WEBVTT - Bloomberg Surveillance TV: April 19, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.680 Terminal and the Bloomberg Business app. Ambassador Catherine Tie, us 0:00:37.720 --> 0:00:41.360 trade representative, joins us now from New York. Ambassador, wonderful 0:00:41.400 --> 0:00:42.920 to have you with us on the program. We've some 0:00:43.120 --> 0:00:45.199 called us done a role reversal. You're in New York 0:00:45.240 --> 0:00:47.080 and we're down in Washington. We'll make this work properly 0:00:47.159 --> 0:00:50.240 next time, Ambassador. This is a topic we've been talking 0:00:50.240 --> 0:00:53.040 about for a long long time, Chinese overcapacity. 0:00:53.360 --> 0:00:54.880 We all know about the China shark. 0:00:54.920 --> 0:00:58.400 We all studied it an obliterated manufacturing basis in places 0:00:58.560 --> 0:01:00.800 like the United States of America. Can I just give 0:01:00.840 --> 0:01:02.320 you a few minutes just to sort of lay the 0:01:02.320 --> 0:01:05.680 ground for us what's changed and what's new about what's 0:01:05.720 --> 0:01:06.680 developing right now. 0:01:07.160 --> 0:01:09.120 Well, i'd be delighted too. It's wonderful to be here 0:01:09.120 --> 0:01:11.440 with all of you. You're absolutely right about the China Shock, 0:01:11.640 --> 0:01:16.560 and it's become an established set of facts as we 0:01:16.600 --> 0:01:20.680 look back on the last several decades of China's emergence 0:01:20.840 --> 0:01:24.360 as an economic powerhouse. 0:01:23.840 --> 0:01:24.480 In the world. 0:01:24.840 --> 0:01:27.160 As you've seen the growth of the Chinese economy, what 0:01:27.160 --> 0:01:31.160 you've also seen is the negative impacts on other economies 0:01:31.280 --> 0:01:36.840 like that of the United States, and of course the. 0:01:35.480 --> 0:01:37.360 Industrial erosion that you've seen here. 0:01:37.640 --> 0:01:41.959 The manufacturing capacity loss isn't just limited to the United States. 0:01:41.959 --> 0:01:44.360 You see it in other advanced economies. You also see 0:01:44.400 --> 0:01:48.720 it in developing countries as well. But to your point, 0:01:48.800 --> 0:01:51.160 a lot of what we're seeing right now is not new. 0:01:51.520 --> 0:01:54.680 The China Shock continues. We've seen it in the sectors 0:01:54.680 --> 0:01:58.360 steel and aluminum. We've seen it in solar panels. Twenty 0:01:58.480 --> 0:02:02.120 years ago, the United States several other countries had growing 0:02:02.520 --> 0:02:08.400 economies and industries around solar panels. The Chinese double down 0:02:08.560 --> 0:02:12.320 on their what we call non market practices. There a 0:02:12.520 --> 0:02:16.639 state investment in a strategic emerging sector. And what you've 0:02:16.680 --> 0:02:19.320 seen is something we've seen over and over again, a 0:02:19.600 --> 0:02:26.280 creation of excess capacity over production that brings down prices. 0:02:26.320 --> 0:02:31.000 It's a kind of predatory pricing practice worldwide that has 0:02:31.080 --> 0:02:35.160 driven out producers in other economies, leaving the Chinese economy 0:02:35.280 --> 0:02:39.000 having cornered the market in production. Right now, we're still 0:02:39.040 --> 0:02:43.880 eighty five percent reliant on Chinese production and supply in 0:02:44.080 --> 0:02:48.200 solar panels. We've also seen it in batteries. We're seeing 0:02:48.200 --> 0:02:51.919 it now in evs and critical minerals is another example. 0:02:52.360 --> 0:02:55.040 So what you see is doing with respect to. 0:02:55.480 --> 0:03:02.480 Steel is actually responding to a set of pressures that 0:03:02.680 --> 0:03:07.639 have been building over a couple decades. On the steel 0:03:07.680 --> 0:03:12.000 point in particular, I wanted to really enforce that. What 0:03:12.120 --> 0:03:16.360 you heard President Biden talk about earlier this week was 0:03:16.440 --> 0:03:19.520 to call on me as the US Trade representative, to 0:03:19.760 --> 0:03:26.200 consider increasing the existing tariffs on Chinese steel imports. But 0:03:26.280 --> 0:03:29.480 we know that the challenge with Chinese over capacity and 0:03:29.520 --> 0:03:36.240 excess production is a world economy challenge. The scale of 0:03:36.360 --> 0:03:40.520 the Chinese economy and its ability to manufacture and produce. 0:03:40.640 --> 0:03:43.160 Will depress prices worldwide. 0:03:43.600 --> 0:03:48.480 It infects the global economy and global prices, and so 0:03:48.560 --> 0:03:49.120 what you've. 0:03:48.960 --> 0:03:51.840 Seen is as well the maintenance of. 0:03:51.880 --> 0:03:55.720 The global steel tariffs and aluminum terraffs. But you also 0:03:55.720 --> 0:03:59.800 see us as the Biden administration evolving out of that 0:04:00.080 --> 0:04:03.560 particular framework. You see us in particular taking leadership role 0:04:03.720 --> 0:04:06.440 with the European Union. Over the last two years, we 0:04:06.520 --> 0:04:11.120 have been engaged in intensive negotiations for a new framework, a. 0:04:11.080 --> 0:04:13.440 Global Sustainable Steel and. 0:04:13.440 --> 0:04:19.320 Aluminum Agreement that we are working on to address not 0:04:19.560 --> 0:04:22.480 just the excess capacity pressures, but also to try to 0:04:22.520 --> 0:04:26.680 create incentives for cleaner production and cleaner trade in steel 0:04:26.680 --> 0:04:27.600 and aluminum. 0:04:28.360 --> 0:04:29.920 So, Ambassador, if I can jump in, if we can 0:04:29.920 --> 0:04:32.120 focus just on steel, because we've got so much to 0:04:32.200 --> 0:04:34.719 unpack there. Let's take steel, and we both know how 0:04:34.720 --> 0:04:36.680 complex this is, and I can share some numbers with 0:04:36.720 --> 0:04:39.919 our audience, certainly not for your benefit direct Chinese imports. 0:04:39.920 --> 0:04:41.840 As you know, the estimate is something like zero point 0:04:41.920 --> 0:04:44.880 six percent of total steel demand in the United States. 0:04:45.040 --> 0:04:49.720 The problem is a lot of this is going through Mexico. So, Ambassador, 0:04:49.760 --> 0:04:52.359 a question I heard someone ask recently is how do 0:04:52.480 --> 0:04:55.880 we make them eat it? So how can you address 0:04:55.920 --> 0:04:58.479 what is happening in Mexico? How do we stop the 0:04:58.520 --> 0:04:59.840 steel coming through the back do. 0:05:01.000 --> 0:05:03.599 So I'm going to impact this back at you in 0:05:03.600 --> 0:05:06.320 a couple of ways. One is to reinforce the point 0:05:06.400 --> 0:05:10.360 that when you have a producer, a major, major, dominant 0:05:10.560 --> 0:05:16.680 producer like China, producing at below market rates, it affects 0:05:16.720 --> 0:05:20.920 the entire supply chain starting upstream, all the way downstream. 0:05:21.279 --> 0:05:25.960 The Mexico challenge is a piece of this, and again. 0:05:25.839 --> 0:05:27.400 The challenge is worldwide. 0:05:27.720 --> 0:05:30.320 So I think with respect to Mexico, there are a 0:05:30.360 --> 0:05:35.400 couple pieces. One is to the extent that upstream steel 0:05:35.480 --> 0:05:38.080 is coming into Mexico and being worked on and then 0:05:38.120 --> 0:05:40.480 coming into the United States, You've got to figure out 0:05:40.560 --> 0:05:43.960 how to level the playing field there. Secondly, there's a 0:05:44.040 --> 0:05:48.599 much more blunt challenge with respect to steel coming into 0:05:48.640 --> 0:05:54.360 Mexico and improperly coming into view United States as Mexican steel. 0:05:54.640 --> 0:05:56.000 So there is a challenge with. 0:05:55.880 --> 0:06:00.720 Respect to the evasion of trade programs and trade frameworks 0:06:00.720 --> 0:06:04.760 where steel that's not properly Mexican is coming in as 0:06:04.839 --> 0:06:07.599 Mexican steel and enjoying the preferences that we provide to 0:06:07.960 --> 0:06:11.640 the Mexican economy and Mexican producers. So again, with respect 0:06:11.680 --> 0:06:15.240 to steel production, in order for the United States to 0:06:15.279 --> 0:06:18.440 continue to be able to produce, to continue to grow 0:06:18.440 --> 0:06:23.640 our steel industry, to continue to grow cleaner steel industries. 0:06:24.080 --> 0:06:27.080 What you see is a number of programs that we 0:06:27.080 --> 0:06:31.720 are putting in place to ensure the integrity of trade systems. 0:06:31.920 --> 0:06:34.440 The challenge right now is and steal is an excellent, 0:06:34.640 --> 0:06:40.560 excellent example that there is no such thing as free 0:06:40.600 --> 0:06:47.400 trade in steel. The market in steel globally is significantly 0:06:47.440 --> 0:06:50.599 distorted by what we are calling the non market policies 0:06:50.600 --> 0:06:55.640 and practices coming out of China. Supply that's being created, 0:06:56.040 --> 0:06:59.720 production plans that are not linked to demand, and so 0:06:59.760 --> 0:07:03.360 what happens is you have a significant depression of prices, 0:07:03.520 --> 0:07:06.359 and it requires economies like the United States to work 0:07:06.560 --> 0:07:09.800 with other economies that want to be opened, that want 0:07:09.800 --> 0:07:14.760 to openly trade, to take more significant defensive measures against 0:07:15.080 --> 0:07:18.520 the unfair practices that have infected this sector. 0:07:19.800 --> 0:07:22.560 Ambassador Tide, do you see the similar dynamics and what 0:07:22.600 --> 0:07:25.240 you're describing in steel happening right now with the ev 0:07:25.400 --> 0:07:27.240 market one percent? 0:07:27.520 --> 0:07:30.680 It's the same pattern that we see repeated over and 0:07:30.720 --> 0:07:34.400 over in different sectors. And the challenge for us is 0:07:34.400 --> 0:07:38.000 is this has not been our practice largely. We have 0:07:38.960 --> 0:07:42.080 really adhered to this notion that if you just keep 0:07:42.120 --> 0:07:45.560 taking down barriers, if you just keep trying to trade more, 0:07:45.800 --> 0:07:49.400 if you just keep chasing efficiency, that everything will work 0:07:49.440 --> 0:07:52.920 out great. The challenge is that in every one of 0:07:52.960 --> 0:07:58.240 these sectors, we see that Chinese practices allow for Beijing 0:07:58.400 --> 0:08:01.880 to capture larger and larger shares of the global market, 0:08:02.360 --> 0:08:05.720 so that you end up with a dominant producer in 0:08:05.880 --> 0:08:09.240 this entire economy, and what happens is the rest of 0:08:09.320 --> 0:08:12.040 us become extremely vulnerable and reliant on that supply. 0:08:12.520 --> 0:08:14.200 What we are trying to do is. 0:08:14.120 --> 0:08:20.480 To find opportunities for us to descend, to stand up 0:08:20.640 --> 0:08:24.280 so that we can restore more freedom to trade, more 0:08:24.320 --> 0:08:27.640 freedom to economy, more freedom for other economies to stand 0:08:27.720 --> 0:08:31.360 up to the coercion that results when you have these 0:08:31.400 --> 0:08:34.800 types of vulnerabilities that can be used to create political 0:08:34.800 --> 0:08:36.120 pressures on economies. 0:08:37.280 --> 0:08:40.400 Well, the Biden administrations made very clear that tariffs on 0:08:40.480 --> 0:08:43.880 Chinese evs, bigger tariffs are coming down the pipeline, but 0:08:43.880 --> 0:08:47.199 Secretary Yellen also said the US quote won't take anything 0:08:47.240 --> 0:08:49.920 off the table when it comes to this over capacity 0:08:49.960 --> 0:08:52.480 coming out of China. We though, have not seen one 0:08:52.559 --> 0:08:56.120 single wto complaint from the United States is that potentially 0:08:56.120 --> 0:08:57.280 a tool that you can use. 0:08:57.800 --> 0:08:59.960 I wonder if you get your TV say you're talking 0:09:00.080 --> 0:09:04.400 points from my Republican senator counterparts from my hearing earlier 0:09:04.400 --> 0:09:08.040 this week. Look, the World Trade Organization is incredibly is 0:09:08.040 --> 0:09:14.040 an incredibly important, valuable institution in the world. As part 0:09:14.080 --> 0:09:18.280 of the post World War two Bretton Woods Framework, the 0:09:18.320 --> 0:09:22.360 World Trade Organization is critical to the functioning of a 0:09:22.360 --> 0:09:26.280 modern world economy. That said, we also are very clear 0:09:26.360 --> 0:09:29.320 in our commitment to the WTO lies our commitment to 0:09:29.360 --> 0:09:33.080 reforming the WTO. I know this conversation is actually not 0:09:33.200 --> 0:09:37.880 unique to the WTO. All the Bretton Woods institutions, the IMF, 0:09:38.120 --> 0:09:41.440 the World Bank, this is their week. In all of 0:09:41.480 --> 0:09:43.319 the conversations today, what. 0:09:43.400 --> 0:09:46.360 You hear in all of those. 0:09:46.200 --> 0:09:50.520 Conversations is the question of how these institutions evolve to 0:09:50.640 --> 0:09:52.520 meet the challenges that we're facing today. 0:09:52.720 --> 0:09:54.040 With respect to the WTO. 0:09:54.360 --> 0:09:57.880 That is also true, and in terms of WTO dispute settlement, 0:09:58.000 --> 0:10:01.199 we as the United States, are very very proud of 0:10:01.240 --> 0:10:02.800 our record with respect. 0:10:02.400 --> 0:10:04.520 To challenging Chinese practices at the WTO. 0:10:04.760 --> 0:10:07.200 What we have found over time, however, is that each 0:10:07.280 --> 0:10:09.679 one of those cases that we bring. Each victory that 0:10:09.720 --> 0:10:13.760 we score ends up being a quite limited victory. It 0:10:13.840 --> 0:10:16.760 ends up in quite limited change. What we are dealing 0:10:16.840 --> 0:10:19.280 with in terms of the challenge of the Chinese economic 0:10:19.360 --> 0:10:24.040 system is structural, it's systemic, and so that's why we 0:10:24.200 --> 0:10:30.040 are bringing more strategy. We are bringing more creativity to 0:10:30.160 --> 0:10:33.920 look for more effective ways to level the playing field, 0:10:34.200 --> 0:10:38.560 working with other like minded economies, and also working to 0:10:38.720 --> 0:10:40.640 raise these concerns inside of the. 0:10:40.600 --> 0:10:44.559 Wto ambassad it's funny you bring up Republicans and their 0:10:44.600 --> 0:10:48.000 talking points because broad strokes wise, what we see is 0:10:48.040 --> 0:10:51.000 that whether or not we get another Biden administration or 0:10:51.080 --> 0:10:54.679 Trump back into the White House, trade policies look almost 0:10:54.720 --> 0:10:57.440 the same when it comes to China. Do you see 0:10:57.440 --> 0:10:59.880 a divergence in what we potentially could see from Trump 0:11:00.120 --> 0:11:02.880 or Biden given the fact that we still have Trump 0:11:02.960 --> 0:11:05.600 erraor tariffs right now under this administration. 0:11:06.360 --> 0:11:07.800 So I think what. 0:11:07.800 --> 0:11:13.000 I will say is this that whether it's Republicans or Democrats, 0:11:13.840 --> 0:11:16.320 going back to the earlier comments around the China shock, 0:11:17.120 --> 0:11:21.200 we are together. And I think that this also applies 0:11:21.240 --> 0:11:24.920 outside of the United States as well. We are coming 0:11:25.000 --> 0:11:29.480 to a realization and raising in our consciousness a common 0:11:29.480 --> 0:11:33.439 assessment with respect to diagnosing what the problem is, what 0:11:33.520 --> 0:11:38.160 the source of today's world economic and trade challenges is, 0:11:39.520 --> 0:11:41.440 then you have to move on to what are you 0:11:41.480 --> 0:11:43.520 going to do about it? And with respect to the 0:11:43.520 --> 0:11:46.840 Biden administration, we are very proud of our record. First 0:11:46.880 --> 0:11:50.240 of all, the tariffs are an important tool in the 0:11:50.280 --> 0:11:53.640 trade toolbox, and that it is important to use them 0:11:53.760 --> 0:11:57.439 effectively and strategically and to know what the leverage is 0:11:57.480 --> 0:12:00.600 with respect to the tariffs. So yes, we continue to 0:12:00.679 --> 0:12:07.480 retain tariffs for strategic purposes. Second, the Widen administration hasn't 0:12:07.520 --> 0:12:12.599 rested on just trade or just teriffs to address the 0:12:12.679 --> 0:12:16.920 challenges that we face with respect to competing fairly with China. 0:12:17.360 --> 0:12:22.800 We have also, as you've seen, activated significant investments into 0:12:22.880 --> 0:12:27.920 the United States economy for the US workers and for 0:12:28.160 --> 0:12:32.240 American infrastructure. It's the bipart is an infrastructure law, chips 0:12:32.240 --> 0:12:35.640 and science, the Inflation Reduction Act, the investments into the 0:12:35.679 --> 0:12:39.320 Clean energy revolution. In addition to that, you also see 0:12:39.480 --> 0:12:45.640 that we have initiated an investigation into China's unfair non 0:12:45.679 --> 0:12:48.560 market practices that have been alleged by five of our 0:12:48.640 --> 0:12:54.600 labor unions with respect to their maritime logistics and shipbuilding sectors. 0:12:55.480 --> 0:13:00.480 When you take these three segments together, what you have 0:13:00.640 --> 0:13:05.800 is the articulation of the Biden administration's China trade. 0:13:05.520 --> 0:13:09.719 Response and by SID, I just want to ask you 0:13:09.760 --> 0:13:11.880 a question very quickly about Chinese evs. If you had 0:13:11.920 --> 0:13:14.720 a decision on that, can we expect a conclusion anytime soon? 0:13:15.360 --> 0:13:18.440 So I'm not quite sure there's not a specific question 0:13:18.520 --> 0:13:23.760 before us. I think with respect to maritime logistics and shipbuilding, 0:13:23.760 --> 0:13:26.319 for instance, there is a petition that was presented to us. 0:13:26.640 --> 0:13:29.440 Think to your point, it's what are we going to 0:13:29.480 --> 0:13:33.160 do about this trend that we see repeating itself in 0:13:33.200 --> 0:13:36.640 the EV sector. Again, we have an entire set of 0:13:36.640 --> 0:13:40.000 tools before us, many of them are with the US 0:13:40.080 --> 0:13:43.840 Trade Representative, whether it's with respect to investigations that we 0:13:43.840 --> 0:13:47.520 can begin, whether it's looking at the set of tariffs 0:13:47.559 --> 0:13:51.120 that are and trined in our tariff review which has 0:13:51.920 --> 0:13:56.720 been ongoing for the last eighteen months. With respect to 0:13:56.720 --> 0:14:01.400 that tariff review, I am confident that as a whole 0:14:01.440 --> 0:14:04.959 of government exercise that we have been in an undertaking 0:14:05.000 --> 0:14:10.880 with deliberation, seriousness, especially with respect to looking at more strategic, 0:14:11.000 --> 0:14:14.320 more effective deployment of the tariffs that we have to 0:14:14.440 --> 0:14:16.480 address the inequities. 0:14:15.880 --> 0:14:17.400 In our trade relationship with China. 0:14:17.600 --> 0:14:20.800 I am confident that conclusion will be coming soon. 0:14:21.920 --> 0:14:23.960 And Besida, I can't just conclude with the following question, 0:14:24.040 --> 0:14:27.000 and it's probably difficult to answer directly, but the issues 0:14:27.040 --> 0:14:29.240 that you and I have discussed, that we've discussed over 0:14:29.280 --> 0:14:31.760 the last ten minutes or so as we started this conversation, 0:14:32.200 --> 0:14:34.480 they're not new. They've been at the forefront of many 0:14:34.480 --> 0:14:37.480 economist minds for a long long time. What strikes me 0:14:37.600 --> 0:14:40.600 is somewhat amusing is that it took someone like Donald 0:14:40.600 --> 0:14:44.200 Trump in twenty sixteen to put the forefront of American 0:14:44.240 --> 0:14:47.960 politics to shake the establishment to almost make this consensus. 0:14:48.280 --> 0:14:49.800 When I was listening to Secretary. 0:14:49.480 --> 0:14:52.160 Yellen over the last few weeks, I just thought, this 0:14:52.160 --> 0:14:55.760 feels like a Secretary Yellen discovery tour, something personal to 0:14:55.840 --> 0:14:58.440 her and nothing really new for policy. And Bassador, can 0:14:58.480 --> 0:15:01.800 I ask you what took long for the establishment in 0:15:01.840 --> 0:15:04.560 America to figure out this was the road they needed 0:15:04.600 --> 0:15:05.120 to go down? 0:15:05.960 --> 0:15:09.000 Well, it's an excellent question, because you know what I 0:15:09.000 --> 0:15:12.640 would do is I would actually have leaders in trade 0:15:12.680 --> 0:15:18.560 policy take ownership of the call. The earliest calls for 0:15:19.000 --> 0:15:21.920 the need for attention to the challenges that we are 0:15:21.960 --> 0:15:26.080 all focused on now. These are issues that we have 0:15:26.160 --> 0:15:29.000 been raising at the wto bilaterally with. 0:15:28.960 --> 0:15:30.960 China, very directly for a very long time. 0:15:31.000 --> 0:15:34.560 We had direct dialogues with China where we would raise 0:15:34.560 --> 0:15:36.440 these issues over and over. We would raise them with 0:15:36.640 --> 0:15:39.000 our partners. I think part of what you see is 0:15:39.080 --> 0:15:44.680 the increasing pressure that is being placed on economic dynamics. 0:15:45.560 --> 0:15:48.240 One last point I wanted to make with respect to inflation. 0:15:48.760 --> 0:15:52.640 Inflation conversation gets attached to tariffs a lot. The more 0:15:52.880 --> 0:15:57.360 we are talking about inflation and examining our worldwide experience 0:15:57.440 --> 0:16:00.640 with this phenomenon over the last couple years, the more 0:16:00.680 --> 0:16:04.040 we are realizing that the inflationary pressures are linked to 0:16:04.280 --> 0:16:07.760 the supply challenges that we have. Those supply challenges go 0:16:07.840 --> 0:16:12.400 to our vulnerabilities over concentration, the domination that we see 0:16:12.440 --> 0:16:16.280 by certain producers in the world economy. I think that 0:16:17.080 --> 0:16:19.640 is the next area where we need to drive coalescence 0:16:19.720 --> 0:16:23.600 around our analysis so that we can work together, whether 0:16:23.640 --> 0:16:26.560 it's Democrats and Republicans, whether it's the United States and 0:16:26.680 --> 0:16:28.800 other countries on solutions. 0:16:29.880 --> 0:16:32.160 I'm Bassaldor looking forward to having this conversation in person. 0:16:32.240 --> 0:16:44.320 Next time in join New York. Adam's with us here 0:16:44.360 --> 0:16:46.880 in Washington. Adam, good morning to you, Welcome to Washington. 0:16:46.960 --> 0:16:48.600 Thank you very much for having a set. 0:16:48.680 --> 0:16:50.960 Can we talk about the lack of cooperation and maybe 0:16:51.000 --> 0:16:53.280 even the complaints that you've heard this week about the 0:16:53.320 --> 0:16:54.520 strength of the US dollar. 0:16:54.680 --> 0:16:55.960 How loud are those complaints? 0:16:56.200 --> 0:16:59.280 Well, after a long time of silence, even though the 0:16:59.360 --> 0:17:03.440 dollar kept we saw yesterday Janet Yellen and her counterparts 0:17:03.480 --> 0:17:08.840 from Japan and Korea do an open mouth operation. Open mouth. 0:17:09.160 --> 0:17:13.040 Sometimes stuff comes out, sometimes stuff doesn't. You know, there's 0:17:13.160 --> 0:17:17.040 very big fundamentals here. The Japanese economy is doing very 0:17:17.040 --> 0:17:21.119 well by its standards, but and potentially could be raising rates, 0:17:21.440 --> 0:17:21.960 but it's not. 0:17:22.080 --> 0:17:22.600 The US. 0:17:24.040 --> 0:17:28.639 Korea has a lot of positive fundamentals. But the point is, 0:17:28.640 --> 0:17:32.800 if even Japan and Korea are losing ground against the dollar, 0:17:33.000 --> 0:17:35.760 this is a wave and my fear is it just 0:17:35.840 --> 0:17:39.360 goes up from here and that problems get bigger, political 0:17:39.359 --> 0:17:42.400 problems and economic problems more political than economic. 0:17:42.520 --> 0:17:44.399 But yeah, can we talk about the political and the 0:17:44.440 --> 0:17:45.199 economic problems? 0:17:45.200 --> 0:17:45.920 First? The political? 0:17:45.960 --> 0:17:48.280 What would be the political problems that come about off 0:17:48.320 --> 0:17:49.920 the back of this move so. 0:17:50.200 --> 0:17:53.359 It's probably not gonna affect the election directly, but it 0:17:53.440 --> 0:17:56.720 sets things up for bigger trade deficits, which again is 0:17:56.760 --> 0:18:00.560 not necessarily a bad thing. But if Trump is stated 0:18:00.680 --> 0:18:03.880 and Lightheiser view that as a real problem, or if 0:18:04.040 --> 0:18:06.600 over the course of the campaign the Biden administration starts 0:18:06.640 --> 0:18:09.280 talking about and decides it's a real problem, then you 0:18:09.400 --> 0:18:11.399 have a need to deal with it. 0:18:12.200 --> 0:18:14.360 And tariffs, whatever. 0:18:14.000 --> 0:18:17.800 Their lack of virtues on their own merits, they don't 0:18:17.800 --> 0:18:21.359 fix trade deficits. That was demonstrated amply over the last 0:18:21.400 --> 0:18:24.800 seven years. So you end up back in if you 0:18:24.840 --> 0:18:26.800 care about the trade officer, you care about the dollar, 0:18:26.960 --> 0:18:29.560 and most importantly, you care about what that does to 0:18:30.080 --> 0:18:35.040 credit conditions. So Lisa's rightly talking about monetary policy isn't 0:18:35.040 --> 0:18:37.439 as tight as the Fed thought. If you have a 0:18:37.520 --> 0:18:40.440 very strong dollar and money flowing into the dollar, that 0:18:40.520 --> 0:18:42.320 further loosens credit conditions. 0:18:42.800 --> 0:18:45.840 You mentioned the fiscal deficit. The IMF pretty much put 0:18:45.840 --> 0:18:48.280 out a warning to the United States almost it's too loose. 0:18:48.320 --> 0:18:50.080 We've prepared to be looser this year because it's an 0:18:50.119 --> 0:18:53.560 election year and there's no path forward for fiscal discipline. 0:18:53.720 --> 0:18:56.840 How much is the US the biggest problem when you're 0:18:56.880 --> 0:18:58.399 talking to officials from around the. 0:18:58.359 --> 0:19:01.800 World, I mean, the US is the problem memory, mostly 0:19:01.840 --> 0:19:06.160 because of our unreliability in international commitments and the potential 0:19:06.200 --> 0:19:09.040 for unwinding even further those commitments, and a lot of 0:19:09.040 --> 0:19:11.120 self dealing. So a lot of it's on the trade front, 0:19:11.160 --> 0:19:16.119 the security front, unreliability like with Ukraine funding, unreliability with 0:19:16.359 --> 0:19:19.399 trade deals with the USMCA. But in terms of the 0:19:19.680 --> 0:19:21.679 dollar in the fiscal I was glad to see the 0:19:21.720 --> 0:19:24.840 IMF getting loud because sometimes they are scared to do 0:19:24.920 --> 0:19:29.960 real surveillance on China, US, the big economies, and you know, 0:19:30.000 --> 0:19:32.840 we got open ended fiscal problems. We've got this threat 0:19:33.520 --> 0:19:36.240 that by end of twenty twenty five, the twenty seventeen 0:19:36.280 --> 0:19:40.439 tax cuts expire. So whoever's in Congress, whoever's in the 0:19:40.440 --> 0:19:43.080 White House, has to make some deal. There's no historical 0:19:43.119 --> 0:19:46.320 precedent for letting tax cuts expire, as you well know, 0:19:46.440 --> 0:19:50.520 and then having them jump seven percent. But the nature 0:19:50.560 --> 0:19:52.560 of that deal is almost certainly not going to include 0:19:52.600 --> 0:19:55.840 much tax increase. And without tax increase, I don't know 0:19:55.840 --> 0:19:57.800 how you get the budget deficit down. 0:19:58.119 --> 0:20:01.600 You mentioned something, let's go there, monetary policy. You wrote, 0:20:01.840 --> 0:20:03.760 it's not that tight at all. Are you saying that 0:20:03.800 --> 0:20:06.240 it needs to be significantly higher in terms of the 0:20:06.240 --> 0:20:09.120 benchmark rate in order to get inflation back down even 0:20:09.119 --> 0:20:10.000 close to two percent? 0:20:10.840 --> 0:20:13.240 I think it does have to be higher if you 0:20:13.359 --> 0:20:17.159 want to go to two percent. I'm actually calm with 0:20:17.320 --> 0:20:20.199 the Fed letting it stay roughly where it is and 0:20:20.240 --> 0:20:22.719 say it's a two sided risk. Because John Williams started 0:20:22.760 --> 0:20:25.879 to say, I'd be okay with that, but I do 0:20:26.000 --> 0:20:28.960 believe that the monetary conditions are not tight. Let me 0:20:28.960 --> 0:20:32.480 take you back, Lisa a year ago February February March 0:20:32.560 --> 0:20:36.000 people like us, which is a funny category be anyway, 0:20:37.640 --> 0:20:41.800 as for yourself Fed nerds, we're talking about the fact 0:20:41.840 --> 0:20:45.639 that FED it tightened, you know, x hundred bases points 0:20:45.680 --> 0:20:48.520 and it really wasn't affecting the economy that much. And 0:20:48.560 --> 0:20:51.840 then KME SVB and everybody got distracted. But if you 0:20:51.880 --> 0:20:55.040 go back to the first quarter of twenty twenty three, 0:20:55.160 --> 0:20:58.720 that was the talk, and I kept saying a few 0:20:58.720 --> 0:21:02.080 other people kept saying, Look, credit conditions are what matter, 0:21:02.320 --> 0:21:05.280 not what the FED fund's rate. So John Williams, Lori 0:21:05.400 --> 0:21:09.000 Logan from FED Dallas, we're coming out about six months ago, 0:21:09.040 --> 0:21:11.520 five months ago talking about oh my god, there might 0:21:11.560 --> 0:21:15.320 be a recession because the interest rate goes up as 0:21:15.359 --> 0:21:18.280 inflation comes down, and I and a few other people 0:21:18.320 --> 0:21:21.359 kept saying, don't obsess with the FED funds. Rate credit 0:21:21.400 --> 0:21:24.560 spreads are incredibly narrow, so anyway. 0:21:24.280 --> 0:21:26.000 It's less about the Fed has to. 0:21:25.920 --> 0:21:28.399 Do something different because the numbers are okay unless you 0:21:28.520 --> 0:21:33.080 really care about getting into two percent. But the extent 0:21:33.200 --> 0:21:36.359 to which it's tight I think is way over estimated. 0:21:36.400 --> 0:21:38.199 And you've been talking for a long time about how 0:21:38.240 --> 0:21:40.320 they need to have a higher target, even around three percent, 0:21:40.359 --> 0:21:41.960 So this coheres. 0:21:41.480 --> 0:21:42.159 With that idea. 0:21:42.600 --> 0:21:44.719 We keep going back to the pivot, and we can 0:21:44.760 --> 0:21:46.280 talk about the pivot of pivot and you turn and 0:21:46.320 --> 0:21:48.520 all that, but let's not I think there is a 0:21:48.600 --> 0:21:51.200 key question here of whether it was a policy error 0:21:51.560 --> 0:21:56.320 for Fedshair Powell to enunciate the possibility and the likelihood 0:21:56.320 --> 0:21:58.440 of rate cuts this year back at the end of. 0:21:58.440 --> 0:21:59.879 Last I think it was. 0:22:00.640 --> 0:22:01.199 I think it was. 0:22:01.280 --> 0:22:04.800 I mean, it's a communications error, and it goes with 0:22:05.200 --> 0:22:08.640 I think two things that have generally been suboptimal. As 0:22:08.680 --> 0:22:11.800 we say, first, they're too busy trying to guide the 0:22:11.800 --> 0:22:15.440 markets in a decision to decision way. And second, they're 0:22:15.480 --> 0:22:18.240 too reactive to data, so if they had a bit 0:22:18.240 --> 0:22:20.480 more structured they just say we've gotten it to hear. 0:22:21.200 --> 0:22:23.880 You can say I'm data dependent, but you can say 0:22:23.960 --> 0:22:26.920 what why you're data dependent instead of just saying I'm 0:22:27.000 --> 0:22:27.640 data dependent. 0:22:27.680 --> 0:22:30.159 But I think I'm going to do this. Did the 0:22:30.160 --> 0:22:32.119 politics matter? Does the election matter? 0:22:32.160 --> 0:22:33.840 Could you give us some kind of on that, your 0:22:33.840 --> 0:22:36.720 impression of what people are saying in Washington, because you 0:22:36.760 --> 0:22:38.920 know what the story is in woll Streight. On woll Streight, 0:22:39.119 --> 0:22:41.439 there is a belief that there is this window in July, right, 0:22:41.520 --> 0:22:43.320