1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:33,360 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Will 7 00:00:33,440 --> 00:00:38,520 Speaker 1: emerging market currencies be the primary victim of the ongoing 8 00:00:38,800 --> 00:00:42,640 Speaker 1: trade skirmishes? Here to answer that question is Komal Street Kumar. 9 00:00:42,960 --> 00:00:45,879 Speaker 1: He is president and founder of Street Kumar Global Strategy 10 00:00:45,920 --> 00:00:49,159 Speaker 1: is also a Bloomberg opinion columnist. Coming to us from 11 00:00:49,200 --> 00:00:52,000 Speaker 1: the lovely Santa Monica, California. Samal, Thank you so much, 12 00:00:52,240 --> 00:00:54,480 Speaker 1: uh Sree, thank you so much for being with us. 13 00:00:54,760 --> 00:00:58,800 Speaker 1: So what is your take on emerging markets currencies heading 14 00:00:58,800 --> 00:01:01,440 Speaker 1: into your end here? Good to be with you and 15 00:01:01,520 --> 00:01:04,920 Speaker 1: PIM Lisa. In terms of what is happening, the emerging 16 00:01:04,959 --> 00:01:10,040 Speaker 1: markets are clearly reacting to a stronger and stronger dollar 17 00:01:10,160 --> 00:01:13,639 Speaker 1: that we have seen over the last several months, FED 18 00:01:13,840 --> 00:01:16,520 Speaker 1: which insists that it has not stopped hiking, it is 19 00:01:16,560 --> 00:01:19,840 Speaker 1: going to keep increasing interest rates, and we have a 20 00:01:19,880 --> 00:01:23,840 Speaker 1: situation of trade war which is really very negative for 21 00:01:23,920 --> 00:01:28,080 Speaker 1: many of the emerging markets. So it may not always 22 00:01:28,120 --> 00:01:32,160 Speaker 1: be a conscious move to depreciate their currencies in order 23 00:01:32,200 --> 00:01:36,319 Speaker 1: to fight a trade war, Lisa, but that clearly is 24 00:01:36,360 --> 00:01:40,480 Speaker 1: the ultimate result. We have seen that recently with the 25 00:01:40,520 --> 00:01:43,240 Speaker 1: Turkish lira. We have seen the Argentine pace, so the 26 00:01:43,240 --> 00:01:46,679 Speaker 1: Indian rupee. In the case of Argentina and India, they 27 00:01:46,720 --> 00:01:50,320 Speaker 1: have been all time record lows, and Argentina is going 28 00:01:50,360 --> 00:01:54,240 Speaker 1: to compete with the United States for Chinese markets. The 29 00:01:54,280 --> 00:01:59,000 Speaker 1: Indian manufactured exports will become even more competitive globally. So 30 00:01:59,040 --> 00:02:01,680 Speaker 1: I the problem here is that it is going to 31 00:02:01,800 --> 00:02:05,200 Speaker 1: worsen President Trump's problems. The U S trade deficit is 32 00:02:05,240 --> 00:02:07,960 Speaker 1: going to worsen, and we are going to have to 33 00:02:08,040 --> 00:02:11,720 Speaker 1: face some way to depreciate the US dollar. And once 34 00:02:11,760 --> 00:02:16,400 Speaker 1: that happens, then you have the other countries reacting yet again, Shree. 35 00:02:16,720 --> 00:02:18,360 Speaker 1: One of the area One of the things that I 36 00:02:18,400 --> 00:02:20,800 Speaker 1: look at on a pretty regular basis is the price 37 00:02:20,840 --> 00:02:23,960 Speaker 1: of copper as a proxy for industrial activity, as it 38 00:02:24,080 --> 00:02:27,800 Speaker 1: is an industrial medal. The price of copper is down 39 00:02:27,880 --> 00:02:32,600 Speaker 1: more than fifteen percent since it's high in mid June. 40 00:02:32,919 --> 00:02:35,120 Speaker 1: Do you believe that we're going to find that the 41 00:02:35,160 --> 00:02:38,520 Speaker 1: world economy is not as robust as many economists belief. 42 00:02:40,120 --> 00:02:43,600 Speaker 1: That is a great question, and I would pare your 43 00:02:43,800 --> 00:02:47,880 Speaker 1: answering your question to what we see as a message 44 00:02:47,960 --> 00:02:50,639 Speaker 1: that is coming from one is from Dr Copper as 45 00:02:50,680 --> 00:02:55,160 Speaker 1: it's popularly known for its record in predicting the global economy, 46 00:02:55,639 --> 00:02:59,800 Speaker 1: along with what you see happening with the US equity market, 47 00:03:00,240 --> 00:03:02,920 Speaker 1: which has been rushing up in the last few days 48 00:03:02,960 --> 00:03:06,639 Speaker 1: because of corporate turnings, even as the bond market continues 49 00:03:06,720 --> 00:03:09,520 Speaker 1: to give you dangerous signals and the two to ten 50 00:03:09,639 --> 00:03:12,240 Speaker 1: years spread on the U S treasuries continues to be 51 00:03:12,240 --> 00:03:17,600 Speaker 1: below thirty basis points. The combination of weakness and copper 52 00:03:18,400 --> 00:03:21,560 Speaker 1: and a very narrow spread suggests to me that if 53 00:03:21,840 --> 00:03:25,480 Speaker 1: we could invert the Eelk curve even by September, if 54 00:03:25,480 --> 00:03:28,080 Speaker 1: the FED were to high cut on September twenty six, 55 00:03:28,760 --> 00:03:32,400 Speaker 1: and then you're looking possibly for a US recession and 56 00:03:32,560 --> 00:03:35,520 Speaker 1: a global recession towards the end of next year, and 57 00:03:35,560 --> 00:03:38,800 Speaker 1: if we have a trade war accelerating, it only pushes 58 00:03:38,920 --> 00:03:43,120 Speaker 1: the world further into recession. Well, that's a pretty a 59 00:03:43,160 --> 00:03:45,920 Speaker 1: pretty dire prediction, and there are a growing number of 60 00:03:45,920 --> 00:03:48,720 Speaker 1: people who do agree with you. Actually, I want to 61 00:03:48,760 --> 00:03:52,040 Speaker 1: push back a little bit on this idea of the 62 00:03:52,200 --> 00:03:57,240 Speaker 1: ongoing appreciation of emerging market currencies in the appreciation of 63 00:03:57,280 --> 00:04:00,800 Speaker 1: the US dollar. First of all, you are being some 64 00:04:00,920 --> 00:04:04,760 Speaker 1: of these developing nations deploying their foreign currency reserves to 65 00:04:04,840 --> 00:04:07,640 Speaker 1: support the currencies. So that's is evidence that they don't 66 00:04:07,680 --> 00:04:10,600 Speaker 1: want to see such depreciation. Uh and and in the 67 00:04:10,720 --> 00:04:13,200 Speaker 1: US is one country, but there are other countries that 68 00:04:13,240 --> 00:04:17,599 Speaker 1: are increasingly dominant, including China and India, which can drive 69 00:04:17,640 --> 00:04:19,520 Speaker 1: a lot of economic activities. So what do you say 70 00:04:19,520 --> 00:04:23,400 Speaker 1: to people who argue for emerging market investments now? Based 71 00:04:23,440 --> 00:04:27,400 Speaker 1: on those arguments, I would say emerging markets are going 72 00:04:27,440 --> 00:04:31,440 Speaker 1: to look great, but not yet. In other words, the 73 00:04:31,480 --> 00:04:34,800 Speaker 1: emerging market currencies are going to continue to depreciate. In 74 00:04:34,839 --> 00:04:39,600 Speaker 1: my opinion, Lisa, you were right on in saying that 75 00:04:39,640 --> 00:04:43,840 Speaker 1: many countries don't want it to depreciate. Both India and 76 00:04:43,960 --> 00:04:48,000 Speaker 1: Argentina are facing the prospect of higher domestic inflation as 77 00:04:48,040 --> 00:04:51,960 Speaker 1: a result of weaker currencies. So for even for domestic reasons, 78 00:04:52,040 --> 00:04:54,840 Speaker 1: they want to support currencies. The problem is the following 79 00:04:55,320 --> 00:04:57,760 Speaker 1: they are not in control of it. If the FED 80 00:04:57,800 --> 00:05:01,880 Speaker 1: word to increase interest rates and if President Bush President 81 00:05:01,920 --> 00:05:05,240 Speaker 1: Trump were to continue with the trade wars, their currencies 82 00:05:05,279 --> 00:05:08,800 Speaker 1: are going to depreciate no matter what they do, or 83 00:05:08,920 --> 00:05:11,680 Speaker 1: the central banks are going to figure out that they're 84 00:05:11,720 --> 00:05:14,600 Speaker 1: going to spend more and more of their dollar reserves 85 00:05:15,080 --> 00:05:18,320 Speaker 1: to defend the currencies, which is basically meaningless if the 86 00:05:18,360 --> 00:05:22,440 Speaker 1: fundamentals are suggesting a weaker currency. So it is may 87 00:05:22,480 --> 00:05:25,960 Speaker 1: not be intentional that these countries are doing it, and 88 00:05:26,000 --> 00:05:29,120 Speaker 1: you're right in saying that they are trying to control inflation. 89 00:05:29,520 --> 00:05:32,720 Speaker 1: They don't want the currencies to depreciate, but it's beyond 90 00:05:32,760 --> 00:05:37,160 Speaker 1: their control. Also taken to account that recently Larry Cudlow, 91 00:05:37,880 --> 00:05:41,599 Speaker 1: economic advisor to the President, has suggested that the FED 92 00:05:41,680 --> 00:05:45,480 Speaker 1: go very slow on its rate heights. The concern here 93 00:05:45,680 --> 00:05:48,360 Speaker 1: is if the Fed were to keep tightening, it's going 94 00:05:48,400 --> 00:05:52,120 Speaker 1: to cause the dollar to strengthen even further, worse than 95 00:05:52,360 --> 00:05:55,880 Speaker 1: the trade situation. So you're going to have a conflict 96 00:05:55,920 --> 00:05:59,800 Speaker 1: between the Fed and the administration coming up between the 97 00:05:59,839 --> 00:06:02,360 Speaker 1: next two to three months. All Right, we want to 98 00:06:02,400 --> 00:06:05,039 Speaker 1: thank you very much for being with us. Kamal Ah 99 00:06:05,279 --> 00:06:08,279 Speaker 1: Kumar as the president and the founder of a Shriek 100 00:06:08,360 --> 00:06:13,320 Speaker 1: Kumar Global Strategies, he is also a Bloomberg opinion columnist. 101 00:06:13,839 --> 00:06:16,880 Speaker 1: Is based in Santa Monica, California, and you can follow 102 00:06:16,920 --> 00:06:21,880 Speaker 1: Shri on Twitter at Shri s r i K Global. 103 00:06:36,360 --> 00:06:41,400 Speaker 1: The United States spends the most on healthcare per person. 104 00:06:42,240 --> 00:06:46,560 Speaker 1: It spends something on the order of about three point 105 00:06:46,640 --> 00:06:52,080 Speaker 1: three trillion dollars. That's nearly of US g D P. 106 00:06:52,800 --> 00:06:55,239 Speaker 1: Here to telp us about how this money is spent 107 00:06:55,360 --> 00:06:58,760 Speaker 1: and can it be more efficiently used in order to 108 00:06:58,800 --> 00:07:03,000 Speaker 1: bring high quality health care to Americans is VJ Governor 109 00:07:03,080 --> 00:07:06,640 Speaker 1: de Rogin. He is a the Cox Distinguished Professor from 110 00:07:06,760 --> 00:07:10,840 Speaker 1: Dartmouth's Touch School of Business. Also joining us is Robbie 111 00:07:10,920 --> 00:07:14,960 Speaker 1: Rama Murti. He is the University Distinguished Professor of International 112 00:07:15,080 --> 00:07:18,239 Speaker 1: Business and Strategy and Director of the Center for Emerging 113 00:07:18,320 --> 00:07:23,240 Speaker 1: Markets at Northeastern University. They are both the authors of 114 00:07:23,280 --> 00:07:27,200 Speaker 1: the new book entitled Reverse Innovation in Healthcare, How to 115 00:07:27,280 --> 00:07:31,080 Speaker 1: make Value Based Delivery Work. Gentlemen and professors, thank you 116 00:07:31,160 --> 00:07:34,160 Speaker 1: very much for being with us. Professor Governor de Rogin, 117 00:07:34,280 --> 00:07:36,920 Speaker 1: I want to begin with you and just set out 118 00:07:37,040 --> 00:07:42,760 Speaker 1: why did you decide to write this book? See the 119 00:07:42,840 --> 00:07:46,360 Speaker 1: baby started on this book is both of us are 120 00:07:46,440 --> 00:07:51,280 Speaker 1: from India, and what we found was India is a 121 00:07:51,360 --> 00:07:56,600 Speaker 1: country which has got one billion population who are poor. 122 00:07:56,880 --> 00:08:00,360 Speaker 1: Therefore they can't afford to pay a lot on healthcare. 123 00:08:00,880 --> 00:08:05,560 Speaker 1: And India also has limited number of doctors and limited 124 00:08:05,680 --> 00:08:09,160 Speaker 1: number of hospitals. So the question is how do you 125 00:08:09,240 --> 00:08:14,680 Speaker 1: serve a large fraction of the population with limited hospital 126 00:08:14,720 --> 00:08:18,240 Speaker 1: infrastructure and medical doctors. The only way you can do 127 00:08:18,280 --> 00:08:22,320 Speaker 1: it is through health care delivery innovations. So we said 128 00:08:22,480 --> 00:08:26,320 Speaker 1: there has to be some hospitals which do breakthrough health 129 00:08:26,360 --> 00:08:29,800 Speaker 1: care delivery innovations, and we found seven of them and 130 00:08:29,840 --> 00:08:34,800 Speaker 1: we use that to really generate our insights about how 131 00:08:34,920 --> 00:08:38,719 Speaker 1: you can lower health care costs dramatically. So Rob, come 132 00:08:38,720 --> 00:08:40,400 Speaker 1: on in here. Can you give us a sense of 133 00:08:40,440 --> 00:08:43,280 Speaker 1: what some of those innovations were that you found in 134 00:08:43,360 --> 00:08:47,800 Speaker 1: those hospitals. Yeah, one of the important innovations that these 135 00:08:47,800 --> 00:08:51,719 Speaker 1: hospitals use is how they configure their assets into a 136 00:08:51,800 --> 00:08:57,120 Speaker 1: hub and spoke network and they send advanced procedures and 137 00:08:57,160 --> 00:09:00,439 Speaker 1: patients requiring advanced care to the hubs where they also 138 00:09:00,480 --> 00:09:03,960 Speaker 1: have the most advanced specialists and the most advanced equipment, 139 00:09:04,200 --> 00:09:08,439 Speaker 1: and in the spokes they deal with more routine cases. Now, 140 00:09:08,480 --> 00:09:11,480 Speaker 1: this may seem like a simple idea, but in fact 141 00:09:11,480 --> 00:09:14,160 Speaker 1: in the US it is something we don't see very 142 00:09:14,240 --> 00:09:16,480 Speaker 1: much of. We have, in other words, in the US 143 00:09:16,520 --> 00:09:19,160 Speaker 1: too many hospitals that are aspire to be hubs and 144 00:09:19,240 --> 00:09:22,440 Speaker 1: not enough spokes, and therefore you have hospitals that become 145 00:09:22,520 --> 00:09:26,280 Speaker 1: very expensive because every hospital is trying to do every procedure. 146 00:09:27,080 --> 00:09:30,040 Speaker 1: This is one example. Now, as a result of this 147 00:09:30,160 --> 00:09:35,600 Speaker 1: configuration in the Indian situation, you actually have hospitals that 148 00:09:35,760 --> 00:09:40,520 Speaker 1: too high volumes of various surgeries. And it's not because 149 00:09:41,720 --> 00:09:45,120 Speaker 1: there are many more Indians requiring those procedures. It's just 150 00:09:45,240 --> 00:09:48,800 Speaker 1: that the available volume is funneled into the hubs, and 151 00:09:48,840 --> 00:09:51,480 Speaker 1: so you can have a heart hospital that does six 152 00:09:52,600 --> 00:09:55,960 Speaker 1: open heart surgeries in a year compared to about four 153 00:09:56,000 --> 00:10:00,920 Speaker 1: thousand in even the most advanced, leading h heart hospital 154 00:10:00,920 --> 00:10:03,520 Speaker 1: in the US. So this is one example. And we 155 00:10:03,559 --> 00:10:07,360 Speaker 1: have five principles that we identified from the research. And 156 00:10:07,400 --> 00:10:11,240 Speaker 1: this is one of the principles. If you if you 157 00:10:11,240 --> 00:10:12,720 Speaker 1: want me that I can quickly balk you through the 158 00:10:12,720 --> 00:10:15,920 Speaker 1: other principles, sure give us one. Give us another one 159 00:10:15,960 --> 00:10:18,400 Speaker 1: that you believe could be applicable to the United States. 160 00:10:19,080 --> 00:10:23,040 Speaker 1: Another principle we identified, we call it tasks shifting and 161 00:10:23,120 --> 00:10:26,480 Speaker 1: this is trying to free up doctors so they do 162 00:10:26,720 --> 00:10:30,400 Speaker 1: the work that only doctors can do and allow others 163 00:10:30,440 --> 00:10:35,400 Speaker 1: to do less sophisticated work. In the US, again, we 164 00:10:35,440 --> 00:10:37,880 Speaker 1: have the opposite situation where doctors spent more than half 165 00:10:37,880 --> 00:10:41,520 Speaker 1: their time on administrative work. And if you look at 166 00:10:41,559 --> 00:10:46,360 Speaker 1: the Indian example our hospitals, we studied, a doctor in 167 00:10:46,440 --> 00:10:49,840 Speaker 1: one of the eye hospitals is surrounded by ten support 168 00:10:49,920 --> 00:10:53,080 Speaker 1: staff who free up the doctor from all of the 169 00:10:53,120 --> 00:10:56,080 Speaker 1: non medical work. So this doctor is three or four 170 00:10:56,120 --> 00:10:59,319 Speaker 1: times as productive as an eye surgeon in the US. 171 00:10:59,360 --> 00:11:02,680 Speaker 1: So we called the stash shifting. And the interesting thing 172 00:11:02,760 --> 00:11:06,080 Speaker 1: about what the Indians do is not just that they 173 00:11:06,280 --> 00:11:10,200 Speaker 1: have nurses and nurse practitioners helping doctors. They have created 174 00:11:10,320 --> 00:11:15,920 Speaker 1: entirely new categories of workers, each appropriately matched to the 175 00:11:15,920 --> 00:11:19,480 Speaker 1: work required. And this not only saves money, but actually 176 00:11:19,520 --> 00:11:24,520 Speaker 1: improves quality because each person is really qualified and motivated 177 00:11:24,559 --> 00:11:27,160 Speaker 1: to do the task that they are assigned. Yeah. Well, 178 00:11:27,280 --> 00:11:30,160 Speaker 1: one thing that is sort of interesting in light of 179 00:11:30,240 --> 00:11:33,040 Speaker 1: healthcare conversations in the US right now is the cost 180 00:11:33,080 --> 00:11:35,000 Speaker 1: of pharmaceuticals. And j I want you to come on 181 00:11:35,080 --> 00:11:37,480 Speaker 1: in here, because a lot of people say, yeah, healthcare 182 00:11:37,520 --> 00:11:40,920 Speaker 1: is cheaper in other countries outside the US because drug 183 00:11:40,920 --> 00:11:45,360 Speaker 1: companies can sell pharmaceuticals at lower prices, the generics are 184 00:11:45,400 --> 00:11:47,280 Speaker 1: sold at lower prices. Do you think that that is 185 00:11:47,320 --> 00:11:51,400 Speaker 1: a significant component of the lower cost of healthcare in 186 00:11:51,440 --> 00:11:57,200 Speaker 1: some in India and other countries. Certainly generic drugs can 187 00:11:57,240 --> 00:12:02,080 Speaker 1: contribute to lower costs in a kind tree like India. Certainly, 188 00:12:02,559 --> 00:12:07,320 Speaker 1: labor cost is also cheaper. For instance, doctors salaries or 189 00:12:07,400 --> 00:12:11,280 Speaker 1: nurses salaries are cheaper in India's compared to the US. 190 00:12:12,200 --> 00:12:15,920 Speaker 1: We kind of adjusted for all those and what we 191 00:12:16,040 --> 00:12:21,200 Speaker 1: find is even after you adjust the Indian cost structure 192 00:12:21,320 --> 00:12:25,800 Speaker 1: for US salaries and US drug prices, what we find 193 00:12:26,040 --> 00:12:31,400 Speaker 1: is the Indian exemplars if you take open heart surgery, 194 00:12:31,440 --> 00:12:36,040 Speaker 1: they are still of the cost of open heart surgery 195 00:12:36,120 --> 00:12:42,600 Speaker 1: in this country and their quality is better than what 196 00:12:42,679 --> 00:12:47,440 Speaker 1: we find in the US. For instance, in open heart surgery, 197 00:12:48,080 --> 00:12:52,720 Speaker 1: one measure of quality is mortality rates thirty days after surgery. 198 00:12:54,320 --> 00:12:56,920 Speaker 1: For Nara and Health, which is one of our hospitals 199 00:12:56,920 --> 00:13:01,520 Speaker 1: in India, their mortality rates thirty days after surgery is 200 00:13:01,640 --> 00:13:06,600 Speaker 1: one point four and the US average is one point nine. 201 00:13:07,400 --> 00:13:10,480 Speaker 1: So their quality is on part, maybe even slightly ahead 202 00:13:11,480 --> 00:13:15,560 Speaker 1: so therefore, reverse innovation is not just about reducing cost. 203 00:13:16,000 --> 00:13:20,479 Speaker 1: It is about delivering value that means very high quality 204 00:13:20,760 --> 00:13:25,400 Speaker 1: at very low cost. Professor Ramamorty, what you believe to 205 00:13:25,480 --> 00:13:29,720 Speaker 1: be the biggest obstacle in the United States to implementing 206 00:13:29,800 --> 00:13:33,800 Speaker 1: some of the described efficiencies and changes which would benefit 207 00:13:34,320 --> 00:13:38,440 Speaker 1: the population. I think the fee for service system that 208 00:13:38,520 --> 00:13:43,600 Speaker 1: we have is a major impediment because it motivates UH 209 00:13:43,760 --> 00:13:47,800 Speaker 1: everyone in the system to provide services without looking keeping 210 00:13:47,800 --> 00:13:49,880 Speaker 1: their eye on the ultimate objective, which is the health 211 00:13:49,920 --> 00:13:53,560 Speaker 1: of the patient. And now there are plans in place 212 00:13:53,679 --> 00:13:57,560 Speaker 1: to move, especially in medicare, to a different system, which 213 00:13:57,600 --> 00:14:00,880 Speaker 1: is more risk sharing with the hospital us in the providers. 214 00:14:01,080 --> 00:14:02,719 Speaker 1: We think that's a step in the right direction. That's 215 00:14:02,720 --> 00:14:05,200 Speaker 1: one reason they wrote the book at this time, because 216 00:14:05,200 --> 00:14:07,760 Speaker 1: we think as hospitals move in that direction, they're going 217 00:14:07,800 --> 00:14:10,000 Speaker 1: to be looking for ways to bring down their cost 218 00:14:10,080 --> 00:14:14,280 Speaker 1: without loading their quality. Ravi Rama Morty University Distinguished Professor 219 00:14:14,280 --> 00:14:16,800 Speaker 1: of International Business and Strategy and Director of the Center 220 00:14:16,920 --> 00:14:21,920 Speaker 1: for Emerging Markets at Northeastern University, and VJ. Govinda jan 221 00:14:22,080 --> 00:14:25,440 Speaker 1: He is the Cocks Distinguished Professor at Dartmouth's Tuch School 222 00:14:25,480 --> 00:14:45,320 Speaker 1: of Business. Authors of verse innovation and healthcare kind of 223 00:14:45,360 --> 00:14:49,880 Speaker 1: bringing Dan Hansen. He is UK economist for Bloomberg Economics 224 00:14:50,200 --> 00:14:52,760 Speaker 1: and he joins us from our London bureau. Dan, thank 225 00:14:52,800 --> 00:14:55,080 Speaker 1: you very much for being with us. Maybe you could 226 00:14:55,120 --> 00:14:59,000 Speaker 1: just outline what has the analysis said about the future 227 00:14:59,120 --> 00:15:02,040 Speaker 1: of the UK at economy if it is outside of 228 00:15:02,040 --> 00:15:06,480 Speaker 1: the European Union. Thanks for having me. So if we're 229 00:15:06,480 --> 00:15:09,600 Speaker 1: outside the European Union, the UK economies outside the European Union, 230 00:15:09,640 --> 00:15:12,120 Speaker 1: that it's going to be costly for us. I mean, 231 00:15:12,200 --> 00:15:16,160 Speaker 1: so much depends on the deal we get with the 232 00:15:16,200 --> 00:15:18,520 Speaker 1: European Union, and that's why the events over the past 233 00:15:18,520 --> 00:15:21,120 Speaker 1: few days have been so important. You've seen the UK 234 00:15:21,320 --> 00:15:25,920 Speaker 1: government appear at least to move towards a softer Brexit. 235 00:15:27,040 --> 00:15:30,680 Speaker 1: But even that softer Brexit we think could see the 236 00:15:30,720 --> 00:15:35,360 Speaker 1: economy around five smaller by about twenty thirties. That's a 237 00:15:35,440 --> 00:15:40,400 Speaker 1: significant hit um. And if we go towards this dreaded 238 00:15:40,520 --> 00:15:44,240 Speaker 1: no deal scenario, that cost could rise substantially up to 239 00:15:44,680 --> 00:15:47,520 Speaker 1: maybe perhaps seven percent of GDP. So these are these 240 00:15:47,560 --> 00:15:50,120 Speaker 1: are big numbers that we're talking about, and I think 241 00:15:50,120 --> 00:15:53,680 Speaker 1: the really important point here is it's the form of 242 00:15:53,720 --> 00:15:55,800 Speaker 1: Brexit that matters the most. It's not that we're just 243 00:15:55,920 --> 00:15:58,720 Speaker 1: leaving and there's just this cost. It really is the 244 00:15:58,720 --> 00:16:00,400 Speaker 1: shape of the deal we're going to get the EU 245 00:16:00,480 --> 00:16:03,040 Speaker 1: that will determine the ultimate cost of the UK economy. 246 00:16:03,280 --> 00:16:05,760 Speaker 1: You know, Dan, whenever you talk about these projections, I'm 247 00:16:05,800 --> 00:16:08,320 Speaker 1: sure you get a lot of feedback from people saying, Oh, 248 00:16:08,360 --> 00:16:11,240 Speaker 1: you're just taking the worst case scenario and you're against brexits, 249 00:16:11,280 --> 00:16:13,360 Speaker 1: you're trying to paint it this way, or you're four Brexits, 250 00:16:13,440 --> 00:16:15,960 Speaker 1: you're trying to paint it that way. And wondering is 251 00:16:15,960 --> 00:16:19,760 Speaker 1: there any way to quantify what the economic effect has 252 00:16:19,880 --> 00:16:26,000 Speaker 1: already been stemming from the uncertainty that Brexit has introduced. Yes, sure, 253 00:16:26,080 --> 00:16:28,040 Speaker 1: so we we've done some analysis on this and it 254 00:16:28,680 --> 00:16:31,520 Speaker 1: really comes down to what's your counter factual um and 255 00:16:31,640 --> 00:16:33,760 Speaker 1: the way we take We take quite a simple approach 256 00:16:33,800 --> 00:16:36,760 Speaker 1: and just say what we have forecast had the UK 257 00:16:37,560 --> 00:16:40,840 Speaker 1: not decided to leave the European Union, and our numbers 258 00:16:40,880 --> 00:16:42,960 Speaker 1: suggests that the UK is about at the moment, it 259 00:16:43,000 --> 00:16:45,240 Speaker 1: is about one per cent smaller than it otherwise would 260 00:16:45,240 --> 00:16:48,680 Speaker 1: have been. Now, you're quite right, it's uncertainty that's had 261 00:16:48,720 --> 00:16:51,520 Speaker 1: an effect, especially on business investment in the United Kingdom. 262 00:16:51,960 --> 00:16:54,040 Speaker 1: But it's also this drop in the pound that's fed 263 00:16:54,080 --> 00:16:57,640 Speaker 1: through to inflation and that squeeze incomes in the UK. 264 00:16:57,800 --> 00:17:00,560 Speaker 1: It's made things a lot more expensive for consumers and 265 00:17:00,600 --> 00:17:03,440 Speaker 1: that's seeing consumer spending slow. So it's those two effects 266 00:17:03,480 --> 00:17:05,960 Speaker 1: really that have that have seen the economy slow. But 267 00:17:06,000 --> 00:17:09,560 Speaker 1: our number is about one of GDP, so or the 268 00:17:09,640 --> 00:17:11,520 Speaker 1: economy we think about one percent of g d P 269 00:17:11,720 --> 00:17:14,280 Speaker 1: smaller than it otherwise would have been. What do you 270 00:17:14,359 --> 00:17:17,480 Speaker 1: believe the reaction or the next moves on the part 271 00:17:17,520 --> 00:17:19,840 Speaker 1: of the Bank of England are going to be given 272 00:17:19,840 --> 00:17:23,040 Speaker 1: this scenario. So it's really difficult for the Bank of 273 00:17:23,080 --> 00:17:27,320 Speaker 1: England because they've been struggling with this uh, this overshoot 274 00:17:27,359 --> 00:17:29,520 Speaker 1: of inflation. So inflation has gone up at the end 275 00:17:29,520 --> 00:17:31,600 Speaker 1: of last year it's up at three percent in the UK, 276 00:17:31,800 --> 00:17:34,359 Speaker 1: but as I say, that was all sterling driven and 277 00:17:34,400 --> 00:17:37,359 Speaker 1: the Bank of Englan's target's actually two percent. But at 278 00:17:37,359 --> 00:17:39,240 Speaker 1: the same time they've had a slowing economy, so you've 279 00:17:39,240 --> 00:17:42,280 Speaker 1: had the monetary policy maker's nightmare. It's the trade off. 280 00:17:42,320 --> 00:17:44,679 Speaker 1: They've got surging inflation, you've got a slowing economy. What 281 00:17:44,840 --> 00:17:48,399 Speaker 1: you do um in the immediate aftermath of the Brexit vote, 282 00:17:48,600 --> 00:17:52,440 Speaker 1: they loosen policy and quite significantly. But back in November 283 00:17:52,880 --> 00:17:56,359 Speaker 1: they lifted rates very marginally by twenty five basis points 284 00:17:56,359 --> 00:17:59,240 Speaker 1: and took back some of that stimulus. And now we 285 00:17:59,320 --> 00:18:02,480 Speaker 1: think they're nex meeting which comes on the second of August, 286 00:18:02,480 --> 00:18:05,320 Speaker 1: they're going to lift rates again. The unemployment rate in 287 00:18:05,359 --> 00:18:09,360 Speaker 1: the United Kingdoms at a forty two year low. Growth 288 00:18:09,440 --> 00:18:12,520 Speaker 1: we saw figures today that showed growth likely to rebound 289 00:18:12,520 --> 00:18:15,560 Speaker 1: in the second quarter UM and inflation is coming down 290 00:18:15,560 --> 00:18:18,040 Speaker 1: but it's still above the two percent target, and pay 291 00:18:18,080 --> 00:18:20,280 Speaker 1: growth is picking up. So all of those factors together 292 00:18:20,320 --> 00:18:22,480 Speaker 1: we think their next move is actually gonna come in 293 00:18:22,520 --> 00:18:24,680 Speaker 1: a couple of weeks time, on the second of August. 294 00:18:24,880 --> 00:18:27,400 Speaker 1: All right, although the manufacturing get out of the UK 295 00:18:27,920 --> 00:18:33,199 Speaker 1: were somewhat disappointing, right well, I mean the manufacturing sector 296 00:18:33,240 --> 00:18:37,040 Speaker 1: groom month or month. It was the broader factory sector, 297 00:18:37,040 --> 00:18:39,280 Speaker 1: you're right, did contract, But part of that was due 298 00:18:39,359 --> 00:18:43,400 Speaker 1: to erratic factors. One which is the it's been very 299 00:18:43,400 --> 00:18:46,240 Speaker 1: hot weather here in the UK for once, and the weather. 300 00:18:46,440 --> 00:18:48,720 Speaker 1: I love the blaming of the weather. It's always a 301 00:18:48,760 --> 00:18:53,960 Speaker 1: good thing to go to. I would just say I 302 00:18:54,359 --> 00:18:58,160 Speaker 1: was watching our television coverage earlier today and Tom Keene 303 00:18:58,880 --> 00:19:03,479 Speaker 1: was at the Parliament Square in front of Westminster and 304 00:19:03,560 --> 00:19:07,800 Speaker 1: you could see all the grass has decidedly gone brown 305 00:19:07,920 --> 00:19:12,080 Speaker 1: because of this hot Alright, alright, so whether weather matters, Dan, 306 00:19:12,400 --> 00:19:14,520 Speaker 1: just just real quick here, I want to get your sense, 307 00:19:14,520 --> 00:19:16,639 Speaker 1: going back to what you were saying, the form of 308 00:19:16,760 --> 00:19:20,520 Speaker 1: Brexit matters quite a bit. Do you see a much 309 00:19:20,600 --> 00:19:23,239 Speaker 1: greater likelihood that we are going to get a so 310 00:19:23,320 --> 00:19:26,800 Speaker 1: called no deal Brexit which would ultimately remove in your prediction, 311 00:19:27,280 --> 00:19:29,600 Speaker 1: about seven percent of GDP annually by the end of 312 00:19:31,760 --> 00:19:34,880 Speaker 1: At the moment, I think there is a risk simply 313 00:19:34,920 --> 00:19:38,120 Speaker 1: because of what's happened in the last twenty four hours. 314 00:19:38,119 --> 00:19:41,439 Speaker 1: It's quite clear in the UK cabinet too, of the 315 00:19:41,440 --> 00:19:45,840 Speaker 1: most prominent Brexiteers have left, the resigned from the UK 316 00:19:45,880 --> 00:19:51,760 Speaker 1: Cabinet and you've got a lot of hardline Conservative lawmakers. 317 00:19:51,760 --> 00:19:54,080 Speaker 1: So that's the party who are empower in the UK, 318 00:19:54,359 --> 00:19:57,879 Speaker 1: who are quite keen to have a very clean break 319 00:19:58,880 --> 00:20:01,720 Speaker 1: from the European Union. And now if they decide to 320 00:20:01,840 --> 00:20:06,080 Speaker 1: challenge to reason as leadership, um, then it's quite possible 321 00:20:06,080 --> 00:20:11,160 Speaker 1: that you end up getting a very uh anti EU 322 00:20:11,320 --> 00:20:14,280 Speaker 1: or the pro Brexit leader in the Tory Party, and 323 00:20:14,280 --> 00:20:17,199 Speaker 1: that lifts the chances quite significantly of a of a 324 00:20:17,320 --> 00:20:19,960 Speaker 1: harder or even a no deal Brexit. Well, thank you 325 00:20:20,040 --> 00:20:21,760 Speaker 1: so much. Unfortunately we've got to leave it there, but 326 00:20:21,760 --> 00:20:25,240 Speaker 1: we'll talk with you soon again about this issue. Dan Hanson, 327 00:20:25,320 --> 00:20:29,919 Speaker 1: UK economist for Bloomberg Economics talking all about the various 328 00:20:29,920 --> 00:20:47,320 Speaker 1: scenarios and effects of Brexit. Tessa shares up nearly two 329 00:20:47,359 --> 00:20:50,639 Speaker 1: percent today, following a three percent gaining yesterday after news 330 00:20:50,640 --> 00:20:55,399 Speaker 1: came out today that the company is planning a Chinese 331 00:20:55,640 --> 00:20:59,840 Speaker 1: auto manufacturing plant with the capacity to produce five hundred 332 00:21:00,200 --> 00:21:03,880 Speaker 1: thousand cars. Joining us now, Jamie Butter's US autos editor 333 00:21:03,960 --> 00:21:07,520 Speaker 1: for Bloomberg News, joining us from the Detroit bureau. Jamie, 334 00:21:07,840 --> 00:21:11,080 Speaker 1: this is a really big deal. Explain why. I mean, 335 00:21:11,119 --> 00:21:13,480 Speaker 1: there's there's sort of two sides to this. Tesla needs 336 00:21:13,560 --> 00:21:15,920 Speaker 1: the sort of production haft that they could potentially get 337 00:21:15,960 --> 00:21:18,160 Speaker 1: from this, but also tell us what it means about 338 00:21:18,200 --> 00:21:21,800 Speaker 1: what's going on between the US and China. Well, yeah, 339 00:21:21,840 --> 00:21:24,000 Speaker 1: those are those some pretty big things. So yeah, I mean, 340 00:21:24,040 --> 00:21:27,480 Speaker 1: Tesla you know, has been so it's small, it's still 341 00:21:27,520 --> 00:21:29,560 Speaker 1: kind of starting up. They really only have the one 342 00:21:30,080 --> 00:21:33,040 Speaker 1: car factory this, you know, to get one in China 343 00:21:33,280 --> 00:21:35,400 Speaker 1: and then they'll announce by the end of the year, 344 00:21:35,480 --> 00:21:39,399 Speaker 1: should announce some plans for a third assembly planned in Europe. 345 00:21:39,640 --> 00:21:41,879 Speaker 1: You know, that really can go a long way towards 346 00:21:41,920 --> 00:21:44,960 Speaker 1: them really kind of becoming a real automaker or something 347 00:21:45,119 --> 00:21:49,159 Speaker 1: stable enough to survive a recession, um big enough to 348 00:21:49,320 --> 00:21:52,480 Speaker 1: really gain some economies of scale. So it's this is 349 00:21:52,480 --> 00:21:54,760 Speaker 1: an important step. We've kind of seen it coming, he's 350 00:21:54,760 --> 00:21:56,639 Speaker 1: been talking, I've been working on it for more than 351 00:21:56,680 --> 00:21:59,280 Speaker 1: a year. But to actually get it to come together 352 00:21:59,400 --> 00:22:02,080 Speaker 1: as a Holy owned Tesla plant in China, it's a 353 00:22:02,080 --> 00:22:04,520 Speaker 1: big step for Tesla. Of course, they've got to pay 354 00:22:04,520 --> 00:22:06,919 Speaker 1: for it, and there's some other issues there. But it 355 00:22:07,040 --> 00:22:09,640 Speaker 1: is very interesting when you think about it in light 356 00:22:09,680 --> 00:22:12,879 Speaker 1: of all the trade chaos. You know that the Trump 357 00:22:12,920 --> 00:22:17,320 Speaker 1: administration is created and we're seeing rising tariffs in the 358 00:22:17,440 --> 00:22:21,000 Speaker 1: US US against China made products in China against US 359 00:22:21,080 --> 00:22:24,679 Speaker 1: made products including automobiles as well as aluminum and steel, 360 00:22:24,720 --> 00:22:27,359 Speaker 1: and all these other things going on. And so here's 361 00:22:27,840 --> 00:22:32,000 Speaker 1: the you know, the youngest publicly traded US automaker UH 362 00:22:32,400 --> 00:22:35,439 Speaker 1: announcing plans to build a factory and basically double their 363 00:22:35,480 --> 00:22:39,680 Speaker 1: capacity by building a factory in in Shanghai outside of Shanghai, 364 00:22:40,160 --> 00:22:43,480 Speaker 1: uh so, which which will help it avoid the tariffs 365 00:22:43,480 --> 00:22:46,080 Speaker 1: on both sides of the deal. But it'll be really 366 00:22:46,320 --> 00:22:48,760 Speaker 1: I'll be really curious to see if President Trump has 367 00:22:48,760 --> 00:22:52,000 Speaker 1: anything to say about it. He's criticized Harley Davidson for 368 00:22:52,040 --> 00:22:55,359 Speaker 1: their plans to move some work outside of the US 369 00:22:55,440 --> 00:22:59,080 Speaker 1: and order to avoid Europe's tariffs against US made products. 370 00:22:59,640 --> 00:23:02,520 Speaker 1: This is gonna take any work away from the US. 371 00:23:02,720 --> 00:23:07,199 Speaker 1: But sometimes the President gets real sensitive about American companies 372 00:23:07,400 --> 00:23:10,520 Speaker 1: creating manufacturing jobs anywhere other than the US. Of a 373 00:23:11,600 --> 00:23:14,800 Speaker 1: Jamie Butters, Is it at all ironic that on this day, 374 00:23:14,840 --> 00:23:18,600 Speaker 1: when we're talking about China and Tesla, that Tesla laid 375 00:23:18,600 --> 00:23:25,200 Speaker 1: off nine percent of its workforce. Um? Is it ironic? Well? Oh, 376 00:23:25,320 --> 00:23:27,840 Speaker 1: and also I'll give you a moment to ponder that. 377 00:23:28,040 --> 00:23:32,800 Speaker 1: As we recall in there was a story about how 378 00:23:32,840 --> 00:23:36,640 Speaker 1: Tesla was going to produce electric vehicles in China. Oh 379 00:23:36,680 --> 00:23:42,560 Speaker 1: but wait, that story surfaced again in and if they 380 00:23:42,600 --> 00:23:46,359 Speaker 1: had actually started building that plant in it would already 381 00:23:46,400 --> 00:23:53,280 Speaker 1: be finished by now. Yeah. Uh, but they Tesla has 382 00:23:53,359 --> 00:23:56,159 Speaker 1: moved at a very rapid pace to grow at the 383 00:23:56,240 --> 00:23:58,800 Speaker 1: rate they have, and I don't know if they could 384 00:23:58,840 --> 00:24:03,679 Speaker 1: have had the money or the uh you know, intellectual 385 00:24:03,760 --> 00:24:06,560 Speaker 1: energy to need it to do all that. Uh. You know, 386 00:24:06,560 --> 00:24:09,480 Speaker 1: Ellen Musk really does everything very his very hands on. 387 00:24:09,960 --> 00:24:12,840 Speaker 1: Uh so having another operation on another continent may have 388 00:24:12,920 --> 00:24:15,520 Speaker 1: been too much for them at the time. It is interesting, 389 00:24:15,560 --> 00:24:18,520 Speaker 1: you're right. I mean, they're gonna add thousands, presumably thousands 390 00:24:18,520 --> 00:24:20,480 Speaker 1: of jobs. We don't know how many, but some number 391 00:24:20,480 --> 00:24:25,240 Speaker 1: of thousands in China, and they're cutting uh thousands, you 392 00:24:25,320 --> 00:24:28,639 Speaker 1: know about was about three thousand, mostly in the US. 393 00:24:29,040 --> 00:24:31,040 Speaker 1: You know, it seems that a lot of the US 394 00:24:31,119 --> 00:24:34,719 Speaker 1: cutbacks are related to the Solar City operations. We're certainly 395 00:24:34,760 --> 00:24:37,280 Speaker 1: seeing a lot you know, the retail folks and installers 396 00:24:37,400 --> 00:24:40,399 Speaker 1: from Solar City. So it may just be more of 397 00:24:40,440 --> 00:24:42,560 Speaker 1: a business alignment. A lot, you know, a lot of 398 00:24:42,600 --> 00:24:45,240 Speaker 1: things are fungible. I mean they're saying, you know, this 399 00:24:45,280 --> 00:24:48,040 Speaker 1: plant is only going to produce vehicles for China. The 400 00:24:48,280 --> 00:24:50,480 Speaker 1: California plant will produce for the rest of the world, 401 00:24:50,560 --> 00:24:53,120 Speaker 1: at least until Europe gets going. But well, you can't 402 00:24:53,119 --> 00:24:55,840 Speaker 1: always move as people, you know. It's one thing. You know, 403 00:24:55,840 --> 00:24:58,240 Speaker 1: it's hard enough for Nissan or Toyota to move people 404 00:24:58,280 --> 00:25:02,040 Speaker 1: from southern California to Texas or Tennessee. You're not going 405 00:25:02,119 --> 00:25:04,520 Speaker 1: to move a bunch of factory workers from California to China, 406 00:25:04,720 --> 00:25:06,840 Speaker 1: right and and certainly I mean two pims point though 407 00:25:06,840 --> 00:25:09,960 Speaker 1: with a skepticism about sort of building a plant tests 408 00:25:10,080 --> 00:25:12,200 Speaker 1: ability to do so they're kind of running out of cash. 409 00:25:12,440 --> 00:25:13,960 Speaker 1: I just want to touch on one other thing, Jabe. 410 00:25:14,000 --> 00:25:16,800 Speaker 1: We've got about a minute left here. BMW also announced 411 00:25:16,840 --> 00:25:19,320 Speaker 1: today that it will make many cars in China for 412 00:25:19,359 --> 00:25:21,640 Speaker 1: the first time, and I'm just wondering, you know, whether 413 00:25:21,720 --> 00:25:23,479 Speaker 1: quickly you could just give us an overview of just 414 00:25:23,520 --> 00:25:27,320 Speaker 1: how much automakers globally are trying to expand their presences 415 00:25:27,320 --> 00:25:31,719 Speaker 1: and manufacturing in China. Yeah. Well, I mean, China is 416 00:25:31,760 --> 00:25:34,320 Speaker 1: the biggest market and it is still the fastest growing 417 00:25:34,359 --> 00:25:36,919 Speaker 1: market in the world, and it's phenomenal to think about it. 418 00:25:36,920 --> 00:25:40,480 Speaker 1: It's now, you know, approaching twice as big as the 419 00:25:40,600 --> 00:25:43,880 Speaker 1: United States market, which until the Great Recession was still 420 00:25:43,920 --> 00:25:47,040 Speaker 1: the world's largest. It's still the most lucrative. But to 421 00:25:47,480 --> 00:25:50,600 Speaker 1: avoid the to really cater to that market, you know, 422 00:25:50,640 --> 00:25:53,000 Speaker 1: it is it is so big you want to have 423 00:25:53,080 --> 00:25:55,879 Speaker 1: vehicles that are designed for Chinese people. That can reduce 424 00:25:55,920 --> 00:25:58,119 Speaker 1: the costs of that your cost effective or you know, 425 00:25:58,200 --> 00:26:03,320 Speaker 1: more profitable. Uh. And of course, dealing with a government 426 00:26:03,520 --> 00:26:09,840 Speaker 1: essentially controlled economy, it's always wise to keep those relationships strong, 427 00:26:09,920 --> 00:26:13,879 Speaker 1: and creating jobs in a place helps helps with that. 428 00:26:14,359 --> 00:26:17,840 Speaker 1: Thanks very much. Jamie Butters is our US autos analyst 429 00:26:18,080 --> 00:26:24,080 Speaker 1: for Bloomberg. He joins us from Detroit. Thanks for listening 430 00:26:24,160 --> 00:26:27,040 Speaker 1: to the Bloomberg P and L podcast. You can subscribe 431 00:26:27,080 --> 00:26:30,639 Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever 432 00:26:30,720 --> 00:26:34,200 Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter 433 00:26:34,480 --> 00:26:38,240 Speaker 1: at pim Fox. I'm on Twitter at Lisa abramowits one 434 00:26:38,480 --> 00:26:41,159 Speaker 1: before the podcast. You can always catch us worldwide on 435 00:26:41,240 --> 00:26:42,040 Speaker 1: Bloomberg Radio.