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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Chrisner. On today's episode, we'll

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Speaker 1: take a look at market action with Shamsavzal, Managing director

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Speaker 1: at the Carnegie Investment Council. That conversation in a bit first,

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Speaker 1: the impact of tariff's on the global auto industry. Today

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Speaker 1: in the States, Ford Motor said it's preparing to raise

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Speaker 1: prices on cars rolling off assembly lines beginning next month

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Speaker 1: if President Trump does not deliver on tariff relief that

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Speaker 1: he's hinted at for the automakers. And at the same

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Speaker 1: time in China, a report today by the Economic Information

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Speaker 1: Daily saying Chinese car park producers will suffer from US

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Speaker 1: tariffs on imports of cars and key parts. Joining me

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Speaker 1: now for a closer look from Shanghai is doctor Stephen Dyer.

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Speaker 1: He is head of the Asia Automotive practice at alex

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Speaker 1: Partners to Die. Are good of you to make time

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Speaker 1: to chat with us big picture if we can start

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Speaker 1: right there out of the gate, because I'd like to

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Speaker 1: begin by getting your thoughts on how tariff policy from

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Speaker 1: the United States is essentially reshaping the global automotive industry.

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Speaker 2: Yeah, thanks, it's a pleasure to be here. The tariff

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Speaker 2: policies that have been changing rapidly this year have had

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Speaker 2: a tremendous and.

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Speaker 3: Deep impact on the automotive industry.

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Speaker 2: From the US Mexico Canada agreement impact as well as

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Speaker 2: sourcing and manufacturing in low cost countries. This goes and

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Speaker 2: is pervasive throughout the automotive value chain. It's been twenty

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Speaker 2: or twenty five years in the making, so it's causing

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Speaker 2: companies now to reevaluate their long term and short term options.

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Speaker 1: So if you had to re engineer any part of

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Speaker 1: the supply chain, whether it be for auto parts or

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Speaker 1: vehicles themselves, how long would that take.

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Speaker 2: It's not a simple task to even change a supplier

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Speaker 2: of a component for an automobile. It can take anywhere

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Speaker 2: from six months to eighteen months to find a new supplier,

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Speaker 2: negotiate prices, validate the production line of the new part.

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Speaker 2: A lot of these parts are safety related and so

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Speaker 2: that's one of the drivers for the longer time to

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Speaker 2: validate the parts. So this is just for a single component.

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Speaker 2: Of course, if you want to set up new automotive

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Speaker 2: assembly somewhere else, whether it be in the US or elsewhere.

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Speaker 2: It can also take twelve to twenty four months.

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Speaker 1: So right now you're speaking to me from Shanghai. The

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Speaker 1: Chinese automakers really do not have access to the market

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Speaker 1: in the United States. But Europe is a very big market,

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Speaker 1: especially for Chinese manufactured evs. Give me a sense of

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Speaker 1: how what is happening on the trade side could definitely

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Speaker 1: rearrange the landscape when it comes to kinda accessing the

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Speaker 1: European market.

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Speaker 3: Well, you're right.

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Speaker 2: First of all, the US, the China EV makers currently have,

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Speaker 2: or even prior to the Trump administration, have one hundred

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Speaker 2: percent tariff on exports to the US.

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Speaker 3: However, regular internal.

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Speaker 2: Combustion engine gasoline engine vehicles did not have such a tariff,

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Speaker 2: and so many of the US automakers were producing in

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Speaker 2: China and exporting to the US. So that now has

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Speaker 2: the door has closed pretty much on that as well.

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Speaker 2: Speaking of Europe recently, in the last six months, Europe

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Speaker 2: instituted new tariffs on certain EV makers in China. Some

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Speaker 2: of them it will have an inordinate negative impact on

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Speaker 2: others still have such a cost advantage that it won't

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Speaker 2: impact their plans. But what we have seen is Chinese

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Speaker 2: automakers accelerating some of their plans to localize assembly in Europe,

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Speaker 2: and this is one avenue that they can take to

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Speaker 2: keep that market open to them.

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Speaker 1: Is there anything to be said for the fact that

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Speaker 1: China seems to be way out in front when it

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Speaker 1: comes to integrating the interior of the automobile, which is

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Speaker 1: to say that they have successfully integrated the smartphone and

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Speaker 1: the automobile, Does that necessarily translate into much of a

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Speaker 1: competitive advantage right now?

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Speaker 2: The development of what we call intelligent technology for the vehicle,

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Speaker 2: which includes automatic driving, intelligent driving, as well as intelligent cockpit,

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Speaker 2: voice recognition and connectivity to the rest of your personal

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Speaker 2: Internet ecosystem, is really an advantage of Chinese automakers right now,

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Speaker 2: and it's one of the key selling points within China

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Speaker 2: this intelligent technology, and Chinese consumers have come to expect

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Speaker 2: that that could and will be a potential competitive advantage

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Speaker 2: in other markets such as Europe, Southeast Asia, Latin America

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Speaker 2: and so on, as well as the US. Our recent

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Speaker 2: surveys said that many young people in the US are

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Speaker 2: interested in Chinese vehicles if the time comes when they

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Speaker 2: have access to them, So yes, this will be a

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Speaker 2: competitive advantage for Chinese automakers, and they're moving very quickly

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Speaker 2: due to the build up of the artificial intelligent machine

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Speaker 2: learning ecosystem in China.

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Speaker 1: There's been a lot of criticism about the overcapacity and

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Speaker 1: the Chinese manufacturing economy, particularly when it comes to electric vehicles,

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Speaker 1: and that criticism, coming especially from the Europeans, has been

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Speaker 1: that overcapacity has led to a dumping of evs. So

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Speaker 1: is over capacity an issue and if it is, are

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Speaker 1: we likely to see much more in the way of

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Speaker 1: consolidation among the EV makers on the Chinese mainland.

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Speaker 2: China is finishing about twenty years of extremely high growth

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Speaker 2: in the auto industry and so many auto companies and

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Speaker 2: the government with government support have added capacity rapidly in

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Speaker 2: a forward looking way. And so today, indeed, the average

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Speaker 2: capacity utilization for auto assembly in China is around fifty percent.

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Speaker 2: To be profitable in China, you need sixty or seventy percent.

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Speaker 2: So indeed, some companies are looking overseas to as an

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Speaker 2: outlet for their production capacity in China. However, the companies

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Speaker 2: that have the lowest production capacity in China now are

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Speaker 2: sorry the lowest capacity utilization in China right now. Are

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Speaker 2: actually the foreign brands that have joint ventures in China

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Speaker 2: because their market in China has dried up substantially over

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Speaker 2: the last several years, and so they're sometimes faced with

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Speaker 2: less than twenty percent capacity utilization. So that's why many

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Speaker 2: of the Detroit automakers have been exporting from China to

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Speaker 2: the US, which was a win win back in the

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Speaker 2: But the companies that are leading in exports in China

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Speaker 2: right now are ironically not the ones with the lowest

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Speaker 2: capacity utilization. They're the local winners who are now looking

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Speaker 2: to expand their global markets.

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Speaker 1: One of the criticisms of those joint venture projects had

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Speaker 1: to do with the fact that maybe Chinese firms were

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Speaker 1: taking intellectual property from either North American producers or European producers.

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Speaker 1: To what extent have vehicle manufacturers in China kind of

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Speaker 1: moved beyond that and they are able now to innovate

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Speaker 1: on their own rather than relying on technology from either

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Speaker 1: the Americans or the Europeans.

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Speaker 2: Right the requirement for foreign automakers to form joint ventures

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Speaker 2: to produce in China has been a thirty plus year experiment,

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Speaker 2: and initially it didn't seem like it was working too well.

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Speaker 2: In terms of transferring knowledge and especially related to new

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Speaker 2: product development. However, in the last five years, with electric

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Speaker 2: vehicles and intelligent vehicles, you're absolutely right, the capacity and

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Speaker 2: capability of Chinese manufacturers to develop vehicles with this intelligent

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Speaker 2: technology has now one might say, exceeded those in the

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Speaker 2: West and outside of China in terms of its value

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Speaker 2: for money value proposition. So we see a lot of

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Speaker 2: advanced intelligent technology in China that's very inexpensive for the consumer,

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Speaker 2: and this is going to be a compelling value proposition outside.

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Speaker 2: So the tables have turned a little bit. We now

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Speaker 2: see several automakers from outside of China looking to take

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Speaker 2: advantage of the China product development and technology ecosystem to

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Speaker 2: develop products for the rest of the world. So examples

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Speaker 2: of that are Volkswagen and Xpun partnering with Volkswagen investing

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Speaker 2: in x Punk. Stlantis has invested in Leap Motor and

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Speaker 2: intends to use Leap Motor as they're part of their

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Speaker 2: brand portfolio as a low cost ev We've also seen

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Speaker 2: Renol set up China Advanced Development Center to take advantage

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Speaker 2: of the China technology ecosystem and the supply base to

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Speaker 2: develop low cost evs.

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Speaker 1: A lot's been made of autonomous driving. I'm curious to

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Speaker 1: get your take on where China is in that process.

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Speaker 1: In the evolution of autonomous driving.

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Speaker 2: China China companies in China have taken a step wise

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Speaker 2: approach to autonomous driving. Whereas many years ago, when I

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Speaker 2: was in the auto industry, as in the corporate world,

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Speaker 2: we expected full level four autonomous driving to happen by

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Speaker 2: maybe twenty twenty two, it turned out to be much

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Speaker 2: more difficult than that, and so instead of a leap

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Speaker 2: toward full autonomy, the progress has been step by step

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Speaker 2: level one two, level two plus, level two plus plus.

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Speaker 2: And so that's what we see in China, just a

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Speaker 2: gradual improvement in autonomy and the capability for what we

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Speaker 2: call navigation on autopilot, which means you put in a

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Speaker 2: destination and the autopilot will help you get to that destination.

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Speaker 2: So it's very incremental and that seems to be working well,

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Speaker 2: not only in China, but in the rest of the

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Speaker 2: world as well.

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Speaker 1: I'm interested in one dynamic, in particular byd on one

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Speaker 1: hand Tesla on the other. Give me your sense of

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Speaker 1: that rivalry.

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Speaker 3: Well, these are the.

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Speaker 2: Two highest volume dedicated new energy vehicle or electrified vehicle companies.

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Speaker 3: So it's interesting to watch that face off, and.

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Speaker 2: I think competition is good, good for everyone, good for

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Speaker 2: these companies to learn and progress, good for consumers, and

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Speaker 2: it's actually exciting in.

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Speaker 1: Terms of the outlook. I'm wondering whether you're optimistic right now,

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Speaker 1: maybe more cautiously optimistic. Maybe it's a case of your

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Speaker 1: enthusiasm being slightly tempered as to what lies ahead for

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Speaker 1: the automobile industry.

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Speaker 2: Well, certainly, the rapid progression of intelligent driving and intelligent

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Speaker 2: cockpit technology is something that I think gives us a

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Speaker 2: lot of reason to be enthusiastic and optimistic, both as

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Speaker 2: a consumer I love driving these vehicles and trying out

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Speaker 2: their new features, but also as the auto industry evolves

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Speaker 2: into more of a high tech industry. Sometimes in the

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Speaker 2: West we use the term software to find vehicle, which

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Speaker 2: really represents just an increased value of intelligent technology. In China,

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Speaker 2: they don't use that term because it's just sort of

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Speaker 2: inherently integrated into the vehicle now, and that's exciting and

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Speaker 2: cause for optimism about the direction that.

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Speaker 3: Motive industry will take.

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Speaker 2: We also see advancements in battery and battery charging technology

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Speaker 2: and claims that now you can charge a battery to

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Speaker 2: give you about two hundred and fifty miles of range

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Speaker 2: in five minutes. Now, it's still early to validate those claims,

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Speaker 2: and there's a lot of work yet to do, but

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Speaker 2: this would resolve the main reason that many people don't

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Speaker 2: want to buy an electric vehicle, and so that is

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Speaker 2: exciting as well.

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Speaker 3: In room for.

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Speaker 1: Optimism, Okay, on the other side, what is your greatest

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Speaker 1: concern when you look at the industry right now?

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Speaker 2: Well, right now, with the advent of China technology and

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Speaker 2: low cost manufacturing, this represents a direct disruptive impact on

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Speaker 2: the automotive industry, and so it's important for auto players

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Speaker 2: from more traditional companies to learn how to do what

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Speaker 2: is required in this new technology rich environment for the

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Speaker 2: auto industry, and so players that are less effective at

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Speaker 2: changing the way they do things to use the new

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Speaker 2: technology may be under considerable challenge. The other elephant in

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Speaker 2: the room, if you will, is the current tariff and

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Speaker 2: trade protection environment. We've now gone through twenty or twenty

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Speaker 2: five years of globalization. Companies have optimized their supply chains

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Speaker 2: for this more open global trade scenario and so now

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Speaker 2: we see tariffs happening and reciprocal tariffs and measures and countermeasures.

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Speaker 2: So the question is this a negotiating tactic temporarily or

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Speaker 2: is this a long term protectionist measure or something in between.

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Speaker 2: So this will definitely disrupt the global supply chain for

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Speaker 2: the automotive industry and cause companies to rethink how they

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Speaker 2: set up.

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Speaker 1: We'll leave it there, Stephen, Thank you so much, doctor

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Speaker 1: Stephen Dyer, head of the Asia Automotive practice at Alex Partners,

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Speaker 1: joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 1: to the Daybreak Asia Podcast. I'm Doug Chrisner. Today's FED

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Speaker 1: Speak was hawkish Chair J Powell once again said the

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Speaker 1: Fed must ensure tariffs do not trigger a more persistent

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Speaker 1: rise in inflation.

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Speaker 4: Trade now is the focus, and the effects of that

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Speaker 4: are likely to move us away from our goals. So

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Speaker 4: unemployment is likely to go up as the economy slows

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Speaker 4: in all likelihood, and inflation is likely to go up

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Speaker 4: as tariffs find their way, and some part of those

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Speaker 4: tariffs come to the come to be paid by the public,

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Speaker 4: that is FED share J Powell speaking at the Economic

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Speaker 4: Club of Chicago.

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Speaker 1: He went on to emphasize the need to keep longer

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Speaker 1: term inflation expectations well anchored. We also heard today from

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Speaker 1: the head of the Cleveland Fed, Beth Hammock, and she

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Speaker 1: suggested the Fed should hold rates steady until there is

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Speaker 1: more clarity on the impact of tariffs. So their remarks

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Speaker 1: combined seem to dampen hope for a near term cut

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Speaker 1: in interest rates. Longer term, though, the swaps market is

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Speaker 1: holding to the bet for at least three rate cuts

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Speaker 1: this year. For a closer look at the price action,

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Speaker 1: I'm joined now by Cham's Asaul Managing Director at the

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Speaker 1: Carnegie Investment Council. He's on the line from Toledo, Ohio. Chams,

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Speaker 1: thank you so much for making time to chat with us.

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Speaker 1: When I hear what Powell had to say today, I'm

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Speaker 1: thinking that stagflation really is what we're going to be

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Speaker 1: confronted with in the near term. Is that what you're assuming?

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Speaker 5: Yes, certainly. You know, when we think about the ninety

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Speaker 5: day delay on the reciprocal tariffs on you know, maybe

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Speaker 5: a trillion dollars worth of trade that's not including the

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Speaker 5: major partners like China, Mexico, Canada and Europe. You know,

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Speaker 5: if you do include those numbers back ninety days from now,

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Speaker 5: then the answer has to be that we're looking at

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Speaker 5: a sub one percent GDP, and obviously some analysts are

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Speaker 5: there predicting that we may actually did below zero. So

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Speaker 5: I mean, that's based dictionary definition of stackflation. Now, you know,

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Speaker 5: when we think about the market reaction, even including the

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Speaker 5: last two weeks, it doesn't appear that a good portion

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Speaker 5: of market participants actually believe that the broad swath of

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Speaker 5: caraffs that have been announced will actually remain in place

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Speaker 5: for the duration of the year. Otherwise the market selloff

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Speaker 5: has to be much more intensive than what we have

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Speaker 5: seen so far.

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Speaker 1: Well, it's interesting that you make that point, because we

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Speaker 1: learned today that the Trump administration is preparing to pressure

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Speaker 1: certain nations to curb trade with China. As the White

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Speaker 1: House negotiates with trading partners on this issue of tariffs,

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Speaker 1: we know that at least a dozen nations are seeking

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Speaker 1: either reductions or exemptions, and in exchange for doing so,

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Speaker 1: we are told that the US is set to ask

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Speaker 1: them to take steps to limit China's manufacturing might. So

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Speaker 1: this very much seems to be dynamic and aimed at

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Speaker 1: trying to strike a negotiation, but the pressure point seems

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Speaker 1: to be directly focused on China. Is that the way

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Speaker 1: that you understand it.

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Speaker 5: Well, if you ask me tomorrow, am I change my

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Speaker 5: mind on this? Because you know, ordinarily you would find

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Speaker 5: that if the goal was to coalesce, you know, an

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Speaker 5: alliance ultimately to go after China, then you probably would

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Speaker 5: not have prioritized you know, European tariffs as much as

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Speaker 5: they have so far, because I think that would be

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Speaker 5: one of the major counterweights against China. So, you know,

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Speaker 5: the way we think about this, Out of the three

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Speaker 5: point two to three point three trillion dollars worth of

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Speaker 5: trade that the US does, about a trillion of that

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Speaker 5: comes from you know, roughly fifty or sixty countries that

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Speaker 5: were part of this reciprocle tariff announcement on Liberation Day.

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Speaker 5: But you take that one trillion, what's left behind, Essentially

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Speaker 5: the rest of the two sum trillion is across basically

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Speaker 5: four or five trading partners. So if you're not getting

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Speaker 5: those four or five partners on board, but you're getting

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Speaker 5: the laws and the Cambodias and the Vietnams of the

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Speaker 5: world on board. I am not sure exactly how much

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Speaker 5: counterweight you're building up right, so I want to see

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Speaker 5: more data. I'm not quite there yet. If that is

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Speaker 5: the ultimate goal, then certainly the order in which the

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Speaker 5: tariffs have been announced should have been done a little

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Speaker 5: bit differently. But then again we are not privy to

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Speaker 5: all the details. And if the today's discussion with the

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Speaker 5: Japanese counterparts, you know, bear any fruit, then I will

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Speaker 5: start to feel a little bit better about maybe having

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Speaker 5: a grand plan behind this. But since April twod you know,

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Speaker 5: I've been more confused about just the general direction of

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Speaker 5: much of this then I would have been in December

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Speaker 5: or January of this year.

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Speaker 1: Chams. I want to get your assessment of the risk

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Speaker 1: of a much more dramatic decoupling between the US and China.

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Speaker 1: We had a bipartisan House committee today accusing Deep Seek

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Speaker 1: of posing a profound threat to US national security. Now

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Speaker 1: we know yesterday that the monthly activity data in China

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Speaker 1: was above expectations, but those data do not really reflect

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Speaker 1: the impact of these new tariffs. And I'm wondering whether

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Speaker 1: or not China, on one side, is particularly vulnerable here,

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Speaker 1: but from the US side, whether or not the Trump

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Speaker 1: administration senses that vulnerability and is going to lean more

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Speaker 1: aggressively into restricting China and in the process maybe allowing

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Speaker 1: this relationship to further decouple.

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Speaker 5: Is that possible, Yes, it certainly is possible. But again,

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Speaker 5: you know, the deep Seak angle is one thing. I think,

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Speaker 5: you know, we're dealing with much broader impacts, you know,

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Speaker 5: within the relationship. I think when it comes to Deep

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Speaker 5: six specifically, you know, we think that there's a lot

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Speaker 5: that has been quoted into the system that feels very derivative.

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Speaker 5: In other words, the model was designed to output, you know,

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Speaker 5: in a way that seems to have been built on

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Speaker 5: the output of models like a CHAT GPT. Right, So

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Speaker 5: I'm not taking any innovation away from what they've been

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Speaker 5: able to achieve in terms of the computing intensity, et cetera.

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Speaker 5: But I think the way the model is designed, there

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Speaker 5: is a lot of there's a derivative aspect to it.

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Speaker 5: Now the question becomes, if we are American citizens are

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Speaker 5: using this in a manner not quite understanding where the

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Speaker 5: quarries are going and how much detail or information we

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Speaker 5: are willing to share without understanding where you know, what

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Speaker 5: servers these are going to, where the compute is happening,

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Speaker 5: then that certainly becomes a bigger problem. Then you might

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Speaker 5: even say that tiktalk poses today, right, So I think

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Speaker 5: there is certainly a national security impact that comes to

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Speaker 5: a bear at that point. But you know, when we

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Speaker 5: think about other industries, the rare earth minerals is really

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Speaker 5: where my mind goes to. You know, we have been

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Speaker 5: given a bit of a reprieve in that, you know,

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Speaker 5: almost forty percent of Chinese trade, which really deals with

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Speaker 5: electronics and you know, apple products, et cetera, that has

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Speaker 5: been given bit of a relief, right, But to the

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Speaker 5: extent that China is serious about curbing rare earth availability

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Speaker 5: for the US in general, I think it's going to

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Speaker 5: end up becoming a bigger problem down the road. Right.

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Speaker 5: So I think this is going to a head, and

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Speaker 5: we hope that ultimately, you know, by the end of

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Speaker 5: next week, we are not looking at a two hundred

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Speaker 5: and fifty percent tariff, but rather, you know, delegations sort

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Speaker 5: of you know, meeting and deciding that yes, these are

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Speaker 5: the targeted tariffs that we likely will never have agreement on,

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Speaker 5: you know, namely steel, aluminum, et cetera. But there are

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Speaker 5: a whole bunch of other areas that we should have

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Speaker 5: agreement on because I think it's not in the US's

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Speaker 5: interest to bring back textile, right. We should not be

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Speaker 5: the best manufacturer of handkerchief and underwear or neck ties.

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Speaker 5: We should focus on other things if you believe on

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Speaker 5: the concept of comparative advantage. So ultimately I would like

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Speaker 5: to see a much more targeted way of dealing with China.

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Speaker 5: But again, things are moving so dramatically that you know,

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Speaker 5: every forecast that we do make, we know that we

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Speaker 5: are going to be miles ahead of what the reality

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Speaker 5: ends up being.

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Speaker 1: So we can describe this the relationship right now between

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Speaker 1: the US and China as a trade war. Some people

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Speaker 1: don't like to use that terminology. I get that. Bloomberg

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Speaker 1: Opinion columnist James Travitas, former Navy admiral, was saying today

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Speaker 1: that he is increasingly concerned about the possibility of a

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Speaker 1: hot war between the US and China. Does that entry

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Speaker 1: your thinking at all, that things could get much much

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Speaker 1: worse and we could be involved in some type of

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Speaker 1: military conflict.

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Speaker 5: I don't believe. So again I would not question you know,

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Speaker 5: people in the military who have you know, access to

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Speaker 5: maybe more you know, geopositioning of military assets et cetera.

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Speaker 5: So I will not question it, but I would say

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Speaker 5: that between number one and number two economies in the world,

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Speaker 5: I think there's plenty of sort of you know, delegation

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Speaker 5: beyond you know, the two of the main characters in

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Speaker 5: this in this scene where we believe cooler heads will prevail,

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Speaker 5: because ultimately it is not going to be in in

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Speaker 5: China's best interest to really ram this up. One thing

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Speaker 5: is to sort of save face for your own local

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Speaker 5: population and not be seen as you know, giving away

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Speaker 5: you know too much, you know, slack to the Trump administration.

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Speaker 5: But ultimately, I think you know that there are serious

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Speaker 5: people who understand that it's not something that you would

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Speaker 5: take lightly. And whatever grand plans that they may have,

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Speaker 5: you know, cooking up, whether it's related Taiwan or some

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Speaker 5: of the other Gray Sea Area dominance that they have,

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Speaker 5: none of that will come to fruition if they get

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Speaker 5: bogged down on the economic front. Right, So my personal

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Speaker 5: take would be that we don't see a military conflict here,

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Speaker 5: but we do see a significant rapping up of dialogue

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Speaker 5: and maybe trading barbs and things getting slightly worse before

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Speaker 5: they start to look better.

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Speaker 1: Shams will leave it there, thank you so much for

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Speaker 1: taking the time to talk with the Shamsabsal there, Managing

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Speaker 1: director at the Carnegie Investment Council, joining from Toledo, Ohio

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Speaker 1: here on the Daybreak Asia podcast. Thanks for listening to

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Speaker 1: today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 1: we look at the story shaping markets, finance, and geopolitics

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00:24:43,119 --> 00:24:46,400
Speaker 1: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 1: Join us again tomorrow for insight on the market moves

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Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Chrisner,

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Speaker 1: and this is Bloomberg