WEBVTT - Surveillance: U.S.-China Trade Risks With Haass 0:00:09.880 --> 0:00:12.960 Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.760 Bloomberg dot Com, and of course, on the Bloomberg Richard 0:00:27.840 --> 0:00:30.680 Hass has written my book of the summer, It's The World, 0:00:30.720 --> 0:00:33.599 and I'll make real clear. Take it and throw it 0:00:33.640 --> 0:00:37.040 at any smart mouth college kids you know, and beg 0:00:37.120 --> 0:00:40.040 them to at least read the first hundred and fifty pages, 0:00:40.320 --> 0:00:43.440 which is a tour to force on the Western civilization 0:00:43.840 --> 0:00:47.640 we've all forgotten, or quite frankly, we never took. Ambassador 0:00:47.680 --> 0:00:51.680 has joins us now from the Council on Foreign Relations. Ambassador. 0:00:51.800 --> 0:00:55.600 In your book The World, you write about war between countries. 0:00:55.880 --> 0:01:00.640 Are we now at war with China? No, we're not 0:01:00.720 --> 0:01:05.600 at war with time China. But the entire trajectory of 0:01:05.680 --> 0:01:10.560 this relationship has changed compared to what it was. For 0:01:10.800 --> 0:01:14.200 what unit station China built a relationship fifty years ago. 0:01:14.480 --> 0:01:18.240 We originally worked together against the Soviet Union. Then our 0:01:18.319 --> 0:01:22.959 economic interaction essentially became the foundation of the relationship. That 0:01:23.040 --> 0:01:26.400 economic interaction has now become a source of friction. But 0:01:26.520 --> 0:01:29.240 what you're seeing, particularly on the American side, is a 0:01:29.280 --> 0:01:34.080 real ramping up rhetoric against China at a time China 0:01:34.160 --> 0:01:36.840 is becoming more assertive in its foreign policy. We're not 0:01:36.920 --> 0:01:40.040 at war, but this is a relationship that it seems 0:01:40.080 --> 0:01:44.080 to have lost any positive dimension, any rationale, and increasingly 0:01:44.120 --> 0:01:46.840 it's marked by confrontation. Investador. I want you to go 0:01:47.000 --> 0:01:50.000 to a time and place long ago. James McGregor Burns 0:01:50.040 --> 0:01:53.480 was great about this, about how we developed the State Department, 0:01:53.600 --> 0:01:57.480 how we developed a foreign voice as Americans. Please comment 0:01:58.040 --> 0:02:01.640 on the tone the disc course of our Secretary of 0:02:01.720 --> 0:02:06.040 State this week. To me, it's original really within the 0:02:06.080 --> 0:02:11.400 twentieth century, in this new century, is it? I'm hard pressed, 0:02:11.520 --> 0:02:14.360 uh to find a parallel. Tome. I hear where you're going, 0:02:14.440 --> 0:02:18.200 and I'm sympathetic to what you're saying. Our chief diplomat 0:02:18.520 --> 0:02:22.040 is going out of his way, not just to be undiplomatic, 0:02:22.080 --> 0:02:25.240 there's a time to be that, but to be publicly provocative, 0:02:25.680 --> 0:02:31.120 insulting his counterparts in China. Essentially yesterday, in a speech 0:02:31.120 --> 0:02:35.920 at the Nix Nixon Library, almost de legitimizing and almost 0:02:35.960 --> 0:02:40.079 de legitimizing the current leadership of China. UH and essentially 0:02:40.120 --> 0:02:43.680 it came very close, very close to calling for regime 0:02:43.760 --> 0:02:47.440 change in China. The parallels between his approach to Iran 0:02:47.960 --> 0:02:50.440 and the approach we heard yesterday in China I thought 0:02:50.440 --> 0:02:55.079 were pronounced. You know, Richard, this is really really important. 0:02:55.080 --> 0:02:58.880 The Peace Hotel over in Shanghai yesterday on Twitter put 0:02:58.919 --> 0:03:02.280 out a photograph of their claimed British room where Henry 0:03:02.360 --> 0:03:05.480 Kissinger I believe slept the night before he went to 0:03:05.560 --> 0:03:09.680 Beijing to change history. Are we giving up all that 0:03:09.840 --> 0:03:15.840 was accomplished in the early nineties seventies. I don't know. 0:03:16.080 --> 0:03:18.760 It's too soon to say that. We don't know how 0:03:18.840 --> 0:03:21.360 much of this is tactical, political, to be to be 0:03:21.400 --> 0:03:24.000 blunt in our own context. In the run up to November, 0:03:24.080 --> 0:03:27.440 we'll have to see what happens. But this is extreme. 0:03:27.600 --> 0:03:31.160 This is the idea. By the way, this is ironic 0:03:31.360 --> 0:03:34.760 that the speech took place at the Nixon Library. Nixon 0:03:34.840 --> 0:03:37.680 was willing to find common cause with China despite all 0:03:37.680 --> 0:03:42.240 of our fundamental political and social differences. Yesterday, the secretarire 0:03:42.360 --> 0:03:45.160 State ignored the potential for the United States to work 0:03:45.160 --> 0:03:51.880 together despite our political differences, and instead hart on those differences. 0:03:51.920 --> 0:03:54.480 It's as if he's looking for a fight with China, 0:03:54.720 --> 0:03:57.040 And I think again, this is this relationship. Any time 0:03:57.080 --> 0:03:59.840 you have a relationship between a rising power and existing power, 0:04:00.120 --> 0:04:03.840 know that it's difficult. It calls for really subtle death, 0:04:04.360 --> 0:04:07.520 state craft on both sides, whatever else you want to cause. 0:04:07.600 --> 0:04:11.120 Yesterday's speech, I would not use adjectives like subtle and death. 0:04:11.560 --> 0:04:13.880 Maybe that's the tactic. I don't know, Richard. Something else 0:04:13.880 --> 0:04:16.320 I don't know is what it's the strategy. What is 0:04:16.360 --> 0:04:21.080 the strategy at the moment? Can you identify what it is? No? Certain? 0:04:21.560 --> 0:04:24.839 Uh if. Traditionally in foreign policy, the strategy is to 0:04:24.960 --> 0:04:29.000 change the external behavior of other countries. Now if our goal, 0:04:29.040 --> 0:04:31.440 you know, we could have legitimate goals about changing China's 0:04:31.480 --> 0:04:34.080 approach to trade. We could have goals about getting them 0:04:34.279 --> 0:04:37.400 to ease up in Hong Kong, or not to deal 0:04:37.440 --> 0:04:41.320 with the weakers the way they are, to stop with 0:04:41.400 --> 0:04:44.000 their unilateral claims in the South China. Say, all of 0:04:44.040 --> 0:04:47.760 those would be within the traditional realm of a farm policy. 0:04:47.760 --> 0:04:50.040 That would be a strategy. We would work with our 0:04:50.080 --> 0:04:53.800 allies to bring it about instead, and yesterday's speech, we 0:04:53.920 --> 0:04:57.480 have the Secretary of Stay brating our allies, including Germany, 0:04:57.800 --> 0:05:00.960 and again not making clear what exactly it is we 0:05:01.000 --> 0:05:03.279 want China to do. That is in the realm of 0:05:03.320 --> 0:05:06.880 foreign policy. Richard tom Kine started this asking are we 0:05:06.920 --> 0:05:09.359 at war with China? You said, no, that's a stretch. 0:05:09.880 --> 0:05:12.920 But is that the outcome that we're getting toward. I mean, 0:05:12.960 --> 0:05:15.160 what is sort of the trigger points here and the 0:05:15.240 --> 0:05:18.280 possible tip for TAT escalation That could be a worst 0:05:18.320 --> 0:05:23.320 case scenario we've had now the tip for TAT we 0:05:23.440 --> 0:05:27.080 close used and they closed Chang Do. I would think 0:05:27.120 --> 0:05:30.120 the most dangerous thing for the next few months, UH 0:05:30.320 --> 0:05:33.799 would be an incident in something like the South China. 0:05:33.839 --> 0:05:37.640 Say China has unilateral claims, we correctly do not accept 0:05:37.640 --> 0:05:40.919 their maritime claims. Were sending ships to the region to 0:05:40.960 --> 0:05:44.599 demonstrate we consider these orders to be international. The idea 0:05:44.600 --> 0:05:47.360 that you could have some type of a military incident 0:05:47.839 --> 0:05:50.760 that could then potentially escalate, I don't think is out 0:05:50.760 --> 0:05:53.440 of the question. So for me, the next few months, 0:05:53.480 --> 0:05:56.000 some type of a military incident, and then the question 0:05:56.080 --> 0:05:59.360 is do these two countries have the ability to manage it? 0:05:59.400 --> 0:06:01.839 Do they have a desire to manage it? That I 0:06:01.839 --> 0:06:04.880 would put uh that that to me's the greatest near 0:06:05.000 --> 0:06:07.400 term danger. Richard, do you buy that the Phase one 0:06:07.400 --> 0:06:11.440 trade deal is still on? Well, it's on, it's on 0:06:11.440 --> 0:06:14.359 on paper. It's never been close to being implemented to 0:06:14.400 --> 0:06:18.760 some extent. That's because of the context UH giving to 0:06:18.800 --> 0:06:23.080 the coronavirus. UH. If it's on in paper, there's no 0:06:23.160 --> 0:06:25.680 movement whatsoever towards the Phase two. I think that would 0:06:25.720 --> 0:06:28.280 only change if if Mr Trump were re elected, and 0:06:28.360 --> 0:06:30.719 I think suddenly my guests would be that you see 0:06:30.720 --> 0:06:34.839 a slight winding down of this hostility towards China. If 0:06:34.839 --> 0:06:37.560 he were re elected, there would be a desire for 0:06:37.680 --> 0:06:41.040 some type of a deal that would that would increase 0:06:41.160 --> 0:06:44.040 US exports to China. That's been the sentipiece of his 0:06:44.160 --> 0:06:47.800 foreign policy to essentially try to bring about trade deals 0:06:47.839 --> 0:06:50.799 that increased US exports. But for the time being, nothing's 0:06:50.800 --> 0:06:54.160 going to happen. The Chinese have zero incentive to implement 0:06:54.320 --> 0:06:56.360 the Phase one deal. And that's the ways we wrap 0:06:56.400 --> 0:06:58.600 up this conversation. I think you've touched on something really 0:06:58.600 --> 0:07:01.799 really important. Just reflecting on the thing you've said, Typically 0:07:01.960 --> 0:07:06.600 diplomacy is surgical. You really think out what you're doing 0:07:06.640 --> 0:07:09.280 and work out the whole range of responses the other 0:07:09.320 --> 0:07:11.760 side might respond with. And I have been asking that 0:07:11.880 --> 0:07:14.360 question this week, just how surgical the approach has been 0:07:14.400 --> 0:07:16.680 from this administration. And I think that one thing a 0:07:16.720 --> 0:07:18.480 lot of people are worried about is the prospect the 0:07:18.480 --> 0:07:23.440 scope for an accident in some realm of confrontation with China. 0:07:23.600 --> 0:07:27.760 Where do you see that potentially happening? Well, you're right, 0:07:27.800 --> 0:07:30.400 first of all, is there anything but circle surgical would 0:07:30.400 --> 0:07:32.800 have been? For example, rather than closing the Houston Consulate, 0:07:33.200 --> 0:07:36.440 we might have asked quietly and privately for certain diplomats 0:07:36.520 --> 0:07:39.320 to leave c Y might a place some restrictions on 0:07:39.400 --> 0:07:43.280 certain students. Closing a consulate is the opposite of surgical. 0:07:43.400 --> 0:07:47.680 That that sledge material. Again, I think you'll see heated 0:07:47.720 --> 0:07:50.000 rhetoric for the next few months. I think the most 0:07:50.680 --> 0:07:52.520 two things to look for. One I already mentioned a 0:07:52.560 --> 0:07:55.640 military incident. The other is I wouldn't be shocked given 0:07:55.760 --> 0:07:59.080 Secretary pompeios speech, is you saw if you saw some 0:07:59.200 --> 0:08:03.200 broad actions against members of the Chinese Communist Party. We're 0:08:03.200 --> 0:08:06.800 talking about something like ninety two million people the leadership 0:08:06.800 --> 0:08:10.040 of China. Don't be surprised if you see travel restrictions 0:08:10.120 --> 0:08:12.280 or something like that, which have been talked about basically 0:08:12.760 --> 0:08:15.880 escalating not just the rhetoric, but this attack on the 0:08:15.960 --> 0:08:20.520 leadership structure of China. And I think that's uh, that's 0:08:20.520 --> 0:08:22.600 a possibility. I want to go back to one of 0:08:22.600 --> 0:08:25.120 ambassador houses. Older books were trying to sell them all 0:08:25.120 --> 0:08:27.360 here today. This is a movie. You'll see a Memorial 0:08:27.440 --> 0:08:31.880 Day next year. Foreign policy begins at home, Ambassador House. 0:08:32.120 --> 0:08:35.680 You never imagined a four or five trillion dollar deficit. 0:08:36.040 --> 0:08:40.000 Granted it's off a national disaster. How is our foreign policy, 0:08:40.040 --> 0:08:44.240 our projection to the world changed? With this new massive deficit? 0:08:46.360 --> 0:08:52.520 Raises questions about American competence. It raises questions about the 0:08:52.600 --> 0:08:55.320 role of the dollar as the world's the factor currency, 0:08:55.320 --> 0:09:01.640 as that as its reserve currency. Potentially, UH introduces elements 0:09:01.640 --> 0:09:05.160 of America of vulnerabilities. Is all fine to run these 0:09:05.200 --> 0:09:08.880 deficits when interest rates or historic blows, but even small 0:09:08.920 --> 0:09:12.240 movements up in interest rates would but totally transformed the 0:09:12.280 --> 0:09:14.959 American economic picture. What I think we've done here is 0:09:15.040 --> 0:09:19.680 we have introduced a potential source of vulnerability. It's dead. 0:09:19.720 --> 0:09:21.760 Tom is one of those things that it's fine until 0:09:21.800 --> 0:09:24.800 it's not so. In a sense we're merely going along 0:09:24.920 --> 0:09:27.240 ranking it up at record rates, and that will be 0:09:27.280 --> 0:09:29.240 fine until the day it's not, and that will be 0:09:29.280 --> 0:09:31.120 a real day of recording. But I do think it 0:09:31.160 --> 0:09:34.520 hastens the emergence of of a world not with a 0:09:34.559 --> 0:09:37.600 clear alternative to the dollar, but where the dollar loses 0:09:38.600 --> 0:09:42.520 the near monopoly it has on international transactions. Not to 0:09:42.559 --> 0:09:45.200 be a conversation the next ambassador always fortunate to get 0:09:45.240 --> 0:09:46.959 you on the show. I appreciate it. Time this morning 0:09:47.040 --> 0:09:51.079 Richard Hasse of the Council on Farmer Nations. He is 0:09:51.120 --> 0:09:55.520 the most interesting politician. He's a farm Prime Minister of Latvia, 0:09:55.640 --> 0:09:59.800 providing great leadership out of the financial crisis. Waldis Dombrowski 0:10:00.000 --> 0:10:03.559 brings economics and physics to his duties. Is the European 0:10:03.679 --> 0:10:07.280 Union Commissioner for Financial Services and he helps us pick 0:10:07.360 --> 0:10:11.280 up the debris one weekend from exhaustive meetings in Europe. 0:10:11.640 --> 0:10:14.720 But as I have to broaden out the conversation right 0:10:14.760 --> 0:10:19.240 now to how Europe approaches these new tensions with the 0:10:19.320 --> 0:10:23.440 United States, the new tensions with China. Is there a 0:10:23.520 --> 0:10:32.679 European foreign policy first of all as regards uh the 0:10:32.760 --> 0:10:39.600 international tensions in including international trade, tensions. Uh you use 0:10:39.880 --> 0:10:44.000 UH policy has been a very clear. We are supporting 0:10:44.120 --> 0:10:48.960 and defending multilateral rules based system and this is an 0:10:48.880 --> 0:10:53.880 approach which we are taking in the negotiations with US 0:10:54.080 --> 0:10:58.040 with China. That's why we are not supportive, for example, 0:10:58.520 --> 0:11:02.520 of unilateral more of US in the area of trade. 0:11:02.840 --> 0:11:05.720 But at the same time, we share a number of 0:11:06.280 --> 0:11:15.040 concerns regarding China, including questions on intellectual property rights uh uh, 0:11:15.280 --> 0:11:21.000 forced technology transfer, reciprocity in our trade and investment relationships. 0:11:21.040 --> 0:11:23.079 So there are a number of issues which we seem 0:11:23.080 --> 0:11:26.800 to address, but we think those should be addressed while 0:11:26.960 --> 0:11:31.920 respecting international rules. How do you adapt and adjust to 0:11:31.960 --> 0:11:35.319 the Secretary of State on a tour through London and 0:11:35.440 --> 0:11:38.720 to Denmark and then back over to San Francisco this week, 0:11:39.000 --> 0:11:42.959 the assertive tone of the Trump administration, how do you 0:11:43.679 --> 0:11:46.600 and mrs Mrs Vester you're in arrest, how do you 0:11:46.760 --> 0:11:53.640 adapt to that? In Europe? Well, Uh, First of all, 0:11:54.200 --> 0:11:59.920 as you know, UH, EU and US had its trade attention. 0:12:00.559 --> 0:12:07.439 We managed to reach an agreement avoiding further escalation, and 0:12:07.800 --> 0:12:12.200 currently we are building on that. So one can discuss 0:12:12.240 --> 0:12:16.200 that the tone is assertive, but at the same time 0:12:16.200 --> 0:12:21.720 we are negotiating and we have reached a degree of agreement. Well, 0:12:21.760 --> 0:12:25.600 we know that initially us we're taking unilateral actions like 0:12:25.679 --> 0:12:29.720 unilaterally raising tariffs. We were responding in a kind in 0:12:29.760 --> 0:12:32.480 a proportionate way, but at the end of the day 0:12:32.559 --> 0:12:38.560 we avoided further escalation and reached agreement on which we 0:12:38.640 --> 0:12:41.280 can now build. Commissioner, we've heard a lot from Europe 0:12:41.280 --> 0:12:45.320 about the multilateral response. Can we talk about concrete steps? 0:12:45.360 --> 0:12:47.880 You yourself have talked about the asymmetry and market access 0:12:47.920 --> 0:12:51.520 between Europe and China. You talk about reciprocity as well. 0:12:51.559 --> 0:12:54.400 Can you talk to us about concrete steps. What are 0:12:54.400 --> 0:13:01.480 you doing to get the Chinese Communist Party to change? Well, actually, 0:13:01.920 --> 0:13:06.640 we are currently negotiating with China investment agreement and we 0:13:06.720 --> 0:13:12.200 are currently preparing the next EU China Economic Dialogue to 0:13:12.679 --> 0:13:17.319 discuss exactly these issues, and we hope that we will 0:13:17.400 --> 0:13:21.800 be in a due course actually able to conclude our 0:13:21.960 --> 0:13:26.640 negotiations on investment agreement and the issues we are discussing 0:13:26.760 --> 0:13:31.520 with China in these negotiations are exactly the questions of 0:13:32.240 --> 0:13:38.480 UH access to China's market, reciprocity, investment conditions, non tarift barriers. 0:13:38.559 --> 0:13:42.280 So all these issues are on agenda with our investment 0:13:42.320 --> 0:13:45.800 negotiations with China. Commation how much is the European Union 0:13:45.840 --> 0:13:48.800 working with United States as tensions increase with China in 0:13:48.840 --> 0:13:54.480 both regions. Well, as I said, we share a number 0:13:54.480 --> 0:13:58.280 of concerns of US and we have a similar concerns 0:13:58.280 --> 0:14:01.319 and definitely we are working is US to see how 0:14:02.080 --> 0:14:06.200 most effectively to address these concerns, but we think that 0:14:06.840 --> 0:14:11.440 it should be done with ZILL within multi multilateral framework, 0:14:11.559 --> 0:14:15.120 within the framework of World Trade organization. We know that 0:14:15.160 --> 0:14:17.880 we need a form of World trade organization and we 0:14:17.920 --> 0:14:21.720 are willing to cooperate and coordinate our actions on this 0:14:21.960 --> 0:14:25.040 with US. But what we are saying that one should 0:14:25.080 --> 0:14:30.520 refrain from unilateral actions because it just escalates attentions further 0:14:30.760 --> 0:14:34.880 and at the end of the day, negatively affects international 0:14:34.920 --> 0:14:38.200 trade and negatively affects global economy. Commissioner, thank you for 0:14:38.240 --> 0:14:40.840 addressing the news at the moment, particularly this morning. If 0:14:40.880 --> 0:14:42.440 we can get you to address the news of this 0:14:42.520 --> 0:14:44.880 week for Europe, which was a massive step forward for 0:14:44.960 --> 0:14:47.640 the continent and fiscal integration, can you just walk us 0:14:47.680 --> 0:14:50.040 through next steps from here when we can expect the 0:14:50.080 --> 0:14:53.120 dead issuance from the European Commission over the next several 0:14:53.160 --> 0:14:59.000 months when that money will be raised. Well, indeed, so 0:14:59.320 --> 0:15:04.520 early this week EU Summit decided on the next seven 0:15:04.600 --> 0:15:08.240 years EU budgets, so from twenty one to twenty seven, 0:15:08.880 --> 0:15:14.240 and on the EU Economic Recovery Package worth seven hundred 0:15:14.320 --> 0:15:17.920 fifty billion euros. So this is a major step forward. 0:15:18.000 --> 0:15:22.640 So we welcome this, uh this agreement of the summit. Well, 0:15:22.680 --> 0:15:27.360 there are further procedural steps. Currently we are starting negozlations 0:15:27.400 --> 0:15:32.120 with European Parliament because also European Parliament needs to agree 0:15:32.400 --> 0:15:36.920 today's multi annual budget and the recovery plan. In any case, 0:15:37.320 --> 0:15:40.600 UH we from European Commission side, we consider that it's 0:15:40.640 --> 0:15:47.080 important that negotiations are finalized swiftly uh so that the 0:15:47.120 --> 0:15:52.280 next multi annual EU budget and recovery plan can start 0:15:53.280 --> 0:15:57.240 acting as of January one next year, and that's when 0:15:57.520 --> 0:16:03.800 European Commission also would start the Common Issues of dept 0:16:04.040 --> 0:16:08.120 in order to finance EU Economic Recovery Plan. Even though 0:16:08.160 --> 0:16:11.000 it must be said that some elements we will be 0:16:11.240 --> 0:16:16.120 going to markets already this year because here we are 0:16:16.120 --> 0:16:19.880 talking about economic recovery plan. But we took lots of 0:16:19.920 --> 0:16:24.280 crisis measures in previous months, including for example, one billion 0:16:24.320 --> 0:16:30.600 euros sure program to support employment and unemployment mitigation in 0:16:31.080 --> 0:16:35.400 EU member states, and we will be going to markets 0:16:35.440 --> 0:16:39.320 already this year to finance this program. Commissioner, thank you 0:16:39.360 --> 0:16:41.040 for time this morning. We really appreciate it. Here a 0:16:41.080 --> 0:16:45.800 Bloomberg Payter Oppenheimer Government Sex Chief Global equity strategist teach 0:16:45.800 --> 0:16:48.160 you this now pay the fantastic to catch up with you. 0:16:48.280 --> 0:16:51.080 Would you believe it that Europe comes out of this 0:16:51.120 --> 0:16:54.720 week looking clean, looking good compared to the rest of 0:16:54.720 --> 0:17:00.640 this world. Yeah, what a different decade, HIGs. I guess 0:17:00.720 --> 0:17:04.920 because obviously Europe but was very slow to respond after 0:17:04.960 --> 0:17:09.000 the last crisis in two thousand and eight, and it's series. 0:17:09.520 --> 0:17:12.640 It's suffered a series of major hurdles over the years 0:17:12.640 --> 0:17:15.800 that followed that financial crisis, but it's getting it that 0:17:15.960 --> 0:17:18.560 together from the policy perspective, and as you say in 0:17:18.600 --> 0:17:22.400 your report, the economies were covering quite nicely from this downturn. 0:17:23.520 --> 0:17:26.000 Peter tom King in New York, good morning. You've got 0:17:26.040 --> 0:17:28.520 one of the coolest degrees in the undergraduate world. The 0:17:28.600 --> 0:17:31.920 geography degree, folks from the London School of Economics is 0:17:32.040 --> 0:17:36.560 absolutely legendary. Tell me the geography of cheng Do, how 0:17:36.680 --> 0:17:42.080 far is chein Do emotionally politically from Washington and from Beijing. 0:17:44.119 --> 0:17:47.800 I too, that's a great question. U. My geography didn't 0:17:47.840 --> 0:17:50.199 didn't really stretch to that. But I you know, I 0:17:50.240 --> 0:17:53.920 think this is a reflection of just the growing tensions, 0:17:54.080 --> 0:17:58.840 and so far you're getting one action matched by another. 0:17:58.920 --> 0:18:00.879 But it looks as if these tensions, at least in 0:18:00.920 --> 0:18:05.439 the short term, we're going to increase um and uh, 0:18:05.840 --> 0:18:08.360 you know, this is one of the factors I think 0:18:08.359 --> 0:18:10.960 that will probably where our markets as we move towards 0:18:11.000 --> 0:18:14.200 the U S election of these Peter, what's the calculation 0:18:14.320 --> 0:18:17.720 and how it affects equities because yesterday tensions were also rising, 0:18:17.720 --> 0:18:20.480 the day before also rising, and yet it wasn't affecting 0:18:20.520 --> 0:18:23.480 equity prices. Why today and what going forward will be 0:18:23.560 --> 0:18:26.520 sort of the trigger point for US stock value valuations. 0:18:29.920 --> 0:18:33.000 I think it's it's a very difficult thing to to 0:18:33.040 --> 0:18:35.760 measure the economic impacts because of course we don't know 0:18:36.160 --> 0:18:42.000 entirely what this means in terms of future trade tensions specifically, 0:18:42.000 --> 0:18:45.280 which would have a more direct effects on markets. But 0:18:45.359 --> 0:18:47.639 I think it's one of these things that just increases 0:18:47.680 --> 0:18:52.400 the risk cremium, just the degree of uncertainty we have had, 0:18:52.560 --> 0:18:56.760 of course, a tremendous run in ecting markets as investors 0:18:56.760 --> 0:18:59.960 are looking through what is likely to be the worst 0:19:00.040 --> 0:19:04.879 economic downturn for sixty seventy years into a strong recovery. 0:19:05.040 --> 0:19:07.320 We've already seen that happening, and we've had to boost 0:19:07.359 --> 0:19:11.280 from very strong policy stimulus. And I guess now the 0:19:11.280 --> 0:19:14.280 the you know, the reality of what's likely to still 0:19:14.320 --> 0:19:18.120 be quite a tough geopolitical environment, which indeed was an 0:19:18.119 --> 0:19:21.560 issue that really bored down on empty markets in the 0:19:21.560 --> 0:19:24.640 first half of last year. It is likely to come back. 0:19:24.680 --> 0:19:25.879 So I think this is a bit of sort of 0:19:25.920 --> 0:19:30.480 reality coming back to investors as they reassess the risks 0:19:30.760 --> 0:19:32.600 over the next few months. Peter, do you think they'll 0:19:32.600 --> 0:19:35.280 continue to look through the economic data if it looks 0:19:35.280 --> 0:19:38.360 weaker from here are the signs that we're losing momentum 0:19:38.400 --> 0:19:40.360 here in the US economy or do you think we're 0:19:40.440 --> 0:19:44.320 rolling over again? Yeah, I think there is a bit 0:19:44.359 --> 0:19:46.439 of a lot of momentum with seeing in the in 0:19:46.480 --> 0:19:51.560 the labor market. You know, clearly the rebound from in 0:19:51.720 --> 0:19:54.040 Q three versus Q two is going to look very 0:19:54.119 --> 0:19:56.920 v shaped, and this is true in pretty much all 0:19:56.960 --> 0:20:00.520 parts of the world as you start to get easing 0:20:00.560 --> 0:20:04.399 of lockdowns to varying degrees as an improvement from a 0:20:04.520 --> 0:20:07.879 very very weak base. But I think the question really 0:20:07.920 --> 0:20:10.080 for investors is going to be what's the sort of 0:20:10.119 --> 0:20:13.000 run rate after this. Bear in mind that most economies 0:20:13.000 --> 0:20:15.320 are not going to get back to the levels of 0:20:15.359 --> 0:20:17.119 GDP that we was seeing at the beginning of this 0:20:17.240 --> 0:20:21.960 year until late next year or two, and I think 0:20:22.080 --> 0:20:25.399 that that's sort of more cautious reality, together with the 0:20:25.440 --> 0:20:29.360 geopolitics that you've mentioned, is really going to be one 0:20:29.400 --> 0:20:35.440 of the constraints on risk assets UM over the near term. Well, Peter, 0:20:35.480 --> 0:20:37.639 you're constantly talking to the buy side and investors, so 0:20:37.720 --> 0:20:39.960 give us some insight into those conversations. Do you get 0:20:39.960 --> 0:20:43.200 the sense that anemic growth, so long as that growth 0:20:43.280 --> 0:20:48.040 is positive, that that is sufficient for risk assets? It 0:20:48.160 --> 0:20:51.840 is partly because and you mentioned this just earlier on, 0:20:52.160 --> 0:20:55.280 you know, real interest rates have turned increasingly negatives, and 0:20:55.359 --> 0:20:58.560 that's a positive for risk assets. There's a lack of 0:20:58.600 --> 0:21:03.280 alternatives for guidance has meant that nominal rates are likely 0:21:03.320 --> 0:21:05.960 to remain at zero or close to that lower bound 0:21:06.000 --> 0:21:09.160 for a very long time. And people are are struggling 0:21:09.200 --> 0:21:12.720 to get a return. So although the absolute returns may 0:21:12.720 --> 0:21:15.160 come down from here, there is a willingness I think 0:21:15.200 --> 0:21:19.359 to look more positively at risk assets like equities, and actually, interestingly, 0:21:19.400 --> 0:21:22.639 for the first time for a very long time, there's 0:21:22.880 --> 0:21:28.360 amongst global investors more optimistic view of Europe specifically, which 0:21:28.400 --> 0:21:31.480 has dealt better with this crisis. But it was also 0:21:31.960 --> 0:21:34.600 I think surprised on the upside in terms of the 0:21:34.680 --> 0:21:37.800 coordination of the policy response. I re peter the idea 0:21:37.840 --> 0:21:40.879 of index versus active maybe too fancy for you, but 0:21:41.160 --> 0:21:45.080 maybe we can just say the level of diversification now 0:21:45.119 --> 0:21:49.120 within our equity holdings. Do you want to be over diversified, 0:21:49.280 --> 0:21:51.600 spread it out or do you want to make more 0:21:51.720 --> 0:21:57.080 focused bets? In the late two thousand twenty one, oh, 0:21:57.200 --> 0:22:01.000 I think that, you know, investors of global investors, and 0:22:01.040 --> 0:22:04.200 certainly dollar based investors should be looking at diverse fying more. 0:22:04.440 --> 0:22:06.879 We do believe that the dollar is likely to be 0:22:07.040 --> 0:22:12.480 con further over the coming years as interest rate differentials 0:22:13.119 --> 0:22:17.000 narrow and as as deficits rise in the US, So 0:22:17.040 --> 0:22:21.240 that's one reason for diversifying geographically. But also bear in 0:22:21.280 --> 0:22:24.920 mind the last cycle, the last decade was very extreme 0:22:24.960 --> 0:22:28.920 in terms of differences across geographers, particularly in equities. You know, 0:22:29.040 --> 0:22:32.680 massive out performance of the US. That was justified because 0:22:32.720 --> 0:22:35.520 the US outperforming the rest of the world in terms 0:22:35.600 --> 0:22:39.159 of profit growth, largely because of its dominance in the 0:22:39.160 --> 0:22:42.679 technology sector. It still has dominance in that sect and 0:22:42.720 --> 0:22:45.280 that set is still going to be very important. But 0:22:45.400 --> 0:22:48.600 other areas of the world are catching up a bit. 0:22:48.840 --> 0:22:52.600 They're becoming a little bit more growth orientated themselves, not 0:22:52.760 --> 0:22:56.199 least of which is that's true in Europe. You know, 0:22:56.240 --> 0:23:00.320 when the crisis started a decade or more ago in 0:23:00.400 --> 0:23:02.720 Europe were a quarter of the index that was the 0:23:03.200 --> 0:23:06.679 epicenter of that crisis. They now accounts about seven percent, 0:23:07.359 --> 0:23:11.159 about the same weight as the technology sector. So Europe 0:23:11.200 --> 0:23:13.480 and Asia are getting a little bit more exposed to 0:23:13.480 --> 0:23:17.720 growth and technology themselves, and I think that justifies more 0:23:18.160 --> 0:23:22.359 geographical distribution, and I think probably more focused on out 0:23:22.520 --> 0:23:25.560 opportunities and less on beta, so more on stock picking 0:23:25.840 --> 0:23:28.760 and less on indexes. Peter, given the fact that you 0:23:28.800 --> 0:23:32.240 believe that investors are under invested in Europe, how much 0:23:32.280 --> 0:23:35.639 could it outperform US equity indices over the reindeer of 0:23:35.640 --> 0:23:41.639 the year. Well, if we look out over twelve months 0:23:41.680 --> 0:23:43.879 and you know, if we look at things in common 0:23:43.880 --> 0:23:47.439 currency in dollar terms, we would expect Europe to be 0:23:48.880 --> 0:23:53.679 from these levels going up around where we've got a 0:23:53.720 --> 0:23:57.200 relatively flat return to the smp A. Part of that 0:23:57.400 --> 0:24:00.280 is the difference in in the dividend. You know, Europe 0:24:00.280 --> 0:24:03.360 has a higher yield than the US. Part of it 0:24:03.400 --> 0:24:06.520 is the currency. We actually have the euro going to 0:24:06.600 --> 0:24:09.040 one twenty five over the twelve months against the dollar, 0:24:09.440 --> 0:24:11.840 but some of it is a bit of a catch 0:24:11.920 --> 0:24:17.480 up evaluations. Europe still has evaluation gap, a lower evaluation 0:24:17.520 --> 0:24:20.280 than the US market, and we think with this narrowing 0:24:20.320 --> 0:24:23.320 with premium, with this increased confidence in Europe, that war 0:24:23.720 --> 0:24:26.200 narrow a little bit. From here, Peter, great to catch out, 0:24:26.200 --> 0:24:27.520 but you send up best of the team. Why you're 0:24:27.520 --> 0:24:30.760 Peter Uppenheim in there of government sacks. Thank you very much, said. 0:24:31.760 --> 0:24:34.840 We can speak to one of our leading policy analysts, 0:24:34.920 --> 0:24:38.119 Bessie Stevenson of Michigan right now, of course writing for 0:24:38.200 --> 0:24:41.720 Bloomberg Opinion and our work of course formerly with the 0:24:41.840 --> 0:24:45.600 Department of Labor. Professor Stevenson, good morning, John's got some 0:24:45.720 --> 0:24:48.520 very direct questions on the immediacy of where we are. 0:24:49.080 --> 0:24:51.080 I want to go to your Twitter feed. You have 0:24:51.160 --> 0:24:54.760 a brilliant retweet out on the fact that this is 0:24:54.800 --> 0:24:58.080 a nation that can bail out an airline. In this case, 0:24:58.119 --> 0:25:01.240 it happens to be Delta Airlines. Not cast dispersion there 0:25:01.920 --> 0:25:05.920 versus what we spend on childcare in this nation. How 0:25:05.960 --> 0:25:12.919