:08,520 --> 00:26:13,080 Speaker 3: US radar in Korea, or losing access to Chinese tourists, 454 00:26:13,080 --> 00:26:17,400 Speaker 3: because the Chinese State Tourism Bureau doesn't sell package holidays 455 00:26:17,400 --> 00:26:20,280 Speaker 3: to your country if you're not saying, if you're rude 456 00:26:20,280 --> 00:26:23,159 Speaker 3: and mean to the Chinese people. So you know, there 457 00:26:23,200 --> 00:26:27,200 Speaker 3: are various ways in which interdependence can be weaponized, and 458 00:26:27,600 --> 00:26:31,240 Speaker 3: some of those involve limits on the use of your 459 00:26:31,240 --> 00:26:35,960 Speaker 3: foreign assets, financial sanctions, and some of those involve restrictions 460 00:26:35,960 --> 00:26:39,359 Speaker 3: on the real flow of goods. And I think in 461 00:26:39,400 --> 00:26:43,560 Speaker 3: the most extreme scenarios, the restrictions on the real flow 462 00:26:43,560 --> 00:26:48,040 Speaker 3: of goods may be more significant for the Sino American 463 00:26:48,920 --> 00:26:51,719 Speaker 3: leverage than financial right. 464 00:26:52,560 --> 00:26:56,000 Speaker 2: That's basically my takeaway here that if the US did 465 00:26:56,160 --> 00:26:57,760 Speaker 2: to China at some point in the future what it 466 00:26:57,800 --> 00:26:59,600 Speaker 2: did to Russia, which I'm not even. 467 00:26:59,400 --> 00:27:01,720 Speaker 4: Sure that that effective. 468 00:27:01,320 --> 00:27:04,160 Speaker 2: Against Russia, but against China it wouldn't have a big 469 00:27:04,200 --> 00:27:09,960 Speaker 2: impact necessarily, But if the China converted conversely did the opposite, 470 00:27:10,320 --> 00:27:10,800 Speaker 2: it would. 471 00:27:10,680 --> 00:27:12,520 Speaker 4: Have a big impact on US. So it seems like 472 00:27:12,520 --> 00:27:14,520 Speaker 4: a bad situation for the US well. 473 00:27:14,720 --> 00:27:17,399 Speaker 3: But to be fair, one of the side effects of 474 00:27:17,440 --> 00:27:21,560 Speaker 3: the property boom in China, you know, Xi Jinping has 475 00:27:21,600 --> 00:27:24,960 Speaker 3: this idea that he can reduce his dependence on the 476 00:27:25,000 --> 00:27:28,280 Speaker 3: rest of the world by substituting out all the goods 477 00:27:28,280 --> 00:27:32,000 Speaker 3: that China now imports, all at least the manufactured goods 478 00:27:32,400 --> 00:27:36,639 Speaker 3: that China imports, and building up stockpiles of all the 479 00:27:36,640 --> 00:27:39,800 Speaker 3: commodities that China imports, And so if there was a 480 00:27:39,800 --> 00:27:44,520 Speaker 3: big interruption in trade, China's economy could continue to function 481 00:27:45,320 --> 00:27:49,160 Speaker 3: fair enough. One thesis. It's a pretty aggressive thesis. It's 482 00:27:49,200 --> 00:27:53,040 Speaker 3: aggressive in the sense that it's preparing for a negative contingency. 483 00:27:53,119 --> 00:27:56,920 Speaker 3: It's aggressive in the sense that it it engineers out 484 00:27:57,080 --> 00:28:01,600 Speaker 3: all of other countries' exports into manufactured exports into China. 485 00:28:03,080 --> 00:28:06,600 Speaker 3: But it doesn't change the fact that an enormous part 486 00:28:06,720 --> 00:28:08,800 Speaker 3: of the Chinese economy and a growing part of the 487 00:28:08,880 --> 00:28:12,080 Speaker 3: Chinese economy. All the people making excavators, for example, are 488 00:28:12,680 --> 00:28:17,320 Speaker 3: internal combustion engine cars for export. They their jobs depend 489 00:28:17,359 --> 00:28:22,480 Speaker 3: on access to export markets. So China's dependence on external 490 00:28:22,520 --> 00:28:26,760 Speaker 3: demand has gone up very, very significantly over the past 491 00:28:26,800 --> 00:28:30,920 Speaker 3: three or four years, even as China's reliance on imported 492 00:28:30,960 --> 00:28:35,320 Speaker 3: manufactured inputs has gone down. So China does have its 493 00:28:35,440 --> 00:28:39,520 Speaker 3: own very significant vulnerabilities in that respect. 494 00:28:40,400 --> 00:28:43,720 Speaker 1: We're back to excavators as the prism through which to 495 00:28:44,160 --> 00:28:52,360 Speaker 1: understand China's Economy, lots More is produced by Carmen Rodriguez 496 00:28:52,400 --> 00:28:55,640 Speaker 1: and Dashel Bennett, with help from Moses Onam and kel Brooks. 497 00:28:56,000 --> 00:28:59,040 Speaker 2: Our sound engineer is Blake Maple's Sage Bouman is the 498 00:28:59,080 --> 00:29:00,200 Speaker 2: head of Bloomberg Pucks. 499 00:29:00,800 --> 00:29:03,920 Speaker 1: Please rate, review, and subscribe to ad Blots and lots 500 00:29:03,960 --> 00:29:06,920 Speaker 1: More on your favorite podcast platforms. 501 00:29:06,680 --> 00:29:09,280 Speaker 2: And remember that Bloomberg subscribers can listen to all of 502 00:29:09,320 --> 00:29:12,600 Speaker 2: our podcasts add free by connecting through Apple Podcasts. 503 00:29:12,960 --> 00:29:13,719 Speaker 4: Thanks for listening.