WEBVTT - How Chile's Unrest is Affecting the Economy 0:00:04.680 --> 0:00:07.560 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:07.600 --> 0:00:15.360 global economy to you now. People have different associations with 0:00:15.400 --> 0:00:18.599 the South American country of Chile. For older listeners, it 0:00:18.680 --> 0:00:22.720 make under our images of the dictator Augusto Pinochet. For others, 0:00:22.760 --> 0:00:26.480 it's probably Chilean merlot or maybe the odd copper mine. 0:00:27.040 --> 0:00:29.720 But one thing almost everyone knows is that Chile and 0:00:29.760 --> 0:00:32.879 its economy are stable in a region full of countries 0:00:32.920 --> 0:00:37.120 that are not. The violent protests in Chile since October 0:00:37.240 --> 0:00:40.920 have turned that reputation on its head. Demonstrators demanding a 0:00:40.960 --> 0:00:44.720 more equal society have clashed with police, and the unrest 0:00:44.760 --> 0:00:48.040 has sometimes tipped over into looting and vandalism that more 0:00:48.040 --> 0:00:50.640 than twenty people have died, hundreds have been wounded, and 0:00:50.760 --> 0:00:54.240 thousands thrown into jail, and there have been plenty of 0:00:54.280 --> 0:00:58.720 accusations of human rights abuses. So the billionaire president Sebastian 0:00:58.720 --> 0:01:01.760 Pinera was caught off guard at the beginning and fumbled 0:01:01.800 --> 0:01:04.560 his response. He said that Chile was at war, which 0:01:04.760 --> 0:01:08.840 enraged the protesters. Then he backtracked and has now promised 0:01:08.920 --> 0:01:12.720 lots of social projects to bring the demonstrators around. In 0:01:12.720 --> 0:01:14.560 a minute, I'm going to ask one of Bloomberg's Latin 0:01:14.600 --> 0:01:18.520 American economist, Philippi Hernandez, whether the protests have put Chile's 0:01:18.560 --> 0:01:21.520 long term stability at risk and whether they shed light 0:01:21.560 --> 0:01:25.360 on the challenges facing new governments in Argentina and Brazil. 0:01:26.080 --> 0:01:28.479 I'm also going to catch up with our trades are 0:01:28.480 --> 0:01:31.920 Brenda Murray on the latest truce in the US China 0:01:32.040 --> 0:01:36.800 trade war. But first, here's Bloomberg Santiago Bureau chief Eduardo 0:01:36.840 --> 0:01:40.560 Thompson on the roots of the economics and social crisis 0:01:40.760 --> 0:01:59.240 in Chile and where the country goes from here. Understand 0:01:59.320 --> 0:02:03.160 Chile need to know about Plas Italia, a wide roundabout 0:02:03.200 --> 0:02:06.080 that marks the dividing line between the upscale neighborhood of 0:02:06.120 --> 0:02:09.560 Providencia in the district of Santiago Center, the home of 0:02:09.600 --> 0:02:14.000 government offices. Every time the national soccer team wins, crowds 0:02:14.000 --> 0:02:17.200 gather there to sing and celebrate. It's also a magnet 0:02:17.240 --> 0:02:20.760 for political protests. In a way, it's a local version 0:02:20.760 --> 0:02:24.560 of Washington's National Mall, with wide avenues and parks along 0:02:24.600 --> 0:02:29.160 the border of the Mapucha River. It's also an invisible 0:02:29.200 --> 0:02:33.200 boundary the Place Italia Barria or on up from Place 0:02:33.240 --> 0:02:37.040 Italia is where the wealthy live in Santiago's northeastern districts. 0:02:38.040 --> 0:02:42.799 Nail Italia. We're never gone down. Best place Italia means 0:02:42.840 --> 0:02:45.560 someone who has never seen the real world, and by 0:02:45.600 --> 0:02:48.360 real world we mean in downtown, where most of the 0:02:48.400 --> 0:02:51.560 people that feel left behind from Chile's economic progress live. 0:03:03.160 --> 0:03:05.880 Las Italia is the ground zero of the Protestant Chile 0:03:06.000 --> 0:03:09.560 that started in October. Layers and layers of graffiti now 0:03:09.600 --> 0:03:13.200 cover the statues honoring past wars, while metal or ward 0:03:13.200 --> 0:03:20.880 barriers surround the area's stores. A few brave shopkeepers have 0:03:20.960 --> 0:03:24.600 put ups paper signs saying they're still open. Many have 0:03:24.680 --> 0:03:34.840 closed for good. On a sunny and hot Monday, I 0:03:34.920 --> 0:03:37.760 met with a twenty four year old woman named Tad Flories. 0:03:38.360 --> 0:03:42.400 All around, college age men their faces covered behind masks, 0:03:42.800 --> 0:03:46.680 directed traffic and set off fire extinguishers. Women near the 0:03:46.720 --> 0:03:50.440 main statues were doing a topless feminist performance against sexual violence. 0:03:51.080 --> 0:03:57.200 Police were nowhere to be seen ever since they started 0:03:57.320 --> 0:04:00.120 be coming here to protest. But I get out of it, 0:04:00.120 --> 0:04:03.880 turns to violet and there's police repression and protest him 0:04:04.000 --> 0:04:06.720 because of the bad quality of public health and pensions. 0:04:07.120 --> 0:04:12.600 Pensions are just too like the addition, know about this, 0:04:13.320 --> 0:04:15.360 she works at a private clinic that attends to the 0:04:15.480 --> 0:04:20.560 rich those that live uptown from Plas Italia. This invisible 0:04:20.560 --> 0:04:24.320 boundary in Plas Italia also inspired David Vargas to protest. 0:04:25.200 --> 0:04:28.440 Every Friday. After the thirty eight year old technician completes 0:04:28.480 --> 0:04:30.599 his shift working in the back office of a credit 0:04:30.640 --> 0:04:33.880 card company in the swanky neighborhood of Nova Las Condes, 0:04:34.520 --> 0:04:41.560 he heads out here to join the protests. I came 0:04:41.600 --> 0:04:44.000 to work one day at Glas Conges after it all began, 0:04:44.240 --> 0:04:46.840 and that is what angered me the most. The place 0:04:46.920 --> 0:04:50.560 was packed with soldiers. They were guarding everything when absolutely 0:04:50.560 --> 0:04:53.680 nothing had happened. But if it went downtown or rather 0:04:53.680 --> 0:04:57.080 places in Santiago, it was pure chaos. They just guarded 0:04:57.080 --> 0:05:01.440 from Plas Italia to the rich neighborhoods. Very That's how 0:05:01.480 --> 0:05:08.120 it was, and you can still see that today and 0:05:08.240 --> 0:05:12.120 David are part of chillis rising middle class. Both have 0:05:12.279 --> 0:05:16.760 professional degrees. David, for example, comes from a poor family. 0:05:17.160 --> 0:05:21.200 His father, a former factory worker, collects a monthly disability 0:05:21.200 --> 0:05:25.120 pension equivalent to about hundred dollars. David's mother worked her 0:05:25.120 --> 0:05:28.239 whole life cleaning houses to put food on the table 0:05:28.320 --> 0:05:34.200 for him and his family. I'm protesting mostly because of 0:05:34.240 --> 0:05:37.359 the pensions, and to emphasize because right now I have 0:05:37.480 --> 0:05:40.680 privileges that many don't have. I know what it is 0:05:40.720 --> 0:05:43.000 to live in a poor neighbor. I know what it 0:05:43.120 --> 0:05:46.159 is to wait for eight hours at public hospitals for service. 0:05:46.880 --> 0:05:50.040 I know what it means that the elderly received extremely 0:05:50.040 --> 0:05:52.680 low pensions and don't have enough to leave or to 0:05:52.720 --> 0:06:15.680 buy food. A few blocks down from plass Italian is 0:06:15.720 --> 0:06:20.039 where the whole mess started. In a subway station called Chile. 0:06:20.839 --> 0:06:24.040 Early in October, students began to plot massive ticket evasions, 0:06:24.400 --> 0:06:27.280 first in New York City Chile and then in other stations, 0:06:27.720 --> 0:06:30.920 sparked by a fair increase of thirty vessels or four cents. 0:06:31.920 --> 0:06:36.440 Things got nasty fast. Police special forces clashed with the protesters. 0:06:36.720 --> 0:06:39.400 Acts of vandalism started and culminated on the night of 0:06:39.440 --> 0:06:45.680 October eighteen, when unidentified groups set stations on fire. Protests 0:06:45.720 --> 0:06:49.039 continued and morphed into the biggest social unrest since the 0:06:49.040 --> 0:06:53.919 dictatorship of Augusto Pinochet. The message was clear. The neglected 0:06:54.000 --> 0:06:57.440 lower and middle class in South America's richest country was mad, 0:06:58.160 --> 0:07:09.800 very mad. Outside of the iconic station in downtown Santiago. 0:07:10.080 --> 0:07:13.160 I met with Claudiaquentis, a professor of political science from 0:07:13.160 --> 0:07:16.320 the New Year City, Diego Portalis. He has been following 0:07:16.360 --> 0:07:19.040 social protests for a long time, but the violence of 0:07:19.040 --> 0:07:22.280 the protests took him by surprise. The people are very, 0:07:22.400 --> 0:07:27.720 very upset against political parties, against the business community abusing powers. 0:07:27.840 --> 0:07:33.720 So this is at two sides, a conflict related to 0:07:33.800 --> 0:07:36.520 social demands and the abuse of power of the lead. 0:07:37.720 --> 0:07:39.920 Although at the time of this recording, the intensity of 0:07:39.920 --> 0:07:43.240 the protests seems to have subsided, the damage to the 0:07:43.280 --> 0:07:47.280 social fabric of Chile and it's once growing economy is undeniable. 0:07:48.360 --> 0:07:50.440 The Central Bank has warned that if the economy doesn't 0:07:50.440 --> 0:07:52.880 get back on track, unemployment can jump to more than 0:07:52.920 --> 0:07:56.000 ten pc. The bisto has had the worst performance of 0:07:56.000 --> 0:07:59.080 any emergent market currency in the period. Getting out of 0:07:59.120 --> 0:08:01.640 this will require lot of spending and a lot of 0:08:01.640 --> 0:08:09.400 soul searching around what led the country there. I think 0:08:09.400 --> 0:08:13.800 that also makes it extremely difficult to handle that this 0:08:13.920 --> 0:08:18.640 is domestically created. Most of the crisis that we have 0:08:18.760 --> 0:08:22.600 had Asian crisis, the global finance crisis were extended crisis 0:08:22.960 --> 0:08:26.480 that is dean of the New Yar City, Chile School 0:08:26.480 --> 0:08:29.280 of Economics and former governor of Chile Central Bank during 0:08:29.320 --> 0:08:33.559 the financial crisis. He says that though income inequality figures 0:08:33.559 --> 0:08:36.960 have improved and poverty has fallen, it hasn't been enough. 0:08:38.160 --> 0:08:43.040 All they the munity developments and poor people housing was 0:08:43.160 --> 0:08:46.880 down in the In the baphory of the of the 0:08:46.960 --> 0:08:51.120 city we create not get as well, but the extremely 0:08:51.160 --> 0:08:57.040 dissegregated city, so you are very high inca where if 0:08:57.040 --> 0:09:01.400 you have middle or low income living different helps. Getting 0:09:01.400 --> 0:09:04.280 out of this crisis won't be easy for President Pineta. 0:09:04.800 --> 0:09:07.280 He has promised the five point five billion package of 0:09:07.320 --> 0:09:10.280 social measures, and the country will issue more dead and 0:09:10.320 --> 0:09:13.280 spend part of its savings. There's also a promise of 0:09:13.280 --> 0:09:16.560 a new constitution vote next April, but political parties have 0:09:16.679 --> 0:09:19.840 stalled discussing the details of the process, and for people 0:09:19.880 --> 0:09:22.920 such as David Vargas, it isn't the solution. He wants 0:09:22.960 --> 0:09:27.880 to see the video. I meant anything. The most important 0:09:27.920 --> 0:09:30.920 measure is that the president should resign because he has 0:09:31.000 --> 0:09:35.120 shown that he won't bring peace. Neither will political parties. 0:09:35.440 --> 0:09:37.800 They set up a show and say we've signed a 0:09:37.840 --> 0:09:40.720 peace agreement, but they don't see that people are protesting 0:09:40.760 --> 0:09:45.800 because they don't believe in competitions that may be seen 0:09:45.840 --> 0:09:49.920 as too extreme. But political scientists Cloudy Afuentes says that 0:09:50.000 --> 0:09:54.640 a major change is long overdue, need to change forever, 0:09:54.800 --> 0:10:01.320 because the previous let's say CONSENSUV and its stabilty was artificial. 0:10:01.920 --> 0:10:06.839 It was like a time em bomb in which where 0:10:07.760 --> 0:10:11.200 pressuring force certain issues. And I think that if we 0:10:11.280 --> 0:10:15.439 don't change the way society is set up, we might 0:10:15.520 --> 0:10:19.920 have another explosion in thirty years, in twenty years. It's 0:10:19.920 --> 0:10:22.600 a lesson that other Latin American countries are paying careful 0:10:22.640 --> 0:10:26.880 attention to. When similar protests began in Colombia, the government 0:10:26.880 --> 0:10:29.560 of Van Duke quickly set up talks with unions and 0:10:29.600 --> 0:10:32.680 social groups to diffuse the tention, While the government of 0:10:32.760 --> 0:10:35.720 Jai Bolsonado in Brazil has taken the foot off the 0:10:35.800 --> 0:10:39.120 gas of its markets reform agenda. It remains to be 0:10:39.200 --> 0:10:42.800 seen if the reforms in Chile or elsewhere will be 0:10:42.920 --> 0:10:46.960 enough to avoid another flare up of the violence. For 0:10:47.000 --> 0:10:59.520 Bloomberg News, I'm Edward or Thompson. So I'm I'm joined 0:10:59.520 --> 0:11:04.400 now by Phelipp Fernandez in New York, who covers Mexico, Chile, 0:11:04.600 --> 0:11:07.320 and a bunch of other countries in Latin America for 0:11:07.400 --> 0:11:12.480 Bloomberg Economics. Philippe, thanks for coming on Stephonomics. Thank you 0:11:12.640 --> 0:11:16.120 for inviting me, Stephanie. We just listened to that piece 0:11:16.360 --> 0:11:20.160 from Eduardo, and you know, I guess the question is 0:11:20.200 --> 0:11:25.360 does this does this unrest actually put Chile's really long 0:11:25.440 --> 0:11:30.000 reputation for economic and political stability at risk? I mean, 0:11:30.080 --> 0:11:33.760 is this is that the Chilean economic model, such as 0:11:33.800 --> 0:11:36.440 it is, is it is it fundamentally under threat now? 0:11:36.679 --> 0:11:40.520 Or are these protests something that are likely to fade. 0:11:41.000 --> 0:11:43.680 The short answer to your question is that yes, indeed, 0:11:43.920 --> 0:11:47.560 all of these unrest has raised some risks for the 0:11:48.120 --> 0:11:52.120 for the Chilean economy and the view, the consensus view 0:11:52.240 --> 0:11:56.559 of a sterile Chile. What the policymakers have to understand 0:11:56.720 --> 0:12:00.320 is that in terms of what changes are REQUI fired, 0:12:00.480 --> 0:12:03.600 they must keep in mind or try to make sure 0:12:03.679 --> 0:12:06.960 that what has been working well for Chile is maintained. 0:12:07.640 --> 0:12:09.959 Some good examples of this is that they you now 0:12:10.040 --> 0:12:13.240 have a very credible and independent central bank, which has 0:12:13.600 --> 0:12:17.640 helped to keep a low and stable inflation, responsible and 0:12:17.679 --> 0:12:22.720 sustainable fiscal policy and the overall conditions that have allowed 0:12:22.800 --> 0:12:27.120 Chile to enjoy relatively stable and positive economic growth. Now, 0:12:27.200 --> 0:12:29.400 there were some things that were not working in Chile. 0:12:30.200 --> 0:12:32.679 When you look at the different indicators, you find that 0:12:32.920 --> 0:12:36.000 despite all of these things that I mentioned before, there's 0:12:36.040 --> 0:12:40.080 a still high income inequality in Chile. There were limited 0:12:41.040 --> 0:12:45.520 redistribution policies and low social mobility in part due to 0:12:45.960 --> 0:12:50.559 limited taxes to high quality education. And any new arrangement 0:12:50.800 --> 0:12:55.280 that comes out as a result of the of these 0:12:55.360 --> 0:12:59.240 changes must be sustainable in the long term, and by 0:12:59.280 --> 0:13:02.320 this I mean at any any fiscal policy measures that 0:13:02.360 --> 0:13:04.840 result in higher public cector expenditure will have to be 0:13:04.920 --> 0:13:10.239 upset by the government finding news sources of of revenues, 0:13:10.920 --> 0:13:12.920 and for the economy as a whole, of course, this 0:13:13.080 --> 0:13:16.840 probably will imply higher taxes. Any decisions in terms of 0:13:16.920 --> 0:13:20.600 increasing wages or pensions that could result in higher costs 0:13:20.679 --> 0:13:25.520 for the for the productive sector will all have to 0:13:25.559 --> 0:13:29.520 be carefully weighted against the negative impact that this could 0:13:29.559 --> 0:13:33.679 have on the competitiveness of Chile, especially when considering that 0:13:33.840 --> 0:13:38.599 Chile is a very highly opened economy and that it 0:13:38.800 --> 0:13:42.160 is it's a competitiveness relative to the world, to the 0:13:42.200 --> 0:13:44.560 rest of the world is a key component of the 0:13:44.600 --> 0:13:49.080 positive growth in the economy. It's not just Chile. I mean, 0:13:49.120 --> 0:13:53.959 if you look around the region, there's protests bursting out 0:13:54.000 --> 0:14:00.000 all over. We've seen in Bolivia, Colombia, Ecuador. Venezuela obviously 0:14:00.040 --> 0:14:02.880 has been in meltdown for quite a while. And I 0:14:02.960 --> 0:14:06.920 noticed that you you took a look um with Adriana Jupiter, 0:14:07.120 --> 0:14:11.920 who's our Argentina and Brazil economists at the regional picture 0:14:12.360 --> 0:14:16.120 on protests and how to think about how one might 0:14:16.720 --> 0:14:20.720 assess the risk in different countries of protests breaking out 0:14:20.760 --> 0:14:22.240 in the future. Can you can you tell us a 0:14:22.240 --> 0:14:26.080 bit about that? Sure? So there were in different countries 0:14:26.120 --> 0:14:29.320 different reasons for the protests, but what we saw is 0:14:29.360 --> 0:14:32.280 that they share a lot of the same problems. So 0:14:32.360 --> 0:14:34.920 in equality, it's not a problem only in Chile, it's 0:14:34.960 --> 0:14:37.760 also a problem in the rest of the region. The 0:14:37.840 --> 0:14:41.280 need for fiscal titaning measures. It's not just something that 0:14:41.440 --> 0:14:44.480 is now at the center of the debate in equal or. 0:14:44.640 --> 0:14:47.240 It's also part of the debate economic debating the rest 0:14:47.280 --> 0:14:50.480 of the region, and the political noise in both Bolivia 0:14:50.520 --> 0:14:54.680 and Colombia. I think this is just evidence of the 0:14:54.720 --> 0:14:59.120 problems regarding governance that we continue to see again not 0:14:59.200 --> 0:15:01.920 only in these two fries, but in most of Latin America, 0:15:02.440 --> 0:15:06.440 which basically helps to explain why you have these UH 0:15:06.640 --> 0:15:10.480 these episodes of unrest and and the protest breaking up 0:15:11.000 --> 0:15:15.080 pretty much at the same time everywhere. Now, all of 0:15:15.080 --> 0:15:18.040 these problems that I mentioned before, they are really not new, 0:15:18.720 --> 0:15:22.880 but have recently become more note noticeable. The main reason 0:15:22.960 --> 0:15:27.440 for this is that for almost fifteen years between two 0:15:27.440 --> 0:15:30.480 thousand and two thousand fifteen, you had very strong growth 0:15:30.480 --> 0:15:33.120 in the region, and that very strong growth in the 0:15:33.160 --> 0:15:36.960 region helped to achieve or deliver some progress in terms 0:15:37.000 --> 0:15:41.680 of social indicators. That very strong economic growth but was 0:15:41.760 --> 0:15:46.520 written mainly by very favorable external conditions, bolstered by strong 0:15:46.560 --> 0:15:51.520 growth from China, high commodity prices, and a steady decline 0:15:51.560 --> 0:15:55.280 in global monetary policy interest rates sarvice. Alt of these 0:15:55.320 --> 0:16:00.560 favorable environment and strong economic growth, governments during these period 0:16:00.560 --> 0:16:06.920 had a significant amount of resources to expand government programs 0:16:06.920 --> 0:16:10.280 to aid the lower and middle income classes. We saw 0:16:10.880 --> 0:16:15.040 very successful and the programs of cash transfers from the 0:16:15.040 --> 0:16:20.000 public sector to to to these UH minorities, and we 0:16:20.080 --> 0:16:23.360 did saw a red significant reduction in the levels of 0:16:23.400 --> 0:16:30.120 poverty and in some countries some improvement in inequality measures. However, 0:16:30.760 --> 0:16:34.960 over the last five years, the external environment has been 0:16:35.080 --> 0:16:38.520 less favorable. That has had a negative impact on economic 0:16:38.600 --> 0:16:40.920 growth in the region. And what we have seen is 0:16:40.960 --> 0:16:43.880 that in the last five years, this progress in social 0:16:43.960 --> 0:16:48.160 indicators has pretty much stalled, and in some cases we 0:16:48.240 --> 0:16:53.960 have seen some deterioration. So the people in these countries, 0:16:54.040 --> 0:16:57.080 after fifteen years of progress, they are seeing no progress. 0:16:57.080 --> 0:16:59.560 In some cases, they are losing some of the progress made. 0:17:00.120 --> 0:17:03.600 And now that you have a bigger middle income class, 0:17:03.640 --> 0:17:06.840 this is uh people that are getting used to make 0:17:06.880 --> 0:17:11.840 more demands and want better services and and but there 0:17:12.080 --> 0:17:15.880 better attention from from the government and under governors. And 0:17:15.960 --> 0:17:18.679 when people talk about South America and particularly people and 0:17:19.240 --> 0:17:22.199 thinking about the economic side of things, they tend to 0:17:22.240 --> 0:17:25.359 focus on Argentina, Brazil and Brazil. You know they face 0:17:25.520 --> 0:17:28.879 they face some of the same problems. They have both 0:17:29.000 --> 0:17:33.359 relatively recently had elections. Do you think there's a risk 0:17:33.400 --> 0:17:36.600 in either of those countries that even these quite new 0:17:36.640 --> 0:17:39.159 governments will face the kind of unrest we've seen, particularly 0:17:39.200 --> 0:17:43.400 maybe in Argentina. Ah, the answer is yes, there's definitely 0:17:43.400 --> 0:17:46.840 a risk for it for Argentina, Brazil, and I will 0:17:46.840 --> 0:17:50.720 also say Mexico as well to be included, and we 0:17:50.760 --> 0:17:53.800 cannot rule out that they could eventually see some some 0:17:53.920 --> 0:17:56.600 of this unrest as well. The main reason is that, 0:17:56.640 --> 0:18:00.320 as I mentioned before, they pretty much share most of 0:18:00.359 --> 0:18:05.240 the problems that triggered the protests in Chile. They also 0:18:05.520 --> 0:18:11.440 are facing decelerating economic growth. Actually Mexico now in recession. 0:18:11.760 --> 0:18:14.679 And this is something that we looked into in the 0:18:14.680 --> 0:18:18.000 piece that we wrote with Adriana, is that what why 0:18:18.359 --> 0:18:22.400 have we not seen protests in Argentina, Brazil and Mexico. 0:18:22.600 --> 0:18:25.560 And the main reason, at least one of the explanation 0:18:25.640 --> 0:18:28.520 that we could came up with, is that we recently 0:18:28.520 --> 0:18:31.560 saw elections in all of these In these three countries, 0:18:32.560 --> 0:18:35.600 the presidents that were elected or the results of these 0:18:35.600 --> 0:18:40.399 elections provided a significant political change from the from the 0:18:40.480 --> 0:18:45.160 previous government. And in the case of Mexico and Brazil, 0:18:46.080 --> 0:18:49.880 the current presidents have been sitting in office for less 0:18:49.880 --> 0:18:52.199 than a year, so they are relatively new and they 0:18:52.240 --> 0:18:55.920 are still like in like a honeymoon period. That reduces 0:18:55.960 --> 0:18:58.920 the amount of pressure, that of political or popular pressure 0:18:58.960 --> 0:19:04.040 that they can under. So people think they've successfully voted 0:19:04.080 --> 0:19:05.960 for something different, and now they're going to wait and 0:19:05.960 --> 0:19:08.160 see if they get it. Reminds me of somewhere else, 0:19:08.200 --> 0:19:11.360 not a million miles away from from where I am now. 0:19:11.920 --> 0:19:15.520 Philip Bernandez, thanks very much for joining us. Thank you 0:19:15.520 --> 0:19:25.240 for invading. So we just have time for the very 0:19:25.320 --> 0:19:27.679 latest on the trade wars to keep you happy as 0:19:27.680 --> 0:19:30.960 you go into the holiday season. Or is there still 0:19:31.280 --> 0:19:34.320 a trade war? Is it over? You could take a 0:19:34.400 --> 0:19:36.800 number of views on that on the basis of President 0:19:36.840 --> 0:19:40.479 Donald Trump's tweets in the last week. Brendan Murray, our 0:19:40.560 --> 0:19:45.400 long suffering trades are is here? Brendan, what's going on? Well, 0:19:45.440 --> 0:19:47.920 I wouldn't say the trade wars are over, but let's 0:19:47.960 --> 0:19:50.800 just say both sides called a time out and agreed 0:19:50.840 --> 0:19:53.200 to go back to their corners and carry on, both 0:19:53.200 --> 0:19:56.600 sides being US and China exactly. So, what the US 0:19:56.640 --> 0:19:59.480 announced just a couple of days ago was was a 0:19:59.560 --> 0:20:02.520 deal in principle with China that consists of a couple 0:20:02.520 --> 0:20:06.480 of things. The Beijing has promised to purchase some two 0:20:06.560 --> 0:20:09.200 hundred billion dollars worth of American products over the next 0:20:09.200 --> 0:20:12.520 couple of years. A lot of that agriculture and and 0:20:12.720 --> 0:20:16.240 President Trump conceded that he would roll back some tariffs. 0:20:16.240 --> 0:20:18.919 So we've got both sides kind of giving in but 0:20:19.040 --> 0:20:22.440 agreeing basically to put off the really tough issues where 0:20:22.440 --> 0:20:26.240 they couldn't come together for a later round, a phase two. 0:20:26.400 --> 0:20:29.200 They're calling this one phase one, and the next step 0:20:29.240 --> 0:20:31.760 where they would address some of the more the deeper 0:20:31.840 --> 0:20:35.159 structural issues with Chinese economy down the road. Now, that 0:20:35.200 --> 0:20:36.840 could be a year from now, could be two years 0:20:36.840 --> 0:20:39.680 from now, who knows, but it's it's a pretty safe 0:20:39.680 --> 0:20:41.439 bet that the that the trade wars are going to 0:20:41.520 --> 0:20:44.719 kind of drag on for months, if night years. Well, 0:20:44.760 --> 0:20:46.320 I was going to say that I would miss talking 0:20:46.359 --> 0:20:47.920 to you about the trade wars, but I don't think 0:20:47.920 --> 0:20:49.919 I have to worry about that anytime soon. I mean, 0:20:49.920 --> 0:20:53.200 we should say about the timing of this, that the 0:20:53.280 --> 0:20:56.439 announcement of the deal came just a couple of days 0:20:56.560 --> 0:20:59.160 before you would have had that imposition of the next 0:20:59.280 --> 0:21:02.960 round of of tariffs on China, which actually our economists 0:21:03.000 --> 0:21:05.680 had pointed out would be much much more damaging and 0:21:05.800 --> 0:21:10.640 affect a lot more US companies than the previous tariffs. 0:21:10.680 --> 0:21:12.800 So I guess there was a reason for Donald Trump 0:21:12.840 --> 0:21:16.640 to come up with something um. But just to be clear, 0:21:16.680 --> 0:21:18.359 there's still going to be a lot of tariffs in 0:21:18.440 --> 0:21:21.960 place for the foreseeable future. There what are the other 0:21:22.359 --> 0:21:25.000 question marks about this phase one deal before we even 0:21:25.000 --> 0:21:28.200 get to the Phase two. Absolutely, there's there still remains 0:21:29.320 --> 0:21:31.520 tariff on two hundred and fifty billion dollars worth of 0:21:31.600 --> 0:21:35.359 Chinese products and and teariffs on another hundred and thirty 0:21:35.400 --> 0:21:38.199 billion or so. So we're still looking at, you know, 0:21:38.359 --> 0:21:42.480 the US ex imposing a fair amount of leverage on China. UM. 0:21:42.960 --> 0:21:46.080 The big question then is whether the threat of those 0:21:46.080 --> 0:21:49.800 tariffs is wielded over China going into at the end 0:21:49.800 --> 0:21:52.119 of Phase one and inter phase two. Is this is 0:21:52.119 --> 0:21:54.520 it a threat that just could keep coming up over 0:21:54.560 --> 0:21:57.000 and over again as they try to work through those 0:21:57.040 --> 0:22:00.440 tougher issues. So the tariffs that are currently in play 0:22:00.480 --> 0:22:03.399 aren't going anywhere for the foreseeable future, and you know, 0:22:03.440 --> 0:22:07.159 that will continue to put economic pressure on China to 0:22:07.520 --> 0:22:09.879 you know, to come back to the table again and again. 0:22:09.920 --> 0:22:13.560 As if the US it continues to press press these issues. 0:22:14.000 --> 0:22:16.920 That's the economic prism that we're looking through. The political 0:22:16.960 --> 0:22:21.600 prism is Trump heading into his election next November, you know, 0:22:21.760 --> 0:22:24.520 wants to deliver the goods for the for the farmers 0:22:24.520 --> 0:22:26.600 in the Midwest to you know, many of them who 0:22:26.640 --> 0:22:29.400 will vote for him, And so there there are economic 0:22:29.480 --> 0:22:32.399 costs and benefits and political costs and benefits here. And 0:22:32.400 --> 0:22:34.600 we've we've talked about in the past that it probably 0:22:34.640 --> 0:22:38.439 if your president Trump, your ideal is something that you 0:22:38.480 --> 0:22:41.560 can say is more than any other president would have achieved, 0:22:41.680 --> 0:22:44.840 but not so much that you have to stop complaining 0:22:44.880 --> 0:22:47.199 about China and you can still bang the drum. So 0:22:47.240 --> 0:22:50.360 I guess in that sense it's kind of perfect for him. 0:22:50.400 --> 0:22:52.840 But what I'm hearing is that we're not going to 0:22:52.960 --> 0:22:57.240 get a Phase two anytime soon. It's really unlikely, at 0:22:57.280 --> 0:23:00.720 least the experts that we talked to to see, uh, 0:23:00.760 --> 0:23:03.280 you know, these bigger issues that they need to deal 0:23:03.359 --> 0:23:07.240 with um being hashed out in an election year. Being 0:23:07.240 --> 0:23:09.840 tough on China is does sell well with the American public, 0:23:09.880 --> 0:23:14.359 both Democrats and Republicans, But the Chinese understand the political 0:23:14.920 --> 0:23:18.920 timetable as well, and so their their strategy has largely 0:23:18.960 --> 0:23:21.720 been to kind of stall, drag their feet and see, 0:23:21.720 --> 0:23:24.919 if you know, the political pressure outweighs the economic costs 0:23:25.080 --> 0:23:27.840 and and leaves Donald Trump trying to focus on these 0:23:27.840 --> 0:23:30.800 other issues we are speaking today when when he's the 0:23:30.840 --> 0:23:33.800 House is taking up his impeachment. Uh, quite a distraction. 0:23:34.320 --> 0:23:36.920 And we have before you even think about that, we 0:23:36.960 --> 0:23:40.400 do have this other issue and that has been resolved. 0:23:40.400 --> 0:23:41.720 You know, we should say, if you like the other 0:23:42.040 --> 0:23:44.080 the other side of trade wars that was opened up 0:23:44.119 --> 0:23:48.160 when President Trump came in, which was the renegotiation of NAFTA. 0:23:48.720 --> 0:23:50.760 UM that has gone through in the in the same 0:23:50.760 --> 0:23:53.440 week or at least we've got agreement with the Democrats 0:23:53.560 --> 0:23:55.720 on that new deal. You know, I guess the obvious 0:23:55.840 --> 0:23:58.360 question is if we've got if if the President would 0:23:58.359 --> 0:24:02.720 say that NAPA to the North American trade with Canada 0:24:02.920 --> 0:24:06.040 and Mexico that he complained about has been sorted and 0:24:06.080 --> 0:24:08.760 there's at least a truce on the situation with China. 0:24:09.119 --> 0:24:13.600 Is Europe next? According to the U S Trade Representative 0:24:13.640 --> 0:24:17.119 Bob Lighthouser, he's setting his sights on that big trade 0:24:17.119 --> 0:24:21.240 imbalance with with the European Union next year. It's you 0:24:21.240 --> 0:24:24.320 know something that um. You know, the President Trumps has 0:24:24.359 --> 0:24:27.080 complained about a lot. He he calls Europe even worse 0:24:27.119 --> 0:24:30.240 than China when it comes to dealing with on with 0:24:30.480 --> 0:24:33.920 the trading relationship, and there are threats of tarrass on 0:24:34.040 --> 0:24:37.320 auto imports which would hit Germany very hard, France and 0:24:37.359 --> 0:24:41.159 the UK to a large extent as well. So the 0:24:41.160 --> 0:24:44.879 the ever present threat of tariffs pointed at China to 0:24:45.000 --> 0:24:47.080 date is you know, going to be pointed in the 0:24:47.080 --> 0:24:49.880 direction of Europe next coming to shows now you well, 0:24:49.920 --> 0:24:51.640 thank you very much. I'm sure we will be talking 0:24:51.680 --> 0:25:00.639 about that in the new year. Brenda mind thanks for 0:25:00.680 --> 0:25:03.000 listening to Stephanomics. We'll be back next week with an 0:25:03.040 --> 0:25:07.040 extra special Christmas episode featuring yet another Nobel Prize winner 0:25:07.080 --> 0:25:10.600 in conversation and a particular take on the holiday season 0:25:10.640 --> 0:25:13.520 from Vietnam. In the meantime, you can find us on 0:25:13.560 --> 0:25:17.240 the Bloomberg Terminal website, app or wherever you get your podcasts, 0:25:17.240 --> 0:25:18.879 and we'd love it if you took the time to 0:25:19.040 --> 0:25:22.040 rate and review our show. For more news and analysis 0:25:22.080 --> 0:25:26.200 from Bloomberg Economics, follow at Economics on Twitter. You can 0:25:26.240 --> 0:25:29.600 also find me on at my Stephanomics. The story in 0:25:29.600 --> 0:25:32.760 this episode was written and reported by Eduardo Thompson with 0:25:32.800 --> 0:25:36.560 assistance from Maria Jose Campagnion. It was edited by Bruce 0:25:36.600 --> 0:25:41.200 Douglas and produced by Magnus Hendrickson. Special thanks to Philippe Hernandez, 0:25:41.320 --> 0:25:46.919 Brendan Murray, Rodrigo Ramirez, and Solida Saldalla. Scott Lamman is 0:25:46.960 --> 0:25:50.199 the executive producer of Stephanomics and the head of Bloomberg 0:25:50.280 --> 0:25:52.160 Podcast is Francesca Levi.