Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello, this is Stephanie Flanders. I just wanted to let
Speaker 2: you know that we have edited this episode of Voter
Speaker 2: Nomics since it went out on Monday night to spare
Speaker 2: you a rather out of date conversation about the Indian
Speaker 2: election results. Like most people, when we recorded the episode,
Speaker 2: we thought, looking at exit polls, that Narinda Modi was
Speaker 2: heading for a comfortable victory. It turns out the Indian
Speaker 2: voters had other ideas. We will probably have something to
Speaker 2: say about the actual results in the episode that airs
Speaker 2: later this week, but in the meantime, enjoy this one.
Speaker 3: If we can find a way to get an a
Speaker 3: cessation of the conflict and a release of the hostages
Speaker 3: and a political discussion emerges from it, There's look, this
Speaker 3: is going to take years and years unfold, and we're
Speaker 3: still the last best chance for the region to find
Speaker 3: a way forward.
Speaker 2: Welcome to voter Nomics, where politics and Markets collide. This year,
Speaker 2: voters around the world have the ability to affect markets, countries,
Speaker 2: and economies like never before, so we've created this series
Speaker 2: to help you make sense of it all. I'm Stephanie Flanders.
Speaker 1: And I'm alegra Stratton and Adrian Waldridge is normally with us,
Speaker 1: but this week we think he's recuperating from anchoring Friday's
Speaker 1: episode on his own.
Speaker 2: And very good job he did too. At the top
Speaker 2: of the show, you heard from our guest this week,
Speaker 2: Dleepe Singh Deleep is the Deputy National Security Advisor for
Speaker 2: International Economics in the White House. That's a role in
Speaker 2: the Biden administration that he returned to earlier this year
Speaker 2: after working for a shortish stint as Chief Global Economist
Speaker 2: at p JIM. This is a guy who's been very
Speaker 2: much associated with the geoeconomics, with the sort of bidernomics
Speaker 2: pe pie of the US administration's international policy over the
Speaker 2: last few years, carving out what economic state craft in
Speaker 2: this new world means. And one area that I asked
Speaker 2: him about was the Middle East, a place where you
Speaker 2: would have said there was a positive argument for economic
Speaker 2: diplomacy actually forging a more peaceful, sustainable outlook. You would
Speaker 2: have said that anytime up to October seventh, but talking
Speaker 2: about it now extremely difficult. So what he had to
Speaker 2: say about that, what he had to say about the
Speaker 2: sanctions against Russia that he was very much part of crafting,
Speaker 2: and of course China was all pretty interesting.
Speaker 1: It was really interesting, and you're completely right, it was
Speaker 1: particularly interesting for his tone, and as somebody who used
Speaker 1: to do interviews from government, I did sympathize quite a
Speaker 1: few times with the tension because he's trying to choose
Speaker 1: exactly the right word for somebody's who's actually crafting public
Speaker 1: policy from government as you were speaking to him, Stephanie.
Speaker 1: It's high stakes, and it was incredibly interesting for that
Speaker 1: reason too.
Speaker 2: And you know, he's an economist that is now in
Speaker 2: the crosshairs of some of the biggest kind of geopolitical
Speaker 2: and most sensitive issues facing the US right now, whether
Speaker 2: it is the Middle East where we spoke. He'd also
Speaker 2: just imposed or helped the administration just impose a load
Speaker 2: of new tariffs on Chinese goods, so there was plenty
Speaker 2: to talk about. It was a couple of weeks ago.
Speaker 2: Nothing's happened to really outdate anything he said. But it's
Speaker 2: always important to mention that we've got so many elections
Speaker 2: to talk about in this episode, we're going to have
Speaker 2: to talk about them pretty briefly before we get to
Speaker 2: all that. I guess those who did listen to Adrian's episode.
Speaker 2: At the end of last week, he spoke to our
Speaker 2: economist yvon Maango about the state of play in the
Speaker 2: South African election. We've obviously now had the results, and
Speaker 2: I was pretty struck actually because Yvonne had put a
Speaker 2: number in my mind, which was that anything under forty
Speaker 2: five would be quite a bad result for the A
Speaker 2: and C forty five percent of the vote, and actually
Speaker 2: it looks like it's going to be closer to forty
Speaker 2: and it does have some coalition building to do now.
Speaker 1: They're can be scrabbling around similar Rather opposer is going
Speaker 1: to have to contend with the return of a return
Speaker 1: of his nemesis, Jake Zuma. I'm interested deaf in how voters,
Speaker 1: what decisions they made in that central coal belt in
Speaker 1: South Africa, the fact that they had constant shut downs
Speaker 1: of electricity, how that impacted their decision and their view
Speaker 1: of the A and C and the ruling government versus
Speaker 1: the move that is afoot in the international community to
Speaker 1: get South Africa to transition from these coal power plants
Speaker 1: to renewable energy.
Speaker 2: One of our columnists, Justice Malala, who had spoken in
Speaker 2: a lead up to the election as this being a
Speaker 2: result that could in a sense mark them sort of
Speaker 2: normalizing of South Africa's democracy. You know, it's not normal
Speaker 2: for a country to get sixty to seventy percent of
Speaker 2: the vote as A ANDC has in many years after
Speaker 2: the end of Aparthei, you've had now this fracturing of
Speaker 2: the party, far left elements breaking off, Jacob Zuma's party
Speaker 2: breaking off, and at least, just as Malala says, you know,
Speaker 2: the key thing now for many people would be avoiding
Speaker 2: what's known as a doomsday coalition, so avoiding a coalition
Speaker 2: with those more far left. What needs to happen, at
Speaker 2: least according to him, is a coalition with the White
Speaker 2: lad opposition Democratic Alliance, which is led by a woman
Speaker 2: Helen Zilla, who he says is crotchety, pugilistic and controversial,
Speaker 2: but a very effective political operator. And the important thing
Speaker 2: about that would be again to cement the normalizing of
Speaker 2: South Africa's democracy, hands across the racial aisle, however you
Speaker 2: want to talk about it. That would be as force
Speaker 2: for market reforms, potentially for a economic growth, would be
Speaker 2: positive for investors worried about what's going to happen with
Speaker 2: the budget. But I think it would also be a
Speaker 2: rejection of very kind of race based dividing lines.
Speaker 1: And it's interesting as well because it's pure votonomics, right,
Speaker 1: what's going on in South Africa where you have people's
Speaker 1: lived experience dealing with these energy shutdowns and then this
Speaker 1: high level of unemployments as well as violence and so on,
Speaker 1: and that expressing itself, as you say, stare for the
Speaker 1: first time in the history of it as a democracy
Speaker 1: at the polls.
Speaker 2: So we are going to wait and see what happens. Then.
Speaker 2: The other thing that's happened with the other major emerging
Speaker 2: market democracy to have got a change of leadership is
Speaker 2: of course Mexico.
Speaker 1: Yeah, and its first female president in a landslide victory.
Speaker 1: Though she does appear, you know, it's well known that
Speaker 1: she is the anointed air to the incumbent, the previous leader,
Speaker 1: and it seems like for her. The big issues in
Speaker 1: her intrea the extreme violence in Mexico. Thirty eight candidates
Speaker 1: were killed in this election.
Speaker 2: The violence of the cartel violence, the control over different
Speaker 2: parts of the country is extraordinary. I do find in
Speaker 2: these conversations it's almost like a split screen conversation. On
Speaker 2: the one hand, our reporters are reporting about this basic
Speaker 2: level of lawlessness, particularly outside Mexico City, caused by the cartels,
Speaker 2: caused by drug violence. You also have President Trump talking
Speaker 2: very aggressively about sending people back to Mexico, potentially sending
Speaker 2: Americans troops if he wins the election into Mexico to
Speaker 2: prevent immigration, but also to tackle the drugs issue. And
Speaker 2: yet almost in the same breath, we'll have investors, market
Speaker 2: analysts talking about what a great bet Mexico is. You know,
Speaker 2: Mexico is going to be one of these countries that
Speaker 2: benefits enormously from a more regionalized global economy, people turning
Speaker 2: away from China wanting to have a closer connection, be
Speaker 2: closer to America. And I just find that extraordinary. And
Speaker 2: she's inheriting that sort of two sided schizophrene legacy, and someone,
Speaker 2: I mean, Andres Manuel Lopez Obrador Amlo, who's been the
Speaker 2: president all this time, was an extraordinary figure. It's very
Speaker 2: kind of seventy style populist. She's kind of inherited that
Speaker 2: slightly populist tradition, yet she herself is a social scientist
Speaker 2: apparently doesn't take a lot of risks. It's going to
Speaker 2: be interesting to watch let's got on to my very
Speaker 2: interesting conversation with Dleepe Singh, the United States Deputy National
Speaker 2: Security Advisor for International Economics in the White House. Deleep,
Speaker 2: among many other things, was a key architect of those
Speaker 2: unprecedented sanctions that were imposed on Russia after its invasion
Speaker 2: of Ukraine in twenty twenty two. Do a lot of
Speaker 2: conversation about how effective those sanctions have been, given that
Speaker 2: Russia has continued to make a lot of money from
Speaker 2: selling its oil. So I started the conversation by asking
Speaker 2: him whether he thinks the sanctions are working.
Speaker 3: So the way I always think about policy is how
Speaker 3: does it look relative to the counterfactuals. So relative to
Speaker 3: the counterfactual of doing nothing, of allowing the redrawing of
Speaker 3: borders by force in the heart of Europe, to go
Speaker 3: and check, no doubt the sanctions are doing their job. Admittedly,
Speaker 3: it's not the nosedive that I predicted two years ago,
Speaker 3: but I would not mistake Russia's rebound for resilience. If
Speaker 3: I had to classify, I'd say it's another potent in facade,
Speaker 3: because what Putin has done is to prevent a collapse
Speaker 3: of the economy in the short term by sacrificing Russia's
Speaker 3: long run potential. That's what capital controls do. They limit
Speaker 3: the flow up money getting out, and therefore they prevent
Speaker 3: the freefall of the ruble and the collapse of the
Speaker 3: financial system. But there's a cost, which is the isolation
Speaker 3: of Russia from most of the advanced economies in the world.
Speaker 3: If you look at the imports from the Western countries
Speaker 3: to Russia, they've nosed dived by about seventy five percent
Speaker 3: since the war. I would make the same point in
Speaker 3: terms of the effect of Russia weaponizing its energy supply. Yes,
Speaker 3: it led to a spike of oil and gas prices
Speaker 3: that drove record trade surpluses. It's flattered GDP growth, but
Speaker 3: at the cost of permanently losing well over half of
Speaker 3: its global market share and energy exports. And then the
Speaker 3: third step he took was to ramp up government spending
Speaker 3: to fuel the war machine. And you know it's up
Speaker 3: to eight percent of GDP. I think that's the post
Speaker 3: Soviet record. Yes, that cushioned the contraction, but here again
Speaker 3: at the cost of depleting Russia's national savings. It set
Speaker 3: Russia on a course for the policy rates now sixteen percent.
Speaker 3: I believe inflations close to eight percent, and they're going
Speaker 3: to have chronic budget deficits. So look, Stephanie, I think
Speaker 3: reasonable people can disagree about Russia's short term prospects, but
Speaker 3: there's no doubt that Russia's long term outlook is bleak.
Speaker 3: That's what those bleed interest rates and inflation do. They
Speaker 3: choke growth. So will the exit from Russia of more
Speaker 3: than a thousand multinationals. So will the flight of up
Speaker 3: to a million of Russia's best and brightest, and so
Speaker 3: all the loss of access to global capital markets and
Speaker 3: leading edge technology. So I think this is still going
Speaker 3: to be a smaller, weaker, more isolated, less sophisticated economy
Speaker 3: for a generation.
Speaker 2: Of course, it was never going to stop Russia from
Speaker 2: being able to pursue the war, but that a lot
Speaker 2: of goods are going over the border through Azerbaijan in
Speaker 2: other places, and there's a lot of trade going there
Speaker 2: from countries that are part of the sanctions resume. I
Speaker 2: noticed in February UK sold twenty six pounds worth of
Speaker 2: luxury cars to Azerbaijan, which as of a couple of
Speaker 2: years ago we probably sold about two So how much
Speaker 2: are you actively trying to plug those kind of entry
Speaker 2: points or is that just impossible without making a lot
Speaker 2: of enemies.
Speaker 3: Now this is very much our focus because I mean,
Speaker 3: Messani is the mother of invention, and we knew Russia
Speaker 3: would try to evade sanctions by exploiting loopholes, and that's
Speaker 3: what they're doing. And we have to prepare over the
Speaker 3: medium and long run for a cat and mouse game
Speaker 3: if we want to sustain the impact of the sanctions
Speaker 3: that we put in place a couple of days after
Speaker 3: the war began. You're pointing to where we have to focus,
Speaker 3: and it's disarming the Russian war machine. That to me
Speaker 3: is really a lot of supply chain analysis. What are
Speaker 3: the components the inputs that are currently making the biggest
Speaker 3: difference for Russia on the battlefield, So think of UAVs
Speaker 3: or ammunition or heavy engineering equipment or armored vehicles, and
Speaker 3: then if you take those battlefield advantages, we're mapping out
Speaker 3: the supply chains that provide the advantage, including the raw
Speaker 3: materials and the precursors. And look, China is very much
Speaker 3: part of this conversation because it's been willing to serve
Speaker 3: as the factory of the Russian war machine in a
Speaker 3: very real sense. And if you look at the trade data,
Speaker 3: Russia's imports in the G seven countries has collapsed by
Speaker 3: about seventy five percent, but imports from China have more
Speaker 3: than tripled. It's now more than half of all of
Speaker 3: Russia's imports. And microchips, machine tools, optics, cruise, missile components, weapons,
Speaker 3: propellants are all part of what's being bought by Russia
Speaker 3: from China. Just to give you a stat in twenty
Speaker 3: twenty three, ninety percent of Russia's microchips came from China,
Speaker 3: and those microchips for use were used for missiles, tanks, aircraft,
Speaker 3: many many battlefield advantages came from those chips. Seventy percent
Speaker 3: of Russia's machine tool imports came from China in Q
Speaker 3: four of twenty twenty three. So we have issued warnings,
Speaker 3: we have written letters, and it may be time soon
Speaker 3: for us to provide a demonstration effect of our seriousness.
Speaker 2: I shouldn't laugh at the thought of sending letters, but
Speaker 2: when you think of the sort of the full force
Speaker 2: of the United States, you know, writing lots of letters,
Speaker 2: I mean, what comes next?
Speaker 3: Well, I mean I know it may sound funny to
Speaker 3: issue letters. But I mean the best, the best sanctions
Speaker 3: are those that never have to get used.
Speaker 2: Who is it you're writing to when you write the letters?
Speaker 3: Oh so? Uh? You know, so the relevant authorities in
Speaker 3: the countries from which transhipment is occurring or these components
Speaker 3: are originating, if they're diminishing returns to sending signals and
Speaker 3: having conversations, then you you follow it up with action. Uh.
Speaker 3: And and those actions can generate a chilling effect that's
Speaker 3: many multiples larger than the direct impact. And that's where
Speaker 3: we are in this in this conflict. We've we've got
Speaker 3: to find ways to disarm the Russian war machine, and
Speaker 3: then we've got to turn our attention in parallel really
Speaker 3: to to defunding it. And that really points to where
Speaker 3: his income is coming from, and that's energy, you know, Stephanie.
Speaker 3: We implemented a price cap to exert leverage from our
Speaker 3: dominant position in oil services, and the design was calibrated
Speaker 3: to limit the price at which Putent could sell is
Speaker 3: oil using those services, so that we could reduce his
Speaker 3: revenues while keeping the keeping steady the supply of oil
Speaker 3: to global markets. Well, everyone knows now he's adapted by
Speaker 3: launching a shadow fleet that doesn't use G seven oil services,
Speaker 3: and so now we've got to find ways to increase
Speaker 3: the cost of using his shadow fleet, force him back
Speaker 3: into the Price Cap Coalition's ecosystem, and that's where we
Speaker 3: have the bargaining power to drive down his marginal revenues
Speaker 3: relative to marginal cost. So disarm and defund the Russian
Speaker 3: war machine. That's our focus now, is that G seven action.
Speaker 2: You know, what kind of places are you looking to
Speaker 2: act further on?
Speaker 3: Well, I'm going to be vague because we're not in
Speaker 3: the business of telegraphing exactly what we do, but in
Speaker 3: a general sense, first we want to shift more of
Speaker 3: the activity from the shadow fleet to within the price
Speaker 3: cap coalition. Within the price Cap Coalition, we have a
Speaker 3: number of levers that we can use again to reduce
Speaker 3: his revenues while keeping supply steady. I think you're probably
Speaker 3: familiar with what those levers are, but want I don't
Speaker 3: want to be specific here.
Speaker 2: And one of the positive side effects of sanctions that
Speaker 2: sort of looked like it was potentially going to happen
Speaker 2: over the last year was for the seized Russian assets
Speaker 2: to provide in one way or another, provides financial support
Speaker 2: for Ukraine. Where do we stand on that?
Speaker 3: I think it's worth saying, Stephanie, why why we feel
Speaker 3: justified in mobilizing Russia's assets for the benefit of Ukraine.
Speaker 3: I mean, I started from the principle that Russia should
Speaker 3: pay for the burden of rebuilding the country that it's
Speaker 3: terrorized on a colossal scale. A second, I mean the
Speaker 3: precedent of imposing compensation claims after a wrongful invasion that
Speaker 3: was set long ago, most recently after Iraq's invasion of Kuwait.
Speaker 3: The third point is Russia has profited to the tune
Speaker 3: of hundreds of billions of dollars from higher energy prices
Speaker 3: since the war began, in part is it weaponize its supply,
Speaker 3: So any claim that Russia's weymar Germany is completely bogus
Speaker 3: in my view. And for look, the goal of forcing
Speaker 3: Russia to pay it's not to punish, it's to finance
Speaker 3: or rebuild in Ukraine. That will likely cost more than
Speaker 3: five hundred billion dollars, maybe multiples of that amount. So
Speaker 3: the question really is how should that burden get financed?
Speaker 3: Should it be solely on the back of Western taxpayers
Speaker 3: or the people of Ukraine? I mean The answer is,
Speaker 3: of course not. The Kremlin has to pay its fair share.
Speaker 3: So you know, what are we doing. We have a
Speaker 3: G seven, a leader's summit that to me is the
Speaker 3: action forcing event in the near term. We all know
Speaker 3: the situation on the battlefield remains very difficult right now.
Speaker 3: By the time our leaders gather in Apulia make it worse.
Speaker 3: There is still a large financing gap in Ukraine, even
Speaker 3: after taking into account our sixty one billion supplemental package,
Speaker 3: even after the EU's fifty billion euro facility. The external
Speaker 3: financing gap, if you include military needs on top of
Speaker 3: budget and balance of payment support, it could be close
Speaker 3: to one hundred million dollars. So the G seventh summit
Speaker 3: really is the best opportunity before November to close the gap.
Speaker 3: And we know, I mean you alluded to this in
Speaker 3: your question the seizure of principle. We know that's a
Speaker 3: redline for certain G seven members. We also know that
Speaker 3: loans to Ukraine that are backed by reparation claims is
Speaker 3: a non attractive idea for at least a couple of
Speaker 3: member states due to the messy history. And we know
Speaker 3: fiscal space is scarce for every member state. So we
Speaker 3: are working on a proposal that makes maximal use of
Speaker 3: the present value of the interest income that you can
Speaker 3: generate from the immobilized assets. And the way to really
Speaker 3: get maximal use is to offer an upfront dispersement to
Speaker 3: Ukraine on the basis of assurance is that the interest
Speaker 3: income from the immobilized assets will be available to repay it,
Speaker 3: and that upfront dispersement can be as large fifty billion
Speaker 3: dollars or more depending on how many years of interest
Speaker 3: income you bring forward.
Speaker 2: It sounds like there might be movement on that at
Speaker 2: the G seven summer.
Speaker 3: I mean, I think so, because what we've done is
Speaker 3: we've listened to our partners, We've understood their red lines,
Speaker 3: and we're now making maximal use of what we can
Speaker 3: do within those constraints. We want it to be done
Speaker 3: with solidarity, but we also want to have the flexibility
Speaker 3: to mobilize the rest of the assets that we froze
Speaker 3: if we want to later. So that's what we're working towards.
Speaker 2: We have finally managed to get the military support passed
Speaker 2: through Congress. But do you if you look at what's
Speaker 2: happening on the battlefield now, do you just worry? It's
Speaker 2: sort of almost at a personal level that that has
Speaker 2: come too late for Ukraine.
Speaker 3: Well, I was just in Kiev a few weeks ago,
Speaker 3: and I mean it is. It is a dire situation
Speaker 3: in terms of air defense, in terms of manpower, and
Speaker 3: you see what's happening in the northeast and to the
Speaker 3: energy infrastructure more generally. But I think there's a chance
Speaker 3: for a psychological inflection point, not just and I don't
Speaker 3: mean to overemphasize psychology, but if you can connect the
Speaker 3: dots and almost draw an arc between the EU's fifty
Speaker 3: billion dollar facility, the US sixty one billion dollar facility,
Speaker 3: the G seven summit, where if we mobilize fifty billion
Speaker 3: dollars that adds to the sum that we've already raised
Speaker 3: so far this year, and then you have the NATO summit.
Speaker 3: You can create a positive inflection point if all of
Speaker 3: those events go as we hope, and then you can
Speaker 3: imagine the path for Ukraine in which it's able to
Speaker 3: outlast Putin, regardless of what happens in the elections in
Speaker 3: the US or anywhere else for the rest of the year,
Speaker 3: and that really has the best chance of shaping Putin's
Speaker 3: calculus and ultimately giving Ukraine leverage to pursue whatever path
Speaker 3: it wants.
Speaker 2: China, one of the big announcements which seems for the
Speaker 2: administration recently is a lot of new tariffs on Chinese goods,
Speaker 2: including an increase in the tariff on China these electrical
Speaker 2: vehicles to over one hundred percent. And I guess to
Speaker 2: remind listeners of tariff is just a tax which is
Speaker 2: levied on goods important from in other countries. So you're
Speaker 2: you're massively increasing what were the cost of what were
Speaker 2: previously quite cheap evs. Why do you want to discourage
Speaker 2: Americans from buying evs by making them so much more expensive?
Speaker 3: Well, I think you have to start this conversation with
Speaker 3: a diagnosis of the geoeconomic backdrop, Stephanie, because it's often
Speaker 3: missing in these discussions around tariffs. And if you if
Speaker 3: you start from a diagnosis that president She's ambition is
Speaker 3: to restore China's tegebony at least in the endno Pacific.
Speaker 3: But I would argue beyond, you know, I would say
Speaker 3: he's seeking that dominance mostly through economic and technological primacy.
Speaker 3: And you know, as a corollary, he sees the US
Speaker 3: in particular. But democracies in general is being in structural decline,
Speaker 3: and he's willing to take tactical risks to realize his
Speaker 3: strategic And if you take that as a diagnosis, then
Speaker 3: it follows that the China's economic model is going to
Speaker 3: become increasingly state led and centralized, and the trend line
Speaker 3: is not going to change because market oriented reforms require
Speaker 3: a loss of control that president she is not willing
Speaker 3: to accept. And that all means that China's growth strategy
Speaker 3: is going to remain underpinned by stay on and enterprises
Speaker 3: and national champions that rely on unrivaled levels of government subsidies,
Speaker 3: discriminatory regulations, currency distortions, weak energy and labor standards, and
Speaker 3: sometimes theft. That's all to say. The basis for our
Speaker 3: strategy follows from that diagnosis, and it's not centered around tariffs.
Speaker 3: It's centered around investments at home to strengthen and scale
Speaker 3: our productive capacity. The second leg of it is partnerships
Speaker 3: abroad with countries that are playing by the same rules,
Speaker 3: so we can give each other access to our productive
Speaker 3: capacity and our purchasing power. But yeah, I mean regrettably.
Speaker 3: The third leg is the US restrictive tools when necessary
Speaker 3: and tear ups are one of those tools, and we
Speaker 3: use them with trading partners that are not playing by
Speaker 3: the same rules, and we do so to prevent our
Speaker 3: investments from getting undercut. You know, you asked about evs
Speaker 3: in particular the question of shouldn't we just decarbonize as
Speaker 3: fast as possible and let every Chinese ev into the US.
Speaker 3: We all love low prices. I mean, in no doubt
Speaker 3: we want to decarbonize as fast as we can. But
Speaker 3: I would say risk management one oh one says we
Speaker 3: shouldn't be dependent on a single supplier for a critical good.
Speaker 3: That was the lesson we learned globally after the pandemic.
Speaker 3: It was a lesson Europe was reminded of after Russia
Speaker 3: weaponized it's gas flows. I mean, it was the lesson
Speaker 3: we learned after the first China shock. So I mean
Speaker 3: the point I'm making Stephanie's cost is not all that matters.
Speaker 3: If you want to sustain decarbonization, clean energy has to
Speaker 3: be reliably sourced. It has to be robust to geopolitical conflict.
Speaker 3: Clean energy should be treated with clean inputs coal fired
Speaker 3: power plants and I mean the polysilicon and solar wafers
Speaker 3: can't be made with forced labor. So the last point
Speaker 3: I'll make is if you want to make the transition
Speaker 3: to clean energy sustainable, it does have to pass political muster.
Speaker 3: I mean people equip and it's right climate change is
Speaker 3: a global problem. But policy choices are made at the
Speaker 3: national level, and so the economic benefits of making this
Speaker 3: transition they have to outweigh the costs across political cycles,
Speaker 3: and that does require attention to whether the strategy is
Speaker 3: a net contributor to jobs and investment in growth and productivity.
Speaker 2: You have I think a one exemption or potential exemption
Speaker 2: in the solar sector to help solar domestic solar producers
Speaker 2: not be affected by these But did you consider having
Speaker 2: more exclusions or easing up on some of the Trump tariffs.
Speaker 3: As part of this, Well, I think it's it's important
Speaker 3: to know that that of the eighteen billion dollars in tariffs,
Speaker 3: eleven billion of the tariffs don't go into effect until
Speaker 3: twenty twenty six, and the remainder split in terms of
Speaker 3: implementation dates across twenty twenty four and twenty twenty five.
Speaker 3: And there will be exclusions if there are supply chain
Speaker 3: disruptions that were unanticipated if the private sector needs more
Speaker 3: time to adjust, will certainly be attendant to those concerns.
Speaker 3: So this was really designed in order to allow us
Speaker 3: to make a transition to domestic production, but also production
Speaker 3: from partners who are again adhering to similar rules of competition,
Speaker 3: to allow them to scale up and again not to
Speaker 3: get flooded by a production trajectory in China. That's many
Speaker 3: multiples of any plausible estimate of global demand.
Speaker 2: If Chinese companies right now can just in fact, they
Speaker 2: are going to Mexico to make electric vehicles there and
Speaker 2: then those can just ship straight to the US, what
Speaker 2: are you going to do about that? I mean, it
Speaker 2: seems like a massive loophole.
Speaker 3: Well, we're right. This is one tool of many in
Speaker 3: the toolkit. So we also have an executive order that's
Speaker 3: looking at national security risks from connected cars. That's an
Speaker 3: ongoing investigation, but that's another tool that could be deployed
Speaker 3: for the circumstance that you're describing. US MTA is set
Speaker 3: for review in twenty twenty six, and part of that
Speaker 3: discussion could involve, you know, greenfield factories that are being built. Yes,
Speaker 3: that's the trade agreement between the US and Canada. We
Speaker 3: can review the scope of the rules in USMCA and
Speaker 3: apply it to the current future context. And there are
Speaker 3: other trade tools that we can deploy as well that
Speaker 3: have not been used in quite some time.
Speaker 2: We've talked about sanctions and then we've talked about tariffs,
Speaker 2: and which are both you know, sticks, But I know
Speaker 2: that you in particular are sort of focused on also
Speaker 2: thinking about how do we give people a more positive
Speaker 2: vision of economic stakecraft. It's not all about being punished
Speaker 2: that you actually have reason to want to be part
Speaker 2: of the team, a part of the sort of multilateral
Speaker 2: system that the US supports. So you know, how do
Speaker 2: you see the Biden them in the stration actually proceeding
Speaker 2: on that, because it sort of does feel like a
Speaker 2: lot of the positive elements about reaching out to developing
Speaker 2: countries and all of those things have not progressed as
Speaker 2: fast as the more sort of stick based things that
Speaker 2: we've been talking about.
Speaker 3: It's harder because you know, when you're talking about executive
Speaker 3: orders that put in place sanctions or export controls or
Speaker 3: teriffs or price caps or investment restrictions, you know that
Speaker 3: can flow through the executive branch and you can run
Speaker 3: it relatively quickly. But when you're talking about developing or
Speaker 3: reimagining or inventing positive tools of statecraft, that typically requires money,
Speaker 3: and so that's a different kind of process that requires
Speaker 3: Congress and engaging the broader public so that we can
Speaker 3: boost our financial firepower. But you're right, I mean, I
Speaker 3: am very focused on the question of whether we're striking
Speaker 3: the right balance and the use of restrictive tools of
Speaker 3: statecraft versus positive tools. I mean, we didn't choose this,
Speaker 3: but we're in the most intense period of geopolitical competition,
Speaker 3: arguably since the Cold War, maybe going all the way
Speaker 3: back to World War Two, and you know, both Russia
Speaker 3: and China are challenging the US led order. We're pushing back.
Speaker 3: A number of countries are trying to figure out how
Speaker 3: they want to align themselves, and that's going to be
Speaker 3: a period of protracted uncertainty. And let's hope, because the
Speaker 3: great powers that we're in competition with are also nuclear powers,
Speaker 3: let's hope that the competition doesn't veer into conflict. And
Speaker 3: the whole world knows that we have been using sanctions
Speaker 3: and export controls with more frequency and potency than ever before,
Speaker 3: but that doesn't win hearts and minds, you know, and
Speaker 3: we would not want to have a narrative take hold
Speaker 3: that we're simply focused and spending all of our time
Speaker 3: and energy on developing the tools that impose economic pain,
Speaker 3: that break linkages in the global economy, whether it's in
Speaker 3: trade or capital flows or technological diffusion. I think we've
Speaker 3: got to have a standing preference for the use of
Speaker 3: tools that offer the prospect of mutual economic gain. And
Speaker 3: we have a number of tools on the shelf that
Speaker 3: we just haven't used with the same frequency and potency
Speaker 3: as we have the more punitive tools. So think of
Speaker 3: debt relief or concessional lending. We have sovereign loan guarantees,
Speaker 3: but we've only used them six times in the past
Speaker 3: thirty years. We have something akin to a sovereign wealth
Speaker 3: fund in the Exchange Stabilization Fund at Treasury. Could we
Speaker 3: reimagine it to make long term strategic investments in the
Speaker 3: developing world. We have a strategic petroleum reserve, and it
Speaker 3: was designed when we were net importers of petroleum. Well
Speaker 3: now we're net exporters and what we really need are
Speaker 3: critical minerals and refined products. Could this petroleum reserve be
Speaker 3: refashioned as a strategic resilience reserve, and again make investments
Speaker 3: at home and abroad, particularly in developing countries that have
Speaker 3: essential clean energy inputs. I could go on and on,
Speaker 3: but what I'm saying is, if we have a focus
Speaker 3: over the next let's hope four plus years on developing, reimagining,
Speaker 3: and refining the positive tools of economic statecraft, that gives
Speaker 3: us our best chance of forging an enduring alignment with
Speaker 3: those geopolitical swing states that right now want to do
Speaker 3: more business with the US. They want to have a
Speaker 3: deeper economic relationship, and they're looking for our value proposition
Speaker 3: to improve.
Speaker 2: If one I was looking at a place a year
Speaker 2: ago where economic diplomacy could have actually been a really
Speaker 2: positive force in building a basis for peace, it would
Speaker 2: have been the Middle East, and it would have been
Speaker 2: that whole discussion around Saudi Arabia's normalization of relations with
Speaker 2: Israel that we were so close to before October seventh.
Speaker 2: I just wanted to I mean, do you feel that
Speaker 2: that economic path to peace in the region is now
Speaker 2: completely dead?
Speaker 3: We can't let it be. I mean, we can't let
Speaker 3: this remain a zero sum, intractable conflict over that takes
Speaker 3: place over land. We have to transform it into a
Speaker 3: positive thumb economic conversation. Ultimately, that's the only way for
Speaker 3: a sustainable piece to emerge, and it has to start,
Speaker 3: of course, with a ceasefire and a hostage deal, but
Speaker 3: it has to lead to a normalization process that involves
Speaker 3: a lot of the tools we've been talking about already
Speaker 3: in the reconstruction of Gaza and the creation of a
Speaker 3: more positive dynamics. That's the only way I can think
Speaker 3: of to transform what has been just an outright tragedy
Speaker 3: for everyone involved over the past eight months.
Speaker 2: But there's a lot of people who will now what
Speaker 2: not want to come to the table or consider the
Speaker 2: US to be a good broker of that kind of deal,
Speaker 2: given what's happened in Gaza.
Speaker 3: I still think diplomacy is never dead. The deal space
Speaker 3: with Saudi Arabia remains very wide. We have very senior
Speaker 3: officials over there almost almost every other week. And if
Speaker 3: we can find a way to get a cessation of
Speaker 3: the conflict and a release of the hostages and a
Speaker 3: political discussion emerges from it, there's Look, this is going
Speaker 3: to take years and years to unfold, and we're still
Speaker 3: the last best chance for the region to find a
Speaker 3: way forward.
Speaker 2: This is a guy who is clearly carrying a lot
Speaker 2: on his shoulders, and I've got to know him a
Speaker 2: little bit over the last couple of years because he
Speaker 2: was so focused on some of the issues that I'm
Speaker 2: interested in, that interplay between economics and politics. But you know,
Speaker 2: he's the one who's actually living in day to day
Speaker 2: some of those really difficult trade offs where what the
Speaker 2: answer is from a national security perspective may be very
Speaker 2: different from what would say.
Speaker 1: And also very interesting to hear. You both discussed that
Speaker 1: they use a lot of sticks, but they've got to
Speaker 1: get better at what the carrots are. And he accepted
Speaker 1: that as a point, but it wasn't obvious that they
Speaker 1: actually had many carrots in the in the in the fridge.
Speaker 2: Just before he went back into the administration, he'd written
Speaker 2: an article that was very much along those lines, saying,
Speaker 2: you need to have a more positive offer for the world.
Speaker 1: That's tricky stuff, isn't it. Because we're at this point,
Speaker 1: not only this point in the US electoral cycle, where
Speaker 1: so much of their economic policy is protectionist. What do
Speaker 1: they have to play with? Did you get did you
Speaker 1: get that sense from talking to him that they had
Speaker 1: nice offers.
Speaker 2: Well, I think he would admit it's a challenge because
Speaker 2: it's and as he said, it's easier to do the
Speaker 2: sticks than the carrots, especially if you have a not
Speaker 2: very supportive Congress. You know, look how hard it was
Speaker 2: to get the Ukraine aid package through through Congress. But
Speaker 2: to some extent, it's about still wanting to be in
Speaker 2: the American club, in that circle of countries, and you
Speaker 2: would think that lots of countries want to be part
Speaker 2: of that. But as we've pointed out many times, actually
Speaker 2: playing both sides, being in the middle can be quite
Speaker 2: an attractive place for policymakers to be right now. And
Speaker 2: I'm not sure that anyone can really address that sitting
Speaker 2: in the White House or not anytime soon, especially looking
Speaker 2: at what's happening in the Middle East, which I guess
Speaker 2: which is where we ended that conversation. I mean, it
Speaker 2: is just it does not so far as not making
Speaker 2: the case for positive economic diplomacy, to say the least.
Speaker 2: Thanks for listening to this week's Photonomics from Bloomberg. This
Speaker 2: episode was hosted by me, Stephanie Flanders and Allegra Strap.
Speaker 2: It was produced by summer Sadi with help from Chris
Speaker 2: marklu Sound designed by Moses and dam and Blake Maples.
Speaker 2: Brendan Francis Newnham is our executive producer, and Sage Bowman
Speaker 2: is Head of Podcasts. Special thanks this week to Delete
Speaker 2: Singh and Rushi Battia. Please, if you like the show, subscribe, rate, review,
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