WEBVTT - EU Rejection Poses Bigger Danger For May Than Brexit Rebellion 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg pim L Podcast. I'm pim Fox 0:00:08.760 --> 0:00:11.440 along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:32.440 L Podcast on Apple Podcasts, SoundCloud and Bloomberg dot com. 0:00:32.479 --> 0:00:38.280 Theresa May speaking in Parliament a raucous sex session of Parliament, 0:00:38.360 --> 0:00:40.640 and one of the comments that you made is that 0:00:40.760 --> 0:00:44.800 what we're proposing is challenging to the European Union and 0:00:44.840 --> 0:00:48.720 speaking in detail about several of the areas that the 0:00:49.120 --> 0:00:55.160 United Kingdom is negotiating as a Brexit position with the 0:00:55.360 --> 0:00:58.520 European Union. Here to help us understand what's going on 0:00:58.640 --> 0:01:02.240 right now is Clive Crook. He is editor for Bloomberg Opinion. 0:01:02.280 --> 0:01:06.840 You can follow Clive on a Twitter at Clive Underscore Crook, 0:01:06.880 --> 0:01:12.280 and he comes from our studios in Washington, d C. Clive, 0:01:12.680 --> 0:01:16.679 what do you make of Teresa May's statement regarding the 0:01:16.760 --> 0:01:21.360 ongoing negotiations over Brexit and whether the United Kingdom will 0:01:21.400 --> 0:01:26.520 really have the ability to craft its own trade agreements? Well, 0:01:26.560 --> 0:01:29.440 I think the statement was actually pretty good, Um, but 0:01:29.720 --> 0:01:33.479 it doesn't actually alter the politics of the situation all 0:01:33.480 --> 0:01:36.559 that much. You know, she was pretty clear about what 0:01:36.680 --> 0:01:39.760 the deal she wants to put to the EU represents, 0:01:39.800 --> 0:01:41.480 and I think as a matter of fact, there's a 0:01:41.480 --> 0:01:44.600 lot to be said for the approach she's adopting. But 0:01:44.680 --> 0:01:47.920 the problem is, the political problem is that her own 0:01:48.040 --> 0:01:52.040 party is split right down in the middle on this issue. Um. 0:01:52.120 --> 0:01:55.320 That's why you've seen the resignations from the cabinet. Um. 0:01:55.360 --> 0:01:57.840 And the question is whether she can keep the party 0:01:57.880 --> 0:02:03.520 together sufficiently well to actually advance uh, this proposal and 0:02:03.600 --> 0:02:06.080 make it, you know, make progress with Europe and getting 0:02:06.080 --> 0:02:10.160 to a good deal and acceptable deal. At the moment, 0:02:10.200 --> 0:02:13.440 you know, basically the government is is hanging on by 0:02:13.480 --> 0:02:15.760 its fingernails, and I don't think the statements she just 0:02:15.840 --> 0:02:18.160 made actually is going to make a huge difference to that. Yeah, 0:02:18.160 --> 0:02:22.000 it seemed, um, quite quite boisterous. Raucus was the word 0:02:22.040 --> 0:02:25.560 that Pim used. I was looking at the predicted prediction 0:02:25.680 --> 0:02:28.960 markets and noticing that the chances that Theresa May will 0:02:29.000 --> 0:02:31.679 be the Prime Minister of the UK your end went 0:02:31.800 --> 0:02:36.359 down quite significantly in the wake of Boris Johnson's resignation 0:02:36.639 --> 0:02:38.960 can you walk us through what would happen to remove 0:02:39.000 --> 0:02:42.280 Theresa May and whether you think that that's a likely possibility. 0:02:42.600 --> 0:02:45.680 I think it is more likely than before because you 0:02:45.800 --> 0:02:50.519 have now a plausible, a somewhat plausible rival for me 0:02:51.360 --> 0:02:52.920 in the running. I mean, that's the point. That's the 0:02:52.919 --> 0:02:56.880 point about Boris Johnson's resignation, that you can imagine Johnson 0:02:57.040 --> 0:03:00.480 running against May in a leadership contest. Well has to 0:03:00.560 --> 0:03:03.679 happen is that a sufficient number of Labor MPs f 0:03:03.880 --> 0:03:08.440 T eight to be precise, need to sign letters saying 0:03:08.440 --> 0:03:11.440 they have no confidence into Race and May's leadership, and 0:03:11.480 --> 0:03:14.240 then there would be a vote in the Conservative partium 0:03:14.240 --> 0:03:18.560 on the Conservative MPs to dislodger, and a hundred and 0:03:18.600 --> 0:03:21.239 fifty nine out of three hundred and sixteen of those 0:03:21.400 --> 0:03:24.400 MPs would need to vote against her, and then there 0:03:24.440 --> 0:03:27.160 would be a competition to replace her. Now, I think 0:03:27.240 --> 0:03:31.480 there are enough votes for the beginning of that process. 0:03:31.480 --> 0:03:33.400 In other words, I think there are forty eight votes 0:03:33.480 --> 0:03:36.320 to say, you know, we have no confidence in Race 0:03:36.480 --> 0:03:39.200 May and we want a leadership election. But I don't 0:03:39.280 --> 0:03:42.040 think there are a hundred and fifty nine votes to 0:03:42.160 --> 0:03:45.920 replace her. So I think the likely scenario is if 0:03:46.000 --> 0:03:49.440 the rebels, if the Brexit people, the hard Brexit people, 0:03:49.480 --> 0:03:52.240 decide to try and bring May down, I think the 0:03:52.320 --> 0:03:56.440 chances are that they will fail. Clive Crook, then why 0:03:56.440 --> 0:03:59.840 do you believe that Boris Johnson, a former Foreign secretary 0:03:59.880 --> 0:04:03.720 in David Davis, the Brexit secretary, Why would they have 0:04:04.320 --> 0:04:09.880 resigned if they didn't line up support for their position beforehand. 0:04:09.920 --> 0:04:14.320 Doesn't this then strengthen the Prime Minister's hand? Well, as 0:04:14.360 --> 0:04:17.680 I say, you know, what's happened increases the danger for me, 0:04:17.800 --> 0:04:20.719 there's no question. But I think in the end she 0:04:20.839 --> 0:04:24.280 can prevail. I don't think there will be sufficient support 0:04:24.320 --> 0:04:27.520 in the Tory Party to replace a part because you know, 0:04:27.640 --> 0:04:30.719 Tory MPs understand that if that happens, you know they're 0:04:30.760 --> 0:04:33.680 moving along a path that leads to another general election. 0:04:34.200 --> 0:04:37.080 That's a general election that they could very well lose. 0:04:37.520 --> 0:04:39.280 So I don't think they're going to want to do that. 0:04:39.760 --> 0:04:42.680 But I mean it is a you know, a moment 0:04:42.720 --> 0:04:46.160 of maximum political Unsurgeonty. There's no question about that. Now, 0:04:46.200 --> 0:04:49.040 coming back to what David Davis was calculating, what Boris 0:04:49.120 --> 0:04:52.000 Johnson was calculating, I think you have to understand that 0:04:52.040 --> 0:04:55.520 these are two these are two somewhat different cases. I mean, 0:04:55.600 --> 0:04:58.279 Davis was in a position where he was having to 0:04:58.360 --> 0:05:01.320 be uh, you know, the pre innstbole negotiate with the 0:05:01.320 --> 0:05:04.159 EU as this deal moves forward, and he was in 0:05:04.160 --> 0:05:06.200 a position of having to defend a policy which he 0:05:06.279 --> 0:05:09.760 thinks doesn't make sense. And on top of that, I mean, 0:05:09.800 --> 0:05:11.760 I think May has sort of gone out of her 0:05:11.880 --> 0:05:16.840 way to disempower him in that job. And towards the end, 0:05:16.839 --> 0:05:20.120 I mean this Checkers meeting, there was this ridiculous business 0:05:20.200 --> 0:05:24.039 of you know, a briefing to the cabinet minister's attending 0:05:24.520 --> 0:05:27.279 that said, you know, if if any of them reside, 0:05:27.279 --> 0:05:29.480 they could make their own way back to London. You know, 0:05:29.520 --> 0:05:32.400 there'd be no ministerial car to take them back. And 0:05:32.480 --> 0:05:36.560 Steve Baker, who another junior Brexit minister who resigned at 0:05:36.560 --> 0:05:39.920 the weekend, basically said he felt like resigning over the 0:05:40.000 --> 0:05:43.080 sheer childishness of that threat. And I must say when 0:05:43.080 --> 0:05:45.880 I read that, my first instinct was to think, this 0:05:46.000 --> 0:05:49.719 can't be right. You know, they surely can't. They can't 0:05:49.720 --> 0:05:53.760 have done that briefing. It's it did seem childish, completely idiotic, 0:05:54.440 --> 0:05:58.000 But apparently it happened, and I think, you know, this 0:05:58.120 --> 0:06:02.279 is one of a series of uh moves that make 0:06:02.600 --> 0:06:04.960 made Davis Field. You know, what am I even doing 0:06:05.000 --> 0:06:07.440 in this job? I don't believe in the policy. I'm 0:06:07.480 --> 0:06:11.360 not being listened to. Uh you know, May has taken 0:06:11.440 --> 0:06:14.560 close control of the Brexit reins. I don't really have 0:06:14.640 --> 0:06:17.200 a job. So I mean, I think in this case 0:06:17.240 --> 0:06:19.479 there's no mystery at all about why I resigned. All right, 0:06:19.520 --> 0:06:22.159 So what's the road ahead here? Given how split the 0:06:22.279 --> 0:06:25.040 UK government is and given the fact that Teresa Mayson 0:06:25.080 --> 0:06:28.000 that the proposal that the European Union put out there 0:06:28.640 --> 0:06:33.119 leaves a serious risk could lead to no deal. Well, 0:06:34.000 --> 0:06:36.640 we are at a moment of great uncertainty. There's no 0:06:36.760 --> 0:06:40.599 you know, there's no no denying that. But my my 0:06:40.960 --> 0:06:44.599 guess is that May will prevail because there won't be 0:06:44.680 --> 0:06:47.880 sufficient support in the Tory Party to bring her down. 0:06:48.279 --> 0:06:50.880 And I think you will move to a position where 0:06:50.960 --> 0:06:55.080 she has a camera which is more squarely behind the policy. 0:06:55.279 --> 0:06:58.719 And then the then the question shifts to Okay, what 0:06:58.920 --> 0:07:02.039 is the EU going to make of this proposal that 0:07:02.120 --> 0:07:05.280 she's made. I mean, it's very important to remember that 0:07:05.400 --> 0:07:09.240 this proposal that she's made is unpopular with Brexit MPs 0:07:09.360 --> 0:07:13.120 because it's too friendly to Europe. Europe is going to 0:07:13.160 --> 0:07:16.560 take the view that this is no good for them 0:07:16.600 --> 0:07:19.000 because it isn't close enough to the model they would 0:07:19.040 --> 0:07:23.000 prefer right which is the Norway Single Market membership model. 0:07:23.680 --> 0:07:25.520 So I think that is that that is a bigger 0:07:25.600 --> 0:07:28.960 danger for May right now myself, rather than rebellion within 0:07:29.000 --> 0:07:31.960 the Tory Party, that when the EU gets around to 0:07:32.080 --> 0:07:35.200 responding to this new position she's taken, they will say sorry, 0:07:35.200 --> 0:07:38.040 we're not interested, and then I think May would be 0:07:38.080 --> 0:07:42.640 in more serious trouble. If the EU says, okay, we 0:07:42.680 --> 0:07:45.520 can talk about this, we can do business along these lines, 0:07:45.640 --> 0:07:49.720 then maybe Britain can move towards a soft Brexit of 0:07:49.760 --> 0:07:53.280 the kind that May is suggesting, but that the action 0:07:53.320 --> 0:07:57.160 pretty soon will shift to Europe and Europe's reaction to 0:07:57.360 --> 0:08:00.640 May's proposal. Clive Crook, thank you so much for being 0:08:00.640 --> 0:08:04.080 with us. Clive Crook is Bloomberg Opinion editor coming to 0:08:04.160 --> 0:08:08.920 us to talk about the ongoing turmoil in British politics, 0:08:08.920 --> 0:08:12.040 as well as the Brexit path ahead. Ian Bremer, a 0:08:12.040 --> 0:08:16.000 long time strategist who runs the Aurasia Group, just tweeted 0:08:16.000 --> 0:08:23.160 out shambolic is too understated to describe present British political process. Certainly, 0:08:23.360 --> 0:08:28.320 that talk that Theresa May gave to the legislature was 0:08:28.400 --> 0:08:33.440 raucous and fraught with a lot of jibing and mocking 0:08:33.600 --> 0:08:49.960 and all sorts of things. As the rhetoric heats up 0:08:50.000 --> 0:08:53.520 between the US and China and other nations over trade, 0:08:53.559 --> 0:08:57.200 there is a question of what are the potential consequences, 0:08:57.440 --> 0:09:02.040 and our markets overly sanguine or really perhaps heated up 0:09:02.240 --> 0:09:05.880 or overly dramatizing what's going on here? To answer that 0:09:06.080 --> 0:09:09.359 is Robert Lawrence. He's Professor of International Trade and Investment 0:09:09.400 --> 0:09:12.640 at the John F. Kennedy School of Government at Harvard University. 0:09:12.920 --> 0:09:15.319 He's also a senior fellow at the Peterson Institute for 0:09:15.320 --> 0:09:20.079 International Economics and former economic advisor to President Clinton. Robert, 0:09:20.080 --> 0:09:22.200 thank you so much for being with us. I just 0:09:22.240 --> 0:09:25.000 want to start with a line in a recent article 0:09:25.080 --> 0:09:27.640 that you wrote, it may be impossible to prevent the 0:09:27.760 --> 0:09:31.560 d globalization of the US economy. What did you mean 0:09:31.600 --> 0:09:36.280 by that, Well, the way we make things today is 0:09:36.280 --> 0:09:41.200 in global supply chain, and so products are no longer 0:09:41.240 --> 0:09:44.760 singly made in one country and then sold in the second, 0:09:45.640 --> 0:09:50.520 but rather many components are shipped in and then they're assembled. 0:09:50.960 --> 0:09:55.719 And so when you put tariffs like we're now seeing imposed, 0:09:56.080 --> 0:10:00.360 you disturbed these global supply chains. And that's what's happening. 0:10:00.360 --> 0:10:02.560 And that's what I meant by saying, in the long run, 0:10:03.520 --> 0:10:06.480 firms are going to be unable to plan and to 0:10:06.600 --> 0:10:10.400 invest in order to service the global economy. So isn't 0:10:10.440 --> 0:10:14.079 this what President Trump wants, which is to bring more 0:10:14.160 --> 0:10:17.079 jobs back to the US and not outsource them to 0:10:17.200 --> 0:10:20.440 a lot of other countries. Well, in one sense, it 0:10:20.559 --> 0:10:25.120 is what he wants. But the problem is that what's 0:10:25.160 --> 0:10:28.240 going to happen as he imposes these tariffs is that 0:10:28.320 --> 0:10:30.800 a lot of American jobs are also going to be lost. 0:10:31.760 --> 0:10:35.479 We saw last last week, for instance, how Harley Davidson 0:10:35.600 --> 0:10:40.720 has decided that they, because of the retaliation that President 0:10:40.720 --> 0:10:43.480 Trump was invoked, they're going to have to move now 0:10:43.520 --> 0:10:49.360 to Europe to produce their motorbikes. I was just Robert Lawrence. 0:10:49.360 --> 0:10:52.960 I'd just like to get your thoughts on the movement 0:10:53.080 --> 0:10:58.960 of people, basically because they're seeking some kind of economic 0:10:59.720 --> 0:11:05.959 saw us from poverty and being disenfranchised, particularly in Latin America. 0:11:06.120 --> 0:11:10.120 And I'm wondering whether that is a factor when it 0:11:10.200 --> 0:11:14.880 comes to trade. In other words, would better trade policies 0:11:15.280 --> 0:11:21.280 lead to healthier economies outside the United States, thereby mitigating 0:11:22.040 --> 0:11:25.080 what the President has already described as a flood of 0:11:25.600 --> 0:11:30.520 economic immigrants into the United States. I think absolutely. You know, 0:11:31.400 --> 0:11:35.760 when President Selinas of Mexico was talking about the original Masta, 0:11:35.920 --> 0:11:39.520 he said, America, your choice is simple. You can take 0:11:39.520 --> 0:11:43.280 our goods or you can take our people. And in fact, 0:11:43.920 --> 0:11:50.840 I think by um causing, by disrupting the supply chains 0:11:50.880 --> 0:11:54.080 like those that we have currently with Mexico, we're going 0:11:54.160 --> 0:11:57.640 to lead to economic instability in Mexico, and that could 0:11:57.760 --> 0:12:01.520 put even more pressures on our borders. Professor, I want 0:12:01.520 --> 0:12:04.680 to I want to talk specifically about the relationship between 0:12:04.880 --> 0:12:07.440 the US and China. I know you've done a lot 0:12:07.520 --> 0:12:11.080 of research on the history there, and I'm just wondering. 0:12:11.160 --> 0:12:14.480 You know, there is an argument that China's practices have 0:12:14.600 --> 0:12:18.760 been UH anti competitive against the US, have disadvantaged the 0:12:18.880 --> 0:12:23.760 US UH and that President Trump is right to go 0:12:24.040 --> 0:12:28.920 after certain of these practices. Would you agree with that? Well, 0:12:28.960 --> 0:12:31.600 I would agree that there are numerous practices of the 0:12:31.679 --> 0:12:35.280 Chinese that we need to go after, but I would 0:12:35.320 --> 0:12:39.000 disagree very strongly that the right way to do it 0:12:39.080 --> 0:12:45.320 is by breaking our international trade commitments and imposing paraffs 0:12:45.400 --> 0:12:48.680 on them. I think we should be using the legal 0:12:48.720 --> 0:12:53.000 processes of something like the World Trade Organization to deal 0:12:53.080 --> 0:12:56.480 with some of the practices, and in other cases we 0:12:56.559 --> 0:13:00.000 have power because we should be preventing the Chinese from 0:13:00.040 --> 0:13:03.040 investing in our country if we can't invest in this. 0:13:04.080 --> 0:13:07.960 So my problem is that I think there are genuine 0:13:08.000 --> 0:13:10.640 issues with China, but we need to deal with them 0:13:10.640 --> 0:13:13.880 in a way that doesn't damage our own economy. I 0:13:13.920 --> 0:13:15.640 think a lot of people would agree with that, and 0:13:15.679 --> 0:13:17.760 I think that the disagreement comes with exactly how to 0:13:17.840 --> 0:13:19.160 how to do that, And I think a lot of 0:13:19.160 --> 0:13:21.880 people are wondering. You know, President Trump has gone after 0:13:21.920 --> 0:13:24.599 certain things. We don't know what he's going to do eventually. 0:13:24.960 --> 0:13:32.040 How does China's transformation uh from a relatively poor country 0:13:32.200 --> 0:13:39.280 to the world's second biggest economy affect these discussions? Well, definitely. Um. 0:13:39.840 --> 0:13:42.800 I think firstly, we can't push him around in the 0:13:42.840 --> 0:13:46.920 way that perhaps President Trump thinks he can. And I 0:13:46.920 --> 0:13:50.280 think we're only going to get somewhere if we collaborate 0:13:50.400 --> 0:13:54.640 with them, and if we use the rules and if 0:13:54.679 --> 0:13:58.520 we use our allies in bringing cases to the World 0:13:58.559 --> 0:14:03.920 Trade Organization. So I think there are better methods to 0:14:04.080 --> 0:14:08.520 deal with China trying to bully them, essentially by imposing 0:14:08.640 --> 0:14:13.280 the carabs on them and trying to get them to 0:14:13.320 --> 0:14:16.599 back down, which after all, will cause their president to 0:14:16.679 --> 0:14:19.800 lose faith. I just think it is a non starter. 0:14:20.680 --> 0:14:24.960 So what President Trump is doing is in fact inducing 0:14:25.400 --> 0:14:30.360 a trade war, which is going to penalize UM companies 0:14:30.400 --> 0:14:35.240 who have invested in China. Our US companies going to 0:14:35.400 --> 0:14:38.960 miss out on faster growing economies that are going to 0:14:39.000 --> 0:14:41.280 go their own way and strike trade deals without the 0:14:41.360 --> 0:14:45.400 United States. Well, absolutely, we've just seen. We know what happened. 0:14:45.680 --> 0:14:48.760 The U s didn't join the Trans Pacific Partnership the 0:14:48.800 --> 0:14:52.560 eleven countries. Other countries went ahead and they've removed the 0:14:52.560 --> 0:14:57.560 barriers among them. So now American exporters are going to 0:14:57.640 --> 0:15:00.040 be charged higher tariffs when they sell in Japan, and 0:15:00.840 --> 0:15:04.040 then their competitors are going to be So we're by 0:15:04.080 --> 0:15:08.920 not playing with other countries, by trying to withdraw, in fact, 0:15:09.000 --> 0:15:11.600 we're gonna we're going to damage the global economy and 0:15:11.680 --> 0:15:16.160 our own relationship with it. So Professor, right now, US 0:15:16.240 --> 0:15:20.640 markets are largely shrugging off the risk of an escalation 0:15:20.760 --> 0:15:23.240 in this trade war, at least one that would really 0:15:23.240 --> 0:15:27.800 reduce economic growth globally. You've got the US equity markets 0:15:27.840 --> 0:15:31.600 generally are up today. Yet again, um, do you think 0:15:31.640 --> 0:15:33.880 that perhaps people are too sanguine or do you think 0:15:33.880 --> 0:15:36.400 that this is not something that will ultimately be felt 0:15:36.720 --> 0:15:39.920 in markets in the near future. Well, I think in 0:15:39.960 --> 0:15:42.240 the short run, our economy has a lot of strength. 0:15:42.760 --> 0:15:46.680 I think the tax cuts have generated very strong demand, 0:15:47.200 --> 0:15:49.920 and I think actually last week's news allows the Federal 0:15:49.960 --> 0:15:54.320 Reserve to to lower interest rate. But I think it 0:15:54.400 --> 0:15:57.640 is rather damaging for the firms who are involved in 0:15:57.680 --> 0:16:00.800 international trade. And I think we don't even see the 0:16:00.840 --> 0:16:04.360 real economic effects over a much longer period of time. 0:16:05.080 --> 0:16:08.520 So you can say they're too sanguine if what they're 0:16:08.560 --> 0:16:11.880 reflecting is the long run. But in the short run, 0:16:11.960 --> 0:16:15.800 I think the timing is pretty good in the sense 0:16:15.800 --> 0:16:19.520 that economy is very robust. I want to thank you 0:16:19.600 --> 0:16:22.320 very much for spending time with us. Robert Lawrence is 0:16:22.360 --> 0:16:27.720 Professor of International Trade and Investment at the JFK JFK 0:16:27.920 --> 0:16:31.680 School of Government at Harvard University. He is also a 0:16:31.760 --> 0:16:36.120 senior fellow at the Peterson Institute for International Economics, former 0:16:36.160 --> 0:16:57.320 economic advisor to President Bill Clinton, joining US from Boston him. 0:16:57.440 --> 0:16:59.840 You know, I have been really impressed at how much 0:17:00.080 --> 0:17:03.680 drama and intrigue there has been in the soybean market 0:17:03.760 --> 0:17:07.360 over the past few months as the talk of tariffs 0:17:07.359 --> 0:17:11.760 heats up, and this is sort of exemplified via ship 0:17:11.840 --> 0:17:15.920 that was carrying US soybeans racing to China to try 0:17:15.960 --> 0:17:19.480 to get there ahead of the US implementing a twenty 0:17:19.600 --> 0:17:23.040 five percent tariff. Here to talk about that and what 0:17:23.080 --> 0:17:25.439 we should really be looking for in the agricultural world 0:17:25.760 --> 0:17:28.760 on the heels of these tariffs, allam Burgo Joints is 0:17:28.760 --> 0:17:32.280 now agricultural reporter for Bloomberg. Allen, let's just start with 0:17:32.359 --> 0:17:37.800 that ship. What happened and what's next. The peak Pegasus 0:17:38.200 --> 0:17:41.959 hit is idling off the coast about nineteen miles from 0:17:42.000 --> 0:17:45.879 Dalian where it was supposed to be unloaded before the 0:17:46.000 --> 0:17:49.200 tariffs took effect, but it didn't get there on time, 0:17:49.320 --> 0:17:51.800 and now it's a shipment looking for a buyer. Now, 0:17:52.280 --> 0:17:54.080 there was a little bit of a development here where 0:17:54.160 --> 0:17:57.760 China threw a wrinkle into the terms of sales, where 0:17:57.880 --> 0:18:01.960 basically if US soybeans are being bought for the Chinese 0:18:01.960 --> 0:18:05.480 state reserve, which can be quite substantial um enough to 0:18:05.520 --> 0:18:09.199 affect world markets. The government will actually reimburse for the 0:18:09.240 --> 0:18:12.399 cost of the tariff um. It's basically a rebate. It 0:18:12.440 --> 0:18:14.760 isn't paid upfront, but you can get reimbursed later. And 0:18:15.080 --> 0:18:17.920 I think this just shows how complex this trade war 0:18:18.040 --> 0:18:20.919 could become, because there are all sorts of levers that 0:18:21.040 --> 0:18:23.080 China can pull, and in the United States to a 0:18:23.080 --> 0:18:26.320 certain extent as well, that can take what at the 0:18:26.359 --> 0:18:29.840 top level looks like this really static situation and throw 0:18:29.920 --> 0:18:32.760 all sorts of nuance into it. I mean, if there 0:18:32.840 --> 0:18:35.240 is a rebate for the state reserve, that should be 0:18:35.359 --> 0:18:38.520 good for US soybean prices, but you actually see soybeans 0:18:38.520 --> 0:18:40.520 down about eighteen cents today. They're still trading at a 0:18:40.560 --> 0:18:42.639 ten year low. And so it all comes down to 0:18:42.920 --> 0:18:45.240 what signals are given to the market, and how does 0:18:45.280 --> 0:18:49.240 the market perceive these signals in a way that it 0:18:49.359 --> 0:18:51.199 shrugs it off or it see it as an opening. 0:18:51.359 --> 0:18:54.760 Right now, folks seem pretty barish that anything will actually 0:18:54.760 --> 0:18:59.440 be resolved soon. Alan The price of soybeans is down 0:18:59.520 --> 0:19:04.000 something like twenty percent since the beginning of March. What 0:19:04.040 --> 0:19:07.360 are soybean farmers going to do well? At first? They're 0:19:07.359 --> 0:19:09.199 going to be seeking out other markets, and you have 0:19:09.359 --> 0:19:13.280 seen some signs of of other buyers rebounding just because 0:19:13.760 --> 0:19:17.080 US soybeans are now so cheap, especially in comparison with Brazil. 0:19:17.200 --> 0:19:19.679 The main competition which is mainly signing that China. So 0:19:19.720 --> 0:19:23.400 there's a certain amount of market recalibration going on right now. 0:19:23.440 --> 0:19:25.960 But if that plays out over months or years, that's 0:19:25.960 --> 0:19:28.040 cold comfort. If you have a bunch of soybeans sitting 0:19:28.040 --> 0:19:30.119 in your bin and you do need to get some 0:19:30.160 --> 0:19:32.760 sort of capacity worked off, and you are looking to 0:19:32.800 --> 0:19:35.080 pay off your loan, and you do need revenue to 0:19:35.080 --> 0:19:38.520 pay off that loan, say in October. UM. As this 0:19:38.720 --> 0:19:41.080 rolls on, you're going to see more of those effects 0:19:41.080 --> 0:19:44.120 start to reverberate through farm country. Of course, we saw 0:19:44.200 --> 0:19:47.080 a headline about ten days ago where it was reported 0:19:47.080 --> 0:19:50.000 by the U. S d A that farmers had surpassed 0:19:50.040 --> 0:19:52.520 corn in terms of plantings of soybeans overcorn for the 0:19:52.520 --> 0:19:54.840 first time in thirty five years. A lot of farmers 0:19:54.840 --> 0:19:57.600 bet on soybeans this year, knowing that China was looming 0:19:57.600 --> 0:19:59.840 in the horizon, that was a risk that they took. 0:20:00.320 --> 0:20:02.760 Right now it looks like a bad bet, Allen. I'm 0:20:02.760 --> 0:20:05.680 just wondering, has this sort of decline in soybean price 0:20:05.720 --> 0:20:07.600 has gone too far at this point, because you are 0:20:07.640 --> 0:20:10.680 set of getting some traders saying, you know, look, we've 0:20:10.720 --> 0:20:13.719 priced a lot of bad news already into the spot 0:20:13.800 --> 0:20:17.840 of futures that that could very well be the case. Um, 0:20:17.880 --> 0:20:20.080 you know, you take a look at the other factors 0:20:20.119 --> 0:20:23.679 that are driving the soybean market. Another expectation is that 0:20:23.680 --> 0:20:25.280 there's just going to be a bumper crop because the 0:20:25.320 --> 0:20:27.640 weather has been very good and growing regions this year, 0:20:27.680 --> 0:20:30.280 but we're now hitting a very sensitive time of year 0:20:30.359 --> 0:20:32.280 for the weather. So if you see some sort of 0:20:32.280 --> 0:20:35.160 sign of too much heat or some sort of crop damage, um, 0:20:35.200 --> 0:20:37.760 that is going to push prices up pretty quickly. And 0:20:37.800 --> 0:20:41.200 then another question, indeed, is how much of an effect 0:20:41.320 --> 0:20:43.840 is this trade war ultimately going to have on US 0:20:43.880 --> 0:20:47.520 soybean sales for China. The state reserves move already shows 0:20:47.560 --> 0:20:50.240 maybe a little bit of softening on China's line later 0:20:50.280 --> 0:20:53.800 in the year. If Brazilian soybeans simply can't keep up, 0:20:54.080 --> 0:20:58.359 you may have certain importers that will pay the tariff price. Anyway, 0:20:58.359 --> 0:21:01.919 we're basically about to learned how essential the US is 0:21:02.000 --> 0:21:04.520 as a supplier for the world Agriculturally, it's always been 0:21:04.520 --> 0:21:06.760 seen as the buyer of last resort. We'll see if 0:21:06.760 --> 0:21:10.800 that profile survives this trade war. Alan, you mentioned corn 0:21:11.040 --> 0:21:15.760 and corn prices down about fifteen percent from their peak 0:21:16.080 --> 0:21:18.600 that was in the end of May as well. What's 0:21:18.680 --> 0:21:21.359 up with corn? Yeah, so it's important to bring up 0:21:21.359 --> 0:21:24.560 corn because corn has never really been the China product 0:21:24.560 --> 0:21:26.119 that a lot of traders felt that it could be. 0:21:26.160 --> 0:21:28.280 So in terms of direct sales of US corn to 0:21:28.400 --> 0:21:31.560 China very little about a hundred and forty million dollars. 0:21:33.320 --> 0:21:35.440 But what you do have is this echo effect um. 0:21:35.560 --> 0:21:38.040 You know, you have the weather um which would be 0:21:38.119 --> 0:21:41.160 driving down prices anyway, So that's one factor. You also 0:21:41.240 --> 0:21:43.119 have the fact that if soybeans are sitting in the 0:21:43.200 --> 0:21:45.680 US unused, they'll be used for something and that could 0:21:45.720 --> 0:21:48.200 be as animal feed, which will then have a knock 0:21:48.240 --> 0:21:52.320 on effective reducing demand for corn. Thanks very much, Alan Bjorga, 0:21:52.640 --> 0:21:56.600 our agriculture reporter for Bloomberg News, joining us from our 0:21:56.800 --> 0:22:13.919 studios in Washington. Our next guest, Josh Lomyer, is the 0:22:13.960 --> 0:22:17.480 head of the US investment grade credit at a Viva Investors, 0:22:17.560 --> 0:22:20.840 helping to manage more than four and eighty billion dollars 0:22:20.880 --> 0:22:24.439 based in Chicago. UM, I want to ask you about 0:22:24.480 --> 0:22:29.080 whether the Federal Reserve will have to end their rate cycle, 0:22:29.359 --> 0:22:33.679 their rate increase cycle, as well as the quantitative tightening 0:22:33.760 --> 0:22:37.040 program because of what has been happening, not only with 0:22:37.720 --> 0:22:42.440 trade talks, but also when it looks as though you've 0:22:42.480 --> 0:22:46.520 seen big sell offs an emerging market debt as well, 0:22:46.560 --> 0:22:51.119 and a strengthening US dollar. Yeah, I think you know, 0:22:51.200 --> 0:22:54.040 with regards to the FAN, I think they've they're on 0:22:54.080 --> 0:22:59.159 a path that is really driven by economic growth and 0:22:59.520 --> 0:23:03.440 stable ization of the jobs in the US economy, and 0:23:03.840 --> 0:23:07.200 so I really believe that they're quite comfortable until they 0:23:07.240 --> 0:23:11.439 start to see stresses in those specific areas that they 0:23:11.480 --> 0:23:14.520 don't really need to remove policy or reduce their pace 0:23:14.600 --> 0:23:17.960 until they see really specific reasons to do so. You know, 0:23:18.000 --> 0:23:21.000 I'm struck by the fact that even as the fedbacks 0:23:21.040 --> 0:23:24.880 away from their ultra low rate policies are still very low. 0:23:25.320 --> 0:23:30.240 UH investment grade bonds have done really badly, and at 0:23:30.240 --> 0:23:33.879 the same time, companies have been able to sell unprecedented 0:23:33.920 --> 0:23:37.840 amounts of the debt for murders and acquisitions. I'm just wondering, 0:23:38.080 --> 0:23:41.720 after a loss in the first two quarters of more 0:23:41.720 --> 0:23:44.960 than three percent, do you think that investment grade credit 0:23:45.040 --> 0:23:46.760 is a buy now or do you think that this 0:23:46.840 --> 0:23:49.879 is just a sign of what's to come? You know, 0:23:49.960 --> 0:23:53.560 I think two thousand eight, teams specifically, is the year 0:23:53.640 --> 0:23:57.919 of the return of more normalized volatility, and so the 0:23:58.040 --> 0:24:01.720 weakness is really driven mind not so much by fundamentals 0:24:01.760 --> 0:24:05.800 as it is by a slight weakening in demand. And 0:24:06.160 --> 0:24:11.520 the consistency of demand be that retail, be that foreign investors, 0:24:11.560 --> 0:24:14.879 and supply has remained incredibly constant. So when you start 0:24:14.920 --> 0:24:17.640 to see a tightening of policy like we have had, 0:24:18.119 --> 0:24:21.479 what that just means is risk assets are now going 0:24:21.520 --> 0:24:25.240 to be forced to compete a little bit for for demand. Okay, 0:24:25.240 --> 0:24:27.440 So then where are we in that process? I mean, 0:24:27.520 --> 0:24:29.440 given the fact that we've had this three percent loss, 0:24:29.440 --> 0:24:32.320 which is the biggest first quarter loss since two thousand 0:24:32.400 --> 0:24:35.600 and eight for investment grade bonds in the US, are 0:24:35.640 --> 0:24:37.960 we halfway there? We're going to see a lot more 0:24:38.359 --> 0:24:41.159 more to come. I think that's a great point. I 0:24:41.520 --> 0:24:44.080