WEBVTT - US-China Trade Truce Spurs Rush to Beat Tariffs 0:00:00.360 --> 0:00:04.000 President Donald Trump's trade war is upending supply chains and 0:00:04.080 --> 0:00:09.600 business yet again. After announcing sky high global tariffs in April, 0:00:09.800 --> 0:00:12.480 he soon put them on hold. That back and forth 0:00:12.640 --> 0:00:18.400 caused whiplash across Asia the world's factory floor companies canceled orders, 0:00:18.680 --> 0:00:20.120 then rapidly reopened them. 0:00:20.320 --> 0:00:22.200 Ships were suddenly in demand. 0:00:21.880 --> 0:00:25.400 With freight prices up the most all year, and bookings 0:00:25.480 --> 0:00:28.800 on those ships also soared, particularly the important China to 0:00:28.960 --> 0:00:34.520 US route. You're listening to Asia Centric from Bloomberg Intelligence. 0:00:34.800 --> 0:00:38.800 I'm Kante Dimitrieva here in Hong Kong, and today we're 0:00:38.800 --> 0:00:41.360 looking at what the trade data tells us about the 0:00:41.360 --> 0:00:45.600 fallout so far. How is this rapid fire change going 0:00:45.640 --> 0:00:50.480 to impact economic growth, currencies and investment? And are there 0:00:50.560 --> 0:00:55.520 any winners? Robert Suberaman is here to help us answer that. 0:00:56.280 --> 0:01:00.920 He's head of Global macro Research at NIMURA based in Singapore. Rob. 0:01:01.000 --> 0:01:03.480 Welcome, Thank you, Katia. Great to be here. 0:01:04.640 --> 0:01:07.319 Well, Rob, maybe we can start with what we do know. 0:01:07.680 --> 0:01:10.720 So Trump has announced tariffs, he paused them to negotiate 0:01:10.760 --> 0:01:14.280 bi lateral deals. What have you seen since then across 0:01:14.280 --> 0:01:16.520 the world and primarily here when it comes to sort 0:01:16.520 --> 0:01:18.560 of company reaction and trade flows. 0:01:19.319 --> 0:01:21.679 Well, I can tell you, Katya on the trade flows. 0:01:22.440 --> 0:01:26.759 My team's been analyzing the high frequency data plus details, 0:01:26.880 --> 0:01:31.360 very detailed look at exports by product and by destination, 0:01:31.920 --> 0:01:34.760 and i'd say, in a word, it's very complicated. Now 0:01:35.200 --> 0:01:39.480 we have a mix of front loading of exports in 0:01:39.520 --> 0:01:44.560 some countries, we have trade diversion happening. Instead of directly 0:01:44.720 --> 0:01:48.480 exports from China to the US, they're going to third countries. 0:01:49.120 --> 0:01:51.480 And we're also very much on the lookout for payback 0:01:51.720 --> 0:01:55.760 from the front loading of exports. So it's a real mix, 0:01:56.040 --> 0:01:58.320 you know, in terms of front loading, i'd say in 0:01:58.440 --> 0:02:02.280 Asian the data we've being getting for April shows very 0:02:02.320 --> 0:02:06.680 strong export growth in the well over double digit, over 0:02:06.760 --> 0:02:12.079 twenty percent in Singapore, Taiwan, and we're seeing in particular 0:02:12.360 --> 0:02:16.400 very strong export growth to the US. Malaysia's exports to 0:02:16.400 --> 0:02:20.480 the US forty five percent in April, Singapore's forty eight percent, 0:02:21.160 --> 0:02:24.520 of Vietnam's thirty four percent growth. So there is some 0:02:24.560 --> 0:02:27.160 science of trade diversion in our view, because when we 0:02:27.200 --> 0:02:31.320 looked at China's exports in April, they were down twenty 0:02:31.360 --> 0:02:34.960 one percent to the US but up twenty one percent 0:02:35.200 --> 0:02:39.480 to Asian, so some trade diversion. But the other interesting 0:02:39.520 --> 0:02:44.640 thing is US China tariff de escalation that's happened, and 0:02:44.680 --> 0:02:48.040 when we look at high frequency data, what we're seeing 0:02:48.080 --> 0:02:53.720 now is a very strong rebound in container vessels departing 0:02:53.720 --> 0:02:59.480 from China to the US, but particularly in orders for shipping. 0:03:00.120 --> 0:03:04.080 If we're looking at the bookings of ships from China 0:03:04.120 --> 0:03:07.040 to the US, they were up over one hundred percent 0:03:07.680 --> 0:03:11.200 in the week to eleven May. So it's looking like 0:03:11.360 --> 0:03:14.960 maybe we're going to be seeing a rebound in Chinese 0:03:15.000 --> 0:03:18.280 exports to the US in the coming months because there's 0:03:18.320 --> 0:03:21.720 this window of opportunity now while the tariffs have come 0:03:21.760 --> 0:03:25.480 down to step up those trade orders before. Who knows 0:03:25.520 --> 0:03:29.120 what's going to happen after the ninety day grace period expires. 0:03:30.520 --> 0:03:33.440 And you said that there's some signs that China may 0:03:33.480 --> 0:03:37.840 be sending goods to Southeast Asian neighbors, and then is 0:03:37.880 --> 0:03:39.840 the idea that they're going to the US from there. 0:03:40.800 --> 0:03:43.000 You can't be certain at this stage because you don't 0:03:43.040 --> 0:03:46.520 have as much granular detail. But what we are seeing 0:03:46.840 --> 0:03:50.840 is in April, this is before the tariff de escalation, 0:03:51.600 --> 0:03:54.480 China's exports to the US were down twenty one percent, 0:03:54.960 --> 0:03:58.560 but China's exports to Asian were up twenty one percent, 0:03:59.080 --> 0:04:03.720 and since then seen in the Asian data like Malaysia, Singapore, 0:04:03.760 --> 0:04:09.720 and Vietnam very strong exports to the US. So we 0:04:09.840 --> 0:04:13.440 can't be definitive, but there is some signs in this 0:04:13.560 --> 0:04:17.000 pattern of trade that maybe trade diversion is still going on. 0:04:17.480 --> 0:04:20.800 The other interesting thing cut here up is on the electronics. 0:04:20.800 --> 0:04:24.560 So Asia is a very big exporter of electronics, and 0:04:25.000 --> 0:04:32.600 we've seen very strong exports of electronics by Singapore, Malaysia, Taiwan, 0:04:33.200 --> 0:04:37.400 a lot of it high end semiconductors. And we do 0:04:37.480 --> 0:04:43.200 wonder whether this is in anticipation of maybe sexual tariffs 0:04:43.240 --> 0:04:49.200 on semiconductors and maybe more broadly tech products, that Asia, 0:04:49.320 --> 0:04:51.880 which is the hub in the world, the factory for 0:04:52.000 --> 0:04:55.520 making chips and electronic products, whether they're trying to get 0:04:55.839 --> 0:04:58.160 race ahead of potential sexual tariffs. 0:04:59.000 --> 0:05:01.240 Yeah, because if you're in americ and Company, I mean, 0:05:01.400 --> 0:05:04.320 at this point, you're probably thinking, we don't care where 0:05:04.360 --> 0:05:06.279 we have to put it, we don't care how much 0:05:06.279 --> 0:05:07.760 of it we have. We just need to get it 0:05:07.800 --> 0:05:10.960 here before tariffs come in exactly. 0:05:11.120 --> 0:05:13.440 And you know, the idea is to maybe build up 0:05:13.480 --> 0:05:18.680 your inventory with cheaper electronic products or other products, because 0:05:18.720 --> 0:05:22.040 who knows what's going to happen once, you know, July ninth, 0:05:22.080 --> 0:05:26.320 when the reciprocal tariff sixpire, or August twelve, after the 0:05:26.440 --> 0:05:30.240 US China tariff truce expires. I think generally there is 0:05:30.360 --> 0:05:33.400 quite a bit of signs that there's been front loading 0:05:33.440 --> 0:05:37.120 and trade diversion at this stage. The big question I 0:05:37.120 --> 0:05:40.080 think we have in the coming months is, you know, 0:05:40.680 --> 0:05:43.800 inevitably when there's front loading, there will be payback, and 0:05:44.680 --> 0:05:48.080 we aren't seeing much sign of the payback yet. Maybe 0:05:48.120 --> 0:05:50.880 it's too early. Maybe the only sign where maybe we're 0:05:50.880 --> 0:05:55.160 starting to see it is Korea's exports for the first 0:05:55.279 --> 0:05:59.680 twenty days of May we're down two point four percent, 0:06:00.200 --> 0:06:02.880 and Career has the most timely exports in Asia and 0:06:02.920 --> 0:06:05.480 they were down, So you know, maybe that's a sign. 0:06:05.520 --> 0:06:08.120 As we get more May data and June data, we'll 0:06:08.160 --> 0:06:11.440 start to see the other side of this. But as 0:06:11.440 --> 0:06:14.320 I said, because of now there's truce between the US 0:06:14.360 --> 0:06:17.919 and China, China is wrapping up its exports again, so 0:06:18.320 --> 0:06:21.360 it's very complicated at this stage. I'd say at the 0:06:21.480 --> 0:06:24.080 end of the day, we're in a world of higher 0:06:24.120 --> 0:06:27.440 tariffs and that should not be good for trade. But 0:06:28.080 --> 0:06:31.160 we're in a kind of intermediate period now where we're 0:06:31.160 --> 0:06:33.080 getting mixed results in the data. 0:06:33.600 --> 0:06:36.479 Yeah, because I mean you're going assumption as an economist, 0:06:36.560 --> 0:06:39.720 but also the sense you're getting from clients and people 0:06:39.760 --> 0:06:42.200 you're speaking with is the assumption that we're just in 0:06:42.200 --> 0:06:44.320 a world of sort of ten percent is the beast 0:06:44.440 --> 0:06:46.080 terraf for anything going into the US. 0:06:46.760 --> 0:06:50.039 Short answer I would say is yes, that there's a 0:06:50.120 --> 0:06:53.400 general sense that we're not going to go back to 0:06:54.200 --> 0:06:58.680 the world before Trump two point zero. And historically when 0:06:58.720 --> 0:07:01.800 tariffs go up, they don't come down that quickly back 0:07:01.839 --> 0:07:05.040 to where they originally were, So I think that's fair 0:07:05.120 --> 0:07:08.800 to say. I mean, the Numura assumption right now is 0:07:08.880 --> 0:07:12.960 fifteen percent US effective tariff rate once we take into 0:07:13.000 --> 0:07:15.880 account some of the sexual tariffs as well. So I 0:07:15.880 --> 0:07:17.760 think that is going to weigh on trade. But the 0:07:17.800 --> 0:07:21.239 other thing that we haven't talked about that's a big 0:07:21.960 --> 0:07:26.760 headwind is the uncertainty, the business uncertainty, because we don't 0:07:26.800 --> 0:07:29.160 know where the tariffs could potentially go back up again, 0:07:29.600 --> 0:07:33.280 and so I think businesses generally have become a lot 0:07:33.360 --> 0:07:40.520 more cautious about doing large investments because of the uncertainty 0:07:40.600 --> 0:07:45.520 around trade policy. But I would say generally foreign policy as. 0:07:45.440 --> 0:07:50.400 Well, Asia Centric is produced by Bloomberg Intelligence. 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If you like what you hear, don't forget 0:08:12.000 --> 0:08:13.160 to subscribe and chair. 0:08:14.320 --> 0:08:18.720 How hard will that hangover be from all of this 0:08:19.480 --> 0:08:20.160 front loading? 0:08:21.280 --> 0:08:25.400 So I think it depends a little bit on where 0:08:25.680 --> 0:08:31.480 you're talking about, because in the US, I think it's 0:08:31.480 --> 0:08:33.280 a little bit different to the rest of the world 0:08:33.360 --> 0:08:37.160 because the US is the one that's imposing the tariffs 0:08:37.400 --> 0:08:40.680 on all countries, and so it is going to raise 0:08:40.800 --> 0:08:45.240 the costs of imports, and we think will start to 0:08:45.280 --> 0:08:48.160 show up in higher inflation, maybe as soon as the 0:08:48.600 --> 0:08:52.599 May CPI data. So that's a negative supply shock. But 0:08:52.640 --> 0:08:54.440 at the same time, you're probably also going to have 0:08:54.600 --> 0:08:58.440 a hit to demand because of the higher costs. Maybe 0:08:58.520 --> 0:09:02.120 some will be absorbed by firm in profit margins. Some 0:09:02.200 --> 0:09:05.200 will be passed on to inflation, and as you get 0:09:05.280 --> 0:09:10.600 higher prices for products on the shelf of supermarkets, it 0:09:10.640 --> 0:09:14.440 will start to weaken demand. So in the US we 0:09:14.559 --> 0:09:17.520 do think it is going to be a stagflationary shock, 0:09:17.640 --> 0:09:21.360 higher inflation, lower growth. But for the rest of the world, 0:09:21.720 --> 0:09:25.760 which by and large has not raised tariffs much, it's 0:09:25.800 --> 0:09:30.120 more of a negative demand shock from weaker exports and 0:09:30.440 --> 0:09:33.959 weaker business investment because of all the uncertainty, And so 0:09:34.040 --> 0:09:37.480 the rest of the world, I'd say it's more weaker 0:09:37.520 --> 0:09:44.520 growth going forward and disinflation. So US weaker growth, higher inflation, 0:09:44.920 --> 0:09:49.480 rest the world weaker growth, lower inflation. And in my team, 0:09:49.559 --> 0:09:53.680 we particularly think that the lower inflation will be most 0:09:53.800 --> 0:09:54.880 notable in Asia. 0:09:56.240 --> 0:10:01.640 How will that ripple through the economies. I'm thinking in 0:10:01.720 --> 0:10:07.199 places like Malaysia, Vietnam, South Korea where price growth is 0:10:07.240 --> 0:10:11.559 already slowing, and then Japan you have the government which 0:10:11.600 --> 0:10:15.200 is trying to engineer inflation. Well, surely that might throw 0:10:15.200 --> 0:10:17.640 a wrench into things. I mean, what kind of impact 0:10:17.679 --> 0:10:20.359 do you see this year when it comes to disinflation 0:10:20.400 --> 0:10:21.160 across Asia? 0:10:22.200 --> 0:10:26.600 Well, it's quite striking right now. That Japan I think 0:10:26.679 --> 0:10:29.560 has the highest inflation rate out of all the big 0:10:29.600 --> 0:10:32.280 economies in Asia. It hasn't been that way for decades. 0:10:32.880 --> 0:10:35.920 But I mean aving is that there's a few things 0:10:35.920 --> 0:10:40.040 that work here. One is that as tariffs go up 0:10:40.320 --> 0:10:44.120 against China by the US, we will see more of 0:10:44.320 --> 0:10:51.520 China's exports diverted to Asia. And these cheaper exports by China, 0:10:52.080 --> 0:10:55.160 and as Asia imports more and more of them, it 0:10:55.280 --> 0:10:59.880 is going to flood Asia with cheaper products. And that's distantly. 0:11:00.920 --> 0:11:02.880 We were already seeing that last year, and we think 0:11:02.920 --> 0:11:08.240 that's going to get stronger. The disinflationary force from China imports, 0:11:08.679 --> 0:11:11.319 but also energy prices cut here have come down a 0:11:11.360 --> 0:11:13.920 long way. In Asia is a very big net importer 0:11:14.480 --> 0:11:18.640 of energy, so that's disinflationary. And on top of that, 0:11:18.920 --> 0:11:21.720 we've had this. I don't think many people would have 0:11:21.720 --> 0:11:24.880 predicted this, but Asian currencies have by and large been 0:11:24.960 --> 0:11:29.360 appreciating against the dollar, which is also lowering the cost 0:11:29.480 --> 0:11:33.200 of imports. So you know, right now we have two 0:11:33.240 --> 0:11:37.800 countries Thailand and China, which on certain measures, are facing deflation. 0:11:38.760 --> 0:11:41.240 I wouldn't be surprised if we start to see more 0:11:41.280 --> 0:11:46.840 countries facing deflation in Asia or actually very low inflation. 0:11:47.880 --> 0:11:51.160 And you know, one implication from all this is that 0:11:51.800 --> 0:11:56.520 it will provide more room for Asian central banks to 0:11:56.800 --> 0:11:59.760 cut interest rates even if the FED is on hold. 0:12:00.200 --> 0:12:03.520 That's the view we have at MURA, is that from 0:12:03.679 --> 0:12:09.880 India to Thailand to Korea, we're going to say several 0:12:09.920 --> 0:12:13.880 more right cuts this year, Whereas for the FED, because 0:12:13.880 --> 0:12:16.920 of the inflation I talked about in the US, the 0:12:16.960 --> 0:12:18.840 FED will be a lot slower. We don't have the 0:12:18.840 --> 0:12:20.439 FED cutting until December. 0:12:22.240 --> 0:12:25.439 And if the central banks in the region, you have 0:12:26.080 --> 0:12:33.360 more room to cut rates. Meanwhile, trade picture uncertain but 0:12:33.440 --> 0:12:35.520 probably not going to be as high demand as we've 0:12:35.559 --> 0:12:39.360 been seeing in the past month. In total, would you 0:12:39.400 --> 0:12:41.640 say for the year, I mean, do some of these 0:12:41.679 --> 0:12:44.200 economic forces even out. Is this going to be a 0:12:44.200 --> 0:12:47.080 good thing for Asia, you know, because we are seeing 0:12:47.120 --> 0:12:49.360 this surgeon demand and the ability to cut rates and 0:12:49.400 --> 0:12:52.400 stimulate demand. Or is it on the whole kind of 0:12:52.440 --> 0:12:56.000 negative because tariff shocks and demand sharks are usually negative. 0:12:57.360 --> 0:12:59.800 I think on the whole it's going to be negative 0:13:00.760 --> 0:13:05.240 because I think we shouldn't underestimate the negative effects from 0:13:05.280 --> 0:13:10.600 all the uncertainty that's been created by radical economic policies 0:13:10.640 --> 0:13:13.920 from the Trump administration. But as you say, protectionism and 0:13:13.960 --> 0:13:16.840 tariffs is also negative. You know, the silver lining I 0:13:16.840 --> 0:13:21.040 would say is in Asia some rotation in the drivers 0:13:21.040 --> 0:13:23.880 of growth. I think the weak engines of growth will 0:13:23.920 --> 0:13:29.199 be exports and capex investment spending. On the other hand, 0:13:29.960 --> 0:13:33.480 I think we will see as I said, lower inflation 0:13:33.559 --> 0:13:37.720 in Asia, which will be encouraging for consumption, but also 0:13:38.240 --> 0:13:41.760 easier fiscal and monetary policies. So I think the resilient 0:13:41.800 --> 0:13:44.880 part of Asia is actually going to be domestic consumption, 0:13:45.600 --> 0:13:49.400 which will provide some offset but not a complete offset 0:13:49.480 --> 0:13:52.920 to the weakness in exports and capex. 0:13:53.440 --> 0:13:55.760 Yes, I mean speaking of consumer demand. 0:13:55.800 --> 0:13:58.920 One country we haven't talked about it as much yet 0:13:59.040 --> 0:14:03.600 is China and the domestic situation there, and officials have 0:14:04.000 --> 0:14:07.000 made it a priority this year to sperm more consumption. 0:14:07.520 --> 0:14:08.800 What are your thoughts on that. Are they going to 0:14:08.800 --> 0:14:10.080 be able to do that? Is it more of a 0:14:10.120 --> 0:14:13.520 long term project We shouldn't really expect a boost. 0:14:14.720 --> 0:14:18.960 So I think in China we have a situation now 0:14:19.080 --> 0:14:24.200 where the consumer confidence is very weak, as it's been 0:14:24.280 --> 0:14:27.760 hit by very severe lockdowns during the pandemic and then 0:14:27.800 --> 0:14:33.160 the property market crisis, and Chinese households have built up 0:14:33.320 --> 0:14:38.760 more leverage over the years, and so consumer spending is 0:14:38.800 --> 0:14:42.640 fairly tepid right now. Beijing is trying to do this 0:14:42.760 --> 0:14:47.360 trade in program where households can swap their existing durable 0:14:47.360 --> 0:14:49.960 goods for new ones at subsidized prices. 0:14:50.040 --> 0:14:51.280 And it's been pretty successful. 0:14:51.360 --> 0:14:53.880 It's been successful. It has been successful so far. But 0:14:54.240 --> 0:14:57.280 I'd say, cut to you, how many new fridges do 0:14:57.320 --> 0:14:59.520 you want to buy? So you know. One thing we 0:14:59.560 --> 0:15:03.880 feel for China is that it's not only front loading 0:15:03.920 --> 0:15:07.360 of exports, but it is also front loading of consumption 0:15:07.720 --> 0:15:12.160 through this trading program. And so while we are relatively 0:15:12.640 --> 0:15:15.720 positive on China's growth in the coming months because of 0:15:15.760 --> 0:15:18.600 all this front loading and with the tariffs coming down, 0:15:18.720 --> 0:15:21.960 I talked about a burst of export activity, but as 0:15:21.960 --> 0:15:24.320 we get into the second half of the year, we 0:15:24.360 --> 0:15:28.680 think there will be paidback in China for retail sales 0:15:28.760 --> 0:15:32.880 and exports. And to give you some numbers, we think 0:15:32.920 --> 0:15:36.800 that China's GDP growth could be around four point eight 0:15:36.840 --> 0:15:40.760 percent this quarter Q two, but in the second half 0:15:40.760 --> 0:15:43.320 of the year we have it slowing to around four percent. 0:15:43.680 --> 0:15:46.200 Okay, so for the full year, not quite reaching the 0:15:46.320 --> 0:15:49.000 five percent target that officials have set. 0:15:49.320 --> 0:15:52.320 Yeah, if you work out the full twenty twenty five 0:15:52.400 --> 0:15:54.800 year growth full class on our numbers, that would be 0:15:54.800 --> 0:15:55.840 around four point five. 0:15:56.280 --> 0:15:59.040 So really in the second half, trade slowing down quite a. 0:15:58.960 --> 0:16:02.920 Bit, sports slowing down quite a bit, and also probably 0:16:03.000 --> 0:16:06.080 some payback on the consumption side as well. 0:16:06.200 --> 0:16:09.160 With Chinese exports. You know, something we've been seeing is 0:16:09.160 --> 0:16:14.080 that even though China's share of exports to the US 0:16:14.120 --> 0:16:18.160 has gone down, but globally it's actually increased. So there's 0:16:18.480 --> 0:16:22.480 kind of a way that Chinese manufacturers have been finding 0:16:22.800 --> 0:16:25.880 or maintaining their place in supply chains. So I wonder 0:16:25.920 --> 0:16:29.080 if we will see that kind of continuing in the 0:16:29.160 --> 0:16:31.920 years to come. So you know, a company might not 0:16:31.960 --> 0:16:34.760 source from China, but they might source from that same 0:16:34.800 --> 0:16:37.360 company just located in Malaysia, for example. 0:16:38.320 --> 0:16:41.440 Yeah, so that phenomenon is very very clear in the data. 0:16:41.480 --> 0:16:44.440 What you said, In terms of China's export shared to 0:16:44.480 --> 0:16:46.680 the US in April, it has dipped now to ten 0:16:46.720 --> 0:16:50.200 point five percent, whereas if you look at, for instance, 0:16:50.320 --> 0:16:54.760 China's export shared to Asian countries, it's picked up now 0:16:54.800 --> 0:16:58.080 to nineteen point one percent. So it's getting close to 0:16:58.160 --> 0:17:02.320 being almost twice as much as to the US. And 0:17:02.320 --> 0:17:05.320 this is what I think we have to give credit 0:17:05.400 --> 0:17:10.280 to multinational companies. They're very, very nimble, and they obviously 0:17:10.280 --> 0:17:13.160 have factories around the world and they can shift their 0:17:13.200 --> 0:17:18.639 production fairly quickly to ensure that they minimize costs and 0:17:18.720 --> 0:17:21.680 maximize their profits. If you go back to Trump one 0:17:21.720 --> 0:17:25.919 point zero, in a way, Trump one point zero, all 0:17:25.960 --> 0:17:29.760 the US tariffs were aimed directly at China, and US 0:17:30.119 --> 0:17:35.240 trade deficit with China did narrow quite noticeably. But when 0:17:35.240 --> 0:17:39.840 you look at the US's overall trade deficit, it didn't narrow. 0:17:40.040 --> 0:17:43.000 It got larger. And that was because of what we've 0:17:43.040 --> 0:17:48.159 just talked about. Multinationals were able to reallocate their exports 0:17:48.200 --> 0:17:52.800 to the US, Chinese companies, multinationals in China that exported 0:17:52.840 --> 0:17:56.879 more to Vietnam, to Mexico that then got rerouted to 0:17:56.920 --> 0:17:59.840 the US. I think what's going to be interesting over 0:17:59.880 --> 0:18:04.600 the rest of this year is whether the US does 0:18:04.640 --> 0:18:08.639 and it is successful in trying to encircle China and 0:18:08.720 --> 0:18:14.560 getting other countries and particularly the EU to raise tariffs 0:18:15.040 --> 0:18:19.600 against over capacity from China and the dumping of Chinese 0:18:19.640 --> 0:18:23.240 exports into the EU. You know, if that happens, it 0:18:23.320 --> 0:18:27.120 will get much more challenging for China. And I think 0:18:27.160 --> 0:18:32.080 one interesting thing there will be, does China flood Asia 0:18:32.880 --> 0:18:38.280 its home market, its backdoor market with cheap imports, because 0:18:39.040 --> 0:18:42.000 you know the US market, the US consumer is massive, 0:18:42.400 --> 0:18:46.720 and as you start to restrict China's markets, Asia is 0:18:46.760 --> 0:18:48.719 a lot smaller as a consumer market, and so it 0:18:48.720 --> 0:18:52.200 can be hit a lot harder if China has to 0:18:52.359 --> 0:18:56.280 redirect a lot of its product to Asia. I mean, 0:18:56.320 --> 0:18:58.960 the other option for China would be to scale back 0:18:59.000 --> 0:19:02.480 production its own production, but then that's going to hurt 0:19:02.560 --> 0:19:06.160 China's economy and potentially the labor market and jobs quite 0:19:06.200 --> 0:19:08.520 a bit. I mean, as we talked about earlier, the 0:19:08.600 --> 0:19:11.920 ultimate solution is for China to really also increase its 0:19:11.960 --> 0:19:16.760 own consumer demand. But coming off the pandemic and the 0:19:16.800 --> 0:19:21.119 lockdowns and the property market crisis that was really severe, 0:19:21.280 --> 0:19:23.800 I don't think Chinese households are in a mood to 0:19:23.920 --> 0:19:27.200 really ramp up their spending aggressively in this stage. I 0:19:27.200 --> 0:19:28.480 think that's going to take time. 0:19:29.560 --> 0:19:32.359 And when you said encircling China and kind of how 0:19:32.359 --> 0:19:35.320 that will play out, is that of referring to how 0:19:35.880 --> 0:19:39.320 President Trump had these discussions with Mexico and China and 0:19:39.320 --> 0:19:44.000 floated this idea that those countries or other countries should 0:19:44.000 --> 0:19:46.960 perhaps add restrictions trade restrictions on China. 0:19:47.800 --> 0:19:49.719 Yeah, that's part of what I have in mind, is 0:19:49.800 --> 0:19:55.040 that the US could pressure other countries to kind of 0:19:55.400 --> 0:20:02.440 join this coalition to try to limit to China's exporting 0:20:02.480 --> 0:20:06.000 of cheap products. And in a way, it could be 0:20:06.440 --> 0:20:10.320 a coalition of countries that are trying to maybe decouple 0:20:10.600 --> 0:20:15.040 de risk from China. At the same time, China also 0:20:15.160 --> 0:20:18.080 may want to de risk from the US. And so 0:20:18.920 --> 0:20:22.120 you know, this leads to the discussion that's happening now 0:20:22.160 --> 0:20:24.919 about this risk that where you know, could move to 0:20:25.000 --> 0:20:30.280 a multi polar world where we have certain trade blocks 0:20:30.359 --> 0:20:35.040 for economic and geopolitical reasons. But I would say, at 0:20:35.040 --> 0:20:36.960 the end of the day, or you know, if we're 0:20:37.000 --> 0:20:40.879 moving to a world where you have certain blocks and 0:20:41.000 --> 0:20:45.960 restrictions and barriers to trade and you only trade within 0:20:46.040 --> 0:20:50.840 regions much less outside those regions, that all raises costs 0:20:51.240 --> 0:20:55.240 and inefficiencies, and so it's not good for global growth. 0:20:55.960 --> 0:21:00.560 Does it make sense for Southeast Asian economies any Asian 0:21:00.600 --> 0:21:03.840 economies for that matter, to join that kind of coalition 0:21:04.000 --> 0:21:07.440 If one were to exist, you know, like, economically speaking, 0:21:07.600 --> 0:21:10.879 does it make sense for these economies given their dependence 0:21:10.920 --> 0:21:14.560 on trade with China, Chinese Belt and Rold initiative and 0:21:14.680 --> 0:21:18.200 investment in infrastructure and companies across the region. Doesn't make 0:21:18.240 --> 0:21:21.440 sense for countries in that case to effectively add a 0:21:21.520 --> 0:21:24.880 tariff onto Chinese imports were restricted in any way. 0:21:25.720 --> 0:21:29.159 I think for Asia it's the toughest decision compared to 0:21:29.240 --> 0:21:34.280 Europe in the sense that Asia is very strongly linked 0:21:34.280 --> 0:21:38.760 to China economically. Now there's so much trade and investment 0:21:39.160 --> 0:21:43.000 between China and the rest of Asia, Whereas for many 0:21:43.040 --> 0:21:46.240 Asian countries, the US has been a very strong ally 0:21:46.880 --> 0:21:51.840 and a very important support from a security perspective, And 0:21:51.960 --> 0:21:55.520 so that is a challenge for many Asian countries that 0:21:55.920 --> 0:21:59.000 have i think essentially been hedging between China and the 0:21:59.119 --> 0:22:03.320 US many many years. It could be that what Europe 0:22:03.320 --> 0:22:07.760 decides to do could in turn then ultimately influence what 0:22:07.880 --> 0:22:12.120 Asia decides. So does the EU in the end get 0:22:12.160 --> 0:22:16.480 closer to the US with trade deals and maybe follows 0:22:16.760 --> 0:22:21.360 the US in being tougher on China, or does the 0:22:21.359 --> 0:22:25.240 EU actually not have a trade deal with the US 0:22:25.400 --> 0:22:30.520 and decides that it wants to maintain decent economic linkages 0:22:30.560 --> 0:22:33.800 with China. I think which way the EU goes will 0:22:33.840 --> 0:22:37.520 be important, because if the EU does not follow what 0:22:37.560 --> 0:22:41.760 the US wants to do here, then Asia has more flexibility, 0:22:41.800 --> 0:22:45.760 I think, to trade with EU and China. Whereas if 0:22:45.800 --> 0:22:51.399 the EU kind of does start to move down the 0:22:51.440 --> 0:22:54.560 path of strengthening ties with the US and reducing ties 0:22:54.560 --> 0:22:57.159 of China, then maybe it's going to be tougher for 0:22:57.240 --> 0:23:00.840 Asia and they may have to make a really hard 0:23:00.840 --> 0:23:04.480 decision about whether they're going to move more towards China 0:23:04.600 --> 0:23:06.320 or more towards the US and EU. 0:23:07.880 --> 0:23:12.439 Are there any side effects or knock on effects that 0:23:12.480 --> 0:23:16.800 we're not thinking about yet when it comes to the 0:23:16.920 --> 0:23:21.080 trade back and forth, the whip saying whatever you want 0:23:21.080 --> 0:23:25.440 to call it, the activity we've been seeing, anything that's 0:23:25.480 --> 0:23:26.400 been on your mind. 0:23:27.240 --> 0:23:29.719 I'm glad you asked that, because I think there's a 0:23:29.760 --> 0:23:36.879 real risk that we're going to see unanticipated supply side disruptions. So, 0:23:37.640 --> 0:23:41.280 if you think about it, we haven't had tariff rates 0:23:41.480 --> 0:23:44.840 this high for I think you've got to go back 0:23:44.880 --> 0:23:50.920 seventy years over a generation, and compared now to back 0:23:50.960 --> 0:23:54.080 then the world is so much more integrated and so 0:23:54.960 --> 0:23:57.920 you know whether it's the case that with these tariffs 0:23:57.920 --> 0:24:02.760 there could be a particular company sector that actually starts 0:24:02.800 --> 0:24:06.320 to run out and shortages of a critical component that 0:24:06.440 --> 0:24:09.960 then affects the whole production of a finished good. That's 0:24:10.000 --> 0:24:12.280 one way this could happen and we could see these 0:24:12.640 --> 0:24:15.880 unforeseen consequences. Just to give you an example, what about 0:24:15.880 --> 0:24:20.720 the US construction sector Under the Trump administration, There's been 0:24:20.760 --> 0:24:25.439 a big cutback on immigration and even deportations. Migrant workers 0:24:25.440 --> 0:24:28.080 are so important for the construction sector in the US, 0:24:28.640 --> 0:24:33.560 and we've had tariffs on aluminium, steel, potentially lumbar going forward. 0:24:34.200 --> 0:24:38.320 A lot of imports that go into construction come from China, 0:24:38.400 --> 0:24:42.080 let's say air conditioning for example. So are we're going 0:24:42.119 --> 0:24:45.280 to suddenly face a bottleneck shortage of supply of new 0:24:45.359 --> 0:24:48.960 homes being constructed in the US as one example. The 0:24:49.000 --> 0:24:52.199 other example I'd give you is small companies in the 0:24:52.359 --> 0:24:57.000 US that depend very heavily on imports. And they're small, 0:24:57.160 --> 0:25:00.399 so they really need activity to flow through through and 0:25:00.520 --> 0:25:03.199 production and sales to happen, or they're going to have 0:25:03.240 --> 0:25:06.119 cash flow problems. What happens if some of these small 0:25:06.160 --> 0:25:10.480 companies start to face it's just too expensive for them 0:25:10.520 --> 0:25:13.320 to continue. That could have flow on effects to the 0:25:13.359 --> 0:25:16.440 small banks that are the biggest lenders to small companies 0:25:16.480 --> 0:25:21.000 in the US. So I do worry about unforeseen kind 0:25:21.040 --> 0:25:24.119 of consequences. And even in Asia, we're starting to see 0:25:24.119 --> 0:25:28.639 more and more cheap imports from China coming in. Are 0:25:28.720 --> 0:25:32.040