WEBVTT - Tariffs, Rates, and the US Economy 0:00:02.400 --> 0:00:07.480 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.920 --> 0:00:16.320 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.360 --> 0:00:19.720 at seven am Eastern on Apple car Player, Android Auto 0:00:19.760 --> 0:00:23.080 with the Bloomberg Business App. Listen on demand wherever you 0:00:23.120 --> 0:00:26.279 get your podcasts, or watch us live on YouTube. 0:00:26.320 --> 0:00:29.840 A discussion with someone where all of global Wall Street 0:00:29.880 --> 0:00:33.159 loans forward. Ian Lincoln is the demon capital. And of 0:00:33.159 --> 0:00:36.640 course on the bond markets, you got Belski's optimism on equities. 0:00:36.840 --> 0:00:41.320 You know all that Ian lingoln on the percent effect 0:00:41.400 --> 0:00:44.000 right now, Ian, thank you so much for joining. Do 0:00:44.040 --> 0:00:46.080 you have a vector in place as you did six 0:00:46.120 --> 0:00:48.960 months nine months ago, of a ten year yield that 0:00:49.000 --> 0:00:50.680 will slide below four percent? 0:00:52.479 --> 0:00:55.520 Yes, I still see the path of least resistance fourteen 0:00:55.600 --> 0:00:58.600 year yields being lower, not higher. And I think that 0:00:58.680 --> 0:01:03.080 the decision about the Treasury Secretary has been appropriately read 0:01:03.160 --> 0:01:05.800 as a net positive for the bond market. I think 0:01:05.840 --> 0:01:08.800 that this particular move does have a little bit further 0:01:08.920 --> 0:01:11.160 to run. But I don't see tens going to five. 0:01:11.400 --> 0:01:13.360 I see us going below four percent. 0:01:13.560 --> 0:01:16.039 Four point two nine percent right now is a handle 0:01:16.080 --> 0:01:17.679 on ten year yield exactly. 0:01:17.720 --> 0:01:20.760 Tom So in how do you think this fed is 0:01:20.800 --> 0:01:24.000 going to perceive here, proceed here with this December meeting 0:01:24.760 --> 0:01:26.520 coming up here, given some of the economic data that 0:01:26.560 --> 0:01:29.440 we've seen already, we're going to get some PCE data 0:01:30.080 --> 0:01:32.720 later this week on Wednesday. How do you think this 0:01:32.760 --> 0:01:33.640 Fed's going to move here? 0:01:34.959 --> 0:01:37.240 Well, I do think they're going to cut twenty five 0:01:37.240 --> 0:01:40.680 basis points in December. They also going to offer a 0:01:40.720 --> 0:01:43.200 new updated dot plot, and I think that that's the 0:01:43.240 --> 0:01:46.320 biggest risk, and that's because the debate in the market 0:01:46.319 --> 0:01:48.760 at the moment is whether or not terminal should be 0:01:48.840 --> 0:01:53.240 revised higher simply because of the results of the election. 0:01:53.720 --> 0:01:55.880 The FED has told us that it's too soon for 0:01:55.920 --> 0:01:58.600 such a change, and so I suspect that the market 0:01:58.640 --> 0:02:01.440 will get a cut if nothing else. 0:02:02.320 --> 0:02:04.640 How about going forward here? I mean again, as you mentioned, 0:02:05.040 --> 0:02:08.919 the election has had a material impact on this market 0:02:09.000 --> 0:02:11.760 and on the economic outlook of a lot of participants 0:02:11.760 --> 0:02:14.480 in this market. How do you think the election may 0:02:14.560 --> 0:02:16.919 or may not impact kind of where this FED goes? 0:02:18.440 --> 0:02:22.320 Well, at a minimum, the FED has already acknowledged in 0:02:22.360 --> 0:02:25.519 the process of normalizing rates, and there's a very big 0:02:25.560 --> 0:02:30.560 difference from the Fed's perspective between normalizing and easing the 0:02:30.639 --> 0:02:34.120 economic data is unreasonably strong footing, so they don't have 0:02:34.160 --> 0:02:38.600 any urgency to move back to neutral. However, it won't 0:02:38.600 --> 0:02:41.760 be until the second half of next year that any 0:02:41.800 --> 0:02:46.160 potential policy change could come from the FMC based on 0:02:46.680 --> 0:02:50.160 what Trump does early in his presidency. And it is 0:02:50.280 --> 0:02:54.680 worth noting that there's tariffs are one off increases and 0:02:54.760 --> 0:02:57.760 they're not the type of demand inflation that the FED 0:02:57.800 --> 0:02:58.360 worries about. 0:02:58.560 --> 0:03:01.480 Lee In the heartier note, it's the densest node on 0:03:01.639 --> 0:03:04.000 fixed in come on Wall Street to claim by all 0:03:04.680 --> 0:03:10.640 buried in it is looming month, Then bond demand is 0:03:10.680 --> 0:03:14.560 it foreign appetite, is it domestic? Is it Fidelity or 0:03:14.600 --> 0:03:17.600 Blackrock need to touch up their portfolios? What do you 0:03:17.680 --> 0:03:21.680 mean by looming month and demand? Price up, yield down? 0:03:23.240 --> 0:03:26.360 Well, it was a refunding month, and so that means 0:03:26.400 --> 0:03:30.600 that we'll have new bonds being added to the benchmark index, 0:03:30.680 --> 0:03:34.680 which implies that even someone who wants to be neutral 0:03:34.720 --> 0:03:38.160 on duration is going to need to buy in into 0:03:38.200 --> 0:03:42.000 the month. That's true for real money domestic players, and 0:03:42.080 --> 0:03:45.920 that's true for any overseas buyers that are based off 0:03:45.960 --> 0:03:48.880 of a benchmark. As a theme, though we do tend 0:03:48.880 --> 0:03:52.320 to think of looming month and demand being more of 0:03:52.360 --> 0:03:56.680 a domestic affair as opposed to being a strong overseas story. 0:03:58.080 --> 0:04:01.240 So stepping back here, what was your take when you 0:04:01.280 --> 0:04:05.920 see the nomination of a Scott Bessant for treasury secretaries 0:04:06.360 --> 0:04:09.160 is as simple as well, there's an adult in the 0:04:09.280 --> 0:04:13.360 room and maybe take more measured you know, look towards 0:04:13.440 --> 0:04:16.000 Tariff's kind of what do you think the market's discounting here? 0:04:17.360 --> 0:04:19.320 I think that that was the knee jerk response, and 0:04:19.400 --> 0:04:24.640 the perception is that he will be a more balanced, methodical, 0:04:25.000 --> 0:04:29.080 thoughtful Treasury secretary then might have otherwise been at risk. 0:04:29.440 --> 0:04:33.160 And there's also this observation that he's already made about 0:04:33.720 --> 0:04:36.680 taking a gradual approach on the tearff side, and if 0:04:36.920 --> 0:04:40.360 he's successful in being able to orchestrate that, that could 0:04:40.440 --> 0:04:42.120 take a lot of the shock and a lot of 0:04:42.160 --> 0:04:45.560 the tension out of the process as we recalibrate on 0:04:45.600 --> 0:04:46.920 the global trade stage. 0:04:47.320 --> 0:04:53.320 Link your tone of price up yield down with Belski's 0:04:53.360 --> 0:04:57.120 tone of a solid equity market. Is it just ian 0:04:57.320 --> 0:05:03.479 our underestimation of continue to ample real GDP and surprisingly 0:05:03.560 --> 0:05:07.120 good animal spirits is signaled by nominal GDP. 0:05:09.000 --> 0:05:12.040 Well, I think that the case for outperformance of the 0:05:12.080 --> 0:05:15.040 equity market can be made, and I'm on board with 0:05:15.400 --> 0:05:19.680 Belski's expectations. If we're going to be moving to a 0:05:19.920 --> 0:05:23.640 familiar doesn't have to be particularly lower rate environment. But 0:05:23.720 --> 0:05:26.039 if we don't have a spike in ten and thirty 0:05:26.120 --> 0:05:30.160 year rates, then equities can can continue to grind higher 0:05:30.200 --> 0:05:33.720 from here. My biggest worry for risk assets is that 0:05:33.760 --> 0:05:36.480 we do see a spike in term premium, a spike 0:05:36.600 --> 0:05:41.080 in break evens and more reflationary anks. That gets us 0:05:41.120 --> 0:05:44.440 to an October twenty twenty three moment where we saw 0:05:44.480 --> 0:05:45.719 that correction lower in stock. 0:05:45.880 --> 0:05:49.359 See how Ian did that? I mean Brian, you know, 0:05:49.520 --> 0:05:52.360 for next year he's only going to be called Belski. 0:05:52.400 --> 0:05:55.720 It's like share exactly. It's just like Belski. Yep. It's 0:05:55.760 --> 0:05:58.760 just one one word iling and thank you so much. 0:05:58.800 --> 0:06:01.120 What a team it is at being capital markets and 0:06:01.160 --> 0:06:04.040 there are many different parts the Bank of Montreal cours 0:06:04.040 --> 0:06:05.920 Pemo capital market. 0:06:12.240 --> 0:06:16.119 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:06:16.200 --> 0:06:19.520 weekday afternoons from seven to ten am. Easter Listen on 0:06:19.560 --> 0:06:22.960 Applecarplay and Android Auto with a Bloomberg Business app, or 0:06:23.000 --> 0:06:24.640 watch us live on YouTube. 0:06:24.720 --> 0:06:28.119 I love doing seminars with Francis Donald of the Royal 0:06:28.160 --> 0:06:32.799 Bank of Canada. She writes a very terse note, always 0:06:32.800 --> 0:06:35.600 wrapped around the core function Y equal C plus I 0:06:35.680 --> 0:06:39.599 plus G plus export import dynamic. She darkens the door 0:06:39.640 --> 0:06:45.560 today visiting us from Montreal as well. Nominal GDP to me, 0:06:45.640 --> 0:06:49.479 has been the great miss call this year. Can you, 0:06:49.600 --> 0:06:53.920 with your K shape theme, with American exceptionalism, with the 0:06:54.000 --> 0:06:59.240 bascent Treasury Secretary celebration, can you model nominal GDP about 0:06:59.240 --> 0:07:00.880 five percent twelve months forward? 0:07:01.240 --> 0:07:04.640 Oh well, that'll depend on the size, scope, timing and 0:07:04.680 --> 0:07:07.599 sequencing of a whole lot of policies that are going 0:07:07.680 --> 0:07:11.080 to come down delight or the ability be delayed. And 0:07:11.120 --> 0:07:13.160 you know, in my almost two decades of doing this, 0:07:13.320 --> 0:07:16.840 I know that I can't rely on Washington probabilities to 0:07:16.960 --> 0:07:20.040 dictate my economic forecast. What we do know is the 0:07:20.160 --> 0:07:22.800 direction of a lot of policies that are going to 0:07:22.880 --> 0:07:27.600 come in and maybe skew our forecasts. And problematically, tom 0:07:27.680 --> 0:07:32.320 some of them are growth positive deregulation, corporate tax cuts, 0:07:32.360 --> 0:07:35.600 and some of them are growth negative things like tariffs 0:07:35.800 --> 0:07:38.440 or even and we don't talk about it enough immigration 0:07:38.560 --> 0:07:41.720 policies and the risks to lower labor supply. So at 0:07:41.720 --> 0:07:44.360 the end of twenty twenty five, depending on the sequencing, 0:07:44.400 --> 0:07:48.360 we could very much have an economy that's doing quite well, 0:07:48.520 --> 0:07:51.320 the where animal spirits have helped lift confidence in small 0:07:51.360 --> 0:07:54.360 business confidence which I'm acutely focusing on, and the FED 0:07:54.760 --> 0:07:58.120 we'll have to be thinking about hikes not cuts. The 0:07:58.120 --> 0:08:00.760 flip side of that is, if the sequencing is different, 0:08:00.960 --> 0:08:04.480 we could see us trip this soft landing and have 0:08:04.560 --> 0:08:07.680 a FED that continues to focus on cuts. And that's 0:08:07.720 --> 0:08:10.960 not me not having conviction in a forecast refusing to 0:08:11.000 --> 0:08:13.920 make a call. It's me acknowledging that the tails around 0:08:13.920 --> 0:08:17.920 our calls are much fatter, and every corporate, every household, 0:08:18.040 --> 0:08:20.840 every market participant has to take a look at a 0:08:20.840 --> 0:08:22.920 broader set of scenarios now than they were a couple 0:08:22.960 --> 0:08:23.480 of months ago. 0:08:24.000 --> 0:08:27.600 What's some hindsight here to the labor data. What has 0:08:27.640 --> 0:08:31.840 the migrant influx of people into this country over the 0:08:31.920 --> 0:08:33.640 last several years. What does it meant for the labor 0:08:33.720 --> 0:08:36.560 market and our economy, because now it's front and center 0:08:36.640 --> 0:08:38.320 yet again, but maybe on the other side. 0:08:38.640 --> 0:08:40.679 This is such an important question, and thank you for 0:08:40.720 --> 0:08:44.400 asking it. Because I'm frankly more focused on immigration policy 0:08:44.559 --> 0:08:47.800 than i am on tariffs. Okay, tariffs are a price 0:08:47.920 --> 0:08:50.760 level shock. We got a playbook for tariffs. We generally 0:08:50.760 --> 0:08:53.280 know what happened. Every economist with their salt knows a 0:08:53.280 --> 0:08:57.240 ton about washing machines from twenty eighteen. But that's not 0:08:57.280 --> 0:08:59.160 what's going to keep an economistep at night. That's a 0:08:59.200 --> 0:09:02.520 one time in fla shock. What worries us is labor 0:09:02.600 --> 0:09:07.400 supply shortages and persistent wage growth. That's the type of 0:09:07.480 --> 0:09:11.600 more nefarious inflation that creeps in and requires much higher 0:09:11.600 --> 0:09:14.400 interest rates. And we are heading into a period where 0:09:14.400 --> 0:09:18.959 we expect to see well, no, we've already seen record retirements, 0:09:19.320 --> 0:09:23.600 record retire We have three retirees for every one new 0:09:23.760 --> 0:09:26.000 entrant looking for work in the United States. It is 0:09:26.120 --> 0:09:27.160 really sweat. 0:09:26.920 --> 0:09:30.520 Why it is that? What's the why on? It's stunning statistics. 0:09:30.280 --> 0:09:33.520 It's just demographics, Tom, People get older and they retire. 0:09:34.400 --> 0:09:34.719 They do. 0:09:34.800 --> 0:09:37.760 Really, that's what happens. It's hard for us to accept, 0:09:38.760 --> 0:09:41.400 but no, it's demographics. And we you know, my whole life. 0:09:41.400 --> 0:09:43.800 Demographics is something that we thought about as being relevant 0:09:43.800 --> 0:09:46.360 over a five, ten, twenty year horizon. It is relevant 0:09:46.400 --> 0:09:49.160 in twenty twenty five. It's also why that unemployment rate 0:09:49.480 --> 0:09:52.920 is staying very low. It's mechanically pushing down and it 0:09:52.960 --> 0:09:53.920 puts pressure on the Fed. 0:09:54.120 --> 0:09:57.720 Paul Dow up four hundred and fifty points, Nasdick up, 0:09:58.120 --> 0:10:01.840 rather SPX up seven tents of a percent. Just Apple 0:10:01.960 --> 0:10:04.319 is one model up two and a half dollars. We 0:10:04.440 --> 0:10:05.760 call that two and five eights. 0:10:05.840 --> 0:10:10.400 Okay, and talk to us about this K shaped economy. 0:10:10.800 --> 0:10:14.040 What does it mean to you and how problematic is 0:10:14.040 --> 0:10:16.680 it for the broader economy out there? 0:10:17.400 --> 0:10:19.200 Well, it depends who you are. But one of the 0:10:19.240 --> 0:10:21.280 big challenges over the past year is if you were 0:10:21.320 --> 0:10:24.000 running any type of model based off of a data 0:10:24.000 --> 0:10:27.760 point like the ism or consumer confidence, which waits every 0:10:27.840 --> 0:10:31.160 participant in that survey equally, you and I get the 0:10:31.200 --> 0:10:35.400 same weight, it looked recessionary. And that's because small businesses 0:10:35.520 --> 0:10:38.559 and low income households have been in a very real recession. 0:10:38.600 --> 0:10:40.560 It's not just sentiment. It's not just that they have 0:10:40.840 --> 0:10:44.120 bad expectations. But any data point that actually captured the 0:10:44.160 --> 0:10:47.160 economy as a whole, that was in real dollars looked 0:10:47.360 --> 0:10:50.720 just fine. And the trap was focusing on those standard 0:10:50.760 --> 0:10:54.520 indicators that weighted everybody equally, because high income households and 0:10:54.600 --> 0:10:58.120 large corporations, they are the drivers of what happens next. 0:10:58.360 --> 0:11:00.440 If you're the FED, this is a problem though, because 0:11:00.440 --> 0:11:03.680 you really would need two monetary policies to help those 0:11:03.720 --> 0:11:06.520 who are struggling and require much lower rates. And then 0:11:06.559 --> 0:11:11.440 the resilient CEOs, the large households. They actually are large companies, 0:11:11.440 --> 0:11:14.480 they actually could probably merit rates around four percent or above. 0:11:14.800 --> 0:11:16.319 So if that's going to have to make a choice, 0:11:16.360 --> 0:11:19.040 does it target the aggregate of the economy and let 0:11:19.080 --> 0:11:22.160 one element lag behind more significantly than it has in 0:11:22.200 --> 0:11:24.400 the past, or does it say we actually need to 0:11:24.400 --> 0:11:26.719 be a little bit quote unquote fairer in the way 0:11:26.760 --> 0:11:28.640 that we look at this. I think the challenge is 0:11:28.640 --> 0:11:31.439 that inflation runs off of the aggregate, not the individual. 0:11:31.640 --> 0:11:33.400 This is going to continue to muck up a lot 0:11:33.440 --> 0:11:35.480 of our statistics and a lot of our models, But 0:11:35.559 --> 0:11:37.920 at least now there's more of a general realization of 0:11:37.960 --> 0:11:40.679 why standard economic models hasn't worked for us in the 0:11:40.720 --> 0:11:41.360 past year or two. 0:11:41.920 --> 0:11:46.040 Scott Bessant, nominated to be Treasury Secretary, that the markets 0:11:46.160 --> 0:11:49.560 seem to like it this morning. As an economist, do 0:11:49.600 --> 0:11:51.360 you read anything into it. Are you kind of thinking 0:11:51.480 --> 0:11:52.360 more just bigger picture? 0:11:52.480 --> 0:11:55.720 All I want is less uncertainty. We are still in 0:11:55.920 --> 0:11:59.560 a massive uncertainty shock. Even though we know the outcome 0:11:59.559 --> 0:12:01.800 of the election, we still don't have a good sense 0:12:01.840 --> 0:12:03.480 of what the next one to two years is going 0:12:03.559 --> 0:12:05.360 to look like. So this is one of these weeks 0:12:05.400 --> 0:12:07.480 We're getting a huge amount of economic data and I 0:12:07.559 --> 0:12:11.040 almost don't care because I'm looking for clarity. Oh whoa, whoah, whah, whoah. 0:12:11.080 --> 0:12:13.679 Don't say that we need people to tune in at 0:12:13.720 --> 0:12:14.640 least through Wednesday. 0:12:14.679 --> 0:12:17.880 Go you don't care, well, listen, I care about PC. 0:12:18.120 --> 0:12:21.040 I care about where are we stating right now, because 0:12:21.080 --> 0:12:24.199 we do want to know is inflation already too hot? 0:12:24.520 --> 0:12:27.200 That'll be really key for the Federal Reserve. But broadly, 0:12:27.240 --> 0:12:29.680 the focus now turns towards what is the path for 0:12:29.720 --> 0:12:32.239 the next one to two years. I did not anticipate 0:12:32.240 --> 0:12:34.040 a few months ago that we would be talking on 0:12:34.080 --> 0:12:37.040 our teams about twenty twenty five rate hikes. That is 0:12:37.080 --> 0:12:39.559 not our base case, but we are now having to discuss. 0:12:39.600 --> 0:12:41.760 We've got, you know, a vision for what rate cuts 0:12:41.760 --> 0:12:44.079 could look like and a vision for rate hikes at 0:12:44.080 --> 0:12:46.640 the same time. Two sided risk to a lot of 0:12:46.720 --> 0:12:50.200 economic forecasts right now. So any clarity I get is 0:12:50.240 --> 0:12:52.680 welcome clarity, and I think clarity for markets as well. 0:12:53.040 --> 0:12:55.400 Help me here with the Canadian elections. I don't want 0:12:55.440 --> 0:12:57.760 to get you in trouble with the General Counsel of OURBC, 0:12:58.400 --> 0:13:02.080 but is there a Trump valent and the Conservative to 0:13:02.200 --> 0:13:05.680 go after the Trudeau politics of Canada. 0:13:05.160 --> 0:13:07.760 Well, there is an anticipation that there will be a 0:13:07.920 --> 0:13:10.559 new election in Canada at some point, so it hasn't 0:13:10.559 --> 0:13:11.960 been called yet, it has not been called. 0:13:12.280 --> 0:13:14.080 There's crazy British yep. 0:13:14.200 --> 0:13:17.360 Exactly, but at any point, again, we're looking for more 0:13:17.400 --> 0:13:19.600 certainty for what will happen next. And just a reminder, 0:13:19.640 --> 0:13:22.000 Canada is not in the same shape as the United States. 0:13:22.160 --> 0:13:25.560 Productivity is really severe, they've cut immigration. We're actually going 0:13:25.600 --> 0:13:28.680 to see population declines in Canada in the next few years. 0:13:28.800 --> 0:13:30.959 That is a very weak economy on the prespit of 0:13:31.520 --> 0:13:34.080 recession and a big Canada that's probably heading down to 0:13:34.120 --> 0:13:36.439 two percent. So those factors are going to be the 0:13:36.480 --> 0:13:41.560 dominant stories in Canada. Election are no election, just keep winning. Well, 0:13:41.600 --> 0:13:42.720 there's some good things going on. 0:13:42.760 --> 0:13:46.239 You're right, that's right. Is tell me about like Vancouver 0:13:46.559 --> 0:13:49.080 in British Columbia. I mean you fly out there, what 0:13:49.320 --> 0:13:50.520 every second week or so? 0:13:50.760 --> 0:13:53.760 Well, here's something. Taylor Swift is ending her concert tour, 0:13:53.840 --> 0:13:57.080 the Heiress Tour, in Vancouver, also known as the Emerald City, 0:13:57.160 --> 0:13:59.560 so they'll get a little bit of a boosting. Me too. 0:13:59.800 --> 0:14:03.000 I got to experience it in Toronto. But we're proudly 0:14:03.040 --> 0:14:05.400 Canadian getting the last Taylor Swift airs tour. 0:14:05.760 --> 0:14:08.959 And now, folks with Francis Donald and Lisa Matteo, we 0:14:09.120 --> 0:14:13.000 brief you on Wednesdays, mowana too, Are you going to 0:14:13.280 --> 0:14:14.559 are you taking the offspring? To? 0:14:15.520 --> 0:14:18.120 No question? Why not have children except to bring them 0:14:18.160 --> 0:14:19.880 to the movies you really want to see but can't 0:14:19.880 --> 0:14:21.400 go alone to Ye? 0:14:21.840 --> 0:14:24.360 Okay, you think so, Lisa. 0:14:25.040 --> 0:14:27.040 She makes up a great point because you don't want 0:14:27.040 --> 0:14:28.680 to go by yourself and just say like, hey, I'm 0:14:28.720 --> 0:14:30.800 watching an animated movie. Your kids are the excuse. 0:14:32.280 --> 0:14:33.560 Really, I didn't know that. 0:14:34.560 --> 0:14:37.640 You know how far back I go? Like Cinderella. Oh yeah, 0:14:37.680 --> 0:14:41.040 it's like ancient street They did it by hand. Now 0:14:41.040 --> 0:14:44.000 it's all raze, kung fu pan. 0:14:44.080 --> 0:14:46.040 You're not taking a soldier of the guy, are you? 0:14:46.040 --> 0:14:46.800 You're not gonna. 0:14:49.760 --> 0:14:53.320 Can't get them, Francis Donald, thank you so much with 0:14:53.480 --> 0:14:56.000 RBC Capital Markets. 0:14:55.760 --> 0:14:59.920 These Here's the Bloomberg Surveillance Podcast. Listen live each weekday 0:15:00.160 --> 0:15:03.320 starting at seven am Eastern on applecar Play and Android 0:15:03.360 --> 0:15:06.200 Auto with the Bloomberg Business App. You can also listen 0:15:06.320 --> 0:15:09.440 live on Amazon Alexa from our flagship New York station 0:15:09.800 --> 0:15:12.800 Just Say Alexa playing Bloomberg eleven thirty. 0:15:12.880 --> 0:15:16.760 Joining us now William Lee Chi for Kindamist Milkin Institute. Bill. 0:15:16.760 --> 0:15:19.960 This could be a three hour conversation. Let's cut it short. 0:15:20.120 --> 0:15:23.200 What do Trump tariffs mean for Beijing? 0:15:23.960 --> 0:15:26.080 Oh, it's going to mean a change of life from 0:15:26.120 --> 0:15:28.400 where it was for the last four years. One of 0:15:28.440 --> 0:15:30.280 the things we have to remember, Tom, is that the 0:15:30.280 --> 0:15:33.720 make America Great objective has really one ultimate objective of 0:15:33.960 --> 0:15:35.960 maximized domestic employment and income. 0:15:36.040 --> 0:15:36.200 Right. 0:15:37.320 --> 0:15:39.640 That is the feature that we have to keep in mind, 0:15:39.800 --> 0:15:43.680 and Beijing really realizes that. Up till now, President Biden 0:15:43.720 --> 0:15:47.360 has been emphasizing getting everybody together in trade packs, multi 0:15:47.440 --> 0:15:49.040 level trade packs. 0:15:49.080 --> 0:15:50.640 Some difficulties negotiating them. 0:15:50.720 --> 0:15:52.760 But Donald Trump is a deal maker and he goes 0:15:52.800 --> 0:15:55.400 for not only bilateral deals with countries, he goes for 0:15:55.440 --> 0:15:58.720 bilottle deals with companies. So I think Beijing is preparing 0:15:58.800 --> 0:16:01.880 himself for a whole bunch of company specific deals, sector 0:16:01.920 --> 0:16:05.480 specific deals, and I think that gives him flexibility. You 0:16:05.480 --> 0:16:08.320 can read tailor you know that same industry. You can 0:16:08.480 --> 0:16:11.840 negotiate with the Korea and you negotiate with Taiwan on 0:16:11.920 --> 0:16:15.440 semiconductors and have two different deals that try to benefit right. So, 0:16:15.720 --> 0:16:17.520 I just came back from a meeting in South Korea 0:16:17.640 --> 0:16:19.920 not so long ago, and they were really excited about 0:16:19.960 --> 0:16:23.240 having more and more US trying to trade tensions because they. 0:16:23.080 --> 0:16:25.880 Trade with both sides. Okay, let them do that. 0:16:25.960 --> 0:16:28.400 You're on the IMF desk as you were for years. 0:16:28.920 --> 0:16:35.240 What about magnitude Lightheiser and Trump want magnitude large tariffs? 0:16:35.600 --> 0:16:39.480 The Treasury Secretary designate does not. Does it make a 0:16:39.520 --> 0:16:43.600 difference if if Billy gets a marginal or a massive 0:16:43.680 --> 0:16:44.520 tariff regime? 0:16:45.680 --> 0:16:47.920 Well, tom As you know, as a deal maker, the 0:16:47.960 --> 0:16:51.840 one thing you never negotiate is your final position, and 0:16:51.960 --> 0:16:55.120 right now the opening round is massive prohibitive tariffs. In fact, 0:16:55.120 --> 0:16:57.600 we had heard him say if it takes one hundred percent, great, 0:16:57.640 --> 0:16:59.240 If it takes two hundred percent, I'm going to put 0:16:59.240 --> 0:16:59.560 them in. 0:16:59.680 --> 0:17:00.280 But that the. 0:17:00.240 --> 0:17:03.760 Negotiating open employ and what the objectives had said before 0:17:03.920 --> 0:17:07.480 is the restructured trade routes, restructured trade packs, and restructure 0:17:07.640 --> 0:17:11.359 the US manufacturing base in a way that replicates more 0:17:11.400 --> 0:17:13.439 supply chains domestically and French shoring. 0:17:14.040 --> 0:17:16.520 And these tariffs are one way of negotiating that. 0:17:16.880 --> 0:17:20.560 Remember, Tom, restructuring America is both the democratic and Republican 0:17:20.840 --> 0:17:24.399 objective right to maximize domestic income and employment. And I 0:17:24.400 --> 0:17:26.960 think President Trump is going to be using trade policy 0:17:27.000 --> 0:17:29.600 as a tool. As you know, Tom, I come from 0:17:29.600 --> 0:17:32.760 the tradition of Bob Mundell and Carlos from Vegas, and 0:17:33.640 --> 0:17:36.879 you know Mo Calvo where in a distorted world and 0:17:37.400 --> 0:17:40.119 Kelvin Lancaster's world the second best where you don't have 0:17:40.160 --> 0:17:46.040 free trade, putting on tariffs or negotiating industrial policy can 0:17:46.080 --> 0:17:48.840 make countries better off. Because we come in a distorted 0:17:48.920 --> 0:17:50.760 world where there is no free trade, there is no 0:17:50.760 --> 0:17:51.600 perfect competition. 0:17:52.119 --> 0:17:54.879 So where is the concept of free trade? What was 0:17:54.920 --> 0:17:57.840 it ever a reality? And is it now gone for 0:17:57.880 --> 0:17:58.840 the foreseeable future? 0:18:00.000 --> 0:18:02.239 If you go back to days at Alexander Hamilton, right, 0:18:02.280 --> 0:18:04.320 he already put the stake in the heart of free 0:18:04.320 --> 0:18:06.880 trade when he said we've got to build up US industries. 0:18:06.880 --> 0:18:11.080 We cannot depend on the UK for manufactured goods. That alone, 0:18:11.200 --> 0:18:12.960 I think goes to show that we never had that 0:18:13.040 --> 0:18:14.960 world of free trade. It was only taught by people 0:18:14.960 --> 0:18:17.560 like me when in international economics and undergrads to give 0:18:17.560 --> 0:18:20.159 you a baseline model for where it is that we 0:18:20.200 --> 0:18:22.960 can dry for. But I think the minute you hit 0:18:23.200 --> 0:18:25.119 graduate school, you learn about the world at the second 0:18:25.119 --> 0:18:28.200 best where in a world's distortions, adding on at the 0:18:28.240 --> 0:18:30.920 story can actually make the world better off than before. 0:18:31.119 --> 0:18:33.480 And I think Donald Trump has been saying that all along, 0:18:33.520 --> 0:18:36.520 and President Biden has been on too, the Chips. 0:18:36.200 --> 0:18:37.240 Act and the. 0:18:39.080 --> 0:18:41.960 Subseas that we've been giving to build plants in Arizona 0:18:42.040 --> 0:18:44.560 for TSMC to come here was the lesson that we 0:18:44.680 --> 0:18:47.879 learned from COVID that we cannot depend on one source 0:18:47.880 --> 0:18:52.560 of supply chains. My former boss, Jane Alexander Jane Fraser 0:18:52.560 --> 0:18:54.800 said at a military meeting, you know, the problem with 0:18:55.000 --> 0:18:57.159 ESG is that we're missing some essays. We need some 0:18:57.240 --> 0:19:00.520 stability and safety and soundness to our supply chain. And 0:19:00.760 --> 0:19:02.760 I think that's something the hard the message of the 0:19:02.760 --> 0:19:05.280 heart of the message that President Trump is also trying 0:19:05.280 --> 0:19:06.040 to emphasize. 0:19:06.600 --> 0:19:09.040 Is there, how valid is the argument that tariffs are 0:19:09.040 --> 0:19:10.560 inflationary on the US consumer? 0:19:11.840 --> 0:19:14.760 Well, Paul, I guess I hate to be the e 0:19:14.840 --> 0:19:19.159 contectory again. But a tariff, even with retaliations, the step 0:19:19.200 --> 0:19:22.000 wise increase in price levels right in order to get 0:19:22.000 --> 0:19:25.399 inflation would need continuous increases in the price level. And 0:19:25.480 --> 0:19:29.080 so we can have higher prices but not higher inflation 0:19:29.200 --> 0:19:33.560 due to tariffs unless we have repeated rounds of retaliation. 0:19:33.680 --> 0:19:37.200 Doctor Lee. And I'm gonna get a little nerdy here, folks. 0:19:37.920 --> 0:19:42.000 The people that invented this again out of Columbia was Borrow, 0:19:42.760 --> 0:19:46.560 Professor Barrow and a guy named Xavier sally E. Martin, 0:19:47.000 --> 0:19:49.000 who were the bright you know, Lis or Dan Ives 0:19:49.080 --> 0:19:52.000 got the sport code. Thing though, is the sport codes 0:19:52.000 --> 0:19:57.280 of sally E Martin and their work. Is that in 0:19:57.400 --> 0:20:04.600 America the people hammer by trade converge towards where the 0:20:04.600 --> 0:20:07.560 better part of America is. Now we have a trump 0:20:07.560 --> 0:20:11.160 of grievance, a trump of so many people in America 0:20:11.280 --> 0:20:15.080 have missed the boat on free trade. Is that academics 0:20:15.119 --> 0:20:18.320 Bill Lee still in place or is it a new 0:20:18.400 --> 0:20:20.959 regime after Barrows silt E Martin. 0:20:22.320 --> 0:20:24.920 I think we combine both of those elements, because one 0:20:24.920 --> 0:20:27.600 thing that we also have to remember is there's technological 0:20:27.720 --> 0:20:31.800 change and shaping technological change is one way of converging 0:20:31.920 --> 0:20:35.960 trade theory and growth theory. Technology gives us the opportunity 0:20:36.000 --> 0:20:38.320 to produce. As Mike Milkon once told me, you know, 0:20:38.440 --> 0:20:41.359 bill is cheaper to produce sneakers in Atlanta than it 0:20:41.400 --> 0:20:43.760 is in China if you have the right technology in place. 0:20:44.400 --> 0:20:45.960 And so I think one of the things that we're 0:20:45.960 --> 0:20:49.879 going to see is the use of technology to drive 0:20:50.040 --> 0:20:52.679 a lot of the industrial policy that both President Biden 0:20:52.760 --> 0:20:54.920 and President Trump want to do, which is to say, 0:20:55.160 --> 0:20:59.680 reshaped supply routes don't depend on single sources where they're 0:20:59.840 --> 0:21:03.639