WEBVTT - Here's Why China's Trade War Strategy Is Working

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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<v Speaker 2>I'm Stephen Caroll, and this is Here's Why, where we

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<v Speaker 2>take one new story and explain it in just a

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<v Speaker 2>few minutes with our experts here at Bloomberg. What a

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<v Speaker 2>difference a few weeks can make. This was on the

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<v Speaker 2>tenth of April.

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<v Speaker 3>Well, we'll see what happens with China. They've really taken

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<v Speaker 3>advantage of our country for a long period of time.

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<v Speaker 3>They've grouped us off. How people stood for it, sitting

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<v Speaker 3>in my position is not even believable.

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<v Speaker 4>Fast forward just over a month to the twelfth of May.

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<v Speaker 3>We achieved a total resehit with China after productive talks

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<v Speaker 3>in Geneva. Both sides now agreed to reduce the tariffs imposed.

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<v Speaker 3>The relationship is very, very good. I'll speak to President

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<v Speaker 3>she may be. At the end of the week.

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<v Speaker 2>After weeks of escalation, the United States and China agreed

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<v Speaker 2>to a ninety day truce, slashing tariffs on each other's

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<v Speaker 2>goods that had spiraled to over one hundred percent. The

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<v Speaker 2>Chinese president has struck a defiant tone ever since Trump

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<v Speaker 2>began raising US tariffs to their highest level in a century.

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<v Speaker 2>In contrast to other world leaders. Cheatingping has refused Trump's

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<v Speaker 2>repeated calls to get on the phone with him, and

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<v Speaker 2>speaking the day after the deal was announced, he wasn't

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<v Speaker 2>toning down his message.

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<v Speaker 4>There are no winners in tariff wars or trade wars.

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<v Speaker 4>Bullying or hegeminism only leads to self isolation.

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<v Speaker 2>So here's why China's trade war strategy is working. Bloomberg

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<v Speaker 2>opinion columnist Karorishima of Aswani joins me. Now for more, Karishma,

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<v Speaker 2>how would you characterize the approach that Cheatingping has taken

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<v Speaker 2>to Donald Trump since his return to the White House.

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<v Speaker 1>I think it's been tough. I think it's been unflinching.

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<v Speaker 1>I think we've seen a lot of nationalists rhetoric out

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<v Speaker 1>of both governments, but in particular from China. When the

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<v Speaker 1>trade tariffs were first announced, we saw sort of tit

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<v Speaker 1>for tat action from Beijing in a way that at

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<v Speaker 1>the time most political analysts and economic analysts had sort

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<v Speaker 1>of said, oh, that won't happen, because China can't afford

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<v Speaker 1>the economic hit of consistently trying to match the tariffs

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<v Speaker 1>on the American side. Instead of a sort of more

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<v Speaker 1>conciliatory approach, we did see a very firm stance from

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<v Speaker 1>Sijenping and Chinese officials, and I think that's paid off

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<v Speaker 1>because I think what that's shown the Americans is that

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<v Speaker 1>the Chinese were not going to back down and were

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<v Speaker 1>not going to come to the negotiating table just because

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<v Speaker 1>there had been tariffs slapped on them by the US.

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<v Speaker 2>When things were escalating rapidly. In April, you quite presciently

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<v Speaker 2>wrote that the Chinese president wouldn't blink first in the

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<v Speaker 2>trade war.

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<v Speaker 4>What led you to that conclusion.

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<v Speaker 1>I think that China in some respects has as much,

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<v Speaker 1>if not more, to lose when it comes to political

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<v Speaker 1>legitimacy and credibility with its own people. Both leaders are

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<v Speaker 1>playing to their domestic audiences, right. So in China, on

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<v Speaker 1>the one hand, you have a political system where the

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<v Speaker 1>Chinese Communist Party doesn't need to win elections like the

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<v Speaker 1>Republicans do, so even with economic pain that was foreshadowed

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<v Speaker 1>as a result of the trade tariffs, they could galvanize

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<v Speaker 1>and mobilize their people and citizens there and sort of

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<v Speaker 1>consistently hammer on that narrative that the US is trying

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<v Speaker 1>to keep China down. It's a really effective narrative. And

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<v Speaker 1>it's been used before. But I think the other reason

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<v Speaker 1>why I felt at the time that the Chinese wouldn't

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<v Speaker 1>blink first is because they see this as part of

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<v Speaker 1>a sort of historical arc, which is that it's China's

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<v Speaker 1>moment to rise while the West is in decline. And

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<v Speaker 1>that's something we've heard consistently from Chinese officials time and

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<v Speaker 1>time again, not just with regards to the trade war,

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<v Speaker 1>but other aspects of the geopolitical squabble between the two sides,

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<v Speaker 1>and I think had they backed down first, it would

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<v Speaker 1>have been counter productive to that narrative. We've seen measures

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<v Speaker 1>on the Chinese side to address prolonged economic issues in

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<v Speaker 1>a way to sort of prepare for the impact of

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<v Speaker 1>the trade war. I'm not saying that there aren't real

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<v Speaker 1>issues at play here, but I think that China is

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<v Speaker 1>more willing to sort of suffer the long term economic

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<v Speaker 1>costs in order to achieve political goals.

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<v Speaker 4>But does that approach, Krishma have limits?

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<v Speaker 2>Is there a place where the risks of the Chinese

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<v Speaker 2>economy could be too great if this strategy is pursued

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<v Speaker 2>long term?

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<v Speaker 4>Well?

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<v Speaker 1>Indeed, and I think the outcome of the weekend's discussions

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<v Speaker 1>will be seen as productive on both sides, and it's

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<v Speaker 1>something that the Chinese definitely wanted as well. And the

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<v Speaker 1>fact that it happened in sort of neutral place they

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<v Speaker 1>could save face. You know, they're not going to the

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<v Speaker 1>United States in any way. Now you also have comments

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<v Speaker 1>from US officials saying we don't necessarily wanted decoupling. That's

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<v Speaker 1>a huge win for the Chinese because that's something they've

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<v Speaker 1>kept saying from the start and throughout this entire trade

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<v Speaker 1>war during the Trump administration, this one and the previous

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<v Speaker 1>Trump administration when you know, arguably all of these tensions

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<v Speaker 1>first began. The Chinese have consistently said that they are

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<v Speaker 1>the champions and upholders of the multilateral rules based order.

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<v Speaker 4>And given the.

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<v Speaker 1>Fact that you know, Trump imposed these tariffs not just

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<v Speaker 1>on the Chinese, but on other countries as well, that's

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<v Speaker 1>a really easy argument to believe in. I mean, I've

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<v Speaker 1>spoken to lots of Asian diplomats, you know, in the

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<v Speaker 1>past couple of weeks, and there's a real degree of bewilderment,

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<v Speaker 1>Stephen about why the Trump administration would go after all

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<v Speaker 1>countries and not necessarily just target China the way that

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<v Speaker 1>we have seen in the Biden administration, so Beijing has

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<v Speaker 1>been able to win and score rather i should say,

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<v Speaker 1>political points with its neighbors as well, not just trying

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<v Speaker 1>to create that narrative back at home.

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<v Speaker 2>Should we expect a shift in tone because neither the

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<v Speaker 2>US nor China have are particularly nice about each other

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<v Speaker 2>over the past couple of weeks and months. But now

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<v Speaker 2>that we're into a further negotiation phase, when this pause

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<v Speaker 2>is in place, should we expect the tone of those

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<v Speaker 2>comments to change.

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<v Speaker 1>I think you will see some of that. A lot

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<v Speaker 1>depends on what happens in the next ninety days. You know,

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<v Speaker 1>there is some speculation that these charps will just keep

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<v Speaker 1>getting postponed, and that allows the Trump administration to say

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<v Speaker 1>they're consistently talking and trying to get to some type

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<v Speaker 1>of deal or negotiation. But you know, tariffs are higher

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<v Speaker 1>than they were when before Trump became president, so that

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<v Speaker 1>is something that will definitely have an impact. I think

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<v Speaker 1>going forward as well, there are going to be key

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<v Speaker 1>issues that you will see as part of the negotiations

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<v Speaker 1>become fact is in whether this deal unravels or not.

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<v Speaker 1>One of the things I'm quite focused on in the

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<v Speaker 1>next couple of days is the fentanyl agreement or you

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<v Speaker 1>know what that actually means, because there are still tariffs

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<v Speaker 1>attached to the negotiations on fentanyl tariffs side that I

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<v Speaker 1>think the Chinese would like to see removed. But you know,

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<v Speaker 1>Beijing consistently says that it is not to blame for

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<v Speaker 1>the US drug epidemic, that it's done as much as

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<v Speaker 1>it can, and it feels that the US needs to

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<v Speaker 1>address this problem at home on the American side. They

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<v Speaker 1>see this as another way that the Chinese sort of

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<v Speaker 1>using what they have in terms of, you know, not

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<v Speaker 1>clamping down on Chinese chemical companies that are using back

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<v Speaker 1>door ways to get into the US via Mexico and

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<v Speaker 1>selling drugs that they believe are killing, which are killing

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<v Speaker 1>thousands of Americans. So that's one thing I think that

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<v Speaker 1>will become a key focus going forward in the trade talks.

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<v Speaker 2>Are there lessons to be learned from for other countries

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<v Speaker 2>on how to handle Donald try from the way that

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<v Speaker 2>China has approached this.

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<v Speaker 4>Could anyone else pull this off?

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<v Speaker 1>Not in Asia? And nobody has the might and scale

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<v Speaker 1>of the Chinese economy. Nobody has the ability to politically

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<v Speaker 1>or economically withstand these tariffs. The way that the Chinese do,

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<v Speaker 1>and I think you've already seen that with the flurry

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<v Speaker 1>of meetings and politicians wanting to meet with Donald Trump

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<v Speaker 1>and negotiate in some way these trade negotiations, and from

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<v Speaker 1>India to Japan to South Korea, all of these countries

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<v Speaker 1>have to some extent been lining up to try and

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<v Speaker 1>get a better deal. And I think that is the

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<v Speaker 1>harsh reality of geopolitics and the way economies work. The

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<v Speaker 1>Chinese can do this, but not anybody else.

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<v Speaker 2>Okay, Korashimavaswani, Bloomberg Opinion columnist, Thank you very much for

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<v Speaker 2>joining us, and you can read Karashima's latest work at

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<v Speaker 2>Bloomberg dot com slash opinion. For more explanations like this

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<v Speaker 2>from our team of three thousand journalists and analysts around

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<v Speaker 2>the world, go to Bloomberg dot com slash explainers.

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<v Speaker 4>I'm Stephen Carol. This is here's why. I'll be back

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<v Speaker 4>next week with more. Thanks for listening.