Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: a quarter point cord from the FMC at two pm
Speaker 2: Eastern Time. Blake Gwinno RBC Capital Markets. Right in the following,
Speaker 2: the Economic Bankdroop continues to provide the FMC with a
Speaker 2: window for delivering interest rate cards. They're going to take it.
Speaker 2: Blake joins us now for more Blake and morning, Good
Speaker 2: to see you.
Speaker 1: Good to see you.
Speaker 2: The last time the Fed made a decision, you made
Speaker 2: a very important point that the outlook hadn't changed so much,
Speaker 2: but the risks around the outlook have What are the
Speaker 2: risks around the outlook now and have they developed since
Speaker 2: the Fed last.
Speaker 1: May exactly the same as they were in September.
Speaker 3: I mean, part of that is obviously because we're not
Speaker 3: getting the official sector data. But even if you look
Speaker 3: at what we have, we have received so the CPI
Speaker 3: that they decided to release the private sector data, and
Speaker 3: I would say also the Beige book that they had,
Speaker 3: you know, the Beage Book really kind of characterized things
Speaker 3: as largely in the same place as they were in September.
Speaker 3: So I don't think the Fed's really gotten any information
Speaker 3: that's really going to change our outlook. I would expect Pale,
Speaker 3: you know, any comments that he's going to make on
Speaker 3: the macro economic outlook you know this afternoon are probably
Speaker 3: going to be largely what he made in September.
Speaker 4: So it cuts twenty five. Can a guide to December?
Speaker 3: I don't think he does, And I think, if anything,
Speaker 3: I think the markets are going to be much more
Speaker 3: focused around some of the meta conversation about what are
Speaker 3: they looking at. I mean, if this continues for another
Speaker 3: two months, if this continues in the December meeting, I
Speaker 3: think what I'm most interested in are any questions around
Speaker 3: what data are you putting most.
Speaker 1: Important on one of the metrics?
Speaker 3: Yeah, We know their reaction function to some degree around
Speaker 3: the official sector data, and we know how they're thinking about,
Speaker 3: you know, an unemployment rate or about PE levels, but
Speaker 3: we don't really know how they're using the data that
Speaker 3: they do have right now, And I think it'd be
Speaker 3: interesting to hear how they're kind of thinking about things,
Speaker 3: what metrics they're looking at, and what's going to make
Speaker 3: that decision around December.
Speaker 1: Well, wasn't that a risk in itself?
Speaker 5: The fact that they don't have data and we have
Speaker 5: this data desert. How much can they lean on September
Speaker 5: going forward if you're a data dependent.
Speaker 1: FED Well, it does make things interesting.
Speaker 3: And I'm a little bit torn about what the base
Speaker 3: case into December is if we don't get data, because
Speaker 3: on the one hand, you kind of have this do
Speaker 3: no harm type of idea where I could see the
Speaker 3: hawks on the committee saying, hey, look, we cut the
Speaker 3: last two meetings. We did get inflation data, which shows
Speaker 3: the services side of things a little more pressure than
Speaker 3: we'd like to see. Maybe we should just play it
Speaker 3: safe and not do anything. But you can also make
Speaker 3: the case on the other side, which is that those
Speaker 3: labor market risks are still apparent ADP is still showing
Speaker 3: this low hiring, slow firing mode. So I'm not even
Speaker 3: really sure what the base case is into December if
Speaker 3: we have no new government data coming out.
Speaker 4: Is it possible the descent could come both ways? And
Speaker 4: this may thing?
Speaker 3: Absolutely? I think that was true last meeting as well.
Speaker 3: I was actually curious to see if we got two
Speaker 3: descents at the last meeting, because I think you have
Speaker 3: some members, like you know, Hammick Schmid who have come
Speaker 3: out and now, you know, not everybody can descent, so
Speaker 3: we're just talking about the voting members. Schmid could certainly descent,
Speaker 3: and we have heard those members kind of take a
Speaker 3: harder stance on the inflation side and said, you know,
Speaker 3: unlike Waller and I would say, now pale at this point,
Speaker 3: not so quick to kind of dismiss some of the.
Speaker 1: Inflation pressure we're seeing. They're not ready to write.
Speaker 3: It off as only a tear iff problem, you know,
Speaker 3: something that's going to dissipate as that one time price
Speaker 3: shot kind of moves through the system.
Speaker 2: I believe that Hammock can descent next year, and the
Speaker 2: mix next year maybe gets a little bit more interesting.
Speaker 2: So let's talk about that. We're going to get a
Speaker 2: change of leadership in May. How easy is it just
Speaker 2: to lead the committee and say, you know what we're
Speaker 2: going to get in this direction given the mix we
Speaker 2: might say in twenty six.
Speaker 1: It really depends on the personnel.
Speaker 3: And I think this is you know, one conversation I've
Speaker 3: had a lot with clients who have kind of said, well,
Speaker 3: we're going to get a very dubvish FED share from
Speaker 3: Trump and they're going to come in and you know,
Speaker 3: we're going to slash rates one hundred basis points to
Speaker 3: do when they want FED shair.
Speaker 1: Yeah, that's just not how things work. And I think.
Speaker 3: We're you know, we're kind of a product of this
Speaker 3: last forty years where we've had very strong FED shairs
Speaker 3: who I think have a very good give and take
Speaker 3: with the rest of the committee. They're respected by the committee,
Speaker 3: They're taking information from the Committee incorporating that into their
Speaker 3: own views, and so, yeah, the chair has spoken for
Speaker 3: the direction of policy. If we get somebody who is
Speaker 3: very outside of that consensus, who's to say the chair
Speaker 3: isn't a descent at every meeting. I mean, it could
Speaker 3: be very interesting. But what if we have mirror and
Speaker 3: the new chair dissenting at every meeting.
Speaker 2: For the record, I saw this in the UK more
Speaker 2: than ten years ago. I remember when Governor King wont
Speaker 2: another round of q E and kept dissenting and voting
Speaker 2: for it. So we've seen that happen in the UK.
Speaker 2: You suggested we might see a UK type scenario.
Speaker 1: It's just not what we're used to.
Speaker 4: We used to the green spans of this world.
Speaker 3: Yeah, And I think if we're thinking about how dubbish
Speaker 3: the FED is next year, it's not just about how
Speaker 3: dubvish the new chair is, it's also about how effective
Speaker 3: they're going to be a delivering on that dubbishness.
Speaker 5: Well, who's the most dubbish center of this lift? Would
Speaker 5: you say that's Kevin Hassett?
Speaker 3: I would say you'd look at somebody who is closer
Speaker 3: to the administration, so HEYESI or a worsh you know, but.
Speaker 1: Somebody he's a hawk. He was, Let's be very clear,
Speaker 1: he was not anymore.
Speaker 3: So I think you'd look at somebody who was much
Speaker 3: closer to the administration is probably arguing for the most cuts,
Speaker 3: but also in the same you know, in the same respect,
Speaker 3: also maybe not being able to sway the rest of
Speaker 3: the committee, but.
Speaker 5: It'll be transparent. If it is someone like Kevin Hassett,
Speaker 5: it'll be transparent. It's not like author Burns and Nixon,
Speaker 5: where the market didn't really understand how close that relationship is.
Speaker 5: It'll be very transparent to the market that, Okay, this
Speaker 5: policy could be heavily influenced by Trump himself.
Speaker 3: Well, I think it will be clear that that person
Speaker 3: could be heavily influenced. But then that comes That's where
Speaker 3: the question of how much control over the rest of
Speaker 3: the committee they have comes in, because that's where I
Speaker 3: think somebody like a Waller who may not be as
Speaker 3: close to the administration, who may kind of go off
Speaker 3: on their own, and you know, he's leaving leaning dubbish now,
Speaker 3: but maybe that framework changes. He's going to be much
Speaker 3: more effective and I think you know has that respect,
Speaker 3: he has a very understandable framework for where that dubbishness
Speaker 3: is coming from, and so may actually deliver more cuts
Speaker 3: than somebody who you would expect to be a more
Speaker 3: dubbish member.
Speaker 4: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Start setting fresh records ahead of a Max seven earnings test.
Speaker 2: Gagi Chantry of Black Rock writing. Investors are looking for
Speaker 2: proof that cloud growth is reaccelerating and the massive AI
Speaker 2: campex is converting into real paying workloads. Gargee Joints US
Speaker 2: now for more. Garkiy Cadmonic, Hi, good morning, it's.
Speaker 4: Going to see you.
Speaker 2: So out of the three, then this week FED decision
Speaker 2: Trade talks earnings.
Speaker 4: Does earnings take number one spot?
Speaker 6: Well, the volatility Markets team to think soon if you
Speaker 6: look at what's priced in in terms of moves per day,
Speaker 6: it certainly seems like the earnings are what's going to
Speaker 6: be a bigger driver. But certainly with the FLED, I
Speaker 6: think we should pay particular attention to what happens with
Speaker 6: the balance sheet. I do think that the twenty five
Speaker 6: basis point rate cut is very well advertised and very
Speaker 6: well priced, but it's really about if they do do
Speaker 6: something with the balance sheet runoff and if that gets
Speaker 6: announced today. Obviously we heard from chair Powell earlier in
Speaker 6: the month which was about in the coming months, but
Speaker 6: the market is expecting for some sound, some sort of
Speaker 6: announcement today, so that would be important. And then of
Speaker 6: course for the rest of the week it's earnings. And
Speaker 6: then finally the New York Marathon, the New York Marathon.
Speaker 4: For you do you want do you want to share it?
Speaker 4: Up front? How many marathons? If you wrote run many
Speaker 4: in the numbers, many in the twenties. Now we're in
Speaker 4: the twenties, okay. And what charity are supporting.
Speaker 6: It's called Shoe for Africa. It's a charity for children
Speaker 6: in Kenya and it's building a hospital.
Speaker 4: Very cool. So if anyone wants to donate, of course, reach.
Speaker 5: Out modest it's twenty six that is insane.
Speaker 2: Twenty six is absolutely unreal. We're going to talk about
Speaker 2: that later. Let's focus on this if we can QT.
Speaker 2: What are the implications of backing off from QT?
Speaker 6: Absolutely so a couple of things. First, recognizing if that
Speaker 6: does happen, where does the where do the reinvestments go?
Speaker 7: I think that's the main thing.
Speaker 6: Does it get reinvestment reinvested back into bills only? Or
Speaker 6: is it along all tenors off the curve? And obviously
Speaker 6: if it is a long all tennors of the curve,
Speaker 6: that's more demand coming in for treasuring markets. And I
Speaker 6: do think if we look at what the long end,
Speaker 6: the very long end thirty years or so have done
Speaker 6: over the past month I think there is a little
Speaker 6: bit of expectation of that coming back into the market.
Speaker 6: So if we don't get anything at all, maybe at
Speaker 6: least in the very long end of the curve, we
Speaker 6: could get a little bit more of that steepening that
Speaker 6: we began to see earlier this year and then it
Speaker 6: sort of stopped for the moment. But at the same time,
Speaker 6: you know, we've talked about this for a while, this
Speaker 6: is a really good opportunity in the markets to clip coupon,
Speaker 6: especially if you're in that belly, maybe that three to
Speaker 6: ten year part of the market that still remains. We're
Speaker 6: still in a path for the FED to cut now
Speaker 6: and again in December, so very clearly that's going to
Speaker 6: be another boost to equity as well as income markets.
Speaker 5: The FED cutting in December. Are they basically accepting that
Speaker 5: three percent is the new two percent?
Speaker 6: I don't know that it's three percent per se. If
Speaker 6: you think about especially with this last CPI print, what
Speaker 6: we saw was that very sharp and clear deceleration in
Speaker 6: oeer and where we saw the inflation was in much
Speaker 6: more of the temporary area such as teriff related goods,
Speaker 6: a parallel, et cetera. If we continue to see that
Speaker 6: deceleration in OER in shelter. More broadly, I think you
Speaker 6: can reach a world by the end of twenty twenty
Speaker 6: six when you're seeing sort of that two and a
Speaker 6: half percent core CPI, and I think that is something
Speaker 6: that the FED will accept and be able to at
Speaker 6: least the FED, you know, the future FED probably will
Speaker 6: be able to live with in a world where some
Speaker 6: of the inflation that is coming through its probably more
Speaker 6: transitory in nature. I think it's all about shelter, and
Speaker 6: it's all about OAR, and we've seen some very good
Speaker 6: numbers on that front.
Speaker 5: Just have the trade talks happening, the possible lowering rate
Speaker 5: of the US tariff level on China.
Speaker 1: Is that helpful for the Federal Reserve?
Speaker 6: I think it has to be. Again when we talk
Speaker 6: about what is the transitory, temporary drivers of inflation, some
Speaker 6: of those, as we have seen in the core goods
Speaker 6: data over the last three months, are very much related
Speaker 6: to those tariff inputs. So to the extent we now
Speaker 6: can live in a world where that tariff rate is
Speaker 6: severely higher than last year, but not as high as
Speaker 6: we had expected. It's not in the twenties, maybe in
Speaker 6: the mid teens, and it's passing through slowly. I think
Speaker 6: that's another important point. How much is the consumer bearing
Speaker 6: and so far we've only we haven't seen as much
Speaker 6: as perhaps feared in Q one and Q two. All
Speaker 6: of those I think that that rate coming lower, maybe
Speaker 6: settling in the mid teens, as well as the transmission
Speaker 6: mechanism being lower than originally feared, are good for a
Speaker 6: FED that wants to keep interest rates more moderate.
Speaker 2: So that's the framework for thinking about this market. Let's
Speaker 2: talk about this market how to express risks. So yesterday
Speaker 2: was an odd session, three hundred and ninety eight decliners
Speaker 2: on the S and P five hundred, only one hundred
Speaker 2: and four stocks advance.
Speaker 4: This was very top heavy, led by tech.
Speaker 2: Don't ask me why it doesn't add up to five
Speaker 2: hundred on the S and P five hundred, Complain to
Speaker 2: someone else. This came from Deutsche banker Jim Reid, and
Speaker 2: he put up these numbers and said they're only one
Speaker 2: hundred and four advances on the S and P, the
Speaker 2: fewest in over two weeks and actually the fewest on
Speaker 2: an update as far back as my data on advances
Speaker 2: and decliners goes, thanks to nineteen ninety what's the takeaway
Speaker 2: from the last twenty four hours.
Speaker 6: I think the takeaway maybe not just for the last
Speaker 6: twenty four hours, I would say the last year is
Speaker 6: that earnings growth is driving as in p performance, and
Speaker 6: you want to be where the earnings growth is and
Speaker 6: where is that earnings growth. It is in those hyperscalar names.
Speaker 6: It is in AI and frankly it is broadening out
Speaker 6: a little bit too broad, large gap, and I think
Speaker 6: that's where you want to be. You know, could we
Speaker 6: get a few negative surprises of the course of the
Speaker 6: next three days and could that maybe bring a little
Speaker 6: bit of volatility, some down days in the market. Absolutely,
Speaker 6: But is there a structural story here, especially around AI monetization.
Speaker 6: We think so. We've been talking about this from the
Speaker 6: start of the year with respect to our positive view
Speaker 6: around AI, and we think as long as we see
Speaker 6: that demand as well as their monetization, as well as
Speaker 6: the user actually being able to benefit from AI, we
Speaker 6: might see that in ad revenues and such. I think
Speaker 6: this continues. I think it might broaden out to more
Speaker 6: of the larger cap names instead of just the four
Speaker 6: or five hyperscalers. I think that's something we're looking forward
Speaker 6: to and telling investors to focus on. But the point
Speaker 6: about yesterday and a very small percentage of the index
Speaker 6: being up is not a new story. It is a
Speaker 6: feature of this market, not a bug. That is where
Speaker 6: the earnings growth is.
Speaker 2: So let's look at the black recommend you you're familiar
Speaker 2: with it more than I am. Is this just a
Speaker 2: vanilla sm P five hundred market camp whited index story?
Speaker 2: Express risk that way or is it more optimal waite
Speaker 2: to express risk in the secuity market.
Speaker 6: It can be depending on who the investor is. And
Speaker 6: again some people just want you know, you're stepping into
Speaker 6: the market for the first time and you want something
Speaker 6: easy and IVV will do the job for you. What
Speaker 6: we are telling investors though, this is the time to
Speaker 6: focus on things like BAI, which is our actively managed
Speaker 6: AI ETF, which again gives you some of those very
Speaker 6: specific earning story in the AI space. We think you
Speaker 6: should have that satellite allocation. The other thing that we're
Speaker 6: talking about is if you're thinking about the broadening out
Speaker 6: theme with respect to large caps. Again, that is something
Speaker 6: you can do again with a black Rock large gap
Speaker 6: value or a black Rock large gap It's called blc
Speaker 6: R fund, which is sort of the rest of the
Speaker 6: market with a focus as well on a.
Speaker 7: Large cap deck.
Speaker 6: And then I'd think for many investors out there right now,
Speaker 6: especially you're getting that six six and a half seven
Speaker 6: percent income, you no longer have to wait Toll You're
Speaker 6: eighty five years old for fixed income. I own fixed income.
Speaker 6: I hope you guys do again focusing on something like
Speaker 6: bink earning that six percent coupon, it's a really great opportunity,
Speaker 6: especially with the Fed boys, to cut more.
Speaker 4: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. So here's the
Speaker 2: latest this morning in video, extending gains after President Trump
Speaker 2: said he will discuss the chip makers Blackwell Ai processes
Speaker 2: with the Chinese leader pre Fedogho of News Street Research,
Speaker 2: keeping a buy rating on the stock with a price
Speaker 2: target of two thirty five. Pierre, that quote from the
Speaker 2: president overnight and welcome to the program. Let me read
Speaker 2: it out for you. It's very basic, very simple. It's
Speaker 2: worth a few hundred billion, apparently to this market camp.
Speaker 2: We'll be speaking about Blackwell's Pierre. How important is that
Speaker 2: that we're opening the door to Infinia being app to
Speaker 2: sell the high end ships into China?
Speaker 8: Well, John's thinking about it in absolute terms, Nvidia historically
Speaker 8: hard like twenty twenty five percent of their revenues coming
Speaker 8: from China, so we are talking like a fifty.
Speaker 9: Billion dollar annual revenue opportunity.
Speaker 8: So yes, as you said, easily worth a few hundred
Speaker 8: billion dollars.
Speaker 9: Now, if you take a step back, the almost.
Speaker 8: Like like the surprising perspective is that given the scale
Speaker 8: of the success of Nvidia, it's actually a relatively small
Speaker 8: moving part when you compare that to what Jansen said
Speaker 8: yesterday in Washington. He said he was expecting like a
Speaker 8: half a trillion dollars of cumulated revenue for the black
Speaker 8: Well and Ravine product cycles this year and next year.
Speaker 8: We are talking here numbers that are like fifty percent
Speaker 8: above what consensus expectations are today. So it's a very
Speaker 8: very nice comments from the President on the on the
Speaker 8: diverse super chips is actually a small moving part this
Speaker 8: morning compared to what Insten said yesterday yesterday, and then
Speaker 8: said the market is still accelerating, which is very very impressive.
Speaker 5: He also said that China has made it clear they
Speaker 5: don't want Nvidia there right now, even though the President
Speaker 5: has allowed some licensing for some chips. If China can
Speaker 5: get their hands on blackwell, well they then want video
Speaker 5: in their marketplace.
Speaker 9: Yes, of course, what you're say in the market is that.
Speaker 8: And you know, we could talk about China this morning,
Speaker 8: we talk about Microsoft, Opena, about Amazon.
Speaker 9: Nobody wants in VideA.
Speaker 8: Everybody is worried about like the market power they have,
Speaker 8: but nobody can afford not to use that VideA if
Speaker 8: they can, because today being able to use in video
Speaker 8: chips gives you an this is youve advantage in terms
Speaker 8: of time to markeage. You can get going immediately as
Speaker 8: the highest visible performance. But everybody in the long term
Speaker 8: is working on you know, as donatives to in Vidia
Speaker 8: to keep in Vida's market bower in check. And so
Speaker 8: you see opening I signing giant deals with AMD. You
Speaker 8: see everybody doing being their own eysics and China is
Speaker 8: no different are donatives. But if to more they can
Speaker 8: get a few blackwords, it would take them immediately.
Speaker 2: And Video is clearly looking for an opportunity here pre
Speaker 2: and an opportunity that the President is offering them. But
Speaker 2: I just wondered to what extent China has been successful
Speaker 2: without access to the highest chips the high end chips. Pierre,
Speaker 2: it feels like deep Sink was a moment that happened.
Speaker 2: We wrestled with it and just moved on. But from
Speaker 2: the people we speak to, Pierre, it looks like China
Speaker 2: has been hyper focused on efficiency and the US is
Speaker 2: going in a different direction. But if you look at
Speaker 2: the strategies of either the US and China at the moment,
Speaker 2: who's got the lead, even before discussing access to the
Speaker 2: highest end in video chips, who's got the lead at
Speaker 2: the moment?
Speaker 8: Well, the lead, it's a great question. The lead is
Speaker 8: definitely at the frontier. It's being first to market with
Speaker 8: the most advanced models. And on that front, there is
Speaker 8: absolutely no question the US is in a very strong
Speaker 8: leadership position. Then now if you look at so that's
Speaker 8: like the technological leads. So the technological lead is very
Speaker 8: clearly in the US. Now you have the industrial lead,
Speaker 8: you have like the efficiency lead. Players like Diepsick are
Speaker 8: very are y are very good at making models more efficient,
Speaker 8: at distilling models, and so they player a very significant role.
Speaker 9: But when it comes to getting.
Speaker 8: Access to the largest clusters and running the most advanced models,
Speaker 8: all that is happening in the us for sure.
Speaker 2: So clearly we're getting a move in the pre market
Speaker 2: off the back of the story Stuck is up quite
Speaker 2: close to four percent. P I need to talk about
Speaker 2: the ANX with you as well. So tech stories of
Speaker 2: today is going to be Microsoft Meta and Alphabet tomorrow,
Speaker 2: Apple and Amazon pre looking across those names, any vulnerabilities
Speaker 2: for you in the same.
Speaker 8: So well, I think the street is still digesting what
Speaker 8: Jansen said yesterday in terms of like the twenty twenty
Speaker 8: six outlook in terms of AI infrasta you're spending. So
Speaker 8: really what we're going to look at is all comments
Speaker 8: from a perscadoes do we see like a consummation of
Speaker 8: ensense forecast in the ways they talk about their capex
Speaker 8: and their spending spending plans, and then in terms of
Speaker 8: vulnerable it is now very difficult to see that we
Speaker 8: were definitely like in the bulwick where everything seems to
Speaker 8: be like accelerating, and even when you look at Apple,
Speaker 8: who is not the best best position player in the
Speaker 8: AI race, they have a lot of tailwind at the
Speaker 8: moment the iPhone cycle is actually playing relatively well for them,
Speaker 8: which has generated some very positive vibes and should turn
Speaker 8: into a stronger inings report.
Speaker 2: If I remember waiting for amples across that one, suly
Speaker 2: intil a lane in the sand. Can we just reflect
Speaker 2: on your career per five trillion dollar market caps, Pierre,
Speaker 2: how do you sort of internalize that number?
Speaker 4: Just how big that is?
Speaker 8: Yeah, it's like if you had asked me at the time,
Speaker 8: it's it's it's like unbelievable.
Speaker 9: And and the thing is that.
Speaker 8: It's part of a border of course, of a border
Speaker 8: border phenomenon, and like the number of multitude dollar market
Speaker 8: gaps that we have now in technology, it's it's mind
Speaker 8: blowing of growth and of like also concentration of economic
Speaker 8: value in tech names.
Speaker 9: It's like really mind blowing.
Speaker 8: And specifically on Apple, Apple like it's a very low growth,
Speaker 8: very like legacy type of franchise. Now in the AI world,
Speaker 8: it's difficult for them to find the right grip on AI,
Speaker 8: but it remains a very very high multiple expensive stock
Speaker 8: because the market is still valuing the quality of the franchise.
Speaker 8: So so I didn't think one on.
Speaker 9: Top of the other.
Speaker 8: Yes, you like, I almost five durin the lod of
Speaker 8: market just amazing.
Speaker 4: Stay with us.
Speaker 2: More Bloomberg Surveillance coming up. After this, President Trump planning
Speaker 2: to lower tariffs on China over the fentinal crisis, as
Speaker 2: China buys its first US soybeans in months ahead of
Speaker 2: tomorrow's face to face meeting with President she let's stick
Speaker 2: with the US and China. Mary Lovely of the Peterson Institute, writing,
Speaker 2: systemic issues will not be addressed in this round. We're
Speaker 2: unlikely to see much progress. Mary joins us now for more. Mary,
Speaker 2: welcome to the program. Just first question, what do you
Speaker 2: regard as a systemic issue with regards to the US
Speaker 2: and China.
Speaker 10: Well, we see some of these systemic issues in trump
Speaker 10: One treatment of US intellectual property, but there's a whole
Speaker 10: host of issues having to do with what the US
Speaker 10: perceives as ex bands or barriers that prevent US exports
Speaker 10: into the country and contribute to the lopsided trade balance
Speaker 10: between the two. We have questions from businesses that American
Speaker 10: businesses operating in China in terms of export bands and
Speaker 10: other things that prevent them from having their own personnel
Speaker 10: in place.
Speaker 7: There's a whole variety.
Speaker 10: Of issues that have contributed this tension, including older issues
Speaker 10: which you will remember from the first trade War, John,
Speaker 10: things like industrial subsidies China support for firms through their
Speaker 10: state banking system, other things that make Chinese exports uber
Speaker 10: competitive in the West.
Speaker 1: Mary the President.
Speaker 5: Tyling reporters that they're going to be speaking about Blackwell,
Speaker 5: this is one of the most advanced AI chips the
Speaker 5: United States has access to. Is the president if he
Speaker 5: allows Beijing to buy these chips? Is the President rewarding
Speaker 5: bad behavior?
Speaker 7: Well, I guess it depends on how you look at it.
Speaker 10: I think there is a bigger issue, which is how
Speaker 10: do we protect US national security? And as you know,
Speaker 10: there is some contention within the Trump administration as to
Speaker 10: how best that can be done. There of course continue
Speaker 10: to be so called China hawks who want the US
Speaker 10: to do everything it can to prevent the most advanced
Speaker 10: technologies from falling into Chinese hands. There are others who
Speaker 10: believe that, and this has been said by the President
Speaker 10: that one of the things we might want we want
Speaker 10: to do is to get the Chinese addicted to US chips,
Speaker 10: US tech. So I think that we're seeing some difference
Speaker 10: in opinion. We always knew it was going to come
Speaker 10: down to President Trump's decision. President Trump is a deal maker.
Speaker 10: He would like to see an increase in US commerce
Speaker 10: US sales to China, and of course these ships are
Speaker 10: a primary way that.
Speaker 7: Can be done.
Speaker 5: How much influence do you think someone like Jensen Wong
Speaker 5: has had on the president.
Speaker 10: I think the tech community in general has had an
Speaker 10: outsize influence on the president, not only lead through this,
Speaker 10: but in terms of his behavior toward crypto and crypto
Speaker 10: regulation and other issues. For example, and these trade deals
Speaker 10: that he's signing with other countries. We're seeing a promise
Speaker 10: by other countries that they won't levy digital service taxes
Speaker 10: and other kinds of taxes that might impede US tech
Speaker 10: rollout to other countries. So in general, I think he's
Speaker 10: been a very tech friendly president.
Speaker 5: We have the contours of some sort of agreement that
Speaker 5: they're going to reach tomorrow.
Speaker 1: What comes next.
Speaker 5: Where does this leave the relationship for twenty twenty six.
Speaker 7: Well, it reduces the tensions and potentially restores some market
Speaker 7: access to China.
Speaker 10: For example, by rolling back those ventanyl taxes by ten
Speaker 10: percentage points, China will get down closer to forty five
Speaker 10: percent or even forty percent average teriffrey, which means that
Speaker 10: the pressure on Chinese companies to go out build their
Speaker 10: factories and other countries will be lessened, So we're going
Speaker 10: to see a significant decrease in tensions. Then I think
Speaker 10: there's a hope on the US side that we can
Speaker 10: turn to issues which have prevented US exporters from gaining
Speaker 10: more of the Chinese market. So I think probably or surely,
Speaker 10: Secretary Investent Trade Representative Greer have a whole host of
Speaker 10: issues that they want to discuss with the Chinese, including,
Speaker 10: as I mentioned before, industrial subsidies, subsidies that come through
Speaker 10: the Chinese state banking system included.
Speaker 5: Do you think China is willing and ready to make
Speaker 5: those changes.
Speaker 10: I think China is willing to make some changes, not
Speaker 10: all that the US wants. China right now is of
Speaker 10: course struggling a little bit to revive its local demand.
Speaker 10: It does not want to be as dependent on exports.
Speaker 10: Net exports from China group by thirty six percent in
Speaker 10: the year to date. That means that a lot of
Speaker 10: Chinese growth is dependent on the rest of the world,
Speaker 10: except they're exports, and for many countries that means accepting
Speaker 10: that they'll be permanently in.
Speaker 7: A trade deficit position.
Speaker 10: So China knows that this reliance on net exports is
Speaker 10: really not sustainable, and they're looking for alternatives to that.
Speaker 7: So I think some of these changes are.
Speaker 10: Within the realm of things that Chinese authorities want to do.
Speaker 10: But when it comes to putting their development first, relying
Speaker 10: on growth in their tech industry, the diffusion of AI
Speaker 10: throughout their manufacturing, and continued emphasis on industrial development, those
Speaker 10: are not going to.
Speaker 2: Change very You know about these issues far out of Deny,
Speaker 2: But this is a conversation that you and I could
Speaker 2: have had ten years ago. And back then we were
Speaker 2: talking about Chinese other capacity and people said the same thing,
Speaker 2: that it wasn't sustainable.
Speaker 4: They needed to change.
Speaker 2: They understand that, and here we are ten years later
Speaker 2: and they're on course to run a record surplus this
Speaker 2: year even without stential trade with the United States. Mary,
Speaker 2: in your mind, at the moment in the history that
Speaker 2: you've following this, what makes this unsustainable? What would stop
Speaker 2: them from doing what they've been doing for such a long.
Speaker 7: Time, Well, they are really struggling.
Speaker 10: Obviously, they need to buy more of the things they
Speaker 10: make domestically.
Speaker 7: Yet Chinese domestic.
Speaker 10: Demand has really been moribund. People don't have a good
Speaker 10: outlook for the future. Firms investment outside of the tech
Speaker 10: sector has been lackluster as well, so they really need
Speaker 10: to revive their own economy if they're going to, you know,
Speaker 10: continue to have moderate growth so about five percent, and
Speaker 10: not sell all those products to the rest of the world.
Speaker 10: I think not only the US trade barriers, but protection
Speaker 10: that's being imposed by other countries, including in more friendly
Speaker 10: areas like the Southeast Asia, who are beginning to see
Speaker 10: a flood of Chinese imports that are hurting their own
Speaker 10: domestic producers. I think this response does have the attention
Speaker 10: of the Chinese authorities. Question is just now, how can
Speaker 10: they revive domestic demand. Just back from Shanghai, John and
Speaker 10: I think that this was a major topic of discussion.
Speaker 10: They're talking about new things. Obviously, investment in the real
Speaker 10: estate sector is out. They have a lot of infrastructure.
Speaker 10: They don't need more bridges and roads. They're talking about
Speaker 10: things like social infrastructure, helping local governments to build things
Speaker 10: that will help people's lives, including restoring old buildings that
Speaker 10: need refurbishing, things that will help with children and the elderly,
Speaker 10: the healthcare sector.
Speaker 7: These are areas where they're starting to look and.
Speaker 10: We hope we will see some action by the Chinese
Speaker 10: authorities to do some kind of fiscal stimulus in this area.
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Speaker 2: Terminal and the Bloomberg Business app. Mm hmm