WEBVTT - Bloomberg Surveillance TV: May 12, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify, or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always, on the Bloomberg 0:00:34.000 --> 0:00:37.200 Terminal and the Bloomberg Business App. The US and China 0:00:37.280 --> 0:00:40.040 agreeing to a ninety day calling golf period, the US 0:00:40.159 --> 0:00:42.680 reducing its levies on Chinese imports from one hundred and 0:00:42.680 --> 0:00:45.879 forty five percent to thirty while China cuts duties on 0:00:46.000 --> 0:00:49.080 US goods from one hundred and twenty five percent to ten. 0:00:49.400 --> 0:00:52.440 Joining us now to discuss the Treasury Secretary Scott Beson, 0:00:52.479 --> 0:00:55.840 a driving force behind trade soalks in Geneva over the weekend. 0:00:55.920 --> 0:00:58.200 Mister Secretary, Welcome back to Bloomberg Surveillance, Sir. 0:00:58.440 --> 0:01:00.000 It's good to see you. 0:01:02.000 --> 0:01:03.320 Good afternoon from Geneva. 0:01:03.400 --> 0:01:06.120 Jonathan WRT to catch up. As always, let's get into 0:01:06.160 --> 0:01:08.640 these talks over the weekend. One standout line for me 0:01:09.200 --> 0:01:11.720 and for many others was the line that the differences 0:01:11.800 --> 0:01:14.560 between the two sides weren't as large as we thought 0:01:14.640 --> 0:01:17.680 they would be. What were those differences, sir, and why 0:01:17.720 --> 0:01:19.600 were they smaller than you expected? 0:01:22.560 --> 0:01:26.600 Well, I think Jonathan, what's important to know is for 0:01:27.400 --> 0:01:30.919 the tariff program, we had a plan, we had a process, 0:01:31.280 --> 0:01:33.959 but we did not have a mechanism for engaging with 0:01:34.120 --> 0:01:39.839 the Chinese. So China was the only country who escalated 0:01:39.880 --> 0:01:44.039 their terriffs in response to our reciprocal tarot level. So 0:01:44.160 --> 0:01:49.440 that resulted in an unfortunate escalation. So we now have 0:01:49.800 --> 0:01:54.480 a mechanism to deal with that. Neither side wants a 0:01:54.680 --> 0:01:59.080 generalized the coupling. The US is going to do a 0:01:59.160 --> 0:02:05.680 strategic dec coupling in terms of the items that we 0:02:05.800 --> 0:02:13.080 discovered during COVID were a national security interest, whether it's semiconductors, medicine, steel, 0:02:13.639 --> 0:02:18.360 So we still have a generalized terriffs on some of those, 0:02:19.280 --> 0:02:24.960 but both sides agreed we do not want a generalized decoupling. 0:02:25.639 --> 0:02:28.400 These things take time, as you know, sir, We've got 0:02:28.480 --> 0:02:30.720 ninety days now to work with. Last time around, it 0:02:30.720 --> 0:02:33.400 took eighteen months to reach an agreement on purchase agreements. 0:02:33.440 --> 0:02:34.960 I think you yourself have said in the past that 0:02:35.000 --> 0:02:37.000 it can take two to three years to have a 0:02:37.040 --> 0:02:40.680 full comprehensive trade agreement with the country. Between the US 0:02:40.680 --> 0:02:43.399 and China, What do you think is achievable, sir, over 0:02:43.400 --> 0:02:44.840 the next ninety days. 0:02:47.160 --> 0:02:49.720 Well, Jonathan, we're going to see. 0:02:49.760 --> 0:02:52.880 But what has to happen is it has to be 0:02:52.960 --> 0:02:56.680 fair for the American people. But in January twenty twenty, 0:02:57.360 --> 0:02:59.400 President Trump produced a template. 0:02:59.560 --> 0:03:02.120 We have an excellent. 0:03:01.840 --> 0:03:07.880 Trade agreement with China, and the Biden administration chows not 0:03:08.000 --> 0:03:12.000 to enforce it. The Chinese delegation basically told us that 0:03:12.160 --> 0:03:17.160 once President Biden came into office, they just ignored their obligations. 0:03:17.200 --> 0:03:21.959 So we all already have a large framework. The other 0:03:22.000 --> 0:03:25.560 thing to remember here, Jonathan, is that this is a 0:03:25.680 --> 0:03:30.360 pause down to ten percent. The April second level for 0:03:30.520 --> 0:03:35.880 China is thirty four percent, so we will be working 0:03:36.080 --> 0:03:40.960 to see where their final reciprocal number ends up. And 0:03:41.440 --> 0:03:46.800 the negotiations are a combination of tariffs, non tariff, trade barriers, 0:03:47.120 --> 0:03:51.800 currency manipulation, and subsidies of labor and capital. 0:03:52.440 --> 0:03:54.040 Just to build on that, as I listen to you, 0:03:54.200 --> 0:03:57.040 do you consider the new levels as a sailing or 0:03:57.080 --> 0:03:58.200 a flaw. 0:04:00.880 --> 0:04:01.800 Well, it's obvious. 0:04:02.160 --> 0:04:07.800 It's obviously a floor that they are now with everyone 0:04:07.840 --> 0:04:12.800 else who did not retaliate. So the levels have come 0:04:12.880 --> 0:04:16.760 down to the Paull's level, And what I would say 0:04:17.080 --> 0:04:22.919 is thirty four, which is their assigned April second level, 0:04:22.920 --> 0:04:25.080 would be a ceiling, which is what I went out 0:04:25.120 --> 0:04:28.080 and told people on April second, which is. 0:04:28.040 --> 0:04:29.160 Why I was surprised. 0:04:29.160 --> 0:04:33.880 Market participants panicked because we had kept we had kept 0:04:34.400 --> 0:04:39.200 the upside for every country and if they didn't retaliate, 0:04:39.480 --> 0:04:43.560 So this unfortunate turn of events happened because of retaliation. 0:04:44.200 --> 0:04:46.080 But now we have a. 0:04:48.960 --> 0:04:52.640 Process in place to avoid escalation like that. 0:04:52.760 --> 0:04:55.280 Again, Secretary Buston, just to build on that, are you 0:04:55.320 --> 0:04:58.160 saying that teriff rates will only go up from here 0:04:58.640 --> 0:05:00.880 if this really is a floor or of ten percent 0:05:00.960 --> 0:05:05.560 on the Chinese side and thirty percent on the US side. 0:05:06.400 --> 0:05:09.479 I'm not saying that they're going to go up, but 0:05:11.440 --> 0:05:14.760 it would be implausible that they would go below ten. 0:05:16.000 --> 0:05:18.680 One thing that you've been talking about is generalized to 0:05:18.720 --> 0:05:21.359 coupling as something that's not necessarily in the interest of 0:05:21.400 --> 0:05:23.320 either side, and either side wants that. 0:05:23.760 --> 0:05:25.359 What about a strategic to coupling. 0:05:25.640 --> 0:05:29.479 What is the appropriate rate of tariffs that could potentially 0:05:29.880 --> 0:05:32.440 cause some sort of strategic to coupling in the sectors 0:05:32.480 --> 0:05:34.360 that you are talking about. 0:05:37.160 --> 0:05:42.200 Well, look, the bringing back our strategic. 0:05:44.320 --> 0:05:45.039 Are important. 0:05:45.080 --> 0:05:48.440 Strategic industries can be a result of terrace, but it's 0:05:48.440 --> 0:05:53.080 also a result of national will. So this administration is 0:05:53.200 --> 0:05:56.760 running full speed to make sure that what we saw 0:05:57.160 --> 0:05:58.360 during COVID. 0:05:58.120 --> 0:05:59.360 Never happens again. 0:06:00.120 --> 0:06:03.960 So it's a combination of it can be terrorists, but 0:06:04.240 --> 0:06:08.919 again it is the administration moving as quickly as possible 0:06:09.000 --> 0:06:12.039 to make sure that we are self sufficient in the 0:06:12.080 --> 0:06:13.280 strategic industries. 0:06:13.520 --> 0:06:17.239 I think that's completely understandable from the United States side, 0:06:17.400 --> 0:06:19.360 and I want to miss the secretary whether the Chinese 0:06:19.480 --> 0:06:22.120 understood that. Did you get the sense they do understand 0:06:22.120 --> 0:06:24.679 that will be the road forward for the United States. 0:06:27.480 --> 0:06:30.680 Well, I think they understand that, and I think they 0:06:30.800 --> 0:06:35.320 understand that we are focused on fair trade, that this 0:06:35.640 --> 0:06:41.159 gigantic deficit that we have with them, that it didn't 0:06:41.200 --> 0:06:44.000 happen last year, it didn't happen there before, It's happened 0:06:44.040 --> 0:06:48.400 over decades, and that this happened half excuse me has 0:06:48.440 --> 0:06:53.640 to be remedied. The China shock gutted our manufacturing sector 0:06:53.800 --> 0:06:54.480 and we want. 0:06:54.360 --> 0:06:55.279 To bring that back. 0:06:55.680 --> 0:06:59.600 On the other side, Party chair, she has said that 0:06:59.680 --> 0:07:04.159 he would like to increase consumption, but to date the 0:07:04.320 --> 0:07:08.479 Chinese have just increased manufacturing. So we would like to 0:07:08.480 --> 0:07:11.880 see them increase consumption. We would like to see them 0:07:11.960 --> 0:07:15.800 open their market to American products. So there are two 0:07:15.800 --> 0:07:20.680 ways to rebalance. One is fewer Chinese goods in the 0:07:20.800 --> 0:07:24.680 US market. The other is more American goods in the 0:07:24.760 --> 0:07:28.720 Chinese market. And my guess is that the answer is 0:07:28.760 --> 0:07:29.760 somewhere in between. 0:07:30.120 --> 0:07:31.920 Some of this, of course, takes us back to the 0:07:31.920 --> 0:07:34.600 purchase agreements of the first term of the president. 0:07:34.960 --> 0:07:36.200 Is it different this time around? 0:07:36.360 --> 0:07:39.080 Is it as simple as just revisiting those purchase agreements 0:07:39.200 --> 0:07:41.960 or do you see additional sectors being targeted? 0:07:46.160 --> 0:07:50.800 Jonathan, I think everything's on the table. But the Phase 0:07:50.840 --> 0:07:54.280 one purchase agreements is a very good road map because 0:07:54.280 --> 0:07:58.440 I will point out that during twenty twenty China met 0:07:58.480 --> 0:08:02.320 their obligations under that agreement. It was only under President 0:08:02.440 --> 0:08:08.080 Biden where they neglected them. So we are getting we 0:08:08.120 --> 0:08:12.880 are starting there, and look, the world has changed, products 0:08:12.880 --> 0:08:16.880 have changed, product mix has changed, so I think everything's 0:08:17.000 --> 0:08:19.880 on the table, but the main thing here is we 0:08:20.000 --> 0:08:23.160 have to have a fair deal for the American people. 0:08:23.600 --> 0:08:27.320 And keep in mind too that we also have twenty 0:08:27.320 --> 0:08:32.280 percent fentanyl terras on, so we are at for twenty 0:08:32.360 --> 0:08:36.400 twenty five. We have put on thirty percent terraffs. They 0:08:36.440 --> 0:08:41.640 have put on ten. And my economic observation is that 0:08:41.960 --> 0:08:46.520 businesses just need time to calibrate that we saw approximately 0:08:46.600 --> 0:08:51.720 twenty percent terraiffs from President Trump's first term. Businesses calibrated, 0:08:52.559 --> 0:08:58.880 supply chains moved. We have seen twenty percent tariffs President 0:08:58.880 --> 0:09:02.760 Trump put on in February due to the fentanyl crisis. 0:09:03.600 --> 0:09:07.200 Calibration very little disruption. 0:09:07.200 --> 0:09:11.520 And now a ten percent additional tariff should mean very 0:09:11.559 --> 0:09:12.520 little disruption. 0:09:13.080 --> 0:09:13.840 Mister Secretary. 0:09:13.880 --> 0:09:16.320 A lot of people are wondering what caused the softening 0:09:16.440 --> 0:09:19.520 and tone, the reason for both sides to come together 0:09:19.720 --> 0:09:22.160 and be able to have this kind of negotiation and 0:09:22.880 --> 0:09:25.640 try to pass forward where there will be further negotiations 0:09:25.679 --> 0:09:28.960 in the near term. What's your interpretation of what caused 0:09:29.000 --> 0:09:30.080 both sides to come. 0:09:29.920 --> 0:09:30.480 To the table. 0:09:33.480 --> 0:09:39.320 Well, I think that the two levels on the reciprocal tariffs, 0:09:39.360 --> 0:09:43.440 when they both ratcheted up to one twenty five caused 0:09:43.440 --> 0:09:47.800 the equivalent of an embargo, and that wasn't good for 0:09:48.040 --> 0:09:52.080 either side. Where the depth is a country, so less 0:09:52.120 --> 0:09:56.120 bad for us. But I think there was the unintended 0:09:56.160 --> 0:10:00.960 consequence of this very fast ratchet, and so now both 0:10:01.000 --> 0:10:04.760 sides are at ten. We will be moving forward with 0:10:04.880 --> 0:10:08.200 a ninety date pause. And the important thing to remember 0:10:08.640 --> 0:10:11.240 is that we can always go back to the April 0:10:11.400 --> 0:10:15.440 second level. But my sense is we had very good 0:10:15.480 --> 0:10:24.280 discussions of my counterpart was the very firm, but very engaged, 0:10:24.520 --> 0:10:28.719 and I think we have set the stage for meaningful discussions. 0:10:29.400 --> 0:10:33.080 Mister secretary, is there already a scheduled date for Jijian 0:10:33.120 --> 0:10:36.200 paying and President Trump to meet in person at any 0:10:36.200 --> 0:10:37.040 point in the near term? 0:10:37.080 --> 0:10:39.040 Do you think that that is something in. 0:10:38.960 --> 0:10:41.160 The cards as part of these negotiations. 0:10:44.200 --> 0:10:46.160 I think that there would be a phone call before 0:10:46.200 --> 0:10:52.000 a meeting, and there's nothing on the calendar, but I 0:10:52.040 --> 0:10:55.560 could imagine that that could happen in the coming weeks 0:10:55.600 --> 0:10:56.520 or months. 0:10:56.559 --> 0:10:57.600 Coming into the meeting. 0:10:57.640 --> 0:11:00.000 As you know, the President put out a social media 0:11:00.120 --> 0:11:02.400 posts referred to as Scotty b. I won't go there, 0:11:02.440 --> 0:11:05.680 We'll keep using missus secretary, and he said you could 0:11:05.679 --> 0:11:08.000 go as low as eighty. Can you share with us 0:11:08.040 --> 0:11:10.800 how we went from say, eighty down to thirty. 0:11:10.840 --> 0:11:11.880 Where did that number come from? 0:11:11.960 --> 0:11:12.160 Sir? 0:11:16.000 --> 0:11:20.680 I think that in the President's mind, eighty was a 0:11:20.800 --> 0:11:26.000 number that did not cause an embargo, so we could 0:11:26.240 --> 0:11:30.440 still be at eighty and have trade flowing. But we 0:11:30.440 --> 0:11:35.560 were able to both the moved down by one hundred 0:11:35.559 --> 0:11:39.559 and fifteen percent. And Jonathan, I think the other important 0:11:39.679 --> 0:11:42.160 thing here is I think this is the first time 0:11:42.720 --> 0:11:46.320 that the Chinese have addressed one of the President's real priorities, 0:11:46.360 --> 0:11:49.680 which is ending this fentanyl crisis in the United States. 0:11:49.960 --> 0:11:52.760 So they brought their trade team, and they brought a 0:11:52.880 --> 0:11:58.079 vice Minister for State Security who met with our national 0:11:58.120 --> 0:12:02.040 security team. It was a separate and they had a 0:12:02.160 --> 0:12:09.040 very robust and detailed discussion on ways to stop the 0:12:09.440 --> 0:12:14.679 transport of precursor drugs from China to North America that 0:12:14.880 --> 0:12:17.200 ends up in the hands of the cartels that is 0:12:17.200 --> 0:12:22.080 then killing several hundred thousand Americans a year. So I'm 0:12:22.240 --> 0:12:27.480 very optimistic that President Trump we have solved part of 0:12:27.480 --> 0:12:30.960 the fentanyl crisis by securing the border, and I think 0:12:31.080 --> 0:12:35.079 this is the next step on that. So if over 0:12:35.120 --> 0:12:39.280 the coming months we were to see excellent engagement from 0:12:39.320 --> 0:12:44.120 the Chinese and solutions towards solving the fentanyl crisis. I 0:12:44.160 --> 0:12:47.120 think we could see some amount of the fentanyl tariffs 0:12:47.120 --> 0:12:51.200 perhaps come off, but that is going to take actions 0:12:51.280 --> 0:12:51.920 from them. 0:12:52.280 --> 0:12:59.000 What kind of action specifically, sir, Well, we. 0:12:59.000 --> 0:13:02.600 Can see where these precursor drugs that are coming from 0:13:02.640 --> 0:13:10.120 from at Treasury Financial Criminal Enforcement Network has very good 0:13:10.240 --> 0:13:15.160 visibility into international finance. We can see these Chinese companies 0:13:15.480 --> 0:13:18.360 that are selling the equipment for making the pills that 0:13:19.240 --> 0:13:21.120 transferring the precursor. 0:13:20.640 --> 0:13:22.040 Drugs to the cartels. 0:13:23.000 --> 0:13:28.319 US Treasury has declared the Mexican cartels foreign terrorist organizations, 0:13:28.760 --> 0:13:34.760 so working with Chinese leadership to stop this would be 0:13:35.000 --> 0:13:36.920 a very tangible symbol. 0:13:37.760 --> 0:13:38.400 In China. 0:13:38.920 --> 0:13:44.040 The narcotics distribution is punishable by death, and we're not 0:13:44.200 --> 0:13:48.440 pushing for that necessarily, but we are pushing for very 0:13:48.880 --> 0:13:52.439 very strict enforcement, similar to what they. 0:13:52.320 --> 0:13:52.880 Do at home. 0:13:53.280 --> 0:13:56.360 Mister Secretary, I imagine you're incredibly tired, and a lot 0:13:56.400 --> 0:13:58.160 of people are very excited to see you taking the 0:13:58.240 --> 0:14:01.360 lead in these discussions, certainly in the market. Are you 0:14:01.400 --> 0:14:03.840 going to be taking the lead going forward with other 0:14:04.320 --> 0:14:11.160 difficult negotiations around the world with different trading partners. 0:14:11.840 --> 0:14:15.560 I've been involved in most of the Asia negotiations. We 0:14:15.640 --> 0:14:21.240 had a very good negotiation with Or, We've had two 0:14:21.320 --> 0:14:25.600 rounds of negotiations with Japan. I've been involved with Korea. 0:14:25.880 --> 0:14:32.280 I've met with the Vietnam and excuse me, also Indonesia. 0:14:32.400 --> 0:14:36.280 So my focus has been on the Asia region thus far. 0:14:36.760 --> 0:14:40.760 And then the trade team had a great victory with 0:14:40.920 --> 0:14:46.360 the UK putting together the contours of the first trade deal. 0:14:46.680 --> 0:14:48.360 The other thing I want to say too is my 0:14:48.480 --> 0:14:52.720 partner here in Geneva. Ambassador Greer was an incredible asset. 0:14:52.920 --> 0:14:58.840 He has years of experience, a broad and deep knowledge 0:14:59.160 --> 0:15:01.200 of trading to goociation. 0:15:00.840 --> 0:15:02.480 Of the numbers and the nuance. 0:15:02.640 --> 0:15:06.920 And we would not be here today without Ambassador Career. 0:15:07.200 --> 0:15:09.280 Missus Secretary, just before you go, you've promised us a 0:15:09.280 --> 0:15:10.920 lot of time. We've used up most of it already. 0:15:10.960 --> 0:15:13.760 Just the final question, what does victory look like for 0:15:13.840 --> 0:15:16.680 you in six months time when we get to year end. 0:15:16.960 --> 0:15:18.600 And I know it's frustrated to you that we've only 0:15:18.600 --> 0:15:20.840 been talking about trade, that we haven't focused on the 0:15:20.840 --> 0:15:24.320 full policy platform. Where do you want to be by 0:15:24.400 --> 0:15:24.920 year Rent? 0:15:28.600 --> 0:15:33.840 Well, well, Johnathan, this administration is doing peace deal, trade deal, 0:15:34.000 --> 0:15:37.520 tax deal. I try to stay mostly, as you know, 0:15:37.600 --> 0:15:44.320 in my econ lane. So from that lane, victory to 0:15:44.400 --> 0:15:49.160 me looks like the three legged stool. That really are 0:15:49.240 --> 0:15:52.880 the three parts of our program really kicking in, So 0:15:53.680 --> 0:15:57.320 we will have most of the trade and tariffs settled. 0:15:57.880 --> 0:16:01.480 The tax bill is moving along very well, better than 0:16:01.520 --> 0:16:06.200 I could have imagined. Speaker Johnson, leader Thoon are doing 0:16:06.240 --> 0:16:09.320 an incredible job with President Trump's leadership. 0:16:09.560 --> 0:16:11.400 So we will have tax done. 0:16:11.680 --> 0:16:15.520 And then the final piece that is longer lagged, but 0:16:15.560 --> 0:16:21.400 perhaps the most important is deregulation and deregulation. We are 0:16:21.680 --> 0:16:27.280 deregulating across all industries every day. President Trump is committed 0:16:27.320 --> 0:16:30.440 to for every new regulation, ten comes off the books. 0:16:31.040 --> 0:16:35.200 And deregulations should start kicking in in the. 0:16:35.080 --> 0:16:36.400 Third and the fourth quarters. 0:16:36.720 --> 0:16:42.880 So tax, trade, and deregulation all coming together at the 0:16:43.000 --> 0:16:45.680 end of the year. I think it's going to be very, 0:16:46.640 --> 0:16:49.600 very powerful for President Trump's economic agenda. 0:16:49.920 --> 0:16:53.120 Mister Treasury Secretary scope Esson, we appreciate your time, sir 0:16:53.320 --> 0:16:56.080 from Geneva. Very generous with your time. Thanks for being 0:16:56.120 --> 0:17:08.440 with us right here. Merripandita. JP Morgan writ SINC. We 0:17:08.560 --> 0:17:10.240 do not want to be loaded into a false sense 0:17:10.280 --> 0:17:12.959 of security. While the volatility we saw in April may 0:17:13.000 --> 0:17:15.480 have been the high water mark, that doesn't mean volatility 0:17:15.560 --> 0:17:17.159 is behind us all together. 0:17:17.320 --> 0:17:17.560 MARYA. 0:17:17.640 --> 0:17:19.040 Johns is now for more American monic. 0:17:19.080 --> 0:17:19.560 Good morning. 0:17:19.720 --> 0:17:21.160 Have we put all the bad news behind us? 0:17:21.720 --> 0:17:22.600 Not necessarily. 0:17:22.640 --> 0:17:25.680 What we have to be mindful of is volatility in 0:17:25.680 --> 0:17:27.480 the nature of it, It comes and goes. And while 0:17:27.480 --> 0:17:31.000 we have another recalibration moment. We had April second announcement 0:17:31.040 --> 0:17:33.800 of tariffs, we had April ninth pause on tariffs. Now 0:17:33.800 --> 0:17:36.399 we have a big reduction for a period of time 0:17:36.520 --> 0:17:37.800 in the Chinese. 0:17:37.440 --> 0:17:40.280 Tariff rate, but there are still risks ahead. 0:17:40.280 --> 0:17:42.680 We have to continue to follow the ebb and flow 0:17:42.680 --> 0:17:46.560 of trade optimism, trade disappointment. And there's also a distinction 0:17:46.760 --> 0:17:50.119 here between when the market stops caring, but the economy 0:17:50.240 --> 0:17:51.080 is still going to care. 0:17:51.280 --> 0:17:52.119 Think about Brexit. 0:17:52.200 --> 0:17:54.359 You know, we're ten years on almost from Brexit and 0:17:54.760 --> 0:17:57.120 it's undoubtedly still an impact on the economy there, even 0:17:57.160 --> 0:17:58.280 though it's not showing up in. 0:17:58.320 --> 0:17:59.920 Markets on a day to day basis. 0:18:00.200 --> 0:18:02.320 So this is the squaring of the circle that we're 0:18:02.359 --> 0:18:03.879 going to have to go through over the next couple 0:18:03.880 --> 0:18:07.439 of years, because having a two percent average import goods 0:18:07.560 --> 0:18:10.520 tariff rate last year to something probably still in the 0:18:10.520 --> 0:18:12.840 double digits when all of the dust settles, is going 0:18:12.880 --> 0:18:15.239 to have that longer term pass to the economy. And 0:18:15.280 --> 0:18:19.560 that means where the economy and markets meet is around profitability. 0:18:19.720 --> 0:18:21.439 Before we get into the next company years, can we 0:18:21.480 --> 0:18:24.040 deal with the next couple of months, how will you 0:18:24.080 --> 0:18:25.560 digest the incoming information? 0:18:25.920 --> 0:18:28.320 What will you ignore? What will you choose to put 0:18:28.359 --> 0:18:28.840 some whites on? 0:18:29.840 --> 0:18:31.720 What I want to choose to put weight on the 0:18:31.760 --> 0:18:34.720 most is how our price is impacted, because, as I mentioned, 0:18:34.760 --> 0:18:37.160 the link between markets and the economy and the long 0:18:37.240 --> 0:18:39.520 run is going to be the profit picture here, and 0:18:39.680 --> 0:18:42.320 profits are really going to determine how well stocks can do, 0:18:42.640 --> 0:18:45.800 because ultimately we're already in an environment where evaluations are 0:18:45.800 --> 0:18:48.959 still compared to their long term averages twenty percent higher 0:18:49.240 --> 0:18:52.720 than they perhaps should be on an average basis, And 0:18:52.800 --> 0:18:55.320 so when we think about what underpins that, we have 0:18:55.359 --> 0:18:58.159 to see that profitability. Now we have to recalibrate a 0:18:58.200 --> 0:19:01.560 little bit around economic growth expectations. We were at a 0:19:01.640 --> 0:19:04.840 fifty to fifty recession probability coming into this. Perhaps now 0:19:04.840 --> 0:19:08.200 that is skewed towards slower growth as opposed to definitive 0:19:08.240 --> 0:19:12.760 mild recession. So in that case, still slowing growth means 0:19:12.880 --> 0:19:16.120 slowing profit growth. How do we continue to see profits 0:19:16.119 --> 0:19:18.719 playing out this year? What are the risks from tariffs 0:19:18.760 --> 0:19:21.520 while you have potential revenue slow down? How much you 0:19:21.560 --> 0:19:24.679 have potential pricing increases? How much gets passed on to 0:19:24.760 --> 0:19:28.320 an exhausted consumer versus how much get absorbed by historically 0:19:28.440 --> 0:19:31.240 very high margins. And then you think about even the 0:19:31.280 --> 0:19:33.600 structures within the S. 0:19:33.560 --> 0:19:34.439 And P five hundred. 0:19:34.640 --> 0:19:37.000 Could areas like the mag SVN be a saving grace 0:19:37.040 --> 0:19:39.520 this year as some of those areas are more resilient 0:19:39.720 --> 0:19:41.520 and we see yet another delay, And in terms of 0:19:41.520 --> 0:19:43.879 broadening out of profits, there are so many angles to 0:19:43.920 --> 0:19:46.720 this tariff and non tariff As we reconsider what this 0:19:46.800 --> 0:19:47.800 pause means. 0:19:47.720 --> 0:19:49.639 I can feel a bit of frustration, if not for you, 0:19:49.920 --> 0:19:51.600 for me. I was reading your notes and you were 0:19:51.600 --> 0:19:53.719 talking about a fifty to fifty recession call, and I 0:19:53.760 --> 0:19:55.160 was going to ask you about that. You already brought 0:19:55.160 --> 0:19:58.520 it up and said, probably it's skewed more against recession 0:19:58.560 --> 0:19:59.440 than for recession. 0:19:59.480 --> 0:20:01.440 But how do you switch your views so quickly? 0:20:01.520 --> 0:20:01.639 Right? 0:20:01.640 --> 0:20:04.399 I mean, we're going to see just a complete downgrade 0:20:04.400 --> 0:20:06.720 of the potential for recession, risk of cost Wall Street. 0:20:06.760 --> 0:20:10.040 If these new rates of terrorift stick, you have to 0:20:10.080 --> 0:20:13.160 think about scenarios, and certainly in this environment, extreme scenarios. 0:20:13.280 --> 0:20:15.320 What if tariffs come off altogether? What if we go 0:20:15.480 --> 0:20:17.679 right back to where we were April second? Where do 0:20:17.720 --> 0:20:20.000 we land in between? And clearly we're probably going to 0:20:20.080 --> 0:20:21.879 be somewhere in between, and that in between is so 0:20:21.920 --> 0:20:24.280 hard to figure out when we think, okay. 0:20:24.000 --> 0:20:25.560 Look at what's going on with yields. 0:20:25.560 --> 0:20:28.000 For example, you're seeing yields start to perk back up. 0:20:28.400 --> 0:20:31.159 If one of the factors that's been weighing on yields 0:20:31.200 --> 0:20:33.359 has been lower growth and all of a sudden that 0:20:33.480 --> 0:20:36.840 is potentially alleviated to some extent, then you have yields 0:20:36.840 --> 0:20:39.240 moving in a different direction here. I mean everything in 0:20:39.240 --> 0:20:42.000 the market, whether it's equities or fixed income, has been 0:20:42.040 --> 0:20:45.320 so sentiment driven this year. It's really hard to ground yourself. 0:20:45.600 --> 0:20:48.960 It's trade fears versus trade optimism, and you're switching back 0:20:49.000 --> 0:20:51.240 and forth. So we are trying to figure out where 0:20:51.280 --> 0:20:53.680 to ground ourselves in the in between state, which we're 0:20:53.720 --> 0:20:54.600 likely going to end up in. 0:20:54.760 --> 0:20:55.639 Where is that place? 0:20:55.720 --> 0:20:58.720 Is that gold Well, not necessarily, I mean when I 0:20:58.760 --> 0:21:01.719 think about portfolio position in a way, that's what's changed 0:21:01.840 --> 0:21:04.040 the least because of some of the starting points that 0:21:04.080 --> 0:21:06.399 we're dealing with. I mean, there's still definitely two sided 0:21:06.520 --> 0:21:09.600 risks to bond here when we think about maybe you 0:21:09.600 --> 0:21:11.160 don't see as so much that with growth slow down, 0:21:11.200 --> 0:21:13.119 so there's a lot in terms of term premium that 0:21:13.119 --> 0:21:15.760 could potentially be pushed up when we think about uncertainty. 0:21:16.119 --> 0:21:17.639 On the other hand, when you think about the basic 0:21:17.720 --> 0:21:19.920 dynamics of if we were to see on the AG 0:21:20.040 --> 0:21:22.639 bond index a one percent rise in rates certainly not 0:21:22.680 --> 0:21:25.280 what we expect, you'd be looking at a sell off 0:21:25.320 --> 0:21:27.800 of about one and a half percent over total return 0:21:27.920 --> 0:21:29.240 a year in your bond allocation. 0:21:29.400 --> 0:21:31.960 So you're still actually looking at someone of a contained 0:21:32.359 --> 0:21:33.560 impact there, and. 0:21:33.480 --> 0:21:37.120 Despite overall yields biased upwards, you've actually seen that most 0:21:37.160 --> 0:21:39.640 areas of the bond market have been positive. On the other hand, 0:21:39.640 --> 0:21:42.600 a one percent fall in rates not something we expect either, 0:21:43.119 --> 0:21:45.280 would give you about an eleven percent return given that 0:21:45.320 --> 0:21:49.320 income cushion, So being broadly diversified within fixed income has worked. 0:21:49.320 --> 0:21:51.080 I think it will continue to work, and on the 0:21:51.080 --> 0:21:54.760 equity side, you're still dealing with high starting valuations and growth. 0:21:54.880 --> 0:21:56.600 We want to make sure we're geared towards some of 0:21:56.640 --> 0:21:58.480 the areas that have been a bit more favorable. Whether 0:21:58.520 --> 0:22:01.880 it's value outperform in growth about six percent this year 0:22:02.280 --> 0:22:06.520 or international outperforming fourteen percent in dollar terms this year, 0:22:06.640 --> 0:22:10.159 none of that really changes despite the thirty percent, eighty percent, 0:22:10.320 --> 0:22:11.400 fifty percent terifreate. 0:22:11.440 --> 0:22:13.320 You're getting to something really important, something that John and 0:22:13.400 --> 0:22:16.800 I were discussing earlier this morning about how much structurally 0:22:16.880 --> 0:22:19.320 there has been a loss of dollar exceptionalism and a 0:22:19.320 --> 0:22:22.320 loss of haven status, and the shift to Europe has 0:22:22.359 --> 0:22:25.359 been something more sustainable and not just a knee jerk 0:22:25.400 --> 0:22:29.160 reaction that was a positioning squeeze. You're saying, on one hand, 0:22:29.640 --> 0:22:32.760 maybe a little, but not necessarily wholesale. When it comes 0:22:32.760 --> 0:22:35.280 to the loss of treasuries as a haven status, how 0:22:35.280 --> 0:22:36.680