WEBVTT - Trump Tariffs Paused, But Economies Still on Edge 0:00:00.200 --> 0:00:04.120 US President Donald Trump announced what he calls reciprocal tariffs 0:00:04.160 --> 0:00:10.120 in April on dozens of America's largest trading partners. After 0:00:10.160 --> 0:00:13.320 the biggest market sell off since the COVID nineteen pandemic. 0:00:13.800 --> 0:00:18.080 Trump put them on pause for everyone but China. Since then, 0:00:18.440 --> 0:00:21.919 the administration has announced temporary reprieves for a number of 0:00:21.960 --> 0:00:27.800 important items like smartphones and other electronics. But the risk remains, 0:00:28.360 --> 0:00:32.000 and it seems that Asia's economic outlook hangs in the balance. 0:00:34.200 --> 0:00:37.839 You are listening to Asia Centric from Bloomberg Intelligence. I'm 0:00:37.880 --> 0:00:42.640 Katydmitrieva in Hong Kong, and today we're unpacking a lot, 0:00:43.560 --> 0:00:46.960 but the risks of Trump tariffs to Asia, where countries 0:00:47.000 --> 0:00:51.280 go from here everything. I'm joined today by Frederick Newman, 0:00:51.680 --> 0:00:55.800 chief Asia Economist at HSBC and co host of another 0:00:55.840 --> 0:00:58.200 podcast you should probably be listening to. If you're listening 0:00:58.240 --> 0:01:01.280 to this one called Under the Bandry, it's all about 0:01:01.320 --> 0:01:02.920 Asia economics and markets. 0:01:03.320 --> 0:01:06.600 Welcome bread, Oh thank you, Katya. It's such an honor 0:01:06.760 --> 0:01:09.240 to be here. I listened to this podcast all the 0:01:09.319 --> 0:01:12.200 time religiously, so this now, I guess I'm gonna hear 0:01:12.240 --> 0:01:13.759 myself when I go out for a run. 0:01:14.520 --> 0:01:19.560 We paid him to say that. So, first of all, 0:01:19.560 --> 0:01:21.360 I wanted to take a step back, because of course 0:01:21.400 --> 0:01:24.040 there's been so many moving pieces just in the past 0:01:24.080 --> 0:01:28.120 couple of weeks, but to just back to basics. What 0:01:28.400 --> 0:01:32.959 are tariffs generally, who pays them, and what are the 0:01:33.000 --> 0:01:34.000 economic effects. 0:01:35.560 --> 0:01:38.360 So terrrists are a very old tool in the global toolbox. 0:01:38.360 --> 0:01:42.399 So it was quite common in the eighteenth century, nineteenth century, 0:01:42.440 --> 0:01:44.800 and twentieth century, and then we did away with them 0:01:45.280 --> 0:01:47.880 more or less over the last seventy years or so. 0:01:47.960 --> 0:01:51.400 Gradually they were reduced, and now they're back. They're back 0:01:51.960 --> 0:01:54.639 in big time, in a big way, a big way. Yeah. 0:01:55.040 --> 0:01:58.919 And so essentially it means that US customs will charge 0:01:58.960 --> 0:02:01.440 a fee for every good that comes into the United 0:02:01.440 --> 0:02:04.880 States from China. And who pays for this is a 0:02:05.280 --> 0:02:09.320 is a controversial question because it is a bit controversial. Yeah, 0:02:09.360 --> 0:02:12.240 So I think in practice it's of course, if you 0:02:12.280 --> 0:02:14.600 want to buy that good as a US consumer, you'll 0:02:14.639 --> 0:02:17.400 pay more for it because you know there is a 0:02:17.520 --> 0:02:20.520 that teriff on it. It's a tax. But you might 0:02:20.560 --> 0:02:23.560 not pay the full amount of that tax because the 0:02:23.760 --> 0:02:27.560 seller in China, say, might also want to incentivize you 0:02:27.639 --> 0:02:29.520 to buy it, might cut the prices to get the 0:02:29.560 --> 0:02:31.680 deal done. So there might be a little bit of 0:02:31.720 --> 0:02:34.160 a burden that falls in the Chinese export, a bit 0:02:34.200 --> 0:02:39.160 on the US importer US consumer. But generally speaking we 0:02:39.200 --> 0:02:43.040 say that the importing country pays more of the tax. 0:02:43.200 --> 0:02:46.120 That's generally the case, but how much is obviously up 0:02:46.120 --> 0:02:49.800 to debate. But you could probably say that US prices 0:02:49.840 --> 0:02:52.480 will go up as a result, at least until the 0:02:52.560 --> 0:02:54.760 US can produce these goods themselves. 0:02:55.120 --> 0:02:57.960 And what kind of timeline are we talking about here, Like, 0:02:58.120 --> 0:03:01.080 is it the case that once these things are announced, companies, 0:03:01.639 --> 0:03:04.880 You know, I've been talking to companies already implementing some plans. 0:03:04.919 --> 0:03:07.239 When it comes to tariffs, I mean, how soon could 0:03:07.280 --> 0:03:09.720 we be seeing these effects, both on the inflation side 0:03:09.760 --> 0:03:13.320 but also on Asia. Here in Asia very very quick. 0:03:13.560 --> 0:03:16.120 So the terriffs are most of them are in effect already, 0:03:16.520 --> 0:03:18.920 and that means that any container comes into the United 0:03:18.919 --> 0:03:22.200 States today you have to pay these tariffs. And we 0:03:22.320 --> 0:03:25.720 only have about inventory in the US for a few weeks, 0:03:25.840 --> 0:03:28.079 so you can see that you might want to draw 0:03:28.160 --> 0:03:30.960 down the existing inventory. But once the shelves are empty, 0:03:31.360 --> 0:03:33.840 you need to replenish them with new goods from overseas, 0:03:33.880 --> 0:03:36.760 and of course that's when you then start to raise prices. 0:03:36.800 --> 0:03:39.640 So in a matter of weeks you could see higher 0:03:39.680 --> 0:03:43.640 prices for some essential items. And that's actually why some 0:03:43.720 --> 0:03:47.840 of the producers rushed goods before the deadline to the US. Reportedly, 0:03:48.200 --> 0:03:50.720 you know, there were Boeing seven or sevens were being 0:03:51.360 --> 0:03:54.440 chartered to bring in goods into the United States just 0:03:54.560 --> 0:03:58.240 under the deadline. But of course that inventory will be 0:03:58.320 --> 0:04:01.520 absorbed quite quickly, and then of weeks you see price 0:04:01.640 --> 0:04:02.600 essentially go up. 0:04:03.480 --> 0:04:06.040 You know, we, like you said, tariffs have been in 0:04:06.080 --> 0:04:08.680 place before. That's nothing new, but I guess the size 0:04:08.840 --> 0:04:12.840 and scope of these particular tariffs. We were just talking 0:04:13.000 --> 0:04:16.560 before we start recording about how fast paced everything has been. 0:04:16.680 --> 0:04:19.599 I mean, how significant is all of this for both 0:04:19.640 --> 0:04:23.400 businesses and government officials trying to run their economies. 0:04:23.680 --> 0:04:26.400 We really haven't seen this in decades, right, So we 0:04:26.440 --> 0:04:29.080 have to go back to the nineteen seventies on the 0:04:29.160 --> 0:04:31.920 Nixon presidency, there was a ten percent tariff there was 0:04:31.960 --> 0:04:34.320 in post, but only for four months and then got 0:04:34.360 --> 0:04:37.760 taken off again. Now we're talking much higher tariffs ten 0:04:37.760 --> 0:04:39.920 percent in most countries, but on China, of course, it's 0:04:40.000 --> 0:04:42.360 well of one hundred percent one hundred and forty percent, 0:04:42.839 --> 0:04:44.760 and so these are much much bigger terrfs. So we 0:04:44.839 --> 0:04:47.640 have to go back to the nineteen thirties to see 0:04:47.680 --> 0:04:51.280 a similar level of terrorfs in the United States. And 0:04:51.400 --> 0:04:53.919 back then when these teriffs were imposed, it took about 0:04:53.920 --> 0:04:56.960 two years that were gradually brought in. They weren't brought 0:04:57.000 --> 0:05:00.680 in sort of immediately from one week to another. It's 0:05:00.720 --> 0:05:02.800 not just the level of these terrorsts, which are quite high, 0:05:02.800 --> 0:05:05.800 but also the speed with which you're implemented is also 0:05:05.960 --> 0:05:10.560 we haven't really seen that any decades. We would say, how. 0:05:10.400 --> 0:05:14.560 Does that make it your life difficult? In terms of forecasting, 0:05:14.600 --> 0:05:17.039 I mean, do you just do a bunch of scenario analysis? 0:05:17.040 --> 0:05:18.839 Like how do you actually forecast this? 0:05:19.720 --> 0:05:21.880 Yeah, scenarios is one thing. First of all, you have 0:05:21.920 --> 0:05:25.240 a good understanding of how the global economies interconnected, how 0:05:25.279 --> 0:05:29.200 exposed individual countries are to the US market, to exports, 0:05:29.560 --> 0:05:33.440 how consumers might behave for different goods when prices increase, 0:05:34.000 --> 0:05:36.440 and so you have to make some you know, basically 0:05:36.560 --> 0:05:41.240 framework analysis, and then you start to talk about scenarios. Okay, 0:05:41.279 --> 0:05:44.080 we know what's happened now with terrorists. This can mean 0:05:44.160 --> 0:05:47.640 this for the economy. We know that probably Chinese growth 0:05:47.640 --> 0:05:50.120 will fall, we know US inflation will go up. We 0:05:50.160 --> 0:05:52.040 can kind of have a guess of that. But then 0:05:52.520 --> 0:05:55.880 scenario analysis when it comes to what might change, because 0:05:56.120 --> 0:05:58.719 this is still a moving target. So the forecasting is 0:05:58.760 --> 0:06:02.000 not just estimating the but also trying to guess what 0:06:02.040 --> 0:06:05.120 else might change in the coming weeks. And here that's 0:06:05.160 --> 0:06:08.039 the exhausting part because things seem to be changing every 0:06:08.040 --> 0:06:11.000 twenty four hours and so you start to retweak your models. 0:06:11.040 --> 0:06:13.920 And that's what scenario analysis comes in, trying to predict 0:06:13.960 --> 0:06:17.440 what policy will be because terrorists could be unwound again, 0:06:17.520 --> 0:06:20.120 they could be raised again, so there's a lot of 0:06:20.200 --> 0:06:23.520 interplay that you have to kind of make some assumptions around. 0:06:23.920 --> 0:06:28.720 So a scenario, the reciprocal tariffs or whi Trump is 0:06:28.760 --> 0:06:34.040 calling reciprocal tariffs were announced, they were paused. Let's say 0:06:34.360 --> 0:06:37.160 they go in what will be the impact on Asia? 0:06:37.800 --> 0:06:41.040 So there were only paused on other Asian countries, there's 0:06:41.040 --> 0:06:44.080 still apply to a large effect on China, right, and 0:06:44.120 --> 0:06:47.480 so that already matters because if one country receives terrorists 0:06:47.480 --> 0:06:51.279 but others much smaller terrors, then the ones that receive 0:06:51.320 --> 0:06:54.960 smaller terrors aren't as impacted because they can take market 0:06:55.000 --> 0:06:57.600 share from the large economy that has much higher terror. 0:06:57.600 --> 0:07:01.400 So in this case, for example, because you see China 0:07:01.400 --> 0:07:05.560 having large terraffs, but say Vietnam as smaller terrors, actually 0:07:05.600 --> 0:07:08.800 Vietnam might not be as negatively impacted because they are 0:07:08.800 --> 0:07:12.119 now more competitive than China is in terms of selling 0:07:12.120 --> 0:07:14.120 into the US market, so you have to take that 0:07:14.320 --> 0:07:18.280 into context as well. Nevertheless, there is no real winners 0:07:18.320 --> 0:07:21.800 from these terrors. Ultimately, you would expect that growth in 0:07:21.920 --> 0:07:26.160 Asia will slow and probably slow by you could say 0:07:26.240 --> 0:07:28.800 half a percentage point or percentage point, which is quite 0:07:28.800 --> 0:07:32.160 significant actually, just from the impact of trade. And then 0:07:32.200 --> 0:07:35.320 you have to add things like the impact on investment 0:07:35.400 --> 0:07:37.960 because which company will want to invest not knowing what 0:07:38.400 --> 0:07:41.200 future terrors look like. Then you have to look at 0:07:41.200 --> 0:07:44.600 the impact on financial markets and how consumers might feel 0:07:44.640 --> 0:07:48.360 if stock markets go down. So then you could say, well, 0:07:48.400 --> 0:07:50.920 the impacts WEB could be potentially larger than that could 0:07:50.920 --> 0:07:53.760 be up to a percentage point. From most countries in 0:07:53.840 --> 0:07:57.320 Asia and the region, there are some differences. Their economies 0:07:57.360 --> 0:08:01.120 like Vietnam are much more exposed because they're manufacturing driven. 0:08:01.160 --> 0:08:03.680 They expert a lot to the US. Their economies like 0:08:03.960 --> 0:08:07.840 the Philippines, for example, it doesn't sound that many manufactured 0:08:07.840 --> 0:08:09.800 goods to the US. So it's a bit of a 0:08:10.080 --> 0:08:14.440 difference here. But by and large, half a percentage point 0:08:14.480 --> 0:08:17.800 to percentage point in growth is already a fairly large 0:08:17.920 --> 0:08:20.960 hit to growth. That's a growth shock, we would call 0:08:21.000 --> 0:08:24.640 in economics. And that's enough to then essentially lead us 0:08:24.640 --> 0:08:28.360 to worry about our recession and looking for interest rate cuts, 0:08:28.440 --> 0:08:31.800 for example, by policy to help to cushion the impact. 0:08:32.000 --> 0:08:34.920 Because you use the red recession. How likely is that 0:08:35.040 --> 0:08:38.920 to come from the tariffs? Again, we don't know after 0:08:38.920 --> 0:08:41.880 this ninety day pause sort of what the shape of 0:08:42.000 --> 0:08:45.400 those tariffs will be, if there will be carve outs exemptions, 0:08:46.000 --> 0:08:49.439 But let's assume that that level is put into place 0:08:49.520 --> 0:08:53.600 as has been announced. I mean, how high does the 0:08:53.640 --> 0:08:55.680 percentage chances of a recession go? What is the risk 0:08:55.679 --> 0:08:57.520 of a recession in some of these countries or even 0:08:57.520 --> 0:08:58.880 in the region in general. 0:09:00.080 --> 0:09:02.600 Or some countries it is higher than for others. And 0:09:02.640 --> 0:09:05.439 that's because some countries have a lot of domestic growth 0:09:05.640 --> 0:09:08.520 and so the export the slowd on doesn't matter that much. 0:09:08.559 --> 0:09:11.240 So if you take India, for example, India doesn't export 0:09:11.280 --> 0:09:14.000 that much, but it's a big giant economy in itself, 0:09:14.040 --> 0:09:16.480 and so there will still have some growth even it 0:09:16.520 --> 0:09:19.480 slows down. But then you look at an economy like Korea, 0:09:19.520 --> 0:09:22.640 for example, you look economy like Japan which has both 0:09:22.679 --> 0:09:26.040 have very low growth anyways, and so a percentage point 0:09:26.040 --> 0:09:30.000 reduction could tip them into potentially recession. So the recession 0:09:30.080 --> 0:09:33.120 risk there is much much higher than that. But we 0:09:33.120 --> 0:09:35.679 should also say that the recession risk in the US 0:09:35.760 --> 0:09:38.840 is not zero as well, and if there is a 0:09:38.880 --> 0:09:41.720 recession in the US as a result of that, then 0:09:41.760 --> 0:09:44.559 the recession risk in other parts of Asia goes up 0:09:44.800 --> 0:09:48.440 even more because of course, US recession means the US 0:09:48.480 --> 0:09:51.560 will buy fewer goods in general, not just be the terrorists, 0:09:51.559 --> 0:09:54.480 but also because demand slows. So we're watching very closely, 0:09:54.520 --> 0:09:56.960 for example, what happens to the US as well here. 0:09:57.280 --> 0:10:00.400 But bottom line is probably we can narrowly avoid in 0:10:00.440 --> 0:10:02.800 most countries, but not in all of the countries in Asia. 0:10:03.559 --> 0:10:06.880 Asia Centric is produced by Bloomberg Intelligence, where more than 0:10:06.880 --> 0:10:10.760 five hundred experienced analysts and strategists work around the clock 0:10:10.800 --> 0:10:14.320 to bring you timely, world class research. Our coverage spans 0:10:14.320 --> 0:10:18.640 two hundred market, industries, currencies, commodities, and industries, as well 0:10:18.679 --> 0:10:21.679 as over two thousand equities and credits. To learn more 0:10:21.720 --> 0:10:25.920 about Bloomberg Intelligence, visit b I go on the Bloomberg terminal. 0:10:26.480 --> 0:10:29.000 If you like what you hear, don't forget to subscribe 0:10:29.000 --> 0:10:29.320 and share. 0:10:30.559 --> 0:10:33.000 It just strikes me as this trade war is quite 0:10:33.160 --> 0:10:36.640 different from the first trade war under Trump one point 0:10:36.720 --> 0:10:39.040 zero if you want to call it, because there were 0:10:39.080 --> 0:10:41.920 winners in that. There were winners in the Forum of Vietnam, 0:10:42.040 --> 0:10:44.280 which took some of the market share, and a lot 0:10:44.320 --> 0:10:46.760 of Chinese US companies ended up moving there. I mean 0:10:47.240 --> 0:10:49.520 you said earlier there won't be any winners this time, 0:10:49.600 --> 0:10:52.600 but could there be kind of new countries emerging as 0:10:52.640 --> 0:10:56.880 potential manufacturing zones if they have a lower tariff. 0:10:58.040 --> 0:11:00.240 There could be the reason. And I think you hint 0:11:00.280 --> 0:11:02.600 at this rightly that it feels different this time than 0:11:02.679 --> 0:11:04.720 last time, and for two reasons. One is a tariff 0:11:04.760 --> 0:11:07.840 so much higher that's from China, for example. But the 0:11:07.880 --> 0:11:10.560 other thing is that we don't have clarity as to 0:11:10.600 --> 0:11:13.760 what future teriffs will be. So if you think about Vietnam, 0:11:13.840 --> 0:11:16.840 for example, we don't know whether in three months from now, 0:11:16.920 --> 0:11:19.600 Vietnam might have fifty percent terif or ten percent tariff 0:11:19.640 --> 0:11:22.440 because there's a lot of uncertainty, and so that really 0:11:22.480 --> 0:11:28.000 means that Vietnam can't fully capture that opportunity because we 0:11:28.040 --> 0:11:30.280 don't know what the future trade regime is. So we 0:11:30.360 --> 0:11:33.560 talk in the economics a lot about uncertainty matters enormously, right, 0:11:33.600 --> 0:11:36.200 and so if you have that uncertainty, then everybody is 0:11:36.280 --> 0:11:38.800 going to hold back investing in any country because they 0:11:38.800 --> 0:11:40.560 don't know where they'll be. That country will be hit. 0:11:40.679 --> 0:11:44.439 And so you could then say winners only merge once 0:11:44.480 --> 0:11:48.559 it becomes clear what the future trade policy will be, 0:11:49.120 --> 0:11:51.760 and that could happen maybe in a few months from now, 0:11:51.800 --> 0:11:54.480 when we get a much clearer sense Okay, this country 0:11:54.520 --> 0:11:57.400 received terrors, those countries will not. Maybe they strike a 0:11:57.480 --> 0:12:00.120 deal with the US and that deals give certain and 0:12:00.880 --> 0:12:04.760 then we can talk about winners. And so picking winners, 0:12:04.800 --> 0:12:07.920 if you will, is partly a political question. So which 0:12:07.960 --> 0:12:10.960 country can strike a deal with the US that gives 0:12:11.000 --> 0:12:13.800 it certainty as to the future trade relations. So it's 0:12:13.800 --> 0:12:16.400 not an economic question as much as a political question. 0:12:16.840 --> 0:12:19.440 And so we look at we know that India and 0:12:19.520 --> 0:12:23.920 Japan and Vietnam negotiating with the US proposing deals other 0:12:23.960 --> 0:12:26.839 countries as well, and who will emerge there with a 0:12:26.920 --> 0:12:29.440 deal that we have to see. But you're right, Once 0:12:29.480 --> 0:12:32.079 you have a deal in place and there's certainty, then 0:12:32.160 --> 0:12:35.480 investors companies can say we're putting money into this country 0:12:35.480 --> 0:12:38.400 because we know we have some certainty as the terrors, 0:12:38.679 --> 0:12:40.560 and then you'll see that investment come in and the 0:12:40.600 --> 0:12:43.040 country can really capitalize on it. But we're not at 0:12:43.040 --> 0:12:43.920 that stage yet. 0:12:44.280 --> 0:12:46.480 Yeah. Really, the only country where we do have some 0:12:46.520 --> 0:12:50.320 certainty is probably China. But it's certainty to the negative. 0:12:50.320 --> 0:12:52.560 In other words, yeah, that's certainty. That's the wrong type 0:12:52.600 --> 0:12:56.880 of certainty. Although even there, I think that it's still 0:12:56.960 --> 0:12:59.960 fluid because you might even see some sort of deal 0:13:00.120 --> 0:13:04.199 being struck between China and the US. It's not inconceivable, right. 0:13:04.600 --> 0:13:07.080 We know we had a deal in the first Trump administration, 0:13:07.120 --> 0:13:10.920 is so called Phase one deal. Even here there could 0:13:10.960 --> 0:13:13.240 be potentially both sides say, you know what, this is 0:13:13.240 --> 0:13:15.640 a bit extreme what we did. Let's wiggle it down 0:13:15.720 --> 0:13:19.280 to say fifty percent terrors, and that would change things 0:13:19.440 --> 0:13:22.120 quite a lot for the business outlook for China as well. 0:13:22.200 --> 0:13:24.560 So I would say even with China, it's not clear 0:13:24.600 --> 0:13:25.920 yet this is locked in place. 0:13:26.400 --> 0:13:31.880 Is it also your sense that this isn't necessarily the 0:13:32.000 --> 0:13:35.160 death blow to China's economy either. I mean, you guys 0:13:35.200 --> 0:13:38.200 actually talked about this recently on your podcast and you 0:13:38.240 --> 0:13:41.520 had your China economist on discussing this very point. The 0:13:41.640 --> 0:13:43.920 tariffs as they're announced right now, which are very high. 0:13:44.000 --> 0:13:46.240 You know, they're one hundred and forty five percent plus 0:13:46.280 --> 0:13:50.080 the twenty percent from the previously implemented, so this year 0:13:50.600 --> 0:13:53.240 one hundred and forty five percent were added. But what 0:13:53.679 --> 0:13:57.440 would that do to China's economy this year? Because there's 0:13:57.440 --> 0:14:02.400 a sense that it doesn't necessarily spell disaster. Yeah. 0:14:02.440 --> 0:14:05.320 So China's economy, we have to remember, is very big, 0:14:05.520 --> 0:14:08.920 and it's actually quite domestic. And so when we look 0:14:08.960 --> 0:14:12.520 at putting all exports together go to the United States, 0:14:12.760 --> 0:14:15.920 what share does it make up of China's economy, And 0:14:16.280 --> 0:14:18.959 it turns out is only roughly two point five percent. 0:14:19.320 --> 0:14:21.400 There's a bit of a discussion around the numbers, but 0:14:21.480 --> 0:14:23.960 you could say it's you know, maximum three percent, maybe 0:14:24.120 --> 0:14:27.000 anywhere besieon two and three percent, which is a large 0:14:27.080 --> 0:14:29.840 number of that would to disappear overnight. Then of course, 0:14:29.960 --> 0:14:32.280 your economy with three percent smaller two and a half 0:14:32.320 --> 0:14:35.480 percent smaller. You're growing at five percent, so you could 0:14:35.560 --> 0:14:37.480 say you'd still got some growth, but it would have 0:14:37.560 --> 0:14:40.440 your growth rate. So from that perspective, it's not really 0:14:40.440 --> 0:14:42.560 the end of the world. It just comes at a 0:14:42.640 --> 0:14:45.920 very awkward time for China because domestic demand is very, 0:14:46.000 --> 0:14:48.920 very weak. We have a real estate market there that's 0:14:48.960 --> 0:14:52.480 a bit wobbly, we have consumers are a bit sluggish 0:14:52.520 --> 0:14:56.440 at the moment. So it's manageable for the Chinese economy 0:14:56.440 --> 0:14:58.200 in the long run. They can live without access to 0:14:58.240 --> 0:15:01.840 the US market. So it's probably a bigger deal for 0:15:01.960 --> 0:15:04.480 some of the smaller Asian economies if they were to 0:15:04.560 --> 0:15:07.600 receive the same amount of terrorists as China received, because 0:15:07.960 --> 0:15:10.760 their exports are much more important part of their economy. 0:15:10.800 --> 0:15:13.800 They don't have the domestic kind of depth, if you will, 0:15:13.920 --> 0:15:17.400 the big consumer market one point four billion consumers. So 0:15:17.440 --> 0:15:19.760 it's a challenge for China, but it's as you say, 0:15:19.800 --> 0:15:22.640 it's not sort of terminal for the economy. It has 0:15:22.800 --> 0:15:24.840 ways of kind of grinding through that. 0:15:25.200 --> 0:15:27.720 And they are focusing more on the consumer this year, 0:15:27.800 --> 0:15:33.360 and ironically, Trump's policies maybe forced policy makers in China 0:15:33.440 --> 0:15:35.040 to speed that process up. 0:15:35.400 --> 0:15:37.480 Yeah, that's right. And actually, you know, if you talk 0:15:37.520 --> 0:15:40.080 to economists over the least ten years or so, many 0:15:40.080 --> 0:15:43.280 would have said that there is an emerging imbalance in China. 0:15:43.280 --> 0:15:45.360 And what they meant by this is that to say 0:15:45.640 --> 0:15:49.000 China was very reliant on investment and exports and less 0:15:49.000 --> 0:15:52.520 reliant on domestic consumption, and that there was always this 0:15:52.560 --> 0:15:56.240 idea that they had to rebalance away from exports investment 0:15:56.280 --> 0:16:01.200 towards consumption because it was just getting too out of whack. Now, 0:16:01.400 --> 0:16:03.880 the Chinese policy makes have tried to push in that direction, 0:16:04.000 --> 0:16:06.400 but it never really worked. And so now we could 0:16:06.440 --> 0:16:09.800 say here with a terrorist, now comes a big opportunity 0:16:09.840 --> 0:16:13.480 to actually implement these policies that will kind of really 0:16:13.640 --> 0:16:17.720 energize domestic consumption. And so in some ways we might 0:16:17.760 --> 0:16:20.080 come out at a better place for China because some 0:16:20.120 --> 0:16:23.920 of the reforms that many people hoping for China might 0:16:23.960 --> 0:16:28.000 not be accelerated because there's this external constraint. You can 0:16:28.040 --> 0:16:30.040 no longer export as much, and so you need to 0:16:30.080 --> 0:16:32.480 think more about where else could growth come from, and 0:16:32.480 --> 0:16:35.800 this could energize sort of the switch towards domestic consumption. 0:16:35.880 --> 0:16:37.640 That's at least a hope where it will happen that. 0:16:37.640 --> 0:16:39.840 That's of course a different question, but that's good of 0:16:39.920 --> 0:16:42.040 the hope. I think that would be the positive story 0:16:42.080 --> 0:16:42.880 emerging out of this. 0:16:43.440 --> 0:16:46.400 So why is that important? You know, we've talked a 0:16:46.440 --> 0:16:50.000 lot about this on the podcast, about this shift, But 0:16:50.040 --> 0:16:54.040 why is it important for an economy, especially China, to 0:16:54.200 --> 0:16:57.160 pivot towards that consumption model and away from this sort 0:16:57.200 --> 0:16:58.120 of over alliance on. 0:16:58.080 --> 0:17:02.640 Trade tennessee armously normsly successful. I mean, no other economy 0:17:02.680 --> 0:17:05.159 has in a few decades really delivered that type of 0:17:05.240 --> 0:17:08.880 growth and prosperity and lifted people out of poverty amazing. 0:17:09.440 --> 0:17:12.639 But in large part this was done by prioritizing investment, 0:17:13.000 --> 0:17:16.440 so very high investment rates, and that investment, of course 0:17:16.440 --> 0:17:19.959 produces goods, and there were so many goods being produced 0:17:19.960 --> 0:17:22.840 at that the doromestic consumption wasn't big enough to absorb them, 0:17:22.920 --> 0:17:24.520 so you had to export them to the rest of 0:17:24.560 --> 0:17:26.919 the world. The problem now is that the rest of 0:17:26.960 --> 0:17:29.680 the world is no longer there to buy all these goods. 0:17:29.720 --> 0:17:32.639 It's not big enough. So now this growth model is 0:17:32.720 --> 0:17:36.360 running a little bit into constraints. You can't just keep investing, investing, investing, 0:17:36.600 --> 0:17:39.720 and keep your consumption low, you need to essentially now 0:17:40.000 --> 0:17:42.639 say okay, we've invested enough, we slow down our investment, 0:17:42.680 --> 0:17:45.360 but now we start to buy our own goods essentially 0:17:45.400 --> 0:17:48.960 from the investment stock we've built up, because otherwise you 0:17:49.040 --> 0:17:52.119 can't just invest, invest, invest capacity and hope that the 0:17:52.160 --> 0:17:53.840 rest of the world will buy it. At some point, 0:17:53.840 --> 0:17:55.320 the rest of the world runs out of money or 0:17:55.359 --> 0:17:57.600 they run out of political world to buy your goods. 0:17:57.680 --> 0:18:00.240 And that's sort of the turning point we have China. 0:18:00.320 --> 0:18:02.560 It didn't matter twenty years ago, China wasn't a large 0:18:02.560 --> 0:18:05.280 an economy, could still invest in sell to the rest 0:18:05.280 --> 0:18:07.639 of the world. There was enough demand. Now China's so 0:18:07.800 --> 0:18:10.320 large that the rest of the world may not have 0:18:10.560 --> 0:18:13.200 the ability of the appetite to buy all these goods. 0:18:13.480 --> 0:18:15.000 So where does in demand come from? 0:18:15.040 --> 0:18:17.600 Where you have to look internal, Yeah, because we've seen 0:18:17.640 --> 0:18:21.240 that pushback kind of growing across even Asia, right, a 0:18:21.240 --> 0:18:24.760 lot of emerging nations, Like it's not just Trump, you know, 0:18:24.800 --> 0:18:28.440 it's in Mexico, it's in Brazil, it's here in Indonesia 0:18:28.480 --> 0:18:28.960 as well. 0:18:29.520 --> 0:18:32.960 Yeah, so many countries have sort of they're very strong 0:18:33.000 --> 0:18:35.720 trade relations with China. China is a big market in 0:18:35.720 --> 0:18:38.520 its own right, but China is also a very strong competitor. 0:18:38.840 --> 0:18:42.159 So the more competitive China becomes, of course more some 0:18:42.200 --> 0:18:45.960 of these countries also see price pressures on their own industries, 0:18:46.520 --> 0:18:50.840 and that's essentially a bit of a political problem because 0:18:51.040 --> 0:18:54.320 then these industries say we need protection. Well, then terrorists 0:18:54.320 --> 0:18:56.800 would go up in all these countries and so then 0:18:56.880 --> 0:18:59.359 China would suddenly face you know, a lot of terrants, 0:18:59.400 --> 0:19:01.160 not just in the US, sup in other countries as well. 0:19:01.200 --> 0:19:03.399 And we call this sort of a tariff cascade that 0:19:03.480 --> 0:19:06.600 the US starts something, but other countries then follow and 0:19:06.680 --> 0:19:10.000 to avoid that happening, and nobody really wants it's not 0:19:10.160 --> 0:19:12.680 helpful for the world for this to happen. The best 0:19:12.720 --> 0:19:16.080 solution would be to create demand in China to alleviate 0:19:16.119 --> 0:19:20.920 the pressure on exports to drive down prices in other countries. 0:19:21.320 --> 0:19:24.199 So it's like very hinges on that right now. 0:19:24.840 --> 0:19:26.920 In some ways it sounds hyperbolic, but you could say 0:19:27.240 --> 0:19:30.400 the fate of the world economy and large part depends 0:19:30.400 --> 0:19:33.399 on whether China can rebalance this domestic economy. So we 0:19:33.480 --> 0:19:35.520 tend to look at the terroriffs and the US and 0:19:35.560 --> 0:19:39.400 it's very disruptive, but there is an underlying logic here 0:19:39.480 --> 0:19:42.959 that in some ways to really bring the global economy 0:19:43.000 --> 0:19:46.680 to a more sustainable path, countries also need to fix 0:19:46.760 --> 0:19:50.919 their domestic side. The domestic side intimately linked to the 0:19:51.000 --> 0:19:53.280 global side, and there are two economies that need to 0:19:53.280 --> 0:19:57.280 fix their domestic side. One is the US probably consume 0:19:57.320 --> 0:20:00.000 a bit less, save a bit more by fewer goods 0:20:00.080 --> 0:20:03.399 some overseas. But conversely China should probably buy more goods 0:20:03.400 --> 0:20:05.680 and produce fewer goods. And so if we can get 0:20:05.680 --> 0:20:09.760 that realignment, then actually the pressure for terrafs would go away, 0:20:09.840 --> 0:20:12.639 would have much more stable global growth, and that's going 0:20:12.720 --> 0:20:14.520 to be the challenge in the next few years. 0:20:15.560 --> 0:20:18.280 For the rest of the year. You talked earlier about 0:20:18.640 --> 0:20:24.320 the negotiations between countries like Vietnam, Japan with the US 0:20:24.440 --> 0:20:28.400 to try to get exemptions from these tariffs. The IMF 0:20:28.400 --> 0:20:32.000 World Bank meetings are coming up in DC, and it 0:20:32.080 --> 0:20:34.520 just strikes me that it's a really interesting moment we're 0:20:34.560 --> 0:20:37.960 in where these World Bank meetings are happening. There's a 0:20:38.000 --> 0:20:42.760 trade crisis, and you know, it happens to be taking 0:20:42.760 --> 0:20:46.879 place in the location that arguably started this crisis. How 0:20:47.040 --> 0:20:51.960 much I guess negotiation do Asian countries need to do 0:20:53.160 --> 0:20:56.720 to get these tariffs lowered, but also can they actually 0:20:57.600 --> 0:20:59.840 do what Trump wants them to do. Can a country 0:20:59.880 --> 0:21:04.399 like Vietnam, for example, fully rebalance this trade surplus they 0:21:04.440 --> 0:21:07.440 have with the US because the economy is much smaller. 0:21:08.800 --> 0:21:10.680 Yeah, that's a tough question. The first thing I would say, 0:21:10.720 --> 0:21:12.120 I think you're right, there's going to be a lot 0:21:12.119 --> 0:21:16.639