1 00:00:00,200 --> 00:00:03,159 Speaker 1: She Jinping, the President of China has been in office 2 00:00:03,240 --> 00:00:05,160 Speaker 1: for five years, and it looks like he will be 3 00:00:05,200 --> 00:00:08,160 Speaker 1: around a lot longer. While he's at it. Here are 4 00:00:08,160 --> 00:00:10,560 Speaker 1: some more names you might want to become familiar with, 5 00:00:11,000 --> 00:00:15,319 Speaker 1: Leo Chu, E Gong, Leo Kun. These three men will 6 00:00:15,320 --> 00:00:19,480 Speaker 1: be the brains behind China's economic and financial policy, probably 7 00:00:19,520 --> 00:00:22,200 Speaker 1: for at least the next five years, and that means 8 00:00:22,320 --> 00:00:25,800 Speaker 1: they could also help direct or deflect a possible trade 9 00:00:25,800 --> 00:00:29,080 Speaker 1: war between the US and China. All in all, they 10 00:00:29,080 --> 00:00:32,560 Speaker 1: will shape the world's second largest economy and in turn 11 00:00:32,840 --> 00:00:34,960 Speaker 1: have a major impact on the rest of the world. 12 00:00:44,640 --> 00:00:48,120 Speaker 1: Welcome to Benchmark. I'm Scott landman and economics editor at 13 00:00:48,120 --> 00:00:52,240 Speaker 1: The Bloomberg News in Washington, And I'm Daniel Moss, economics 14 00:00:52,240 --> 00:00:56,320 Speaker 1: writer and editor at Bloomberg View in New York. So, 15 00:00:56,520 --> 00:00:59,880 Speaker 1: Dan she Jinping seems pretty firmly in control of China 16 00:01:00,040 --> 00:01:04,080 Speaker 1: these days. Why should we care about some of his underlings. 17 00:01:04,120 --> 00:01:07,320 Speaker 1: She may be firmly in control, but he can't be 18 00:01:07,480 --> 00:01:12,920 Speaker 1: everywhere doing everything at all times. He also knows that 19 00:01:12,959 --> 00:01:18,120 Speaker 1: the party's success depends on economic stability. That means no 20 00:01:18,400 --> 00:01:22,119 Speaker 1: economic blow ups. The more range of opinions you can 21 00:01:22,200 --> 00:01:26,200 Speaker 1: listen to the safer you'll be all right. Well, let's 22 00:01:26,200 --> 00:01:29,560 Speaker 1: find out some more about this range of opinions with 23 00:01:29,600 --> 00:01:33,479 Speaker 1: our guest, Nicholas Lardie is one of the foremost scholars 24 00:01:33,480 --> 00:01:36,840 Speaker 1: on China's economy, having studied it for decades. He's been 25 00:01:36,880 --> 00:01:40,400 Speaker 1: a senior fellow at the Peterson Institute for International Economics 26 00:01:40,400 --> 00:01:44,039 Speaker 1: in Washington for fifteen years, and his most recent book 27 00:01:44,240 --> 00:01:49,200 Speaker 1: is Markets Over Mao, The Rise of Private Business in China. Nick, 28 00:01:49,400 --> 00:01:52,920 Speaker 1: welcome to Benchmark. Thank you. First of all, Nick, who 29 00:01:53,080 --> 00:01:58,160 Speaker 1: is Leocha? Well, Leocha is a sort of economic technocrat 30 00:01:58,200 --> 00:02:01,720 Speaker 1: who has served in a couple of administrations over the 31 00:02:01,760 --> 00:02:06,360 Speaker 1: past decade at fairly high positions. He hasn't been extremely visible, 32 00:02:06,400 --> 00:02:09,079 Speaker 1: but he's been vice chairman of one of the most 33 00:02:09,120 --> 00:02:12,639 Speaker 1: important committees that deals with the economies of National Economic 34 00:02:12,680 --> 00:02:16,040 Speaker 1: Development and Reform Commission. He's also been head of a 35 00:02:16,080 --> 00:02:19,040 Speaker 1: small leading group on sin Anton economics, which is a 36 00:02:19,160 --> 00:02:23,560 Speaker 1: very important behind the scenes advisor. And now he's going 37 00:02:23,600 --> 00:02:27,480 Speaker 1: to be a Vice Premier with a pretty broad economic portfolio. 38 00:02:27,639 --> 00:02:30,160 Speaker 1: How did he get so close to sheet and ping 39 00:02:30,240 --> 00:02:34,359 Speaker 1: over the years to eventually get into this kind of position. Well, 40 00:02:34,400 --> 00:02:37,320 Speaker 1: you're right, he has developed a good relationship with Seejing Ping, 41 00:02:37,600 --> 00:02:41,040 Speaker 1: and all indications are that he will continue to be 42 00:02:41,120 --> 00:02:46,560 Speaker 1: a fairly influential voice. I would caution, however, that a 43 00:02:46,600 --> 00:02:50,360 Speaker 1: little bit hard to know exactly where Leucha stands on 44 00:02:50,520 --> 00:02:54,480 Speaker 1: some issues. He seems to be able to serve masters 45 00:02:54,520 --> 00:02:59,040 Speaker 1: that have disparate views on economic issues, so I don't 46 00:02:59,040 --> 00:03:01,480 Speaker 1: necessarily think he's going to be in the driver's seat, 47 00:03:02,080 --> 00:03:04,680 Speaker 1: but he will be a very strong implementer of the 48 00:03:04,760 --> 00:03:09,000 Speaker 1: policies that he wants to support. Taking a broader look 49 00:03:09,160 --> 00:03:12,760 Speaker 1: at the Chinese economy, Nick, you've written that China is 50 00:03:12,880 --> 00:03:17,280 Speaker 1: much more of a private sector economy than popular discourse 51 00:03:17,320 --> 00:03:20,720 Speaker 1: would seem to recognize. There's a lot of talk about 52 00:03:20,760 --> 00:03:25,040 Speaker 1: how President she has semantic control of the political system, 53 00:03:25,120 --> 00:03:28,760 Speaker 1: what's happening on the ground with the economy, how much 54 00:03:29,000 --> 00:03:32,959 Speaker 1: day to date control does he have. Over the last 55 00:03:33,000 --> 00:03:36,160 Speaker 1: few years, he has exerted a great deal more control 56 00:03:36,200 --> 00:03:38,440 Speaker 1: over the economy. There has been what I think is 57 00:03:38,520 --> 00:03:42,120 Speaker 1: fairly described as a bit of a resurgence of the state. 58 00:03:42,680 --> 00:03:46,000 Speaker 1: About three quarters of China's GDP is being generated by 59 00:03:46,040 --> 00:03:51,560 Speaker 1: private firms, but under She, we've seen proliferation of industrial policies. 60 00:03:52,200 --> 00:03:55,400 Speaker 1: State banks have been lending more money to state companies, 61 00:03:55,440 --> 00:03:59,480 Speaker 1: and she aspires that the state will play a much 62 00:03:59,520 --> 00:04:03,080 Speaker 1: bigger in the economy. How successful that will be ultimately, 63 00:04:03,200 --> 00:04:05,760 Speaker 1: I think remains to be seen. But when we talk 64 00:04:05,800 --> 00:04:09,880 Speaker 1: about private companies in China, don't a lot of them 65 00:04:10,080 --> 00:04:14,840 Speaker 1: have Communist Party cells or leaders that are installed to 66 00:04:14,880 --> 00:04:19,760 Speaker 1: help direct the company business in line with objectives that 67 00:04:19,839 --> 00:04:23,359 Speaker 1: the party has set. Ultimately by President she Well, China 68 00:04:23,400 --> 00:04:27,960 Speaker 1: for more than two decades has required Party committees in 69 00:04:28,080 --> 00:04:31,880 Speaker 1: all enterprises, whether they're state owned or privately owned. So 70 00:04:31,960 --> 00:04:34,159 Speaker 1: this is not a new development, at least in a 71 00:04:34,200 --> 00:04:37,600 Speaker 1: technical sense. Now, what really remains to be seen is 72 00:04:37,680 --> 00:04:40,479 Speaker 1: are these committees going to take a much stronger role 73 00:04:40,600 --> 00:04:43,800 Speaker 1: than they have had in the past. Certainly, there's not 74 00:04:43,880 --> 00:04:48,640 Speaker 1: much evidence that party committees in private enterprises have persuaded 75 00:04:48,680 --> 00:04:50,880 Speaker 1: these companies to do things that they think are against 76 00:04:51,080 --> 00:04:53,360 Speaker 1: their interests. On the other hand, if you're a big 77 00:04:53,360 --> 00:04:58,400 Speaker 1: company like Ali Baba and your Jack Ma the billionaire CEO, 78 00:04:58,680 --> 00:05:03,240 Speaker 1: you certainly want to be perceived as carrying out policies 79 00:05:03,279 --> 00:05:06,440 Speaker 1: that are consistent with those of the party. Talk to 80 00:05:06,520 --> 00:05:10,880 Speaker 1: us about Ye Gung, the new Central Bank governor. Last 81 00:05:10,960 --> 00:05:15,520 Speaker 1: month in Hong Kong, there was some chat that Leo 82 00:05:16,520 --> 00:05:20,200 Speaker 1: would get both jobs vice Premier and governor of the 83 00:05:20,240 --> 00:05:22,599 Speaker 1: People's Bank of China. What does it say that the 84 00:05:22,720 --> 00:05:25,640 Speaker 1: deputy governor has been elevated. Well, I think it's a 85 00:05:25,720 --> 00:05:28,200 Speaker 1: very important move. I think it would have been unrealistic 86 00:05:28,240 --> 00:05:31,640 Speaker 1: for Leucha to be a Vice Premier and of the 87 00:05:31,720 --> 00:05:35,120 Speaker 1: Central Bank governor simultaneously. This is something Drew m g 88 00:05:35,360 --> 00:05:38,360 Speaker 1: did back in the late nineties. But I think the 89 00:05:39,120 --> 00:05:43,000 Speaker 1: Central Bank governor's job has become much more important, much 90 00:05:43,040 --> 00:05:46,560 Speaker 1: more time consuming, and requires a lot more international travel 91 00:05:46,680 --> 00:05:49,840 Speaker 1: than Liuhu could undertake. I think the fact that he 92 00:05:50,000 --> 00:05:53,160 Speaker 1: Gang has been elevated implies that we will have a 93 00:05:53,279 --> 00:05:58,560 Speaker 1: substantial continuity on monetary policy, exchange rate policy, and all 94 00:05:58,560 --> 00:06:02,000 Speaker 1: the things at the Central Bank has an influence on 95 00:06:02,600 --> 00:06:06,160 Speaker 1: He is Western educated, he went back to China in 96 00:06:07,640 --> 00:06:10,440 Speaker 1: He's worked his way up in the Central Bank over 97 00:06:10,480 --> 00:06:14,280 Speaker 1: a period of several decades, and he has been the 98 00:06:14,400 --> 00:06:18,120 Speaker 1: lead brains behind some of the most important reforms in 99 00:06:18,160 --> 00:06:21,559 Speaker 1: the financial sector over the last twenty years, and most 100 00:06:21,600 --> 00:06:25,919 Speaker 1: notably he was the architect for the liberalization of interest rates, 101 00:06:25,960 --> 00:06:29,440 Speaker 1: which started in the late nineties and was not really 102 00:06:29,480 --> 00:06:33,640 Speaker 1: completed until about the middle of twenty thirteen. So it 103 00:06:33,680 --> 00:06:36,760 Speaker 1: was a very long, gradual process in which they moved 104 00:06:36,760 --> 00:06:39,200 Speaker 1: from a system in which all interest rates on both 105 00:06:39,240 --> 00:06:43,839 Speaker 1: deposits and loans were fixed and immovable to one in 106 00:06:43,920 --> 00:06:48,640 Speaker 1: which these rates are now being determined largely by market forces. Nick. 107 00:06:48,680 --> 00:06:51,720 Speaker 1: As long as we're talking about China Central Bank, can 108 00:06:51,760 --> 00:06:55,760 Speaker 1: we talk about how much power central bank actually has 109 00:06:55,800 --> 00:06:59,200 Speaker 1: the People's Bank of China. The independence of China Central 110 00:06:59,200 --> 00:07:02,480 Speaker 1: Bank is differ from that of say, the Federal Reserve 111 00:07:02,680 --> 00:07:06,280 Speaker 1: or European Central Bank. Right, yes, the Chinese Central Bank 112 00:07:06,400 --> 00:07:10,040 Speaker 1: is not independent in the traditional sense of that word. 113 00:07:10,480 --> 00:07:13,520 Speaker 1: It needs to get approval for any major changes in 114 00:07:14,080 --> 00:07:17,200 Speaker 1: the interest rates that it tries to influence, or things 115 00:07:17,240 --> 00:07:20,720 Speaker 1: like the discount rates and so forth. Changes in exchange 116 00:07:20,800 --> 00:07:23,440 Speaker 1: rate policy that it manages have to be approved at 117 00:07:23,600 --> 00:07:27,120 Speaker 1: much higher level. On the other hand, the Central Bank 118 00:07:27,160 --> 00:07:31,200 Speaker 1: in China, at least under the previous governor, has had 119 00:07:31,240 --> 00:07:34,400 Speaker 1: an enormous influence on the economy and they have hit 120 00:07:34,520 --> 00:07:39,160 Speaker 1: The bank has weighed in on a range of economic policies, 121 00:07:39,320 --> 00:07:45,680 Speaker 1: fiscal policy, tax policy. So yes, it's not independent, it's 122 00:07:45,720 --> 00:07:48,640 Speaker 1: not completely free to carry out the usual kinds of 123 00:07:48,680 --> 00:07:52,480 Speaker 1: monetary operations without approval. But you would not find the 124 00:07:52,480 --> 00:07:55,840 Speaker 1: head of the Federal Reserve in the United States offering 125 00:07:55,920 --> 00:08:00,120 Speaker 1: opinions about tax policy fiscal policy in the same way 126 00:08:00,160 --> 00:08:03,680 Speaker 1: that we've seen in China. So the Central Bank governor 127 00:08:03,720 --> 00:08:07,440 Speaker 1: has been a key economic policy maker weighing in on 128 00:08:07,520 --> 00:08:12,160 Speaker 1: a very broad range of economic issues. In the West, 129 00:08:12,360 --> 00:08:15,960 Speaker 1: nick Way used to the finance minister or the treasury 130 00:08:16,000 --> 00:08:20,120 Speaker 1: secretary of a given nation being the big economic cheese. 131 00:08:20,680 --> 00:08:23,560 Speaker 1: Is that the case in China, Well, it certainly hasn't 132 00:08:23,600 --> 00:08:27,120 Speaker 1: been in recent years. The Ministry of Finance in China 133 00:08:27,640 --> 00:08:31,320 Speaker 1: seems to focus primarily on the tax side, the collection 134 00:08:31,400 --> 00:08:35,600 Speaker 1: of taxes, changes in the tax laws, enforcement of tax laws, 135 00:08:35,640 --> 00:08:38,360 Speaker 1: and so forth, and they have not been a big 136 00:08:38,400 --> 00:08:43,480 Speaker 1: shaper of broad macro economical policy in the same way 137 00:08:43,520 --> 00:08:47,000 Speaker 1: that we would be familiar with in the United States. 138 00:08:47,080 --> 00:08:49,560 Speaker 1: So I think the Central Bank has actually been more 139 00:08:49,600 --> 00:08:53,959 Speaker 1: important in that domain than most other agencies in China. 140 00:08:54,480 --> 00:08:56,760 Speaker 1: So the name that we have as the new Finance 141 00:08:56,760 --> 00:09:00,439 Speaker 1: Minister as someone named Leo Kuhn, and I can as 142 00:09:00,440 --> 00:09:03,200 Speaker 1: even as somebody who who spent a few years in 143 00:09:03,440 --> 00:09:07,199 Speaker 1: China covering China's economy. I was not familiar with him. 144 00:09:07,360 --> 00:09:09,040 Speaker 1: What do we know about him and what does his 145 00:09:09,080 --> 00:09:13,480 Speaker 1: appointment say about any kind of direction of policy? Well, 146 00:09:13,520 --> 00:09:16,480 Speaker 1: I think very little. The previous Ministry of Finance was 147 00:09:16,480 --> 00:09:19,120 Speaker 1: a man who came out of the tax Bureau of 148 00:09:19,160 --> 00:09:21,680 Speaker 1: the Ministry and was promoted to be minister. I'm not 149 00:09:21,720 --> 00:09:26,280 Speaker 1: even aware, as you aren't, about the background of Leo Clinton, 150 00:09:26,280 --> 00:09:29,760 Speaker 1: but I would not expect him to be a main 151 00:09:29,840 --> 00:09:33,280 Speaker 1: shaper of policy. I would expect the person that we 152 00:09:33,320 --> 00:09:36,280 Speaker 1: haven't talked about who would be much more important is 153 00:09:36,360 --> 00:09:39,440 Speaker 1: Gauasu Ching, who has now been named to head, who 154 00:09:39,480 --> 00:09:43,120 Speaker 1: has been head of the Central Bank, the Bank Regulatory Commission, 155 00:09:43,559 --> 00:09:46,320 Speaker 1: and is now going to take charge of the merged 156 00:09:47,000 --> 00:09:51,839 Speaker 1: Bank and Insurance Regulator. He's a very strong reformer. He's 157 00:09:51,880 --> 00:09:55,720 Speaker 1: a much stronger personality, and I think he'll work very 158 00:09:55,720 --> 00:10:00,640 Speaker 1: well together with people like Leo and e Gun. Let's 159 00:10:00,840 --> 00:10:05,760 Speaker 1: switch to look at the broader economic dynamic, particularly between 160 00:10:05,880 --> 00:10:09,560 Speaker 1: the world's two largest economies, China and the United States. 161 00:10:10,440 --> 00:10:14,320 Speaker 1: We hear a lot about the Trump administration's desire to 162 00:10:14,480 --> 00:10:19,320 Speaker 1: reduce America's trade deficit with China. We also hear a 163 00:10:19,360 --> 00:10:23,839 Speaker 1: lot about tariffs and other measures that may be imposed. 164 00:10:24,440 --> 00:10:28,679 Speaker 1: Can you break this down a bit for us? In particular, 165 00:10:28,880 --> 00:10:33,880 Speaker 1: I'm wondering, given the extent of global supply chains, how 166 00:10:33,960 --> 00:10:38,120 Speaker 1: much of the stuff the US imports from China actually 167 00:10:38,160 --> 00:10:42,800 Speaker 1: originates somewhere else from an American company. Well, a very 168 00:10:42,880 --> 00:10:46,480 Speaker 1: large share of what China sells to US is actually 169 00:10:46,520 --> 00:10:50,120 Speaker 1: produced by what we would call for an affiliates, that is, 170 00:10:50,200 --> 00:10:54,439 Speaker 1: multinational companies based in China. Many of them, of course, 171 00:10:54,600 --> 00:10:58,359 Speaker 1: are US multinationals, but there's some European and other multinationals 172 00:10:58,400 --> 00:11:04,680 Speaker 1: operating in China. It and these companies typically supply final 173 00:11:04,760 --> 00:11:08,880 Speaker 1: products that are based on long production chains. As your 174 00:11:08,920 --> 00:11:12,000 Speaker 1: questions suggests, they're buying inputs from all over the world, 175 00:11:12,559 --> 00:11:15,640 Speaker 1: producing products in China, and then selling them back into 176 00:11:15,679 --> 00:11:19,559 Speaker 1: the United States. So the Chinese content of these products 177 00:11:19,640 --> 00:11:23,360 Speaker 1: is typically very low. Obviously, the best examples are the 178 00:11:23,480 --> 00:11:28,160 Speaker 1: Apple products iPhones, iPads, which are made almost exclusively in China, 179 00:11:28,360 --> 00:11:36,560 Speaker 1: and the foreign content is of the value of the product. Now, 180 00:11:36,679 --> 00:11:39,440 Speaker 1: what this means is if tariffs are put on those 181 00:11:39,520 --> 00:11:43,520 Speaker 1: kinds of products consumer electronics in particular, we will impose 182 00:11:43,640 --> 00:11:46,720 Speaker 1: some pain on China, but a great deal of the 183 00:11:46,760 --> 00:11:50,960 Speaker 1: pain will be transferred to the countries and the companies 184 00:11:51,000 --> 00:11:54,079 Speaker 1: that are supplying all the inputs that go in to 185 00:11:54,240 --> 00:11:57,480 Speaker 1: these consumer electronic products. So this will have an adverse 186 00:11:57,480 --> 00:12:05,120 Speaker 1: effect on companies in Korea, Japan, Taiwan, Singapore, Malaysia and others. 187 00:12:05,200 --> 00:12:08,559 Speaker 1: So this is where I think Mr Trump makes a 188 00:12:08,640 --> 00:12:10,920 Speaker 1: mistake when he says it's easy to win a trade war. 189 00:12:11,760 --> 00:12:14,680 Speaker 1: Both countries will lose if there's a trade war, and 190 00:12:15,080 --> 00:12:17,720 Speaker 1: we will not just impose costs on China, but a 191 00:12:17,760 --> 00:12:20,600 Speaker 1: lot of these costs will be transmitted to other countries, 192 00:12:20,920 --> 00:12:24,920 Speaker 1: particularly those in East Asia. Your example of the iPhone 193 00:12:25,200 --> 00:12:30,280 Speaker 1: is an interesting one. Apple an iconic American company headquartered 194 00:12:30,280 --> 00:12:33,960 Speaker 1: in California. But if I hear you correctly, Nick iPhones 195 00:12:34,080 --> 00:12:37,040 Speaker 1: might be subject to tariffs, well, they could be that. 196 00:12:37,080 --> 00:12:39,480 Speaker 1: The rumor is consumer electronics will be on the list. 197 00:12:39,679 --> 00:12:43,480 Speaker 1: And interestingly, Apple doesn't make any of these products. The 198 00:12:43,520 --> 00:12:46,160 Speaker 1: products are actually made by a time when he's company 199 00:12:46,480 --> 00:12:50,040 Speaker 1: that operates in China, it's actually one of China's biggest employers, 200 00:12:50,080 --> 00:12:55,000 Speaker 1: a company that is technically hun High or it sometimes 201 00:12:55,000 --> 00:12:57,560 Speaker 1: goes by its trade name of Fox Con. So it 202 00:12:57,600 --> 00:13:02,200 Speaker 1: just shows the complexity you have an iconic American designed 203 00:13:02,400 --> 00:13:06,640 Speaker 1: product by an American firm, Apple sold in the United States, 204 00:13:07,200 --> 00:13:10,880 Speaker 1: but it's being produced in China by a Taiwanese company 205 00:13:11,000 --> 00:13:14,880 Speaker 1: that is drawing parts and components from the global supply chain. 206 00:13:15,360 --> 00:13:18,959 Speaker 1: Now as we record this, some of the details are 207 00:13:19,000 --> 00:13:21,920 Speaker 1: still in flux, but it does seem like there will 208 00:13:21,960 --> 00:13:26,240 Speaker 1: be a trade conflict between the US and China that 209 00:13:26,280 --> 00:13:30,320 Speaker 1: could go on for some time. Nick, how do you 210 00:13:30,360 --> 00:13:34,080 Speaker 1: see this playing out? And also when we talk about 211 00:13:34,120 --> 00:13:39,480 Speaker 1: again people like Leocha and e Gong, when they're making 212 00:13:39,520 --> 00:13:43,760 Speaker 1: decisions that affect China's economy or how China approaches these issues, 213 00:13:44,280 --> 00:13:47,760 Speaker 1: what objectives are they going for and what are they 214 00:13:48,080 --> 00:13:51,920 Speaker 1: trying to protect as far as China's economy goes well, 215 00:13:51,960 --> 00:13:56,760 Speaker 1: I think they're doing everything possible to avoid a trade 216 00:13:56,800 --> 00:14:00,240 Speaker 1: conflict with the United States. Leoha made a trip to 217 00:14:00,400 --> 00:14:04,280 Speaker 1: Washington several weeks ago to try to enter into serious 218 00:14:04,280 --> 00:14:09,640 Speaker 1: discussions with the US administration. Quite frankly, he was basically rebuffed. 219 00:14:10,240 --> 00:14:13,080 Speaker 1: Posture of the administration seems to be, we don't want 220 00:14:13,120 --> 00:14:17,080 Speaker 1: to negotiate anymore. That hasn't been sufficiently effective in the past. 221 00:14:17,360 --> 00:14:19,440 Speaker 1: We want to see some results, so they're going to 222 00:14:19,520 --> 00:14:22,800 Speaker 1: this more unilateral approach. I think the other person to 223 00:14:22,880 --> 00:14:25,960 Speaker 1: figure in this discussion should be Wang Chi Shan. Wang 224 00:14:26,000 --> 00:14:29,400 Speaker 1: Chi Shan has been named Vice president of China. He 225 00:14:29,520 --> 00:14:33,600 Speaker 1: is well known to many Americans in the financial sector, 226 00:14:33,600 --> 00:14:36,080 Speaker 1: in the business sector, and I think he will play 227 00:14:36,240 --> 00:14:39,720 Speaker 1: a similarly large role in trying to manage the economic 228 00:14:39,760 --> 00:14:43,760 Speaker 1: relationship with the United States. So, Nick, when we see 229 00:14:44,160 --> 00:14:50,200 Speaker 1: large headline numbers fifty billion, sixty billion associated with US 230 00:14:50,240 --> 00:14:57,040 Speaker 1: actions against China, is that really just a negotiation? How 231 00:14:57,040 --> 00:14:59,560 Speaker 1: should we be looking at this? Well, I think that 232 00:14:59,640 --> 00:15:02,240 Speaker 1: remained to be seen. The administration is probably going to 233 00:15:02,280 --> 00:15:05,640 Speaker 1: announce a target of a very big number thirty six. 234 00:15:06,200 --> 00:15:09,120 Speaker 1: We don't know exactly, but we will take some time 235 00:15:09,160 --> 00:15:12,080 Speaker 1: to identify the exact products that they're going to impose 236 00:15:12,160 --> 00:15:15,640 Speaker 1: these tariffs on. So this currently certainly could set up 237 00:15:15,680 --> 00:15:19,920 Speaker 1: a window in which negotiations ensued, and it might not 238 00:15:20,080 --> 00:15:23,880 Speaker 1: just be with the Chinese. If consumer electronic products are 239 00:15:23,880 --> 00:15:27,800 Speaker 1: on the list to be subject to high tariffs, then 240 00:15:27,840 --> 00:15:30,480 Speaker 1: you would probably have companies like Apple and other US 241 00:15:30,560 --> 00:15:35,359 Speaker 1: consumer products companies lobbying the administration to exempt their products 242 00:15:35,360 --> 00:15:39,280 Speaker 1: from such tariffs. And quite frankly, I think one of 243 00:15:39,280 --> 00:15:41,200 Speaker 1: the reasons has taken a long time for this to 244 00:15:41,200 --> 00:15:44,560 Speaker 1: play out is it's very difficult to identify products that 245 00:15:44,640 --> 00:15:47,240 Speaker 1: we could impose tariffs on that would not have adverse 246 00:15:47,280 --> 00:15:52,560 Speaker 1: effects on our own companies for other countries in Asia 247 00:15:52,680 --> 00:15:55,680 Speaker 1: that supply inputs to the products that are being exported 248 00:15:55,720 --> 00:15:59,360 Speaker 1: from China. So thinking about how this might play out, 249 00:16:00,400 --> 00:16:03,280 Speaker 1: does China have more to lose from a trade war, 250 00:16:03,680 --> 00:16:06,080 Speaker 1: does the US have more to lose from a trade war? 251 00:16:06,680 --> 00:16:10,200 Speaker 1: Or are they both likely to lose in a trade war? Well, 252 00:16:10,240 --> 00:16:12,560 Speaker 1: I think in a trade war, if it comes to that, 253 00:16:12,800 --> 00:16:15,960 Speaker 1: both countries would lose quite substantially. US consumers are going 254 00:16:16,000 --> 00:16:19,360 Speaker 1: to pay more. We're not going to create any new 255 00:16:19,440 --> 00:16:23,640 Speaker 1: jobs if pariffs are put on consumer electronic products. You know, 256 00:16:23,720 --> 00:16:27,640 Speaker 1: Apple is not going to start producing iPhones in Silicon 257 00:16:27,760 --> 00:16:30,400 Speaker 1: Valley tomorrow. That we simply don't have the capability to 258 00:16:30,440 --> 00:16:33,920 Speaker 1: produce many of the products that we import from from China. 259 00:16:34,280 --> 00:16:38,320 Speaker 1: So what would happen is some of these electronic manufacturing 260 00:16:38,360 --> 00:16:44,440 Speaker 1: services companies like con also have production facilities elsewhere in Asia, 261 00:16:44,520 --> 00:16:47,840 Speaker 1: so they will simply switch the production of these products 262 00:16:47,920 --> 00:16:52,320 Speaker 1: from China to Vietnam or India or other places where 263 00:16:52,360 --> 00:16:56,480 Speaker 1: they have facilities already in place. They couldn't do a 264 00:16:56,480 --> 00:16:59,440 Speaker 1: complete substitution in the short run because their capacity is 265 00:16:59,520 --> 00:17:02,640 Speaker 1: very heavily concentrated in China, but some of the production 266 00:17:02,680 --> 00:17:05,439 Speaker 1: would move. So this is a long way of saying 267 00:17:06,280 --> 00:17:11,119 Speaker 1: not likely to have any positive effect on employment in 268 00:17:11,160 --> 00:17:15,640 Speaker 1: the United States. Likely to have very large negative impact 269 00:17:15,840 --> 00:17:19,360 Speaker 1: on consumers because prices will go up. Nick, how much 270 00:17:19,720 --> 00:17:23,200 Speaker 1: is the US to blame for its large trade deficit 271 00:17:23,280 --> 00:17:29,560 Speaker 1: with China. It's pursuing a policy of fiscal expansion at 272 00:17:29,600 --> 00:17:34,800 Speaker 1: a time when China is pursuing a policy of fiscal consolidation. 273 00:17:35,720 --> 00:17:39,719 Speaker 1: What's going on here? Well, I think what's going on 274 00:17:40,000 --> 00:17:44,320 Speaker 1: is that the level of saving in the United States 275 00:17:44,400 --> 00:17:47,680 Speaker 1: is very low, and the expansion of the fiscal deficit, 276 00:17:47,720 --> 00:17:49,920 Speaker 1: which is occurring and will continue for quite a few 277 00:17:49,920 --> 00:17:54,280 Speaker 1: more years, means that are saving short spot from a 278 00:17:54,359 --> 00:17:58,000 Speaker 1: national perspective, will be getting bigger and bigger, which means 279 00:17:58,040 --> 00:18:00,359 Speaker 1: we need to borrow money from the rest of the world. 280 00:18:00,800 --> 00:18:02,760 Speaker 1: And the only way the rest of the world will 281 00:18:02,840 --> 00:18:06,240 Speaker 1: have the money to lend to us is if they 282 00:18:06,440 --> 00:18:10,679 Speaker 1: sell us more products than we buy from them. So ultimately, 283 00:18:11,119 --> 00:18:16,160 Speaker 1: the trade imbalances are largely a function of these macroeconomic 284 00:18:16,280 --> 00:18:19,920 Speaker 1: variables much more than they are a function of tariffs 285 00:18:20,000 --> 00:18:23,800 Speaker 1: or trade restrictions or protectionism. And I think you can 286 00:18:23,800 --> 00:18:27,160 Speaker 1: see that very clearly. In the case of China, their 287 00:18:27,560 --> 00:18:30,600 Speaker 1: current account surplus, which is a broad measure of goods 288 00:18:30,600 --> 00:18:33,359 Speaker 1: and services and a couple of other things, is only 289 00:18:33,480 --> 00:18:38,240 Speaker 1: one point two percent of their GDP. It's extremely small 290 00:18:38,960 --> 00:18:41,960 Speaker 1: by international standards. So globally they did not have a 291 00:18:41,960 --> 00:18:44,720 Speaker 1: big surplus, but they have a big surplus with the 292 00:18:44,800 --> 00:18:47,560 Speaker 1: United States. The United States has a big deficit with China, 293 00:18:47,880 --> 00:18:50,840 Speaker 1: and I think it's a function of problems that originates 294 00:18:51,520 --> 00:18:54,920 Speaker 1: in the US economy. In other words, the administration portrays 295 00:18:55,000 --> 00:18:57,720 Speaker 1: China is being highly protectionists, and it certainly his protection 296 00:18:57,800 --> 00:19:00,320 Speaker 1: is in some domains, but it is not I have 297 00:19:00,520 --> 00:19:04,239 Speaker 1: a big global trader plus. It's global trade surplus is 298 00:19:04,480 --> 00:19:07,920 Speaker 1: very small relative to the size of its economy. It's 299 00:19:08,080 --> 00:19:12,440 Speaker 1: much much less than the surplus of Germany, for example. Well, Nick, 300 00:19:12,600 --> 00:19:15,159 Speaker 1: this story is obviously far from over, and we'll all 301 00:19:15,240 --> 00:19:17,240 Speaker 1: be listening to what you have to say in the 302 00:19:17,320 --> 00:19:20,639 Speaker 1: coming months on whatever happens between the US and China 303 00:19:20,720 --> 00:19:23,320 Speaker 1: on trade. Thank you so much for coming on our podcast. 304 00:19:23,520 --> 00:19:29,960 Speaker 1: Thank you. Benchmark will be back next week. Until then, 305 00:19:30,040 --> 00:19:32,360 Speaker 1: you can find us on the Bloomberg terminal, the Bloomberg 306 00:19:32,359 --> 00:19:35,879 Speaker 1: dot com, our Bloomberg app, and podcast destinations such as 307 00:19:35,920 --> 00:19:40,160 Speaker 1: Apple Podcasts, Spotify, or wherever you listen to podcasts. Please 308 00:19:40,160 --> 00:19:42,320 Speaker 1: take the time to rate and review the show, and 309 00:19:42,400 --> 00:19:44,840 Speaker 1: you can also find us on Twitter. You can follow 310 00:19:44,880 --> 00:19:49,639 Speaker 1: me at at scott Landman Dan, You're at moss under 311 00:19:49,680 --> 00:19:53,680 Speaker 1: School Echo, and Nick's employer at the Peterson Institute is 312 00:19:53,720 --> 00:19:57,280 Speaker 1: at at p I I E. Benchmark is produced by 313 00:19:57,320 --> 00:20:00,800 Speaker 1: Tofu Foreheads. The head of Bloomberg Podcasts is chessca lev 314 00:20:01,119 --> 00:20:02,880 Speaker 1: Thanks for listening, See you next time.