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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa A. Brahmowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: Trade tariffs, China the United States, let's find out more

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Speaker 1: from Timothy tim Adams. He is the President chief Executive

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Speaker 1: of the Institute of International Finance based in Washington. Tim Adams,

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Speaker 1: thank you very much for being here. Just to give

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Speaker 1: a little background, former Treasury official and do you have

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Speaker 1: served as the under Secretary Treasury for International Affairs, which

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Speaker 1: means you know everything about exchange rate policy, seven meetings,

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Speaker 1: the i m F, and the World Bank. So put

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Speaker 1: it to work for us here and tell us about

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Speaker 1: the rise of trade tensions between the United States and

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Speaker 1: seemingly the rest of the world. Well, first of all,

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Speaker 1: thank you very much for having me on today, and

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Speaker 1: happy Friday to you. What these topics are a gift

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Speaker 1: that keeps giving, and especially with the President's tweet today. Look,

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Speaker 1: I've been spending the last three or four months traveling

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Speaker 1: the globe. I've lost track of the number of countries

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Speaker 1: I've visited. And the overall macro conditions are actually really

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Speaker 1: quite good. The order books are filling up and demand

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Speaker 1: is strong, and labor markets are tight. But everywhere I

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Speaker 1: have traveled, there is this sense of unease with respect

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Speaker 1: to trading regimes and trade policy and administration's perspective on trade.

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Speaker 1: So there's a lot of caution out there, and I think,

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Speaker 1: unfortunately it can begin to seep into corporate board rooms

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Speaker 1: and potentially damage market confidence. We're not there yet, but

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Speaker 1: potentially down the road we could get there. So Tim,

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Speaker 1: I just want to take a step back because one

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Speaker 1: thing that I'm struck by, as we talk about President

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Speaker 1: Trump's threats of putting tariffs on goods coming into the

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Speaker 1: country from from elsewhere, I'm struck by the fact we

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Speaker 1: don't talk a lot about the existing tariffs that are

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Speaker 1: currently in place. Can you put into perspective US tariffs

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Speaker 1: versus the rest of the world, given President Trump's rhetoric

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Speaker 1: saying that we really have been subject to unfair trade

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Speaker 1: practices for a long time, Well, it really varies by

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Speaker 1: sector and it's a patchwork quilt of tariff structure. By

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Speaker 1: and large, the U S has at incredibly low levels,

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Speaker 1: about two and a half percentage points on average of

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Speaker 1: tariffs on imports, whereas other countries a little bit higher.

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Speaker 1: But it really very sector by sector. As you know,

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Speaker 1: we have tariff on imported trucks, so whether it's foreign

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Speaker 1: products or industrial products, that very really varies. But you know,

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Speaker 1: over the last forty years, we have been very active

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Speaker 1: through a series of bilateral multilateral realms of lowering our

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Speaker 1: tariffs and actually that has benefited the U S economy

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Speaker 1: and it most certainly benefited the U S. Consumer. Alright,

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Speaker 1: So what I'm trying to figure out is for the

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Speaker 1: country is that have imposed tariffs, Um, what is the benefit?

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Speaker 1: In other words, what what can we expect the effect?

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Speaker 1: I know that people are saying slow the economy, but

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Speaker 1: is there any beneficial effect from imposing tariffs? Well, if

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Speaker 1: if you believe in an import substitution, or if you

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Speaker 1: think that you want to try to pull back supply

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Speaker 1: chains back to the US UH, if that's your objective,

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Speaker 1: then you can use tariffs as a way to de

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Speaker 1: store prices and and and redirect trade back to the US.

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Speaker 1: But you know, in some ways we're fighting the wars

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Speaker 1: of of the seventies and eighties. Uh. You know, these

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Speaker 1: economy is predominantly a services based economy, and we run

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Speaker 1: a surplus in services, and we run a surplus in

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Speaker 1: services with with the Chinese. Actually, so in some ways

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Speaker 1: we're focused on a very small percentage of the of

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Speaker 1: the U. S. Economy, and we're focused almost obsessively so

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Speaker 1: on on trade imbalances, when in fact it's just a

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Speaker 1: small part of the overall story of the U. S. Economy.

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Speaker 1: Can you speak specifically about the United States in its

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Speaker 1: relationship with China? And who do you believe if anyone

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Speaker 1: has the upper hand and these trade negotiations, Sure, what

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Speaker 1: it's strained right now, and and you know there have

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Speaker 1: been occasions over there are a long history of China

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Speaker 1: where they have become strained. I think the Chinese, and

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Speaker 1: I was just in Beijing two weeks ago. I think

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Speaker 1: they're looking for some signals from Washington as to what

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Speaker 1: it is this administration actually wants from them, and they

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Speaker 1: get a lot of mixed signals depending on who they

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Speaker 1: talked to. I think they're looking for a way to

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Speaker 1: to get an exit strategy from where we are to

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Speaker 1: avoid these huge parist president talking about huge numbers today.

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Speaker 1: I think they're just looking for signals, and it's not

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Speaker 1: clear what the current administration wants from them, but I

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Speaker 1: think they're willing to come to the table. You know, Tim,

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Speaker 1: I was struck by President Trump's tweet this morning about

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Speaker 1: the dollar and about accusing China and your opinionion of

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Speaker 1: currency manipulation. We had Blood Setser of the Council on

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Speaker 1: Foreign Relations on the radio show a couple of weeks ago,

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Speaker 1: and he was saying, you know, pretty much every economist

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Speaker 1: out there doesn't think that trade imbalances, uh hand, your

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Speaker 1: be affected by tariffs. What they'll be affected by is

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Speaker 1: exchange rates and interest rate policies. Um, I'm just wondering,

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Speaker 1: you know, how much do you expect President Trump to

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Speaker 1: kind of home in on weakening the dollar to sort

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Speaker 1: of offset the effects that we've seen so far. Yeah?

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Speaker 1: I think I think absolutely right, and most economists not

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Speaker 1: would agree that imbalances external and balances surplus or death

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Speaker 1: or our function of macro policy. Right now, we're running

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Speaker 1: incredibly uh supportive accommodative fiscal monetary policy, and that spills

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Speaker 1: over into the external sector. Tariffs on a macro basis

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Speaker 1: won't have much effect in the short term. It sort

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Speaker 1: of moves trade around. It will certainly raise prices for

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Speaker 1: consumers and and inputs for goods here. But ultimately, at

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Speaker 1: the end of the day, if we're running an incredibly

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Speaker 1: hot economy and we are, then interest rates are going

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Speaker 1: to rise, as we've heard from j PL, and that

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Speaker 1: affects the value of the dollar and and external balances.

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Speaker 1: Let's shift your attention just for a moment. I want

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Speaker 1: to get your thoughts on what is going on with

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Speaker 1: Brexit and do you believe that there will be a

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Speaker 1: bank exodus from London. I don't think there's a bank exodus,

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Speaker 1: but I think more and more effect. I was just

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Speaker 1: in the phone with a banker just ten minutes ago

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Speaker 1: who was worried about are we really just going to

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Speaker 1: stumble into a heart Brexit? And I watch it every

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Speaker 1: day and I get downloads of input from from London

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Speaker 1: from our office there, and I must say it's uh.

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Speaker 1: Being whip solid from day to day is a bit tiring.

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Speaker 1: But I've grown really concerned that we're that we're going

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Speaker 1: to run out of time and we're going to stumble

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Speaker 1: into what would be a hard Brexit, and that would

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Speaker 1: potentially be really damaging to the to London is the

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Speaker 1: city and the UK economy. But you know, it's hard

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Speaker 1: to dismantle and disrupt what has been a financial center

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Speaker 1: for hundreds of years. So I think London remains an

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Speaker 1: important financial center, but they could do some damage, you know,

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Speaker 1: tim to tie all of this up together. I mean,

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Speaker 1: what we're seeing is sort of a repudiation of the

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Speaker 1: world order where you have a wish towards more freely

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Speaker 1: flowing trade and cooperation with the major powers. And I'm wondering,

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Speaker 1: given your decades of experience with trade policy, where do

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Speaker 1: you think this goes well? One would argue of the

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Speaker 1: administration with the re boid. Else would probably argue that

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Speaker 1: they're simply using these tools and access to market to

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Speaker 1: actually open up other markets that they actually believe in

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Speaker 1: in trade, but they wanted to occur on a fair basis,

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Speaker 1: and who can be against fairness. We're all for that.

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Speaker 1: My concern is that there's potential for miscalculation that that

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Speaker 1: we end up with a protracted period of trade wars

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Speaker 1: or trade skirmishes that actually ultimately impact negatively, trade flows,

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Speaker 1: capital flows, investment flows, market sentiment, consumer sentiment, and sentiment

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Speaker 1: of the boardroom, and we screw up what is really

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Speaker 1: a really great U S economy. And I hope that

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Speaker 1: doesn't happen. Tim, want to just quickly get your thoughts

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Speaker 1: on the competitors to traditional banks and finance companies coming

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Speaker 1: from companies such as Ali Pay, Amazon and Apple. Is

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Speaker 1: the financial industry ready, We're getting ready. We've been We've

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Speaker 1: been putting up boarding sides for four years now that

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Speaker 1: huge internet platform companies, especially based in China, pose a

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Speaker 1: serious risks to all incumbent financial institutions. They are financial

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Speaker 1: intermediaries and financial runs the largest money market fund in

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Speaker 1: the world. They provide insurance products and wealth products and

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Speaker 1: financial intermediation. And yet they say it's a very different

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Speaker 1: rule book and we're just asking for a level playing

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Speaker 1: field of quotes the President, Tim Adams, thank you so

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Speaker 1: much for being with us. To Adams as President, chief

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Speaker 1: executive Officer of the Institute for International Finance based in Washington,

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Speaker 1: d c UH. He's the former Under Secretary of Treasury

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Speaker 1: for your National Affairs, has been helping to shape US

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Speaker 1: trade policies for decades well. The Aspen Security Conference typically

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Speaker 1: is a place where policy is talked about in public,

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Speaker 1: but at this time a little bit different. The President's

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Speaker 1: National Curity Advisor, Dan Coates, was in the room when

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Speaker 1: he was informed about an invitation that the President had

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Speaker 1: made to Russian President Vladimir Putin to come to Washington

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Speaker 1: in the fall. Let's listen to what Dan Coates said

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Speaker 1: after hearing about this. I don't know what happened in

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Speaker 1: that meeting. Um I think as time goes by and

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Speaker 1: President has already mentioned some things that happened in that meeting,

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Speaker 1: I think we will learn more, but that is the

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Speaker 1: president's prerogative. Um uh. If you had asked me how

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Speaker 1: that out of uh be conducted, I would have suggested

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Speaker 1: a different way. That was Dan Coates speaking at the

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Speaker 1: Aspen Secure Charity Conference in Colorado. Also in Colorado now

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Speaker 1: is Toby Harshaw, our editor at Bloomberg Opinion for all

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Speaker 1: things related to national security and defense. Toby, what can

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Speaker 1: you tell us about the mood at this meeting and

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Speaker 1: what are your thoughts about the comments from a former

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Speaker 1: Republican Senator Dan Coates, who is now one of the

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Speaker 1: nation's top security advisors. Uh, mine was awfully good. Tim

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Speaker 1: and Lisa. I'm standing on an overlook of the Roaring

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Speaker 1: Fork River watching a black hair fish for trout. At

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Speaker 1: the moment um, the mood in the room, it's elf.

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Speaker 1: Yesterday when Henry Mitchell informed him that he had invited

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Speaker 1: Putin to come to Washington was it's like a lot

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Speaker 1: of things with this administration. It was shocking but not surprising. Um.

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Speaker 1: You know, Donald Trump does what he wants to do

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Speaker 1: and he doesn't even tell his Director of National or

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Speaker 1: intelligence about it. Well, but Toby, I guess the question is,

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Speaker 1: as President Trump sets up another meeting with Russian President

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Speaker 1: Vladimir Putin, I'm just wondering what checks does is a

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Speaker 1: security team have on what he says or what he

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Speaker 1: plans with Vladimir Putin? I mean, can they shoot it

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Speaker 1: down if they think that it is a national security threat? Uh?

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Speaker 1: What are you looking at here? Um? We you know,

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Speaker 1: we have no clue. Um. They met, you know, in

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Speaker 1: private with just translators in Helsinki. UM. Dan Coats didn't

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Speaker 1: actually specifically say that he knows everything they talked about. Um.

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Speaker 1: All he said was that details will come out over time. UM,

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Speaker 1: we have no idea what what Trump promised. We know

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Speaker 1: that the Director of National Intelligence, UM was you know,

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Speaker 1: completely out of the loop. Um, that Trump was considering

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Speaker 1: this whole sending of of US interrogators to Russia and

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Speaker 1: vice versa. Well, I guess, well, sorry to break in there,

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Speaker 1: But one thing that I'm struck by is I know

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Speaker 1: that there was a proposal put out of the Democrats saying,

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Speaker 1: let's subpoena the translator that came with President Trump to

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Speaker 1: try to find out what was discussed. And one ring

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Speaker 1: there that was shot down by a number of Republicans.

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Speaker 1: I'm wondering why, Um, Because the President doesn't want to

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Speaker 1: do that, and the President is the most popular person

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Speaker 1: in their party right now. Um, and the few times

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Speaker 1: that they have crossed him, um, you know, have not

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Speaker 1: always turned out well for them. Toby tell us a

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Speaker 1: little bit about Dan Coates, the National Security Advisor. He's

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Speaker 1: a former Republican senator from Indiana, and about four years

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Speaker 1: ago he was on a blacklist that the Kremlin had

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Speaker 1: put together, that Russia had put together, banning US officials

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Speaker 1: from entering Russia. And I just love his quote when

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Speaker 1: he heard that he was banned. He said that While

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Speaker 1: I'm disappointed that I won't be able to go on

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Speaker 1: vacation with my family in Siberia this summer, I'm honored

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Speaker 1: to be on the list. Well, he's in Aspen this summer.

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Speaker 1: H Yeah, he's he's actually the he's the director of

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Speaker 1: National Intelligence, John Bolton's the National Security Advisor. Um. He

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Speaker 1: has always taken a very very strong line on Russia.

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Speaker 1: He has been sort of the hero of both Tonado

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Speaker 1: and the Healthinky tobaccles in terms of the administration. Um,

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Speaker 1: but you've got to think he's pretty far out of

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Speaker 1: the loop. Um that you know, he's he's unformed on

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Speaker 1: this stuff. The Waite House is obviously not telling him

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Speaker 1: what's going on. Um. He's a stand up tie, but

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Speaker 1: he's getting stood up. Yeah, Toby, I'm just struggling to understand.

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Speaker 1: I mean, on one hand, there are a lot of

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Speaker 1: question marks here, and uh, it's an unusual meeting for sure.

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Speaker 1: On the other, I guess, uh, you know, people might

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Speaker 1: be saying, well, the media is making too much of

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Speaker 1: this meeting and of President Trump's promises. It's good for

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Speaker 1: the two countries to have a good relationship, and President

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Speaker 1: Trump isn't necessarily changing policy right now by himself. So

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Speaker 1: you know, what do you say to that, and what

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Speaker 1: is the scope for President Trump to unilaterally change policy

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Speaker 1: with respect to the US and Russia. UM. Well, you know,

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Speaker 1: first of all, that communication is good. UM. You know,

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Speaker 1: Reagan garbage lam at several times, uh, and came out

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Speaker 1: with some pretty important, you know, non proliferation agreements. UM.

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Speaker 1: It's good to have that channel. UM. The problem is

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Speaker 1: that this is you know, this is not a normal president. UM.

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Speaker 1: We don't know what's going on. You know, Reagan kept

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Speaker 1: the public informed and his staff did. UM. So we

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Speaker 1: don't know what was said behind closed doors at that meeting.

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Speaker 1: We don't know if anything was promised. Um. They were

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Speaker 1: pretty in the press conference afterward. UM, they didn't really

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Speaker 1: say much at all about what they might have talked about. UM.

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Speaker 1: But then you know, the next day they were saying

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Speaker 1: that they had you know, we're working on a deal

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Speaker 1: on Syria. UM. So uh, you know, I just I

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Speaker 1: have to say communication is good, but you also have

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Speaker 1: to pay with the American public on this. Just quickly, Toby,

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Speaker 1: what do you think the future of Dan Coates is?

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Speaker 1: He's a former U s Ambassador to Germany. He really

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Speaker 1: entered politics by winning Dan Quayle's old House seat. UM.

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Speaker 1: I can't imagine he would stay much longer, would you?

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Speaker 1: I mean, how how can you do your job if

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Speaker 1: the president is making it impossible to do your job? Um.

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Speaker 1: John Bolton, you know, is relatively brand new in this administration,

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Speaker 1: and he seems to have lost favor you know, sort

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Speaker 1: of immediately. UM. I honestly don't see how these people, um,

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Speaker 1: can can stay in this administration. Kirsen Nielsen, the uh,

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Speaker 1: the Homeland Security Director was secretary, was here yesterday and

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Speaker 1: was asked that question point blank. UM. And she you know,

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Speaker 1: she twice UM and asked yes no, and she wouldn't

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Speaker 1: answer yes no. She was very good at reflective questions, UM,

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Speaker 1: you know. And she's she's sort of the understudy for

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Speaker 1: General Kelly, but the chief of staff. And I can't

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Speaker 1: imagine you know that he's still there much more. Toby Harshaw,

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Speaker 1: thank you so much for your insights. Toby Harshaw, as

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Speaker 1: an editor with Bloomberg Opinion, currently watching bears fish for

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Speaker 1: salmon in Aspen. Thank you so much for being with us.

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Speaker 1: The administration of President Donald Trump has enacted tariffs on

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Speaker 1: more than thirty five billion dollars of Chinese made goods,

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Speaker 1: and that includes some textiles. And here to tell us

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Speaker 1: about the effects of those tariffs and what the industry

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Speaker 1: can face in the future is Rick Health and Bind.

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Speaker 1: He is the president and chief executive of the American

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Speaker 1: Apparel and Footwear Association. Are of course based in Washington,

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Speaker 1: d C. And can be followed on Twitter at Apparel

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Speaker 1: Footwear and Our Health and okay, our health and give

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Speaker 1: us an update. You were in Washington, I believe just yesterday,

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Speaker 1: just yesterday. What is the feeling, what's the mood on

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Speaker 1: Capitol Hill and the people you speak to and what

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Speaker 1: it means for your industry. Well, I mean, I'm getting

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Speaker 1: a sense on Capital Hill that at least on the

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Speaker 1: Senate side, they'd like to rain the president's ability to

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Speaker 1: levy tariffs in because it's getting particularly out of control

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Speaker 1: on the Republican side. On the Republican side and which

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Speaker 1: would quite frankly have the most impact. And uh, you know,

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Speaker 1: they were also to be candid looking at steel and aluminum. Um,

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Speaker 1: we'd like them to look at everything, you know that's

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Speaker 1: the stealing rooms the two thirty two group. We'd like

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Speaker 1: them to look at the three oh one. We are

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Speaker 1: extremely concerned as an industry. All right, So just to

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Speaker 1: sort of bring in today's news, President Trump today said

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Speaker 1: he's quote ready to go with tariffs and five hundred

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Speaker 1: billion dollars of Chinese imports. Uh, this would be in

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Speaker 1: your words, ahead of the segment the whole enchilada. What

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Speaker 1: would that do if it went through to your industry,

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Speaker 1: it would have severe impact because we are an industry

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Speaker 1: that is trapped to some degree. Forty one percent, forty

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Speaker 1: one of all the pair are coming into the United

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Speaker 1: States comes from China. Seventy two of all footwear comes

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Speaker 1: from China. Of all accessories that includes handbags and travel

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Speaker 1: goods comes from China. And you could say, wow, why

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Speaker 1: so much? Why didn't you protect yourself against this? Believe me,

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Speaker 1: if our industry could have moved, it would have moved.

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Speaker 1: But China just does it better and does it more competitively.

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Speaker 1: So you're in trench there. Now you're gonna raise prices

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Speaker 1: on an industry that's already tariff. That's not a good thing.

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Speaker 1: I mean, think about the average tariff coming into America

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Speaker 1: is one point four percent. The average tariff on apparel

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Speaker 1: is twelve point five percent. The average tariffy on footwear

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Speaker 1: is like eleven point five percent, So you're gonna add

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Speaker 1: ten percent on top and then it you must be kidding.

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Speaker 1: Do you know what that'll do to retail? You know

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Speaker 1: what it'll do to the consumer? You know, no what

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Speaker 1: will it do? It will simply put sales will go down,

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Speaker 1: jobs will be lost, prices will go up. It's a

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Speaker 1: triple negative. You cannot win in this scenario. And we

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Speaker 1: have no place else to put the goods. It is

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Speaker 1: already baked into the system that this will be an

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Speaker 1: inflationary cycle because people are trying to run out of China.

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Speaker 1: Now you can't put ten pounds in five pounds sack,

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Speaker 1: it will burst. So they're running the Vietnam, Indonesia, Bangladesh,

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Speaker 1: Philippines where they gonna go. Everybody is raising their prices.

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Speaker 1: So you're gonna see back to school. You know, Prime

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Speaker 1: Day just happened. Should have doubled what you bought because

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Speaker 1: the prices are going to go up. Come back to

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Speaker 1: school come the spring. No matter what whether these tariffs

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Speaker 1: go through or not, the scare is real. Are the

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Speaker 1: companies that you speak to boosting their inventories in anticipation

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Speaker 1: of greater towiffs. They're trying every tactic they can't they can.

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Speaker 1: Most of the companies in our group have set up

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Speaker 1: many war rooms to try and figure out, well, exactly

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Speaker 1: how much product do I have in China? Can I

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Speaker 1: move some product out of China? Should I bring goods

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Speaker 1: early to avoid the price increase? They're thinking any which

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Speaker 1: way they can. It's try and stay competitive. You know,

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Speaker 1: the numbers in the retail side, we're not great. We

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Speaker 1: had more bankruptcies last year than we did in two

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Speaker 1: thousand and eight. Think about that. But just you know,

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Speaker 1: I want to go back to something that you said,

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Speaker 1: which is that the retail industry can't avoid this um

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Speaker 1: that China just does it better and cheaper. Why and

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Speaker 1: could it be that the US could be prompted to

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Speaker 1: do it better and cheaper if there was more focus

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Speaker 1: on that. Well, the part of our industry that a

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Speaker 1: lot of people don't understand, it's not the row material

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Speaker 1: part necessarily, it's the assembly part, which is highly labor intensive. Consequently,

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Speaker 1: you need to be near where the raw materials are.

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Speaker 1: Most of the raw materials come out of China, so

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Speaker 1: you bring the sewing, the assembly part closer to where

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Speaker 1: it's manufactured. You have great infrastructure, you have great logistics,

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Speaker 1: and it works in China, and that's why the industry

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Speaker 1: is there. Look, you know, nobody thought. We thought back

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Speaker 1: in March when these tariffs started coming out, we thought

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Speaker 1: very clearly, they'd run through the whole number, the whole

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Speaker 1: what's the whole number we sell to China thirty billion dollars,

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Speaker 1: we import from China five five billion dollars. That's the

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Speaker 1: number prison and Trump used today, five oh five billion.

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Speaker 1: He said that means everything would be hit, everything, including us.

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Speaker 1: In the second round, he hit us, uh partially hit

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Speaker 1: us on hats they were they were trying to avoid consumables,

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Speaker 1: this on hats. He hit us on handbacks, travel goods.

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Speaker 1: So we've got that already in the second trunche. Now

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Speaker 1: we go into the third tronche. You know, I think

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Speaker 1: what they figured. You know the old expression you pluck

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Speaker 1: a chicken one feather at a time, Well, at the

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Speaker 1: end of the day, you're gonna get a naked chicken.

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Speaker 1: That's gonna it's gonna happen to our parrel industry. You

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Speaker 1: have a bunch of naked chickens running around because the

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Speaker 1: price is just gonna go through the ceiling. Talk about

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Speaker 1: machinery and the actual equipment that is necessary to make

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Speaker 1: all of these products. Where does that currently come from.

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Speaker 1: It comes from all over the world, but a fair

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Speaker 1: bit of it came from China, and in the first

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Speaker 1: fifty billion that was levied UH, there was a significant

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Speaker 1: amount of machinery that was used a to make socks,

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Speaker 1: to sew foot We're in America because we also represent

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Speaker 1: the Maid in America group, So they're trying to survive

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Speaker 1: their buying their equipment from China. They're going to attack that.

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Speaker 1: We went to the u str Conference group and we

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Speaker 1: testified and they removed that they've been very kind to us.

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Speaker 1: They've been trying to protect consumables. So then you come

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Speaker 1: out with the second two and they hit us again,

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Speaker 1: and they hit more machinery and they hit more textile.

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Speaker 1: So what happens You want to set up a sewing

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Speaker 1: factory in America and you buy your textiles from Ajia

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Speaker 1: because they're not made here. What's gonna happen? You just

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Speaker 1: priced yourself at the domestic business. So, just just to

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Speaker 1: wrap things up here, how much consumers expect to pay

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Speaker 1: more for retail goods. Should this UH tariff on five

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Speaker 1: billion dollars of Chinese good I think a minimum. You know,

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Speaker 1: we we talk about five dollars per household, but now

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Speaker 1: I think it's going to be significantly higher. I wouldn't

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Speaker 1: be surprised if you see prices increases upwards. So by

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Speaker 1: now have a strong back to school because come the spring,

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Speaker 1: watch out. Rick Helfanbin, thank you so much for being

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Speaker 1: with us. Rick Helfenbin is President and chief executive of

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Speaker 1: the American Apparel and Footwear Association based in Washington, d C.

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Speaker 1: Joining us here in our eleven three studios, just back

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Speaker 1: from Washington, d C and talking with some of the representatives.

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Speaker 1: Currently trying to grapple with the consequences on all sides.

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Speaker 1: General Electric cannot catch a break. The company beat earnings,

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Speaker 1: released earnings that on the face of it looked pretty good.

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Speaker 1: Shares in pre market trading rallied a touch, and then

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Speaker 1: passing through the details, they are down now nearly four percent,

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Speaker 1: bringing gear to date losses to more than twenty three percent.

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Speaker 1: What happened? The person who knows is Karen you will Heart.

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Speaker 1: She's industrials analyst for Bloomberg Intelligence she joins us. Now, Karen,

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Speaker 1: what's going on now? It looks like the black hole

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Speaker 1: called power could be a bigger black hole and they, frankly,

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Speaker 1: they don't know, you know, how far down it's gonna

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Speaker 1: keep going. And that was that was the first question

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Speaker 1: on the call um. He basically said, it's a multi

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Speaker 1: The CEO said, it's a multi year issue. We knew

428
00:24:46,880 --> 00:24:50,000
Speaker 1: that to fix it. But it sounds like it's still going.

429
00:24:50,200 --> 00:24:53,640
Speaker 1: You know, it's going down after it went down, and

430
00:24:53,680 --> 00:24:55,840
Speaker 1: if it came across, they don't have their arms around

431
00:24:55,840 --> 00:24:58,000
Speaker 1: that big business. Remember that's going to be their biggest

432
00:24:58,040 --> 00:25:01,680
Speaker 1: business when they make GE. So there's a There was

433
00:25:01,680 --> 00:25:04,920
Speaker 1: a lot that the story was really Power, I would say,

434
00:25:04,960 --> 00:25:07,560
Speaker 1: and then a little bit, you know, air airspace margins

435
00:25:07,560 --> 00:25:09,040
Speaker 1: were down a little bit, but that's the timing of

436
00:25:09,119 --> 00:25:12,640
Speaker 1: launching their new engine. That's not a concern. Karen. How

437
00:25:12,640 --> 00:25:16,080
Speaker 1: long you've been covering GE, oh, about eight or nine years.

438
00:25:16,600 --> 00:25:19,440
Speaker 1: When you look at what Flanner, John Flannery, the chief

439
00:25:19,520 --> 00:25:22,919
Speaker 1: executive has done, do you believe there's any more that

440
00:25:23,080 --> 00:25:26,600
Speaker 1: he could do? I think he's got to take and

441
00:25:26,640 --> 00:25:30,920
Speaker 1: this this this, you know, the cost the cost cutting

442
00:25:31,040 --> 00:25:35,280
Speaker 1: in Power is probably not enough. Um, and I think

443
00:25:35,359 --> 00:25:38,119
Speaker 1: that is a big concern. You know, we've done he

444
00:25:38,119 --> 00:25:41,760
Speaker 1: announced a billion dollar cost cutting program. The footprints still

445
00:25:41,760 --> 00:25:45,280
Speaker 1: too big. He's laying off twelve uh six percent of

446
00:25:45,320 --> 00:25:50,200
Speaker 1: the people twelve thousand. That's just not enough. Um, He's

447
00:25:50,200 --> 00:25:52,600
Speaker 1: got to do more. And uh, I think he was

448
00:25:52,640 --> 00:25:56,560
Speaker 1: hoping that the market would stabilize and it's still going down.

449
00:25:57,640 --> 00:26:00,280
Speaker 1: All right, So General Electric is a special story of

450
00:26:00,359 --> 00:26:04,959
Speaker 1: pain that seems to be ongoing, with shareholders offering them

451
00:26:05,000 --> 00:26:08,920
Speaker 1: very little leeway. I'm trying to figure out industrial companies

452
00:26:09,040 --> 00:26:12,720
Speaker 1: broadly are generally outperforming. We've seen this with Honey Well

453
00:26:12,920 --> 00:26:15,479
Speaker 1: are earnings that came out earlier today? Uh, and just

454
00:26:15,520 --> 00:26:17,480
Speaker 1: in general, almost one fourth of industrial companies in the

455
00:26:17,600 --> 00:26:21,600
Speaker 1: SP five index reported second quarter results in all eighteen

456
00:26:21,720 --> 00:26:25,200
Speaker 1: have beaten on the bottom line. Why is the narrative

457
00:26:25,280 --> 00:26:29,080
Speaker 1: not shifting to these companies are in good shape? Synchronized

458
00:26:29,080 --> 00:26:32,680
Speaker 1: global growth is still a thing. What are we talking

459
00:26:32,720 --> 00:26:36,359
Speaker 1: that way? Because people are concerned about the longevity of

460
00:26:37,040 --> 00:26:39,240
Speaker 1: you know, the good times. Um, the peak of the

461
00:26:39,280 --> 00:26:42,919
Speaker 1: cycle comes up in almost every call. I've had a

462
00:26:42,960 --> 00:26:46,080
Speaker 1: couple of companies report very good numbers already, and it

463
00:26:46,160 --> 00:26:50,040
Speaker 1: doesn't seem to matter in some companies such as Caterpillar,

464
00:26:50,119 --> 00:26:53,360
Speaker 1: and you know some of these global companies. The tariff

465
00:26:53,400 --> 00:26:56,919
Speaker 1: thing keeps coming up again, so trade concerns. Um. You know,

466
00:26:57,359 --> 00:26:59,600
Speaker 1: it's really a question of Okay, it's great now, but

467
00:26:59,680 --> 00:27:04,439
Speaker 1: how long is it gonna stay? Right back to GE specifically,

468
00:27:05,160 --> 00:27:07,560
Speaker 1: how much patient do you think shareholders are going to

469
00:27:07,640 --> 00:27:11,760
Speaker 1: be with John Flannery. I think they're already losing some

470
00:27:11,800 --> 00:27:17,120
Speaker 1: patients because they haven't really seen anything turned yet. Um.

471
00:27:17,160 --> 00:27:19,200
Speaker 1: He gave the big plan, but now we've got to

472
00:27:19,240 --> 00:27:21,800
Speaker 1: wait twelve to eighteen months for healthcare and two to

473
00:27:21,880 --> 00:27:25,359
Speaker 1: three years for baker use. So um, I think the

474
00:27:25,400 --> 00:27:29,560
Speaker 1: patients is very limited. Actually, I think we could see

475
00:27:29,600 --> 00:27:32,080
Speaker 1: any kind of change at the top of GE. No.

476
00:27:32,280 --> 00:27:34,239
Speaker 1: I think I think the board will give him some

477
00:27:34,280 --> 00:27:36,840
Speaker 1: time because it is I mean, it is a multi

478
00:27:36,960 --> 00:27:39,600
Speaker 1: year problem to move this big ship. But and and

479
00:27:39,600 --> 00:27:41,840
Speaker 1: and he's announced some bold moves. I think they're going

480
00:27:41,880 --> 00:27:44,120
Speaker 1: to give him time to execute it. All right, So

481
00:27:44,240 --> 00:27:49,160
Speaker 1: in general, Electric definitely still struggling through the pain. I'm

482
00:27:49,160 --> 00:27:52,840
Speaker 1: just wondering elsewhere on the industrial landscape, with Honeywell and

483
00:27:52,880 --> 00:27:54,760
Speaker 1: some of the other earnings, is there anything that that

484
00:27:54,880 --> 00:27:57,280
Speaker 1: sort of stood out to you, especially as you said,

485
00:27:57,680 --> 00:28:00,200
Speaker 1: they're still doing pretty well, but they are cons earned

486
00:28:00,200 --> 00:28:04,480
Speaker 1: about those tariffs. Uh. You know, the organic growth was

487
00:28:04,600 --> 00:28:10,720
Speaker 1: really superb at at Honeywell, even greater than people expected. Uh.

488
00:28:10,760 --> 00:28:14,320
Speaker 1: So that's the level of growth actually really surprised me.

489
00:28:14,359 --> 00:28:18,160
Speaker 1: And it was largely driven by aerospace. Aerospace is booming

490
00:28:18,240 --> 00:28:20,720
Speaker 1: and frankly it is for g E as well. But

491
00:28:20,800 --> 00:28:23,760
Speaker 1: they've got bigger, bigger problems. So that's a that's a

492
00:28:23,760 --> 00:28:28,560
Speaker 1: tear of good news story. Um. And uh, the global

493
00:28:28,600 --> 00:28:31,320
Speaker 1: growth is there, so, I mean the top line looks

494
00:28:31,359 --> 00:28:35,120
Speaker 1: really really good. Um, it's as I said, how how

495
00:28:35,119 --> 00:28:37,040
Speaker 1: long does it stay good? Well? But Karen, this is

496
00:28:37,040 --> 00:28:39,840
Speaker 1: actually really interesting to me because it raises the question,

497
00:28:40,400 --> 00:28:43,840
Speaker 1: if say, there is some resolution to the trade tensions

498
00:28:43,880 --> 00:28:49,040
Speaker 1: that have been escalating, should these industrials outperform much more

499
00:28:49,080 --> 00:28:52,080
Speaker 1: than they have so far. I think that would. I

500
00:28:52,160 --> 00:28:54,360
Speaker 1: think that would really help because people are not don't

501
00:28:54,360 --> 00:28:55,920
Speaker 1: we don't have our arms around it. How big is it?

502
00:28:55,960 --> 00:28:59,040
Speaker 1: How bad is it? Um? What's he gonna do next? Um?

503
00:28:59,080 --> 00:29:02,240
Speaker 1: You know, and this escalation just brought the fearbacks and

504
00:29:02,240 --> 00:29:04,360
Speaker 1: there's and there's a discount sort of baked into the

505
00:29:04,400 --> 00:29:06,640
Speaker 1: shares as a result of that. That really isn't borne

506
00:29:06,680 --> 00:29:09,600
Speaker 1: out by the numbers, right right, there's not really been

507
00:29:09,720 --> 00:29:12,160
Speaker 1: much impact and there probably won't be much impact at

508
00:29:12,240 --> 00:29:15,000
Speaker 1: least this year. Um, And we don't know how serious

509
00:29:15,040 --> 00:29:16,680
Speaker 1: this is going to be if if it's you know

510
00:29:17,160 --> 00:29:20,120
Speaker 1: talked to you know, big talk and little action. We

511
00:29:20,160 --> 00:29:22,880
Speaker 1: have to see. But you know, um, you've got a

512
00:29:22,960 --> 00:29:25,880
Speaker 1: long elongated cycle for a lot of these end markets.

513
00:29:26,080 --> 00:29:28,440
Speaker 1: You've got interest rates going up, You've got you know,

514
00:29:28,440 --> 00:29:31,160
Speaker 1: trade concerns. It's all adding up to all right, is

515
00:29:31,160 --> 00:29:34,760
Speaker 1: this as good as it gets? And cyclicals in particular,

516
00:29:34,920 --> 00:29:39,040
Speaker 1: and um, industrials in general, they discount a downturn way ahead.

517
00:29:39,120 --> 00:29:41,080
Speaker 1: And I think that's sort of what that's some of

518
00:29:41,120 --> 00:29:45,000
Speaker 1: what's going on. Just a quick thought on Honeywell free

519
00:29:45,040 --> 00:29:50,440
Speaker 1: cash flow one point seven billion, Yeah, that was what

520
00:29:50,520 --> 00:29:54,240
Speaker 1: is that? Like? That's a increase, yes, and uh, you

521
00:29:54,280 --> 00:29:56,480
Speaker 1: know on the cash flow conversion it was a hundred

522
00:29:56,520 --> 00:29:58,600
Speaker 1: and eight percent, which is way ahead of what they

523
00:29:58,720 --> 00:30:02,280
Speaker 1: had expected. Uh. You know, their margins were better in

524
00:30:02,400 --> 00:30:05,680
Speaker 1: every business. Uh you know, the growth was better in

525
00:30:05,760 --> 00:30:08,560
Speaker 1: every business, So they're kind of coining cash and uh

526
00:30:08,800 --> 00:30:13,520
Speaker 1: he wants to the CEO m Adam Check wants to

527
00:30:13,560 --> 00:30:16,880
Speaker 1: buy something, but he's he's afraid of the prices, so

528
00:30:16,960 --> 00:30:20,120
Speaker 1: he's just generating all this money. He's done. He's doing

529
00:30:20,120 --> 00:30:22,840
Speaker 1: more buyback to try to use some of that cash,

530
00:30:22,920 --> 00:30:26,400
Speaker 1: but he really wants to do acquisitions, and they're they're expensive.

531
00:30:26,680 --> 00:30:30,760
Speaker 1: Thanks very much, Karen Yubilehard industrials analysts for Bloomberg Intelligence,

532
00:30:31,000 --> 00:30:37,640
Speaker 1: speaking to us about General Electric and Honeywell. Thanks for

533
00:30:37,680 --> 00:30:40,320
Speaker 1: listening to the Bloomberg P and L podcast. You can

534
00:30:40,360 --> 00:30:44,200
Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or

535
00:30:44,240 --> 00:30:47,719
Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on

536
00:30:47,760 --> 00:30:51,920
Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramowits

537
00:30:51,960 --> 00:30:55,000
Speaker 1: one before the podcast. You can always catch us worldwide

538
00:30:55,000 --> 00:31:02,440
Speaker 1: on Bloomberg Radio to te