1
00:00:02,520 --> 00:00:07,120
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:09,039 --> 00:00:12,000
Speaker 2: I'm Caroline Hepga, and this is Here's Why, where we

3
00:00:12,039 --> 00:00:15,080
Speaker 2: take one big story and explain it in just a

4
00:00:15,120 --> 00:00:23,439
Speaker 2: few minutes with our experts here at Bloomberg. China China, China, China, China, China, China.

5
00:00:23,640 --> 00:00:26,840
Speaker 1: They've ripped us off left and right, but now it's

6
00:00:26,920 --> 00:00:30,560
Speaker 1: our turn to do the ripping'. The message very much

7
00:00:30,560 --> 00:00:32,760
Speaker 1: from China is we are going to escalate.

8
00:00:32,760 --> 00:00:35,400
Speaker 2: If you're going to escalate, one thing I can guarantee

9
00:00:35,440 --> 00:00:38,640
Speaker 2: you is that if additional twenty five percent is slap

10
00:00:38,680 --> 00:00:42,680
Speaker 2: on China, China is definitely going to retall it. So

11
00:00:42,720 --> 00:00:44,440
Speaker 2: it's going to take a lot for the two sides

12
00:00:44,520 --> 00:00:46,920
Speaker 2: to look across the table from each other and see

13
00:00:46,960 --> 00:00:50,519
Speaker 2: trust and inability to work constructively. We're leading China in

14
00:00:50,600 --> 00:00:53,880
Speaker 2: Ai and I'm going to go see presidency in two weeks.

15
00:00:53,880 --> 00:00:55,960
Speaker 1: I look forward to that, but I'll say I'm leading.

16
00:00:56,400 --> 00:01:01,040
Speaker 1: We have friendly we have very friendly coaplication.

17
00:01:02,800 --> 00:01:05,400
Speaker 2: For years, the US and China have tried to manage

18
00:01:05,440 --> 00:01:10,319
Speaker 2: a relationship defined by rivalry and deep economic ties, at

19
00:01:10,400 --> 00:01:16,000
Speaker 2: times with uneasy cooperation, at others with sharp confrontation. They

20
00:01:16,040 --> 00:01:20,040
Speaker 2: compete on trade, on technology, and for global influence. And

21
00:01:20,200 --> 00:01:23,399
Speaker 2: still they need each other. Now the war in Iran

22
00:01:23,560 --> 00:01:28,119
Speaker 2: is adding another test. It's disrupting energy supplies that China

23
00:01:28,200 --> 00:01:31,920
Speaker 2: depends on, and it's pulling Beijing and Washington into a

24
00:01:32,000 --> 00:01:35,720
Speaker 2: new standoff. And as Donald Trump prepares for a meeting

25
00:01:35,760 --> 00:01:39,759
Speaker 2: with Jijingping, the question is whether the world's two largest

26
00:01:39,760 --> 00:01:45,160
Speaker 2: economies can steady the relationship or see tensions deep and further.

27
00:01:45,959 --> 00:01:50,560
Speaker 2: So here's why the US and China struggle to play nice.

28
00:01:53,640 --> 00:01:55,800
Speaker 2: Do what I mean? Now? It's John lu who is

29
00:01:55,920 --> 00:01:58,360
Speaker 2: are co heired for Asia and who has more than

30
00:01:58,400 --> 00:02:02,360
Speaker 2: twenty years experience China. John good to speak to you.

31
00:02:02,960 --> 00:02:07,400
Speaker 2: How antagonistic is the US China relationship right now?

32
00:02:07,400 --> 00:02:11,839
Speaker 1: Do you think it's not at the most antagonistic it's been.

33
00:02:11,880 --> 00:02:15,000
Speaker 1: I would say that was probably in twenty twenty, during

34
00:02:15,120 --> 00:02:18,440
Speaker 1: the worst parts of COVID in the United States, when

35
00:02:18,480 --> 00:02:22,160
Speaker 1: Donald Trump was running for re election. That was really bad.

36
00:02:22,240 --> 00:02:27,639
Speaker 1: I think right now I would describe it as being pushy, competitive,

37
00:02:28,320 --> 00:02:31,040
Speaker 1: but with both sides trying to be civil.

38
00:02:31,919 --> 00:02:35,680
Speaker 2: How important then, is the upcoming Gee Trump meeting.

39
00:02:36,560 --> 00:02:39,040
Speaker 1: I think it's very important. I think any time that

40
00:02:39,160 --> 00:02:41,359
Speaker 1: the leader of the United States and the leader of

41
00:02:41,480 --> 00:02:45,240
Speaker 1: China have a face to face meeting. They're extremely important

42
00:02:45,600 --> 00:02:50,800
Speaker 1: for the globe. There are big questions that these two gentlemen,

43
00:02:51,080 --> 00:02:54,720
Speaker 1: only with them sitting down, can we resolve. I think

44
00:02:54,760 --> 00:02:58,280
Speaker 1: it's especially important at this point in time because of

45
00:02:58,400 --> 00:03:02,840
Speaker 1: the competitive dynamic between the two countries, because you know,

46
00:03:02,960 --> 00:03:05,280
Speaker 1: about a year ago, we were in a place where

47
00:03:05,360 --> 00:03:07,400
Speaker 1: there were one hundred and twenty one hundred and forty

48
00:03:07,400 --> 00:03:10,760
Speaker 1: percent tariffs on each other. There was really heated rhetoric,

49
00:03:11,280 --> 00:03:15,720
Speaker 1: there were threats being thrown around across the Pacific. And

50
00:03:16,040 --> 00:03:18,680
Speaker 1: I think it's really important because you have not only

51
00:03:18,720 --> 00:03:23,120
Speaker 1: two very large economies, but also two very big militaries

52
00:03:23,480 --> 00:03:27,079
Speaker 1: that are at points around the globe bumping into each other.

53
00:03:27,480 --> 00:03:30,000
Speaker 2: Both sides have used, as you say, a range of

54
00:03:30,120 --> 00:03:33,839
Speaker 2: economic levers in this pushy competition. As you put it,

55
00:03:34,440 --> 00:03:38,160
Speaker 2: how are these tools shaping the balance of power?

56
00:03:38,680 --> 00:03:42,920
Speaker 1: They are reshaping the way that the global economy works.

57
00:03:43,480 --> 00:03:47,360
Speaker 1: I mean, since the first administration under President Trump, we

58
00:03:47,440 --> 00:03:53,920
Speaker 1: saw a trade war that really showed reliance on trading partners,

59
00:03:53,960 --> 00:03:57,600
Speaker 1: and in the specific example, any reliance that China might

60
00:03:57,640 --> 00:03:59,680
Speaker 1: have on the United States, or that the United States

61
00:03:59,760 --> 00:04:03,520
Speaker 1: might on China can and will be weaponized against the

62
00:04:03,560 --> 00:04:07,520
Speaker 1: other side. And for any country around the world they've

63
00:04:07,560 --> 00:04:10,760
Speaker 1: seen that, they've probably experienced it, and so it's a

64
00:04:10,800 --> 00:04:13,560
Speaker 1: wake up call that the way that the global economy

65
00:04:13,680 --> 00:04:16,200
Speaker 1: used to work, it's no longer going to work like that.

66
00:04:16,279 --> 00:04:20,120
Speaker 1: We are seeing the world broken up into different groups,

67
00:04:20,200 --> 00:04:24,719
Speaker 1: different factions. Globalization is still there, still happening, but it's

68
00:04:24,880 --> 00:04:28,480
Speaker 1: much more difficult. There's a lot more political considerations that

69
00:04:28,520 --> 00:04:31,799
Speaker 1: go into it now. And with the United States holding

70
00:04:31,839 --> 00:04:36,719
Speaker 1: sway over semiconductors and China having played the rare Earth card,

71
00:04:37,240 --> 00:04:40,200
Speaker 1: you see countries around the world trying to find where

72
00:04:40,240 --> 00:04:43,239
Speaker 1: they can fit between these big superpowers.

73
00:04:43,720 --> 00:04:46,800
Speaker 2: How is the conflict in Iran adding to the strains?

74
00:04:47,360 --> 00:04:52,359
Speaker 1: I think this is adding additional layer of complexity and risk.

75
00:04:53,040 --> 00:04:57,919
Speaker 1: And the danger here is China depends on Iran for

76
00:04:58,160 --> 00:05:03,240
Speaker 1: energy exports. More important than that, China is dependent on

77
00:05:03,400 --> 00:05:09,200
Speaker 1: having access to robust international markets for its exports because

78
00:05:09,200 --> 00:05:13,359
Speaker 1: the Chinese domestic economy has been relatively weak, and so

79
00:05:13,640 --> 00:05:17,039
Speaker 1: really economic growth and jobs in China have depended on

80
00:05:17,279 --> 00:05:20,120
Speaker 1: the ability of Chinese companies to sell their products to

81
00:05:20,240 --> 00:05:25,880
Speaker 1: willing buyers in Europe and South America and Asia, and

82
00:05:25,920 --> 00:05:30,479
Speaker 1: if those countries are having problems getting their hands on energy,

83
00:05:30,600 --> 00:05:34,800
Speaker 1: if those places are seeing inflation and consumers having less

84
00:05:35,160 --> 00:05:38,400
Speaker 1: in their pocketbooks to spend on products of all sorts

85
00:05:38,520 --> 00:05:41,320
Speaker 1: coming from China, that's going to hit the Chinese economy.

86
00:05:41,320 --> 00:05:44,279
Speaker 1: And so the longer this goes on, the more of

87
00:05:44,320 --> 00:05:47,599
Speaker 1: an issue it becomes for China, the more motivated the

88
00:05:47,680 --> 00:05:50,000
Speaker 1: Chinese will be to try and find an end to

89
00:05:50,120 --> 00:05:53,400
Speaker 1: this war. And that brings about not only the opportunity

90
00:05:53,440 --> 00:05:57,840
Speaker 1: for some diplomatic sort of consideration and some diplomatic cooperation,

91
00:05:58,000 --> 00:06:01,160
Speaker 1: but also it does raise the risk that it could spiral,

92
00:06:01,240 --> 00:06:05,400
Speaker 1: There might be conflict, It might make the competition between

93
00:06:05,440 --> 00:06:06,919
Speaker 1: these superpowers more intense.

94
00:06:07,360 --> 00:06:13,320
Speaker 2: Are tariff's restricting trade? Could we see further escalation in

95
00:06:13,440 --> 00:06:18,799
Speaker 2: tariff barriers You've mentioned previous episodes between the US and China.

96
00:06:19,560 --> 00:06:23,599
Speaker 1: We are in a state of relative stability at the moment.

97
00:06:24,600 --> 00:06:27,080
Speaker 1: We went through at the start of the second administration

98
00:06:27,120 --> 00:06:30,680
Speaker 1: of President Donald Trump, this period of intense back and

99
00:06:30,720 --> 00:06:34,040
Speaker 1: forth when it came to tariff's, American tariffs on Chinese goods,

100
00:06:34,160 --> 00:06:37,720
Speaker 1: Chinese tariffs on American goods, and we have seen those

101
00:06:38,000 --> 00:06:41,760
Speaker 1: heated exchanges sort of really pulled back. I think at

102
00:06:41,839 --> 00:06:46,640
Speaker 1: this point, both governments, both leaders are keen to see

103
00:06:47,080 --> 00:06:51,880
Speaker 1: their economies growing, to see jobs returning, to see inflation,

104
00:06:52,120 --> 00:06:56,360
Speaker 1: and in China's case, deflation resolved in an orderly manner.

105
00:06:56,400 --> 00:06:59,640
Speaker 1: And so I think given the troubles that both President

106
00:06:59,680 --> 00:07:02,640
Speaker 1: Trump and President She are having domestically, there is a

107
00:07:02,680 --> 00:07:06,240
Speaker 1: motivation for both gentlemen to try and play nice, and

108
00:07:06,279 --> 00:07:09,640
Speaker 1: so I think in the short term, tariffs are probably

109
00:07:09,680 --> 00:07:12,920
Speaker 1: not a big threat, but it's a tool that we know,

110
00:07:13,000 --> 00:07:16,080
Speaker 1: for example, the President Trump really likes to use. And

111
00:07:16,120 --> 00:07:19,800
Speaker 1: so if there were some other areas of conflict in

112
00:07:19,840 --> 00:07:22,560
Speaker 1: the relationship, be it a ron, be it something in

113
00:07:22,600 --> 00:07:24,960
Speaker 1: the South China Sea, be it with Taiwan, you could

114
00:07:25,000 --> 00:07:26,239
Speaker 1: see tariffs on the table.

115
00:07:26,280 --> 00:07:30,640
Speaker 2: Again, how difficult is it for companies and financial institutions

116
00:07:30,720 --> 00:07:34,240
Speaker 2: then to navigate these two tussling superpowers.

117
00:07:35,160 --> 00:07:38,440
Speaker 1: It's been especially difficult. I think. The examples that come

118
00:07:38,480 --> 00:07:42,280
Speaker 1: to my mind are in Nvidia, for one, the world's

119
00:07:42,320 --> 00:07:46,320
Speaker 1: most valuable company, wanting to sell its chips into China,

120
00:07:46,560 --> 00:07:50,560
Speaker 1: Chinese buyers wanting access to that technology, and finding it

121
00:07:50,720 --> 00:07:54,880
Speaker 1: very difficult to figure out what the US government, both

122
00:07:55,000 --> 00:07:59,080
Speaker 1: the Biden administration before this current Trump administration would be

123
00:07:59,120 --> 00:08:02,720
Speaker 1: willing to allow how Nvidia to sell into China, to

124
00:08:02,760 --> 00:08:06,720
Speaker 1: provide to its Chinese customers, and then seeing how that

125
00:08:06,760 --> 00:08:10,080
Speaker 1: policy is sometimes a little bit looser, sometimes a little tighter,

126
00:08:10,120 --> 00:08:14,480
Speaker 1: and then trying to make decisions that involve billions of

127
00:08:14,520 --> 00:08:18,679
Speaker 1: dollars based on what can change almost by the minute

128
00:08:18,760 --> 00:08:21,880
Speaker 1: or by the day. And the other example more recently

129
00:08:21,960 --> 00:08:25,760
Speaker 1: is you had the US government sanction a very large

130
00:08:25,840 --> 00:08:33,000
Speaker 1: Chinese oil refiner for buying Iranian oil and saying very

131
00:08:33,000 --> 00:08:37,120
Speaker 1: publicly that Chinese financial institutions that provided financing thataught finer

132
00:08:37,360 --> 00:08:41,000
Speaker 1: could be subject to sanctions, but in turn, China coming

133
00:08:41,000 --> 00:08:45,360
Speaker 1: out and saying Chinese companies should ignore those threats of sanctions.

134
00:08:45,559 --> 00:08:49,240
Speaker 1: And so it really puts Chinese companies and potentially Chinese

135
00:08:49,280 --> 00:08:54,800
Speaker 1: financial institutions in a bind whether they should follow what

136
00:08:54,920 --> 00:08:57,640
Speaker 1: the United States is saying and thereby avoid sanctions that

137
00:08:57,679 --> 00:09:00,280
Speaker 1: could cut off their access to US dollar mark markets

138
00:09:00,320 --> 00:09:02,679
Speaker 1: around the world, or should they do what Beijing has

139
00:09:02,679 --> 00:09:05,720
Speaker 1: said and ignore those threats of sanctions. And so I

140
00:09:05,720 --> 00:09:09,280
Speaker 1: think it has made business around the world for multinationals

141
00:09:09,320 --> 00:09:11,439
Speaker 1: wherever they're from, extremely difficult.

142
00:09:11,800 --> 00:09:16,640
Speaker 2: Finally, what could count as a successful leaders meeting then

143
00:09:16,840 --> 00:09:17,520
Speaker 2: in may.

144
00:09:18,360 --> 00:09:23,080
Speaker 1: I think a meeting that creates more stability, a meeting

145
00:09:23,160 --> 00:09:29,640
Speaker 1: that creates some mechanism to continue that stability in the relationship.

146
00:09:29,640 --> 00:09:32,520
Speaker 1: There's been talk that one of the things that might

147
00:09:32,520 --> 00:09:35,560
Speaker 1: come out of this meeting is the creation of a

148
00:09:35,600 --> 00:09:40,880
Speaker 1: structure for a better way to handle economic differences between

149
00:09:40,880 --> 00:09:43,720
Speaker 1: the United States and China. I think markets around the

150
00:09:43,720 --> 00:09:47,520
Speaker 1: world would see that as a positive because that says, look,

151
00:09:47,559 --> 00:09:51,360
Speaker 1: these two countries are going to be taking concrete steps

152
00:09:51,400 --> 00:09:54,920
Speaker 1: to avoid the situation that we had in twenty twenty

153
00:09:54,920 --> 00:09:57,920
Speaker 1: five when there were one hundred plus percent tariffs on

154
00:09:58,000 --> 00:10:01,720
Speaker 1: both American goods and Chinese goods and there was a

155
00:10:01,800 --> 00:10:05,240
Speaker 1: threat of global commerce grinding to a halt. I think

156
00:10:05,520 --> 00:10:11,120
Speaker 1: the further off the table, the less likely that possibility becomes.

157
00:10:11,160 --> 00:10:13,160
Speaker 1: With whatever comes out of this meeting, that will be

158
00:10:13,240 --> 00:10:14,840
Speaker 1: taken as success. John.

159
00:10:14,960 --> 00:10:18,679
Speaker 2: Thank you, John you, who is our co head of Asia.

160
00:10:18,760 --> 00:10:21,280
Speaker 2: For more explanations like this one from our team of

161
00:10:21,320 --> 00:10:24,040
Speaker 2: three thousand journalists and analysts around the world, go to

162
00:10:24,040 --> 00:10:30,120
Speaker 2: bloomberg dot com slash explainers. I'm Calaine Hepka. This is

163
00:10:30,160 --> 00:10:33,600
Speaker 2: his why. We'll be back with more next week Thanks

164
00:10:33,600 --> 00:10:34,120
Speaker 2: for listening,