Speaker 1: Let's get perspective on Trump's tariff pledges with Jennifer Hillman,
Speaker 1: co director of the CENTO and Inclusive Trade and Development.
Speaker 1: She previously served on the Wall Trade Organization's a pallet
Speaker 1: body and also at the US International Trade Commission. Jennifer
Speaker 1: Joints is from Washington and with us Here in the
Speaker 1: studio is Eli Lee, chief investment strategists at Bank of Singapore. Jennifer,
Speaker 1: let's start with you. I mean this is kind of
Speaker 1: like reminiscent of the renegotiation of NAFTA as just the
Speaker 1: start of it.
Speaker 2: Yeah, it's hugely significant. I mean when you think about it,
Speaker 2: a twenty five percent tariff on our two largest trading partners.
Speaker 2: I mean Mexico has now become the number one trading
Speaker 2: partner with the United States, followed by Canada. And part
Speaker 2: of it is the markets are highly highly integrated, particularly
Speaker 2: I would say the two sectors that have sort of
Speaker 2: already been touched on autos and energy. I mean, autos
Speaker 2: is one of those industries where you're seeing some of
Speaker 2: the auto parts literally crossing the border eight times before
Speaker 2: they ultimately get developed into a car. So when you
Speaker 2: start to then put a tariff of twenty five percent
Speaker 2: on each one of those parts each time it crosses
Speaker 2: the border, until it ends up becoming developed into a car.
Speaker 2: You start to see how incredibly significant this idea of
Speaker 2: a twenty five percent tariff on trade with Mexico and Canada.
Speaker 2: I mean again, you think about it that right now,
Speaker 2: the trade between the three countries is now in the
Speaker 2: order of two trillion dollars a year, three million dollars
Speaker 2: per minute, you know, accounting for ten million jobs and
Speaker 2: at least fifteen percent of global trade. So this idea
Speaker 2: of hitting our two largest trading partners, again with this
Speaker 2: somewhat unusual notion of using tariffs a trade tool, you know, again,
Speaker 2: an economic trade tool, in order to fight something that
Speaker 2: is not particularly trade related in the sense that you know,
Speaker 2: complaining about fentanyl or about you know, border crossings, migration issues.
Speaker 2: But yet using this tariff tool to do it is
Speaker 2: again and a very out of the box and again
Speaker 2: from again many people's perspective, not an appropriate use of
Speaker 2: a terror and certainly not consistently just the commitments that
Speaker 2: we made.
Speaker 1: Is there a sense that it is the initial selvo?
Speaker 1: I mean, this is a businessman, he's a negotiator, it's
Speaker 1: a case of putting the numbers out there so that
Speaker 1: perhaps you know, his treading potn is we'll come to
Speaker 1: the table and give a good deal.
Speaker 2: Oh absolutely, yes. I think again you can expect this
Speaker 2: to be very, very transactional. And I think that's part
Speaker 2: of the reason for announcing it well before he's even
Speaker 2: in office. I mean, he is clearly looking for and
Speaker 2: I would say, you know, Canada and Mexico to come
Speaker 2: to him with offers of things that they can do.
Speaker 2: And I think you already heard a little bit of
Speaker 2: the flavor of what Canada is going to say, which is,
Speaker 2: why are you coming after me Canada with respect to
Speaker 2: fentanyl and with respect to migration issues that's really not
Speaker 2: been the issue that the United States has seen is
Speaker 2: you know, again a flood across the border, coming across
Speaker 2: the Canadian border. The issue is whether this is partly
Speaker 2: trying to divide Canada from Mexico and have them be
Speaker 2: treated differently. But there's no question that this is an
Speaker 2: opening salvo of a negotiation to try to get again
Speaker 2: and the problem is a little bit of an unclear result.
Speaker 2: So again the bargaining will begin about what do either
Speaker 2: of these countries have to show in order to demonstrate
Speaker 2: that they've come forward with something that would be acceptable
Speaker 2: in order to get these tariffs lifted.
Speaker 1: Eli lads bring you into the conversation. I mean, as
Speaker 1: Jennifer indicated, these are huge numbers. These are you know,
Speaker 1: direct trading partners. Does just change the calculation for you
Speaker 1: when you take a look at your investment strategy.
Speaker 3: Now, yes, absolutely so. Look, President Trump is going right
Speaker 3: for the jugglar here. These are the three largest trading
Speaker 3: partners of the US, and I think we have to
Speaker 3: be really careful on how this is probably going to
Speaker 3: reset infflicient expectations. I think the general consensus for Trump's
Speaker 3: two poisieros so far is that it's good for equities,
Speaker 3: is bad for bonds. And we've seen you know, bond
Speaker 3: yews on the long endcome up as well. Now there's
Speaker 3: a limit to how much bond use could come up
Speaker 3: without scattering the equity rarely. Now, we think that if
Speaker 3: inflation expectition starts creeping up the fat stops cutting rates,
Speaker 3: that we could see the ten yure move towards five percent,
Speaker 3: and history shows us that if it goes beyond that,
Speaker 3: then that starts to be a problem for the equity
Speaker 3: up trend that we're seeing. So this is something that
Speaker 3: we have to be real careful of Slender.
Speaker 1: Of course, this is ahead of PC, it's also ahead
Speaker 1: of that December move. Expectations are that the Fed may
Speaker 1: cut twenty five basis points. Might this just change the
Speaker 1: needle for the fat.
Speaker 3: Well, we think that the Fed is probably mostly an
Speaker 3: autopilot for the next to the tree cuts for now.
Speaker 3: I mean they've just started. Real rates are still too
Speaker 3: high and Trump hasn't come on yet, so I think
Speaker 3: they'll do a little bit of We don't see on
Speaker 3: how the data comes in, but I think, you know,
Speaker 3: from the last minutes we've saw, I think suddenly grove
Speaker 3: is still resilient. They are watching out for how you know,
Speaker 3: inflation expectations are moving, and again if Trump's terriffs moves
Speaker 3: that needle in the in the direction that they're not
Speaker 3: looking for, I think we could see a probably higher bond.
Speaker 3: You start to be a problem for markets.
Speaker 1: What we're seeing right now is the reaction in the
Speaker 1: dollar at the highest level in about two years. I mean,
Speaker 1: how concerning is that.
Speaker 3: That is a problem. That is a problem, That is
Speaker 3: a problem for emerging markets, and there's a problem for
Speaker 3: Trump to he wants a week a dollar. We've heard that,
Speaker 3: which is why I think, you know, the nomination of
Speaker 3: Scott Besant as Treasury Secretary is a really I think
Speaker 3: key development yesterday. In fact, I think we saw the
Speaker 3: dollar weekend on the news of his nomination. We saw
Speaker 3: bond us come down as well. And I think, you know,
Speaker 3: he has expertise of how markets work, and I think
Speaker 3: he's going to be really instrumental in helping Trump get
Speaker 3: his cake and eat it too, meaning have the tariffs,
Speaker 3: but yet have markets performed well?
Speaker 1: Jennifer, We heard from Eli saying that Trump understands how
Speaker 1: the markets work. Does Trump understand how terranfs work? Because
Speaker 1: by imposing tariffs on trading partners it may come back
Speaker 1: to bite him in well, you know where.
Speaker 2: I would say many people would argue that he does not,
Speaker 2: because certainly he kept saying again and again on the
Speaker 2: campaign trail that it was China that was paying the
Speaker 2: tariffs or Mexico that was paying the tariffs, when obviously
Speaker 2: the reality it is the American importer that is paying
Speaker 2: the tariffs. So again, the basic cost of all of
Speaker 2: these tariffs falls on the American importer. And again just
Speaker 2: to be clear on the impact on inflation and everything
Speaker 2: else with respect to these Mexican and Canadian tariffs. The
Speaker 2: importers are bringing these in because these are inputs into
Speaker 2: what we need. Again, they're largely bringing in parts and
Speaker 2: components and oil and gas, and so when our importers
Speaker 2: now have to pay a lot more for all of
Speaker 2: those components, it makes everything that they make using those
Speaker 2: imports much more expensive. Then if you flip over to
Speaker 2: what's going to happen with respect to China again, they're
Speaker 2: going to add an additional ten percent tariff on top
Speaker 2: of already all of the existing tariffs. I mean, to me,
Speaker 2: what's really significant there is what does not right now
Speaker 2: have an additional tariff coming in from China. It's largely
Speaker 2: a lot of the kind of retail ready products that
Speaker 2: are sold at Walmart and Target and all those places.
Speaker 2: It's electronics, it's you know, it's computers, it's it's it's watches,
Speaker 2: its appliances, it's clothes, its shoes. Those have largely been
Speaker 2: spared from these extra China tariffs, but now they are
Speaker 2: going to get hit by this additional ten percent tariff,
Speaker 2: and again a lot of that I think you're going
Speaker 2: to see immediately get passed on in terms of increases
Speaker 2: to consumers for the prices that they're paying for things.
Speaker 1: And by some calculation, US imports would drop fifty percent,
Speaker 1: exports slumping sixty percent. I mean Trump won the election
Speaker 1: on the basis of an economy that is, you know,
Speaker 1: squeezing most of the Americans. I mean, how do you
Speaker 1: see this playing out in the US economy? How might
Speaker 1: that pagged growth going forward?
Speaker 2: So I think it's going to have a very negative
Speaker 2: impact on growth because again, a lot of what's being
Speaker 2: imported are parts and components that you can't just change
Speaker 2: at the last minute and say, okay, well never mind,
Speaker 2: I don't want it from China, I'll buy it from
Speaker 2: somewhere else, or I don't need this part from Mexico,
Speaker 2: because those component parts have been again engineered and designed
Speaker 2: and tested and qualified to go into that particular use
Speaker 2: by that particular American company that is using it to
Speaker 2: make something else, and they cannot simply immediately turn on
Speaker 2: a dime and start using product coming in from somewhere else.
Speaker 2: So it will have a downward pressure on again US
Speaker 2: production it will have an upward pressure on prices and
Speaker 2: overall again a downward pressure on economic growth and activity.
Speaker 2: I mean, we saw this when the Trump tariffs went on,
Speaker 2: initially ten percent on aluminum, twenty five percent on steel,
Speaker 2: and then ultimately the tariffs on about three hundred and
Speaker 2: sixty billion dollars worth of imports. From lots and lots
Speaker 2: of economic studies to look at what was the impact
Speaker 2: of the tariffs and the goal stated goal was to
Speaker 2: return manufacturing and return jobs to the United States. And
Speaker 2: if you looked at it and said, did it do that,
Speaker 2: the ultimate answer to that question so far has been no,
Speaker 2: because those tariffs hurt so many of the downstream users
Speaker 2: of steel and aluminum that there were job losses. There.
Speaker 2: There was retaliation again heavily by China, affecting lots for example,
Speaker 2: of agriculture exports. So again lots of people that had
Speaker 2: been exporting lost their jobs. So the net net effect
Speaker 2: of the tariffs to date has been a negative one
Speaker 2: for the US economy. And so I would imagine that
Speaker 2: with now these idea of increasing the tariffs, particularly on
Speaker 2: Canada and Mexico are the two largest trading partners, the
Speaker 2: effect is going to be even more of a negative
Speaker 2: downward pressure on US economic growth.
Speaker 1: And for China, Eli, the if I were also be negative.
Speaker 1: This is in the to me, that's just experiencing nascent growth.
Speaker 1: Yet when it comes to the markets, you say that
Speaker 1: you are pretty constructive of China, that you should be overweight.
Speaker 3: Right, So that is largely a function of evaluations, right,
Speaker 3: I mean, so much negative news have been priced in.
Speaker 3: Really the worst sixty percent terrists has been telegraphed in advance.
Speaker 3: And I do think that the Chinese authorities are much
Speaker 3: better prepared this time to deal with what's coming. I think,
Speaker 3: you know what's.
Speaker 1: In the toolbox. How can they counter this?
Speaker 3: That's interesting because they've done quite a fair but in
Speaker 3: terms of the monetory side, they've tried to, you know,
Speaker 3: do a lot of restructuring in terms of local government
Speaker 3: financing as well. Now, the last error to come will
Speaker 3: be physical, right, And you know, China has been running
Speaker 3: on the dual track economy over the last decade. One
Speaker 3: is focused on exports that's going to be in real
Speaker 3: trouble with Trumps terrorists to come. But the internal economy,
Speaker 3: the domestic side, now that's struggling right now, and we
Speaker 3: think that they are really probably holding in reserve fiscal
Speaker 3: policies to boost domestic consumption, and with Trump's terrorists being annow,
Speaker 3: that's probably in reserve to counteract them when it comes.
Speaker 1: So you're looking at a triple arcot soon.
Speaker 3: Sure, yeah, I think. You know, on the monetary side,
Speaker 3: the easing is going to continue. That's going to be
Speaker 3: probably more to come in terms of clearing the you know,
Speaker 3: unsold inventory. On the housing side as well, what's really
Speaker 3: been lacking and inadequate and frankly disappointing so far is
Speaker 3: the lack of fiscal especially in terms of you know,
Speaker 3: boosting consumption demand in terms of I think what we're
Speaker 3: seeing in terms of business confidence as well, and that
Speaker 3: I think will come probably in the first half of
Speaker 3: next year in response to Trump's terrorists.
Speaker 1: Internally, if you're over with China, what would you be
Speaker 1: buying right now when we see a dip in Chinese stocks,
Speaker 1: what would you be buying right.
Speaker 3: The strategy here is we think the Asias are probably
Speaker 3: more domestically focused. It will be more sheltered against the terrists.
Speaker 3: We talked about the domestic track earlier. The large platform
Speaker 3: Internet names are excellent companies. Those are really attractively value
Speaker 3: right now. And I think the US prong of our
Speaker 3: approach is really the quality you please that are stable,
Speaker 3: growing companies that give cash flow, so we think they
Speaker 3: are still on a bottom up basis, a lot of
Speaker 3: attractive opportunities.
Speaker 1: In China, Jennifer, before we let you go, what are
Speaker 1: the prospects of a trade war, an extended trade war?
Speaker 2: Yeah, exactly. So just to understand it, I mean, obviously,
Speaker 2: all of these tariffs break the US's commitments. I mean,
Speaker 2: under the US MCA agreement with Canada and Mexico, we
Speaker 2: committed to charge zero tariffs on goods that meet these
Speaker 2: rules of origin qualifying as these goods. Similarly, we agreed
Speaker 2: within the WTO system not to charge China any more
Speaker 2: tariffs than those that were listed in our tariff schedule.
Speaker 2: So all of this violates the United States's commitments to
Speaker 2: its trading partners, which means that Canada and Mexico and
Speaker 2: China are well within their rights at some level to
Speaker 2: challenge these US actions and presumably ultimately to retaliate. That is,
Speaker 2: their sort of legal right to bring these challenges and
Speaker 2: to think about that and the issue there is whether
Speaker 2: that's advisable, because once you start down this tit for
Speaker 2: tat road, you know, again, then it leads again to
Speaker 2: a much much broader trade war, which has much more
Speaker 2: negative impacts for the entire world. I mean, certainly, if
Speaker 2: we see the world breaking up into blocks, it will
Speaker 2: have a hugely negative effect on the world.