WEBVTT - Lots More With Brad Setser on the Yen, a New China Shock and Excavators 0:00:03.120 --> 0:00:09.840 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.360 --> 0:00:11.680 Bred what's going on with the yen? 0:00:14.120 --> 0:00:17.280 Well, it's, uh, there's a bit, a bit of an intervention. 0:00:17.520 --> 0:00:20.400 The intervention took it from roughly one sixty to one 0:00:20.560 --> 0:00:24.360 fifty two, and now it is drifting back up towards yes, 0:00:24.520 --> 0:00:27.400 like round one fifty five. Broadly, the yen is just 0:00:27.520 --> 0:00:31.680 really really, really really weak. Obviously, that's because Japanese interest 0:00:31.720 --> 0:00:34.920 rates are very low relative to US and European rates, 0:00:35.360 --> 0:00:38.000 and they the end reached a level where the Japanese 0:00:38.000 --> 0:00:42.240 Ministry of Finance, which has Japan's reserves, started selling dollars 0:00:42.280 --> 0:00:45.360 buying yen to try to try to limit how we 0:00:45.440 --> 0:00:46.560 can become. 0:00:47.240 --> 0:00:49.760 Joe, I gotta say I hate currencies. They are my 0:00:49.880 --> 0:00:53.680 most hated a class locus everything No, because everything's relative. 0:00:53.880 --> 0:00:56.080 So it's like, the yen is down. But is it 0:00:56.120 --> 0:00:59.200 dollar strength or is it yen weakness? It sounds like 0:00:59.320 --> 0:01:01.800 from what brad Is said, it's more yet weakness. But 0:01:02.000 --> 0:01:04.040 I'm sure there's someone out there who will argue that 0:01:04.080 --> 0:01:04.920 it's actually the dollar. 0:01:07.920 --> 0:01:15.559 I did a deadlift one, okay, uh barges. This isn't 0:01:15.560 --> 0:01:17.160 after school special, except. 0:01:16.880 --> 0:01:19.440 I've decided I'm going to base my entire personality going 0:01:19.480 --> 0:01:22.720 forward on campaigning for a strategic pork reserve in the US. 0:01:22.800 --> 0:01:24.520 Where's the best with imposta? 0:01:24.720 --> 0:01:27.280 These are the important question. Is it robots taking over 0:01:27.319 --> 0:01:27.880 the world? No. 0:01:27.959 --> 0:01:30.840 I think that like in a couple of years, the 0:01:30.920 --> 0:01:33.120 AI will do a really good job of making the 0:01:33.120 --> 0:01:36.600 odd launch podcast. And people say, I don't really need 0:01:36.640 --> 0:01:38.280 to listen to Joe and Tracy anymore. 0:01:38.520 --> 0:01:42.240 We do haveing perfect. 0:01:42.920 --> 0:01:45.120 Welcome to lots more? Will we catch up with friends 0:01:45.120 --> 0:01:46.839 about what's going on right now? 0:01:47.200 --> 0:01:50.960 Because even when odd Lots is over, there's always lots more. 0:01:51.320 --> 0:01:54.120 And we really do have the perfect guest. 0:01:56.480 --> 0:01:56.680 You know. 0:01:56.800 --> 0:01:59.560 We had our friend Hugh Hendry on the show just 0:01:59.600 --> 0:02:02.160 this week and he was all telling this dollar story. 0:02:02.800 --> 0:02:05.600 But like, is there something wrong with Japan? Should we 0:02:05.680 --> 0:02:09.079 be scared? Or is this just a natural repricing due 0:02:09.120 --> 0:02:10.399 to the interest rate differential? 0:02:11.520 --> 0:02:15.560 I mean, I don't think there's anything structurally or fundamentally 0:02:15.960 --> 0:02:19.320 wrong with Japan. I mean, Japan obviously has had difficulty 0:02:19.400 --> 0:02:23.519 generating sustained inflation over time, and the Bank of Japan 0:02:23.680 --> 0:02:26.799 is determined to kind of get inflation up this time, 0:02:27.440 --> 0:02:30.560 and so the Bank of Japan has been, you know, 0:02:30.760 --> 0:02:33.280 running a monetary policy that's a bit at odds with 0:02:33.360 --> 0:02:36.880 the policy of the Fed and the ECB. I mean, 0:02:36.919 --> 0:02:39.400 clearly this is a case of yen weakness, because you 0:02:39.400 --> 0:02:41.760 can look at the yen versus the dollar or the 0:02:41.840 --> 0:02:44.160 yen versus the Euro, and either way it is weak. 0:02:44.919 --> 0:02:49.040 But it has reached a level of kind of extreme weakness. 0:02:49.080 --> 0:02:51.800 In real terms, the yen is back to its levels 0:02:51.840 --> 0:02:55.240 of the early nineteen seventies, and so, you know, like 0:02:55.440 --> 0:02:58.160 if you think of Japan's economy in the early nineteen seventies, 0:02:58.680 --> 0:03:03.440 that is, before Pan's electronics industry took over the you know, 0:03:03.520 --> 0:03:07.880 took on the world, before Toyota's export wave and the 0:03:07.919 --> 0:03:12.640 globalization of Japanese automakers. It's just it's returned Japan to 0:03:12.800 --> 0:03:16.480 a level of purchasing power that does seem a bit 0:03:16.520 --> 0:03:19.800 at odds with the underlying strength of its economy. But 0:03:19.880 --> 0:03:21.560 that's I guess, you can. You know, the debate is 0:03:21.600 --> 0:03:25.239 whether that's a natural consequence of interest rate differentials which 0:03:25.280 --> 0:03:28.600 are large and now there's less of an expectation that 0:03:28.639 --> 0:03:31.720 the Fed's going to cut, so the interest rate differential 0:03:31.760 --> 0:03:35.080 will persist, or whether the yen has overshot a little bit. 0:03:35.160 --> 0:03:36.920 It's reached such. 0:03:36.720 --> 0:03:40.880 An extreme level of weakness that it is divorced even 0:03:41.000 --> 0:03:45.000 from an interest rate differential that supports a weekend. 0:03:45.560 --> 0:03:48.360 So we're speaking to Brad Setzer, senior fellow at the 0:03:48.360 --> 0:03:51.320 Council on Foreign Relations and someone we like to talk 0:03:51.360 --> 0:03:54.320 to to connect a lot of different things that are 0:03:54.320 --> 0:03:56.280 going on in the world. And I'm just going to 0:03:56.320 --> 0:03:59.480 ask one more question on the yen. And maybe it's 0:03:59.600 --> 0:04:03.280 sort of rephrasing Joe's question about should we be worried? 0:04:03.840 --> 0:04:09.520 But we have seen all the talk about yen intervention recently, 0:04:09.760 --> 0:04:13.600 and since that supposed intervention, it looks like the yen 0:04:13.680 --> 0:04:16.839 is weakening again. Is that something to worry about? 0:04:17.640 --> 0:04:20.000 I guess it depends on what you mean by worry. 0:04:20.720 --> 0:04:23.919 If you're the Ministry of Finance, you would rather that 0:04:24.040 --> 0:04:26.800 the yen sort of just stay in a like a 0:04:26.960 --> 0:04:30.200 range of one fifty to one fifty four. So if 0:04:30.200 --> 0:04:32.839 you're the Ministry of Finance, I think you are worried 0:04:32.880 --> 0:04:36.240 because the yen is drifting back towards one sixty, or 0:04:36.400 --> 0:04:39.360 drifting back towards levels where you'd be expected to intervene 0:04:39.400 --> 0:04:43.160 again the goal of intervention. Some people argue the goal 0:04:43.200 --> 0:04:46.360 of intervention is to change the direction and go from 0:04:46.480 --> 0:04:50.120 yen weakness to yen strength. I think that's an unrealistic goal, 0:04:50.120 --> 0:04:52.159 and I don't think that is Japan's goal. I think 0:04:52.200 --> 0:04:55.560 the goal of the Ministry of Finance is to limit, 0:04:55.800 --> 0:04:59.120 to set a floor under how weak the yen is. 0:05:00.080 --> 0:05:03.719 As the yen continues to depreciate, as it gets closer 0:05:03.720 --> 0:05:07.800 to one sixty, I think there'll be increasing expectations of intervention. 0:05:08.640 --> 0:05:10.800 And you know, in the short run, the intervention works, 0:05:11.279 --> 0:05:13.440 and I think the longer one, I mean it works 0:05:13.440 --> 0:05:15.880 in the sense that it will move the market back 0:05:15.920 --> 0:05:19.120 towards one point fifty, and then it becomes a question 0:05:19.200 --> 0:05:22.520 of whether the Ministry of Finance has to continuously intervene, 0:05:23.040 --> 0:05:25.840 in which case eventually you will have a question about 0:05:25.880 --> 0:05:30.640 whether it's running out of firepower, or whether the Bank 0:05:30.680 --> 0:05:35.120 of Japan needs, if it's really worried, needs to join 0:05:35.400 --> 0:05:38.520 the Ministry of Finance and adjust short term rates in 0:05:38.600 --> 0:05:39.360 Japan as well. 0:05:39.480 --> 0:05:42.080 Tracy, can I say something that has always bothered me? 0:05:42.480 --> 0:05:45.160 And I don't mean Brad, don't listen to this part 0:05:45.240 --> 0:05:48.520 because I'm going to question something that a professional economists 0:05:48.560 --> 0:05:52.479 say all the time. But I'm always confused, and oh, 0:05:52.680 --> 0:05:55.200 they didn't have enough inflation. They can't generate like we 0:05:55.279 --> 0:05:58.200 have inflation now in the US. It doesn't seem that great. Meanwhile, 0:05:58.320 --> 0:06:01.119 Japan doesn't have much inflation. I don't know, it doesn't 0:06:01.120 --> 0:06:03.560 seem that bad to me, Like, maybe just don't worry 0:06:03.560 --> 0:06:05.640 about making inflation higher, doesn't wait. 0:06:05.440 --> 0:06:07.520 I do want to hear Brad respond to those. 0:06:08.200 --> 0:06:10.600 Look, I actually think it's a real debate in Japan. Okay, 0:06:11.839 --> 0:06:14.200 you know, Japan's economy did function for a while. 0:06:15.360 --> 0:06:18.000 I've never been there, but every time I've looked pictures, 0:06:18.080 --> 0:06:22.599 it seems like a peaceful, prosperous society with great consumer 0:06:22.720 --> 0:06:27.800 and food and not inexpensive housing and working rail and 0:06:27.839 --> 0:06:30.720 all these things that we supposedly want. Like, okay, so 0:06:30.760 --> 0:06:32.080 it's not there's not much inflation. 0:06:32.160 --> 0:06:32.640 Who cares. 0:06:33.040 --> 0:06:36.760 I mean, it did generate some you know, it was 0:06:36.839 --> 0:06:41.000 perceived to generate some significant problems. I mean, zero interest rates. 0:06:41.520 --> 0:06:44.800 Zero inflation and zero interest rates doesn't leave much scope 0:06:45.200 --> 0:06:48.280 for monetary policy to respond to downturns, and then it 0:06:48.320 --> 0:06:53.280 makes wage adjustments more difficult. If some sector needs a 0:06:53.360 --> 0:06:57.640 reduced real wage, you have to accept weaker nominal wages 0:06:57.800 --> 0:06:59.640 and that yeah, that's just hard and people don't like 0:06:59.680 --> 0:07:03.240 seeing there the dollar or yen value of their paycheck fall. 0:07:03.839 --> 0:07:06.600 That said, I do think that there is a question 0:07:07.279 --> 0:07:11.880 about whether whether low interest rates in a global environment 0:07:11.960 --> 0:07:14.400 where other central banks have much higher interest rates, and 0:07:14.440 --> 0:07:17.960 so your main transmission mechanism in theory is a week en, 0:07:18.520 --> 0:07:21.920 about whether that's generating the right kind of inflation In Japan, 0:07:22.440 --> 0:07:25.760 it's pushing up the price of imports. Imports in Japan 0:07:26.040 --> 0:07:30.280 feed into consumer prices. They're also an input into some 0:07:30.440 --> 0:07:35.320 Japanese industry. But in general terms, a weekend raises the 0:07:35.360 --> 0:07:38.280 cost of imported energy and food and reduces real wages, 0:07:38.320 --> 0:07:41.640 which we've seen. There was a headline yesterday about falling 0:07:41.680 --> 0:07:45.440 real wages for close to two years in Japan. And 0:07:45.520 --> 0:07:47.920 so it isn't clear that if the main effect of 0:07:47.960 --> 0:07:51.120 a week in is reduced real wages and you have 0:07:51.280 --> 0:07:55.880 less fewer yen to spend on Japanese services, you can't 0:07:55.880 --> 0:07:58.680 go out as much because you're spending more on imported oil, 0:07:59.000 --> 0:08:03.200 whether that will generate rate a healthy, self sustaining process 0:08:03.200 --> 0:08:06.880 of appreciation. The winners of a week yen in Japan 0:08:06.960 --> 0:08:11.320 are the multinationals the big exporters, some of the financial 0:08:11.360 --> 0:08:14.960 investors who had long dollar position in their portfolio. But 0:08:15.000 --> 0:08:18.520 there isn't any immediate transmission from a big company which 0:08:18.560 --> 0:08:22.000 is making more gives me more yen on its operations 0:08:22.040 --> 0:08:27.000 in Thailand in the United States to real wages in 0:08:27.080 --> 0:08:31.720 Japan to increase spending in Japan. So it hasn't yet 0:08:31.840 --> 0:08:36.280 generated the kind of inflationary dynamics that you've seen in 0:08:36.320 --> 0:08:39.160 other economies. And so I do think there is a concern, 0:08:39.440 --> 0:08:42.600 and that's why the Ministry of Finance is intervening and 0:08:42.640 --> 0:08:46.440 trying to separately limit yen weakness. There's a concern that 0:08:46.520 --> 0:08:51.080 yen weakness isn't actually helping reflate Japan's economy. 0:08:51.600 --> 0:08:55.480 Brad, you mentioned wages there, real wages, and I was 0:08:55.520 --> 0:08:58.200 just thinking back to my wage when I was in 0:08:58.240 --> 0:09:01.560 grade school in Japan, and I used to get one 0:09:01.600 --> 0:09:05.560 thousand yen every week for my allowance, which was ten dollars. 0:09:05.840 --> 0:09:09.040 And I have to say that exchange rate is forever 0:09:09.160 --> 0:09:12.199 fixed in my mind as like what the yen should be. 0:09:12.280 --> 0:09:15.240 It should always be around like one hundred to the dollar. 0:09:15.400 --> 0:09:17.840 And when I look at the chart now, it's really 0:09:18.360 --> 0:09:21.800 kind of stunning. To me, But you also mentioned imports 0:09:21.840 --> 0:09:24.439 getting more expensive, and this is something that we wanted 0:09:24.480 --> 0:09:26.559 to speak to you about. Did you see the China 0:09:26.720 --> 0:09:28.440 export data that came out this morning. 0:09:28.960 --> 0:09:29.280 I did. 0:09:29.360 --> 0:09:33.959 Yeah, So exports going up more than expected. I think 0:09:34.040 --> 0:09:36.240 it was like a one point five percent increase in 0:09:36.280 --> 0:09:40.280 dollar terms versus a forecast for one point three percent. 0:09:41.000 --> 0:09:45.160 And this has kind of burst into the public consciousness 0:09:45.200 --> 0:09:48.960 of at least finance Twitter recently, this idea that China's 0:09:49.040 --> 0:09:52.560 exports have been relatively strong and this is one of 0:09:52.600 --> 0:09:56.439 the few bright spots perhaps in the Chinese economy. Can 0:09:56.480 --> 0:09:58.280 you talk a little bit more about that. Some people 0:09:58.320 --> 0:10:00.840 are couching this as like a China a shock that 0:10:00.880 --> 0:10:02.679 we should be worried about that the rest of the 0:10:02.720 --> 0:10:04.959 world will struggle to respond to. 0:10:06.160 --> 0:10:08.240 So I guess you know, if you just look at 0:10:08.240 --> 0:10:11.480 the headline increase in dollars, an increase of one or 0:10:11.520 --> 0:10:16.040 two percent doesn't seem that dramatic. So there's another important component, 0:10:16.320 --> 0:10:20.560 which is that Chinese export prices have been falling quite significantly, 0:10:20.640 --> 0:10:24.920 you know, because of yuan weakness, because of lower price 0:10:24.960 --> 0:10:28.800 war for electric vehicles, a price war for solar panels, 0:10:28.800 --> 0:10:31.440 a price war for a lot of China's exports, so 0:10:31.559 --> 0:10:34.680 export volumes are actually up more like ten percent. I mean, 0:10:34.720 --> 0:10:37.280 I don't think the numbers yet available for April, but 0:10:37.360 --> 0:10:40.240 that was certainly the case for the first quarter, and 0:10:40.320 --> 0:10:43.960 so it is in that context that one can think 0:10:44.280 --> 0:10:48.160 of a new China shock. I think that the notion 0:10:48.200 --> 0:10:51.200 of a new China shock is very much tied to 0:10:51.600 --> 0:10:55.760 the auto sector and both the electric vehicle sector and 0:10:55.920 --> 0:11:00.200 traditional combustion engines, where China has gone from basically being 0:11:00.840 --> 0:11:05.280 a source of import demand. China imported high end luxury 0:11:05.920 --> 0:11:09.559 cars from Germany, not so many from Japan, but few 0:11:09.600 --> 0:11:12.360 from Japan, a lot from Germany, and five years ago 0:11:12.400 --> 0:11:15.040 it wasn't a big export or not of cars. Produced 0:11:15.040 --> 0:11:18.679 some trucks for export, but not much. Past few years, 0:11:18.720 --> 0:11:22.160 that's changed. China is now the world's biggest exporter of cars. 0:11:22.800 --> 0:11:27.640 It's electric vehicle manufacturers are exceptionally competitive. They're taking market 0:11:27.640 --> 0:11:31.640 share from the foreign joint ventures in China, and they're 0:11:31.679 --> 0:11:34.880 really starting to try to export. And then some of 0:11:34.920 --> 0:11:39.720 the old capacity that made traditional internal combustion engine cars 0:11:39.760 --> 0:11:43.840 in China is being repurposed to serve global demand. So 0:11:43.920 --> 0:11:49.000 this is just combining to really push up export volumes 0:11:49.440 --> 0:11:54.120 in autos in an important way. There's also just enormous 0:11:54.120 --> 0:11:58.840 capacity inside China to produce solar panels, to produce batteries, 0:11:59.559 --> 0:12:04.400 and so you know, China can meet global demand for 0:12:04.600 --> 0:12:08.599 these products as it expands out of its existing capacity, 0:12:09.080 --> 0:12:12.480 which makes it very difficult for other countries who want 0:12:12.520 --> 0:12:14.679 to build up their own solar industry or their own 0:12:14.720 --> 0:12:18.400 battery industry to get those industries going. I think that's 0:12:18.440 --> 0:12:24.240 the sense in which China's exports are a bit of 0:12:24.240 --> 0:12:26.720 a shock to the global system and why there's been 0:12:26.760 --> 0:12:30.559 a bit of pushback. There's some technical factors as well. 0:12:31.240 --> 0:12:34.200 We all remember that during the pandemic, everybody bought a 0:12:34.200 --> 0:12:37.240 lot of computers, bought a lot of household appliances. That 0:12:37.320 --> 0:12:40.040 drove China's exports up to a really, really high level. 0:12:40.040 --> 0:12:42.600 Two years ago, they kind of dip back down and 0:12:42.600 --> 0:12:45.880 now they're coming back up. But there's a dynamic around 0:12:46.000 --> 0:12:50.920 China's traditional exports, and then there's a separate dynamic around 0:12:51.440 --> 0:12:54.400 cars and clean energy exports, and I think the China 0:12:54.440 --> 0:13:06.720 shock is much more now around cars and clean energy. 0:13:11.400 --> 0:13:14.640 You know, I remember in the post twenty ten environment, 0:13:14.679 --> 0:13:17.439 and there's a lot of talk about, you know, currency wars. 0:13:17.679 --> 0:13:20.600 In this idea, everyone doing this beggar thy neighbor policy 0:13:20.800 --> 0:13:22.920 of trying to have their currency weaker so that they 0:13:23.000 --> 0:13:26.520 could sell more. Is that still a dynamic because the 0:13:26.640 --> 0:13:29.559 end can fall, can keep falling. But it doesn't mean 0:13:29.600 --> 0:13:32.520 they're going to have a national BYD. In fact, Toyota 0:13:32.559 --> 0:13:34.880 isn't even really that into evs as far as I 0:13:35.000 --> 0:13:37.640 can tell, or the Malaysian ring it is pretty weak. 0:13:37.640 --> 0:13:41.120 But they don't have a BYD either, or a Shoumi 0:13:41.360 --> 0:13:44.000 or a comac or whatever. It is, Like, how much 0:13:44.120 --> 0:13:49.000 do currencies today play and trade competitiveness or in an 0:13:49.080 --> 0:13:51.880 environment in which the big source of action seems to 0:13:51.920 --> 0:13:56.000 be non commodity more cutting edge technological exports. 0:13:56.679 --> 0:14:00.560 I'm super retro on this question, Okay, in my view, 0:14:00.600 --> 0:14:01.679 still matter, they matter. 0:14:02.280 --> 0:14:03.880 There's our headline, you know. 0:14:04.000 --> 0:14:07.760 Oh, I'm really going out on a limb there. I look. 0:14:07.800 --> 0:14:12.480 I think the response of Japanese exports to yen weakness 0:14:12.559 --> 0:14:15.079 has been relatively modest. I think there's a lot of 0:14:15.120 --> 0:14:18.280 different reasons for that. I think Toyota has wanted to 0:14:18.400 --> 0:14:22.240 protect its transplants, its factories in the United States. It 0:14:22.280 --> 0:14:24.920 hasn't wanted to engage in a price war. It has 0:14:25.080 --> 0:14:28.800 preferred to basically take the yeek week in as a 0:14:28.840 --> 0:14:32.440 source of greater profit rather than really engage in a 0:14:32.520 --> 0:14:35.560 fight for volume. If you look at the weak Korean 0:14:35.640 --> 0:14:36.960 wand which is also veriry. 0:14:36.800 --> 0:14:38.520 Which always going to bring up because it sort of 0:14:38.560 --> 0:14:40.640 shows that there is this commonality and it's not just 0:14:40.680 --> 0:14:41.320 a yen story. 0:14:41.360 --> 0:14:44.600 But yes, anyway, you know, if you look at Hyundai's 0:14:44.720 --> 0:14:46.960 sales in the US and they're exports to the US, 0:14:47.160 --> 0:14:50.280 they've responded very clearly to the to the week one. 0:14:50.480 --> 0:14:53.000 You know, there's been an enormous actually increase hasn't gotten 0:14:53.000 --> 0:14:56.800 a lot of attention in Korean auto exports to the US. 0:14:57.600 --> 0:15:01.000 And I also think the fact that in real terms, 0:15:01.040 --> 0:15:04.400 because Chinese inflation has actually been very low relative to 0:15:04.440 --> 0:15:07.160 inflation and the rest of the world, and the yuan 0:15:07.280 --> 0:15:10.000 has come down against the dollar, you know, there's been 0:15:10.040 --> 0:15:15.760 a roughly ten percent weakening of the yuan in real terms, 0:15:16.280 --> 0:15:18.440 and I think that is one of the factors that 0:15:18.560 --> 0:15:21.440 is contributing to this export boom. You see all these 0:15:21.480 --> 0:15:26.280 comparisons of China's EV prices versus prices of evs elsewhere, 0:15:26.720 --> 0:15:28.440 and of course part of that is just you know, 0:15:28.840 --> 0:15:32.240 byd had got really good at making evs really fast. 0:15:32.960 --> 0:15:36.360 But part of it is that the Chinese yuan is 0:15:36.440 --> 0:15:39.080 below where it was fifteen years ago against the dollar, 0:15:39.480 --> 0:15:43.080 and inflation differentials are now bringing cost in China down. 0:15:43.760 --> 0:15:45.920 My rule of thumb is that if the Chinese yuan 0:15:46.120 --> 0:15:49.320 is not going up, if it's not appreciating, China tends 0:15:49.320 --> 0:15:51.840 to gain global market share. And I think that is 0:15:51.920 --> 0:15:54.680 a general rule that's held over time, and I think 0:15:54.680 --> 0:15:58.800 it's asserting itself now. The interesting thing about China is 0:15:58.840 --> 0:16:02.440 that it is not giving up its old competitive advantages 0:16:02.920 --> 0:16:06.600 as it is introducing these new advantages. It's just exporting more. 0:16:06.960 --> 0:16:08.640 And I think that is in part a function of 0:16:08.680 --> 0:16:13.640 the week you on. So there's been some weirdness. Certainly 0:16:14.320 --> 0:16:17.840 a lot of relationships broke down during the pandemic. But 0:16:17.960 --> 0:16:20.640 my baseline thesis is that you're going to see a 0:16:20.680 --> 0:16:26.600 reassertion of the traditional, well established relationship between currency values 0:16:26.600 --> 0:16:31.520 and export volumes pretty clearly over the next couple of years. 0:16:31.880 --> 0:16:35.080 Wait, this is my chance to ask you about Chinese 0:16:35.880 --> 0:16:41.680 excavators and what they maybe say about what's driving the 0:16:41.760 --> 0:16:45.040 export boom and the debate between you know, interest rate 0:16:45.080 --> 0:16:49.840 differentials and maybe currency contributions versus excess capacity, because that's 0:16:49.880 --> 0:16:51.920 the other thing that people are talking a lot about, 0:16:52.040 --> 0:16:55.400 this idea that, well, there's so much excess capacity in 0:16:55.440 --> 0:16:59.320 the Chinese economy. If you can't sell into your domestic market, 0:16:59.360 --> 0:17:02.120 then you're going to try to sell more outside of it. 0:17:03.160 --> 0:17:07.000 Look, the reality is the two those factors tend to 0:17:07.040 --> 0:17:10.359 go together. If you've got weakness in your domestic market, 0:17:10.400 --> 0:17:12.200 you're going to have low interest rates and a weak 0:17:12.200 --> 0:17:17.280 currency as a general rule, and that exchange rate signal 0:17:17.880 --> 0:17:22.440 helps you take products that previously were produced for your 0:17:22.440 --> 0:17:24.760 own market and sell them to the rest of the world. 0:17:24.840 --> 0:17:29.720 They're not mutually exclusive explanations. A weak currency helps you 0:17:29.920 --> 0:17:34.240 take excess capacity and sell it globally. There's two different 0:17:34.240 --> 0:17:36.800 things that have happened with excavators, which are like the 0:17:36.800 --> 0:17:40.040 big construction equipment with like a backo that helps you 0:17:40.119 --> 0:17:43.400 dig out the foundation of a new building or help 0:17:43.400 --> 0:17:47.760 build a road. They're like the base construction equipment you 0:17:47.800 --> 0:17:50.359 know in the US would be like the thing Caterpillar makes. 0:17:51.040 --> 0:17:54.600 It's the thing that every guy I've ever met always 0:17:54.680 --> 0:17:56.280 dreams of operating. 0:17:55.960 --> 0:17:56.720 Because they're cool. 0:17:57.560 --> 0:18:01.320 Exactly by the way, So on the point, sorry to intervine, 0:18:01.800 --> 0:18:04.000 but on this point, Tracy, you know, I'm going to 0:18:04.080 --> 0:18:06.760 Las Vegas next week to see Dead and Co. With 0:18:06.840 --> 0:18:09.400 a few friends at the sphere, and we're looking at 0:18:09.440 --> 0:18:11.320 a few of the things that we can do, like 0:18:11.359 --> 0:18:13.560 we're gonna go see the big dam that's out there 0:18:13.600 --> 0:18:16.560 and other stuff. One of the things that possibly will 0:18:16.560 --> 0:18:19.440 be on our itinerary is this big amusement park where 0:18:19.480 --> 0:18:22.600 adults and kids can dig up stuff with excavators. 0:18:23.080 --> 0:18:24.680 So you may get a business model. 0:18:24.720 --> 0:18:25.320 You may get a. 0:18:25.240 --> 0:18:28.560 Picture of me in about a week from today sitting 0:18:28.720 --> 0:18:30.480 in an excavator or in the bucket part of it. 0:18:30.520 --> 0:18:33.440 Anyway, So yes, confirmed, all right, gor. 0:18:33.280 --> 0:18:36.240 And in my youth, I think I had a Lego 0:18:36.320 --> 0:18:38.840 set that where you had like the fancy gears and 0:18:38.880 --> 0:18:41.000 you could like make it move and it was an 0:18:41.000 --> 0:18:43.960 excavator and it was the total list. There's something amazing 0:18:44.080 --> 0:18:48.359 about the mechanics of an excavator excavator. But you know, 0:18:48.359 --> 0:18:51.239 two things have happened. Like twenty years ago, there were 0:18:51.280 --> 0:18:54.640 a lot of excavators made in China. Even then, those 0:18:54.680 --> 0:18:58.000 excavators were often made by Caterpillar or Komatsu. The big 0:18:58.080 --> 0:19:02.120 Japanese construction equipment company. And so over the past twenty years, 0:19:02.359 --> 0:19:07.080 Chinese companies have sprung up, developed, been able to produce 0:19:07.119 --> 0:19:10.320 at a lower cost point, probably gotten a little local preference. 0:19:10.560 --> 0:19:12.800 You know, if you're a state back construction company, you're 0:19:12.840 --> 0:19:16.199 probably going to use a Chinese excavator if it is 0:19:16.320 --> 0:19:22.520 price competitive. And so inside the Chinese market, the Chinese companies, 0:19:22.560 --> 0:19:25.760 the Chinese marks have gained at the expensive foreign companies. 0:19:26.440 --> 0:19:28.800 And then the second thing that happened is that as 0:19:28.960 --> 0:19:32.200 China went through, you know, one of the world's biggest 0:19:32.240 --> 0:19:35.960 property booms, there was just a lot of demand for excavators. 0:19:35.960 --> 0:19:40.160 So capacity increased and China was producing a lot of excavators. 0:19:40.200 --> 0:19:42.800 Chinese companies were producing a lot of excavators that were 0:19:42.960 --> 0:19:47.400 mostly being used in China as part of the construction boom. 0:19:47.640 --> 0:19:51.160 Construction boom turned to construction busts. Chinese companies are making 0:19:51.880 --> 0:19:56.840 competitive excavators, and guess what those excavators are being exported globally. 0:19:57.680 --> 0:20:00.440 Same dynamics a little bit in steel. It is not 0:20:00.560 --> 0:20:06.840 just a clean tech ev dynamic. The set of inputs 0:20:06.960 --> 0:20:12.680 old industry inputs into construction. You know, construction activity in 0:20:12.760 --> 0:20:16.880 China's down. It's going to go down further, given all 0:20:16.920 --> 0:20:20.760 the difficulties in the property development sector, and given the 0:20:20.760 --> 0:20:22.639 fact that China's overbuilt and you're going to have to 0:20:22.640 --> 0:20:28.600 have an extended period of much reduced property construction. Those 0:20:28.600 --> 0:20:31.600 inputs are in some small part being exported. I mean, 0:20:31.720 --> 0:20:35.240 China could export more steel, but Chinese steel exports now 0:20:35.280 --> 0:20:39.159 exceed US steel production. I think they exceed Japanese steel production. 0:20:39.800 --> 0:20:43.480 I mean, that's just a and that has not exhausted 0:20:43.560 --> 0:20:47.760 Chinese export capacity. There's still capacity to export more. So 0:20:47.800 --> 0:20:50.920 that's the kind of thing that makes a lot of 0:20:51.240 --> 0:20:55.199 China's trading partners nervous. You know, China's can export one 0:20:55.240 --> 0:20:58.200 hundred million tons of metric tons of steel and still 0:20:58.240 --> 0:21:02.840 export another one hundred million. China's exporting five million vehicles, 0:21:03.000 --> 0:21:06.360 but there is clearly capacity inside China export ten wow. 0:21:06.640 --> 0:21:09.240 And you know five is more than Japan, it's more 0:21:09.240 --> 0:21:14.000 than Germany. Ten would be record breaking. So it's that 0:21:14.480 --> 0:21:16.960 forward looking concern is very real. 0:21:17.480 --> 0:21:18.840 Tracy two things. 0:21:19.440 --> 0:21:22.240 I'm on Alibaba dot Com right now, and there's apparently 0:21:22.280 --> 0:21:25.080 excavators you can buy for two thousand dollars from China. 0:21:25.400 --> 0:21:26.879 I don't understand how that has. 0:21:26.760 --> 0:21:28.679 To be any man. 0:21:28.800 --> 0:21:30.960 Yeah, but they look like something. But then the other 0:21:31.000 --> 0:21:33.240 thing is like, you know, Tracy, just I just had 0:21:33.240 --> 0:21:35.399 this light bulb moment where, you know, when the Internet 0:21:35.440 --> 0:21:38.000 bubble happened in the US, everyone is like, well, yeah, 0:21:38.000 --> 0:21:40.199 but there were some good spillovers because we got all 0:21:40.280 --> 0:21:43.240 this unused fiber optics and that laid the groundwork for 0:21:43.240 --> 0:21:47.199 the next twenty years China real estate bubble, creating this 0:21:47.359 --> 0:21:51.240 incredible unused capacity of excavator and I know how to 0:21:51.280 --> 0:21:53.119 make excavators for the rest of the world. 0:21:53.160 --> 0:21:53.679 So there you go. 0:21:54.080 --> 0:21:57.520 Okay, Brad. The other thing we wanted to ask you about, 0:21:57.800 --> 0:22:00.240 we could just turn this into an excavator. 0:21:59.720 --> 0:22:01.679 At the We got to get that guy on TikTok 0:22:01.680 --> 0:22:04.360 who sells the Chinese excavators sometime. 0:22:04.560 --> 0:22:05.240 That would be fun. 0:22:05.880 --> 0:22:06.160 Brad. 0:22:06.160 --> 0:22:07.719 The other thing we want to ask you, and this 0:22:07.840 --> 0:22:11.280 kind of ties into the discussion around well, it very 0:22:11.359 --> 0:22:14.840 much ties into the discussion around China's export boom. You 0:22:14.960 --> 0:22:17.879 just published a paper at the French Institute of International 0:22:17.920 --> 0:22:22.239 Relations called Power and Financial Interdependence, and you're sort of 0:22:22.320 --> 0:22:27.320 tackling this idea of the China and US financial systems 0:22:27.359 --> 0:22:30.800 being intertwined so China buys a lot of US treasuries 0:22:30.960 --> 0:22:33.400 because it has to, basically because it's exporting a lot 0:22:33.400 --> 0:22:36.400 to the US. But you make the point that there's 0:22:36.440 --> 0:22:42.080 a difference between financial intertwining or interdependence versus the sort 0:22:42.119 --> 0:22:45.479 of real economy interdependence. Could you talk a little bit 0:22:45.480 --> 0:22:46.080 more about that. 0:22:46.800 --> 0:22:50.480