Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's the power
Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: Member s i p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course, on the Bloomberg. A little earlier today, our
Speaker 1: colleague Francine Locke sat down with the Managing Director of
Speaker 1: the International Monetary Fund at Christine Legarde in Brussels. She
Speaker 1: had given a speech there on some of the risks
Speaker 1: that the I m F is focusing on, among them
Speaker 1: protect is M and political uncertainty. Let's take a listen
Speaker 1: to what she had to say. Protection is M is
Speaker 1: clearly a threat and one that if it was to
Speaker 1: be realized, would would really be a break on growth,
Speaker 1: would be a break on productivity, would be a break
Speaker 1: on investment, because we are seeing that both innovation and
Speaker 1: trade are conducive to productivity. Productivity is the engine for
Speaker 1: growth and better allocation of resources. So, you know, as
Speaker 1: part of the risks that we see clearly protectionism is one.
Speaker 1: The political uncertainty that we see around the world, particularly
Speaker 1: in the European region is also high on our agenda
Speaker 1: of risks. And you know, the potential for capital flows
Speaker 1: moving from emerging market economies to advanced economies as a
Speaker 1: result of the reinforcement of a dollar and a rise
Speaker 1: of interest rates is a third one. Those are the
Speaker 1: sort of three rieks risks um that apply to a
Speaker 1: situation which you know is quite positive at the moment.
Speaker 1: Do you believe that the Trump administration, though, could be
Speaker 1: less protection is that we feared just at the early
Speaker 1: in the beginning of January. You know, as as always,
Speaker 1: I don't think that any economy would actually um prescribe
Speaker 1: limited growth, limited productivity, limited investment, limited innovation. So if
Speaker 1: if policymakers, including the US policymakers, want better growth, more investment,
Speaker 1: more innovation and productivity, trade is part of the solution. Now,
Speaker 1: then you go into the question of what kind of trade.
Speaker 1: Is it trade with restriction, is it trade with distort
Speaker 1: if measures, and I think everybody, I hope I would
Speaker 1: agree that we do not want distortions. We do not
Speaker 1: want restrictions. We want a trade that is open, that
Speaker 1: is fair and inclusive in order to facilitate opportunities. Great
Speaker 1: to have with us. Mark Chandler had of f X
Speaker 1: at Brown Brothers hereman here in our Bloomberg eleven three
Speaker 1: oh studios. Since I was doing that day to check Mark,
Speaker 1: I was remiss and not mentioning euro yen right now
Speaker 1: one you've been paying particularly close attention to that pair. Why, yeah, sure.
Speaker 1: I think that that euro yen parents captures the axis
Speaker 1: and which you can capture a lot of the driving
Speaker 1: forces right now between the geopolitical concerns in Syria and
Speaker 1: in Korea peninsula as well as the French elections. And
Speaker 1: so that euro yen cross has been moving against the
Speaker 1: Euro for eleven days in a row through yesterday, and
Speaker 1: that's the longest losing streak the euro has had against
Speaker 1: the Japanese yen since the advent of the euro back
Speaker 1: in the late nineties. Does it does it reflect entirely
Speaker 1: geopolitics or is there something else to play when you
Speaker 1: look at the Japanese economy sign well, the Japanese economy
Speaker 1: and the euros on economy is growing. It looks like
Speaker 1: above trend here in Q one as the as both
Speaker 1: economies seem to be catching a good uh sort of
Speaker 1: good traction here. But I think that the you're the
Speaker 1: dollar yen itself. I think it's a relationship that's really
Speaker 1: driven right now by the ten year US yield. And
Speaker 1: so even though a lot of people talked about the
Speaker 1: yen strength yesterday at safe Haven, I don't only see
Speaker 1: that so much. I see short covering of the end,
Speaker 1: but I think it's really being driven by the drop
Speaker 1: in US yields. You know, we were trading roughly to
Speaker 1: thirty two sixty on the tenure UH for several months,
Speaker 1: and we broke through the downside of that and find
Speaker 1: it difficult to get back into that old range, you know,
Speaker 1: Mark chand Are. One of the things I was looking
Speaker 1: at is I was comparing equity markets and going back
Speaker 1: about thirty days, I was checking on the Japanese equity market,
Speaker 1: taking a look also at the SMP five. It looks
Speaker 1: like we've done a round turn. That's so we've just
Speaker 1: come and sort of lapped ourselves almost. Is there any
Speaker 1: context that you can help us understand why this is happening.
Speaker 1: Why we seem to have this uh sort of On
Speaker 1: the one hand, you know, people get bullish, they wait
Speaker 1: for earnings to come out, then everybody sells. Is it
Speaker 1: just really you know, by the news, sell the room
Speaker 1: the otherwise, sell the news by the room or sell
Speaker 1: the news. Yeah, I think that, you know, Brown Brothers,
Speaker 1: we really help our clients through value investing in the problem.
Speaker 1: Right now, there's not a lot of value with stock markets.
Speaker 1: The US stock marketing record highs, many other stock markets
Speaker 1: that had big rallies. Emerging markets have been a real
Speaker 1: surprise in the first quarter up I want to say
Speaker 1: about eight percent or so. The Japanese stock market is
Speaker 1: really making new loads for the year I think yesterday
Speaker 1: or today, and this I think is really reflection of
Speaker 1: the value that we have before, but also the young strength.
Speaker 1: You know, foreigners have been big sellers of Japanese stocks
Speaker 1: most of this year. Very end of March they turned buyers.
Speaker 1: And I suspect that the new fiscal year begins, we'll
Speaker 1: see Japanese capital outflows resume and we'll see foreigners again
Speaker 1: looking at Japanese stocks. As far as the political situation
Speaker 1: goes in in Asia and North Korea. I'm sure that's
Speaker 1: something that you didn't go to school to learn how
Speaker 1: to write about or even think about a factor into
Speaker 1: your analysis. But how do you do that? Yeah? So
Speaker 1: how do people like me look at a couple of things.
Speaker 1: One is we try to understand what's happening, and we
Speaker 1: try to make scenarios about what's going to happen. And
Speaker 1: I think that, you know, the Korean Peninsula is one
Speaker 1: of the left the last of the Cold War sort
Speaker 1: of challenges, and I think that there's you know, it's
Speaker 1: what's really challenging about it is when East when West
Speaker 1: Germany had that leveraged biout of East Germany after the
Speaker 1: Berlin Wall fell, Germany decided to do it on zone
Speaker 1: finance the takeover. But South Korea is not rich enough
Speaker 1: it will do that for North Korea. So it's much
Speaker 1: more of an internationally. And East Germany did not have
Speaker 1: nuclear weapons. East Joreman did have nuclear weapons. But the
Speaker 1: idea is that how can how could the create to
Speaker 1: be united? Is that anybody's interest to really put this
Speaker 1: conflict to rest? And I don't think China would like
Speaker 1: the Korean Peninsula dominated by South Korea US interest. I
Speaker 1: don't think Japan would like a United Korean peninsula where
Speaker 1: it would be a real rival to the Japanese economic
Speaker 1: UH power in in East Asia as well. So I'm
Speaker 1: not sure that anybody has It's sort of like the
Speaker 1: Middle East. Everybody complains about it, and I see that.
Speaker 1: Of course, people try to do things about it, but
Speaker 1: at the end of the day, it might not be
Speaker 1: in the collective interest to really resolve these conflicts, which
Speaker 1: is why they're not resolved. Help us understand how you
Speaker 1: weigh the political risk versus the fundamentals. UH is political
Speaker 1: risk taking precedence at this point, and that's a good question.
Speaker 1: I think that, you know, I start of think of
Speaker 1: it like this, that's it's like a radio actually the markets,
Speaker 1: and I think that sometimes there's noise and sometimes there's
Speaker 1: a signal. And I think that people like myself, our
Speaker 1: job is trying to help investors distinguish between the noise
Speaker 1: and the signal. And I think that the underlying macroeconomic
Speaker 1: fundamentals are the ultimate signal, and the geopolitics is noise,
Speaker 1: though important noise around that signal. And so I think
Speaker 1: it's sort of a bit of a disruption. But I
Speaker 1: think that the geopolitical situation is not something that can
Speaker 1: be sustained. A high level of tension like this cannot
Speaker 1: be sustained. Something has to give, and I think that
Speaker 1: we go back into a more stable situation as we
Speaker 1: get past this this coming weekend. How cognizant is this administration?
Speaker 1: Do you think about what the markets are thinking? We
Speaker 1: can ask about this in the context of the FED
Speaker 1: as well, and you certainly heard from some FED speakers
Speaker 1: that they are aware of or interested in what the
Speaker 1: markets are are doing. But for a guy like you
Speaker 1: trying to find out what administration's policies are, uh, you know,
Speaker 1: do you think there's some sympathy for people the markets,
Speaker 1: for people that's just generally here trying to figure out
Speaker 1: what the heck is going on? I think that's really
Speaker 1: the challenge. I just come back from a long business
Speaker 1: trip in Asia, and I think this is the key
Speaker 1: question everybody has, is the Trump administration unknown quantity. I
Speaker 1: know that there's some experienced people there in the in
Speaker 1: the cabinet, but there's a lot of people with little
Speaker 1: political experience, with little knowledge experience in foreign policy. And
Speaker 1: I think that the communication style all this adds to
Speaker 1: uncertainties signals that are being sent inadvertedly, and so I
Speaker 1: think this is what makes the investment climate all the
Speaker 1: more difficult, uncertainty of policy, untested quantities out there. So
Speaker 1: I think there's a real challenge. But what we try
Speaker 1: to do is still focus on the underlying signal, and
Speaker 1: that's going to be reversion back to macroeconomics, and they're
Speaker 1: the key issue is FED policy, tightening of FED policy,
Speaker 1: balance sheet and what other central banks will do. Bank
Speaker 1: of Japan is still easing policy, e c B is
Speaker 1: still expanding its balance sheet. So I think that the
Speaker 1: divergence still underpins a large, a long dollar position in
Speaker 1: the long run, but we got this noise in the
Speaker 1: short run. Tell us about China and the Chinese you want,
Speaker 1: and I know that Stephen Schwarzman, the head of Black
Speaker 1: black Stone, yesterday was speaking on Bloomberg Television with the
Speaker 1: David Weston in which he spoke about China as a
Speaker 1: currency manipulator, and the point that he made, I believe
Speaker 1: was that he doesn't think that that's going to be
Speaker 1: a label that will get put on the Chinese. Yeah,
Speaker 1: that's my view as well. I think that oftentimes in
Speaker 1: campaigns I think Bush, Obama, Romney all talked about China
Speaker 1: manipulating the currency. It may have in the past, but
Speaker 1: the Treasury Department has come up with a criteria and
Speaker 1: China just doesn't make the criteria. For example, one of
Speaker 1: the criteria is that that a country has a large
Speaker 1: by that they mean more than three percent current account surplus.
Speaker 1: China is close to half of that. I think last
Speaker 1: year is about one point eight percent. Another criteria is
Speaker 1: a country that has increasing currency reserves as they intervene
Speaker 1: in the foreign exchange market. And as we know, over
Speaker 1: the last eighteen months or so, China's reserves have fallen
Speaker 1: by a trillion dollars. A trillion dollars there's more reserves
Speaker 1: in the US Canada have combined. And so again China
Speaker 1: dosn't meet this criteria. And I think this is we
Speaker 1: have to make a distinction between operational policy and declaratory policy.
Speaker 1: How how is that shown up in the market. In
Speaker 1: other words, if if some one didn't tell you that
Speaker 1: the Chinese uh this trillion dollars hadn't flooded out, where
Speaker 1: would you go to see it and understand where it
Speaker 1: ended up going? Yeah, well, this gets a little bit tricky.
Speaker 1: I don't think you can really just look at the
Speaker 1: foreign exchange market because the currency, the R and B,
Speaker 1: is very steady against the dollar. I don't think you
Speaker 1: can look at the Chinese stock market. It's being driven
Speaker 1: by other things. What I would be looking at is
Speaker 1: really is the Chinese companies that borrowed dollars that are
Speaker 1: paying them back, and that the i i f TO
Speaker 1: Institute for the National Finance said that about two thirds
Speaker 1: or those capital outflows from China are really Chinese companies
Speaker 1: who borrowed dollars paying them back. So I'd be looking
Speaker 1: at those kind of below the surface things that are
Speaker 1: a bit bit more difficult, too difficult to find. But
Speaker 1: are there, nonetheless those Chinese companies that are in debt
Speaker 1: and they're paying back in US dollars they borrow the
Speaker 1: dollars and when the dollars and index for that or
Speaker 1: something I mean is there. You just gotta go company
Speaker 1: by company by company and you have to look at
Speaker 1: really what's behind the capital flows. I think a lot
Speaker 1: of us look at the trade flows, but I really
Speaker 1: think that behind the trade flows that was a sort
Speaker 1: of our parents generation. But I think now it's the
Speaker 1: capital market that drives the trade flows, not the other
Speaker 1: way around. David Grew with Pim Fox today, Tom keene
Speaker 1: Off this week, Mark Chandler with us from Brown Brothers.
Speaker 1: Hariman and Mark and I were listening to the interview
Speaker 1: that Francine Lockwood did with Christine Lagard just a few
Speaker 1: minutes ago. She was enumerating risks Mark. She said, it's protectionism,
Speaker 1: political uncertainty. We've talked about both those in some detail.
Speaker 1: That she said, potential for capital flows moving, How does
Speaker 1: that play out in an economy that she says is
Speaker 1: quote quite positive at the moment. Yeah. I think when
Speaker 1: she was getting at David was that typically you'd want
Speaker 1: to see the developed world lend money and invest in
Speaker 1: emerging markets. But really characterized really the pre crisis era,
Speaker 1: pre crisis phase at least was capital flows going from
Speaker 1: emerging markets back to the developed world. And I think
Speaker 1: that the stabilized and the other issue I think that
Speaker 1: the capital flow issue raises is what Pim and I
Speaker 1: had talked about before, and that is that many countries
Speaker 1: and companies borrowed dollars when U S interrust rates were
Speaker 1: low and the dollar was cheap. And now that that
Speaker 1: that cycle is reversing. It looks like there's some dollar
Speaker 1: imbalances out there still, and that becomes also a destabilizing element.
Speaker 1: Francy asked her about China being labeled the currency manipulator,
Speaker 1: the prospect for that happening, and she demurred. Talking about
Speaker 1: the report the I m F is going to release
Speaker 1: here in a couple of months. I noticed the same
Speaker 1: thing happening now within the Trump administration, Stephen Nutan saying
Speaker 1: we're gonna get this forex report, this twice a year
Speaker 1: FX report soon and uh, you know, not not having
Speaker 1: the hot rhetoric that we saw on the campaign trail. Certainly,
Speaker 1: are you ruling that out at this point in light
Speaker 1: of what we're hearing from from the US the U S. Government,
Speaker 1: Do you think it's unlikely that we'll see that that
Speaker 1: labeling happen? In some ways, I think it's unlikely. But
Speaker 1: on the other hand, look at what happened when Japanese
Speaker 1: Prime Minister Abbe visited the US. UH the U S
Speaker 1: and Japan agreed to a high level between the Vice
Speaker 1: President and the Japanese Finance minister to having to have
Speaker 1: trade talks. And now after President she visited the United States,
Speaker 1: the US and China are going to be a hundred
Speaker 1: day crash negotiations on a cabinet level. And it turns
Speaker 1: out that if a country is found guilty of manipulation
Speaker 1: by the U S Tradure Department, the first thing that
Speaker 1: has to happen bilateral trade talks. So I think that
Speaker 1: for me, it's the reason that China doesn't get sady.
Speaker 1: The currency manipulated is one that doesn't meet the criteria.
Speaker 1: And secondly, because there's already these trade talks in place.
Speaker 1: And I think this is really partly the Trump negotiating
Speaker 1: type strategy. Make these outlandish claims and then get the
Speaker 1: other side to uh, to compromise, to make some concessions,
Speaker 1: and then you can pull back, that is, the US
Speaker 1: can pull back from some extreme operation excuse me, some
Speaker 1: extreme declaratory policy, Mark Chandler, Can I just ask you?
Speaker 1: And I know I'm putting in a tough position because
Speaker 1: talking about other people's credibility is always a fool's errand
Speaker 1: but um, you know, we are how many years into
Speaker 1: the Greek crisis eight years? Uh, you have um a
Speaker 1: situation now where a fifth of the Greek population is
Speaker 1: currently unemployed, and that's being generous with the statistics. Uh,
Speaker 1: you're talking about a hundred and eighty percent debt to
Speaker 1: GDP plus about two and a half billion euros has
Speaker 1: just gone out of Greek banks in January and February
Speaker 1: of this year. If you can't solve a problem like Greece,
Speaker 1: which I understand is about the economy, the size of Philadelphia,
Speaker 1: what credibility do you have to talk about all the
Speaker 1: other efforts that are going on around the world. And
Speaker 1: I think that you know, I think that him. This
Speaker 1: is I think a issue that people haven't focused on yet.
Speaker 1: It's coming up. It's gonna coming to a head in
Speaker 1: the next couple of months. And here's what the issue is.
Speaker 1: The German parliament and the Dutch parliaments say the only
Speaker 1: way that they'll give more money to for the grease bailout,
Speaker 1: so called bailout, is if the I m F contributes money.
Speaker 1: The US is not sure that it wants to okay
Speaker 1: the I m F to contribute even more money to Greece.
Speaker 1: Isn't this a problem? I think you the point that
Speaker 1: I hear you raising. Isn't this a problem that europe
Speaker 1: can solve themselves? Do they need you? If Tillerson says,
Speaker 1: what do US taxpayers have an interest in Ukraine? Surely
Speaker 1: U S taxpayers don't have an interest in bailing out griefs.
Speaker 1: And so I could conceive of a situation where the
Speaker 1: I m F board rejects that is, with the US
Speaker 1: veto tells the I m F it cannot lend more
Speaker 1: money to degrees, and there causes a bit of a
Speaker 1: crisis in Europe, because then what can the Germans do
Speaker 1: a few months ahead of their national elections? Couldn't you
Speaker 1: foresee a similar conversation where somebody off handedly says, why
Speaker 1: do US taxpayers care about the IMV? Yeah? I think
Speaker 1: you know. This is an important point I think is
Speaker 1: that that is that the the American first rhetoric of
Speaker 1: Trump's is not hearkened back to World War Two, but
Speaker 1: World War One. And remember what happens after Woodrow Wilson
Speaker 1: proposes the League of Nations. The Senate says, no, you don't.
Speaker 1: And what the US was launching then, even though a
Speaker 1: lot of people call it an isolationist phase, it was
Speaker 1: really unilateralist. And I think this is the issue the
Speaker 1: under the Trump administration. I think the idea is that
Speaker 1: these multi lateral institutions may prevent the US from articulating
Speaker 1: or expressing its national interest, but I think that at
Speaker 1: the end of the day, uh, the US will be
Speaker 1: hesitant to break from these, even though it might perhaps,
Speaker 1: as they've hinted, not necessarily listen to the all the
Speaker 1: w t O declarations UH where they where they try
Speaker 1: to exert their influence stronger within these multi lavel institutions
Speaker 1: and enforced more vigorously some of the trade agreements. So
Speaker 1: I think that this is a risk that the protectionist, nationalist,
Speaker 1: scorched earth wing of the Trump administration wins out. But
Speaker 1: right now I'd say it looks like, uh, maybe a
Speaker 1: tilt the other way with that Kushner Bannon reproache mais
Speaker 1: that seemed to be in place as of last weekend.
Speaker 1: Our Mark Channel with Brown Brothers Harriman, thanks for being
Speaker 1: with us. Appreciated. Brought you by Bank of America, Mary Lynch.
Speaker 1: Dedicated to bringing our clients insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the power of
Speaker 1: global connections. Mary Lynch, Pierce Federin Smith Incorporated, Member s
Speaker 1: I p C. Turning out a foreign policy he had
Speaker 1: a four year tour of duty in Brussels is the
Speaker 1: Supreme Allied Commander, Admiral James Debritus is now doing the
Speaker 1: flex A School the Toughts University. He's anost is great
Speaker 1: to talk with you, is always, especially on this day
Speaker 1: when the NATO Secretary General is in Washington, d c.
Speaker 1: For a series of meetings at the White House. Will
Speaker 1: he'll hear from him later this afternoon when he and
Speaker 1: the President have a press conference at the White House.
Speaker 1: How confident are you that we're going to move beyond
Speaker 1: the conversation about funding with these two leaders today. It's
Speaker 1: something that the President is very keen to talk about.
Speaker 1: He has been keen to talk about. Has he has
Speaker 1: he made his voice heard on that issue enough? Do
Speaker 1: you think we can move past it? I think he has.
Speaker 1: And you know, there's a business show. If a NATO
Speaker 1: or a stock I would say now is a pretty
Speaker 1: good time to buy some more of it. Um. It
Speaker 1: is going to be a good conversation about the challenges
Speaker 1: that Russia poses to the Alliance, about the possibility for
Speaker 1: additional NATO resources devoted to the fight against Syria, and
Speaker 1: hopefully a little bit about cybersecurity and how we can
Speaker 1: work together on that. So yes, I think message received
Speaker 1: at NATO on the funding and we are going to
Speaker 1: be able to move beyond it. Uh, it's gonna be
Speaker 1: an awkward conversation to have about the one sentence offhand
Speaker 1: remarks seemingly the Secretary of State Rex Tillerson made yesterday
Speaker 1: about about the Ukraine. He said, well, why should US
Speaker 1: taxpayers care about Ukraine? If you, if you had a
Speaker 1: few minutes with the Secretary, what would you say in
Speaker 1: response to that? I would say that any time we
Speaker 1: allow a big nation like Russia to invade a relatively
Speaker 1: small nation like Ukraine and carve off a significant chunk
Speaker 1: of its territory, in this case the CRIMEA, if we,
Speaker 1: as an international community, and as the United States as
Speaker 1: a leading nation, allow that to happen, we are all
Speaker 1: at risk. And therefore I would say to the American
Speaker 1: taxpayers that we don't have to send a couple of
Speaker 1: hundred thousand troops to Ukraine, but we ought to be
Speaker 1: in the game helping arm their military and pushing back
Speaker 1: against this kind of Russian aggression. It's in our global
Speaker 1: interest to do so. Admiralstravitas, I wonder if you could
Speaker 1: share just a bit of your personal history to demonstrate
Speaker 1: how tractable some of these conflicts can be. And I'm
Speaker 1: thinking of your grandfather and Turkey and then your return
Speaker 1: to Turkey. I can. In nine two my grandparents became refugees.
Speaker 1: They were of Greek descent, but they were citizens of
Speaker 1: the Ottoman Empire, living in western Turkey in a town
Speaker 1: then called Smyrna today it's known as Zazmir. The Turks Uh,
Speaker 1: to put it politely, invited them to leave. They became refugees.
Speaker 1: The city was burned, they were rescued by Greek fishermen
Speaker 1: and therefore came to Ellis Island. So my family story
Speaker 1: is born out of these kind of refugee challenges. Now
Speaker 1: the question would be for someone like me who has
Speaker 1: a shall we say, complicated family history with Turkey, can
Speaker 1: I rise above that? And the answer is yes. And
Speaker 1: when I was NATO Commander, the first city I visited
Speaker 1: as the Supreme Alley Commander was Anca, Turkey. And after
Speaker 1: four years as the commander, when I left, the Turkish
Speaker 1: Foreign Minister h later the Prime Minister, Ahmed Davitt, who
Speaker 1: presented me with a book of vintage postcards made of
Speaker 1: the Greek community in Smyrna in the nineteen twenties, and
Speaker 1: he said, Admiral, you have helped us see that we
Speaker 1: need to know the past, but not be imprisoned by it.
Speaker 1: And I think that was a pretty good lesson for me.
Speaker 1: So what what packet of postcards would you like to
Speaker 1: send our show to both the Vladimir Putin UH and
Speaker 1: perhaps even the leadership of Iran. Yeah, in a nice way.
Speaker 1: With Russia, the packet of postcards I think we want
Speaker 1: to show is that of US Russian cooperation in the
Speaker 1: Second World War. We do have history together that can
Speaker 1: be positive. I think we can also talk about our
Speaker 1: cooperation and things as diverse as counter terrorism, counter piracy
Speaker 1: in Afghanistan. But the cautionary message needs to be that
Speaker 1: was then and is not now. In terms of Iran,
Speaker 1: I think it's even more difficult. We we don't have
Speaker 1: any shared history of cooperation with Iran. In fact, we
Speaker 1: we live today as part of the fruit of a
Speaker 1: poison tree from the hostage crisis. And so I think
Speaker 1: with Iran it's really tabula rasa clean slate. We need
Speaker 1: to find UH kind of track two diplomatic ways to
Speaker 1: approach them. Both of those are going to be very hard,
Speaker 1: and we have to start by confronting both Russia and
Speaker 1: Iran when they line up behind a brutal war criminal
Speaker 1: like Lasa. How should Secretary State Rex Tillers don't approach
Speaker 1: these meetings today with Sergey Lava, the Foreign Minister, and
Speaker 1: perhaps with the President Vladimir Putin. The White House has
Speaker 1: been keen to talk about fake news. We see this
Speaker 1: four page document which they lay out the case for
Speaker 1: Russia covering up or or excusing or trying to obfuscate
Speaker 1: when it comes to the gas attack we saw northern
Speaker 1: Syria last week. How hard is it to engage with
Speaker 1: a party that is not acknowledging the facts. Well, first
Speaker 1: of all, I gotta say I've been very encouraged over
Speaker 1: the last several weeks by, if you will, the emergence
Speaker 1: of Secretary of State Rex Tillerson. He's he's now doing media,
Speaker 1: he's engaging in the public debate, he's attending the important
Speaker 1: meetings alongside the president. He's going to Moscow. So I
Speaker 1: think he is stepping up and doing so very well. Secondly,
Speaker 1: I think he needs to bring that kind of laconic
Speaker 1: Texan approach he has comment about Assad yesterday really struck
Speaker 1: a chord with me simply flatly saying SIDS regime is
Speaker 1: not going to survive with someone like Tillerson. I'm always
Speaker 1: reminded of that story of the Texas Rangers when the
Speaker 1: governor of Texas was asked to send Texas Rangers to
Speaker 1: quell a riot and the mayor of the town said,
Speaker 1: how many can you send? And the governor send one riot,
Speaker 1: one ranger. And I think Rex Tillerson is that kind
Speaker 1: of Texan. So I think a tough talking, here are
Speaker 1: the facts, laying it out. That's why the memo is
Speaker 1: a good thing, is going to be the best way
Speaker 1: to deal with Russia because Russia responds to strength, and
Speaker 1: I think that's what Secretary Tillerson needs to project well
Speaker 1: as someone that's so familiar with that. With that particular area.
Speaker 1: Is there this idea that now only bilateral agreements will work,
Speaker 1: or this idea that there is a regional or comprehensive
Speaker 1: kind of conflict resolution that can take place that would
Speaker 1: satisfy Syria and Iran, Iraq and that whole area. The latter,
Speaker 1: We're not going to solve this in a unilateral way.
Speaker 1: As as much as I support the Tomahawks strikes, they
Speaker 1: are certainly not the answer. They're merely the beginning of
Speaker 1: a more serious conversation. Uh. The strategic message of the
Speaker 1: strikes was quite simple, that the United States A is
Speaker 1: willing to use force and be intends to be involved
Speaker 1: in the resolution. But I think the way to think
Speaker 1: about how to resolve it is to go back to
Speaker 1: the Balkans in the n nineties, and it took a
Speaker 1: coalition that included not only NATO in the United States,
Speaker 1: but did ultimately include Russia to solve those wars in
Speaker 1: the which looked a lot like Syria does today. So
Speaker 1: I'm much more a believer in the multilateral regional solution
Speaker 1: than us doing anything unilaterally. Had a conversation with Sandy
Speaker 1: Winnifeld a couple of days ago, right on the heels
Speaker 1: of those strikes. We were talking about the difficulty of
Speaker 1: enforcing a red line like that and then thinking that
Speaker 1: you're not going to change policy, that there isn't going
Speaker 1: to be cause for another set of strikes like the
Speaker 1: one that we had last week. Do you agree that
Speaker 1: it's it's becomes more complicated now? It does? And um,
Speaker 1: that's kind of good. News bad news. The good news
Speaker 1: is that we've enforced a long stated US position against
Speaker 1: the use of chemical weapons, and I think the strikes
Speaker 1: were legal under international law for a variety of reasons.
Speaker 1: But the bad news is you've put chips on the
Speaker 1: table now and it's it would be a thousand times
Speaker 1: words to have launched those strikes, and then the next
Speaker 1: time it happens, do nothing. That's simply unthinkable. So we're
Speaker 1: back in the game. The question is can we modulate
Speaker 1: our approach so that we don't end up with a
Speaker 1: hundred and fifty thousand troops like we did in Iraq
Speaker 1: and Afghanistan. We don't want to do that. We want
Speaker 1: to be smarter about how we do it. Back to
Speaker 1: the previous question, regional multilateral is really the way to
Speaker 1: go an most let me ask you to reflect on
Speaker 1: what we saw at mar Lago last week. Yes, of
Speaker 1: course events interceded. We saw the strikes on Syria, but
Speaker 1: let's focus on China here, focused on East Asia for
Speaker 1: for a little bit. What were you watching, what what
Speaker 1: queues were you looking at? What were you hoping to
Speaker 1: see as an outcome from that summit in Florida last week?
Speaker 1: I thought It was a good summit, and the President
Speaker 1: must have been very happy with the fact that those
Speaker 1: strikes unfolded. Literally they're having dinner down there, pretty remarkable,
Speaker 1: in a very good way to signal to the Chinese
Speaker 1: that we're willing to use for us, we're in the
Speaker 1: game as it applies not only in Syria, but the
Speaker 1: implied message of similarly in North Korea. What I was
Speaker 1: looking for was a shared statement out of the two
Speaker 1: of them that they would work the North Korea problem together,
Speaker 1: because I think at the end all roads to Punyang
Speaker 1: lead through Beijing, so that transpired. And then on trade,
Speaker 1: I think they had a pretty calm talk which made
Speaker 1: me feel as though we're not going to see any
Speaker 1: precipitous action out of this administration in terms of tariffs
Speaker 1: or barriers to Chinese goods, at least immediately. So I
Speaker 1: think that's all good. And the the uber message I
Speaker 1: would say is, um, it's going to be more about
Speaker 1: China than it is about Russia. And if you looked
Speaker 1: at the rhetoric during the campaign, it was a lot
Speaker 1: of g We're going to conduct a grand bargain with Russia.
Speaker 1: I wouldn't go so far as to say this is
Speaker 1: a pivot to China, but it's certainly underlines the fact
Speaker 1: that the administration gets it correctly that it's really about
Speaker 1: the Pacific and about China over the long haul for US.
Speaker 1: We're speaking with Admiral James has To Ritas used, the
Speaker 1: dean of the Fletcher School at Toughs University, a former
Speaker 1: Supreme Allied commander at NATO, is also the author of
Speaker 1: the Accidental Admiral. Let's talk about solutions. Admirals tots in
Speaker 1: terms of hard and soft power. As a former commander
Speaker 1: of a destroyer squadron and a carrier strike group, which
Speaker 1: would you rather have a television and media network or
Speaker 1: a carrier? You got to have both. And uh and
Speaker 1: as I always say, hard power, there are times when
Speaker 1: you absolutely need it. We're not going to negotiate a
Speaker 1: solution with the Islamic State. We're going to find him
Speaker 1: and kill them. But um, the lawn game so often
Speaker 1: is about the soft power side. It's about strategic communications,
Speaker 1: creating better global opportunities, expanding economic solutions. So you need both.
Speaker 1: You need hard and soft power. And the mistake is
Speaker 1: when you think about it as an on and off switch,
Speaker 1: that that it's a binary choice. Um, it's actually a
Speaker 1: real stat you've got to dial it in. So at
Speaker 1: the moment, we needed hard power to respond to the
Speaker 1: chemical strikes. Over time in the Middle East, we're gonna
Speaker 1: need soft power if we're gonna really solve the problems there.
Speaker 1: You need both. How cohesive is this foreign policy team?
Speaker 1: I imagine that you know Secretary Defense James Mattis, well,
Speaker 1: you probably know hr McMaster, Lieutenant General char McMaster as well.
Speaker 1: Perhaps you know litt less of a known quantit would
Speaker 1: be Nikki Haley, the U N Ambassador. But are they
Speaker 1: Are they becoming a unified voice here? And how do
Speaker 1: they complement one another? I would say over the last
Speaker 1: two weeks we've seen a grammatic improvement in synchronicity amongst them.
Speaker 1: There's still a little bit of a disconnect with ambastaor
Speaker 1: Haley up at the United Nations and what Secretary Tillerson saying.
Speaker 1: But broadly speaking, you're seeing this team come together, and
Speaker 1: I think I would attribute it frankly to hr McMaster.
Speaker 1: The job of the National Security Advisor is to be
Speaker 1: that coalescing feature, not to create policy, but to give
Speaker 1: all those cabinet officials room and space to work together
Speaker 1: and come up with coherent policy. Lieutenant General Master, I've
Speaker 1: known for twenty years. He's brilliant. In fact, in my
Speaker 1: latest book, The Leader's Bookshelf, one of the books I
Speaker 1: talked about is hr McMaster's book, Dereliction of Duty. He
Speaker 1: could not be better in this role and is off
Speaker 1: to a terrific start, and I think you're seeing that
Speaker 1: reflected in the cabinet performances. What did you learn from
Speaker 1: his book? I learned that you have to speak truth
Speaker 1: to power unafraid. And the book, of course, is about
Speaker 1: the Joint chiefs of Staff during the Vietnam era who
Speaker 1: are not challenging President Johnson, and that contributed to us
Speaker 1: UH falling deeper into the spiral of Vietnam and UH.
Speaker 1: The unvarnished truth is what a senior military officer owes
Speaker 1: his or her leadership. And I think that's loud and clear.
Speaker 1: In today's world, President Trump needs voices that are unafraid
Speaker 1: to come to him and point out where we're failing
Speaker 1: and what we need to do. Earlier, we were talking
Speaker 1: with Mark Chandler. He's in the in the foreign exchange space,
Speaker 1: and we're talking about time horizons. This is an administration
Speaker 1: that maintains that it has plans but doesn't want to
Speaker 1: share them, and certainly that's something the present has said
Speaker 1: over and over again. His his reasoning for that is
Speaker 1: he doesn't want to give away the secrets or giveaway
Speaker 1: the the strategy. Help us understand the degree to which
Speaker 1: we should trust a leader who says that, do we
Speaker 1: need to know more about, say, what happens next in
Speaker 1: in Syria after the strikes that we saw last week,
Speaker 1: do we do we need to know more of the contours,
Speaker 1: more of the plan going forward. I think there's a
Speaker 1: distinction to be made here between strategic plans and tactical execution.
Speaker 1: I think strategic plans need to be discussed, they need
Speaker 1: to be shared. You need to build support both in
Speaker 1: Congress and more importantly, with the American people. You can't
Speaker 1: do that without laying out what your plan is, ends ways,
Speaker 1: and means in Syria, in dealing with North Korea and
Speaker 1: so forth. On the other hand, it is foolish to
Speaker 1: transmit your tactical plans. Okay, I'm gonna launch Tomahawk strikes.
Speaker 1: Then I'm going to bring in special forces, Then I'm
Speaker 1: going to bring in long range bombers laying out that
Speaker 1: kind of campaign plan obviously as a mistake. You need
Speaker 1: to understand the difference between those two. What's desperately needed,
Speaker 1: in my view from the United States on Syria is
Speaker 1: a strategic vision, and we have not heard that as yet.
Speaker 1: What do you make of what Senator Lindsey Graham and
Speaker 1: others have said that there need to be more troops
Speaker 1: on the ground in the region focused on Syria. Yeah,
Speaker 1: I agree with that up to a point. So let's
Speaker 1: put it in perspective. At that peak, we had pushing
Speaker 1: two hundred thousand troops in Iraq. When I was the
Speaker 1: NATO commander and I had responsibility for the mission in Afghanistan,
Speaker 1: I had one hundred and sixty thousand troops there. Um,
Speaker 1: we don't need that level of troops, but I would
Speaker 1: argue we probably need around ten thousand troops in Iraq
Speaker 1: and Syria to support the local forces as they accomplished
Speaker 1: the military missions. That's kind of the model we've moved
Speaker 1: to in Afghanistan, where we only have eight thousand US
Speaker 1: troops and the Europeans have about six thousand. We used
Speaker 1: to have a hundred fifty thousand. We can use local
Speaker 1: troops that ought to be the model. We do need
Speaker 1: somewhat of an increase, but certainly not what we did
Speaker 1: in Afghanistan and Iraq. Admiral Stavita's what kind of public
Speaker 1: relations effort would be needed to convince the American public?
Speaker 1: Do you believe that ten thousand US troops ought to
Speaker 1: be in Syria. I think that there is an enormous
Speaker 1: amount of what I'll call Middle East fatigue in the country,
Speaker 1: and people kind of conflate everything as Iraq and Afghanistan
Speaker 1: and Syria and Libya and Palestinians, and it's just a
Speaker 1: huge mess. What we need to do is disaggregate these
Speaker 1: things and UH queue up for the American public UH
Speaker 1: Syria and bash R El asads particular form of brutality.
Speaker 1: I think the US public would get it that people
Speaker 1: that are using chemical weapons like that have absolutely got
Speaker 1: to be stopped. And I think um I would lead
Speaker 1: with that and then build the strategy out beyond it. So,
Speaker 1: in other words, use that use the images in the
Speaker 1: public in the public venue in order to help formulate
Speaker 1: that kind of policy exactly. I think the American public
Speaker 1: as a general proposition, will go along with the use
Speaker 1: of American force as long as they understand why it
Speaker 1: matters to them. And I think the case, just as
Speaker 1: we were talking in the earlier segment about why Ukraine UH,
Speaker 1: the case to be made is you don't want to
Speaker 1: let big nations gobble up chunks of little nations. And
Speaker 1: here in Syria you want to make the case that
Speaker 1: war criminals need to be stopped. And boy, we we
Speaker 1: should have learned that lesson across the course of history,
Speaker 1: going back certainly to the last century and fascism as
Speaker 1: it wrote up in Europe. What do you think reporter
Speaker 1: should be asking the Secretary General today at that press conference?
Speaker 1: Was that was the number one question you think they
Speaker 1: need to ask? Well, I am going to be pragmatic
Speaker 1: here and say the first question out of the box
Speaker 1: ought to be funding. It ought to be, uh, Secretary General,
Speaker 1: how soon will the NATO nations hit the two percent
Speaker 1: gross domestic product goal that they've set for themselves. I
Speaker 1: think the second question ought to be will NATO participate
Speaker 1: in operations against the Islamic State as an alliance? And
Speaker 1: I think the third question a little bit off the
Speaker 1: beaten track, but would be an important one is what
Speaker 1: is NATO doing to protect itself from cyber attacks. When
Speaker 1: you look at Russia's growing capability demonstrated in our own election,
Speaker 1: I think that's an alliance problem as well. So there's
Speaker 1: three questions and old James tebrids. Thanks very much. Thanks
Speaker 1: for listening to the Bloomberg Surveillance Podcast. Subscribe and listen
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Speaker 1: I'm out on Twitter at Tom Keene. David Gura is
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