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Speaker 1: Let's get perspective on Trump's tariff pledges with Jennifer Hillman,

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Speaker 1: co director of the CENTO and Inclusive Trade and Development.

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Speaker 1: She previously served on the Wall Trade Organization's a pallet

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Speaker 1: body and also at the US International Trade Commission. Jennifer

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Speaker 1: Joints is from Washington and with us Here in the

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Speaker 1: studio is Eli Lee, chief investment strategists at Bank of Singapore. Jennifer,

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Speaker 1: let's start with you. I mean this is kind of

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Speaker 1: like reminiscent of the renegotiation of NAFTA as just the

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Speaker 1: start of it.

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Speaker 2: Yeah, it's hugely significant. I mean when you think about it,

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Speaker 2: a twenty five percent tariff on our two largest trading partners.

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Speaker 2: I mean Mexico has now become the number one trading

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Speaker 2: partner with the United States, followed by Canada. And part

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Speaker 2: of it is the markets are highly highly integrated, particularly

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Speaker 2: I would say the two sectors that have sort of

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Speaker 2: already been touched on autos and energy. I mean, autos

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Speaker 2: is one of those industries where you're seeing some of

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Speaker 2: the auto parts literally crossing the border eight times before

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Speaker 2: they ultimately get developed into a car. So when you

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Speaker 2: start to then put a tariff of twenty five percent

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Speaker 2: on each one of those parts each time it crosses

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Speaker 2: the border, until it ends up becoming developed into a car.

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Speaker 2: You start to see how incredibly significant this idea of

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Speaker 2: a twenty five percent tariff on trade with Mexico and Canada.

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Speaker 2: I mean again, you think about it that right now,

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Speaker 2: the trade between the three countries is now in the

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Speaker 2: order of two trillion dollars a year, three million dollars

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Speaker 2: per minute, you know, accounting for ten million jobs and

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Speaker 2: at least fifteen percent of global trade. So this idea

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Speaker 2: of hitting our two largest trading partners, again with this

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Speaker 2: somewhat unusual notion of using tariffs a trade tool, you know, again,

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Speaker 2: an economic trade tool, in order to fight something that

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Speaker 2: is not particularly trade related in the sense that you know,

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Speaker 2: complaining about fentanyl or about you know, border crossings, migration issues.

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Speaker 2: But yet using this tariff tool to do it is

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Speaker 2: again and a very out of the box and again

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Speaker 2: from again many people's perspective, not an appropriate use of

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Speaker 2: a terror and certainly not consistently just the commitments that

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Speaker 2: we made.

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Speaker 1: Is there a sense that it is the initial selvo?

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Speaker 1: I mean, this is a businessman, he's a negotiator, it's

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Speaker 1: a case of putting the numbers out there so that

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Speaker 1: perhaps you know, his treading potn is we'll come to

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Speaker 1: the table and give a good deal.

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Speaker 2: Oh absolutely, yes. I think again you can expect this

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Speaker 2: to be very, very transactional. And I think that's part

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Speaker 2: of the reason for announcing it well before he's even

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Speaker 2: in office. I mean, he is clearly looking for and

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Speaker 2: I would say, you know, Canada and Mexico to come

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Speaker 2: to him with offers of things that they can do.

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Speaker 2: And I think you already heard a little bit of

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Speaker 2: the flavor of what Canada is going to say, which is,

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Speaker 2: why are you coming after me Canada with respect to

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Speaker 2: fentanyl and with respect to migration issues that's really not

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Speaker 2: been the issue that the United States has seen is

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Speaker 2: you know, again a flood across the border, coming across

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Speaker 2: the Canadian border. The issue is whether this is partly

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Speaker 2: trying to divide Canada from Mexico and have them be

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Speaker 2: treated differently. But there's no question that this is an

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Speaker 2: opening salvo of a negotiation to try to get again

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Speaker 2: and the problem is a little bit of an unclear result.

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Speaker 2: So again the bargaining will begin about what do either

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Speaker 2: of these countries have to show in order to demonstrate

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Speaker 2: that they've come forward with something that would be acceptable

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Speaker 2: in order to get these tariffs lifted.

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Speaker 1: Eli lads bring you into the conversation. I mean, as

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Speaker 1: Jennifer indicated, these are huge numbers. These are you know,

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Speaker 1: direct trading partners. Does just change the calculation for you

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Speaker 1: when you take a look at your investment strategy.

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Speaker 3: Now, yes, absolutely so. Look, President Trump is going right

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Speaker 3: for the jugglar here. These are the three largest trading

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Speaker 3: partners of the US, and I think we have to

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Speaker 3: be really careful on how this is probably going to

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Speaker 3: reset infflicient expectations. I think the general consensus for Trump's

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Speaker 3: two poisieros so far is that it's good for equities,

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Speaker 3: is bad for bonds. And we've seen you know, bond

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Speaker 3: yews on the long endcome up as well. Now there's

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Speaker 3: a limit to how much bond use could come up

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Speaker 3: without scattering the equity rarely. Now, we think that if

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Speaker 3: inflation expectition starts creeping up the fat stops cutting rates,

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Speaker 3: that we could see the ten yure move towards five percent,

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Speaker 3: and history shows us that if it goes beyond that,

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Speaker 3: then that starts to be a problem for the equity

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Speaker 3: up trend that we're seeing. So this is something that

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Speaker 3: we have to be real careful of Slender.

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Speaker 1: Of course, this is ahead of PC, it's also ahead

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Speaker 1: of that December move. Expectations are that the Fed may

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Speaker 1: cut twenty five basis points. Might this just change the

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Speaker 1: needle for the fat.

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Speaker 3: Well, we think that the Fed is probably mostly an

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Speaker 3: autopilot for the next to the tree cuts for now.

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Speaker 3: I mean they've just started. Real rates are still too

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Speaker 3: high and Trump hasn't come on yet, so I think

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Speaker 3: they'll do a little bit of We don't see on

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Speaker 3: how the data comes in, but I think, you know,

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Speaker 3: from the last minutes we've saw, I think suddenly grove

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Speaker 3: is still resilient. They are watching out for how you know,

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Speaker 3: inflation expectations are moving, and again if Trump's terriffs moves

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Speaker 3: that needle in the in the direction that they're not

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Speaker 3: looking for, I think we could see a probably higher bond.

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Speaker 3: You start to be a problem for markets.

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Speaker 1: What we're seeing right now is the reaction in the

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Speaker 1: dollar at the highest level in about two years. I mean,

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Speaker 1: how concerning is that.

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Speaker 3: That is a problem. That is a problem, That is

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Speaker 3: a problem for emerging markets, and there's a problem for

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Speaker 3: Trump to he wants a week a dollar. We've heard that,

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Speaker 3: which is why I think, you know, the nomination of

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Speaker 3: Scott Besant as Treasury Secretary is a really I think

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Speaker 3: key development yesterday. In fact, I think we saw the

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Speaker 3: dollar weekend on the news of his nomination. We saw

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Speaker 3: bond us come down as well. And I think, you know,

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Speaker 3: he has expertise of how markets work, and I think

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Speaker 3: he's going to be really instrumental in helping Trump get

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Speaker 3: his cake and eat it too, meaning have the tariffs,

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Speaker 3: but yet have markets performed well?

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Speaker 1: Jennifer, We heard from Eli saying that Trump understands how

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Speaker 1: the markets work. Does Trump understand how terranfs work? Because

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Speaker 1: by imposing tariffs on trading partners it may come back

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Speaker 1: to bite him in well, you know where.

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Speaker 2: I would say many people would argue that he does not,

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Speaker 2: because certainly he kept saying again and again on the

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Speaker 2: campaign trail that it was China that was paying the

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Speaker 2: tariffs or Mexico that was paying the tariffs, when obviously

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Speaker 2: the reality it is the American importer that is paying

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Speaker 2: the tariffs. So again, the basic cost of all of

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Speaker 2: these tariffs falls on the American importer. And again just

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Speaker 2: to be clear on the impact on inflation and everything

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Speaker 2: else with respect to these Mexican and Canadian tariffs. The

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Speaker 2: importers are bringing these in because these are inputs into

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Speaker 2: what we need. Again, they're largely bringing in parts and

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Speaker 2: components and oil and gas, and so when our importers

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Speaker 2: now have to pay a lot more for all of

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Speaker 2: those components, it makes everything that they make using those

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Speaker 2: imports much more expensive. Then if you flip over to

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Speaker 2: what's going to happen with respect to China again, they're

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Speaker 2: going to add an additional ten percent tariff on top

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Speaker 2: of already all of the existing tariffs. I mean, to me,

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Speaker 2: what's really significant there is what does not right now

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Speaker 2: have an additional tariff coming in from China. It's largely

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Speaker 2: a lot of the kind of retail ready products that

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Speaker 2: are sold at Walmart and Target and all those places.

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Speaker 2: It's electronics, it's you know, it's computers, it's it's it's watches,

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Speaker 2: its appliances, it's clothes, its shoes. Those have largely been

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Speaker 2: spared from these extra China tariffs, but now they are

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Speaker 2: going to get hit by this additional ten percent tariff,

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Speaker 2: and again a lot of that I think you're going

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Speaker 2: to see immediately get passed on in terms of increases

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Speaker 2: to consumers for the prices that they're paying for things.

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Speaker 1: And by some calculation, US imports would drop fifty percent,

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Speaker 1: exports slumping sixty percent. I mean Trump won the election

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Speaker 1: on the basis of an economy that is, you know,

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Speaker 1: squeezing most of the Americans. I mean, how do you

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Speaker 1: see this playing out in the US economy? How might

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Speaker 1: that pagged growth going forward?

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Speaker 2: So I think it's going to have a very negative

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Speaker 2: impact on growth because again, a lot of what's being

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Speaker 2: imported are parts and components that you can't just change

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Speaker 2: at the last minute and say, okay, well never mind,

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Speaker 2: I don't want it from China, I'll buy it from

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Speaker 2: somewhere else, or I don't need this part from Mexico,

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Speaker 2: because those component parts have been again engineered and designed

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Speaker 2: and tested and qualified to go into that particular use

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Speaker 2: by that particular American company that is using it to

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Speaker 2: make something else, and they cannot simply immediately turn on

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Speaker 2: a dime and start using product coming in from somewhere else.

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Speaker 2: So it will have a downward pressure on again US

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Speaker 2: production it will have an upward pressure on prices and

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Speaker 2: overall again a downward pressure on economic growth and activity.

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Speaker 2: I mean, we saw this when the Trump tariffs went on,

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Speaker 2: initially ten percent on aluminum, twenty five percent on steel,

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Speaker 2: and then ultimately the tariffs on about three hundred and

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Speaker 2: sixty billion dollars worth of imports. From lots and lots

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Speaker 2: of economic studies to look at what was the impact

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Speaker 2: of the tariffs and the goal stated goal was to

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Speaker 2: return manufacturing and return jobs to the United States. And

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Speaker 2: if you looked at it and said, did it do that,

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Speaker 2: the ultimate answer to that question so far has been no,

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Speaker 2: because those tariffs hurt so many of the downstream users

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Speaker 2: of steel and aluminum that there were job losses. There.

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Speaker 2: There was retaliation again heavily by China, affecting lots for example,

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Speaker 2: of agriculture exports. So again lots of people that had

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Speaker 2: been exporting lost their jobs. So the net net effect

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Speaker 2: of the tariffs to date has been a negative one

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Speaker 2: for the US economy. And so I would imagine that

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Speaker 2: with now these idea of increasing the tariffs, particularly on

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Speaker 2: Canada and Mexico are the two largest trading partners, the

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Speaker 2: effect is going to be even more of a negative

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Speaker 2: downward pressure on US economic growth.

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Speaker 1: And for China, Eli, the if I were also be negative.

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Speaker 1: This is in the to me, that's just experiencing nascent growth.

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Speaker 1: Yet when it comes to the markets, you say that

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Speaker 1: you are pretty constructive of China, that you should be overweight.

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Speaker 3: Right, So that is largely a function of evaluations, right,

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Speaker 3: I mean, so much negative news have been priced in.

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Speaker 3: Really the worst sixty percent terrists has been telegraphed in advance.

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Speaker 3: And I do think that the Chinese authorities are much

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Speaker 3: better prepared this time to deal with what's coming. I think,

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Speaker 3: you know what's.

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Speaker 1: In the toolbox. How can they counter this?

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Speaker 3: That's interesting because they've done quite a fair but in

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Speaker 3: terms of the monetory side, they've tried to, you know,

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Speaker 3: do a lot of restructuring in terms of local government

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Speaker 3: financing as well. Now, the last error to come will

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Speaker 3: be physical, right, And you know, China has been running

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Speaker 3: on the dual track economy over the last decade. One

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Speaker 3: is focused on exports that's going to be in real

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Speaker 3: trouble with Trumps terrorists to come. But the internal economy,

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Speaker 3: the domestic side, now that's struggling right now, and we

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Speaker 3: think that they are really probably holding in reserve fiscal

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Speaker 3: policies to boost domestic consumption, and with Trump's terrorists being annow,

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Speaker 3: that's probably in reserve to counteract them when it comes.

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Speaker 1: So you're looking at a triple arcot soon.

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Speaker 3: Sure, yeah, I think. You know, on the monetary side,

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Speaker 3: the easing is going to continue. That's going to be

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Speaker 3: probably more to come in terms of clearing the you know,

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Speaker 3: unsold inventory. On the housing side as well, what's really

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Speaker 3: been lacking and inadequate and frankly disappointing so far is

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Speaker 3: the lack of fiscal especially in terms of you know,

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Speaker 3: boosting consumption demand in terms of I think what we're

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Speaker 3: seeing in terms of business confidence as well, and that

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Speaker 3: I think will come probably in the first half of

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Speaker 3: next year in response to Trump's terrorists.

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Speaker 1: Internally, if you're over with China, what would you be

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Speaker 1: buying right now when we see a dip in Chinese stocks,

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Speaker 1: what would you be buying right.

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Speaker 3: The strategy here is we think the Asias are probably

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Speaker 3: more domestically focused. It will be more sheltered against the terrists.

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Speaker 3: We talked about the domestic track earlier. The large platform

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Speaker 3: Internet names are excellent companies. Those are really attractively value

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Speaker 3: right now. And I think the US prong of our

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Speaker 3: approach is really the quality you please that are stable,

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Speaker 3: growing companies that give cash flow, so we think they

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Speaker 3: are still on a bottom up basis, a lot of

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Speaker 3: attractive opportunities.

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Speaker 1: In China, Jennifer, before we let you go, what are

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Speaker 1: the prospects of a trade war, an extended trade war?

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Speaker 2: Yeah, exactly. So just to understand it, I mean, obviously,

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Speaker 2: all of these tariffs break the US's commitments. I mean,

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Speaker 2: under the US MCA agreement with Canada and Mexico, we

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Speaker 2: committed to charge zero tariffs on goods that meet these

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Speaker 2: rules of origin qualifying as these goods. Similarly, we agreed

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Speaker 2: within the WTO system not to charge China any more

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Speaker 2: tariffs than those that were listed in our tariff schedule.

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Speaker 2: So all of this violates the United States's commitments to

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Speaker 2: its trading partners, which means that Canada and Mexico and

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Speaker 2: China are well within their rights at some level to

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Speaker 2: challenge these US actions and presumably ultimately to retaliate. That is,

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Speaker 2: their sort of legal right to bring these challenges and

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Speaker 2: to think about that and the issue there is whether

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Speaker 2: that's advisable, because once you start down this tit for

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Speaker 2: tat road, you know, again, then it leads again to

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Speaker 2: a much much broader trade war, which has much more

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Speaker 2: negative impacts for the entire world. I mean, certainly, if

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Speaker 2: we see the world breaking up into blocks, it will

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Speaker 2: have a hugely negative effect on the world.