Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world, and straight ahead on the program,
Speaker 2: a look at GDP and PC data here in the
Speaker 2: US what that could mean to federal reserve policy going forward.
Speaker 2: I'm Tom Busby in New York. I'm Stephen Carol in London.
Speaker 3: Who We're looking ahead to the presidential election in Iran
Speaker 3: and asking what shifts, if any, it could mean in
Speaker 3: the country's foreign policy.
Speaker 4: I'm Derek Prisner, looking at US China relations as presidential
Speaker 4: candidates Biden and Trump prepared to debate.
Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby, and we begin
Speaker 2: today's program with some key economic data here in the
Speaker 2: US this week are reading on first quarter GDP that's
Speaker 2: a third and final reading, and the Personal Consumption Price
Speaker 2: Index for May. That's the inflation measure closely monitored by
Speaker 2: the Fed. What could it mean for consumers and for
Speaker 2: Fed policy moving forward? Well, for more, we're joined by
Speaker 2: Stuart Paul, us economist with Bloomberg Economics. Well Stewart, we've
Speaker 2: seen some encouraging data on inflation CPI PPI over the
Speaker 2: past two months. What do you expect to see this week?
Speaker 1: We're expecting to see similarly encouraging signs when it comes
Speaker 1: to PCEE inflation. We estimate, based on the CPI and
Speaker 1: PPI data that we've already seen, that headline PCEE inflation
Speaker 1: is going to decline to two point six percent in
Speaker 1: May from about two point seven percent in April, and
Speaker 1: that's really facilitated by a swing in gasoline prices. Gasoline
Speaker 1: prices decline during the month of May. Typically gasoline prices
Speaker 1: rise during summer driving season, so you have both the
Speaker 1: actual price of the pump and the seasonal adjustment factor
Speaker 1: weighing on headline pce inflation for May. The core PCE
Speaker 1: measure which matters quite a bit more for the Federal
Speaker 1: Reserve that's also going to show some encouraging signs by
Speaker 1: slowing to two point six percent from about two point
Speaker 1: eight percent prior. It's still the case that shelter is
Speaker 1: undergirding core inflation measures, but we are seeing core goods
Speaker 1: prices decline when we map CPI to PCE space, and
Speaker 1: we also are seeing some softening services prices within the core.
Speaker 1: If we're looking outside of shelter, we see declining prices
Speaker 1: for airfares, for recreational services, for personal care services, some
Speaker 1: of those more discretionary spending categories, and we think that
Speaker 1: that's related to consumers starting to tell in their belt
Speaker 1: a little bit. We did see pretty discouraging signs in
Speaker 1: the retail sales report just last week.
Speaker 2: But we also saw import prices down. That's a reaction
Speaker 2: possibly to people not spending as much. And it looks
Speaker 2: like all that US energy production at a record high
Speaker 2: and a slight demand just really helping out, really changing things.
Speaker 1: That's right, It is helping to weigh on a headline inflation.
Speaker 6: Now.
Speaker 2: The big question, of course, what could this mean to
Speaker 2: the Federal Reserve. It's leftist benchmark lending rate unchanged seven
Speaker 2: meetings in a row dating back to last September. Another
Speaker 2: policy meeting at the end of next month, right the
Speaker 2: thirtieth and thirty first of July, just five weeks away.
Speaker 1: That's right, So any encouraging signs on the inflation front
Speaker 1: bodes well for the interest rate outlook. The Fed in
Speaker 1: its previous meeting changed its own outlook for interest rates.
Speaker 1: It had previously expected to cut interest rates by seventy
Speaker 1: five basis points this year, but in its most recent
Speaker 1: update it's now showing just one twenty five basis point
Speaker 1: cut this year. We think that the encouraging signs on
Speaker 1: the inflation side and consumers starting to tighten their belt
Speaker 1: could result in maybe two interest rate cuts this year,
Speaker 1: perhaps in September and then one in December. It gets
Speaker 1: a little bit tricky around election season, but with inflation
Speaker 1: coming in, with inflation slowing on a monthly basis and
Speaker 1: on an annual basis, with core inflation slowing, signs are
Speaker 1: starting to point to the Fed perhaps being able to
Speaker 1: cut two times this year, but probably only starting in September.
Speaker 1: If they were to decide to get two cuts off
Speaker 1: this year.
Speaker 2: And as always, the key to this is a pattern.
Speaker 2: That's right, Yeah, that's right.
Speaker 1: So we have seen two encouraging monthly inflation prints. The
Speaker 1: first quarter was a little bit rough, but we're starting
Speaker 1: to see a bit more evidence that a trend is
Speaker 1: building in that slowing inflation landscape.
Speaker 2: Oh boy, well, let's that would be encouraging. Let's talk
Speaker 2: about first quarter GDP. This is a third and final reading.
Speaker 2: A prior reading reported a growth of one point three percent,
Speaker 2: but we could see a little upside surprise to this.
Speaker 1: Now we could see some modest revisions coming in, so
Speaker 1: perhaps an upward revision of Q one GDP to an
Speaker 1: annualized pace of growth about one and a half percent
Speaker 1: from as you mentioned, one point three percent in the
Speaker 1: second estimate. It's starting to get a little bit stale
Speaker 1: for driving FED policy. So what's really going to matter
Speaker 1: is the Friday Personal Income and Outlays report. And although
Speaker 1: we are seeing more recent data showing personal income growth,
Speaker 1: there is something that's stopping consumers from taking that income
Speaker 1: and driving spending. There is something, perhaps more consumer caution,
Speaker 1: that's going to lead to further slowing. Even if we
Speaker 1: were to see an upward revision to Q one GDP,
Speaker 1: as we look at the Q two data, we could
Speaker 1: see some additional slowing as consumers become a little bit
Speaker 1: more cautious.
Speaker 2: Now that slight change in GDP. Is it the same
Speaker 2: exact factors you know? Or is there something else what changed?
Speaker 1: It's the same factors, It's just a little bit of
Speaker 1: additional precision as time goes on, when the Bureau of
Speaker 1: Labor Statistics in the Bureau of Economic Analysis has the
Speaker 1: time to more precisely measure the factors that go into
Speaker 1: gross domestic product and gross domestic income.
Speaker 2: Okay, so first quarter GDP that is out on Thursday,
Speaker 2: May Personal consumption Core Price Index out on Friday. A
Speaker 2: lot to look forward to, and our thanks to Stuart paul,
Speaker 2: Us economist with Bloomberg Economics. Moving to company earnings now,
Speaker 2: the world's largest express transportation company, FedEx, reports its latest
Speaker 2: earnings on Tuesday. What will the results tell us about
Speaker 2: the health of US supply chains and business and consumer demand?
Speaker 2: And for more? We're joined by Lee Clascal, Bloomberg Intelligence,
Speaker 2: Senior Transport Logistics and shipping analysts. Well, Lee, what do
Speaker 2: you expect to see from FedEx in its Q four
Speaker 2: earnings this week?
Speaker 7: Yeah?
Speaker 6: I think that the company is going to report a
Speaker 6: number that's probably more or less in line with consensus.
Speaker 6: I don't think there's really any divergence from there. But
Speaker 6: you know, what we do expect to see and we
Speaker 6: really hope to see, is continued improvement on their cost
Speaker 6: cutting measurements that they've been trying to reduce costs for
Speaker 6: some time. They have two programs in place called Drive
Speaker 6: and Network two point zero, and that's supposed to generate
Speaker 6: around six billion dollars in cost savings for the company.
Speaker 6: And you know, what the company is trying to do
Speaker 6: is right size its network to kind of match the
Speaker 6: realities of how its business has changed so much over
Speaker 6: the years with more of a focus of B two
Speaker 6: C business versus B to B business and B two
Speaker 6: C business, which is, you know, shipments that go to
Speaker 6: your house, whether you buy something online or otherwise. You know,
Speaker 6: it tends to carry lower margins, and so they're trying
Speaker 6: to improve that lower margin business by taking costs out.
Speaker 2: Well. I think it's been working because in margin this year,
Speaker 2: FedEx said it's worldwide headcount was down about twenty two
Speaker 2: thousand over the past year or the prior year. Just
Speaker 2: two weeks ago, it's had of plants to slash another
Speaker 2: two thousand jobs in Europe. So are these cuts still
Speaker 2: going on? Is FedEx still cutting jobs?
Speaker 6: Yeah? I mean, they absolutely are, and they need to
Speaker 6: write size. I mean, FedEx for a long time became
Speaker 6: a little bloated, you know, over the years, and the
Speaker 6: focus really wasn't so much on margin, shall I say?
Speaker 6: It was probably about the air fleet and in other things.
Speaker 6: And I think that you know, as management changes happened
Speaker 6: at the company, kind of priorities have shifted, and you know,
Speaker 6: the company has become a truly show me story. And
Speaker 6: management has been producing some pretty good results over the
Speaker 6: last couple of quarters, and we can we expect that
Speaker 6: to continue. You know, a couple of months ago, it
Speaker 6: announced that it was no longer doing the line Haull business,
Speaker 6: the airline hall business for the US Postal service. That
Speaker 6: business was, you know, about a two billion dollar revenue business,
Speaker 6: but extremely low margin. And you know what that capacity.
Speaker 6: They're able to free up that capacity, and not only
Speaker 6: are they able to fill it with more profitable business
Speaker 6: from small to mid sized car shippers, but they're also
Speaker 6: able to say, hey, maybe we don't need ten planes
Speaker 6: in a certain lane, maybe we can only you know,
Speaker 6: we only need to do six flights as opposed to ten.
Speaker 6: So they're able to kind of lower their own cost
Speaker 6: structure by reducing their air network, which is which is
Speaker 6: something that you know we expect to see and you
Speaker 6: know that will definitely benefit its margins. And the company
Speaker 6: is also going through a major transformation. For the longest time,
Speaker 6: it operated separate ground and air networks, and now it's
Speaker 6: it's becoming more of a hybrid where some of it's
Speaker 6: you know, air freight business or vians I go through
Speaker 6: its express network, are now going into trucking if it
Speaker 6: makes sense, if it's not like you know, needs to
Speaker 6: be there the next day, it might make sense pushed
Speaker 6: into their trucking network, which carries significantly less costs and
Speaker 6: so therefore, you know, better margins for the company. So
Speaker 6: you know it, we're in early innings towards this shift.
Speaker 6: They changed their reporting structure this month, so you know
Speaker 6: we're going to see that going forward.
Speaker 2: Now, those same cost cutting efforts, raining and spending, streamlining
Speaker 2: operations as allowed fed X to announce plans to buy
Speaker 2: back five billion dollars of its own share so at
Speaker 2: least shareholders must be thrilled about this.
Speaker 6: They are, They are outperforming their peers. You Know, what
Speaker 6: I would say is investors are probably still remain a
Speaker 6: little skeptical about FedEx and its ability to change its
Speaker 6: cost structure. Again, that's why I mentioned it was a
Speaker 6: show me story. They really need to prove and execute
Speaker 6: on their plans to build positive sentiment sentiment amongst monks investors.
Speaker 6: So that's something you know that we're we're really watching.
Speaker 6: And then you know, you're also kind of in a
Speaker 6: time where demand isn't great. Their express business volumes are
Speaker 6: expected to be down on one one percent in the quarter.
Speaker 6: Ground volumes, you know, might be up about one and
Speaker 6: a half two percent in the quarter, and they're less
Speaker 6: than truckload business fed X freight, you know volumes are
Speaker 6: expected to be up less than one percent. So you know,
Speaker 6: we have kind of a tepid demand outlook. Obviously, a
Speaker 6: stronger consumer would bode well for them, A positive ISM
Speaker 6: number would bode well for them. You know, positive industrial
Speaker 6: production numbers would bode well for them. So you really
Speaker 6: need to see the economy begin to accelerate from here
Speaker 6: for that volume picture to get better. The kind of
Speaker 6: good news for them is that comps do definitely become
Speaker 6: easier in the second half of the calendar year, and
Speaker 6: so you could see an acceleration of volume growth and
Speaker 6: even you know, volume inflecting positive and business later on
Speaker 6: the year, albeit you know, a low single digits.
Speaker 2: Well just about six months ago before the holidays. FedEx's
Speaker 2: latest earnings out this Tuesday, and our thanks to Lee Klascow,
Speaker 2: Bloomberg Intelligence Senior Transport, Logistics and shipping analyst. Coming up
Speaker 2: on Bloomberg day Break weekend to look ahead to the
Speaker 2: presidential election in Iran and whether it could mean a
Speaker 2: shift in the country's foreign policy. I'm Tom Busby and
Speaker 2: this is Bloomberg. This is Bloomberg day Break Weekend, our
Speaker 2: global look ahead at the top stories for investors in
Speaker 2: the coming week. I'm Tom Busby in New York. Up
Speaker 2: later in our program a look at US China relations.
Speaker 2: As presidential candidates Joe Biden and Donald Trump prepare to
Speaker 2: debate this week, but first Orian set to hold a
Speaker 2: snap presidential election in the coming days that follows the
Speaker 2: sudden death of former leader Ibraham Raisi in a helicopter
Speaker 2: crash last month. But the vote comes at a time
Speaker 2: of heightened tension between Iran and the West. For more,
Speaker 2: let's go to London and bring in Bloomberg Daybreak europe
Speaker 2: banker Stephen Carroll Tom Ibraham.
Speaker 3: Raisi's death came at a sensitive time for Iran and
Speaker 3: for the wider Middle East. Tehran came close to an
Speaker 3: all out war with Israel in April when it launched
Speaker 3: a direct military strike on Israel after its consulate in
Speaker 3: Damascus was bombed. Now, the president's influence is limited in Iran,
Speaker 3: but we could see some subtle shifts in policy when
Speaker 3: the new president is elected. I've been discussing the context
Speaker 3: for this election with Bloomberg's Golnarmotavali, who leads our coverage
Speaker 3: of Iran.
Speaker 8: TV debates are actually quite critical in Iranian elections because
Speaker 8: what they do is that they give you an immediate
Speaker 8: sense of how the candidates are and being received by
Speaker 8: the public. It's the major exposure to the broader general public.
Speaker 8: And I think last debate was kind of interesting because
Speaker 8: it very much focused on the economy. So obviously there
Speaker 8: was a lot of discussion about sanctions and inflation, which
Speaker 8: is a massive problem in Iran and in Iraq's relationship
Speaker 8: with the West and the broader global economy. This is
Speaker 8: a very highly circumscribed process. So it's a ballot that's
Speaker 8: very dominated by conservatives and hardliners, and we have only
Speaker 8: one reformist candidate of the six that are running.
Speaker 3: And who are the key names to be watching as
Speaker 3: we move towards the polling.
Speaker 8: Day, So the big names, I mean think it's important
Speaker 8: to point out that quite a few important, very high
Speaker 8: profile conservatives were disqualified, were not barred from running, which
Speaker 8: is interesting, including people like Ali Larry Jaranni, who's a
Speaker 8: very influential conservative politician. It's the second time he's been barred.
Speaker 8: But the names that we need to keep deep and
Speaker 8: said Jali Lee, who's a former nuclear negotiator under Ahmadi Needrard.
Speaker 8: He's a very very radical, hardline, deeply religious person, very
Speaker 8: anti Western, very anti US, opposed to the nuclear deal.
Speaker 8: He very much is kind of in the mold of
Speaker 8: let's keep our relationship with China and Russia as strong
Speaker 8: as possible. We don't need the West, we don't need Europe.
Speaker 8: We're very capable of being self sufficient economically. He's very
Speaker 8: much of that mold. The other names that we need
Speaker 8: to look out for are Masud Pezeshkian, who's the one
Speaker 8: token reformist. But he's quite an influential and important reformist
Speaker 8: because he was health minister under Moham Maghatami in the
Speaker 8: late nineties and early two thousands, and he can become
Speaker 8: quite a serious I mean, the cynical view is that
Speaker 8: he's there just to lend legitimacy to the vote, so
Speaker 8: that Harmonae and the establishment that run the islam Republic
Speaker 8: can say, look, we don't just have hardliners, We've got
Speaker 8: a reformist choice there as well. But the fact that
Speaker 8: he's actually quite a serious reformist name actually raises the
Speaker 8: possibility that he might boost turnout, and a boost in
Speaker 8: turnout is always going to work in favor of moderates
Speaker 8: and reformists.
Speaker 3: Yeah, I'm interested to get your view on how engaged
Speaker 3: the public has been in Iran in this campaign. Is
Speaker 3: it something that people feel as is sort of addressing
Speaker 3: the key issues in their lives.
Speaker 8: I don't think so. I think for many years there's
Speaker 8: been quite a strong sense of political disenfranchisement and disenchantment
Speaker 8: in Iran. We've had some really violent uprisings and protests recently,
Speaker 8: most notably in twenty nineteen and obviously more recently in
Speaker 8: twenty twenty two after the death in police custody of
Speaker 8: Maths Amini, who was arrested for allegedly violating these strict
Speaker 8: Islamic dress codes that apply to women mostly. That caused
Speaker 8: a huge convulsion across the country, and the establishment is rightly,
Speaker 8: very very concerned about internal political dissent. I would say
Speaker 8: that opposition to the whole system of the exact republic
Speaker 8: it has been, and you know, has been an all
Speaker 8: time high since the nineteen seventy nine revolution, for I
Speaker 8: reckon for at least since twenty twenty two, and that's
Speaker 8: something that individuals men like Harmony are worried about. Institutions
Speaker 8: like the ILGC, the example revolution regard called, they're worried
Speaker 8: about that, and they need to have as many people
Speaker 8: participating in this election as they can again to give
Speaker 8: that system and their own system a sense of legitimacy
Speaker 8: and credibility. And that's why Pezeshkian's presence is so key
Speaker 8: and important from a political point of view.
Speaker 3: Can you just briefly explain the process here, just so
Speaker 3: we can understand why we don't consider this to be
Speaker 3: a free election.
Speaker 8: Well, I don't know whether i'd say it's not entirely
Speaker 8: a free election. It's a highly circumscribed These elections tend
Speaker 8: to be very heavily stage stage managed from the outset.
Speaker 8: So you have a procedure whereby individuals who have to
Speaker 8: meet a certain criteria can go to the Interior Ministry
Speaker 8: and apply to become to register to become presidential candidates.
Speaker 8: The criteria some of it includes being between the age
Speaker 8: of forty and seventy five or forty five and seventy
Speaker 8: five I think I can't quite remember. You have to
Speaker 8: have some experience in political office, and you have to
Speaker 8: have no criminal records. And there are some things that
Speaker 8: are less clear, like being a woman is something that's
Speaker 8: it's up for debates whether the Uranian constitution prohibits women
Speaker 8: from being presidents or not being a Sunday. You definitely
Speaker 8: have to be a Muslim. There's never been a non
Speaker 8: Shia Muslim president in Iran since nineteen seventy nine, since
Speaker 8: we've had the presidency. So you have that process where
Speaker 8: people who meet that criteria register and then once they've registered,
Speaker 8: we have this very powerful non elected body called the
Speaker 8: Guardian Council. That's made up of twelve theologians who basically
Speaker 8: decide which of those two hundred or so people who've
Speaker 8: registered can actually run. They're the people that decide who
Speaker 8: gets disqualified. And that means that there's this perception that
Speaker 8: it's a very stage managed process.
Speaker 3: Talk us through how we should be thinking about this
Speaker 3: from an international point of view. Obviously Iran has a
Speaker 3: very tasty relationship with the West, first of all, and
Speaker 3: how should people sitting in London or in Washington be
Speaker 3: looking at this and thinking about this election.
Speaker 8: I mean, I think they need to be looking at
Speaker 8: not just who becomes president, but how how the entire
Speaker 8: government administration is then managed afterwards. So what's critical, for instance,
Speaker 8: is if hypothetically Pezeshkian, who's this token reformist, experienced candidate,
Speaker 8: does win the majority of votes, if he becomes president,
Speaker 8: what then happens to the foreign policy file? Because one
Speaker 8: of the issues I think when Raharni, who managed to
Speaker 8: kind of refashion himself as a moderate in twenty thirteen
Speaker 8: when he ran for the election, he won that election
Speaker 8: basically on a mandate of sanctions removal, better relations with
Speaker 8: the West, and some kind of dayton with the US.
Speaker 8: But the problem was that his foreign policy was constantly
Speaker 8: being attacked by hardliners, and because he gave almost kind
Speaker 8: of full reign to moderate politicians like Javad Zari, these
Speaker 8: multi lingual, you know, very errudite, sort of articulate diplomats
Speaker 8: to kind of schmooze in New York and go on
Speaker 8: these promenade walks in Switzerland with men like John Kerry.
Speaker 8: Stuff like that doesn't go down well amongst the hard
Speaker 8: line within the hardline establishment in Tehran. So, for instance,
Speaker 8: if someone like Peziskion does become president, you then have
Speaker 8: to ask, well, if the foreign policy file is given
Speaker 8: to hardliners and someone who de facto has the support
Speaker 8: of the IRGC, maybe that will make for a less contentious,
Speaker 8: paradoxically more stable administration and you can so I think
Speaker 8: that's what we need to look out for. It's not
Speaker 8: just who wins the top job, it's who looks after
Speaker 8: the strategic decisions that are going to decide the kind
Speaker 8: of direction of traveling. Yeah, exactly.
Speaker 3: Yeah, I wonder also because because we're obviously very focused
Speaker 3: on Iran's relationship with the region as well, and as
Speaker 3: particularly you know, after the incidence with Israel in recent months.
Speaker 7: Two.
Speaker 3: I mean, how much of an impact could this election
Speaker 3: have on how Israel interacts with its neighbors.
Speaker 8: At the bottom line is that, you know, the Islamic
Speaker 8: Republic is very much in terms of foreign policy, it's
Speaker 8: almost defined by its support for Palestine, for Palestinians, and
Speaker 8: it's also defined by the fact that it opposes the
Speaker 8: very presence of the States of Israel, at least rhetorically.
Speaker 8: That's the rhetoric that's not going to change.
Speaker 6: Now.
Speaker 8: There are kind of agreements and sort of arrangements or
Speaker 8: relationships that are managed so that they kind of can
Speaker 8: tolerate whatever consensus exists in the region. So, for instance,
Speaker 8: they need a strong economic relationship with the UAE. They
Speaker 8: have to Dubai has been referred to as Iran's economic lung,
Speaker 8: for instance, for decades. So if you have these accords,
Speaker 8: the so called Abraham Accords between the UAE and Israel,
Speaker 8: for instance, Iran can and does turn a blind eye
Speaker 8: to that and just keep it on a separate track
Speaker 8: to its economic trade relationship with the UAE. That's something
Speaker 8: that won't change regardless of who who becomes president. What
Speaker 8: can change is if someone like Jali Lee who's, like
Speaker 8: I said, very very conservative fundamentalist. If he's president, he
Speaker 8: is probably less likely to be bothered about pragmatic outcomes
Speaker 8: that protect Iran's trade relationship with the Europeans, for instance,
Speaker 8: or he might be less concerned about preventing an escalation
Speaker 8: over Iran's nuclear program with the US. He's much more
Speaker 8: in the vein of if you want a Western comparison,
Speaker 8: someone like John Bolton, he's more He's very focused on
Speaker 8: this idea. It's almost a bit like I mean, Putin's
Speaker 8: trip to North Korea made me think of Jali Lee
Speaker 8: because that's something that I would think he almost would
Speaker 8: aspire to that type of profile, a Putin type profile
Speaker 8: where he goes on trips to countries like North Korea, Turkmenistan.
Speaker 8: You know, he focuses on this non aligned, anti NATO,
Speaker 8: anti US axis. So you know, if someone like Pezeshkian
Speaker 8: was president, that there may be more of an effort.
Speaker 8: I'm just speculating here to find some kind of balance
Speaker 8: or to kind of take a more proactive role within
Speaker 8: Palestinian politics in terms of balance, the kind of balancing
Speaker 8: Iran's relationship with Hamas and not just Hesbonna, but also
Speaker 8: Fatah as well right to take a more proactive, constructive.
Speaker 3: Role thanks to Bloomberg's Gollnarmota Valley. I'm Stephen Carolyn London.
Speaker 3: You can catch us every weekday morning here for Bloomberg
Speaker 3: Daybreak here at beginning at six am in London and
Speaker 3: one am on Wall Streets.
Speaker 2: Tom Well, thank you, Steven, and coming up on Bloomberg
Speaker 2: day Break weekend to look at US China relations as
Speaker 2: presidential candidates in the US prepare to debate. I'm Tom
Speaker 2: Busby and this is Bloomberg. I'm Tom Busby in New
Speaker 2: York with your global look ahead at the top stories
Speaker 2: for investors in the coming week. The first US presidential
Speaker 2: debate between Joe Biden and Donald Trump will take place
Speaker 2: this coming Thursday, June twenty seventh, and the US relationship
Speaker 2: with China is sure to get a lot of attention.
Speaker 2: For more, let's get to Bloomberg Daybreak Asia co host
Speaker 2: Doug Krisner and Brian Curtis.
Speaker 4: Tom this year's presidential election will shape the course of
Speaker 4: relations between the US and China for the next four years.
Speaker 6: Now.
Speaker 4: To be fair, there are differences between these candidates and
Speaker 4: their approaches to China, and there are similarities. Both agree
Speaker 4: China's industrial and trade policies are putting American companies at
Speaker 4: a disadvantage, and the two agree on keeping national security
Speaker 4: a priority. They differ when it comes to the notion
Speaker 4: of isolation.
Speaker 9: And that means that China may be put in a
Speaker 9: difficult position. It's likely US policies on trade will get
Speaker 9: even tougher going forward, as both President Biden and former
Speaker 9: President Trump want to reduce US reliance on Chinese goods.
Speaker 9: Among the products targeted by the new US levies are
Speaker 9: electric vehicles, batteries, and semiconductors. And joining us now for
Speaker 9: further discussion on this is Rebecca Chong Wilkins, Bloomberg Asia
Speaker 9: Government and Politics correspondent and John Leu, Bloomberg Executive Editor
Speaker 9: in Beijing. Rebecca, if I could go to you first,
Speaker 9: Former President Trump initially started the trade war with China
Speaker 9: to bring manufacturing back home to the United States, but
Speaker 9: now he's talking more about raising tariffs and using that
Speaker 9: as a way to increase US revenues. So this is
Speaker 9: pretty interesting how it complicates the picture. President Biden has
Speaker 9: been somewhat more targeted. Could this go all the way
Speaker 9: to China's most favorite nation status being stripped.
Speaker 10: I suppose when we think about Trump, the whole obvious
Speaker 10: element is the unpredictability of where this will go. So
Speaker 10: far bit from me to make a prediction on where
Speaker 10: he'll direct his policy. But I think from Beijing's point
Speaker 10: of view, it is precisely the unpredictability which is a
Speaker 10: concern here. I spoke to an advisor to Beijing quite recently.
Speaker 10: He sits on China's sort of top broader political committee,
Speaker 10: and he said that, of course things haven't been easy
Speaker 10: under Biden, but Biden has been somewhat constrained because he,
Speaker 10: for example, works harder to build consensus among his allies,
Speaker 10: and some other countries have sort of somewhat muted the position.
Speaker 10: But when it comes to Trump, there is this element
Speaker 10: of unpredictability which really makes it much more dangerous, potentially
Speaker 10: makes them a much more dangerous character for Beijing to
Speaker 10: deal with.
Speaker 4: John Back in the twenty twenty presidential campaign, when Biden
Speaker 4: and Trump last faced one another, there was this view
Speaker 4: among some of the geopolitical watching community that Biden would
Speaker 4: develop a multilateral approach in dealing with China and Trump.
Speaker 4: The more isolationist approach. Now we've seen Biden kind of
Speaker 4: marshal together some cooperation. I'm thinking of export controls on semiconductors. Japan,
Speaker 4: the Netherlands involved with the US on that front. Is
Speaker 4: Beijing prepared to deal with the Trump administration potentially that
Speaker 4: would take more of an isolationist approach.
Speaker 7: I think that Beijing's main concern with the Trump administration
Speaker 7: is just as Rebecca outlined, the unpredictability. I think the
Speaker 7: way that Trump goes about it, the style of that execution,
Speaker 7: it being less reliant on allies, less reliant on trying
Speaker 7: to build consensus, that probably plays into Beijing's hand more
Speaker 7: than it hurts Beijing. If you look at Europe, for example,
Speaker 7: if Trump were to simultaneously put in tariffs against China
Speaker 7: and European goods, that would actually help China try and
Speaker 7: strengthen its relationship with Europe and maybe to overcome some
Speaker 7: of the trade challenges that exist there as well.
Speaker 9: Doug mentioned semiconductors. That's such a key industry. The US
Speaker 9: had some pretty famous battles with Japan on semiconductors going
Speaker 9: way way back. The US had the early lead, Japan
Speaker 9: won that lead back in the eighties, and then the
Speaker 9: US rested it back decades later. I think the big
Speaker 9: difference though, is that Japan was an ally all through it.
Speaker 9: China is not. So is that industry semiconductors where the
Speaker 9: real stakes are and where the real battles will lie.
Speaker 7: I think it's become pretty clear that one of the key,
Speaker 7: if not the most important arena for the competition between
Speaker 7: the United States and China is in technology. So be
Speaker 7: it chips, be it the AI that is powered by
Speaker 7: those chips, and so I think no matter who becomes president,
Speaker 7: I would expect the United States to continue to squeeze
Speaker 7: as much as possible, because I think the ultimate objective
Speaker 7: here for the US is to make sure that China
Speaker 7: does not become does not reach some sort of technological
Speaker 7: parody and potentially some sort of military parody that that
Speaker 7: technological prowess would bring about.
Speaker 4: Rebecca, let's talk a little bit about geopolitics right now,
Speaker 4: particularly where Taiwan is concerned. What would we expect from
Speaker 4: another Trump administration that is different from the way in
Speaker 4: which the Biden administration has been tackling Taiwan.
Speaker 10: Well, the Biden administration more recently seems to have slightly moderated,
Speaker 10: and I will say there does seem to be a
Speaker 10: faties of pragmatic view in Beijing when they have been
Speaker 10: these sort of slip ups or certain comments around Taiwan.
Speaker 10: Beijing has been relatively muted of late. It does seem
Speaker 10: to understand that China, the issue of Taiwan, is of
Speaker 10: course going to come up and be a very hot
Speaker 10: topic in this US election, and that of course the
Speaker 10: Overton window in terms of what people are willing to say,
Speaker 10: has shifted across the board, whether it's in the Democratic
Speaker 10: Party or among Republicans. But again, sorry to harp on
Speaker 10: on the same issue, but I think it is this
Speaker 10: problem of unpredictability where it is hard to anticipate where
Speaker 10: Trump might move. And of course part of that is
Speaker 10: because the whole position, the US position, is about maintaining
Speaker 10: the status quo and maintaining this ambiguity.
Speaker 9: Well, speaking of unpredictability, I mean President she himself has
Speaker 9: been unpredictable in some ways in dealings with you know,
Speaker 9: with the tech industry, with various sectors in China. And
Speaker 9: I'm wondering if China wants to hit back at the
Speaker 9: United Slate States, where is the United States most vulnerable
Speaker 9: in a.
Speaker 10: Sense, Well, it certainly does have room to maneuver. And
Speaker 10: I would just say it's not just the United States
Speaker 10: that it can hit back on, but also the EU.
Speaker 10: And so, for example, before we had that EU decision
Speaker 10: on tariffs, we did see sort of Chinese state media
Speaker 10: and experts sort of trailing the possibility of retaliating with
Speaker 10: tariffs or investigations into food, wine, planes, transport.
Speaker 7: And so on.
Speaker 10: But certainly it can consider moves like restricting trade and
Speaker 10: market access. It could also think about going further to
Speaker 10: restrict certain exports, and you know, it does have sort
Speaker 10: of tools in its toolbox.
Speaker 4: John to Bryan's point, when you consider companies American firms
Speaker 4: like Apple or Tesla, any sense of how their dealings
Speaker 4: with Beijing may change under a Trump administration.
Speaker 7: I think there would be a lot of concern from
Speaker 7: the likes of Apple and Tesla about potentially losing market
Speaker 7: share in China because of something that Trump administration has undertaken.
Speaker 7: I think Beijing will take a relatively restrained approach when
Speaker 7: it comes to these companies because, for one, Apple employees
Speaker 7: so many people in China making iPhones and iPads, et cetera.
Speaker 7: Same for Tesla. China's the world's largest car market electric
Speaker 7: car market, and Tesla's a huge player. And Tesla not
Speaker 7: only makes cars in China for China, but is also
Speaker 7: exporting a lot of electric cars that are produced in
Speaker 7: Chia to other parts of the world.
Speaker 9: I'm curious about the China bashing because it works pretty
Speaker 9: well on both you know, President Biden and President Trump's
Speaker 9: hustings when they're out talking to people. If we flip
Speaker 9: that around in China, you live there in Beijing. Is
Speaker 9: China pretty adept at US bashing? And how does that
Speaker 9: play with the populace?
Speaker 7: I think. I think the Chinese government is very adept
Speaker 7: and very proactive about making sure that there's a perception
Speaker 7: that it is standing up for the interests of the
Speaker 7: Chinese people. And that comes in play when we're talking
Speaker 7: about things like Taiwan, like the South China Sea, especially
Speaker 7: during the last Trump administration, where there were slights such
Speaker 7: as you know, Trump calling COVID the China flu in.
Speaker 7: This is like that China. The Chinese government is very
Speaker 7: compelled in those instances to stand up and to show
Speaker 7: that it is fighting for you know, China's pride, prestige,
Speaker 7: et cetera. And you know, as nationalism goes, I think
Speaker 7: that is a tool for every government in every country
Speaker 7: in the world. Patriotism, the love of one's country. That
Speaker 7: is something the president, she and the government here will
Speaker 7: play on to its advantage.
Speaker 4: In May twenty twenty, I believe the Trump administration suspended
Speaker 4: visas for Chinese graduate students with ties to universities affiliated
Speaker 4: with the People's Liberation Army. Now President Biden upheld that
Speaker 4: suspension students were still being denied visas as recently as
Speaker 4: twenty twenty three. Rebecca, how is this situation going to
Speaker 4: change change under any new administration, whether it's a new
Speaker 4: Biden administration or a Trump administration.
Speaker 10: Yeah, I think this issue of sort of people to
Speaker 10: people exchanges, as it's formally put in diplomatic circles is
Speaker 10: really a key one. And it's interesting because both President
Speaker 10: student Ping and President Biden are trying to actually changes.
Speaker 10: Both have highlighted the need to get these exchanges back
Speaker 10: on the road, including at their sit down on the
Speaker 10: sidelines of APEC in San Francisco November. But really we
Speaker 10: haven't seen much sort of substantive progress at all, and
Speaker 10: I will say, you know, sources and folks that sort
Speaker 10: of business folks that I speak to do raise this
Speaker 10: concern about the safety, their personal safety of going to China.
Speaker 10: You know, whether or not that sort of substantiated, there
Speaker 10: still is this sort of big perception issue over personal
Speaker 10: safety when it comes to making these trips and when
Speaker 10: it comes to sort of regularly resuming these ties. The
Speaker 10: other big focus, particularly if Biden does win, we'll be
Speaker 10: trying to get student exchanges back on the road.
Speaker 9: So we don't know who's going to win the presidential election,
Speaker 9: but we said in our introduction that we basically thought
Speaker 9: that things would get tougher for China on the rhetoric
Speaker 9: side in the US for sure going forward. And that's
Speaker 9: up until the election. But what about afterwards, of course
Speaker 9: it depends on who wins, Rebecca, But is there any
Speaker 9: chance that things would settle down and relations could improve
Speaker 9: after the election.
Speaker 10: Well, yeah, of course, I think it's important to highlight
Speaker 10: that campaign promises are not necessarily real world policies here
Speaker 10: in any way. But you know, we think about when
Speaker 10: Biden came in, some were expecting him to take a
Speaker 10: ease up just a little bit, and in fact we
Speaker 10: saw the opposite, He doubled down on those tariffs. So
Speaker 10: even if we just continue on a similar momentum when
Speaker 10: it comes to introducing more restrictions and more cubs, that's
Speaker 10: still quite a sort of intense pressure that is being
Speaker 10: placed on Beijing. Even if it's more predictable, it's easier
Speaker 10: for them to understand the context. The other concern, as
Speaker 10: John mentioned too, is if it is Biden, in particular,
Speaker 10: if he's able to continue bringing other countries along and
Speaker 10: lock and step moving with the US. We see, for example,
Speaker 10: the EU probe into EVS and the EU which previously
Speaker 10: had been somethink of a sort of striking trying to
Speaker 10: strike a more middle path, let's say, something sort of
Speaker 10: more moderate from the US, and keen to strike and
Speaker 10: emphasize its difference from the US. We see the EU
Speaker 10: and various European Union nations moving a little bit closer
Speaker 10: to the US, So that is another concern too.
Speaker 9: Rebecca, John, thanks so much for joining us and sharing
Speaker 9: your insights with us. We've been chatting with Rebecca Cheng Wilkins,
Speaker 9: Bloomberg Asia Government and Politics correspondent in John Liu, Bloomberg
Speaker 9: Executive Editor in Beijing, I'm Brian Curtis in Hong Kong
Speaker 9: along with Doug Krisner. You can catch us every weekday
Speaker 9: here for Bloomberg Daybreak Asia, beginning at eight am in
Speaker 9: Hong Kong and eight pm on Wall Street. Tom.
Speaker 2: Thank you Brian, and thank you Doug. And that does
Speaker 2: it for this edition of Bloomberg Daybreak Weekend. Join us
Speaker 2: again Monday morning at five Wall Street time for the
Speaker 2: latest on markets overseas and the news you need to
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