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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia Podcast. I'm Dan Schwartzman.

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Speaker 2: Doug Chrisner is off this week. Coming up, we'll preview

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Speaker 2: earnings this week from Japanese auto giants Toyota and Honda.

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Speaker 2: We'll hear from Kota Yasawa, head of Asia Auto research

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Speaker 2: at Goldman Sachs. But we begin this morning with trade.

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Speaker 2: The August first tariff deadline imposed by President Donald Trump

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Speaker 2: has coming gone, with Levy's set to go into effect

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Speaker 2: later this week. US Trade Representative Jamison Greer says tariffrates

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Speaker 2: are quote pretty much set and unlikely to change, even

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Speaker 2: amid ongoing trade talks to the likes of Canada and China.

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Speaker 2: Greer spoke Sunday to CBS's Face the Nation.

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Speaker 3: I think a lot of these well I know a

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Speaker 3: lot of these are set rates pursue it to deals.

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Speaker 3: Some of these deals are announced, some are not. Others

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Speaker 3: depend on the level of the trade deficit or surplus

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Speaker 3: we may have with the country. So these teriffrates are

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Speaker 3: pretty much set.

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Speaker 2: That's US Trade presentative of Jamison Greer speaking to CBS.

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Speaker 2: He also described the US China trade negotiations as quote

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Speaker 2: very positive, citing progress on critical mineral supply chains. Meantime,

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Speaker 2: President Trump had this to say before boarding Air Force

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Speaker 2: one late Sunday.

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Speaker 4: Yeah, I'm not looking for leverage. I'm looking for fairness.

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Speaker 4: We want reciprocal as much as possible. Sometimes reciprocal would

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Speaker 4: be too much for them to handle because it's it

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Speaker 4: would be a much bigger number. But we want to

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Speaker 4: see some reciprocity. We want to see reciprocal wherever we can.

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Speaker 2: From more we hear from Sharon O'Halleran professor of political

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Speaker 2: economy and international and public affairs at Columbia University. She

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Speaker 2: spoke at Bloomberg's Heidi Stroud, Watts, and Paul Allen on

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Speaker 2: the Asia trade.

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Speaker 5: Sharon, really great to have you with us. Nothing's ever

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Speaker 5: really set in the stone when it comes to President

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Speaker 5: Trump and this White House policies, Right, do you think

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Speaker 5: there is still we room, particularly when it comes to

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Speaker 5: some of these nations that have been hard to hit

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Speaker 5: than others, for example the sort of extension that we

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Speaker 5: saw when it comes to tirephrights on Kindada.

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Speaker 1: Right. So yes, no, I don't think anything is ever

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Speaker 1: set in stone with President Trump. Is the ultimate negotiator,

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Speaker 1: and these are moves to negotiate. They're being done under

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Speaker 1: three oh one executive authority, which is done in case

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Speaker 1: is used in cases where they're seen unaffair or discriminatory

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Speaker 1: types of policies that are being posed on the US

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Speaker 1: that have damage to both the markets or a particular sector.

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Speaker 1: That being the case, what we've seen is when you

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Speaker 1: look at the patterns of those countries that are being

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Speaker 1: subject to three oh one decisions and these types of

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Speaker 1: executive orders, that there are the countries where they receive

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Speaker 1: the largest surpluses intrate, that is, where the US has

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Speaker 1: a deficit with them, or in the case of Canada,

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Speaker 1: it has a large surplus with that particular with the

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Speaker 1: United States. We've seen this across a number of different countries,

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Speaker 1: and it's not just the size of the country or

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Speaker 1: the complexity of the trade relations. It seems to be

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Speaker 1: just if there is a surplus, for example, Cambodia and

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Speaker 1: other types of smaller countries which do have a trade surplus,

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Speaker 1: but it's very small relative to the size of the

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Speaker 1: US economy, so it's hard to claim that's their material damage.

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Speaker 1: So I think these are very much negotiating pillars. I

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Speaker 1: do think that there is attempt by the Trumpet administration

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Speaker 1: to link these tariffs to different types of side deals.

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Speaker 1: So while there may be they're set in stone for now,

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Speaker 1: there's still room for negotiation.

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Speaker 5: It's interesting to me that when it comes to probably

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Speaker 5: the toughest and obviously the most implications coming from the

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Speaker 5: set of negotiations between the US and China, is this

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Speaker 5: a kicking of the can down the road, that they're

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Speaker 5: just going to do another extension Because fundamentally, you know,

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Speaker 5: there are very complex and structural issues in these talks.

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Speaker 1: So China is very difficult to manage given them what

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Speaker 1: the supply chain linkages and what the implications are for

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Speaker 1: many of you large US companies. And consequently, there is

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Speaker 1: a there is a sense by just put and posing

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Speaker 1: a particular tariff, it's not going to actually solve the problem.

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Speaker 1: Apple isn't going to remove all of its production that's

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Speaker 1: in China to the US. It's just not a feasible

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Speaker 1: action to take in order to anticipate. And so the

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Speaker 1: question is, how does the Trump administration manage what they

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Speaker 1: perceive as discriminatory or unfair trade practices by raising the

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Speaker 1: by using just such a blunt instrument as the tariff,

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Speaker 1: or are they going to have to think more systematically

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Speaker 1: or holistically about what the actual trade relations are and

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Speaker 1: why they exist as they do.

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Speaker 6: Y ieaf fearing that out. It's not always easy though,

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Speaker 6: And give you the case of Australia where we are

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Speaker 6: a ten percent tariff and Australia has a trade surplus

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Speaker 6: with the US, so it doesn't make a huge amount

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Speaker 6: of sense. Yet there's no US ambassador in Australia to

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Speaker 6: even raise this with, and a lot of other countries

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Speaker 6: are in the same boat. So in terms of trying

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Speaker 6: to negotiate a bit of deal, I mean, who do

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Speaker 6: you even pick up the phones of at this point?

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Speaker 1: That's a wonderful question. I would suggest Australia is in

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Speaker 1: the I don't know, I don't call it envis but

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Speaker 1: they're not on the hit list in the sense is

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Speaker 1: that they do not have a trade deficit, a tree

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Speaker 1: deficit with from the US perspective, and consequently they are

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Speaker 1: not going to be part of these complex negotiations as

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Speaker 1: we're seeing with China and other countries like Brazil and India,

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Speaker 1: which actually do have interesting patterns of trade, some of

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Speaker 1: which are very complementary to the United States and necessary

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Speaker 1: given what our production process is. Other times it's just

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Speaker 1: they're just a comparative advantage. It makes much more sense

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Speaker 1: for the labor intensive country like India to be producing

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Speaker 1: textiles or more labor intensive goods. This is sort of

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Speaker 1: the theory of comparative vantage. So we can go on

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Speaker 1: about each of these individual cases. Unfortunately, what's going to

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Speaker 1: happen in the end is that there'll be significant pushbacks

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Speaker 1: from partners and what we'll find is that there'll be

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Speaker 1: segmentation of the global market. And that's what we're slowly

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Speaker 1: starting to see with Europe, with these of the Asian

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Speaker 1: countries start developing their own sort of regional trading patterns.

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Speaker 6: Yeah, I wanted to pick up on that point as well.

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Speaker 6: Is that something you see more of, is that countries

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Speaker 6: that are still interested in free and open trade starting

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Speaker 6: to film packs and relationships with each other and put

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Speaker 6: it to you, perhaps potentially with China at the standup.

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Speaker 1: Absolutely, Europe is a good point and example. They are

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Speaker 1: definitely trying to build up their own types of trade relations.

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Speaker 1: They too, have found themselves in the situation where they

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Speaker 1: have an imbalance in trade between themselves in China, and

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Speaker 1: so what does that look like. But building up different

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Speaker 1: types of scale and markets within the regional trading partners

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Speaker 1: is going to be a strategy that we're going to

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Speaker 1: be seeing both in Europe, both in Asia, Australia, all

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Speaker 1: of those types of large trading partners. The US has

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Speaker 1: trading partners with Mexico, Canada. It's other large partner is

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Speaker 1: the European Union, which really is its largest partner. But

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Speaker 1: I think that transatlantic trade is going to come under

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Speaker 1: a lot of all right.

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Speaker 6: Sharon O'Halloran, Professor of Political economy and International and Public

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Speaker 6: Affairs at Columbia University, Thanks so much for joining us.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Dan Schwartzman.

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Speaker 2: Doug Prisner is off this week. We'll get earnings in

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Speaker 2: the coming week from Japanese auto giants Toyota and Honda.

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Speaker 2: The reports will offer a fresh look at the automaker's

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Speaker 2: businesses and the impact US terrifs have had so far.

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Speaker 2: From more, we hear from Kota Yazawa, head of Asia

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Speaker 2: Auto Research at gold min Sachs. He spoke at Bloomberg's

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Speaker 2: Heidi Shroud Watts and Paul Allen on the Asia trade.

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Speaker 6: COOTA, thanks so much for joining us today. So looking

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Speaker 6: ahead to the earnings from Honda and Toyer to this week,

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Speaker 6: what sort of impact do you expect to see from

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Speaker 6: tariff's in the trade environment on the outlook?

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Speaker 7: Thank you for having me. Yes, we do expect the

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Speaker 7: type impact to be quite big for most of the

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Speaker 7: Japanese order, but it's probably less than feared. Based on

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Speaker 7: twenty five percent tariff over Japanese med vehicle, we were

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Speaker 7: expecting three point five three and negative impact across the

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Speaker 7: board for automotive sector in Japan, but now we can

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Speaker 7: probably see around the two three in en type of

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Speaker 7: negative impact, still a big number, but the relatively to

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Speaker 7: the twenty five percent a very recent type update was

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Speaker 7: a positive event and the lesson feared.

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Speaker 6: Yeah, in terms of the quarter that predated the trade

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Speaker 6: agreement between the US and Japan, what are you expecting

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Speaker 6: to see in terms of that impact on endings? You

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Speaker 6: know when it comes to front loading.

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Speaker 7: Well, I think we probably have to closely monitor the

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Speaker 7: situation over Mexico and Canada and the rest of the division.

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Speaker 7: Japan US trade negotiating went okay, So I think there

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Speaker 7: a should be a sertain you know, newmaker update from

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Speaker 7: the company management such as tot and Honda. At the

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Speaker 7: same time, we said that twotoring en type of negative impact,

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Speaker 7: there should be a mitigation effort that the Automaica will

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Speaker 7: probably try, including the price hike action in the United

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Speaker 7: States starting from September. So we're coustantly monitoring the situation

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Speaker 7: how much they could actually recover from the negative impact

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Speaker 7: of tariff.

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Speaker 5: Is the outlook when it comes to evs and hybrid

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Speaker 5: vehicles looking a little like it's going to gain a

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Speaker 5: bit more momentum.

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Speaker 7: I do think that the hybrid momentum will probably accelerate.

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Speaker 7: It's not directlyated to the tariff argument. I think it's

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Speaker 7: more like a milder environmental regulation from US government ACC

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Speaker 7: two councelation and also the milder mapro gallon regulation in

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Speaker 7: the United States. So starting from October, I do believe

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Speaker 7: that hybrid sales momentum would even accelerate in the United

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Speaker 7: States market on the back of the On the other hand,

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Speaker 7: probably battery to vehicle sales may probably potentially slow down.

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Speaker 7: For Japanese makers having a large exposure to hybrid sales,

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Speaker 7: les probably get benefit. In the second half of the year,

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Speaker 7: we've seen.

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Speaker 5: Japanese ought to make a sacrificing margin to an extent

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Speaker 5: to try and stay competitive, particularly when it comes to

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Speaker 5: the US market. Do you think this will change if

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Speaker 5: we start to see major suppliers passing through tarff costs,

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Speaker 5: logistics costs, and is that going to sort of alter

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Speaker 5: the pricing dynamic.

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Speaker 7: Well, I think not only Japanese makers but also all

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Speaker 7: you automaker operating in US probably have to think about

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Speaker 7: the price cycle at any case, and we expect a

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Speaker 7: model year change sometimes in September could be the one

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Speaker 7: trigger that all automaker will probably try and raise price

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Speaker 7: in order to mitigate some of the negative impact of

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Speaker 7: the tariffs and also the negative impact from the informational

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Speaker 7: pressure in the United States. Super U, one of the company,

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Speaker 7: already announced four point five percent price syking US back

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Speaker 7: in May twentieth, and so far the situation of the

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Speaker 7: sales momentum for that company not really deteriorating that much.

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Speaker 7: So I think if the price hike action would probably

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Speaker 7: happen all together, there could be a certain you know,

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Speaker 7: acceptance among japan among in the US consumers for this

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Speaker 7: kind of price hike.

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Speaker 6: Well, all Japanese automakers now facing tariffs in the US

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Speaker 6: that weren't there a year ago. To what degree can

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Speaker 6: Japanese automakers go to other markets that are now so

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Speaker 6: heavily protected to make up the gap.

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Speaker 7: Well, we see increasing competition in the Southeast Asia, Australia

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Speaker 7: and also the Latin America. Clearly competition is get intensified

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Speaker 7: based on this type of argument, not only Japanese makers

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Speaker 7: but also other Asian players. OEM would probably try to

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Speaker 7: gain market share in those countries in order to mitigate

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Speaker 7: the negative impact of the US. Having said that, as

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Speaker 7: I mentioned, if the incremental type of a Japanese may

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Speaker 7: be goals a twelve point five percent that's already determined,

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Speaker 7: then it is not easy, but it's manageable for almost

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Speaker 7: all Japanese maker to make up certain price action while

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Speaker 7: keeping market share in the US. So Japanese makers US

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Speaker 7: situation could be okay, then the rest of the country. Yes,

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Speaker 7: it's a competition, but all in all, I think Japanese

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Speaker 7: maker could probably maintain okay type of margin into the

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Speaker 7: second half of the year.

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Speaker 5: Do you expect that japan will have much success in

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Speaker 5: trying to push for lower towers and autos with the.

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Speaker 7: US, I do not think so. They're not really trying

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Speaker 7: to achieve volume or market share. They're clearly focusing on profitability.

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Speaker 7: And you know, with this price cycle there could be

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Speaker 7: a certain negative impact based on price aestheticity. But I

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Speaker 7: think the non no the Japanese maker would try, you know,

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Speaker 7: doing a massive promotion in it to just gain market

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Speaker 7: shia by sacrificing their margin. I don't really think so,

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Speaker 7: and quite nicely inclemental to one five percent not going

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Speaker 7: to make any automaka in a critically difficult situation. As

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Speaker 7: I mentioned, twelve or five percent is something manageable for

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Speaker 7: Japanese or to makers.

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Speaker 5: Cotch really great to have you with us. Kotter Zawa,

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Speaker 5: the head of Asia Auto Research at Gompen sax Journey,

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Speaker 5: is from Tokyo.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 2: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 2: 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 dereg prisoner,

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Speaker 1: and this is Bloomberg