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Speaker 2: Dominating constem with a holistic view on the economy, Your
Speaker 2: note is breathtaking pushing against the gloom is a regime
Speaker 2: of lower rates from within the ambiguity of all those dynamics.
Speaker 2: Is it a positive trend of lower rates or a
Speaker 2: grim tend of lower rates?
Speaker 3: Well, I think the idea is the economy is under
Speaker 3: a transformation thanks to the policy of the new administration.
Speaker 3: That transformation involves basically rebalancing away from the consumer, if
Speaker 3: you like, towards investments and nests, exports.
Speaker 4: And what goes with that.
Speaker 3: Actually, first of all is a weaker real exchange rate,
Speaker 3: a weaker real effective exchange rate for the dollar. And
Speaker 3: then as regards interest rates, it's sort of like not
Speaker 3: necessarily lower or higher, however, it is steeper in terms
Speaker 3: of real terms to real rates. So the idea is
Speaker 3: that in the end we're going to have a very
Speaker 3: low real funds rate and a relatively elevated if you
Speaker 3: like long term real rate. And so when you ask
Speaker 3: the question, our rates lower, there's a pivot point and
Speaker 3: the answer is yes at one end, but not necessarily
Speaker 3: at the other.
Speaker 5: I hate you you send in a thirty six page
Speaker 5: power point.
Speaker 2: Nothing's changed since you and Irah Jersey at credits we
Speaker 2: few years ago. What is a distinctive slide in your
Speaker 2: thirties six page PowerPoint?
Speaker 5: What's the one our listeners and viewers need to hear about.
Speaker 3: Well right now in terms of the evolution of the
Speaker 3: economic outlook, the main point is that inflation is relatively
Speaker 3: benign now and if anything, it could actually go down
Speaker 3: a little bit more in the next quarter or two. However,
Speaker 3: there's a lot of risk that inflation actually goes back
Speaker 3: up again at the end of next year. So the
Speaker 3: idea is that the FED has a window to cut rates.
Speaker 3: So our sort of mantra is cut and rais the
Speaker 3: FED should be cutting rates suggressively. I don't disagree with
Speaker 3: Stephen Myron. However, they need to be prepared to raise
Speaker 3: rates at the end of next year, if not in
Speaker 3: twenty twenty seven, which sounds a little odd, but that's
Speaker 3: kind of the nature rates. Get them down and you
Speaker 3: may have to take them back up again.
Speaker 2: You mentioned mister Myron in my conversation with Waller of
Speaker 2: Bemidji in Washington State. Does Dominic Constant have a favor
Speaker 2: to be FED Chairman?
Speaker 3: Well, I sort of feel risk reward in terms of
Speaker 3: giving some sort of confidence at the long end, sort
Speaker 3: of favors someone like Kevin Walsh. I would think, I know,
Speaker 3: I mean, I think a Hasset would be would be
Speaker 3: fine too. I just think some of the ideas that
Speaker 3: you know, the FED needs to have a radically different,
Speaker 3: you know, different approach.
Speaker 4: I'm not not sure you know that that's going to.
Speaker 3: Serve the administration very well right in terms of long
Speaker 3: term interest rates having.
Speaker 2: Get one more in Isabelle's ready to go? The answer
Speaker 2: is and Waller was big on British descent. You've lived
Speaker 2: the descent of the United Kingdom. There were fistfights at
Speaker 2: Cambridge when custom was was there. Should we have a
Speaker 2: more fractious FED dialogue like the Bank of England.
Speaker 3: I mean, doesn't doesn't hurt having friction among the different members?
Speaker 3: Absolutely not. I mean, but you know, at the end
Speaker 3: of the day, that they need to. I think absolutely
Speaker 3: they need to retain inflation credibility, and to do that
Speaker 3: you probably want a more U fide approach around that.
Speaker 5: Daminic Houston with US of Mizio this morning, here's Isabelle.
Speaker 6: Isabelle, let's talk about your big, big thesis, three percent
Speaker 6: FED funds rate before Powells term ends, and that's a
Speaker 6: bold call a special win. Market pricing are still hesitant
Speaker 6: when it comes to aggressive easing. What's the key catalyst
Speaker 6: for the FED to speed things up?
Speaker 2: Then?
Speaker 3: Well, I mean, clearly the balance of risks has shifted
Speaker 3: in terms of the labor market. And I think the
Speaker 3: thing that I look at that i'm sort of I
Speaker 3: find very compelling is if you look at the unit
Speaker 3: profit data for corporate America, and this is kind of
Speaker 3: domestic corporate America. We're not talking about SMP, of which
Speaker 3: half of it is sort of international. We're talking about domestics.
Speaker 3: There is absolutely no pricing power for domestics and you
Speaker 3: see that in the data, very very little.
Speaker 4: And that means that.
Speaker 3: All of the cost pressures that come from say tariffs,
Speaker 3: that they're being absorbed effectively, and that leads to other
Speaker 3: forms of cost reduction, which is really in the labor market.
Speaker 3: So it's all very well to say that, yes, you know,
Speaker 3: job creation is lower because you know of the immigration
Speaker 3: thing of reversing, et cetera. But at the end of
Speaker 3: the day, companies are being obliged to cut unit costs
Speaker 3: where they can, and that is on the labor side.
Speaker 3: And the risk clearly is that what is currently a
Speaker 3: weaker aggregate ours worked. Clearly, the riskers are going to
Speaker 3: be laid off at some point, and we have.
Speaker 6: Lauri Logan floating removing the FED funds target entirely. And
Speaker 6: you seem to agree, what's the argument.
Speaker 3: There, Well, that's a brilliant question topic and it's very interesting, and.
Speaker 2: I'm saying my questions, yeah, continue with well after something
Speaker 2: out there, just you know, basically, not a lot of
Speaker 2: people are buying treasuries, Let's be honest.
Speaker 3: And there's a lot of treasures supply out there. And
Speaker 3: when I say not a lot, it's obviously foreign demand
Speaker 3: seems to be waning from the traditional sources. Banks are
Speaker 3: buying more treasuries. There's definitely a whole push to get
Speaker 3: banks to buy even more through deregulation, but the big
Speaker 3: treasury owners believe not are.
Speaker 4: Through the basis trades.
Speaker 3: It's obviously showing up in terms of a non bank
Speaker 3: financial entity that are buying a lot of treasures. And
Speaker 3: in a way, you know there's nothing less say wrong
Speaker 3: with her because you know there's a liquidity risk, but
Speaker 3: there's no sort of duration risk. They might eventually be
Speaker 3: credit risk, but you know, why not have you know
Speaker 3: that expanding If Laurie Logan goes out and gets sort
Speaker 3: of the funds targets and targets repo, you actually take
Speaker 3: away a big sort of liquidity concern for the HESH
Speaker 3: funds that are doing this trade. And in a way
Speaker 3: it might be another avenue by which you get a
Speaker 3: lot of treasuries absorbed in non traditional areas and you
Speaker 3: don't need to rely on the Chinese, for example, all
Speaker 3: the Japanese to buy our treasuries.
Speaker 2: Dominic Caustim with us, and we continue here he's with
Speaker 2: the Miszoo and extended conversation.
Speaker 5: For Global Wall Street Isabelle Lee.
Speaker 2: I have real trouble with the Meyron certitude and others.
Speaker 2: Given the Newtonian plug and chug of the tailor rule.
Speaker 2: We really don't know our start. I told Wili. There's
Speaker 2: two our starts for this split torn as under America.
Speaker 2: We don't know the output gap. How blind are we
Speaker 2: Dominique right now?
Speaker 4: Well, I think we're always fairly blind.
Speaker 3: But the best way to discover neutral rates is always
Speaker 3: is the way.
Speaker 4: You know.
Speaker 3: It's like driving the truck and you sort of know
Speaker 3: the you sort of vaguely know the direction, you know
Speaker 3: the speed, and you think you're going to know where
Speaker 3: it's going to end up, and if it doesn't, you recalibrate.
Speaker 3: That's how our star is basically calculated. So basically, if
Speaker 3: you cut rates, you know, down to say two percent,
Speaker 3: instead of leaving him around three or three and a half,
Speaker 3: then you'll know whether neutral rate is substantially higher after
Speaker 3: the event. But you know it's a little bit hid
Speaker 3: and missed, but you can you'n always raise rates if
Speaker 3: you need to, And that's kind of how I would
Speaker 3: see it. So the balance of risk kind of tells
Speaker 3: you you should do more. And then, let's be honest,
Speaker 3: there's another side to the interest rates story, which isn't
Speaker 3: just about calibrating interest rates perfectly for the labor market
Speaker 3: or even inflation. There is a side of this rather
Speaker 3: nasty sort of debt service sort of spiral with the deficit.
Speaker 3: You kind of you are obligated to some extent, say, look,
Speaker 3: have shorter rates and let's maybe finance more.
Speaker 2: Can I go mathy? Let's go mathy and debt service?
Speaker 2: How nonlinear is it? I mean, if it's an accelerate
Speaker 2: through a higher yield. Do you have in your head
Speaker 2: where we lose the linearity of the calmness of debt
Speaker 2: service all of a sudden boom?
Speaker 3: Yeah, absolutely, it gets very nonlinear. You in take Japan,
Speaker 3: I mean, Japan has short rates in thirty years time
Speaker 3: that are like six percent.
Speaker 4: I mean that's crazy.
Speaker 3: I mean they blow themselves up completely if that were
Speaker 3: to be realized. And that's in the forward markets. You
Speaker 3: take countries like France, I mean, they have big issues
Speaker 3: at the moment.
Speaker 4: The US does not.
Speaker 3: The US is not quite as bad as that, but
Speaker 3: it could be as bad as that if it's not careful.
Speaker 3: So it must get on top of the debt service,
Speaker 3: especially if it's finding it too hard to cut the
Speaker 3: deficit in other ways.
Speaker 7: What about when it comes to tariffs.
Speaker 6: Your read seems to be the tariffs are being absorbed
Speaker 6: quietly for now, we have profit margins weakening, but prices
Speaker 6: staying benign. What will happen though, when consumers run out
Speaker 6: of purchasing power?
Speaker 3: So well, first of all, I mean consumers obviously have
Speaker 3: taken a bit of a hit on tariffs. I mean
Speaker 3: clearly consumptions running in a few hundred billion below let's
Speaker 3: say trend, but not nearly enough to be pushed into recession.
Speaker 3: One thing to bear in mind is we've only really
Speaker 3: had half of their potential tariffs we might get. You know,
Speaker 3: the China truce is extremely important, and if it continues,
Speaker 3: and then that's that's the sort of good thing from
Speaker 3: that perspective. So I think the only other the main
Speaker 3: thing though, is really that profit margins are so large
Speaker 3: in the US and the domestic you know, US sort
Speaker 3: of economy. They were large when COVID because of egregious
Speaker 3: sort of you know, pricing power if you like, that,
Speaker 3: companies were able to sort of extract really because of
Speaker 3: the fiscal stimulus. And in a funny way, what the
Speaker 3: tariffs are doing is by forcing these companies to absorb
Speaker 3: them rather than pass them on to consumers.
Speaker 4: It's really that the federal government.
Speaker 3: Taking the money back that they indirectly gave to a
Speaker 3: corporate America via the consumer and that egregious pricing. So
Speaker 3: there's a there's a there's a nice little holistic world
Speaker 3: that's going on and I and that's why we don't
Speaker 3: don't actually think we'll go into recession, even even though
Speaker 3: obviously with the risk of the label market we can
Speaker 3: perhaps avoid it.
Speaker 5: Dominic Coust to Missoua.
Speaker 2: We continue with them, thrilled that he could join us
Speaker 2: today working with Stever Shuttles, surviving Stever Shuttle's brilliant dissection
Speaker 2: of American GDP on a daily basis. We welcome all
Speaker 2: of you worldwide, particularly Global Wall Street in India, in
Speaker 2: America and the Pacific RIM in the continent of.
Speaker 5: Course as well. I want to go back to the.
Speaker 2: Transfixedness of your work with ira at Credits sweee years ago,
Speaker 2: and you guys owned the chart of how Wall Street
Speaker 2: was so wrong modeling out higher rates. It's going to happen,
Speaker 2: these little fan We had a time series, folks with
Speaker 2: little feathers of how wrong we are right now? What
Speaker 2: does that chart look like right now? What is the
Speaker 2: best on Wall Street that once again will be wrong?
Speaker 3: Well, the current bett on mall Street is that the
Speaker 3: FED is cutting, but it's cutting let's say, relatively slowly,
Speaker 3: and doesn't really get to a terminal rate of three
Speaker 3: percent or so until the second half next year. So
Speaker 3: where we think the risk reward there is that the
Speaker 3: FED does end up cutting more aggressively and you bring
Speaker 3: that forward, so you basically sort of have a sort
Speaker 3: of more aggressive if you like, you know, flattening out
Speaker 3: of the forward short rates. But then where it kind
Speaker 3: of gets I would argue, you know, wrong again, is
Speaker 3: when you get into twenty twenty seven, where you have
Speaker 3: an unusual sort almost a flat lining of the funds rates,
Speaker 3: Like once they come down, they stay down. So not
Speaker 3: only do they not you know, not come down far enough,
Speaker 3: but the very fact that they're staying down for that
Speaker 3: prolonged period seems to me, sorry, incorrect.
Speaker 2: Are you suggesting that we need to get away from
Speaker 2: two point zero percent target and that we're going to
Speaker 2: have a new central bank regime in twenty seven, twenty eight,
Speaker 2: twenty nine, which is a new set higher.
Speaker 3: Yeah, I think the I think in the it it
Speaker 3: kind of depends on what the administration wants to do
Speaker 3: about inflation.
Speaker 4: I mean, whether they tolerated or not.
Speaker 3: So I think in a conventional way, if they tolerate
Speaker 3: same inflation up around four percent for a while, and
Speaker 3: they do that because of say the debt service things,
Speaker 3: then you will have a lot of christ are you model?
Speaker 2: I'm going to make some news here Isabelle needs news?
Speaker 2: Are we modeling four percent inflation?
Speaker 4: One of my very one of my models?
Speaker 3: And I'm very proud of models four percent core CPI
Speaker 3: and rising in twenty twenty seven?
Speaker 7: Yes, Wow, that's a headline for me there. What about?
Speaker 8: Okay?
Speaker 6: So then the market doesn't seem to be fully bought
Speaker 6: in when it comes to the FED accelerating rate cuts.
Speaker 6: So is that a communication issue from the Fed? Or
Speaker 6: is that inflation anxiety? Why do you think there's a
Speaker 6: disconnect there?
Speaker 3: To be honest, I think pal would be much more
Speaker 3: committed to bringing rates down further if President Trump wasn't
Speaker 3: sort of so interfering in FED policy. I think it's
Speaker 3: almost a kind of like a pride moment. I'll end
Speaker 3: up doing it, but he just can't sort of preemptively
Speaker 3: say he'll do it.
Speaker 4: That's my perspective.
Speaker 6: And the shutdown the shutdowns market impact is usually limited,
Speaker 6: but you say that this time might be different, right, Well, I.
Speaker 3: Mean shut shutdowns are limited if they're short, but if
Speaker 3: they they're at long, then it does impact consumption. What
Speaker 3: is long at least a month, and you know this
Speaker 3: shutdown is approaching that, and I think if it goes
Speaker 3: even longer than that, obviously you're going to see a
Speaker 3: consumer spending taker hits. And we model, we model that
Speaker 3: relative to consumption trends before shutdown and then afterwards. So
Speaker 3: clearly there is there is some impacts.
Speaker 2: Yeah, do many costumer and AI they say it's outside
Speaker 2: you remit, I don't buy it for a moment. I mean,
Speaker 2: we got sailor coming in here and coming up here
Speaker 2: in thirty minutes, twenty minutes, the laureate from Chicago and
Speaker 2: the behavior of the structure fine dominic constant and AI
Speaker 2: and the overlaid of productivity which we're not going to
Speaker 2: know for three, four or five ten years.
Speaker 3: Yeah, well, I'm I'm a big big fan of the
Speaker 3: productivity sort of miracle stories, you know, through through the trends. Absolutely,
Speaker 3: I think AI is a massive positive for productivity and
Speaker 3: it's going to go hand in hand with very little
Speaker 3: labor input, which we're kind of already seeing. So when
Speaker 3: I look at the GDP, you know, I look at
Speaker 3: the expensiture side, let's say, and all that kind of
Speaker 3: translates into higher productivity, you know, because of the underlying
Speaker 3: thing AI. And it totally when I talk to our
Speaker 3: clients basically you know, in the in the in the
Speaker 3: real money hedge funk community, more and more saying you know,
Speaker 3: they're obviously using AI and they're not hiring graduates in
Speaker 3: the way that they did before.
Speaker 4: That's a really big impact to I mean, I.
Speaker 2: Look at bazoo on what you're building over there. You
Speaker 2: pick up Jordan. This is like picking up you know,
Speaker 2: some baseball player. You pick up George Rochester and foreign
Speaker 2: exchange human rashudo have to battle over nominal GDP. Are
Speaker 2: you guys all on the same page. Given a four
Speaker 2: percent constant cav.
Speaker 4: We all always agree, it's amazing.
Speaker 5: It's really a all of a TV yeah together there.
Speaker 3: But I think the diversity of opinion is good. I
Speaker 3: mean it challenges each of us to sort of go
Speaker 3: back and rethink and refine our arguments.
Speaker 2: What's your future for your United Kingdom? I can't glean
Speaker 2: it reading the papers.
Speaker 3: Yeah, I mean it's all it's a little you know,
Speaker 3: I think the future is my old schoolmate Nigel Farage
Speaker 3: becomes Prime Minister. I think it's a little bit like
Speaker 3: the same as in France with you know, with the
Speaker 3: from that's now you know that the populism is is
Speaker 3: you know, it can't be held back for too long
Speaker 3: and it's really a dysfunction of the established parties. I mean,
Speaker 3: you know, the Labor Party never really you know, it
Speaker 3: never had a massive popular vote in the first place,
Speaker 3: but unfortunately it's made a lot of missteps and it's
Speaker 3: hard to see how they're going to keep out that
Speaker 3: that the Reform Party.
Speaker 2: If mister Farage comes calls on his own class as
Speaker 2: old classmate, will you look to serve as Chancellor of
Speaker 2: the Exchequer?
Speaker 5: Of course I would constantly there's from a Zoo. Stay
Speaker 5: with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 5: Elina Show.
Speaker 2: Tavid joins us right now and has frankly, never been
Speaker 2: a more important conversation. She's with the Conference Board, which
Speaker 2: goes back to nineteen sixteen. Full disclosure, it was religion
Speaker 2: to my grandfather. They are different. They have a huge
Speaker 2: history of data collection and the mood and in a
Speaker 2: massive government shutdown. It's not that you're it, but you're
Speaker 2: the ones that have been tested time and time again
Speaker 2: and shutdowns. What is your message about what's really going on?
Speaker 2: Is where data lists?
Speaker 9: Well, I can guarantee you get another data point from
Speaker 9: the conference port next Tuesday when the CCI Index will
Speaker 9: be released and will get another gauge of how consumers
Speaker 9: are feeling in this economy. And another data point I
Speaker 9: would like to talk about is the CEO confidence that
Speaker 9: we received last week, and that hasn't been much of
Speaker 9: an improvement on the CEO confidence front. Actually they're saying that,
Speaker 9: you know, things are probably okay, but the CEO confidence
Speaker 9: is still below the fifty break even level.
Speaker 2: Testing and CEO confidence. Is it a legitimate time series?
Speaker 7: Absolutely.
Speaker 9: It tracks investment, business investment, and the thing that I
Speaker 9: watch mostly is business investment plans. So that's a gauge
Speaker 9: for telling you what happens to business investment going forward.
Speaker 6: Yes, and only four percent of CEOs are expecting a recession,
Speaker 6: but growth is still projected to decelerate. What's behind this
Speaker 6: cautious optimism and what does it signal to the business
Speaker 6: I A Heading into next year.
Speaker 9: There's still a lot of uncertainty. There's still a lot
Speaker 9: of uncertainty about the tariff's woodland, that's a lot of
Speaker 9: uncertainty about the AI impact and regulation and geopolitics as well.
Speaker 9: So those are top concerns for you know, the c
Speaker 9: suite people, and I think that's an important thing to
Speaker 9: remember when you talk about outlook for next year.
Speaker 6: So the shutdown is having ripple effects not just in
Speaker 6: GDP but in conference also where are you seeing the
Speaker 6: most visible science of disruption when it comes to the data,
Speaker 6: whether it's employment or the CPI printed.
Speaker 9: For US economists, the data flow is disrupted. That's it
Speaker 9: already is happening, and we have much lower visibility in
Speaker 9: terms of how to think about the economy. But in
Speaker 9: terms of the overall impact on the economy, it's still moderate,
Speaker 9: but it will be nonlinear, so it doesn't go like
Speaker 9: one to two tens of a percent each week. It's
Speaker 9: non linear. So first week, it's minimal. Second week, third week,
Speaker 9: when people start missing the paychecks, that could be much
Speaker 9: more significant. And I think if it moves into November,
Speaker 9: we will talk a little bit more about the economic impact.
Speaker 6: So, speaking of inflation, we may we may be heading
Speaker 6: into a hotter print this Friday. Do you think that
Speaker 6: the Fed can afford to stick to the gradual plan
Speaker 6: of easing if inflation holds about three percent?
Speaker 9: Absolutely, That's what Chef Powell said at the NAPE meeting
Speaker 9: last week. It was an amazing speech by the FED
Speaker 9: chair and he just basically confirmed, you know, it's it's
Speaker 9: about the risks. It's about the risks to the labor market,
Speaker 9: not particular data.
Speaker 6: So is that the implicant target now three Well, that's
Speaker 6: that's a tough question.
Speaker 9: I think they still believe they can get lower, but
Speaker 9: you know, you're not really speaking about it explicitly.
Speaker 2: Yoanna, Thanks so much for Jolena Shila Tavia with us
Speaker 2: with the conference board.
Speaker 5: Are they're important data coming out? Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Sri Coyle off, what I you know, we didn't do
Speaker 2: it enough on this last week the International Monetary Fund
Speaker 2: with their meetings and.
Speaker 5: All the different work.
Speaker 2: I look at the green book, the Global Financial Stability Report.
Speaker 2: It's one hundred and twenty six dense pages of really
Speaker 2: PhD level thinking about where are we ro He's gone
Speaker 2: beyond that and he joins us now on are instabilities
Speaker 2: maybe within the calm? Rahie, what do you think of
Speaker 2: our global financial stability right now?
Speaker 8: Hey Tom, thank you so much for having me. It's
Speaker 8: a pleasure. And no, I mean, look, I've done the
Speaker 8: Global Financial Stability Report for almost a decade now, and
Speaker 8: you sort of get tuned to looking at the left
Speaker 8: tail of the distribution and what can go wrong throughout.
Speaker 8: But where we are right now, I think things are
Speaker 8: going pretty decently well. I mean the big question is
Speaker 8: that And the perfect example are these IMF meetings that
Speaker 8: end the last week. When you went to them six
Speaker 8: months ago, it was all about despondents that you know,
Speaker 8: there is a tariff shock and everything is going to
Speaker 8: get tripped at the seams. Now it's all about resilience.
Speaker 8: That global economy has outperformed expectations, Global markets have perferred
Speaker 8: expectations are not just US, pretty broad based. So from
Speaker 8: that perspective, things seem to be going pretty well at
Speaker 8: the margin. In terms of instability. I would still argue
Speaker 8: that the biggest risk in the market remains on the
Speaker 8: US born market side and how inficient people are sort
Speaker 8: of passing it by. But I think in my view
Speaker 8: that's some mistrikes.
Speaker 5: Is that the IMF there's wonderful stress tests.
Speaker 2: I'll look at, you know, stress episodes is what they
Speaker 2: call them, where they pretend bad things happen. Are we
Speaker 2: prepared reheat right now within global Wall Street for the
Speaker 2: next marginal stress?
Speaker 8: I think to a great extent, I would argue is
Speaker 8: the issue is that the unown unknown is something which
Speaker 8: nobody gets prepared for. But the other stress test, which
Speaker 8: we saw in terms of the banking crisis, in terms
Speaker 8: of the regional banks getting an issue or any stress
Speaker 8: in the tragedy bond market. I think from that perspective,
Speaker 8: the fed and the policy makers are pretty prepared. The
Speaker 8: issue is more of a self gool that cutting rates
Speaker 8: at a time when the inficion is sort of picking
Speaker 8: up sclically can take people by a surprise, and that
Speaker 8: I think can be a sourceful issue.
Speaker 6: So you spoke with over twenty finance ministers, which is
Speaker 6: a real pulse check, and one of your big takeaways
Speaker 6: was that trade is moving beyond the US, and fact,
Speaker 6: what are the countries doing to reapply as supply chains
Speaker 6: and why do you think investors need to take that shift?
Speaker 7: Seriously?
Speaker 8: No, I think Look, this has been a fascinating start.
Speaker 8: If you look at since twenty sixteen, which was from
Speaker 8: first term, ninety percent of countries have seen an increase
Speaker 8: in trade to GDP. US is one of the only
Speaker 8: major countries which have seen a decline in trade to GDP,
Speaker 8: and four of the fastest going trade corridors are outside
Speaker 8: of US. So while we do make a big deal
Speaker 8: out of the US addic situation, the reality being that
Speaker 8: other countries have been preparing for this event for a
Speaker 8: while now, especially when you talk to all these policymakers.
Speaker 8: As you mentioned, I met almost twenty finance ministers last week,
Speaker 8: and the big picture feedback was that luk US is
Speaker 8: extremely important for US and it's impossible to sidetrack it.
Speaker 8: But at the same time, US is just fifteen percent
Speaker 8: of GLO bullet boats. There is a big world outside
Speaker 8: of us that we need to partner with, and now,
Speaker 8: especially now we're in a transactional world, we need to
Speaker 8: be a bit more more mindful of So when you
Speaker 8: we're from your emerging markets, everybody is signing more free
Speaker 8: trade deals. Everyone is trying to diversify their export base
Speaker 8: in terms of partners as products. I think that's a
Speaker 8: welcome development, right go.
Speaker 5: Out with us.
Speaker 2: Thrilled to have them with us with Breakout Partners on
Speaker 2: our Bloomberg podcast, what a successful experiment it's been.
Speaker 5: Thank you for listening on YouTube.
Speaker 2: Subscribe to Bloomberg podcasts out at YouTube and we say
Speaker 2: good morning and Rowhat's India where we've had just huge,
Speaker 2: huge success. Rowen, I want to do an audible here,
Speaker 2: stay to me the new Modi capitalism of India. Explain
Speaker 2: to me twenty twenty six for the animal spirit of India.
Speaker 8: No, I think it's going to be the same old that. Look,
Speaker 8: we have fixed a lot of the historical issues now
Speaker 8: we have a big bad wolf in terms of President Trump,
Speaker 8: and Moodie is the one who's trying to safeguard the
Speaker 8: interest of Indian farmers and Indian sort of domestic houses.
Speaker 8: And we've got to stay the course. If you want
Speaker 8: to make integrate again, let's.
Speaker 7: Stick with the region. What about China?
Speaker 6: You mentioned that China was surprisingly absent from discussions given
Speaker 6: its central role in global trade.
Speaker 7: What do you make of the silence?
Speaker 8: No, I think that was for me the biggest shock.
Speaker 8: That one would imagine that the US China issues and
Speaker 8: China in particular would be a very big focus, but honestly,
Speaker 8: not really. And I think there are a couple of reasons,
Speaker 8: one being most of the investors have priced in that
Speaker 8: the US China's serve issues will continue for the time.
Speaker 8: They will be escalation, most of it is posturing, will
Speaker 8: revert back some of it. So from that perspective, is
Speaker 8: going to be a slow and steady negotiation between US
Speaker 8: and China, and we have we're in that segment of
Speaker 8: the nash EQUIYBM that we don't want to be in
Speaker 8: the goog Do situation. I think both US and China
Speaker 8: realizing that a bigger focus for me was how the
Speaker 8: emerging markets are talking about the China manufacturing blood and
Speaker 8: how the oversupply sort of killing their own domestic manufacturing industries,
Speaker 8: and there is a big focus to make sure that
Speaker 8: that doesn't really groups.
Speaker 5: All right, Ronie, thank you so much. Rohikoel with us.
Speaker 2: Please please would love to see you in a studio
Speaker 2: at some point. Rohikoel is with Breakout Capital Partners.
Speaker 5: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business App. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Just
Speaker 1: Say Alexa Play Bloomberg eleven thirty.
Speaker 2: Andrew Ceciliana joins his partner Trading Customs Practice a KPMG.
Speaker 2: This could be a three hour interview this morning. You
Speaker 2: are a licensed US customs broker. All of a sudden,
Speaker 2: everything seems arbitrary. When Isabelle Lee gets something from d
Speaker 2: Or in Paris, she has no idea if there's going to.
Speaker 5: Be a customer terrorfunt. Have you ever seen it?
Speaker 4: This nuts.
Speaker 10: No, it's been extremely volatile. Are uncertain really complicated to
Speaker 10: the rules of consistently changing toime. So if you think
Speaker 10: about it today, there are country specific tarifs, industry specific tariffs,
Speaker 10: there's trade deals taking place, and there's a bunch of
Speaker 10: investigations that are still under way that we don't even
Speaker 10: know what the impact is going to be.
Speaker 2: Okay, but so the air JFK Okay, they come at
Speaker 2: a cargo plane. Are there people like you, licensed customs
Speaker 2: brokers figuring out what's in each bundle?
Speaker 5: Well, what a broker does.
Speaker 10: A broker will help clear the shipments, right, so they
Speaker 10: will file the customs entry with US Customs. On that
Speaker 10: entry is where you declare all these tariffs. So that
Speaker 10: is the point of contact with Customs to disclose all
Speaker 10: the towers to customs.
Speaker 6: So the USS racked up some eighty billion dollars in
Speaker 6: tariff revenue this year to more than double the last year.
Speaker 6: And it looks good on the revenue side, but how
Speaker 6: are businesses and consumers actually absorbing this the cost on
Speaker 6: the ground and based on your perch, are they worried
Speaker 6: or what's happening?
Speaker 10: You know, it's a great question.
Speaker 5: It really varies.
Speaker 10: There's no single answer. There are situations where prices going up,
Speaker 10: people see it right there. There are those scenarios, but
Speaker 10: there's also marking conditions that are driving prices not to
Speaker 10: go up. And there's also supplier and import absorption where
Speaker 10: there's negotiations happening where they're absorbing the tariffs, and also
Speaker 10: companies are looking for ways to mitigate and move their
Speaker 10: supply chains to avoid the tariffs.
Speaker 5: Tell me about the Dominimous rule. I mean it's striving everybody. Everybody.
Speaker 10: Yeah, So the Dominicus rule many many years ago was
Speaker 10: like two hundred dollars, and the whole point of it was,
Speaker 10: when you have these small parcel shipments, why do we
Speaker 10: want customs entries for every single small shipment? And then
Speaker 10: when the amount raised to eight hundred dollars, you had
Speaker 10: companies taking advantage of it, you know, putting warehouses in
Speaker 10: Mexico and Encounter and shipping into the US. So a
Speaker 10: lot of US companies right a disadvantage and lobbied against it.
Speaker 10: So right now it's closing a lot of turmoil because
Speaker 10: companies that were relying on that e commerce benefit just
Speaker 10: lowered from eight hundred to pick a number, it's yeah,
Speaker 10: there's it's zero. Now it cost some entries required for
Speaker 10: those shipments. I mean there's different types of entries. But
Speaker 10: the deminimus rule no longer exists.
Speaker 6: So we're clearly at an inflection point in the global trade.
Speaker 6: You call this a turning point and noted that companies
Speaker 6: who treat the disruption disruption as strategy could come out ahead.
Speaker 7: What does that look like in practice though, because okay,
Speaker 7: maybe what if.
Speaker 6: I'm a small business and I got myself used to
Speaker 6: the eight hundred dollars yeah minimum?
Speaker 10: Right, So then so when the tarots, when the new
Speaker 10: towers were initially announced, it was everyone's in mitigation mode
Speaker 10: reacting to the taros.
Speaker 5: There was also uncertainty.
Speaker 10: We don't know if they were going to lie, so
Speaker 10: they were just looking for the low hanging fruit opportunities.
Speaker 10: But now we're beyond mitigation. Companies are rewiring their supply chains.
Speaker 10: They're looking at a tax and trade planning opportunities. They
Speaker 10: are looking at technology and data and AI to do
Speaker 10: scenario planning modeling. We have a tool of KPMG that
Speaker 10: does that for our clients. They're also looking at operating models,
Speaker 10: the customs function for years was operational. It was a
Speaker 10: border tax, clear the goods. Now they're looking at the
Speaker 10: overall structure and.
Speaker 2: This Siciliana that is going to get one more in here.
Speaker 2: I'm very remiss on to say a nasty letter from
Speaker 2: the government in Mexico. Thank you for listening every morning
Speaker 2: in Mexico City. Really honored. And we don't do enough
Speaker 2: on agriculture. How do we do one on terriffs of tomatoes,
Speaker 2: of avocados, of bananas that I think we can't grow
Speaker 2: in America?
Speaker 5: Am I right?
Speaker 9: In?
Speaker 8: That?
Speaker 5: Isabelle that I don't know?
Speaker 7: I have to ask chat Okay, how are we doing.
Speaker 5: On agriculture terrorists? Is it like coming? Well? There was?
Speaker 10: There are terrors for Mexico encounter punitive tariffs under the IEPER,
Speaker 10: which as you know, the Supreme Court case is going
Speaker 10: to rule on soon.
Speaker 5: But there are also exceptions.
Speaker 10: If a good qualifiers under the USMCI, they avoid that tariff.
Speaker 10: So right now, if you meet USMCI, you could avoid
Speaker 10: the taro.
Speaker 2: Well, it's a single summation of your KPMG study and
Speaker 2: this headache of tariffs.
Speaker 10: It's volatile, there's lots of disruption and companies need to
Speaker 10: be agile and flexible and manage through it. You can
Speaker 10: avoid the pain.
Speaker 5: You have to manage it. I got eight more questions,
Speaker 5: come back. Thank you so much.
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
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