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

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

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Speaker 2: in for Doug Prisner. On today's episode, a look at

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Speaker 2: the trading week ahead with the looming thread of tariffs

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Speaker 2: top of mind. We'll hear from Fred Newman, chief Asia

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Speaker 2: economist at HSBC, plus an exclusive conversation with German Chancellor

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Speaker 2: Oloff Schultz. He sat down a Bloomberg Stephanie Flanders in Munich.

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Speaker 2: But first delegates from Russia and the United States are

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Speaker 2: expected to meet in Saudi Arabia this week. This is

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Speaker 2: a two sides look to be in talks and the

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Speaker 2: war in Ukraine. For more, we're here from Michael Heath

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Speaker 2: South Asia Eco guv editor for Bloomberg News. He spoke

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Speaker 2: at Bloomberg Cherry On and Heidi Shroud Watts.

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Speaker 3: It's been so much a criticism, even back in the

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Speaker 3: presidential campaign, that Trump is going to perhaps go easy

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Speaker 3: on Pustian and kind of, you know, hand them the

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Speaker 3: better side of a negotiated deal.

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Speaker 4: Yeah, I'm not sure that it looks too different to

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Speaker 4: that at the moment, HAIDI. I mean, there are these talks,

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Speaker 4: as you mentioned, in Saudi Arabia. There's sort of preparatory

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Speaker 4: talks between the Russia and the US side, and as

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Speaker 4: you mentioned, President Trump did say that Ukraine and Volodimizelenski

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Speaker 4: will be involved. The question is in what form, because

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Speaker 4: so far it sort of looks like Europe has been

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Speaker 4: kept out in the kept in the cold. Ukraine is

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Speaker 4: finding out things that have after they happened. So it's

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Speaker 4: going to take a little bit of a turn around

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Speaker 4: here to sort of reassure Ukraine that the A deal

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Speaker 4: is not going to be done over its head. But

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Speaker 4: one interesting thing is that Vladimirselensky was talking fairly tough.

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Speaker 4: He said, look, there'll be no peace without Ukraine being

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Speaker 4: involved in it. The Ukrainian people themselves won't accept that,

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Speaker 4: and I think that that's completely correct. And Europe, of

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Speaker 4: course is trying to sort of scramble to get itself

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Speaker 4: into the discussion here so it's not left out as well.

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Speaker 4: So it's a really interesting time. It's been incredibly fluid,

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Speaker 4: quite a few contradictory statements coming out, but from the

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Speaker 4: Ukrainian side that they weren't terribly promising. You know, it

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Speaker 4: just looks very much that this whole relationship between President

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Speaker 4: puts In and President Trump is sort of rekindling. It's

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Speaker 4: very opaque, no one quite understands what it is. Trump

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Speaker 4: seems to have a very very high regard for put In.

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Speaker 4: I mean even to the point where when he was

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Speaker 4: mentioned that Zelensky would be involved in it, he said

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Speaker 4: that Putin had told him he didn't want to go

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Speaker 4: any further in the war and that he's sort of

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Speaker 4: ready to end it. I mean, there's not the sort

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Speaker 4: of comments that you rebroadcast, because you know, you wait

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Speaker 4: until you've actually got things set in place. So yes,

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Speaker 4: it's going to be really interesting to see how he

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Speaker 4: handles it.

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Speaker 3: Oh, we seeing European leaders respond to this changing geris

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Speaker 3: strategic and insecurity environment and demands by the US.

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Speaker 4: Yeah, I mean definitely. It looks like it was quite

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Speaker 4: a historic weekend really in terms of the whole Transatlantic

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Speaker 4: alliance here because we've got this meeting today that convened

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Speaker 4: by President Macron, and the European states that are involved

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Speaker 4: are the ones who actually do take their defense spending seriously,

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Speaker 4: plus Germany which doesn't quite so much. But nonetheless it's

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Speaker 4: all states involved who can do something, and it looks

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Speaker 4: like they're trying to bring in a core group who

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Speaker 4: can actually come up with some sort of plan quickly

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Speaker 4: to allow Europe to respond to this. Countries like Denmark,

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Speaker 4: like Spain, France and Britain obviously, as well Poland all

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Speaker 4: countries that can get moving. Now we saw some smaller

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Speaker 4: states criticize this, but the problem with the EU is

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Speaker 4: it's so unwieldy, and the Trump administration is moving so

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Speaker 4: quickly that Europe must respond quickly. I think the Trump

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Speaker 4: administration does have a very strong point on Europe. You know,

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Speaker 4: it's been free riding for eighty years. It really does

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Speaker 4: need to step up. It's just that it comes in

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Speaker 4: the context of a war, which makes it very, very

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Speaker 4: difficult and stressful to do obviously, but the underlying premises right,

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Speaker 4: it's just whether the timing is. But yes, it looks

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Speaker 4: like Europe is really going to make a change here.

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Speaker 1: Yeah, and the Trump administration really wants to get paid back,

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Speaker 1: is what they're saying right now when it comes to

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Speaker 1: supporting Ukraine on the Russian invasion, but at the same

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Speaker 1: time not having necessarily invited President Zelensky to these negotiations,

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Speaker 1: how is this going to play out.

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Speaker 2: Yeah shere.

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Speaker 4: When the Treasury Sectory was in Kiev last week, he

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Speaker 4: presented an economic proposal to the Ukrainians about these critical

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Speaker 4: minerals that Ukraine has, and it looks like it doesn't

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Speaker 4: look like it's particularly good for the Ukrainians disagreement. From

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Speaker 4: the bits that we've seen or have been reported about it,

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Speaker 4: it's that the US will get fifty percent of whatever

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Speaker 4: Ukraine has and the number one that sort of contravenes

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Speaker 4: Ukrainian law, but it almost it's sort of almost like

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Speaker 4: a dare I say that imperialist sort of thing that

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Speaker 4: a larger state takes some of the economic power of

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Speaker 4: another state. Ukraine is looking. Ukraine's happy to deal with

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Speaker 4: the US in and to be very very generous on it,

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Speaker 4: but Ukraine needs security guarantees tied to that, and there

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Speaker 4: were none here. It was just Ukraine US will have

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Speaker 4: this ownership with no, it won't have any requirements with

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Speaker 4: in terms of defending Ukraine. Now, the Trump administration says, look,

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Speaker 4: the fact that the US is in there means that

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Speaker 4: it will defend Ukraine because it's got an Econo mistake

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Speaker 4: in it, and they're very very strong on Ukraine needing

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Speaker 4: to pay for what the US has done to support them.

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Speaker 5: It's a difficult.

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Speaker 4: Issue because if you look at it from a macro level,

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Speaker 4: the reason that the US was doing that was so

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Speaker 4: they don't have to deal with Russia in Europe at

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Speaker 4: some point down the track. So it was sort of

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Speaker 4: an investment, you know, in stopping this before it gets

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Speaker 4: makes it worse. But you know, we'll just have to

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Speaker 4: see how that unfolds. Ukraine is not agreeing to it yet,

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Speaker 4: but it may have little choice here.

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Speaker 1: Bloomberg News that there are Michael Heath there as will

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Speaker 1: continue to watch those your political developments.

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

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Speaker 2: in for Doug Prisner. Markets will be offline in the

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Speaker 2: US on Monday for President's Day, but the threat of

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Speaker 2: tariffs from Washington will continue to loom over markets. For more,

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Speaker 2: we hear from Fred Newman, chief Asia economist at HSBC.

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Speaker 2: He spoke with Bloomberg, Sherry On and Haidi Stroud Watts.

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Speaker 6: I mean, what a time right now?

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Speaker 1: Right? I think the last few times has bok to you.

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Speaker 1: We also had this Trump tariff uncertainty. We're back to that.

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Speaker 1: Did we get any lessons from the last round of

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Speaker 1: tariffs we had in twenty eighteen twenty nineteen.

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Speaker 5: You're right, it's a bit of a digital vu, but

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Speaker 5: I think it's actually be careful to say that it's

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Speaker 5: exactly a rerun. Right, the global economy has moved on.

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Speaker 5: There's much more inflation in the world now than it

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Speaker 5: was back in Trump won right, there was In fact,

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Speaker 5: we talked about deflation risk back then. Now it's inflation,

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Speaker 5: so it might be much more disruptive in many ways.

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Speaker 5: It might also be we're going to see more countries

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Speaker 5: actually received terriffs this time around. Back back back then

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Speaker 5: it was mostly China, and now it's sort of are

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Speaker 5: we going to get reciprocal terrors on.

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Speaker 6: The terrible tariffs? Are now talking about.

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Speaker 1: Auto tariffs as soon as April the second. I think,

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Speaker 1: what does that mean in terms of central banks? As

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Speaker 1: you say, there's the inflation concern as well.

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Speaker 5: So up until now, center banks in Asia have been

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Speaker 5: really worried about the stronger dollar, right they were They

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Speaker 5: kind of knew they had to cut because inflation is

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Speaker 5: back down, but they're kind of reluctant to cut because

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Speaker 5: they don't want to currency to weaken further now since

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Speaker 5: they're really getting concerned more about growth. What does all

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Speaker 5: of this mean about for economic growth? And should we

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Speaker 5: therefore cut e The reaction function is sort of switching

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Speaker 5: from the currency towards growth, and that's why we might

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Speaker 5: see more cuts coming.

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Speaker 1: If you have the tariffs in place, What does that

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Speaker 1: mean for economies across Asia? Because at the same time

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Speaker 1: we could see those inflationary pressures. But what happens if

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Speaker 1: the US economy starts to slow down. We saw the

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Speaker 1: US retail sales also being much softer than expected.

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Speaker 5: Well it was primarily the US and impulsed terrorfs. Actually

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Speaker 5: you could argue it's deflationary for the rest of the world.

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Speaker 5: So what you get then is a divergence of inflation.

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Speaker 5: You have more inflation in the US because of the terriffs,

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Speaker 5: but everywhere else because it's weaker growth, you might actually

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Speaker 5: get less inflation, and therefore central banks have to, you know,

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Speaker 5: have the door open to cut. The only thing is

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Speaker 5: that the currency might weaken, and so do you accept

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Speaker 5: that or not? At some point you probably prioritize growth

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Speaker 5: over weaker exchange rates.

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Speaker 3: You know, this time around, the Chinese economy is in

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Speaker 3: a far worse state than the last Trump administration. Right,

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Speaker 3: So what toolsort of meaning the effective are still available

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Speaker 3: to Beijing.

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Speaker 5: Well, if you talk about protecting economic growth and it's

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Speaker 5: really about firing up domestic demand, right, it's got to

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Speaker 5: be one of the priorities because the export channel really

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Speaker 5: is not not going to be viable for the next

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Speaker 5: two to three However, many years it's all about the

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Speaker 5: domestic economy. So one of the first reactions is to say, Okay, well,

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Speaker 5: Harris's are coming, what are we going to do with growth?

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Speaker 5: And it's about fiscal policy. It's about putting in more

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Speaker 5: stimulus domestically. But as we know, it's been slow in coming.

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Speaker 5: We're now looking to the two sessions in early March.

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Speaker 5: Is there more going to come? It might be more

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Speaker 5: of a very gradual, incremental kind of move forward. It

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Speaker 5: won't be the big Berzuka that many people are still

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Speaker 5: hoping for.

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Speaker 3: The domestic demand side, the animal spirit side, has been

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Speaker 3: missing this whole time, right, Do you I think it's

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Speaker 3: because they haven't been willing to kind of go for

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Speaker 3: the big guns like direct household payments and do they

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Speaker 3: need to do that? What breaks this deflationary mindset and

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Speaker 3: confidence spiral as probably you could.

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Speaker 5: Always say and you need more and more and more

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Speaker 5: r if you could say, well, interest rates should be

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Speaker 5: cut more, you should could say that we need more

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Speaker 5: fiscal stimulus, and some extent that's true. We probably need

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Speaker 5: more of a policy accommodation. At the same time, remember

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Speaker 5: that one of the key key direction the economy is

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Speaker 5: the property market. It is that that worries around property

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Speaker 5: values that's really starting to weigh in the confidence of consumers,

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Speaker 5: and so you probably want to kind of hone in

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Speaker 5: on the property sector in particular. So the key key

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Speaker 5: to unlocking things is probably to accelerate stabilization measures on

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Speaker 5: property and therefore then hopefully at that point when you

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Speaker 5: use stimulus and you have much more traction with it.

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Speaker 5: So we would expect actually priority coming months needs to

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Speaker 5: be the property sector. And here probably we need more

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Speaker 5: Beijing funds to help stabilize things because there's still access

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Speaker 5: in inventory in the system, there's still companies that have

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Speaker 5: been struggling a little bit with funding, and so that's

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Speaker 5: going to be sort of one of the keys to

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Speaker 5: unlock things.

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Speaker 1: Talking about animal spirits, are they sustainably back over in Japan?

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Speaker 1: I mean we've known that there's been a lot of

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Speaker 1: interest on Japan, especially with the bog finally normalizing rates.

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Speaker 1: But at the same time, how sustainable is this if

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Speaker 1: we continue to see inflation picking up and consumers suffering because.

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Speaker 5: Of a week or It's a really fine line to

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Speaker 5: Buja has to walk right. You want inflation, you just

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Speaker 5: don't want too much. You want optimism, but you don't

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Speaker 5: want to raise interest rates too much. So it's really

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Speaker 5: a fine line. So far after hand, it to them

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Speaker 5: that really struck the line very well. If you look

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Speaker 5: at that, yeah, I think so far it's worked actually

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Speaker 5: quite well. It looks as if inflation expectations are back up.

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Speaker 5: We see corporate earnings actually doing reasonably well. These are

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Speaker 5: large companies, investments coming back, We're seeing move towards accelerating productivity,

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Speaker 5: likely going to get another round of strong wage growth.

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Speaker 5: So it really looks like Japan has turned a corner.

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Speaker 5: Now that might work for one or two years. The

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Speaker 5: problem is what comes after right and there we need

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Speaker 5: to see how do we kind of ease the decline

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Speaker 5: in population, how do we really start to get those

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Speaker 5: productivity growth going, in terms of innovative technologies, in terms

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Speaker 5: of new industries. That's still going to be a big hurdle,

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Speaker 5: but for now I think they've really laid the path

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Speaker 5: for sustained recovery.

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Speaker 2: That was Fred Neuman, Chief Asia economist at HSBC. Over

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Speaker 2: the weekend, we heard from German Chancellor all Love Schultz

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Speaker 2: in an exclusive interview with Bloomberg. He said the European

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Speaker 2: Union is prepared to counter US tariff threats if it

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Speaker 2: has to. Schultz spoke a Bloomberg Stephanie Flanders in Munich.

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Speaker 7: First, I have to admit that I'm in favor of

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Speaker 7: free trade. I think this is a big advantage we

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Speaker 7: have in the world and that many of the world

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Speaker 7: and the growth we have in the world is because

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Speaker 7: of free trade. So it must be fair free trade, yes,

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Speaker 7: but free trade is better than tariffs and protectionism. I

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Speaker 7: don't think that this will work when it comes to

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Speaker 7: the Union. I think everyone knows that we are a

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Speaker 7: big economic area with a lot of strength, where policy

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Speaker 7: about tariffs is something that is our common policy. So

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Speaker 7: we are strong enough to react to everything that is

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Speaker 7: harming Eupean economy. But we should and we should react always,

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Speaker 7: but in a way that is always offering the chance

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Speaker 7: for an agreement because it's better for all parties involved,

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Speaker 7: especially on the both sides of the Atlantic.

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Speaker 6: But it is the Opini Union considering cutting tariffs before

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Speaker 6: any announcement on cars.

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Speaker 7: We invite the United States to discuss with the responsible

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Speaker 7: authorities about what we can do for a better progress

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Speaker 7: that serves all of us. There is a willingness, and

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Speaker 7: so I'm sure it's better if we agree to something

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Speaker 7: that helps all of us. And it is good to

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Speaker 7: know that europe is strong enough to act and to react.

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Speaker 6: You talk about it being a common project, but Donald

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Speaker 6: Trump has made clear that he wants to do reciprocal tariffs.

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Speaker 6: He doesn't want a wto approach where all the rules

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Speaker 6: are on the same countries, And even with the European Union,

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Speaker 6: he might want to have a different tariff regime for

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Speaker 6: France and Italy and Germany. What would you do?

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Speaker 8: Then?

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Speaker 7: The European Union is a unified economy and.

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Speaker 6: Has there's nothing to stop the US doing that.

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Speaker 7: But it has common tariffs and we act together and

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Speaker 7: we will stick together, which I think is also important.

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Speaker 7: And so I'm quite confident that a good solution is

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Speaker 7: feasible and everyone should work to make it happen.

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Speaker 6: You spoke this morning very clearly about what you need

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Speaker 6: to do to inc is defense spending above two percent

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Speaker 6: of GDP and suspending the debt break just for that

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Speaker 6: additional defense spending, but for many countries it will want

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Speaker 6: to also have joint debt issuance for Europe as a

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Speaker 6: whole to be able to invest enough in defense. Would

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Speaker 6: you consider that given everything that's happened in the last

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Speaker 6: few weeks.

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Speaker 7: I think there are three things we can do in

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Speaker 7: this very moment. The first is that we agree in

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Speaker 7: Germany that supporting Ukraine is something of an extra effort,

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Speaker 7: so we should have extra room for maneuver also financing

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Speaker 7: this support to Ukraine, which when it comes to the figures,

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Speaker 7: Germany is doing the most. We are the biggest support

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Speaker 7: of Ukraine in Europe, the second biggest in the world,

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Speaker 7: and this has to continue. But we cannot pay for

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Speaker 7: it with cuttings in pension schemes or in the health sector,

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Speaker 7: or in cuttings in the investment into streets and railways

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Speaker 7: and so on. So I think it's clear that we

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Speaker 7: have to do this. And the second is that we

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Speaker 7: have to agree how we will continue with the spending

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Speaker 7: of more than two percent of our GDP for defense,

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Speaker 7: which we achieved because of an extra fund which I

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Speaker 7: managed to get through the parliament. But for the future

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Speaker 7: we need a new decision about this and this is

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Speaker 7: for continuing with this two percent plus already thirty billion

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Speaker 7: a year. So also this will not work with tax

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Speaker 7: increases or cuttings and spending in the different areas of

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Speaker 7: the German budget. And when it comes to do more,

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Speaker 7: which will be obviously necessary when we look at what

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Speaker 7: NATO is discussing, then it especially means that we do

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Speaker 7: something for these activities which gives us in Germany the

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Speaker 7: opportunity to spend even more. And this has also to

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Speaker 7: do with the reform of the debt regulation in Germany.

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Speaker 7: When it comes to Europe, I think we should help

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Speaker 7: every country if it spends more than two percent, to

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Speaker 7: be not hindered by the European regulation on treating.

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Speaker 6: Changing the stability.

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Speaker 7: We have to change these agreements so that this is

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Speaker 7: feasible for a country to do.

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Speaker 2: That was German Chancellor all Off Shultz speaking to Bloomberg

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Speaker 2: Stephanie Flanders in Munich.

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Speaker 8: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 8: Asia Edition podcast. Each weekday, we look at the story

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Speaker 8: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 8: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 8: or anywhere else you listen. Join us again tomorrow for

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Speaker 8: insight on the market moves from Hong Kong to sing

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Speaker 8: Poor and Australia. I'm Doug Prisoner and this is Bloomberg

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Speaker 1: M