1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,680 Speaker 2: Terminal and the Bloomberg Business app. Ambassador Catherine Tie, us 10 00:00:37,720 --> 00:00:41,360 Speaker 2: trade representative, joins us now from New York. Ambassador, wonderful 11 00:00:41,400 --> 00:00:42,920 Speaker 2: to have you with us on the program. We've some 12 00:00:43,120 --> 00:00:45,199 Speaker 2: called us done a role reversal. You're in New York 13 00:00:45,240 --> 00:00:47,080 Speaker 2: and we're down in Washington. We'll make this work properly 14 00:00:47,159 --> 00:00:50,240 Speaker 2: next time, Ambassador. This is a topic we've been talking 15 00:00:50,240 --> 00:00:53,040 Speaker 2: about for a long long time, Chinese overcapacity. 16 00:00:53,360 --> 00:00:54,880 Speaker 1: We all know about the China shark. 17 00:00:54,920 --> 00:00:58,400 Speaker 2: We all studied it an obliterated manufacturing basis in places 18 00:00:58,560 --> 00:01:00,800 Speaker 2: like the United States of America. Can I just give 19 00:01:00,840 --> 00:01:02,320 Speaker 2: you a few minutes just to sort of lay the 20 00:01:02,320 --> 00:01:05,680 Speaker 2: ground for us what's changed and what's new about what's 21 00:01:05,720 --> 00:01:06,680 Speaker 2: developing right now. 22 00:01:07,160 --> 00:01:09,120 Speaker 3: Well, i'd be delighted too. It's wonderful to be here 23 00:01:09,120 --> 00:01:11,440 Speaker 3: with all of you. You're absolutely right about the China Shock, 24 00:01:11,640 --> 00:01:16,560 Speaker 3: and it's become an established set of facts as we 25 00:01:16,600 --> 00:01:20,680 Speaker 3: look back on the last several decades of China's emergence 26 00:01:20,840 --> 00:01:24,360 Speaker 3: as an economic powerhouse. 27 00:01:23,840 --> 00:01:24,480 Speaker 4: In the world. 28 00:01:24,840 --> 00:01:27,160 Speaker 3: As you've seen the growth of the Chinese economy, what 29 00:01:27,160 --> 00:01:31,160 Speaker 3: you've also seen is the negative impacts on other economies 30 00:01:31,280 --> 00:01:36,840 Speaker 3: like that of the United States, and of course the. 31 00:01:35,480 --> 00:01:37,360 Speaker 4: Industrial erosion that you've seen here. 32 00:01:37,640 --> 00:01:41,959 Speaker 3: The manufacturing capacity loss isn't just limited to the United States. 33 00:01:41,959 --> 00:01:44,360 Speaker 3: You see it in other advanced economies. You also see 34 00:01:44,400 --> 00:01:48,720 Speaker 3: it in developing countries as well. But to your point, 35 00:01:48,800 --> 00:01:51,160 Speaker 3: a lot of what we're seeing right now is not new. 36 00:01:51,520 --> 00:01:54,680 Speaker 3: The China Shock continues. We've seen it in the sectors 37 00:01:54,680 --> 00:01:58,360 Speaker 3: steel and aluminum. We've seen it in solar panels. Twenty 38 00:01:58,480 --> 00:02:02,120 Speaker 3: years ago, the United States several other countries had growing 39 00:02:02,520 --> 00:02:08,400 Speaker 3: economies and industries around solar panels. The Chinese double down 40 00:02:08,560 --> 00:02:12,320 Speaker 3: on their what we call non market practices. There a 41 00:02:12,520 --> 00:02:16,639 Speaker 3: state investment in a strategic emerging sector. And what you've 42 00:02:16,680 --> 00:02:19,320 Speaker 3: seen is something we've seen over and over again, a 43 00:02:19,600 --> 00:02:26,280 Speaker 3: creation of excess capacity over production that brings down prices. 44 00:02:26,320 --> 00:02:31,000 Speaker 3: It's a kind of predatory pricing practice worldwide that has 45 00:02:31,080 --> 00:02:35,160 Speaker 3: driven out producers in other economies, leaving the Chinese economy 46 00:02:35,280 --> 00:02:39,000 Speaker 3: having cornered the market in production. Right now, we're still 47 00:02:39,040 --> 00:02:43,880 Speaker 3: eighty five percent reliant on Chinese production and supply in 48 00:02:44,080 --> 00:02:48,200 Speaker 3: solar panels. We've also seen it in batteries. We're seeing 49 00:02:48,200 --> 00:02:51,919 Speaker 3: it now in evs and critical minerals is another example. 50 00:02:52,360 --> 00:02:55,040 Speaker 4: So what you see is doing with respect to. 51 00:02:55,480 --> 00:03:02,480 Speaker 3: Steel is actually responding to a set of pressures that 52 00:03:02,680 --> 00:03:07,639 Speaker 3: have been building over a couple decades. On the steel 53 00:03:07,680 --> 00:03:12,000 Speaker 3: point in particular, I wanted to really enforce that. What 54 00:03:12,120 --> 00:03:16,360 Speaker 3: you heard President Biden talk about earlier this week was 55 00:03:16,440 --> 00:03:19,520 Speaker 3: to call on me as the US Trade representative, to 56 00:03:19,760 --> 00:03:26,200 Speaker 3: consider increasing the existing tariffs on Chinese steel imports. But 57 00:03:26,280 --> 00:03:29,480 Speaker 3: we know that the challenge with Chinese over capacity and 58 00:03:29,520 --> 00:03:36,240 Speaker 3: excess production is a world economy challenge. The scale of 59 00:03:36,360 --> 00:03:40,520 Speaker 3: the Chinese economy and its ability to manufacture and produce. 60 00:03:40,640 --> 00:03:43,160 Speaker 4: Will depress prices worldwide. 61 00:03:43,600 --> 00:03:48,480 Speaker 3: It infects the global economy and global prices, and so 62 00:03:48,560 --> 00:03:49,120 Speaker 3: what you've. 63 00:03:48,960 --> 00:03:51,840 Speaker 4: Seen is as well the maintenance of. 64 00:03:51,880 --> 00:03:55,720 Speaker 3: The global steel tariffs and aluminum terraffs. But you also 65 00:03:55,720 --> 00:03:59,800 Speaker 3: see us as the Biden administration evolving out of that 66 00:04:00,080 --> 00:04:03,560 Speaker 3: particular framework. You see us in particular taking leadership role 67 00:04:03,720 --> 00:04:06,440 Speaker 3: with the European Union. Over the last two years, we 68 00:04:06,520 --> 00:04:11,120 Speaker 3: have been engaged in intensive negotiations for a new framework, a. 69 00:04:11,080 --> 00:04:13,440 Speaker 4: Global Sustainable Steel and. 70 00:04:13,440 --> 00:04:19,320 Speaker 3: Aluminum Agreement that we are working on to address not 71 00:04:19,560 --> 00:04:22,480 Speaker 3: just the excess capacity pressures, but also to try to 72 00:04:22,520 --> 00:04:26,680 Speaker 3: create incentives for cleaner production and cleaner trade in steel 73 00:04:26,680 --> 00:04:27,600 Speaker 3: and aluminum. 74 00:04:28,360 --> 00:04:29,920 Speaker 2: So, Ambassador, if I can jump in, if we can 75 00:04:29,920 --> 00:04:32,120 Speaker 2: focus just on steel, because we've got so much to 76 00:04:32,200 --> 00:04:34,719 Speaker 2: unpack there. Let's take steel, and we both know how 77 00:04:34,720 --> 00:04:36,680 Speaker 2: complex this is, and I can share some numbers with 78 00:04:36,720 --> 00:04:39,919 Speaker 2: our audience, certainly not for your benefit direct Chinese imports. 79 00:04:39,920 --> 00:04:41,840 Speaker 2: As you know, the estimate is something like zero point 80 00:04:41,920 --> 00:04:44,880 Speaker 2: six percent of total steel demand in the United States. 81 00:04:45,040 --> 00:04:49,720 Speaker 2: The problem is a lot of this is going through Mexico. So, Ambassador, 82 00:04:49,760 --> 00:04:52,359 Speaker 2: a question I heard someone ask recently is how do 83 00:04:52,480 --> 00:04:55,880 Speaker 2: we make them eat it? So how can you address 84 00:04:55,920 --> 00:04:58,479 Speaker 2: what is happening in Mexico? How do we stop the 85 00:04:58,520 --> 00:04:59,840 Speaker 2: steel coming through the back do. 86 00:05:01,000 --> 00:05:03,599 Speaker 3: So I'm going to impact this back at you in 87 00:05:03,600 --> 00:05:06,320 Speaker 3: a couple of ways. One is to reinforce the point 88 00:05:06,400 --> 00:05:10,360 Speaker 3: that when you have a producer, a major, major, dominant 89 00:05:10,560 --> 00:05:16,680 Speaker 3: producer like China, producing at below market rates, it affects 90 00:05:16,720 --> 00:05:20,920 Speaker 3: the entire supply chain starting upstream, all the way downstream. 91 00:05:21,279 --> 00:05:25,960 Speaker 3: The Mexico challenge is a piece of this, and again. 92 00:05:25,839 --> 00:05:27,400 Speaker 4: The challenge is worldwide. 93 00:05:27,720 --> 00:05:30,320 Speaker 3: So I think with respect to Mexico, there are a 94 00:05:30,360 --> 00:05:35,400 Speaker 3: couple pieces. One is to the extent that upstream steel 95 00:05:35,480 --> 00:05:38,080 Speaker 3: is coming into Mexico and being worked on and then 96 00:05:38,120 --> 00:05:40,480 Speaker 3: coming into the United States, You've got to figure out 97 00:05:40,560 --> 00:05:43,960 Speaker 3: how to level the playing field there. Secondly, there's a 98 00:05:44,040 --> 00:05:48,599 Speaker 3: much more blunt challenge with respect to steel coming into 99 00:05:48,640 --> 00:05:54,360 Speaker 3: Mexico and improperly coming into view United States as Mexican steel. 100 00:05:54,640 --> 00:05:56,000 Speaker 4: So there is a challenge with. 101 00:05:55,880 --> 00:06:00,720 Speaker 3: Respect to the evasion of trade programs and trade frameworks 102 00:06:00,720 --> 00:06:04,760 Speaker 3: where steel that's not properly Mexican is coming in as 103 00:06:04,839 --> 00:06:07,599 Speaker 3: Mexican steel and enjoying the preferences that we provide to 104 00:06:07,960 --> 00:06:11,640 Speaker 3: the Mexican economy and Mexican producers. So again, with respect 105 00:06:11,680 --> 00:06:15,240 Speaker 3: to steel production, in order for the United States to 106 00:06:15,279 --> 00:06:18,440 Speaker 3: continue to be able to produce, to continue to grow 107 00:06:18,440 --> 00:06:23,640 Speaker 3: our steel industry, to continue to grow cleaner steel industries. 108 00:06:24,080 --> 00:06:27,080 Speaker 3: What you see is a number of programs that we 109 00:06:27,080 --> 00:06:31,720 Speaker 3: are putting in place to ensure the integrity of trade systems. 110 00:06:31,920 --> 00:06:34,440 Speaker 3: The challenge right now is and steal is an excellent, 111 00:06:34,640 --> 00:06:40,560 Speaker 3: excellent example that there is no such thing as free 112 00:06:40,600 --> 00:06:47,400 Speaker 3: trade in steel. The market in steel globally is significantly 113 00:06:47,440 --> 00:06:50,599 Speaker 3: distorted by what we are calling the non market policies 114 00:06:50,600 --> 00:06:55,640 Speaker 3: and practices coming out of China. Supply that's being created, 115 00:06:56,040 --> 00:06:59,720 Speaker 3: production plans that are not linked to demand, and so 116 00:06:59,760 --> 00:07:03,360 Speaker 3: what happens is you have a significant depression of prices, 117 00:07:03,520 --> 00:07:06,359 Speaker 3: and it requires economies like the United States to work 118 00:07:06,560 --> 00:07:09,800 Speaker 3: with other economies that want to be opened, that want 119 00:07:09,800 --> 00:07:14,760 Speaker 3: to openly trade, to take more significant defensive measures against 120 00:07:15,080 --> 00:07:18,520 Speaker 3: the unfair practices that have infected this sector. 121 00:07:19,800 --> 00:07:22,560 Speaker 5: Ambassador Tide, do you see the similar dynamics and what 122 00:07:22,600 --> 00:07:25,240 Speaker 5: you're describing in steel happening right now with the ev 123 00:07:25,400 --> 00:07:27,240 Speaker 5: market one percent? 124 00:07:27,520 --> 00:07:30,680 Speaker 3: It's the same pattern that we see repeated over and 125 00:07:30,720 --> 00:07:34,400 Speaker 3: over in different sectors. And the challenge for us is 126 00:07:34,400 --> 00:07:38,000 Speaker 3: is this has not been our practice largely. We have 127 00:07:38,960 --> 00:07:42,080 Speaker 3: really adhered to this notion that if you just keep 128 00:07:42,120 --> 00:07:45,560 Speaker 3: taking down barriers, if you just keep trying to trade more, 129 00:07:45,800 --> 00:07:49,400 Speaker 3: if you just keep chasing efficiency, that everything will work 130 00:07:49,440 --> 00:07:52,920 Speaker 3: out great. The challenge is that in every one of 131 00:07:52,960 --> 00:07:58,240 Speaker 3: these sectors, we see that Chinese practices allow for Beijing 132 00:07:58,400 --> 00:08:01,880 Speaker 3: to capture larger and larger shares of the global market, 133 00:08:02,360 --> 00:08:05,720 Speaker 3: so that you end up with a dominant producer in 134 00:08:05,880 --> 00:08:09,240 Speaker 3: this entire economy, and what happens is the rest of 135 00:08:09,320 --> 00:08:12,040 Speaker 3: us become extremely vulnerable and reliant on that supply. 136 00:08:12,520 --> 00:08:14,200 Speaker 4: What we are trying to do is. 137 00:08:14,120 --> 00:08:20,480 Speaker 3: To find opportunities for us to descend, to stand up 138 00:08:20,640 --> 00:08:24,280 Speaker 3: so that we can restore more freedom to trade, more 139 00:08:24,320 --> 00:08:27,640 Speaker 3: freedom to economy, more freedom for other economies to stand 140 00:08:27,720 --> 00:08:31,360 Speaker 3: up to the coercion that results when you have these 141 00:08:31,400 --> 00:08:34,800 Speaker 3: types of vulnerabilities that can be used to create political 142 00:08:34,800 --> 00:08:36,120 Speaker 3: pressures on economies. 143 00:08:37,280 --> 00:08:40,400 Speaker 5: Well, the Biden administrations made very clear that tariffs on 144 00:08:40,480 --> 00:08:43,880 Speaker 5: Chinese evs, bigger tariffs are coming down the pipeline, but 145 00:08:43,880 --> 00:08:47,199 Speaker 5: Secretary Yellen also said the US quote won't take anything 146 00:08:47,240 --> 00:08:49,920 Speaker 5: off the table when it comes to this over capacity 147 00:08:49,960 --> 00:08:52,480 Speaker 5: coming out of China. We though, have not seen one 148 00:08:52,559 --> 00:08:56,120 Speaker 5: single wto complaint from the United States is that potentially 149 00:08:56,120 --> 00:08:57,280 Speaker 5: a tool that you can use. 150 00:08:57,800 --> 00:08:59,960 Speaker 3: I wonder if you get your TV say you're talking 151 00:09:00,080 --> 00:09:04,400 Speaker 3: points from my Republican senator counterparts from my hearing earlier 152 00:09:04,400 --> 00:09:08,040 Speaker 3: this week. Look, the World Trade Organization is incredibly is 153 00:09:08,040 --> 00:09:14,040 Speaker 3: an incredibly important, valuable institution in the world. As part 154 00:09:14,080 --> 00:09:18,280 Speaker 3: of the post World War two Bretton Woods Framework, the 155 00:09:18,320 --> 00:09:22,360 Speaker 3: World Trade Organization is critical to the functioning of a 156 00:09:22,360 --> 00:09:26,280 Speaker 3: modern world economy. That said, we also are very clear 157 00:09:26,360 --> 00:09:29,320 Speaker 3: in our commitment to the WTO lies our commitment to 158 00:09:29,360 --> 00:09:33,080 Speaker 3: reforming the WTO. I know this conversation is actually not 159 00:09:33,200 --> 00:09:37,880 Speaker 3: unique to the WTO. All the Bretton Woods institutions, the IMF, 160 00:09:38,120 --> 00:09:41,440 Speaker 3: the World Bank, this is their week. In all of 161 00:09:41,480 --> 00:09:43,319 Speaker 3: the conversations today, what. 162 00:09:43,400 --> 00:09:46,360 Speaker 4: You hear in all of those. 163 00:09:46,200 --> 00:09:50,520 Speaker 3: Conversations is the question of how these institutions evolve to 164 00:09:50,640 --> 00:09:52,520 Speaker 3: meet the challenges that we're facing today. 165 00:09:52,720 --> 00:09:54,040 Speaker 4: With respect to the WTO. 166 00:09:54,360 --> 00:09:57,880 Speaker 3: That is also true, and in terms of WTO dispute settlement, 167 00:09:58,000 --> 00:10:01,199 Speaker 3: we as the United States, are very very proud of 168 00:10:01,240 --> 00:10:02,800 Speaker 3: our record with respect. 169 00:10:02,400 --> 00:10:04,520 Speaker 4: To challenging Chinese practices at the WTO. 170 00:10:04,760 --> 00:10:07,200 Speaker 3: What we have found over time, however, is that each 171 00:10:07,280 --> 00:10:09,679 Speaker 3: one of those cases that we bring. Each victory that 172 00:10:09,720 --> 00:10:13,760 Speaker 3: we score ends up being a quite limited victory. It 173 00:10:13,840 --> 00:10:16,760 Speaker 3: ends up in quite limited change. What we are dealing 174 00:10:16,840 --> 00:10:19,280 Speaker 3: with in terms of the challenge of the Chinese economic 175 00:10:19,360 --> 00:10:24,040 Speaker 3: system is structural, it's systemic, and so that's why we 176 00:10:24,200 --> 00:10:30,040 Speaker 3: are bringing more strategy. We are bringing more creativity to 177 00:10:30,160 --> 00:10:33,920 Speaker 3: look for more effective ways to level the playing field, 178 00:10:34,200 --> 00:10:38,560 Speaker 3: working with other like minded economies, and also working to 179 00:10:38,720 --> 00:10:40,640 Speaker 3: raise these concerns inside of the. 180 00:10:40,600 --> 00:10:44,559 Speaker 5: Wto ambassad it's funny you bring up Republicans and their 181 00:10:44,600 --> 00:10:48,000 Speaker 5: talking points because broad strokes wise, what we see is 182 00:10:48,040 --> 00:10:51,000 Speaker 5: that whether or not we get another Biden administration or 183 00:10:51,080 --> 00:10:54,679 Speaker 5: Trump back into the White House, trade policies look almost 184 00:10:54,720 --> 00:10:57,440 Speaker 5: the same when it comes to China. Do you see 185 00:10:57,440 --> 00:10:59,880 Speaker 5: a divergence in what we potentially could see from Trump 186 00:11:00,120 --> 00:11:02,880 Speaker 5: or Biden given the fact that we still have Trump 187 00:11:02,960 --> 00:11:05,600 Speaker 5: erraor tariffs right now under this administration. 188 00:11:06,360 --> 00:11:07,800 Speaker 1: So I think what. 189 00:11:07,800 --> 00:11:13,000 Speaker 3: I will say is this that whether it's Republicans or Democrats, 190 00:11:13,840 --> 00:11:16,320 Speaker 3: going back to the earlier comments around the China shock, 191 00:11:17,120 --> 00:11:21,200 Speaker 3: we are together. And I think that this also applies 192 00:11:21,240 --> 00:11:24,920 Speaker 3: outside of the United States as well. We are coming 193 00:11:25,000 --> 00:11:29,480 Speaker 3: to a realization and raising in our consciousness a common 194 00:11:29,480 --> 00:11:33,439 Speaker 3: assessment with respect to diagnosing what the problem is, what 195 00:11:33,520 --> 00:11:38,160 Speaker 3: the source of today's world economic and trade challenges is, 196 00:11:39,520 --> 00:11:41,440 Speaker 3: then you have to move on to what are you 197 00:11:41,480 --> 00:11:43,520 Speaker 3: going to do about it? And with respect to the 198 00:11:43,520 --> 00:11:46,840 Speaker 3: Biden administration, we are very proud of our record. First 199 00:11:46,880 --> 00:11:50,240 Speaker 3: of all, the tariffs are an important tool in the 200 00:11:50,280 --> 00:11:53,640 Speaker 3: trade toolbox, and that it is important to use them 201 00:11:53,760 --> 00:11:57,439 Speaker 3: effectively and strategically and to know what the leverage is 202 00:11:57,480 --> 00:12:00,600 Speaker 3: with respect to the tariffs. So yes, we continue to 203 00:12:00,679 --> 00:12:07,480 Speaker 3: retain tariffs for strategic purposes. Second, the Widen administration hasn't 204 00:12:07,520 --> 00:12:12,599 Speaker 3: rested on just trade or just teriffs to address the 205 00:12:12,679 --> 00:12:16,920 Speaker 3: challenges that we face with respect to competing fairly with China. 206 00:12:17,360 --> 00:12:22,800 Speaker 3: We have also, as you've seen, activated significant investments into 207 00:12:22,880 --> 00:12:27,920 Speaker 3: the United States economy for the US workers and for 208 00:12:28,160 --> 00:12:32,240 Speaker 3: American infrastructure. It's the bipart is an infrastructure law, chips 209 00:12:32,240 --> 00:12:35,640 Speaker 3: and science, the Inflation Reduction Act, the investments into the 210 00:12:35,679 --> 00:12:39,320 Speaker 3: Clean energy revolution. In addition to that, you also see 211 00:12:39,480 --> 00:12:45,640 Speaker 3: that we have initiated an investigation into China's unfair non 212 00:12:45,679 --> 00:12:48,560 Speaker 3: market practices that have been alleged by five of our 213 00:12:48,640 --> 00:12:54,600 Speaker 3: labor unions with respect to their maritime logistics and shipbuilding sectors. 214 00:12:55,480 --> 00:13:00,480 Speaker 3: When you take these three segments together, what you have 215 00:13:00,640 --> 00:13:05,800 Speaker 3: is the articulation of the Biden administration's China trade. 216 00:13:05,520 --> 00:13:09,719 Speaker 2: Response and by SID, I just want to ask you 217 00:13:09,760 --> 00:13:11,880 Speaker 2: a question very quickly about Chinese evs. If you had 218 00:13:11,920 --> 00:13:14,720 Speaker 2: a decision on that, can we expect a conclusion anytime soon? 219 00:13:15,360 --> 00:13:18,440 Speaker 3: So I'm not quite sure there's not a specific question 220 00:13:18,520 --> 00:13:23,760 Speaker 3: before us. I think with respect to maritime logistics and shipbuilding, 221 00:13:23,760 --> 00:13:26,319 Speaker 3: for instance, there is a petition that was presented to us. 222 00:13:26,640 --> 00:13:29,440 Speaker 3: Think to your point, it's what are we going to 223 00:13:29,480 --> 00:13:33,160 Speaker 3: do about this trend that we see repeating itself in 224 00:13:33,200 --> 00:13:36,640 Speaker 3: the EV sector. Again, we have an entire set of 225 00:13:36,640 --> 00:13:40,000 Speaker 3: tools before us, many of them are with the US 226 00:13:40,080 --> 00:13:43,840 Speaker 3: Trade Representative, whether it's with respect to investigations that we 227 00:13:43,840 --> 00:13:47,520 Speaker 3: can begin, whether it's looking at the set of tariffs 228 00:13:47,559 --> 00:13:51,120 Speaker 3: that are and trined in our tariff review which has 229 00:13:51,920 --> 00:13:56,720 Speaker 3: been ongoing for the last eighteen months. With respect to 230 00:13:56,720 --> 00:14:01,400 Speaker 3: that tariff review, I am confident that as a whole 231 00:14:01,440 --> 00:14:04,959 Speaker 3: of government exercise that we have been in an undertaking 232 00:14:05,000 --> 00:14:10,880 Speaker 3: with deliberation, seriousness, especially with respect to looking at more strategic, 233 00:14:11,000 --> 00:14:14,320 Speaker 3: more effective deployment of the tariffs that we have to 234 00:14:14,440 --> 00:14:16,480 Speaker 3: address the inequities. 235 00:14:15,880 --> 00:14:17,400 Speaker 4: In our trade relationship with China. 236 00:14:17,600 --> 00:14:20,800 Speaker 3: I am confident that conclusion will be coming soon. 237 00:14:21,920 --> 00:14:23,960 Speaker 2: And Besida, I can't just conclude with the following question, 238 00:14:24,040 --> 00:14:27,000 Speaker 2: and it's probably difficult to answer directly, but the issues 239 00:14:27,040 --> 00:14:29,240 Speaker 2: that you and I have discussed, that we've discussed over 240 00:14:29,280 --> 00:14:31,760 Speaker 2: the last ten minutes or so as we started this conversation, 241 00:14:32,200 --> 00:14:34,480 Speaker 2: they're not new. They've been at the forefront of many 242 00:14:34,480 --> 00:14:37,480 Speaker 2: economist minds for a long long time. What strikes me 243 00:14:37,600 --> 00:14:40,600 Speaker 2: is somewhat amusing is that it took someone like Donald 244 00:14:40,600 --> 00:14:44,200 Speaker 2: Trump in twenty sixteen to put the forefront of American 245 00:14:44,240 --> 00:14:47,960 Speaker 2: politics to shake the establishment to almost make this consensus. 246 00:14:48,280 --> 00:14:49,800 Speaker 1: When I was listening to Secretary. 247 00:14:49,480 --> 00:14:52,160 Speaker 2: Yellen over the last few weeks, I just thought, this 248 00:14:52,160 --> 00:14:55,760 Speaker 2: feels like a Secretary Yellen discovery tour, something personal to 249 00:14:55,840 --> 00:14:58,440 Speaker 2: her and nothing really new for policy. And Bassador, can 250 00:14:58,480 --> 00:15:01,800 Speaker 2: I ask you what took long for the establishment in 251 00:15:01,840 --> 00:15:04,560 Speaker 2: America to figure out this was the road they needed 252 00:15:04,600 --> 00:15:05,120 Speaker 2: to go down? 253 00:15:05,960 --> 00:15:09,000 Speaker 3: Well, it's an excellent question, because you know what I 254 00:15:09,000 --> 00:15:12,640 Speaker 3: would do is I would actually have leaders in trade 255 00:15:12,680 --> 00:15:18,560 Speaker 3: policy take ownership of the call. The earliest calls for 256 00:15:19,000 --> 00:15:21,920 Speaker 3: the need for attention to the challenges that we are 257 00:15:21,960 --> 00:15:26,080 Speaker 3: all focused on now. These are issues that we have 258 00:15:26,160 --> 00:15:29,000 Speaker 3: been raising at the wto bilaterally with. 259 00:15:28,960 --> 00:15:30,960 Speaker 4: China, very directly for a very long time. 260 00:15:31,000 --> 00:15:34,560 Speaker 3: We had direct dialogues with China where we would raise 261 00:15:34,560 --> 00:15:36,440 Speaker 3: these issues over and over. We would raise them with 262 00:15:36,640 --> 00:15:39,000 Speaker 3: our partners. I think part of what you see is 263 00:15:39,080 --> 00:15:44,680 Speaker 3: the increasing pressure that is being placed on economic dynamics. 264 00:15:45,560 --> 00:15:48,240 Speaker 3: One last point I wanted to make with respect to inflation. 265 00:15:48,760 --> 00:15:52,640 Speaker 3: Inflation conversation gets attached to tariffs a lot. The more 266 00:15:52,880 --> 00:15:57,360 Speaker 3: we are talking about inflation and examining our worldwide experience 267 00:15:57,440 --> 00:16:00,640 Speaker 3: with this phenomenon over the last couple years, the more 268 00:16:00,680 --> 00:16:04,040 Speaker 3: we are realizing that the inflationary pressures are linked to 269 00:16:04,280 --> 00:16:07,760 Speaker 3: the supply challenges that we have. Those supply challenges go 270 00:16:07,840 --> 00:16:12,400 Speaker 3: to our vulnerabilities over concentration, the domination that we see 271 00:16:12,440 --> 00:16:16,280 Speaker 3: by certain producers in the world economy. I think that 272 00:16:17,080 --> 00:16:19,640 Speaker 3: is the next area where we need to drive coalescence 273 00:16:19,720 --> 00:16:23,600 Speaker 3: around our analysis so that we can work together, whether 274 00:16:23,640 --> 00:16:26,560 Speaker 3: it's Democrats and Republicans, whether it's the United States and 275 00:16:26,680 --> 00:16:28,800 Speaker 3: other countries on solutions. 276 00:16:29,880 --> 00:16:32,160 Speaker 2: I'm Bassaldor looking forward to having this conversation in person. 277 00:16:32,240 --> 00:16:44,320 Speaker 1: Next time in join New York. Adam's with us here 278 00:16:44,360 --> 00:16:46,880 Speaker 1: in Washington. Adam, good morning to you, Welcome to Washington. 279 00:16:46,960 --> 00:16:48,600 Speaker 1: Thank you very much for having a set. 280 00:16:48,680 --> 00:16:50,960 Speaker 2: Can we talk about the lack of cooperation and maybe 281 00:16:51,000 --> 00:16:53,280 Speaker 2: even the complaints that you've heard this week about the 282 00:16:53,320 --> 00:16:54,520 Speaker 2: strength of the US dollar. 283 00:16:54,680 --> 00:16:55,960 Speaker 1: How loud are those complaints? 284 00:16:56,200 --> 00:16:59,280 Speaker 6: Well, after a long time of silence, even though the 285 00:16:59,360 --> 00:17:03,440 Speaker 6: dollar kept we saw yesterday Janet Yellen and her counterparts 286 00:17:03,480 --> 00:17:08,840 Speaker 6: from Japan and Korea do an open mouth operation. Open mouth. 287 00:17:09,160 --> 00:17:13,040 Speaker 6: Sometimes stuff comes out, sometimes stuff doesn't. You know, there's 288 00:17:13,160 --> 00:17:17,040 Speaker 6: very big fundamentals here. The Japanese economy is doing very 289 00:17:17,040 --> 00:17:21,119 Speaker 6: well by its standards, but and potentially could be raising rates, 290 00:17:21,440 --> 00:17:21,960 Speaker 6: but it's not. 291 00:17:22,080 --> 00:17:22,600 Speaker 1: The US. 292 00:17:24,040 --> 00:17:28,639 Speaker 6: Korea has a lot of positive fundamentals. But the point is, 293 00:17:28,640 --> 00:17:32,800 Speaker 6: if even Japan and Korea are losing ground against the dollar, 294 00:17:33,000 --> 00:17:35,760 Speaker 6: this is a wave and my fear is it just 295 00:17:35,840 --> 00:17:39,360 Speaker 6: goes up from here and that problems get bigger, political 296 00:17:39,359 --> 00:17:42,400 Speaker 6: problems and economic problems more political than economic. 297 00:17:42,520 --> 00:17:44,399 Speaker 2: But yeah, can we talk about the political and the 298 00:17:44,440 --> 00:17:45,199 Speaker 2: economic problems? 299 00:17:45,200 --> 00:17:45,920 Speaker 1: First? The political? 300 00:17:45,960 --> 00:17:48,280 Speaker 2: What would be the political problems that come about off 301 00:17:48,320 --> 00:17:49,920 Speaker 2: the back of this move so. 302 00:17:50,200 --> 00:17:53,359 Speaker 6: It's probably not gonna affect the election directly, but it 303 00:17:53,440 --> 00:17:56,720 Speaker 6: sets things up for bigger trade deficits, which again is 304 00:17:56,760 --> 00:18:00,560 Speaker 6: not necessarily a bad thing. But if Trump is stated 305 00:18:00,680 --> 00:18:03,880 Speaker 6: and Lightheiser view that as a real problem, or if 306 00:18:04,040 --> 00:18:06,600 Speaker 6: over the course of the campaign the Biden administration starts 307 00:18:06,640 --> 00:18:09,280 Speaker 6: talking about and decides it's a real problem, then you 308 00:18:09,400 --> 00:18:11,399 Speaker 6: have a need to deal with it. 309 00:18:12,200 --> 00:18:14,360 Speaker 1: And tariffs, whatever. 310 00:18:14,000 --> 00:18:17,800 Speaker 6: Their lack of virtues on their own merits, they don't 311 00:18:17,800 --> 00:18:21,359 Speaker 6: fix trade deficits. That was demonstrated amply over the last 312 00:18:21,400 --> 00:18:24,800 Speaker 6: seven years. So you end up back in if you 313 00:18:24,840 --> 00:18:26,800 Speaker 6: care about the trade officer, you care about the dollar, 314 00:18:26,960 --> 00:18:29,560 Speaker 6: and most importantly, you care about what that does to 315 00:18:30,080 --> 00:18:35,040 Speaker 6: credit conditions. So Lisa's rightly talking about monetary policy isn't 316 00:18:35,040 --> 00:18:37,439 Speaker 6: as tight as the Fed thought. If you have a 317 00:18:37,520 --> 00:18:40,440 Speaker 6: very strong dollar and money flowing into the dollar, that 318 00:18:40,520 --> 00:18:42,320 Speaker 6: further loosens credit conditions. 319 00:18:42,800 --> 00:18:45,840 Speaker 5: You mentioned the fiscal deficit. The IMF pretty much put 320 00:18:45,840 --> 00:18:48,280 Speaker 5: out a warning to the United States almost it's too loose. 321 00:18:48,320 --> 00:18:50,080 Speaker 5: We've prepared to be looser this year because it's an 322 00:18:50,119 --> 00:18:53,560 Speaker 5: election year and there's no path forward for fiscal discipline. 323 00:18:53,720 --> 00:18:56,840 Speaker 5: How much is the US the biggest problem when you're 324 00:18:56,880 --> 00:18:58,399 Speaker 5: talking to officials from around the. 325 00:18:58,359 --> 00:19:01,800 Speaker 6: World, I mean, the US is the problem memory, mostly 326 00:19:01,840 --> 00:19:06,160 Speaker 6: because of our unreliability in international commitments and the potential 327 00:19:06,200 --> 00:19:09,040 Speaker 6: for unwinding even further those commitments, and a lot of 328 00:19:09,040 --> 00:19:11,120 Speaker 6: self dealing. So a lot of it's on the trade front, 329 00:19:11,160 --> 00:19:16,119 Speaker 6: the security front, unreliability like with Ukraine funding, unreliability with 330 00:19:16,359 --> 00:19:19,399 Speaker 6: trade deals with the USMCA. But in terms of the 331 00:19:19,680 --> 00:19:21,679 Speaker 6: dollar in the fiscal I was glad to see the 332 00:19:21,720 --> 00:19:24,840 Speaker 6: IMF getting loud because sometimes they are scared to do 333 00:19:24,920 --> 00:19:29,960 Speaker 6: real surveillance on China, US, the big economies, and you know, 334 00:19:30,000 --> 00:19:32,840 Speaker 6: we got open ended fiscal problems. We've got this threat 335 00:19:33,520 --> 00:19:36,240 Speaker 6: that by end of twenty twenty five, the twenty seventeen 336 00:19:36,280 --> 00:19:40,439 Speaker 6: tax cuts expire. So whoever's in Congress, whoever's in the 337 00:19:40,440 --> 00:19:43,080 Speaker 6: White House, has to make some deal. There's no historical 338 00:19:43,119 --> 00:19:46,320 Speaker 6: precedent for letting tax cuts expire, as you well know, 339 00:19:46,440 --> 00:19:50,520 Speaker 6: and then having them jump seven percent. But the nature 340 00:19:50,560 --> 00:19:52,560 Speaker 6: of that deal is almost certainly not going to include 341 00:19:52,600 --> 00:19:55,840 Speaker 6: much tax increase. And without tax increase, I don't know 342 00:19:55,840 --> 00:19:57,800 Speaker 6: how you get the budget deficit down. 343 00:19:58,119 --> 00:20:01,600 Speaker 7: You mentioned something, let's go there, monetary policy. You wrote, 344 00:20:01,840 --> 00:20:03,760 Speaker 7: it's not that tight at all. Are you saying that 345 00:20:03,800 --> 00:20:06,240 Speaker 7: it needs to be significantly higher in terms of the 346 00:20:06,240 --> 00:20:09,120 Speaker 7: benchmark rate in order to get inflation back down even 347 00:20:09,119 --> 00:20:10,000 Speaker 7: close to two percent? 348 00:20:10,840 --> 00:20:13,240 Speaker 6: I think it does have to be higher if you 349 00:20:13,359 --> 00:20:17,159 Speaker 6: want to go to two percent. I'm actually calm with 350 00:20:17,320 --> 00:20:20,199 Speaker 6: the Fed letting it stay roughly where it is and 351 00:20:20,240 --> 00:20:22,719 Speaker 6: say it's a two sided risk. Because John Williams started 352 00:20:22,760 --> 00:20:25,879 Speaker 6: to say, I'd be okay with that, but I do 353 00:20:26,000 --> 00:20:28,960 Speaker 6: believe that the monetary conditions are not tight. Let me 354 00:20:28,960 --> 00:20:32,480 Speaker 6: take you back, Lisa a year ago February February March 355 00:20:32,560 --> 00:20:36,000 Speaker 6: people like us, which is a funny category be anyway, 356 00:20:37,640 --> 00:20:41,800 Speaker 6: as for yourself Fed nerds, we're talking about the fact 357 00:20:41,840 --> 00:20:45,639 Speaker 6: that FED it tightened, you know, x hundred bases points 358 00:20:45,680 --> 00:20:48,520 Speaker 6: and it really wasn't affecting the economy that much. And 359 00:20:48,560 --> 00:20:51,840 Speaker 6: then KME SVB and everybody got distracted. But if you 360 00:20:51,880 --> 00:20:55,040 Speaker 6: go back to the first quarter of twenty twenty three, 361 00:20:55,160 --> 00:20:58,720 Speaker 6: that was the talk, and I kept saying a few 362 00:20:58,720 --> 00:21:02,080 Speaker 6: other people kept saying, Look, credit conditions are what matter, 363 00:21:02,320 --> 00:21:05,280 Speaker 6: not what the FED fund's rate. So John Williams, Lori 364 00:21:05,400 --> 00:21:09,000 Speaker 6: Logan from FED Dallas, we're coming out about six months ago, 365 00:21:09,040 --> 00:21:11,520 Speaker 6: five months ago talking about oh my god, there might 366 00:21:11,560 --> 00:21:15,320 Speaker 6: be a recession because the interest rate goes up as 367 00:21:15,359 --> 00:21:18,280 Speaker 6: inflation comes down, and I and a few other people 368 00:21:18,320 --> 00:21:21,359 Speaker 6: kept saying, don't obsess with the FED funds. Rate credit 369 00:21:21,400 --> 00:21:24,560 Speaker 6: spreads are incredibly narrow, so anyway. 370 00:21:24,280 --> 00:21:26,000 Speaker 1: It's less about the Fed has to. 371 00:21:25,920 --> 00:21:28,399 Speaker 6: Do something different because the numbers are okay unless you 372 00:21:28,520 --> 00:21:33,080 Speaker 6: really care about getting into two percent. But the extent 373 00:21:33,200 --> 00:21:36,359 Speaker 6: to which it's tight I think is way over estimated. 374 00:21:36,400 --> 00:21:38,199 Speaker 7: And you've been talking for a long time about how 375 00:21:38,240 --> 00:21:40,320 Speaker 7: they need to have a higher target, even around three percent, 376 00:21:40,359 --> 00:21:41,960 Speaker 7: So this coheres. 377 00:21:41,480 --> 00:21:42,159 Speaker 1: With that idea. 378 00:21:42,600 --> 00:21:44,719 Speaker 7: We keep going back to the pivot, and we can 379 00:21:44,760 --> 00:21:46,280 Speaker 7: talk about the pivot of pivot and you turn and 380 00:21:46,320 --> 00:21:48,520 Speaker 7: all that, but let's not I think there is a 381 00:21:48,600 --> 00:21:51,200 Speaker 7: key question here of whether it was a policy error 382 00:21:51,560 --> 00:21:56,320 Speaker 7: for Fedshair Powell to enunciate the possibility and the likelihood 383 00:21:56,320 --> 00:21:58,440 Speaker 7: of rate cuts this year back at the end of. 384 00:21:58,440 --> 00:21:59,879 Speaker 1: Last I think it was. 385 00:22:00,640 --> 00:22:01,199 Speaker 8: I think it was. 386 00:22:01,280 --> 00:22:04,800 Speaker 6: I mean, it's a communications error, and it goes with 387 00:22:05,200 --> 00:22:08,640 Speaker 6: I think two things that have generally been suboptimal. As 388 00:22:08,680 --> 00:22:11,800 Speaker 6: we say, first, they're too busy trying to guide the 389 00:22:11,800 --> 00:22:15,440 Speaker 6: markets in a decision to decision way. And second, they're 390 00:22:15,480 --> 00:22:18,240 Speaker 6: too reactive to data, so if they had a bit 391 00:22:18,240 --> 00:22:20,480 Speaker 6: more structured they just say we've gotten it to hear. 392 00:22:21,200 --> 00:22:23,880 Speaker 6: You can say I'm data dependent, but you can say 393 00:22:23,960 --> 00:22:26,920 Speaker 6: what why you're data dependent instead of just saying I'm 394 00:22:27,000 --> 00:22:27,640 Speaker 6: data dependent. 395 00:22:27,680 --> 00:22:30,159 Speaker 1: But I think I'm going to do this. Did the 396 00:22:30,160 --> 00:22:32,119 Speaker 1: politics matter? Does the election matter? 397 00:22:32,160 --> 00:22:33,840 Speaker 2: Could you give us some kind of on that, your 398 00:22:33,840 --> 00:22:36,720 Speaker 2: impression of what people are saying in Washington, because you 399 00:22:36,760 --> 00:22:38,920 Speaker 2: know what the story is in woll Streight. On woll Streight, 400 00:22:39,119 --> 00:22:41,439 Speaker 2: there is a belief that there is this window in July, right, 401 00:22:41,520 --> 00:22:43,320 Speaker 2: and if they don't go through it, that door slam 402 00:22:43,440 --> 00:22:45,800 Speaker 2: shut and it doesn't reopen until the end of the year. 403 00:22:45,720 --> 00:22:49,159 Speaker 6: Window for essentially all constructed for the recut. Yeah, I 404 00:22:49,760 --> 00:22:51,760 Speaker 6: think that's fair. I've been saying for a while, if 405 00:22:51,760 --> 00:22:53,800 Speaker 6: they can avoid it. Even when I thought they were 406 00:22:53,840 --> 00:22:57,040 Speaker 6: going to cut in June or March, I never thought March. 407 00:22:57,080 --> 00:22:57,840 Speaker 1: I was said June. 408 00:22:58,200 --> 00:23:00,639 Speaker 6: I thought they would try to avoid cutting again so 409 00:23:00,720 --> 00:23:03,080 Speaker 6: close to the election. So but I don't think that's 410 00:23:03,119 --> 00:23:04,200 Speaker 6: big picture really. 411 00:23:04,200 --> 00:23:04,760 Speaker 1: What matters. 412 00:23:04,760 --> 00:23:08,560 Speaker 6: What matters is us is essentially sidelined itself for the 413 00:23:08,600 --> 00:23:11,600 Speaker 6: next year. We don't know what the fiscal policy is 414 00:23:11,640 --> 00:23:14,359 Speaker 6: going to be. The monetary policy is on hold, which 415 00:23:14,400 --> 00:23:18,159 Speaker 6: is reasonable but therefore not reacting to things. And you 416 00:23:18,200 --> 00:23:20,879 Speaker 6: know foreign policy, which you all also covers, of course 417 00:23:21,680 --> 00:23:22,600 Speaker 6: dominating matters. 418 00:23:22,800 --> 00:23:25,800 Speaker 5: But if there's so many unknowns then to twenty twenty five, 419 00:23:25,840 --> 00:23:28,119 Speaker 5: how can if I do anything, If we get sixty 420 00:23:28,119 --> 00:23:30,479 Speaker 5: percent blank in tariffs on Chinese imports and a ten 421 00:23:30,520 --> 00:23:32,800 Speaker 5: percent tariff wall for every single good coming into the 422 00:23:32,880 --> 00:23:35,960 Speaker 5: United States, inflation may potentially skyrocket, which is what every 423 00:23:35,960 --> 00:23:38,800 Speaker 5: economist is saying. How do you, as the Federal Reserve 424 00:23:39,160 --> 00:23:41,200 Speaker 5: then cut rates going into potentially that? 425 00:23:41,520 --> 00:23:43,560 Speaker 6: I completely agree with you, and I'm glad I Marie 426 00:23:43,560 --> 00:23:46,440 Speaker 6: you're saying that out there because it is a true statement. 427 00:23:47,040 --> 00:23:49,760 Speaker 6: Tariffs mean inflation no matter how you cut it. And 428 00:23:49,800 --> 00:23:52,000 Speaker 6: if you do broad across the board terrace even more 429 00:23:52,040 --> 00:23:54,679 Speaker 6: than the anti China tariffs, you're talking one to two 430 00:23:54,760 --> 00:23:58,879 Speaker 6: percent jump in inflation almost immediately in another percent probably 431 00:23:58,880 --> 00:24:00,679 Speaker 6: it's over three and a half in one percent the 432 00:24:00,720 --> 00:24:03,520 Speaker 6: next year before you even get some pass on effects. 433 00:24:04,280 --> 00:24:05,480 Speaker 1: So what does the FED do now? 434 00:24:05,560 --> 00:24:07,159 Speaker 6: Of course, the Fed doesn't want to be seen as 435 00:24:07,280 --> 00:24:11,280 Speaker 6: judging trade policy. So if this is a one off. 436 00:24:11,359 --> 00:24:15,080 Speaker 6: They can say, well, it's just one off, but they 437 00:24:15,160 --> 00:24:18,000 Speaker 6: certainly should be saying that there's a risk of an 438 00:24:18,080 --> 00:24:20,920 Speaker 6: upward spiral if you're putting that on top of inflation 439 00:24:21,000 --> 00:24:23,439 Speaker 6: that's already above target, if you haven't changed your target 440 00:24:23,760 --> 00:24:28,480 Speaker 6: and it's already low unemployment. I agree, I mean, I 441 00:24:28,480 --> 00:24:29,920 Speaker 6: think they should be warning about that. 442 00:24:30,359 --> 00:24:32,160 Speaker 7: So will you just take a step back and put 443 00:24:32,160 --> 00:24:35,119 Speaker 7: all this together. There's a real question of how vulnerable 444 00:24:35,160 --> 00:24:37,479 Speaker 7: the financial system is to some of the shocks that 445 00:24:37,520 --> 00:24:40,840 Speaker 7: come from higher inflation higher rates. We did speak yesterday 446 00:24:40,840 --> 00:24:43,520 Speaker 7: with Jonathan Pingle of UBS, who talked about the potential 447 00:24:43,640 --> 00:24:45,800 Speaker 7: for the Federal Reserve to raise rates to six and 448 00:24:45,800 --> 00:24:49,400 Speaker 7: a half percent next year. If inflation stays above three 449 00:24:49,440 --> 00:24:51,960 Speaker 7: percent in a persistent way throughout the rest of this year, 450 00:24:52,560 --> 00:24:55,040 Speaker 7: what's the rate at which you start to see things 451 00:24:55,080 --> 00:24:57,719 Speaker 7: break both on the yield space side as well as 452 00:24:57,720 --> 00:24:58,280 Speaker 7: on the dollar. 453 00:24:59,160 --> 00:25:02,720 Speaker 6: Here's where I'm I'm probably more optimistically. I think what 454 00:25:02,760 --> 00:25:06,080 Speaker 6: we've seen over the last year two years is how 455 00:25:06,160 --> 00:25:11,520 Speaker 6: much bank capital, household balance sheets risk aversion matter, and 456 00:25:11,600 --> 00:25:14,879 Speaker 6: the households having a lot of savings, so you know, 457 00:25:15,440 --> 00:25:19,560 Speaker 6: we had much less breakage from these rate increases than 458 00:25:19,600 --> 00:25:22,359 Speaker 6: we've had in the past. So I think talking to 459 00:25:22,440 --> 00:25:26,359 Speaker 6: the financial and monetary officials who were in Washington this week, 460 00:25:26,400 --> 00:25:28,880 Speaker 6: I think they're rightly even though it's boring because they 461 00:25:28,880 --> 00:25:33,520 Speaker 6: never do anything talking about non financial non bank financial 462 00:25:33,560 --> 00:25:35,920 Speaker 6: intermediary is what we used to call shadow banks, because 463 00:25:35,920 --> 00:25:38,879 Speaker 6: we don't have transparency into what part of the credit 464 00:25:38,920 --> 00:25:41,320 Speaker 6: system is in there and how risky is it and 465 00:25:41,359 --> 00:25:43,800 Speaker 6: how they reprice it. And so if I'm worried about 466 00:25:43,840 --> 00:25:46,520 Speaker 6: something breaking, that's where I worry about it breaking. I 467 00:25:46,560 --> 00:25:49,720 Speaker 6: think what we're talking about is potentially a further hike 468 00:25:49,760 --> 00:25:53,560 Speaker 6: in the dollar, and that going back to where we started, 469 00:25:53,680 --> 00:25:56,880 Speaker 6: that is not sustainable long term. And then if you're 470 00:25:56,920 --> 00:26:00,280 Speaker 6: busy having been annoying to all your allies and putting 471 00:26:00,280 --> 00:26:03,160 Speaker 6: tariffs on them, it's a little hard to then say, oh, 472 00:26:03,240 --> 00:26:06,200 Speaker 6: please do something cooperatively to bring down the dollar. 473 00:26:06,480 --> 00:26:08,160 Speaker 1: Ye, can we finish on trite? 474 00:26:08,200 --> 00:26:09,880 Speaker 2: But the thing of the program over the last couple 475 00:26:09,920 --> 00:26:12,280 Speaker 2: of days for us, who in this city is left 476 00:26:12,280 --> 00:26:13,360 Speaker 2: fighting for free trade? 477 00:26:13,640 --> 00:26:15,040 Speaker 1: Who's leading that fight anymore? 478 00:26:17,240 --> 00:26:19,240 Speaker 6: So anyway, I wouldn't say we're leading it, but the 479 00:26:19,280 --> 00:26:22,040 Speaker 6: Peterson the only ones who are trying. We're trying to 480 00:26:22,080 --> 00:26:25,280 Speaker 6: feed people to fake facts about what happens to American households, 481 00:26:25,400 --> 00:26:28,120 Speaker 6: what happens to inflation, what happens to growth with the tariffs, 482 00:26:28,560 --> 00:26:30,960 Speaker 6: the facts about on the macro side, you're getting a 483 00:26:31,040 --> 00:26:33,919 Speaker 6: stronger and stroller dollar, which is distortionary and which is 484 00:26:33,920 --> 00:26:36,520 Speaker 6: going to overshoot. But if it's like eighty five, when 485 00:26:36,560 --> 00:26:38,720 Speaker 6: you're putting tariffs on people, and also when you're not 486 00:26:38,840 --> 00:26:43,600 Speaker 6: letting them invest in the US, you can't unwind this. 487 00:26:43,800 --> 00:26:46,919 Speaker 6: Remember in the mid eighties when everyone was so concerned 488 00:26:46,920 --> 00:26:50,879 Speaker 6: about Japan and the dollar shot up hugely because you 489 00:26:50,920 --> 00:26:54,440 Speaker 6: had loose fiscal type money, so a lot of echoes 490 00:26:54,440 --> 00:26:57,040 Speaker 6: of today. Part of the way we got out of 491 00:26:57,080 --> 00:26:59,040 Speaker 6: it was we got the Plaza Cord. But part of 492 00:26:59,040 --> 00:27:01,680 Speaker 6: the way we got the Plaza cord was also politically. 493 00:27:02,240 --> 00:27:06,359 Speaker 6: Japanese and other foreign countries had their multinationals invest a 494 00:27:06,400 --> 00:27:09,280 Speaker 6: lot in the US. So there's hundreds of thousands of 495 00:27:09,359 --> 00:27:12,760 Speaker 6: toyoda and hunter workers now in the US. We're not 496 00:27:12,880 --> 00:27:17,000 Speaker 6: letting the Chinese do that, So you're making it even 497 00:27:17,040 --> 00:27:20,320 Speaker 6: more complicated to unwind this. If we get into this mess. 498 00:27:20,040 --> 00:27:22,480 Speaker 2: It's a complicated mess already some people might say, Adam, 499 00:27:22,480 --> 00:27:23,560 Speaker 2: thank you so much for your time today. 500 00:27:23,600 --> 00:27:24,239 Speaker 1: We appreciate it. 501 00:27:24,240 --> 00:27:26,480 Speaker 2: Thanks for having Adam post Un at the Peterson Institute 502 00:27:26,520 --> 00:27:37,960 Speaker 2: for International Economics on a whole range of EXAs in 503 00:27:38,000 --> 00:27:40,879 Speaker 2: the United States, FED officials are warning cuts may not 504 00:27:40,920 --> 00:27:43,440 Speaker 2: come at all this year, and about saying it's looking 505 00:27:43,480 --> 00:27:46,120 Speaker 2: to navigate these challenges and more. As share of Bank 506 00:27:46,160 --> 00:27:50,080 Speaker 2: of Santander and theif ANDA joins us in Washington this morning, 507 00:27:50,080 --> 00:27:52,119 Speaker 2: and a good morning to you, Good morning, thank you 508 00:27:52,160 --> 00:27:53,960 Speaker 2: so much for being with us today. We had a 509 00:27:53,960 --> 00:27:56,120 Speaker 2: guest with us about five minutes ago. It was pretty depressing, 510 00:27:56,600 --> 00:28:00,520 Speaker 2: very downbeayond cooperation in Washington, the future for growth outside 511 00:28:00,520 --> 00:28:02,880 Speaker 2: of the United States, How down be you and your 512 00:28:02,920 --> 00:28:04,200 Speaker 2: team about the same things. 513 00:28:04,800 --> 00:28:08,200 Speaker 8: Well, you know, first of all, we are at war. 514 00:28:08,240 --> 00:28:10,920 Speaker 8: We have two wars, which is a human tragedy, and 515 00:28:11,200 --> 00:28:13,280 Speaker 8: our thoughts of with all the people that are suffering. 516 00:28:14,080 --> 00:28:17,359 Speaker 8: But aside from those very important issues which obviously we 517 00:28:17,440 --> 00:28:20,520 Speaker 8: must deal with first, the economy does not look bad. 518 00:28:21,240 --> 00:28:23,919 Speaker 8: So you know, we have managed to bring down inflation. 519 00:28:24,280 --> 00:28:26,879 Speaker 8: Remember we were around nine ten percent, were around three 520 00:28:26,920 --> 00:28:30,280 Speaker 8: to four in most countries. Really important. That's the one 521 00:28:30,320 --> 00:28:33,480 Speaker 8: thing we cannot allow to get out of control. We 522 00:28:33,560 --> 00:28:38,400 Speaker 8: have growth, yes, lower growth, but growth overall. And third, 523 00:28:38,560 --> 00:28:41,680 Speaker 8: we have very high employment levels. If I think about 524 00:28:41,680 --> 00:28:45,040 Speaker 8: sometimes there's Europe and America's footprint. Every single one of 525 00:28:45,040 --> 00:28:49,040 Speaker 8: our countries is at historically high levels of employment. So 526 00:28:50,120 --> 00:28:53,400 Speaker 8: you know this is not bad. A year ago you 527 00:28:53,440 --> 00:28:55,440 Speaker 8: had asked many people where are we going to be? 528 00:28:56,600 --> 00:29:00,480 Speaker 8: Anybody that said soft landing, you would say, oh, you're 529 00:29:00,480 --> 00:29:04,280 Speaker 8: being too optimistic. We have a super soft landing. So far, 530 00:29:04,520 --> 00:29:05,560 Speaker 8: so far, so good. 531 00:29:05,800 --> 00:29:07,760 Speaker 2: The growth profile is certainly much better than we thought 532 00:29:07,760 --> 00:29:09,560 Speaker 2: it would be, not just twelve months ago, but maybe 533 00:29:09,600 --> 00:29:12,800 Speaker 2: even three months ago. Though we still have two wards. 534 00:29:12,840 --> 00:29:15,720 Speaker 2: We also have increased protectionism. It's but a key feature 535 00:29:15,720 --> 00:29:17,600 Speaker 2: of the meetings this week, as you well know, a 536 00:29:17,840 --> 00:29:21,160 Speaker 2: backslide towards industrial policy in places like the United States. 537 00:29:21,320 --> 00:29:23,040 Speaker 2: Can I ask you, as someone who leads a bank, 538 00:29:23,280 --> 00:29:26,160 Speaker 2: does that make it more difficult to be an international 539 00:29:26,200 --> 00:29:27,760 Speaker 2: bank against that backdrop? 540 00:29:29,280 --> 00:29:31,040 Speaker 8: The key thing we're all looking to, and this is 541 00:29:31,040 --> 00:29:34,160 Speaker 8: not different from what everybody is saying, is that the 542 00:29:34,600 --> 00:29:38,920 Speaker 8: most difficult and you know the key risks now are geopolitical. 543 00:29:39,760 --> 00:29:42,600 Speaker 8: As I said, the macro looks much better at least 544 00:29:42,600 --> 00:29:45,880 Speaker 8: for now. So as we think about what is happening 545 00:29:45,880 --> 00:29:50,040 Speaker 8: and what these geopolitics mean for supply chains for our business, 546 00:29:51,160 --> 00:29:55,360 Speaker 8: understanding that this is going to mean more structural inflation 547 00:29:55,840 --> 00:29:59,120 Speaker 8: because you know you're going to have higher cost Understanding 548 00:29:59,160 --> 00:30:04,200 Speaker 8: that you need to prioritize the defense or national security 549 00:30:04,320 --> 00:30:07,280 Speaker 8: or in the case of companies, you know, diversification, which 550 00:30:07,320 --> 00:30:10,400 Speaker 8: again is a key asset at least for us, and 551 00:30:10,600 --> 00:30:12,960 Speaker 8: this is really very valuable. So these are the things 552 00:30:13,000 --> 00:30:14,880 Speaker 8: you need to think about. How do I protect my 553 00:30:15,000 --> 00:30:19,200 Speaker 8: business at the time when the world is increasingly volatile 554 00:30:19,880 --> 00:30:23,440 Speaker 8: where you're having a big shift in terms of we 555 00:30:23,480 --> 00:30:26,600 Speaker 8: want secure supply chain. Yes, we want it to be affordable, 556 00:30:27,000 --> 00:30:30,560 Speaker 8: good prices, but security is paramount. And of course we 557 00:30:30,640 --> 00:30:33,000 Speaker 8: also want to ensure that we can manage the green 558 00:30:33,080 --> 00:30:34,160 Speaker 8: and the climate transition. 559 00:30:34,960 --> 00:30:37,040 Speaker 5: If geopolitical rests are in number one concern and that 560 00:30:37,120 --> 00:30:39,600 Speaker 5: can potentially meet a spike in inflation, do you expect 561 00:30:39,640 --> 00:30:42,680 Speaker 5: the EASYB to then what it's been pretty much forecasted 562 00:30:42,720 --> 00:30:44,560 Speaker 5: by everyone, go ahead of the FAED and have this 563 00:30:44,720 --> 00:30:45,680 Speaker 5: rate cut in June. 564 00:30:46,520 --> 00:30:48,800 Speaker 8: So you know, what we're thinking about is what is 565 00:30:48,840 --> 00:30:51,720 Speaker 8: the terminal rate? Where does this end up. That is 566 00:30:51,720 --> 00:30:55,880 Speaker 8: the key question and of you and as an institution, 567 00:30:56,360 --> 00:30:58,000 Speaker 8: is that that terminal rate is not going to be 568 00:30:58,040 --> 00:31:00,880 Speaker 8: the same in Europe as in the US. It's probably 569 00:31:00,880 --> 00:31:02,960 Speaker 8: be around if your top the most economy is four 570 00:31:03,000 --> 00:31:06,440 Speaker 8: percent in the US, around three percent in Europe. What 571 00:31:06,480 --> 00:31:09,200 Speaker 8: it means is that let's say rates will end up 572 00:31:09,280 --> 00:31:12,840 Speaker 8: around those levels, around three percent four percent, And that 573 00:31:13,000 --> 00:31:16,080 Speaker 8: is really what we That is what allows us to plan. Again, 574 00:31:16,120 --> 00:31:19,080 Speaker 8: that is not a bad thing for commercial banks for 575 00:31:19,120 --> 00:31:23,800 Speaker 8: the sector. Negative rates were unsustainable, risky for the system. 576 00:31:24,360 --> 00:31:28,120 Speaker 8: Very high rates kill the economy. You know, low rates, 577 00:31:28,840 --> 00:31:31,120 Speaker 8: maybe we are going to have too low growth. And 578 00:31:31,160 --> 00:31:32,520 Speaker 8: that is the one thing we need to focus on. 579 00:31:32,560 --> 00:31:35,320 Speaker 8: How do we manage an economy where terminal rates are 580 00:31:35,320 --> 00:31:39,160 Speaker 8: a bit higher because all the structural factors not just defence, demographics, 581 00:31:39,200 --> 00:31:43,360 Speaker 8: the carbonization, So you have structural trends that are more 582 00:31:43,400 --> 00:31:45,840 Speaker 8: inflation than before, slow growth. 583 00:31:46,800 --> 00:31:47,840 Speaker 1: What do we do about it? 584 00:31:48,080 --> 00:31:49,520 Speaker 2: So I know that you're in acquired period, so you 585 00:31:49,520 --> 00:31:51,640 Speaker 2: can't talk directly about the financials, but can you help 586 00:31:51,680 --> 00:31:54,160 Speaker 2: me understand how do you plan for things like net 587 00:31:54,160 --> 00:31:57,480 Speaker 2: interesting income when you're across so many different regions, with 588 00:31:57,560 --> 00:32:00,520 Speaker 2: so many different policies and so many different so called 589 00:32:00,600 --> 00:32:02,760 Speaker 2: terminal rates. How do you plan for that kind of thing? 590 00:32:02,800 --> 00:32:03,560 Speaker 2: What does that look like? 591 00:32:04,480 --> 00:32:07,680 Speaker 8: Look sometimes that is a global bank, but basically it's 592 00:32:07,680 --> 00:32:09,280 Speaker 8: Europe and the Americas and we have one hundred and 593 00:32:09,320 --> 00:32:12,400 Speaker 8: sixty six million customers. First thing is diversification is key, 594 00:32:12,880 --> 00:32:15,920 Speaker 8: not just for us, for anybody. And we have diversification 595 00:32:16,000 --> 00:32:19,160 Speaker 8: by businesses five global businesses, and by regions and countries. 596 00:32:19,520 --> 00:32:21,680 Speaker 8: So that means that if something doesn't go well in 597 00:32:21,720 --> 00:32:25,280 Speaker 8: one country usually gets compensated by another. And so what 598 00:32:25,320 --> 00:32:29,160 Speaker 8: you try is to really have a context for risk appetite. 599 00:32:30,080 --> 00:32:33,680 Speaker 8: Do we take more risk less risk? We don't manage 600 00:32:33,720 --> 00:32:37,320 Speaker 8: interest rates right? As I said, the context is really 601 00:32:37,320 --> 00:32:42,160 Speaker 8: good for financial institutions, especially commercial banks like ours. Why 602 00:32:42,200 --> 00:32:45,800 Speaker 8: because negative rates meant that with a big retail base, 603 00:32:46,160 --> 00:32:48,560 Speaker 8: you're not charged, but you were being charged by the 604 00:32:48,600 --> 00:32:51,920 Speaker 8: central banks for twenty percent of other posits and we 605 00:32:51,960 --> 00:32:55,560 Speaker 8: couldn't charge so positive rates. Low growth, high and employment 606 00:32:55,920 --> 00:32:59,080 Speaker 8: is another bad scenario for commercial banks. 607 00:32:59,240 --> 00:33:01,000 Speaker 2: Some other banks have told bank from the United States, 608 00:33:01,040 --> 00:33:05,239 Speaker 2: international banks I'm thinking specifically of HSBC being preparable are 609 00:33:05,240 --> 00:33:07,600 Speaker 2: still there. They still have a presence. You've been leaning 610 00:33:07,640 --> 00:33:09,600 Speaker 2: in a little bit more. Could you develop that for 611 00:33:09,680 --> 00:33:12,080 Speaker 2: us this morning? What are you planning in the United States? 612 00:33:12,080 --> 00:33:13,760 Speaker 2: How big is your presence going to be going forward 613 00:33:13,800 --> 00:33:14,160 Speaker 2: from here. 614 00:33:14,320 --> 00:33:16,920 Speaker 8: We're very excited about the opportunities in the United States. 615 00:33:16,960 --> 00:33:20,000 Speaker 8: We're very confident we'll reach the fifteen percent return on 616 00:33:20,040 --> 00:33:24,640 Speaker 8: tangible equity, and we're keeping it simple. Play to our strengths. 617 00:33:24,760 --> 00:33:26,800 Speaker 8: Where do we have global scale that helps us in 618 00:33:26,840 --> 00:33:30,760 Speaker 8: this market. Make sure that we're leveraging our network. And 619 00:33:30,800 --> 00:33:33,480 Speaker 8: so in the biggest business, which is the consumer, we 620 00:33:33,560 --> 00:33:36,680 Speaker 8: have something none of the other foreign banks have or had, 621 00:33:36,760 --> 00:33:39,400 Speaker 8: which is at scale auto business. We're number five in 622 00:33:39,440 --> 00:33:41,800 Speaker 8: the US, we're number one in Europe. We bring our 623 00:33:41,800 --> 00:33:45,040 Speaker 8: OEMs here, and second, we have scale to invest in 624 00:33:45,040 --> 00:33:47,160 Speaker 8: our own technology. So we're going to deploy our own 625 00:33:47,160 --> 00:33:50,320 Speaker 8: technology to launch a digital bank to make sure we 626 00:33:50,360 --> 00:33:52,280 Speaker 8: can fund the auto business competitively. 627 00:33:52,720 --> 00:33:54,440 Speaker 1: Simple and this was brilliant. 628 00:33:54,480 --> 00:33:55,920 Speaker 2: I know you've got a super busy morning, so we 629 00:33:55,920 --> 00:33:58,120 Speaker 2: appreciate you carving out some time for us here at Bloomberg. 630 00:33:58,120 --> 00:34:00,240 Speaker 2: Thank you so much. Great to be here in the 631 00:34:00,600 --> 00:34:06,160 Speaker 2: Libanco Santander Chairman. This is the Bloomberg Surveillance Podcast, bringing 632 00:34:06,240 --> 00:34:09,839 Speaker 2: you the best in markets, economics, and geopolitics. You can 633 00:34:09,880 --> 00:34:12,640 Speaker 2: watch the show live on Bloomberg TV weekday mornings from 634 00:34:12,680 --> 00:34:15,960 Speaker 2: six am to nine am Eastern. Subscribe to the podcast 635 00:34:16,000 --> 00:34:19,560 Speaker 2: on Apple, Spotify, or anywhere else you listen, and as always, 636 00:34:19,560 --> 00:34:22,160 Speaker 2: on the Bloomberg Terminal and the Bloomberg Business app.