1 00:00:05,640 --> 00:00:09,119 Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the 2 00:00:09,119 --> 00:00:12,360 Speaker 1: global economy to you. The smart heard among You will 3 00:00:12,400 --> 00:00:15,720 Speaker 1: have noticed I'm not Stephanie Flanders. In fact, I'm Tom Warlick, 4 00:00:15,840 --> 00:00:19,360 Speaker 1: chief economist at Bloomberg. Stephanie is taking a break this week, 5 00:00:19,400 --> 00:00:22,400 Speaker 1: and in a rare display of poor judgment, left me 6 00:00:22,480 --> 00:00:26,239 Speaker 1: to mind the shop. Now. There haven't been many benefits 7 00:00:26,239 --> 00:00:28,720 Speaker 1: from the COVID crisis, but one that is hard to 8 00:00:28,760 --> 00:00:31,360 Speaker 1: deny has been that the planet has been given a 9 00:00:31,360 --> 00:00:34,520 Speaker 1: bit of a breather. Carbon emissions are expected to fall 10 00:00:34,560 --> 00:00:37,879 Speaker 1: in twenty for the first time since the Great Financial Crisis, 11 00:00:38,479 --> 00:00:41,959 Speaker 1: and marine biologists tell us that whales and other aquatic 12 00:00:42,040 --> 00:00:44,479 Speaker 1: life are getting to hear themselves think for a change 13 00:00:45,400 --> 00:00:48,159 Speaker 1: in those respects, at least, we don't really want to 14 00:00:48,200 --> 00:00:50,600 Speaker 1: go back to the way things were about how to 15 00:00:50,680 --> 00:00:54,320 Speaker 1: do it? Bloomberg's own Michell jam risco as a story 16 00:00:54,360 --> 00:00:58,000 Speaker 1: this week explaining how some of Southeast Asia's tourist hotspots 17 00:00:58,160 --> 00:01:01,600 Speaker 1: are trying to answer that question. We also have senior 18 00:01:01,720 --> 00:01:06,400 Speaker 1: UK economist Dan Hansen on Brexit and Dave Rank, America's 19 00:01:06,440 --> 00:01:09,720 Speaker 1: former top diplomat in China, on high relations between the 20 00:01:09,760 --> 00:01:13,160 Speaker 1: world's two biggest powers might look under a Biden administration. 21 00:01:13,440 --> 00:01:16,240 Speaker 1: But first of all, here's Michelle with a view from 22 00:01:16,319 --> 00:01:29,920 Speaker 1: Thailand's tourist authority. These feelings are waiting for you to 23 00:01:30,040 --> 00:01:36,360 Speaker 1: come back from the north. That's the appeal from the 24 00:01:36,400 --> 00:01:40,200 Speaker 1: Tourism Authority of Thailand, a country that typically owes one 25 00:01:40,319 --> 00:01:43,480 Speaker 1: fifth of its economy to tourism. Thailand has seen its 26 00:01:43,520 --> 00:01:46,400 Speaker 1: growth protects fall apart this year with travel shut down 27 00:01:46,400 --> 00:01:50,400 Speaker 1: amid the global pandemic. Yet even as Southeast Asia's second 28 00:01:50,400 --> 00:01:53,200 Speaker 1: biggest economy is doing what it can to bring visitors back, 29 00:01:53,840 --> 00:01:56,440 Speaker 1: it's also doubling down on a rare victor in the pandemic. 30 00:01:56,800 --> 00:02:01,120 Speaker 1: The environment. The country has seen normally packed beaches get 31 00:02:01,120 --> 00:02:06,240 Speaker 1: a reprieve, elephants roam freely, and endangered species pepper lonely shorelines. 32 00:02:07,400 --> 00:02:11,840 Speaker 1: That's prompted Thailand's Environmental Minister, Barrow Silva Archa to dust 33 00:02:11,880 --> 00:02:17,120 Speaker 1: off a decades old dream. Now, by government decree, Thailand's 34 00:02:17,200 --> 00:02:19,399 Speaker 1: national parks will be required to close for at least 35 00:02:19,440 --> 00:02:22,919 Speaker 1: a couple of months every year. That gives mother nature 36 00:02:22,960 --> 00:02:25,320 Speaker 1: the chance to regularly get the sort of virus era 37 00:02:25,400 --> 00:02:30,000 Speaker 1: rehabilitation that's been a silver lining for an otherwise disastrous 38 00:02:31,440 --> 00:02:37,560 Speaker 1: cod COVID nineteen is a big knock on the door. 39 00:02:38,000 --> 00:02:40,560 Speaker 1: That is time for you to adjust your way of life. 40 00:02:40,800 --> 00:02:43,440 Speaker 1: If you don't adjust, mother nature will do it for you. 41 00:02:44,280 --> 00:02:47,959 Speaker 1: The disease is the result of humans upsetting balance in nature. 42 00:02:48,639 --> 00:02:52,320 Speaker 1: Everything has repercussions. We have to find balance and should 43 00:02:52,440 --> 00:02:55,120 Speaker 1: use this pandemic as a lesson that we have to 44 00:02:55,200 --> 00:02:58,640 Speaker 1: protect nature before it's too late. We have to realize 45 00:02:58,639 --> 00:03:05,120 Speaker 1: it's a very see of the damage we've cost. The 46 00:03:05,120 --> 00:03:07,720 Speaker 1: coronavirus pandemic has been a wake up call too many. 47 00:03:08,639 --> 00:03:11,280 Speaker 1: Amid the horrors of sickness, the terrible death toll, and 48 00:03:11,320 --> 00:03:15,120 Speaker 1: the devastation of economies, it's prompted people, businesses, and governments 49 00:03:15,160 --> 00:03:19,000 Speaker 1: across the globe to rethink the way they live and operate. Now, 50 00:03:19,040 --> 00:03:21,800 Speaker 1: as countries try to take their first steps back toward normality, 51 00:03:22,400 --> 00:03:25,040 Speaker 1: many are reassessing and wondering what elements of the COVID 52 00:03:25,080 --> 00:03:27,600 Speaker 1: world they might actually want to keep even after the 53 00:03:27,639 --> 00:03:31,960 Speaker 1: crisis has passed. On the Thai Island destination of cocamt 54 00:03:32,400 --> 00:03:35,640 Speaker 1: which forms part of a marine national park, businesses are 55 00:03:35,640 --> 00:03:39,360 Speaker 1: weighing the government's message on sustainable tourism against their simple 56 00:03:39,440 --> 00:03:55,120 Speaker 1: desperation to have visitors backs. I've lived here for modern tas, 57 00:03:55,960 --> 00:04:01,160 Speaker 1: I've never seen the that Skalawan Kumnum also known as Petch. 58 00:04:02,000 --> 00:04:04,320 Speaker 1: He's a fire dance performer who also owns a bar. 59 00:04:04,600 --> 00:04:08,680 Speaker 1: It is the rule that looks good on paper, but 60 00:04:08,800 --> 00:04:14,240 Speaker 1: in reality, especially for small business populate does who have 61 00:04:14,400 --> 00:04:22,480 Speaker 1: rent to pay would be devastating. Before the pandemic struck, 62 00:04:22,800 --> 00:04:25,520 Speaker 1: cosimt was well known for its nightlife and party scene, 63 00:04:25,520 --> 00:04:28,440 Speaker 1: which profited from the hordes of visitors to the island's idyllic, 64 00:04:28,480 --> 00:04:32,640 Speaker 1: white sand beaches. One afternoon earlier this month, only a 65 00:04:32,680 --> 00:04:35,120 Speaker 1: few visitors walked on the shoreline of the newly pristine 66 00:04:35,200 --> 00:04:38,719 Speaker 1: main beach, talking to locals from the beach front papayas 67 00:04:38,720 --> 00:04:42,880 Speaker 1: salad vendors to bar workers like Wichion Jong. Everyone worries 68 00:04:42,880 --> 00:04:45,599 Speaker 1: how they will survive if there are more months without tourists, 69 00:04:46,680 --> 00:04:50,040 Speaker 1: which who tends the Naga bar on the island thinks 70 00:04:50,040 --> 00:04:51,880 Speaker 1: he might even have to leave the country to find 71 00:04:51,880 --> 00:04:55,320 Speaker 1: employment and pay the bills during the closure. It's one, 72 00:04:59,240 --> 00:05:02,520 Speaker 1: there are two se Some agree with the closures because 73 00:05:02,520 --> 00:05:06,279 Speaker 1: he's during the low season, but some said the closure 74 00:05:06,320 --> 00:05:17,360 Speaker 1: will mean no income for them. Saren tip To Monks, 75 00:05:18,000 --> 00:05:21,599 Speaker 1: president of the Islands Tourism Association, says there was already 76 00:05:21,640 --> 00:05:23,880 Speaker 1: a tangle with government officials on the duration of the 77 00:05:23,880 --> 00:05:26,960 Speaker 1: annual closures, which the ministry first wanted to be four 78 00:05:27,040 --> 00:05:30,599 Speaker 1: months long. Businesses are calling for a waiver from the 79 00:05:30,640 --> 00:05:34,440 Speaker 1: closures altogether. They argue that an annual shutdown would inflict 80 00:05:34,520 --> 00:05:38,240 Speaker 1: yet more pain on the islands residents after the pandemic 81 00:05:38,279 --> 00:05:45,720 Speaker 1: already decimated trade Hawaii will affect us for sure. Don't 82 00:05:45,720 --> 00:05:50,880 Speaker 1: forget that this archipelago isn't just some uninhabited islands. There 83 00:05:50,880 --> 00:05:54,320 Speaker 1: are people living on God Summit, so if they close, 84 00:05:54,600 --> 00:05:57,880 Speaker 1: there will be an impact. At first, they wanted to 85 00:05:57,880 --> 00:06:00,880 Speaker 1: close the park for four months. We've asked them to 86 00:06:00,920 --> 00:06:03,960 Speaker 1: cut it back to two months, but really we don't 87 00:06:03,960 --> 00:06:07,440 Speaker 1: want them to close at all. Who will be responsible 88 00:06:07,560 --> 00:06:12,760 Speaker 1: for our jobs, income and livelihoods For tourism businesses. If 89 00:06:12,760 --> 00:06:15,960 Speaker 1: there's no clients at all for just two or three weeks, 90 00:06:16,360 --> 00:06:21,040 Speaker 1: we'll feel the pain already because there are expenses. People 91 00:06:21,080 --> 00:06:23,840 Speaker 1: here on the island are already taking care of the environment. 92 00:06:24,240 --> 00:06:28,240 Speaker 1: Otherwise we wouldn't be here today. Nobody is here to 93 00:06:28,279 --> 00:06:37,520 Speaker 1: destroy the island. They need to rethink this. Coosamt was 94 00:06:37,560 --> 00:06:41,159 Speaker 1: once a modest fishing village, then it exploded into a 95 00:06:41,200 --> 00:06:45,400 Speaker 1: magnet for European visitors and backpackers. It's only getting tourists 96 00:06:45,400 --> 00:06:47,800 Speaker 1: by the handfuls these days, though, and even then it's 97 00:06:47,880 --> 00:06:52,080 Speaker 1: usually locals visiting on the weekends with borders still largely 98 00:06:52,080 --> 00:06:55,160 Speaker 1: closed in a special tourism visa only just being offered now. 99 00:06:55,800 --> 00:06:58,640 Speaker 1: Thailand's efforts to revive the industry have relied on getting 100 00:06:58,640 --> 00:07:02,760 Speaker 1: that domestic travel churning again. They've even tried offering high 101 00:07:02,800 --> 00:07:07,200 Speaker 1: roller packages to push wealthier travelers to depleted resorts, but 102 00:07:07,279 --> 00:07:09,520 Speaker 1: these have been met with limited success and are no 103 00:07:09,680 --> 00:07:12,920 Speaker 1: match for Thai tourism's ban or year of when it 104 00:07:12,960 --> 00:07:15,320 Speaker 1: took in more than sixty billion dollars in revenue from 105 00:07:15,360 --> 00:07:19,760 Speaker 1: about forty million foreign visitors. There's a heated debate in 106 00:07:19,800 --> 00:07:22,880 Speaker 1: the business world about how hard to push sustainability tourism 107 00:07:22,960 --> 00:07:27,040 Speaker 1: right now. If you don't prioritize it, you risk overstressing 108 00:07:27,080 --> 00:07:30,120 Speaker 1: popular destinations and ruining what visitors came to enjoy in 109 00:07:30,160 --> 00:07:33,480 Speaker 1: the first place. But push too hard and only the 110 00:07:33,560 --> 00:07:36,080 Speaker 1: very wealthiest will be able to frequent these beautiful corners 111 00:07:36,080 --> 00:07:38,920 Speaker 1: of the earth, crushing local mom and pop firms that 112 00:07:38,960 --> 00:07:44,480 Speaker 1: rely on mass tourism. McKinsey and Company partner Steve Saxon 113 00:07:44,520 --> 00:07:46,560 Speaker 1: has spent the past decade and a half watching the 114 00:07:46,600 --> 00:07:50,480 Speaker 1: fast evolving tourism landscape and Asia, including a long building 115 00:07:50,480 --> 00:07:52,720 Speaker 1: debate on how many visitors might mean too much of 116 00:07:52,720 --> 00:07:56,720 Speaker 1: a good thing. What we called over tourism before was 117 00:07:56,760 --> 00:08:00,800 Speaker 1: never actually any good for anybody. The toys themselves didn't 118 00:08:00,840 --> 00:08:03,680 Speaker 1: enjoy going to crowded places where they couldn't enjoy the 119 00:08:03,760 --> 00:08:06,200 Speaker 1: natural beauty or see the sites because there were just 120 00:08:06,280 --> 00:08:09,960 Speaker 1: too many other tourists, and in some cases this even 121 00:08:10,160 --> 00:08:15,280 Speaker 1: started to frustrate the local residents. Higher end or more 122 00:08:15,320 --> 00:08:18,480 Speaker 1: affluent tourism does support a bit more in terms of 123 00:08:18,600 --> 00:08:22,760 Speaker 1: jobs and in terms of GDP. However, in terms of 124 00:08:22,760 --> 00:08:27,080 Speaker 1: flights coming in hotel rooms you need, that's dependent on 125 00:08:27,120 --> 00:08:30,480 Speaker 1: the number of guests. The focus needs to be on 126 00:08:30,520 --> 00:08:33,959 Speaker 1: how do we bring back the quantity and improve the 127 00:08:34,040 --> 00:08:38,000 Speaker 1: quality at the same time. Thailand isn't alone in its dilemma, 128 00:08:38,600 --> 00:08:42,360 Speaker 1: especially in Southeast Asia, whose travel and tourism industries account 129 00:08:42,400 --> 00:08:45,719 Speaker 1: for over one tenth of the region's GDP and its employment. 130 00:08:46,360 --> 00:08:49,120 Speaker 1: The boom already had policymakers thinking about how to make 131 00:08:49,120 --> 00:08:53,280 Speaker 1: sure these gains were sustainable. As in Thailand, the Philippines 132 00:08:53,360 --> 00:08:55,880 Speaker 1: is now making the environment a bigger part of that conversation. 133 00:08:56,679 --> 00:09:01,680 Speaker 1: It's become a sort of grassroots movement. Take Alamino's home 134 00:09:01,720 --> 00:09:05,760 Speaker 1: of the Hundred Islands National Park as an example. Twenty 135 00:09:05,840 --> 00:09:09,160 Speaker 1: four year old Mayor Brian Celeste is sketching plans for 136 00:09:09,240 --> 00:09:14,920 Speaker 1: longer term restrictions to foot traffic. Local scuba sureros divers 137 00:09:14,960 --> 00:09:18,359 Speaker 1: who collect garbage have been retrieving only a few kilograms 138 00:09:18,400 --> 00:09:21,719 Speaker 1: a month recently, compared with hundreds before the virus hit. 139 00:09:23,160 --> 00:09:25,839 Speaker 1: So Lestie wants to preserve those games long after COVID 140 00:09:25,920 --> 00:09:28,760 Speaker 1: nineteen has eased, and he's commissioned to study to help 141 00:09:28,800 --> 00:09:33,320 Speaker 1: local officials moderate the inflow of visitors. For me, because 142 00:09:34,120 --> 00:09:36,880 Speaker 1: under dions it's a it's a pressure, do I know, 143 00:09:37,720 --> 00:09:41,520 Speaker 1: it's a pressure to our city. So we cannot afford 144 00:09:41,559 --> 00:09:44,120 Speaker 1: to loose under dias And if we continue to over 145 00:09:44,200 --> 00:09:51,160 Speaker 1: commercialize our our and all we may stand in the 146 00:09:51,320 --> 00:09:55,439 Speaker 1: honorand so we try our best to limit, not severely 147 00:09:55,480 --> 00:10:01,319 Speaker 1: limit the man very at least to balance everything, balancing 148 00:10:01,360 --> 00:10:10,000 Speaker 1: commercialization and preservation between if you overcommercialize preserved, if you 149 00:10:10,120 --> 00:10:13,599 Speaker 1: overpreserve the kind of man An incong cities. So it 150 00:10:13,679 --> 00:10:16,640 Speaker 1: does we have to strike the balance between. We heard 151 00:10:16,640 --> 00:10:19,400 Speaker 1: a lot about balance and the course of reporting this story. 152 00:10:20,240 --> 00:10:24,160 Speaker 1: In reality, government officials are all quick to celebrate environmental gains, 153 00:10:24,640 --> 00:10:27,720 Speaker 1: the far more at odds about how to sustain them. 154 00:10:27,720 --> 00:10:31,199 Speaker 1: That's especially true during a highly fraught economic recovery, as 155 00:10:31,200 --> 00:10:33,440 Speaker 1: other problems pop up like a game of whack mole 156 00:10:33,679 --> 00:10:38,199 Speaker 1: competing for attention. Even just across Asia, there are plenty 157 00:10:38,200 --> 00:10:41,320 Speaker 1: of countries that are implementing their own environmental studies, but 158 00:10:41,400 --> 00:10:45,120 Speaker 1: prioritizing the prittying up of local attractions in preparation for 159 00:10:45,200 --> 00:10:49,280 Speaker 1: mobs of tourists to return Sri Lanka's enjoying a bit 160 00:10:49,320 --> 00:10:52,319 Speaker 1: of a boom and domestic tourism and New Zealand's authorities 161 00:10:52,320 --> 00:10:56,200 Speaker 1: are pushing the same. At Cambodia's world famous anchor Wad 162 00:10:56,200 --> 00:10:59,560 Speaker 1: Temple complex, flower beds and thousands of trees are being 163 00:10:59,559 --> 00:11:04,760 Speaker 1: planted and anticipation of the crowd's return. Mother Nature certainly 164 00:11:04,760 --> 00:11:08,000 Speaker 1: has more adoring fans these days. It'll be tough to 165 00:11:08,080 --> 00:11:10,720 Speaker 1: keep up her winning street because everyone recalibrates their lives 166 00:11:10,920 --> 00:11:15,360 Speaker 1: yet again after the pandemic. But environmental activists Billy doom 167 00:11:15,480 --> 00:11:20,040 Speaker 1: Leeing in this Philippines is upbeat. She sees businesses adapting 168 00:11:20,520 --> 00:11:25,000 Speaker 1: because they'll have to because Touristan has been closed for 169 00:11:25,160 --> 00:11:32,199 Speaker 1: so long. Um businessmen are tourists and enterprises. I detempted, 170 00:11:32,480 --> 00:11:37,319 Speaker 1: do you know, get as many people back as possible. 171 00:11:37,880 --> 00:11:42,319 Speaker 1: But I think the circumstances surrounding the pandemic will naturally 172 00:11:42,720 --> 00:11:46,800 Speaker 1: UM help crypt that because now people are forced to 173 00:11:46,840 --> 00:11:51,200 Speaker 1: see it to innovate, what other experiences, what other models 174 00:11:51,200 --> 00:11:57,080 Speaker 1: they can use to become sustainable financially and ecologically. As 175 00:11:57,120 --> 00:12:00,040 Speaker 1: travel lanes reopen and fits and starts, some of the 176 00:12:00,120 --> 00:12:03,600 Speaker 1: world's hattes destinations will have a new look, and they'll 177 00:12:03,640 --> 00:12:07,320 Speaker 1: expect everyone to help keep it that way. For Bloomberg News, 178 00:12:07,559 --> 00:12:19,000 Speaker 1: this is Michelle jam Risco. Thanks Michelle for that report. 179 00:12:19,400 --> 00:12:21,360 Speaker 1: Good to hear that the pandemic is having at these 180 00:12:21,360 --> 00:12:25,120 Speaker 1: some positive impacts, even if the main beneficiaries so far 181 00:12:25,400 --> 00:12:30,000 Speaker 1: a Thailand's elephant population. Now let's go from a part 182 00:12:30,040 --> 00:12:32,400 Speaker 1: of the world where the COVID pandemic is providing some 183 00:12:32,559 --> 00:12:36,280 Speaker 1: respite to a partner. It definitely is not U. S. 184 00:12:36,360 --> 00:12:40,400 Speaker 1: China relations Already in we've had a war of words 185 00:12:40,480 --> 00:12:43,440 Speaker 1: between Washington, d C. And Beijing over the origins of 186 00:12:43,440 --> 00:12:48,959 Speaker 1: the COVID crisis, US sanctions on Chinese technology firms, escalating 187 00:12:49,000 --> 00:12:52,800 Speaker 1: concern about events in Shinjang in Hong Kong, the US 188 00:12:52,800 --> 00:12:57,480 Speaker 1: closing a Chinese consulate, and China retaliating in kind. All 189 00:12:57,520 --> 00:13:01,040 Speaker 1: of this, of course, is bad news for the global economy. 190 00:13:01,480 --> 00:13:05,880 Speaker 1: At Bloomberg Economics, we've estimated the decoupling between China and 191 00:13:05,880 --> 00:13:09,720 Speaker 1: the US could deal a significant blow to China's growth, 192 00:13:10,360 --> 00:13:13,200 Speaker 1: and if the US persuaded its allies to join up 193 00:13:13,200 --> 00:13:17,600 Speaker 1: on a containment strategy, China's annual expansion could slow all 194 00:13:17,600 --> 00:13:21,480 Speaker 1: the way down towards one percent. Now, not a lot 195 00:13:21,520 --> 00:13:23,880 Speaker 1: of people know more about U. S. China relations than 196 00:13:23,960 --> 00:13:27,280 Speaker 1: Dave Rank. Dave served as the Deputy Chief of Mission 197 00:13:27,400 --> 00:13:30,240 Speaker 1: in the US Embassy in Beijing. That means he was 198 00:13:30,280 --> 00:13:33,920 Speaker 1: the most senior career diplomat charged with making the relationship 199 00:13:33,960 --> 00:13:36,800 Speaker 1: work on the ground. He quit in two thousand and 200 00:13:36,880 --> 00:13:40,439 Speaker 1: seventeen after a difference of opinion with the Trump administration 201 00:13:40,600 --> 00:13:43,760 Speaker 1: whole climate change. He believed in it and they didn't, 202 00:13:44,400 --> 00:13:47,160 Speaker 1: and is now teaching at Yale and providing advice to 203 00:13:47,240 --> 00:13:50,240 Speaker 1: business leaders from a perch at the Cohen Group. I'm 204 00:13:50,360 --> 00:13:57,080 Speaker 1: very glad he's able to join us today. It's really 205 00:13:57,080 --> 00:14:01,160 Speaker 1: been a remarkable deterioration in US in your relationships over 206 00:14:01,200 --> 00:14:04,000 Speaker 1: the course of the last four years, but with the 207 00:14:04,040 --> 00:14:07,760 Speaker 1: election coming up in November, there's a chance for reset. 208 00:14:08,360 --> 00:14:10,920 Speaker 1: How should we think about this? How much is how 209 00:14:11,000 --> 00:14:15,240 Speaker 1: much of the deterioration in the relationship is an idiosyncrasy 210 00:14:15,280 --> 00:14:17,960 Speaker 1: of the Trump administration and how much of it is 211 00:14:17,960 --> 00:14:21,280 Speaker 1: structural something we shouldn't expect to change no matter who's 212 00:14:21,280 --> 00:14:24,240 Speaker 1: in power. Sure, I mean that's a great question to 213 00:14:24,240 --> 00:14:27,400 Speaker 1: start with. Tom And as you know, I left government 214 00:14:27,440 --> 00:14:29,560 Speaker 1: about three years ago. But I'll say even at the 215 00:14:29,680 --> 00:14:33,160 Speaker 1: end of the Obama administration, there was a strong sense 216 00:14:33,320 --> 00:14:35,920 Speaker 1: that the U. S. China relationship was coming to a 217 00:14:36,040 --> 00:14:39,400 Speaker 1: really fundamental change, that that the paradigm the way we 218 00:14:39,440 --> 00:14:45,160 Speaker 1: had looked at the relationship essentially since since UH the U. S. 219 00:14:45,200 --> 00:14:50,760 Speaker 1: And China started, UH recognized each other that the rules 220 00:14:50,800 --> 00:14:52,800 Speaker 1: of the game had changed, and that whether it was 221 00:14:52,880 --> 00:14:55,920 Speaker 1: Donald Trump or Hillary Clinton, UH, you were going to 222 00:14:55,960 --> 00:14:58,520 Speaker 1: see a change in the U. S. China relationship. I 223 00:14:58,560 --> 00:15:03,120 Speaker 1: think though that you know, Donald Trump took the relationship 224 00:15:03,200 --> 00:15:07,520 Speaker 1: that no American government, at least since the end of 225 00:15:07,520 --> 00:15:10,600 Speaker 1: the Second World War has gone, which is much more unilateral, 226 00:15:11,240 --> 00:15:15,120 Speaker 1: much less interested in the global structures and partnerships and 227 00:15:15,160 --> 00:15:20,440 Speaker 1: alliances that really had been our hallmark since And so 228 00:15:20,800 --> 00:15:23,200 Speaker 1: you know, I think there's an aberration in the sense 229 00:15:23,280 --> 00:15:26,320 Speaker 1: that Donald Trump is not the internationalists, not interested in 230 00:15:26,320 --> 00:15:30,560 Speaker 1: international partnerships, but the concern about China and what it 231 00:15:30,560 --> 00:15:34,160 Speaker 1: means for for the US that competition. I think that 232 00:15:34,280 --> 00:15:36,400 Speaker 1: was coming no matter who was there. And I think 233 00:15:36,400 --> 00:15:39,640 Speaker 1: you'll see if if Biden is elected, that there will 234 00:15:39,680 --> 00:15:42,520 Speaker 1: be a tension in the relationship, even if we get 235 00:15:42,520 --> 00:15:45,240 Speaker 1: back to a more normal way of working within the 236 00:15:45,280 --> 00:15:49,040 Speaker 1: US government. Dave, you worked with a number of officials 237 00:15:49,360 --> 00:15:52,680 Speaker 1: under the Obama administration who we might well see coming 238 00:15:52,720 --> 00:15:56,280 Speaker 1: back if we see a Biden win in November. What's 239 00:15:56,320 --> 00:16:00,680 Speaker 1: your sense of how the Biden team views the U S. 240 00:16:00,760 --> 00:16:03,960 Speaker 1: China relationship. What do you think their priorities would be 241 00:16:04,280 --> 00:16:08,640 Speaker 1: if we saw them coming in at the end of November. Sure, well, 242 00:16:08,640 --> 00:16:11,280 Speaker 1: I think some of you you'd see some consistency. There's 243 00:16:11,320 --> 00:16:14,640 Speaker 1: real concern, not just in the at the political level, 244 00:16:14,640 --> 00:16:17,040 Speaker 1: in other words, in the Democratic and Republican Party, but 245 00:16:17,080 --> 00:16:22,200 Speaker 1: also within the bureaucracy about particularly in the area of technology, 246 00:16:22,680 --> 00:16:25,600 Speaker 1: the rivalry between the United States and China and the 247 00:16:25,680 --> 00:16:28,520 Speaker 1: relevance of a lot of those technologies to really core 248 00:16:28,680 --> 00:16:31,760 Speaker 1: national security concerns. And I think that will be, at 249 00:16:31,840 --> 00:16:34,280 Speaker 1: least from what I can see and read, that will 250 00:16:34,320 --> 00:16:36,480 Speaker 1: be a concern of a would be a concern of 251 00:16:36,520 --> 00:16:40,240 Speaker 1: a Biden administration if there is one. But you know, 252 00:16:40,720 --> 00:16:43,760 Speaker 1: I think you'd also see, which is I think very 253 00:16:43,800 --> 00:16:48,360 Speaker 1: different from the Trump administration, an effort because the the 254 00:16:48,440 --> 00:16:51,080 Speaker 1: you know, the people around Biden, and as I understand 255 00:16:51,440 --> 00:16:54,440 Speaker 1: Vice President Biden himself, see a lot of areas where, 256 00:16:54,880 --> 00:16:56,480 Speaker 1: you know, whether we want to or not, we're gonna 257 00:16:56,520 --> 00:16:58,480 Speaker 1: have to cooperate with the Chinese. We're gonna have to 258 00:16:58,480 --> 00:17:02,680 Speaker 1: work together areas like climate change, the Iran nuclear deal, 259 00:17:02,880 --> 00:17:05,720 Speaker 1: and of course the pandemic and dealing with the global 260 00:17:05,840 --> 00:17:10,000 Speaker 1: public health issues. Is there a world where things keep 261 00:17:10,080 --> 00:17:14,000 Speaker 1: getting worse? I wonder whether the Chinese side have been 262 00:17:14,160 --> 00:17:18,760 Speaker 1: pulling their punches because they're thinking, we need to maintain 263 00:17:18,800 --> 00:17:22,320 Speaker 1: optionality for when a Biden administration comes in. We don't 264 00:17:22,359 --> 00:17:25,119 Speaker 1: want to burn our bridges. If a Biden team comes 265 00:17:25,160 --> 00:17:28,480 Speaker 1: in and they maintain the same kind of broad strategic 266 00:17:28,520 --> 00:17:32,879 Speaker 1: orientation regarding China as a kind of strategic threat, but 267 00:17:32,960 --> 00:17:36,280 Speaker 1: they're more effective at building alliances. Is there a world 268 00:17:36,280 --> 00:17:40,280 Speaker 1: where the gloves come off and China's restraint is removed 269 00:17:40,320 --> 00:17:44,040 Speaker 1: and we see relations deteriorating even further and faster than 270 00:17:44,080 --> 00:17:47,040 Speaker 1: they have under the Trump administration. So I left town 271 00:17:47,080 --> 00:17:50,000 Speaker 1: because anyone who has lived through will tell you that 272 00:17:50,200 --> 00:17:53,600 Speaker 1: it can always get worse, right, But I'm I'm relatively 273 00:17:53,600 --> 00:17:58,640 Speaker 1: optimistic that I mean, for for however much the Chinese 274 00:17:58,640 --> 00:18:02,960 Speaker 1: are concerned about, you know, a rivalry with the United States, fundamentally, 275 00:18:02,960 --> 00:18:05,399 Speaker 1: they've got a lot of interest in stability, not just 276 00:18:05,480 --> 00:18:07,920 Speaker 1: in the in the U. S. China relationship, but overall 277 00:18:08,000 --> 00:18:11,679 Speaker 1: that they they have a big vested stake in the 278 00:18:11,800 --> 00:18:15,399 Speaker 1: success of global systems, in the global trading system, and 279 00:18:16,040 --> 00:18:20,200 Speaker 1: in not uh sort of dediating that from that and 280 00:18:20,920 --> 00:18:24,119 Speaker 1: heading down the path to a really hot competition. I 281 00:18:24,200 --> 00:18:26,320 Speaker 1: think they understand that that's not in their interests, it's 282 00:18:26,359 --> 00:18:28,919 Speaker 1: not in our interests, and there is a middle ground 283 00:18:28,920 --> 00:18:31,880 Speaker 1: where we can It's kind of cliche, but we can 284 00:18:31,920 --> 00:18:35,800 Speaker 1: compete without being without confrontation that that you know, we 285 00:18:35,840 --> 00:18:39,480 Speaker 1: can walk that fine line at less drill dine on 286 00:18:39,520 --> 00:18:43,159 Speaker 1: a couple of live issues, um. First of all, Um, 287 00:18:43,200 --> 00:18:46,560 Speaker 1: I'd be really interested to get your view on financial decoupling. 288 00:18:47,000 --> 00:18:50,160 Speaker 1: There's been a couple of great Bloomberg news scoops recently 289 00:18:50,560 --> 00:18:54,320 Speaker 1: suggesting that at a senior level in the US administration 290 00:18:54,520 --> 00:18:58,720 Speaker 1: there's been real consideration of imposing sanctions on a big 291 00:18:58,800 --> 00:19:03,720 Speaker 1: Chinese bank, possibly imposing sanctions on some big Chinese financial 292 00:19:03,760 --> 00:19:07,919 Speaker 1: startups and financial Um, the kind of the the child 293 00:19:07,960 --> 00:19:10,720 Speaker 1: of the Ali Baba group is one that's been mentioned 294 00:19:11,280 --> 00:19:14,640 Speaker 1: from yours insiders experience. Could you tell us a little 295 00:19:14,680 --> 00:19:18,760 Speaker 1: bit about how that kind of decision would be made? Well, 296 00:19:18,800 --> 00:19:20,960 Speaker 1: I guess I can talk about how that kind of 297 00:19:21,000 --> 00:19:23,199 Speaker 1: decision used to you know, would have used to be 298 00:19:23,280 --> 00:19:26,440 Speaker 1: made under the Trump administrations a little different. And that's why, 299 00:19:26,520 --> 00:19:28,280 Speaker 1: first of all, I've heard the same reports and and 300 00:19:28,280 --> 00:19:30,520 Speaker 1: of course Bloomberg has done a great job and in 301 00:19:30,960 --> 00:19:33,880 Speaker 1: uh flushing some of those out. But it's really hard 302 00:19:33,920 --> 00:19:35,840 Speaker 1: to tell what's going on in the in the Trump 303 00:19:35,840 --> 00:19:39,239 Speaker 1: administration because so many decisions seem to be not just 304 00:19:39,400 --> 00:19:42,240 Speaker 1: made at the highest levels, but started and finished at 305 00:19:42,240 --> 00:19:45,680 Speaker 1: the highest levels. And so in the Obama administration or 306 00:19:45,800 --> 00:19:49,760 Speaker 1: previous administrations, you'd have people who know the issues intimately 307 00:19:49,880 --> 00:19:52,800 Speaker 1: understand the ups and downs. Why, you know, taking action 308 00:19:52,880 --> 00:19:55,639 Speaker 1: against one of the big big four Chinese banks or 309 00:19:55,680 --> 00:19:58,520 Speaker 1: against and financial you know, the impacts that could have 310 00:19:59,240 --> 00:20:04,199 Speaker 1: on real life issues here, whether they're financial or legal 311 00:20:04,320 --> 00:20:07,400 Speaker 1: or technical in the United States. In the Trump administration, 312 00:20:07,400 --> 00:20:09,399 Speaker 1: you look at the TikTok and the wee chat bands 313 00:20:09,440 --> 00:20:12,480 Speaker 1: and all of the legal trouble they run into. That's 314 00:20:12,480 --> 00:20:15,840 Speaker 1: what I think is different about this administration, and where 315 00:20:16,240 --> 00:20:18,440 Speaker 1: if something like that were to be rolled out, the 316 00:20:18,800 --> 00:20:21,919 Speaker 1: odds that it would run into something that sort of 317 00:20:21,920 --> 00:20:23,920 Speaker 1: working level folks would have flagged as, hey, this is 318 00:20:23,920 --> 00:20:26,440 Speaker 1: gonna be a problem. It's not legal, it's going to 319 00:20:26,520 --> 00:20:29,840 Speaker 1: have huge blowback for the U. S economy that the 320 00:20:29,840 --> 00:20:34,080 Speaker 1: Trump administration I think is liable to miss. Let's say 321 00:20:34,080 --> 00:20:37,400 Speaker 1: they do it anyway. Let's say the Trump administration has 322 00:20:37,440 --> 00:20:40,760 Speaker 1: a swing at and financial If you were sitting if 323 00:20:40,760 --> 00:20:43,600 Speaker 1: you were still sitting in the embassy in Beijing, what 324 00:20:43,680 --> 00:20:45,960 Speaker 1: would you be worried about? What would you see as 325 00:20:46,000 --> 00:20:49,399 Speaker 1: the sort of the range of possible Chinese reactions to 326 00:20:49,560 --> 00:20:52,080 Speaker 1: a to a U S move like that. Yeah, I mean, 327 00:20:52,240 --> 00:20:56,320 Speaker 1: I think the the at least traditionally, I would worry about, Okay, 328 00:20:56,560 --> 00:21:01,040 Speaker 1: what American companies are on the outs the Chinese anyway, 329 00:21:01,080 --> 00:21:04,679 Speaker 1: that have a toe hold here, but but are are vulnerable? 330 00:21:04,720 --> 00:21:08,560 Speaker 1: Are they liable to come under Chinese pressure? That's probably 331 00:21:08,600 --> 00:21:10,840 Speaker 1: where I would look first. You know that I won't 332 00:21:10,920 --> 00:21:13,400 Speaker 1: name names, but there I'm sure companies that have had 333 00:21:13,440 --> 00:21:17,520 Speaker 1: problems and and just look for additional problems in that area, 334 00:21:18,119 --> 00:21:21,960 Speaker 1: you know, something like the Unreliable Entities List. I could 335 00:21:22,000 --> 00:21:26,080 Speaker 1: see the mof COM, the Commerce Ministry floating out a 336 00:21:26,200 --> 00:21:29,800 Speaker 1: name for some critical American company that may end up 337 00:21:29,840 --> 00:21:31,520 Speaker 1: on that list. And you know, that's that's hard to 338 00:21:31,520 --> 00:21:35,399 Speaker 1: do business if you're that kind of rumors circulating for 339 00:21:35,520 --> 00:21:39,880 Speaker 1: you around you selling their treasury holdings. That's the kind 340 00:21:39,920 --> 00:21:43,280 Speaker 1: of the big sort of stick which many believe that 341 00:21:43,400 --> 00:21:46,320 Speaker 1: China holds over the US. Is that a real possibility? 342 00:21:46,680 --> 00:21:48,240 Speaker 1: Isn't there an old joke? You know, if you owe 343 00:21:48,240 --> 00:21:52,159 Speaker 1: the bank fifty you're in trouble. If you owe the 344 00:21:52,480 --> 00:21:54,760 Speaker 1: bank five million dollars, they're in trouble. I guess the 345 00:21:54,800 --> 00:21:56,960 Speaker 1: numbers have gone up since the joke was first issued. 346 00:21:57,000 --> 00:21:59,160 Speaker 1: But but you know, this is kind of I mean, 347 00:21:59,480 --> 00:22:03,680 Speaker 1: it's an ill stration of the the difficulty of taking actions, 348 00:22:03,720 --> 00:22:06,680 Speaker 1: whether it's the US against and financial or the Chinese 349 00:22:06,680 --> 00:22:09,520 Speaker 1: selling T bills, because you know that the act of 350 00:22:09,560 --> 00:22:13,560 Speaker 1: selling those would have enormous negative consequences for the Chinese, 351 00:22:13,560 --> 00:22:15,880 Speaker 1: and so it would be a tough decision to make, 352 00:22:15,920 --> 00:22:18,880 Speaker 1: and that technocrats in China would be I'm sure making 353 00:22:18,920 --> 00:22:23,120 Speaker 1: that case mutually assured destruction. I think Larry Summers once 354 00:22:23,160 --> 00:22:27,560 Speaker 1: called it. Let's talk about a risk which is kind 355 00:22:27,560 --> 00:22:31,840 Speaker 1: of increasingly sort of mentioned in the markets, um popping 356 00:22:31,920 --> 00:22:35,600 Speaker 1: up a little bit in commentary about the relationship. Let's 357 00:22:35,600 --> 00:22:40,520 Speaker 1: talk about the risk that something radical and destabilizing happens 358 00:22:40,560 --> 00:22:44,000 Speaker 1: with Taiwan. UM. Now, you've not only worked in the 359 00:22:44,119 --> 00:22:47,640 Speaker 1: US Embassy in Beijing, you've also worked in the US 360 00:22:47,720 --> 00:22:53,919 Speaker 1: mission in Taiwan. What probability would you put on a 361 00:22:54,119 --> 00:22:58,199 Speaker 1: Chinese invasion of Taiwan in between the US election on 362 00:22:58,480 --> 00:23:02,639 Speaker 1: November three and a new president coming into office on 363 00:23:02,720 --> 00:23:06,320 Speaker 1: January twentie So I should start off by saying I 364 00:23:06,320 --> 00:23:08,760 Speaker 1: am concerned. You listen to some of the rhetor coming 365 00:23:08,760 --> 00:23:10,840 Speaker 1: out of China. You saw that warning. I think it 366 00:23:10,920 --> 00:23:14,400 Speaker 1: was in people's daily that to the Taiwanese. Don't say 367 00:23:14,400 --> 00:23:17,879 Speaker 1: you haven't been warned, you know, a very stern tone 368 00:23:17,960 --> 00:23:21,000 Speaker 1: that you haven't. You know, the Chinese rarely roll out 369 00:23:21,640 --> 00:23:26,480 Speaker 1: unless they're contemplating something serious. I'm not a military person, 370 00:23:26,760 --> 00:23:30,959 Speaker 1: but my understanding from from talking to people who do 371 00:23:31,000 --> 00:23:33,280 Speaker 1: it for a living, say, it's not you know, an 372 00:23:33,280 --> 00:23:36,280 Speaker 1: invasion of Taiwan would not be an easy thing, and 373 00:23:36,760 --> 00:23:39,720 Speaker 1: the kind of preparations it would require to do that 374 00:23:40,440 --> 00:23:43,840 Speaker 1: we'd see between now and January twenties. So that's kind 375 00:23:43,840 --> 00:23:46,880 Speaker 1: of cold comfort that to me. I'm I'm I'm fairly 376 00:23:47,119 --> 00:23:50,399 Speaker 1: sanguine about the risk of an invasion before January twenty, 377 00:23:50,760 --> 00:23:53,119 Speaker 1: but I think the long term issue is one that 378 00:23:53,160 --> 00:23:55,200 Speaker 1: we ought to be concerned about. That. You know that 379 00:23:55,200 --> 00:23:58,160 Speaker 1: that the status quo that kept peace in the Taiwan 380 00:23:58,240 --> 00:24:02,719 Speaker 1: Strait is really starting to break down, and that wouldn't 381 00:24:02,720 --> 00:24:04,360 Speaker 1: be good for us, and I think it'll be good 382 00:24:04,359 --> 00:24:07,439 Speaker 1: for Beijing, it would be bad for Taiwan. So so 383 00:24:07,480 --> 00:24:10,760 Speaker 1: I worry about that. Dave, great pleasure having you on 384 00:24:10,760 --> 00:24:13,320 Speaker 1: the show. Thanks so much for sharing your insights. Thank you, 385 00:24:13,400 --> 00:24:23,120 Speaker 1: Tom Great to be here, So from a country that's 386 00:24:23,240 --> 00:24:26,040 Speaker 1: rising up in the global economic rankings to one that 387 00:24:26,160 --> 00:24:28,960 Speaker 1: is not. Every so often on Stephanomics, we like to 388 00:24:29,040 --> 00:24:31,919 Speaker 1: check in on progress with Britain's century long process of 389 00:24:31,960 --> 00:24:35,439 Speaker 1: industrial decline and with Brexit talks again in the news 390 00:24:35,760 --> 00:24:38,200 Speaker 1: now seems like a good moment. So I'm very glad 391 00:24:38,240 --> 00:24:40,840 Speaker 1: to be joined by one of the most astute observers 392 00:24:41,119 --> 00:24:45,360 Speaker 1: of the economics of Brexit, Bloomberg's UK economist Dan handsOn. 393 00:24:48,720 --> 00:24:52,399 Speaker 1: So we're in the middle of negotiations, or we're in 394 00:24:52,440 --> 00:24:56,560 Speaker 1: the middle of the commencement of some new negotiations. What's 395 00:24:56,600 --> 00:24:59,800 Speaker 1: the latest So over the past week or say, there's 396 00:25:00,040 --> 00:25:02,159 Speaker 1: been a bit of a stalemate, surprise surprise in the 397 00:25:02,400 --> 00:25:06,280 Speaker 1: in the Brexit negotiations. So we've had the UK saying 398 00:25:06,280 --> 00:25:09,040 Speaker 1: that it doesn't want to continue for more negotiations with 399 00:25:09,119 --> 00:25:12,520 Speaker 1: the EU until the SHOW signs that it's willing to 400 00:25:12,560 --> 00:25:17,280 Speaker 1: make concessions. And the UK also wants the EU to 401 00:25:17,400 --> 00:25:21,560 Speaker 1: recognize the UK is a sovereign equal and also the 402 00:25:21,640 --> 00:25:24,159 Speaker 1: final the final request from the UK side is to 403 00:25:24,160 --> 00:25:26,359 Speaker 1: start work on the legal text of the treaty that 404 00:25:26,400 --> 00:25:30,000 Speaker 1: will underpin the free trade agreement and of course we've 405 00:25:30,000 --> 00:25:33,199 Speaker 1: got on the U side, you still looking for the 406 00:25:33,280 --> 00:25:36,239 Speaker 1: UK to make compromises as well. There's been a bit 407 00:25:36,240 --> 00:25:38,119 Speaker 1: of a change in the tone in the past twenty 408 00:25:38,119 --> 00:25:42,240 Speaker 1: four hours between the two sides. We've heard positive sounds 409 00:25:42,240 --> 00:25:46,320 Speaker 1: coming from the US chief negotiator Michelle Barnier, and Bloomberg 410 00:25:46,359 --> 00:25:49,160 Speaker 1: has reported that both sides could return to the negotiation 411 00:25:49,440 --> 00:25:52,480 Speaker 1: table and coming days. The aim of getting a deal 412 00:25:52,800 --> 00:25:55,240 Speaker 1: done in the next month or so. And the reason 413 00:25:55,280 --> 00:25:57,560 Speaker 1: that the deal needs to be done over that time 414 00:25:57,600 --> 00:26:03,080 Speaker 1: period is because laments need to ratify national partiments. I 415 00:26:03,119 --> 00:26:05,359 Speaker 1: should say, I need to ratify the deal in time 416 00:26:05,400 --> 00:26:07,679 Speaker 1: for the end of the Brexit transition period on December 417 00:26:07,840 --> 00:26:10,880 Speaker 1: thirty one. So as things down, it looks like we're 418 00:26:10,920 --> 00:26:13,719 Speaker 1: in for a dash to the finish line. And as 419 00:26:13,760 --> 00:26:16,800 Speaker 1: I say that, that deadline is December thirty one, when 420 00:26:16,800 --> 00:26:22,320 Speaker 1: the UK finally leaves the European Union. So some some 421 00:26:22,440 --> 00:26:26,040 Speaker 1: very modest good news, but even as we hope for 422 00:26:26,119 --> 00:26:30,560 Speaker 1: the recommencement of negotiations. You've written that the difference between 423 00:26:30,680 --> 00:26:35,199 Speaker 1: deal and no deal is pretty small. Why is that so? 424 00:26:35,240 --> 00:26:37,280 Speaker 1: I think the answer to that relates to the nature 425 00:26:37,320 --> 00:26:39,720 Speaker 1: of the deal the UK is seeking to negotiate with. 426 00:26:39,760 --> 00:26:42,640 Speaker 1: The EU is looking to sign a free trade agreement 427 00:26:42,640 --> 00:26:45,200 Speaker 1: with the Block, which, if we look on the spectrum 428 00:26:45,240 --> 00:26:48,600 Speaker 1: of possible trading relationships it could have chosen to pursue. 429 00:26:49,280 --> 00:26:51,760 Speaker 1: A free trade agreement is close to the bottom in 430 00:26:51,840 --> 00:26:54,679 Speaker 1: terms of the level of integration it demands or requires. 431 00:26:54,720 --> 00:26:58,320 Speaker 1: With the European Union and with an FDA. The UK 432 00:26:58,359 --> 00:27:01,080 Speaker 1: and EU would avoid tariffs and quotas that would come 433 00:27:01,119 --> 00:27:04,159 Speaker 1: alongside a no deal outcome, but there will still be 434 00:27:04,160 --> 00:27:07,520 Speaker 1: a significant increase in non tariff barriers. Now those range 435 00:27:07,560 --> 00:27:13,640 Speaker 1: from customs checks at the border, documentation around rules of origin, 436 00:27:14,440 --> 00:27:17,920 Speaker 1: but they're also behind the border costs such as regulatory barriers, 437 00:27:17,920 --> 00:27:21,320 Speaker 1: and those apply to both goods and services. So the 438 00:27:21,400 --> 00:27:23,560 Speaker 1: key point is that trade frictions are likely to ride 439 00:27:23,600 --> 00:27:26,080 Speaker 1: sharply at the start of next year, whether there's a 440 00:27:26,119 --> 00:27:29,159 Speaker 1: deal or not. And that's why the gap between a 441 00:27:29,240 --> 00:27:31,600 Speaker 1: deal and no deal is smaller than if, say you 442 00:27:31,680 --> 00:27:34,359 Speaker 1: compared to no deal outcome to the UK staying in 443 00:27:34,400 --> 00:27:38,920 Speaker 1: the Single Market or even staying in the Customers Union. Still, 444 00:27:39,240 --> 00:27:42,960 Speaker 1: no deal is not zero cost. You've put a number 445 00:27:42,960 --> 00:27:48,080 Speaker 1: on it and around one point five of GDP. How 446 00:27:48,080 --> 00:27:50,920 Speaker 1: did you get to that number. Well, we've we've looked 447 00:27:50,920 --> 00:27:54,160 Speaker 1: at it through three key channels that we think will 448 00:27:54,160 --> 00:27:57,000 Speaker 1: impact the economy in the short term. So the first 449 00:27:57,040 --> 00:27:58,800 Speaker 1: of those, and I mentioned it in the answer before, 450 00:27:59,400 --> 00:28:02,440 Speaker 1: there will be increase in tariffs and quotas if there 451 00:28:02,520 --> 00:28:05,879 Speaker 1: is no deal outcome between at the UK and the 452 00:28:07,359 --> 00:28:12,520 Speaker 1: added to that, it seems pretty certain that sterling would appreciate. 453 00:28:12,800 --> 00:28:15,360 Speaker 1: And you add those two things together and you get 454 00:28:15,400 --> 00:28:17,919 Speaker 1: a rise in import costs and what that does is 455 00:28:17,960 --> 00:28:20,960 Speaker 1: it squeezed how household real incomes through a rise in 456 00:28:21,040 --> 00:28:27,200 Speaker 1: inflation um. Taken those assumptions together, so we think tarrists 457 00:28:27,240 --> 00:28:31,199 Speaker 1: could rise by about five cent on imports coming from 458 00:28:31,280 --> 00:28:34,119 Speaker 1: the EU, and we've assumed a five percent fall in 459 00:28:34,160 --> 00:28:37,520 Speaker 1: sterling um at those together and we think it could 460 00:28:37,560 --> 00:28:40,760 Speaker 1: knock about half a percent of GDP next year. The 461 00:28:40,800 --> 00:28:43,719 Speaker 1: second channel that we've looked at is uncertainty. And we 462 00:28:43,800 --> 00:28:47,400 Speaker 1: know uncertainty has affected the UK economy since it voted 463 00:28:47,600 --> 00:28:50,320 Speaker 1: to leave the European Union in twix and it's most 464 00:28:50,360 --> 00:28:53,760 Speaker 1: obviously seen in the business investment numbers. But if we 465 00:28:53,800 --> 00:28:57,000 Speaker 1: see uncertainty rise back up again, that could not a 466 00:28:57,080 --> 00:29:00,640 Speaker 1: further zero points six percent of GDP next year. We 467 00:29:00,720 --> 00:29:03,840 Speaker 1: think in the final channel that we've looked at is 468 00:29:03,880 --> 00:29:06,960 Speaker 1: the extent to which lower trade flows predominantly as a 469 00:29:07,000 --> 00:29:10,680 Speaker 1: result of the tariffs and the quotas, could feed through 470 00:29:10,760 --> 00:29:14,120 Speaker 1: to the supply capacity of the economy, and that could 471 00:29:14,120 --> 00:29:16,800 Speaker 1: add We think the story could not go further zero 472 00:29:16,840 --> 00:29:19,600 Speaker 1: point two percent off GDP next year. So you add 473 00:29:19,640 --> 00:29:22,480 Speaker 1: those three numbers up, you get close to one and 474 00:29:22,520 --> 00:29:26,600 Speaker 1: a half cent off GDP. So our baseline forecast where 475 00:29:26,600 --> 00:29:29,280 Speaker 1: there's a deal is for growth of five point four 476 00:29:29,280 --> 00:29:33,120 Speaker 1: percent next year. If there is no deal, we'd lower 477 00:29:33,160 --> 00:29:38,160 Speaker 1: that forecast to around four percent growth. So even that 478 00:29:38,400 --> 00:29:42,120 Speaker 1: one point five percent drag assumes a bit of goodwill 479 00:29:42,480 --> 00:29:45,920 Speaker 1: on both sides to prevent a complete snarl up in 480 00:29:45,960 --> 00:29:49,320 Speaker 1: the trade relationship. What happens if we don't even get that? 481 00:29:49,600 --> 00:29:53,480 Speaker 1: Could you outline a doomsday scenario for us? So you're 482 00:29:53,920 --> 00:29:56,720 Speaker 1: right that ar scenario assumes that even if both sides 483 00:29:57,080 --> 00:29:59,920 Speaker 1: decide that a trade deal is a stretch too far. 484 00:30:00,000 --> 00:30:02,760 Speaker 1: Are we've assumed that talks do continue to in an 485 00:30:02,800 --> 00:30:06,120 Speaker 1: effort to mitigate some of the most disrupted parts of 486 00:30:06,200 --> 00:30:09,280 Speaker 1: a no deal breakup. But clearly, as you say, there 487 00:30:09,400 --> 00:30:12,560 Speaker 1: is room for an acrimonious enter the talks and things 488 00:30:12,600 --> 00:30:16,480 Speaker 1: could get could get messy. So there are two two 489 00:30:16,600 --> 00:30:19,840 Speaker 1: channels that we've you can think about this through. First 490 00:30:19,960 --> 00:30:22,400 Speaker 1: is the disruption of the border, and it would clearly 491 00:30:22,400 --> 00:30:26,480 Speaker 1: be far more significant if there were big cues down 492 00:30:26,480 --> 00:30:29,400 Speaker 1: in over and over in Calais and goods couldn't move 493 00:30:30,520 --> 00:30:33,760 Speaker 1: across the border, and that would significantly way on the 494 00:30:33,800 --> 00:30:37,520 Speaker 1: supply capacity of the economy. Now, given this is unprecedented, 495 00:30:37,800 --> 00:30:40,560 Speaker 1: there isn't any clear way to calibrate the size of 496 00:30:40,600 --> 00:30:43,280 Speaker 1: the shock, but I don't think it's unreasonable to say 497 00:30:43,280 --> 00:30:45,480 Speaker 1: that in the near term the fall in trade, so 498 00:30:45,560 --> 00:30:51,360 Speaker 1: that's exports and imports, could easily be in double figures. Then, 499 00:30:51,440 --> 00:30:53,880 Speaker 1: on the demand side, you you would expect a few 500 00:30:53,920 --> 00:30:56,160 Speaker 1: things to happen, so you'd expect a bigger fall in 501 00:30:56,240 --> 00:31:01,040 Speaker 1: Sterling than we've assumed. You would expect tightening of financial 502 00:31:01,120 --> 00:31:05,480 Speaker 1: conditions as well. Um and you'll also see a bigger 503 00:31:05,480 --> 00:31:08,560 Speaker 1: lift in the uncertainty that's facing the economy, and all 504 00:31:08,560 --> 00:31:11,440 Speaker 1: of those factors together would contribute to an even bigger 505 00:31:11,440 --> 00:31:14,520 Speaker 1: fall in GDP. Now, bringing it all together, it's very 506 00:31:14,520 --> 00:31:16,880 Speaker 1: difficult to put a precise number on it, but I 507 00:31:16,920 --> 00:31:19,040 Speaker 1: think you could easily double the one and a half 508 00:31:19,040 --> 00:31:22,240 Speaker 1: percent that we've assumed in our scenario, and I go 509 00:31:22,520 --> 00:31:24,560 Speaker 1: so far to say that the risks to that view 510 00:31:24,640 --> 00:31:27,280 Speaker 1: would be still tilted to the downsides. The risk would 511 00:31:27,280 --> 00:31:30,600 Speaker 1: be to an even larger near term hit to the economy. 512 00:31:31,520 --> 00:31:36,080 Speaker 1: New Deal Brexit potentially good news to companies renting portable 513 00:31:36,160 --> 00:31:40,880 Speaker 1: toilets to lorry drivers trapped in the Kent countryside, but 514 00:31:41,000 --> 00:31:45,040 Speaker 1: probably bad news to a much larger constituency. Dad Hanson, 515 00:31:45,440 --> 00:31:58,160 Speaker 1: thanks very much for sharing your insights. Well, unfortunately that's 516 00:31:58,160 --> 00:32:00,600 Speaker 1: about all we have time for, so let me thank 517 00:32:00,640 --> 00:32:04,920 Speaker 1: our guests and reporters Michelle jan Risco, Grandy fanthol Knight, 518 00:32:05,440 --> 00:32:09,760 Speaker 1: Secret Alligado, Dave Rank, and Dan Hanson. Voice overs by 519 00:32:09,920 --> 00:32:16,120 Speaker 1: Chai Channock, Ran now Kel, Doc Noi and krim Gee 520 00:32:16,120 --> 00:32:19,960 Speaker 1: we Ruch. This week's episode of Stephanomics was brought to 521 00:32:20,000 --> 00:32:24,600 Speaker 1: you by executive producer Lucy Meekin, signed engineer Magnus Hendrickson, 522 00:32:24,920 --> 00:32:28,400 Speaker 1: and me Tom Wallack. You can get your regular fix 523 00:32:28,480 --> 00:32:31,920 Speaker 1: of economics on the Bloomberg Terminal website and app, and 524 00:32:32,000 --> 00:32:34,520 Speaker 1: please tune in again next week when your host, the 525 00:32:34,520 --> 00:32:37,360 Speaker 1: eponymous Stephanie Flanders will be back in the hot seat 526 00:32:37,840 --> 00:32:42,040 Speaker 1: and normal standards of economic insight and interviewing dexterity will 527 00:32:42,080 --> 00:32:43,000 Speaker 1: be restored.