WEBVTT - Roach on Hong Kong's 'Demise', China Tariffs 0:00:02.520 --> 0:00:06.360 You're listening to Asia Centric, the podcast that explores the 0:00:06.400 --> 0:00:09.760 big ideas and trends moving money across the region, and 0:00:09.920 --> 0:00:12.160 Kaijidmitrieva in Hong Kong and. 0:00:12.080 --> 0:00:15.200 I'm John Lee. Katya. You moved to Hong Kong earlier 0:00:15.240 --> 0:00:15.720 this year. 0:00:16.200 --> 0:00:19.080 Yes, I did. Back in March, and. 0:00:19.079 --> 0:00:21.800 About a month before you've moved, there was a big 0:00:21.800 --> 0:00:25.880 discussion happening in the city. People were asking whether Hong 0:00:25.960 --> 0:00:28.319 Kong might be over. Yeah. 0:00:28.440 --> 0:00:32.400 I think I represented a bit of the reverse migration. 0:00:32.920 --> 0:00:34.559 There were a lot of folks, you know, hundreds of 0:00:34.560 --> 0:00:38.120 thousands of people had left Hong Kong at the time. 0:00:38.640 --> 0:00:40.960 Well, it's still a big question that I think the 0:00:41.000 --> 0:00:45.040 people in the financial sector are still asking. Earlier this year, 0:00:45.320 --> 0:00:48.040 Hong Kong was once again named the number one financial 0:00:48.159 --> 0:00:50.520 capital of Asia, replacing Singapore. 0:00:50.680 --> 0:00:52.680 Yeah, because Singapore had replaced it for a bit, and 0:00:52.720 --> 0:00:55.520 then it was once again kind of crowned the top 0:00:55.800 --> 0:00:58.680 for global listeners folks who aren't in Hong Kong, I 0:00:58.680 --> 0:01:02.320 think some background is in order. Stephen Roach, former chairman 0:01:02.480 --> 0:01:06.679 of Morgan Stanley Asia and an economist, earlier this year, 0:01:07.120 --> 0:01:10.440 declared the city over in an opinion column in The 0:01:10.480 --> 0:01:15.760 Financial Times and this elicited a surge in responses, including 0:01:15.800 --> 0:01:20.800 from local politicians. But Stephen is back. Stephen comes back 0:01:20.880 --> 0:01:24.880 quite a bit. Actually, he joins us here today. Welcome Stephen. 0:01:25.520 --> 0:01:28.000 Great to be back, and great to tell you that 0:01:28.440 --> 0:01:30.720 even if I thought Hong Kong was over, I am 0:01:30.800 --> 0:01:31.280 not over. 0:01:32.800 --> 0:01:35.800 We're glad to have you back. You came back a 0:01:35.800 --> 0:01:39.120 few times this year, you said in March. In June, 0:01:39.440 --> 0:01:42.640 you sat down with myself and some reporters here, and 0:01:42.720 --> 0:01:45.720 I wonder, have you changed your mind about Hong Kong. 0:01:46.880 --> 0:01:50.960 No, I have. I laid out in this article three 0:01:51.640 --> 0:01:59.000 factors that led me to this seemingly draconian conclusion. One 0:01:59.120 --> 0:02:02.520 that Hong Kong was tied to the Chinese economy, and 0:02:02.600 --> 0:02:04.240 we can talk about that, but I think the Chinese 0:02:04.240 --> 0:02:09.040 economy is still in trouble. Two that Hong Kong was 0:02:09.120 --> 0:02:13.239 caught in the crossfire of the US China trade war, 0:02:14.120 --> 0:02:17.720 and that needs to be updated in light of the 0:02:17.720 --> 0:02:21.000 reelection of Donald Trump. And you know, i'll give you 0:02:21.080 --> 0:02:23.560 a spoiler alert, it doesn't look like it's going to 0:02:23.560 --> 0:02:29.360 get any better. And three, admittedly a very contentious issue, 0:02:30.120 --> 0:02:33.800 especially here in the great City of Hong Kong. The 0:02:33.840 --> 0:02:41.000 political climate in the aftermath of twenty nineteen Article twenty three, 0:02:41.120 --> 0:02:43.760 and a general sense on the outside that is very 0:02:43.760 --> 0:02:47.400 different than I pick up from the Hong Kongers on 0:02:47.440 --> 0:02:51.280 the inside, that there's still a tough impression of what's 0:02:51.320 --> 0:02:54.160 going on in the city from the standpoint of a 0:02:54.280 --> 0:02:58.320 rule of law, free speech, free press. 0:02:58.320 --> 0:03:00.000 And those are things that haven't changed. 0:03:00.960 --> 0:03:03.200 I think the government is trying very hard to put 0:03:03.240 --> 0:03:07.400 on a good face, but I don't detect a seismic 0:03:07.440 --> 0:03:08.760 shift in that area either. 0:03:10.240 --> 0:03:13.160 Stephen, you are the chairman of Morgan Stanley Asia Pacific 0:03:13.240 --> 0:03:16.360 for a number of years. Can you compare Hong Kong 0:03:16.440 --> 0:03:20.160 today versus when you left Hong Kong ten or so 0:03:20.320 --> 0:03:20.840 years ago. 0:03:22.120 --> 0:03:27.520 Well, I loved my platform here in the position I 0:03:27.560 --> 0:03:31.600 was in. The city was vibrant. It's a large city, 0:03:31.600 --> 0:03:34.359 but it's a small community. It's just amazing. You can 0:03:35.560 --> 0:03:38.560 walk down the street or you know, walk on a sidewalk, 0:03:39.320 --> 0:03:42.480 you know, a large city. And it hasn't happened to 0:03:42.480 --> 0:03:44.920 me today because I haven't been out because of the typhoon. 0:03:45.680 --> 0:03:49.080 But you always bump into somebody, you know. You know, 0:03:49.120 --> 0:03:51.960 I'm a transplanted New Yorker, have lived there most of 0:03:51.960 --> 0:03:55.800 my life, and you know that rarely happens in New York. 0:03:56.040 --> 0:04:00.560 It does happen in Singapore and in other city in Asia, 0:04:00.640 --> 0:04:04.200 but Hong Kong is unique in that regard. The city 0:04:04.240 --> 0:04:07.440 has changed, it's grown. The one thing I really notice 0:04:07.480 --> 0:04:13.160 a lot is the development of West Calhoun, especially the 0:04:13.200 --> 0:04:16.520 cultural centers, has really come into its own and that's 0:04:16.520 --> 0:04:20.239 great to see because that was always a missing link 0:04:20.360 --> 0:04:23.560 when I was here. You know, I loved art, loved 0:04:23.560 --> 0:04:27.599 to go to the museums music, and it was much 0:04:27.640 --> 0:04:30.760 harder to do back then. You know, the West Calhoun 0:04:30.920 --> 0:04:35.039 Art District is right outside the building that Morgan Stanley 0:04:35.080 --> 0:04:41.200 moved into as the first tenant of ICC during my 0:04:41.600 --> 0:04:44.800 time as being the chairman of Morgan Stanley Asia, so 0:04:45.320 --> 0:04:48.000 we were sort of pioneers back then. We actually moved 0:04:48.040 --> 0:04:53.440 into ICC when it was still under construction. You know, 0:04:53.480 --> 0:04:57.000 they cleared an elevator bank for us, and our offices 0:04:57.040 --> 0:05:01.320 were in great shape, but there was nothing else there. 0:05:01.720 --> 0:05:05.400 And you know, to see all of these museums come 0:05:05.400 --> 0:05:08.279 to life and the traffic it attracted like a magnet 0:05:08.520 --> 0:05:11.520 has been certainly great to see since I've been gone. 0:05:13.200 --> 0:05:17.440 The makeup of Hong Kong is changing quite a bit, 0:05:17.600 --> 0:05:19.880 and you can see it in the investments coming in, 0:05:20.000 --> 0:05:23.960 the kinds of retail and restaurant tenants coming in, and 0:05:24.320 --> 0:05:28.039 you mentioned that it's becoming much more tied to the 0:05:28.120 --> 0:05:30.719 Chinese economy. I mean, historically it's been kind of a 0:05:30.720 --> 0:05:32.200 bit of both. You know, you have the West, you 0:05:32.240 --> 0:05:35.360 have China, but it's kind of leaning more towards the mainline. Now, 0:05:35.480 --> 0:05:38.400 we saw a lot of initiatives that Hong Kong's bringing 0:05:38.400 --> 0:05:41.320 out to make doing business easier and you know, transportation 0:05:41.440 --> 0:05:44.160 and traffic easier between the two places. So I wanted 0:05:44.160 --> 0:05:45.880 to ask you what do you think that means for 0:05:45.920 --> 0:05:49.120 the city and what do you think it means as 0:05:49.200 --> 0:05:52.120 Hong Kong's traditional role as sort of the financial capital 0:05:52.160 --> 0:05:54.359 of Asia and sort of a meeting point. 0:05:55.400 --> 0:05:59.680 Well, the advertising campaign for Hong Kong has long been 0:05:59.720 --> 0:06:04.680 folkscused on the view that Hong Kong is Asia's world city, 0:06:05.880 --> 0:06:11.920 and certainly the point got that you made on the 0:06:11.960 --> 0:06:17.120 presence of mainlanders begins to skew that image in a 0:06:17.160 --> 0:06:21.080 much more China centric fashion. Again, going back to my 0:06:21.839 --> 0:06:26.520 experience of working in the early days of ICC, I 0:06:26.520 --> 0:06:30.440 saw that immediately when I would walk through the mall 0:06:30.920 --> 0:06:35.600 to you know, take an airport express train or to 0:06:35.640 --> 0:06:39.240 take the MTR back to Central and I would see 0:06:39.320 --> 0:06:43.520 bus loads of Chinese tourists coming into shop. You know, 0:06:43.520 --> 0:06:46.200 initially I was unprepared for that because I think the 0:06:46.600 --> 0:06:49.440 mall had been built in large part is a typical 0:06:49.480 --> 0:06:53.599 Hong Kong mall that had you know, a large attraction 0:06:53.839 --> 0:06:58.440 for international students, but it was more and more Chinese 0:06:58.440 --> 0:07:00.359 from literally the very start. 0:07:01.200 --> 0:07:02.440 Isn't that good for the economy? 0:07:03.080 --> 0:07:07.560 Well, traffic is good, but you know, what is Hong 0:07:07.640 --> 0:07:13.520 Kong really attempting to achieve in its not just branding, 0:07:13.560 --> 0:07:18.720 but in looking to the future. Does it ascribe to 0:07:18.800 --> 0:07:22.480 the notion that the pr campaign of Asia's World City 0:07:22.840 --> 0:07:26.000 always promised, or does Hong Kong want to just be 0:07:26.120 --> 0:07:35.200 another big, dynamic city of China. Those are two different concepts, 0:07:35.680 --> 0:07:39.520 and I think that well, Hong Kong certainly maintains a 0:07:39.640 --> 0:07:45.520 very strong international flavor. There are many more Chinese characteristics 0:07:45.560 --> 0:07:49.920 to that flavor than were evident during the years when 0:07:49.960 --> 0:07:50.640 I worked here. 0:07:52.000 --> 0:07:55.240 So, Stephen, if you're the chairman of Morgan Stanley right 0:07:55.280 --> 0:07:58.040 now and you're still looking to expand in the Asia, 0:07:58.080 --> 0:08:01.680 Pacific region. Would Honkong still be the place where you 0:08:01.720 --> 0:08:03.920 would expand or would it be another city? 0:08:05.080 --> 0:08:09.200 Well, you know, Hong Kong was our base, and you know, 0:08:09.280 --> 0:08:16.160 we built a big infrastructure of talent facilities support around 0:08:16.240 --> 0:08:21.720 Hong Kong, and you know, it's centrally located. It made 0:08:21.760 --> 0:08:26.360 a good deal of sense when we established it. You know, 0:08:26.480 --> 0:08:29.680 our hope and the hope of you know, most global 0:08:30.000 --> 0:08:37.040 financial services firms was that Hong Kong, unlike any other 0:08:37.160 --> 0:08:41.920 city in the region, would be the gateway of international 0:08:41.920 --> 0:08:45.520 capital markets into China. And I you know, I still 0:08:45.520 --> 0:08:49.080 think that's a reasonable approach to take. And you know, 0:08:49.200 --> 0:08:51.360 if we had to do it all over again from scratch, 0:08:51.960 --> 0:08:55.560 I think that would be a decision that my former 0:08:55.600 --> 0:08:58.920 colleagues would still be comfortable with today. 0:08:59.679 --> 0:09:01.200 So you're saying you would still choose Hong Kong. 0:09:01.600 --> 0:09:06.040 Yeah, I think with the benefit of hindsight, you know, 0:09:06.360 --> 0:09:10.320 we're now more aware of the challenges that China faces 0:09:11.000 --> 0:09:14.319 than before and the impact those challenges would have on 0:09:14.360 --> 0:09:14.920 Hong Kong. 0:09:16.000 --> 0:09:21.520 One of those challenges going forward, maybe the US president 0:09:21.600 --> 0:09:26.520 and US policies. President elect Jnald Trump has promised sixty 0:09:26.559 --> 0:09:31.319 percent tariffs on Chinese imports as well as tariffs on 0:09:31.320 --> 0:09:35.440 on other goods. But I wonder what do you make 0:09:35.720 --> 0:09:38.680 of the US China relationship going forward, because you literally 0:09:38.720 --> 0:09:41.680 wrote a book called Accidental It's sitting in front of me, 0:09:41.720 --> 0:09:45.600 Accidental Conflict America, China and the clash of false narratives. 0:09:46.120 --> 0:09:47.960 So would love to hear your take on this. I mean, 0:09:48.000 --> 0:09:49.240 where do we go from here? 0:09:50.679 --> 0:09:54.400 Well, I'm I'm worried about it. You know, I started 0:09:54.400 --> 0:09:57.880 working on it maybe five years ago, published it about 0:09:57.880 --> 0:10:03.440 two years ago. And the topic, there are a few 0:10:03.440 --> 0:10:05.920 things in there that need to be updated, but the concept, 0:10:05.960 --> 0:10:09.880 the topic, the arguments I think are more relevant today 0:10:09.880 --> 0:10:13.720 than they were back then. And the theory of the book, 0:10:13.760 --> 0:10:16.680 if you want to call it. The theory is that 0:10:16.840 --> 0:10:24.160 both nations are enamored largely for political reasons of false 0:10:24.240 --> 0:10:29.680 narratives about the other, and in some respects, especially in 0:10:29.720 --> 0:10:36.599 the United States, that reflects almost a demonization of China. 0:10:37.000 --> 0:10:44.240 And looking specifically at who Donald Trump is named to 0:10:44.559 --> 0:10:51.160 his senior policy team, from Robert Leithheiser to Marco Rubio 0:10:51.840 --> 0:10:57.480 to the new Defense secretary to the new National Security Advisor, 0:10:58.600 --> 0:11:02.839 You've got a group of hawkish advisors the likes of 0:11:02.880 --> 0:11:05.960 which have never really been at the top of any 0:11:06.080 --> 0:11:11.200 American administration before. And not only do you have hawkish 0:11:11.200 --> 0:11:13.120 advisors and by the way, at the bench of those 0:11:13.160 --> 0:11:16.920 who have not been selected as very deep in China hawks, 0:11:17.280 --> 0:11:21.800 so there could be more of these individuals have put 0:11:21.840 --> 0:11:25.640 in place. But not only do you have the people, 0:11:25.800 --> 0:11:33.480 you've got the blueprint of a strategic anti China strangulation 0:11:34.559 --> 0:11:38.040 that was laid out in explicit detail in Project twenty 0:11:38.080 --> 0:11:43.000 twenty five, which Donald Trump on the campaign trail said, well, 0:11:43.280 --> 0:11:46.560 I certainly have nothing to do with it, but we 0:11:46.640 --> 0:11:47.679 all know that wasn't true. 0:11:47.840 --> 0:11:50.280 I'm glad you brought up Project twenty twenty five because 0:11:51.280 --> 0:11:53.960 something like a nine hundred plus page document really lays 0:11:54.080 --> 0:11:57.400 out what a lot of Republicans hope to accomplish, and 0:11:57.600 --> 0:12:01.560 a large part of that has been China. I think 0:12:01.559 --> 0:12:04.240 you were reading that casually the other night. 0:12:05.720 --> 0:12:09.480 Well, you know, when the election didn't go the way 0:12:09.520 --> 0:12:15.080 I thought and admittedly hoped, I forced myself to because 0:12:15.080 --> 0:12:19.480 I couldn't go back to sleep read I think it's 0:12:19.520 --> 0:12:22.840 like eight hundred and eighty nine pages. I went through 0:12:22.880 --> 0:12:28.480 that with the help of my search tool and picked 0:12:28.480 --> 0:12:34.720 out six chapters that were particularly onerous with respect to China, 0:12:35.400 --> 0:12:40.880 and just briefly, Chapter four on Defense policy America needs 0:12:40.920 --> 0:12:46.360 to re arm to fight China and equip Taiwan with 0:12:46.600 --> 0:12:52.680 anything it needs to resist the coming invasion. Chapter five 0:12:52.720 --> 0:12:57.520 on the State Department identified China as America's number one 0:12:57.640 --> 0:13:03.640 foreign adversary, Russia above Iran. Chapter eight on Development Aid 0:13:03.760 --> 0:13:10.360 said end the fanaticism over climate change in the midst 0:13:10.440 --> 0:13:14.240 of you know here, I sit here typhoon, and Lord 0:13:14.320 --> 0:13:16.040 knows what kind of weather we've had in the US 0:13:16.080 --> 0:13:19.120 this year, and the fanaticism on climate change because it's 0:13:19.160 --> 0:13:22.000 an opportunity for China to take advantage of US through 0:13:22.040 --> 0:13:27.120 its superb green technologies. Chapter seventeen on the Department of 0:13:27.320 --> 0:13:31.880 Justice argues for reinstatement of the China Initiative, which is 0:13:31.920 --> 0:13:36.120 a huge threat to people engagement. Chapter twenty three on 0:13:36.160 --> 0:13:41.560 the Commerce Department urges strategic decoupling and no uncertain terms 0:13:41.559 --> 0:13:44.920 with China. And finally, Chapter twenty six on Trade policy 0:13:45.600 --> 0:13:48.920 lays out the manifesto for tariffs and it was written 0:13:49.200 --> 0:13:54.840 signed by none other than the recently incarcerated Peter Navarro. 0:13:55.840 --> 0:14:00.640 So read all these chapters, but take a look at 0:14:00.679 --> 0:14:05.240 Project twenty twenty five because it is a blueprint that 0:14:05.400 --> 0:14:10.719 is very much aligned with what the President articulated on 0:14:10.760 --> 0:14:12.920 the campaign trail. And the final thing I'll say about 0:14:12.920 --> 0:14:16.679 it is when I woke up at two thirty in 0:14:16.720 --> 0:14:21.960 the morning on November sixth and saw the president's victory 0:14:22.000 --> 0:14:26.480 statement live from mar A Lago. Near the end of 0:14:26.520 --> 0:14:29.400 the statement, the words that just wrung in my ear, 0:14:30.760 --> 0:14:33.800 which he has now acted and delivered on, is my 0:14:34.200 --> 0:14:37.840 motto to govern will be very simple, and I'm quoting 0:14:39.040 --> 0:14:43.640 promises made are promises held. 0:14:44.160 --> 0:14:48.720 So we should definitely expect sixty percent tariffs. 0:14:48.840 --> 0:14:52.080 Sixty I don't think he'll do sixty, but he will 0:14:52.080 --> 0:14:52.720 do tariffs. 0:14:54.640 --> 0:14:58.120 Stephen, lots of pundits think that Trump two point zero 0:14:58.640 --> 0:15:01.960 would just basically be a peat of his first term, 0:15:02.560 --> 0:15:05.400 But reading between the lines, you think that things could 0:15:05.440 --> 0:15:09.320 actually get worse in terms of US China relations. 0:15:10.480 --> 0:15:10.720 I do. 0:15:11.920 --> 0:15:15.280 I mean he was a neophyte when he came to 0:15:15.360 --> 0:15:19.720 office in twenty sixteen. It was unexpected to him, unexpected 0:15:19.760 --> 0:15:23.080 to all of us. He had some strong views, especially 0:15:23.080 --> 0:15:24.880 on China, what he wanted to do, and he delivered 0:15:24.920 --> 0:15:29.520 on him. Now eight years later, he has the experience 0:15:29.560 --> 0:15:33.760 of that, his views have strengthened, and he's got this 0:15:33.800 --> 0:15:36.520 blueprint that we just talked about, Project twenty twenty five. 0:15:37.160 --> 0:15:41.200 So I think we we have to take him much 0:15:41.200 --> 0:15:44.760 more at his word this time than we did before. 0:15:45.600 --> 0:15:49.400 You know, a lot of his words prior to the 0:15:49.480 --> 0:15:55.360 twenty sixteen election were very inflammatory and contentious, and it's 0:15:55.400 --> 0:15:58.240 not clear that he meant or delivered on all of them. 0:15:58.840 --> 0:16:03.000 But again, promises made, promises kept. He's going to keep 0:16:03.040 --> 0:16:03.400 his word. 0:16:04.080 --> 0:16:06.840 And what do you think the response will be from China? 0:16:07.040 --> 0:16:09.359 In the first time around, when Trump was in office, 0:16:09.760 --> 0:16:13.360 China arguably showed some restraint. Do you think will be 0:16:13.360 --> 0:16:14.560 the same this time around? 0:16:15.680 --> 0:16:18.080 Well, you know, that's up at China. I think what 0:16:18.160 --> 0:16:23.360 we learned from two Thoy eighteen, nineteen and twenty was 0:16:23.520 --> 0:16:31.240 that when the US takes action, China will retaliate. Whether 0:16:31.240 --> 0:16:36.080 they retaliate to the same magnitude is debatable. It's an 0:16:36.120 --> 0:16:42.720 opportunity for China to really show, you know, maybe a 0:16:42.760 --> 0:16:46.480 little bit more leadership and restraint if they don't, but 0:16:46.600 --> 0:16:52.480 I think given domestic political concerns in Beijing, you can 0:16:52.560 --> 0:16:57.920 definitely expect retaliation if Trump were to move as promised 0:16:58.680 --> 0:16:59.720 on the campaign trail. 0:17:00.480 --> 0:17:03.760 What are the things that you know, I wanted to 0:17:03.800 --> 0:17:07.159 talk about money and the economy, what people are worried about. 0:17:07.680 --> 0:17:11.159 You come here frequently, you're in China, frequently based in 0:17:11.200 --> 0:17:13.399 the US, and you talk to a lot of people. 0:17:13.960 --> 0:17:17.520 So I wonder from those conversations, what are people, especially 0:17:17.560 --> 0:17:20.080 in the kind of weeks and days and weeks following 0:17:20.119 --> 0:17:23.080 the election of Donald Trump, what are people concerned about? 0:17:23.080 --> 0:17:24.879 What are people saying? What are people asking you? 0:17:25.920 --> 0:17:28.520 Well, I haven't been to China since the election. I'm 0:17:28.560 --> 0:17:32.520 going there in two days, and you know, get in 0:17:32.560 --> 0:17:34.480 touch with me and I'll let you know what I find. 0:17:34.560 --> 0:17:39.720 I think that there is a fair amount of uncertainty, 0:17:41.080 --> 0:17:45.600 and there is still this sort of naive, bordering on 0:17:45.880 --> 0:17:49.879 smug belief that, oh, he doesn't mean what he says. 0:17:50.560 --> 0:17:53.640 Some people say, oh, you know, he's the consummate, quintessential 0:17:53.760 --> 0:17:57.199 deal maker. This is just a negotiating ploy. None of 0:17:57.200 --> 0:18:00.280 what he says will come to pass. Keep in mind 0:18:01.040 --> 0:18:06.560 that when he was sworn into office in early twenty seventeen, 0:18:07.920 --> 0:18:12.879 the effective tariff of the US head on Chinese products 0:18:13.280 --> 0:18:16.560 was three percent. When he left office, it was nineteen. 0:18:17.240 --> 0:18:19.520 It stayed there too, and it's still at nineteen. 0:18:21.040 --> 0:18:25.640 So you know, again, I think the Chinese who are 0:18:25.680 --> 0:18:31.040 in denial and in belief that you know, the deal 0:18:31.080 --> 0:18:34.080 maker is back. We can do another deal like we 0:18:34.160 --> 0:18:37.200 did with you know, the Phase one trade deal, which 0:18:37.240 --> 0:18:40.960 by the way, accomplished nothing. You know, they're they're still 0:18:40.960 --> 0:18:48.479 holding out for a more transactional deal focused Trump. And 0:18:49.040 --> 0:18:52.159 you know, the new wild card in the equation, and 0:18:52.200 --> 0:18:57.000 I stress, and I put emphasis on the word wild is, 0:18:57.000 --> 0:19:02.440 of course Elon Musk, who has a very large manufacturing 0:19:02.480 --> 0:19:08.000 facility in China and a very prominent role as Trump's 0:19:08.080 --> 0:19:09.560 new buddy. 0:19:09.680 --> 0:19:14.280 Do you think he could counteract some of the hawkishness 0:19:14.880 --> 0:19:16.880 in the cabinet, at least as it's announced so far, 0:19:17.040 --> 0:19:17.800 just because of that. 0:19:18.720 --> 0:19:22.359 So what's that mean, Katcha. Does that mean that the 0:19:22.520 --> 0:19:27.000 US is going to impose forty fifty, maybe sixty percent 0:19:27.040 --> 0:19:31.560 tariffs on China for everything that comes in except Tesla's. 0:19:32.119 --> 0:19:36.720 If that's what it means, you will see the most 0:19:37.240 --> 0:19:41.680 extreme outcry from the guy in the street that you've 0:19:41.720 --> 0:19:45.200 ever seen. You know, you think that the protests from 0:19:45.280 --> 0:19:48.199 time to time have been bad, Let him try that 0:19:48.240 --> 0:19:49.240 and see what happens. 0:19:49.840 --> 0:19:53.240 Could Musk potentially I've heard this idea flagged that that 0:19:53.320 --> 0:19:57.960 must could potentially kind of walk back or working with 0:19:58.000 --> 0:20:00.280 Trump walk back some of the tariffs. Say hey, and 0:20:00.359 --> 0:20:02.960 you know, I've got this factory in China. We get 0:20:03.000 --> 0:20:05.120 a lot of these cars from these factories. We don't 0:20:05.119 --> 0:20:06.920 want to be tariff And by the way, there's a 0:20:06.960 --> 0:20:11.159 lot of other products that probably wouldn't be good to tax. 0:20:12.240 --> 0:20:17.959 So Elon Musk, speaking purely from the standpoint of self interest, 0:20:18.880 --> 0:20:22.479 is going to be able to get Donald Trump, who 0:20:22.520 --> 0:20:26.200 has been as strident in his anti China views as 0:20:26.280 --> 0:20:29.560 anyone over the last fifteen years, to change his mind 0:20:30.240 --> 0:20:35.120 just because of his self interest in preserving the sort 0:20:35.160 --> 0:20:40.560 of the financial integrity of this huge outsourcing betties made 0:20:40.600 --> 0:20:43.960 in China. Look, I'm not going to rule anything out, 0:20:43.960 --> 0:20:48.840 but I think again that borders on a hugely disruptive 0:20:48.920 --> 0:20:53.240 response from Trump's core based constituency. 0:20:53.640 --> 0:20:54.560 Yeah. 0:20:55.000 --> 0:20:58.920 Asia Centric is produced by Bloomberg Intelligence. We're more than 0:20:58.960 --> 0:21:03.040 five hundred hearings, analysts and strategists work around the clock 0:21:03.080 --> 0:21:07.119 to bring you timely, world class research. Our coverage spans 0:21:07.200 --> 0:21:11.959 two hundred market indices, currencies, commodities, and industries, as well 0:21:12.000 --> 0:21:15.240 as over two thousand equities and credits. If you like 0:21:15.320 --> 0:21:19.760 what you hear, don't forget to subscribe and chirm Stephen, 0:21:19.800 --> 0:21:22.359 I'd love to talk more about China. You know, recent 0:21:22.480 --> 0:21:26.359 co ed you highlighted the risk of China falling into 0:21:26.440 --> 0:21:32.520 a Japan like quagmire characterized by stagflation deflation as a 0:21:32.560 --> 0:21:36.040 result of a major debt field asset bubble. You also 0:21:36.240 --> 0:21:40.600 mentioned that China may need at japan like three arrow strategy. 0:21:40.960 --> 0:21:44.080 I think you're referencing the framework of the late Japanese 0:21:44.160 --> 0:21:47.400 PM Shinzo Abe, But can you explain more on this? 0:21:48.280 --> 0:21:52.240 Yeah. I taught for a number of years John two 0:21:52.280 --> 0:21:55.800 courses at Yale. One was a course called The Next China, 0:21:55.800 --> 0:22:00.800 which focused on where China was headed. Was focused on 0:22:00.840 --> 0:22:04.600 the lessons of Japan, the rise and fall of Asia's 0:22:04.640 --> 0:22:09.280 first miracle economy, how it happened, and how they responded. 0:22:10.440 --> 0:22:15.760 So I've studied both economies very careful, and increasingly in 0:22:15.800 --> 0:22:21.520 recent years, I've been struck by the similarities between Japan 0:22:21.760 --> 0:22:27.080 and China, largely from a structural point of view, aging societies, 0:22:27.240 --> 0:22:32.800 declining working age population, and stagnant to falling total factor 0:22:32.800 --> 0:22:41.080 of productivity. And then China does exactly what Japan did, 0:22:41.520 --> 0:22:47.320 mistakenly stumbles into a debt fueled property bubble the likes 0:22:47.359 --> 0:22:52.080 of which no country has really ever experienced before. And 0:22:52.200 --> 0:22:56.679 lo and behold, this year there is China's first whiff 0:22:56.760 --> 0:23:01.440 of deflation. So, look, these two economies are not the same. 0:23:01.520 --> 0:23:04.720 I recognize that there's a lot of differences between a 0:23:04.760 --> 0:23:09.560 developing economy that it needs more urbanization, you know, more 0:23:10.040 --> 0:23:13.359 capital stock per worker to boost productivity, and most importantly 0:23:13.880 --> 0:23:19.040 more consumption as China does. But you know, the similarities 0:23:19.040 --> 0:23:23.359 that I've just outlined are close enough where Beijing cannot 0:23:23.359 --> 0:23:26.640 afford to split hairs. And so I argued in this 0:23:27.040 --> 0:23:31.720 piece in the Ft that China needs to act on 0:23:31.800 --> 0:23:36.600 the basis that in fact is succumbing to the Japanese disease, 0:23:37.240 --> 0:23:41.800 rather than be in denial of the applicability of that 0:23:41.920 --> 0:23:47.040 analysis and the three arrows of Shinzo Abi said that 0:23:47.160 --> 0:23:51.199 you address this problem if it is a Japanese like 0:23:51.880 --> 0:23:57.840 problem with monetary policy, which China has done very effectively. 0:23:57.880 --> 0:24:02.359 I might add fiscal policy, which China has been the 0:24:02.400 --> 0:24:06.679 sort of lukewarm and really going as large as it 0:24:06.760 --> 0:24:10.639 needs to. And then the third piece, the third arrow 0:24:10.800 --> 0:24:17.719 in ABB's nomenclature, the structural piece, which China, like Japan, 0:24:19.040 --> 0:24:22.040 has been unable and unwilling to do. And it was 0:24:22.080 --> 0:24:26.120 a political problem in Japan, and it's a political problem 0:24:26.240 --> 0:24:33.239 in China. And monetary and lukewarm fiscal are necessary but 0:24:33.320 --> 0:24:37.880 not sufficient from a Japanese three arrow perspective. And that's 0:24:37.880 --> 0:24:40.880 what worries me about China right now, that it's sort 0:24:40.880 --> 0:24:45.320 of following the path that Japan has been on with 0:24:45.400 --> 0:24:49.760 respect to its structural problems as well as its response. 0:24:50.200 --> 0:24:53.400 I'm glad you brought up that piece, John, because one 0:24:53.400 --> 0:24:58.479 thing that I've been surprised by is recently, you know, 0:24:58.600 --> 0:25:02.840 in recent months, kin has started to roll out and 0:25:02.840 --> 0:25:05.879 this is all kind of provincially and city by city, 0:25:06.359 --> 0:25:10.560 but policies that at least address some of the demographics challenges, 0:25:10.720 --> 0:25:15.840 so you know, profertility policy, a lot more funding for childcare, 0:25:15.920 --> 0:25:19.879 and incentives sometimes just all out just direct cash stimulus. 0:25:20.480 --> 0:25:23.960 So I wonder if they are if officials are kind 0:25:23.960 --> 0:25:28.520 of starting to realize this challenge because demographics and the 0:25:28.560 --> 0:25:31.439 decline in tafar, as you mentioned, is it big, is 0:25:31.480 --> 0:25:32.240 a big part of this. 0:25:33.560 --> 0:25:37.480 Well, you know, they certainly realize it now. For I 0:25:37.520 --> 0:25:40.400 would say fifteen years I mean they abandoned their one 0:25:40.520 --> 0:25:43.680 child family planning policy formally. 0:25:44.800 --> 0:25:48.000 No, I forget maybe twenty sixteen, fish. 0:25:47.800 --> 0:25:53.920 Seven or eight years ago, and they have since they 0:25:53.960 --> 0:25:58.760 did that, increased incentives for women of child bearing age 0:25:58.800 --> 0:26:01.960 to have more care, and they've been reluctant to do that. 0:26:03.200 --> 0:26:06.960 I found that interesting because in my China class, I 0:26:06.960 --> 0:26:10.080 had a number of Chinese women, it was a large class, 0:26:11.119 --> 0:26:17.240 and I pulled them aside and unscientifically selected focus groups 0:26:17.920 --> 0:26:20.920 and I asked them about that, So, like, what's the deal, 0:26:22.200 --> 0:26:27.760 what would it take Chinese women to have more babies? 0:26:27.800 --> 0:26:31.120 And they said two things. Number one, we are now 0:26:31.240 --> 0:26:34.359 used to small families. It's our culture, it's the way 0:26:35.320 --> 0:26:39.640 our family units operate. And number two, the expense it's 0:26:39.720 --> 0:26:42.399 huge and it's not something that we can afford. And 0:26:42.400 --> 0:26:46.320 given high levels of youth unemployment, if anything, that has 0:26:46.359 --> 0:26:48.320 become more of a problem. 0:26:48.480 --> 0:26:50.240 Yeah, certainly a structural issue. 0:26:51.119 --> 0:26:54.639 Stephen, what pushback do you get when you compare China 0:26:54.720 --> 0:26:59.000 to Japan? Like the big picture discussion on the demographics 0:26:59.040 --> 0:27:01.960 and the asset bubble get but a lot of people 0:27:01.960 --> 0:27:04.679 when they look at Japan. It's quite unique. You know, 0:27:04.720 --> 0:27:08.720 the corporate culture is well known to be resistant to change, 0:27:09.160 --> 0:27:12.320 resistant to new technologies. You know. I recently had a 0:27:12.320 --> 0:27:16.720