Speaker 1: This is Wall Street Week, bringing you a special edition
Speaker 1: of what the US election could mean for Global Wall Street.
Speaker 1: I'm David Weston. This week, the United States had a
Speaker 1: presidential contest we were told could be extremely close, that
Speaker 1: we might not know who had won for days or
Speaker 1: even weeks, reminding us of another election twenty four years ago,
Speaker 1: when it took over a month to get the results.
Speaker 1: In the end, it turned out that the twenty twenty
Speaker 1: four election wasn't so close after all. By early morning
Speaker 1: the day after, we knew that Donald Trump would return
Speaker 1: as the forty seventh president of the United States and
Speaker 1: that his Republican Party would recapture control of the Senate
Speaker 1: by a comfortable margin. Markets reacted quickly as the results
Speaker 1: came in, and they responded very differently from twenty four
Speaker 1: years ago, with the S and P five hundred adding
Speaker 1: two and a half percent by the end of Wednesday.
Speaker 1: So now all our attention can shift from who is
Speaker 1: going to be our next president to what Donald Trump's
Speaker 1: second term is likely to mean for the economy, for business,
Speaker 1: and for markets. Here to get us started on the
Speaker 1: possible consequences of this year's election are Glenn Hubbard, who
Speaker 1: served as chair of President George W. Bush's Economic Council
Speaker 1: and is now a professor of the Columbia Business School, where.
Speaker 2: He served as dean for fifteen years.
Speaker 1: And Rebecca Patterson, former chief investment strategist for Bridgewater Associates.
Speaker 2: So welcome both of you. It's great to have you
Speaker 2: on Wall Street Week.
Speaker 1: Rebecca, start with that market reaction that sounds pretty good.
Speaker 1: Happy days are here again. Do you think that accurate
Speaker 1: reflects where we're headed as an economy and a business sector.
Speaker 3: Well, what we know from history is that markets prefer
Speaker 3: certainty over uncertainty. So the fact that we didn't have
Speaker 3: a repeat of twenty twenty, fact that we had a
Speaker 3: clear outcome, none of that tail risk of undecided elections
Speaker 3: and contested election I think that lowered volatility that added
Speaker 3: to the rally that we got this week. But in
Speaker 3: addition to that, obviously a focus on potential tax cuts,
Speaker 3: which will be made easier by the Senate majority because
Speaker 3: they can use the reconciliation process and deregulation. Both of
Speaker 3: those things seen adding to equity upside. I think there's
Speaker 3: a lot of questions over what policy happens, how big
Speaker 3: is it, when does it get enacted, and there's not
Speaker 3: just a policy to look at. We have to look
Speaker 3: at the policies holistically as well as other market forces,
Speaker 3: whether that's from the ground up industry innovation, things like
Speaker 3: technology that could be very additive to the stock market,
Speaker 3: as we've seen in recent years. And then there's outside
Speaker 3: forces like what's going on in China, Germany, Japan. What
Speaker 3: is happening those countries will affect us as well. So
Speaker 3: I don't think it's as simple as just saying tax cuts, deregulation,
Speaker 3: let's party. But for now, I think the reaction we've
Speaker 3: seen does make sense.
Speaker 1: You know, Washington, Well, nothing is that simple and one
Speaker 1: in Washington, as Rebecca suggests, But overall, net net, knowing
Speaker 1: that some things will get done some things won't, is.
Speaker 2: This pro gross?
Speaker 4: I think it definitely is. I agree with the Rebecca
Speaker 4: that the first and foremost place to start is getting
Speaker 4: more certainty. That's what markets were liking. But lower corporate
Speaker 4: tax are important. You know, the prospect of not raising
Speaker 4: the corporate rate is very positive for business investment, for
Speaker 4: earnings and for corporate valuations, and also just the sense
Speaker 4: of possibility, what's going to happen with technology? What's the
Speaker 4: attitude toward newness, toward dynamism. I think markets are a
Speaker 4: little more positive for President elect Trump in that regard,
Speaker 4: and I think we saw all of that. Will it
Speaker 4: all come to pass, surely not, but the direction is there.
Speaker 2: So the election was clearly the big event of the week.
Speaker 1: But there was another event, actually, which is the Fed
Speaker 1: the FMC coming in. What did you make Glenna for
Speaker 1: their decision to cut another twenty five basis points?
Speaker 4: Well, I think that decision had been fairly baked in
Speaker 4: and telegraphed by the Fed. How much more cutting the
Speaker 4: Fed will do is up for grabs. I personally think
Speaker 4: they probably shouldn't cut much more in the near term,
Speaker 4: given where I think the economy is. But the near
Speaker 4: term economic outlook isn't that much affected by what just
Speaker 4: happened in the election, and I think Chair Powell said
Speaker 4: that Are said as much in his remarks, So I
Speaker 4: think the FED is pretty much on near term autopilot.
Speaker 2: Near term Glenn talks about Rebecca.
Speaker 1: Let's talk about a little medium term twenty five twenty six.
Speaker 1: There are a lot of people who think that this
Speaker 1: might be inflationary, which might actually cause the FED to
Speaker 1: rethink some of those cuts.
Speaker 3: Yeah, and the market has already changed its expectations. If
Speaker 3: you look at the FED Fund's futures, it's now pricing
Speaker 3: in I believe, less than ninety basis points of cuts
Speaker 3: between now and the end of next year. So it's
Speaker 3: pulled back its expectation for easing. But that higher expected
Speaker 3: cost of capital is being offset by these expectations for
Speaker 3: stronger earnings, less regulation, more m and a activity, et cetera.
Speaker 3: What I would caution investors about is that again, taxes
Speaker 3: deregulation are part of the.
Speaker 5: Picture, but not the whole picture.
Speaker 3: And what we saw in Trump's first term was that
Speaker 3: stock markets rallied initially big rally, but then in twenty eighteen,
Speaker 3: as the economy overheated or threatened to overheat, I should say,
Speaker 3: the Fed said, maybe we need to raise rates faster,
Speaker 3: make sure we don't have And the thought of more
Speaker 3: aggressive tightening, coupled with the trade war that really didn't
Speaker 3: get going until mid eighteen, caused the S and P
Speaker 3: to pull back twenty percent in three months. So if
Speaker 3: you bought stocks on inauguration Day in twenty seventeen and
Speaker 3: held them till the end of twenty eighteen, you only
Speaker 3: made four percent, so you gave it all back. It
Speaker 3: was a round trip, and I think not that that'll
Speaker 3: repeat this time. But that's the sort of thing we
Speaker 3: need to be looking at this compendium of factors, not
Speaker 3: just one or two, and the FED certainly plays a
Speaker 3: role there. I think we could see inflation coming from
Speaker 3: the fiscal policy, coming from the trade war, and depending
Speaker 3: on what happens, possibly from immigration, as it could push
Speaker 3: wages up.
Speaker 1: I want to pick up on the overheating point because
Speaker 1: we want a strong economy, we want it growing, but
Speaker 1: you can have too much of a good thing sometimes,
Speaker 1: as I understand it. What about those tax cuts, what
Speaker 1: is the danger? Do we really need the stimulative effect
Speaker 1: of the extending the tax cuts right now?
Speaker 3: Well, I think there's further tax cuts, for example, taking
Speaker 3: the corporate rate down from twenty one to say eighteen
Speaker 3: or fifteen. That's additional news stimulus. Extending the current tax
Speaker 3: levels really isn't news stimulus. It's just giving people what
Speaker 3: they already expect to continue getting. Frankly, so the risk
Speaker 3: there would be not extending things, and people feel an
Speaker 3: effective tax.
Speaker 5: Hike as things revert back.
Speaker 3: So the extension to me isn't a big new fiscal addition.
Speaker 3: It's just steady as she goes. The one I'd be
Speaker 3: watching that's major is the corporate rate if it gets
Speaker 3: lowered further. It is interesting, though, We've already had some
Speaker 3: Republican members of Congress since the vote coming out and saying,
Speaker 3: we need to think about how much of this we
Speaker 3: can do, because how are you going to fund it?
Speaker 3: You know you're not going to fund it with tariffs.
Speaker 3: The math doesn't work right. Income from tariffs is not
Speaker 3: going to be close to filling this hole. You can't
Speaker 3: fill it through government spending cuts because if you look
Speaker 3: at non defense discretionary spending last year, that was about
Speaker 3: nine hundred and twenty billion dollars. We need to fund
Speaker 3: two trillion, and so we're it's going to be interesting
Speaker 3: to see how Republican Congress decides to navigate this over
Speaker 3: the next twelve months.
Speaker 1: Glennt's say, with those tariffs, because that could be a
Speaker 1: speed bump on the road to growth.
Speaker 4: Well, it could be, and it's not really necessary. If
Speaker 4: we wanted to improve incentives to locate activity in the
Speaker 4: United States as part of the redo of the tax
Speaker 4: cut in Jobs Act. We could do that in corporate
Speaker 4: tax reform. We do not need tariffs to do that. Indeed,
Speaker 4: House Republicans were already there before twenty seventeen, so we
Speaker 4: know how to do this. The tariffs also could be
Speaker 4: inflationary for a period of time, complicating the Fed's job.
Speaker 4: And if we care about people and places left behind,
Speaker 4: there are plenty of better ways to deal with that.
Speaker 4: So I think that's probably not a good idea. I
Speaker 4: do worry, per Rebecca about the overheating possibility if we
Speaker 4: go too far on the fiscal side. After all, a
Speaker 4: lot of what got the Biden administration in trouble was
Speaker 4: the American rescue play, and we don't need another fiscal blowout.
Speaker 4: I think we have to be very very careful. We
Speaker 4: can get good pro growth tax policy without a blowout.
Speaker 1: Maybe we don't need a fiscal blowout. Do we need
Speaker 1: to save some money? Let's talk about the debt and
Speaker 1: the deficit, because there's a lot of concern and a
Speaker 1: lot of quarters about that. Right now, what if this
Speaker 1: prospect do you think of the next four years, Glenn,
Speaker 1: And this is sort of making a prediction that we
Speaker 1: could actually have a debt crisis I.
Speaker 4: Don't think we'll have a debt crisis, but I think
Speaker 4: worries will continue to mount. Let me just add to
Speaker 4: it a bit. In addition to everything we've been talking about,
Speaker 4: we're going to be spending a lot more on defense.
Speaker 4: That's just a given given where we are in the world.
Speaker 4: So the pressure on the budget is going to be there.
Speaker 4: The Latin word underlying credit is credo. I believe that's
Speaker 4: what markets have to say. When markets stop saying creato,
Speaker 4: we're in trouble. When that happens, we don't know, but
Speaker 4: I think the pressures will keep building.
Speaker 5: And I would just add to that.
Speaker 3: You know, we've seen two downgrades of US credit ratings
Speaker 3: already in twenty eleven and twenty twenty three. Moody's has
Speaker 3: put the US has changed the outlook for the US.
Speaker 3: And even if we have a functional government, which I
Speaker 3: certainly hope we do and I think we can expect to,
Speaker 3: if we have greater concerns about our debt, if we're
Speaker 3: on a trajectory to one hundred and thirty percent debt GDP,
Speaker 3: it's possible we get a third credit writing downgrade. If
Speaker 3: the US truly loses its triple A status. I don't
Speaker 3: know if that would be a catalyst for a debt
Speaker 3: crisis per se, but it certainly would be moving us
Speaker 3: towards that risk.
Speaker 1: Such an interesting point, actually, I hadn't really thought of
Speaker 1: necessarily go on. That is the fact that there was
Speaker 1: such a clear decision on Tuesday and to Wednesday maybe
Speaker 1: limits some of the dysfunction around fiscal issues such as
Speaker 1: debt ceilings and things. Maybe we don't have to go
Speaker 1: through that almost near death experience.
Speaker 4: I think that's right. My concern is that we avoid
Speaker 4: going for the near death experience by just blowing up
Speaker 4: the fisk, and that we shouldn't do well.
Speaker 1: But when you say we have some time perhaps on this,
Speaker 1: what about Social Security?
Speaker 2: I mean because there is a ticking.
Speaker 1: Clock on that, as I recall, as well as Medicare,
Speaker 1: where at some point we run out of the trust
Speaker 1: fund and then we got to figure out how we're
Speaker 1: going to fund that.
Speaker 4: That's true in the mid twenty thirties, which, unfortunately in
Speaker 4: Washington time is infinite way. It's actually not hard.
Speaker 2: You know.
Speaker 4: We could strengthen social securities protection for low and moderate
Speaker 4: income Americans and then flatten it out and make it
Speaker 4: make the system more progressive. It's not hard in economics,
Speaker 4: it's super hard in politics.
Speaker 1: What does it say to an investor when you're putting
Speaker 1: together portfolio? Do you change your allocations this week based
Speaker 1: on what we saw.
Speaker 3: I'm anxious to change something in a meaningful way right now,
Speaker 3: because again, we don't know when we're going to get
Speaker 3: policies enacted, and the timing matters. We don't know how
Speaker 3: large they will be. On January twentieth, do we get
Speaker 3: ten percent round the world tear of sixty percent on China?
Speaker 3: Or is it a threat and maybe a ramping up
Speaker 3: over time? That matters a lot. What size of tax
Speaker 3: cuts do we get. How easily and quickly are they enacted?
Speaker 3: That's going to matter a lot. We know regulation takes
Speaker 3: time to work through, so there's a.
Speaker 5: Number of things.
Speaker 3: Without having a little bit more specifics, it's very difficult
Speaker 3: in my mind to know how much you would want
Speaker 3: to change a portfolio. So I would be looking at
Speaker 3: this incrementally. In my mind when we're looking at this,
Speaker 3: US exceptionalism remains.
Speaker 5: I want to be overweight the US.
Speaker 3: I want to be wary of China because I do
Speaker 3: think whether tariffs are large or small or a threat.
Speaker 3: They're going to continue to struggle, and the stimulus they
Speaker 3: announced this week isn't going to change the picture for
Speaker 3: them in any meaningful way.
Speaker 5: I want to be wary of Europe.
Speaker 3: I think it's interesting that we could have a new
Speaker 3: German chancellor as early as January who could be a
Speaker 3: little less fiscally hawkish. It doesn't change the picture in
Speaker 3: a meaningful way. And then you have to think about
Speaker 3: US sectors. You know, tech is probably going to still
Speaker 3: do quite well. It's extraordinary to me that you in
Speaker 3: the next year are going to see five hundred billion
Speaker 3: dollars in CAPEX and R and D from the Magnificent seven.
Speaker 3: So I think there's a lot of reason to stay
Speaker 3: in the US be focused there. The banks certainly should benefit.
Speaker 3: Question there is how much is already priced in?
Speaker 1: Okay, many thanks for Rebecca Patterson and Glenn Hubbard of
Speaker 1: the Columbia Business School. Coming up will turn to what
Speaker 1: the outcoming election could mean for US relations with the
Speaker 1: rest of the world, with Zanni Minton Bettos of The
Speaker 1: Economists and Elizabeth Economy of the Hoover Institution. That's next
Speaker 1: on Wall Street Week on Bloomberg this is a special
Speaker 1: election edition of Wall Street Week.
Speaker 2: I'm David Weston.
Speaker 1: Elections have consequences, and this US election may have consequences
Speaker 1: going well beyond the shores.
Speaker 2: Of the United States.
Speaker 1: To take us through those consequences, we welcome now Zanni
Speaker 1: Minton Beddos, Editor in chief of The Economists, and Elizabeth Economy,
Speaker 1: Senior Fellow and co chair of the program on the US,
Speaker 1: China and the World at the Hoover Institution. So welcome
Speaker 1: both of you. It's good to have you back on Wall
Speaker 1: Street Week. So let's start with China, because that was
Speaker 1: in the campaign right the way through. What does China
Speaker 1: have to look forward to out of the second Trump administration.
Speaker 6: I think China's probably looking at the return of Donald
Speaker 6: Trump as a short term but potentially long term strategic gain.
Speaker 6: I think the short term pain is everything that we
Speaker 6: heard during the election during the campaign, which is President
Speaker 6: Trump promising to levy sixty percent tariffs across the board
Speaker 6: on all Chinese goods coming into the United States. There's
Speaker 6: nothing good in that for China. It's going to take
Speaker 6: a hit to their economy, could cost them something like
Speaker 6: two hundred billion dollars, and they have to find new
Speaker 6: export markets for half of what they're already exporting to
Speaker 6: the United States. So it's a big problem for them
Speaker 6: at a time when their economy is already struggling. I
Speaker 6: think they'll try to forestall that scenario. They'll maybe try
Speaker 6: to play the price is right, or let's make a
Speaker 6: deal with President Trump and figure out is there a
Speaker 6: new trade deal to be had or some kind of
Speaker 6: phasing in the tariffs. But I think fundamentally on the
Speaker 6: economic side, Donald Trump poses a real challenge for China.
Speaker 6: I think the bigger picture for Shijinping, though, is in
Speaker 6: the longer term picture is potentially a big opportunity for him,
Speaker 6: because what he's tried to do over the past decade
Speaker 6: is really reclaimed Chinese centrality on the global stage, and
Speaker 6: the chief obstacle to that has been the United States.
Speaker 6: The United States is the major guarantor of security on
Speaker 6: the global stage. They are traditionally the protector of you know,
Speaker 6: open markets and free trade and of course the strongest
Speaker 6: supporter of democracy, and for sigen Ping, you know, that's
Speaker 6: a problem and so but Donald Trump, you know, has
Speaker 6: not had that same vision. He has a much smaller,
Speaker 6: narrower sense of.
Speaker 5: The role of the United States.
Speaker 6: He's pulled US out during his first term, pulled US
Speaker 6: out of a number of international institutions like the World
Speaker 6: Health Organization, the Paris Climate Accords, the UN Human Rights Commission.
Speaker 6: He downplays our allies, you know, and doesn't see them
Speaker 6: as beneficial, necessarily sees them as more of a burden
Speaker 6: than an asset. So the sense of the United States
Speaker 6: may pull back from its leadership position, I think opens
Speaker 6: up an opportunity for xigen Ping to fill the gap,
Speaker 6: to step into the breach.
Speaker 2: Zamy.
Speaker 1: We've heard repeatedly that Donald Trump likes tariffs. He just
Speaker 1: likes tariffs, periodicular with respect to China. But some people
Speaker 1: around him say, really, he doesn't mean those tariffs. He
Speaker 1: means to change the behavior of China. It's a negotiat employee.
Speaker 1: What are the prospects that China would actually change its
Speaker 1: behavior in response to big tariffs?
Speaker 7: So I think I think I completely agree with Elizabeth.
Speaker 7: I think that in the short term this is a
Speaker 7: challenge for China, and I think China would love to
Speaker 7: do a deal in the same way that it did
Speaker 7: a deal in Trump one. The question of Trump and tariffs,
Speaker 7: I think, is one you know, right now, the entire
Speaker 7: the trips have been thrown out. We have no idea
Speaker 7: exactly where they're going to land. But one air Lots
Speaker 7: of people say to me, oh, on tariffs, this is
Speaker 7: really just a negotiating ploy. He wants to do a deal. True,
Speaker 7: But Donald Trump for the last three decades has talked
Speaker 7: about taris. He loves tarts. He says he loves tariffs,
Speaker 7: and he has a kind of and I don't know
Speaker 7: how much he has studied the detail of late nineteenth
Speaker 7: century economic history in detail, but he talks about that.
Speaker 7: He harks back to that period as being a great
Speaker 7: period of American strength. And he has talked on the
Speaker 7: campaign trail about replacing the income tax with tariffs. So
Speaker 7: I think he has a fairly fundamental belief that tariffs
Speaker 7: are a good way of raising revenue, which suggests to
Speaker 7: me that it's not just a negotiating tool. I think
Speaker 7: it'll be a bit of both. And so I think
Speaker 7: Elizabeth is absolutely right. In the short term, this is
Speaker 7: a challenge for China because its economy is already slowing,
Speaker 7: and so if there is a big tariff hit, that's
Speaker 7: not great. But I think exigenping is already banking on
Speaker 7: a decoupling world economy. He's already banking that the world
Speaker 7: has been going in that direction, not least because Joe
Speaker 7: Biden didn't roll back the first set of Trump tariff's
Speaker 7: And he says, thinks that in this world where Trump
Speaker 7: is HARKing back to a less extensive role for America
Speaker 7: and we really are now in the post post Cold
Speaker 7: War era, this is the moment kind of the end
Speaker 7: of that world that was started in nineteen forty five.
Speaker 7: It will have ended in twenty twenty four. And in
Speaker 7: this new world, China thinks that it doesn't have America
Speaker 7: setting the rules and there is much more leeway for
Speaker 7: it to shape the world as it wants.
Speaker 1: So, Elizabeth, does Taiwan's profobial stock go up because of
Speaker 1: this or down because of this?
Speaker 6: I mean, I think in the short term it's probably
Speaker 6: going down. It's a very complicated picture for Taiwan with
Speaker 6: Donald Trump, I mean, for most American presidents, for the
Speaker 6: US Congress, Taiwan.
Speaker 5: Is really important.
Speaker 6: It's important strategically right. It's part of the first island
Speaker 6: change from Japan to Taiwan to the Philippines through Thailand,
Speaker 6: so it provides a kind of bulwark really against the
Speaker 6: expansion of China, you know, toward the.
Speaker 5: United States through the Pacific.
Speaker 6: It's an important trading partner, tenth largest trading partner of
Speaker 6: the United States. You know, two point six trillion dollars
Speaker 6: of maritime trade goes through the Taiwan straight and Taiwan
Speaker 6: is a robust democracy that's playing a really important role
Speaker 6: in supporting emerging democracies. Not to mention the fact that,
Speaker 6: you know, we source most of our advanced chips from
Speaker 6: Taiwan Semiconductor Corporation, from TSMC, so you know, most people
Speaker 6: recognize that Taiwan matters and matters a lot. Donald Trump
Speaker 6: has promised to make Taiwan pay for its defense. He's
Speaker 6: talked about Taiwan is having taken our chip industry away.
Speaker 6: You know, there are some probably faulty facts and assumptions
Speaker 6: built into those two statements, and it's possible, I think
Speaker 6: that his advisors will you know, sort of help correct
Speaker 6: some of the misinformation and will you know.
Speaker 5: Have a steady state.
Speaker 6: There will also be a lot of debate within his
Speaker 6: own party because Congress and Republicans in Congress are strongly
Speaker 6: supportive of Taiwan. So I think you know, near term,
Speaker 6: it's problematic. Taiwan doesn't know what you know. President Trump
Speaker 6: is going to try. But I think over the long
Speaker 6: term he'll be hard pressed to make a major shift
Speaker 6: in our policy.
Speaker 1: So's any when it comes to China, perhaps short term
Speaker 1: loss long term gained from Xiji and Ping's point view.
Speaker 1: What about other places that may be losers? Certainly if
Speaker 1: you look at the Peso, it didn't look like Mexico
Speaker 1: came out of this at least short term very well.
Speaker 7: Yeah, I think there are two other places that are
Speaker 7: really looking at seriously bumpy right. Absolutely, Mexico and we'll
Speaker 7: come to it Europe too, But Mexico, if you my
Speaker 7: so shorthand for thinking about what Donald Trump will imply
Speaker 7: is taxa, tariffs, deregulation, deportation. Those are the four variables,
Speaker 7: and it depends how much he does how fast in
Speaker 7: each of those. And if I was in any country,
Speaker 7: and I would think about that country's prospects by thinking
Speaker 7: what do those four variables mean for me? And if
Speaker 7: you're in Mexico right now, his deportation agenda is not
Speaker 7: great for you. It's not great for you politically, and
Speaker 7: he's going to use he said it just a few
Speaker 7: days ago. Again, he's going to use tariffs as the
Speaker 7: negotiating weapon. If they don't stop these illegal migrants coming through,
Speaker 7: if they don't take deporties, then there are going to
Speaker 7: be tariffs. So I think the Mexican paeser was hit hard.
Speaker 7: It has come back a bit, but it's going to
Speaker 7: be a very difficult environment for Mexico, not least because
Speaker 7: a lot of the investment that was coming into Mexico
Speaker 7: really as part of the decoupling from China. Donald Trump
Speaker 7: is not going to like the fact that Chinese companies
Speaker 7: are setting up manufacturing plants in Mexico. He wants them
Speaker 7: in the United States, not Mexico. So I think the
Speaker 7: renegotiation of USMCA, which was the trade deal that he
Speaker 7: created instead of NAFTA, it comes up in twenty twenty six.
Speaker 7: I think that's going to be a very very tough
Speaker 7: negotiation and I would not want to be Mexico, but
Speaker 7: to be honest, and you know, with my accent, it's
Speaker 7: not so great coming from Europe either. I sometimes I'm
Speaker 7: glad we're not in the EU from this perspective, because
Speaker 7: the EU is going to have I think a very
Speaker 7: tough time the Europeans. Not only have you know, Germany,
Speaker 7: huge trade surplus with the United States. And one thing,
Speaker 7: Donald Trump really does see trade in these very binary terms.
Speaker 7: You have a trade surplus that means you're ripping us off.
Speaker 7: That's basically the way he sees trade. And I think
Speaker 7: he doesn't like much like Germany. It's been my sense
Speaker 7: from Trump one and the Europeans. So they have a
Speaker 7: trade issue, they also have a security issue because one
Speaker 7: of this is this is not straight economic ground. But
Speaker 7: it is very clear that he thinks they should spend
Speaker 7: more on defense. It's not clear what he's going to
Speaker 7: do in Ukraine. There is much greater obligations coming on
Speaker 7: to the Europeans, and the Europeans right now are just
Speaker 7: in no fit state to deal with this. We've got
Speaker 7: a crisis in the German government right now, We've got
Speaker 7: incredibly weak leadership in France. We've got the prospect of
Speaker 7: Marine lapenn higher now in twenty twenty seven, then it
Speaker 7: was thanks to Donald Trump. So I think Europe is
Speaker 7: going to have a tough few years ahead. And the
Speaker 7: real question is can Europe sort of get its own
Speaker 7: house in order to take on more of its responsibilities itself.
Speaker 1: Thus far, we've been talking really about what the United
Speaker 1: States and Donald Trump in the second term would do
Speaker 1: to other countries.
Speaker 2: What about other countries doing things.
Speaker 1: In the United States, because it's a two way street,
Speaker 1: like for example, with China.
Speaker 2: What are the options open to President g.
Speaker 6: I mean, yeah, absolutely, cjmping has not been sitting still
Speaker 6: since you know, Trump won. He has really strengthened his
Speaker 6: retaliatory toolbox. So of course, if President Trump goes through
Speaker 6: with the tariffs, I'm sure we will see a response
Speaker 6: in tariffs, you know, probably on agriculture, chemicals, machinery, you know,
Speaker 6: from the Chinese. But they also have a number of
Speaker 6: other sort of options. For example, they've sort of put
Speaker 6: together a whole new export control law, so we've seen,
Speaker 6: you know that they've put export controls on gallium, germanium,
Speaker 6: you know, licensing restrictions on antimony, so they can look
Speaker 6: at you know, they control a significant part of the
Speaker 6: you know, mining of our critical minerals in the world
Speaker 6: and probably eighty to ninety percent of the processing. So
Speaker 6: when we're looking at our tech industry, when we're looking
Speaker 6: at our defense industry, China really has the opportunity to
Speaker 6: put a chokehold on the development of those industries in
Speaker 6: the United States if it chooses to do so. So
Speaker 6: I think we have to be very careful about how
Speaker 6: far down the rabbit hole we want to go in
Speaker 6: terms of our you know, economic gamesmanship with China, because
Speaker 6: they really do hold a lot of leverage.
Speaker 1: So Zanni, what about Europe? Might Europe Italia doesn't have
Speaker 1: things that really could hurt the United States?
Speaker 7: Well, I think Europe face is potentially a trade war
Speaker 7: on two fronts because it was already starting to raise
Speaker 7: tariffs against China on electric vehicles because it was worried
Speaker 7: about having its auto industry completely wiped out. There will
Speaker 7: definitely be political calls if Donald Trump and poses tariffs
Speaker 7: of any sort on Europe, there will be calls for retaliation.
Speaker 7: But that is the direction that you go to wrecking
Speaker 7: the world economy. It is tariff's retaliatory, tariff's trade war.
Speaker 7: Quickly bounce it up, and we all know what happened
Speaker 7: in the nineteen thirties. And you know, I am determinedly
Speaker 7: staying optimistic, and I'm you know, I worried about the
Speaker 7: potential tail risks of a Trump presidency because of all
Speaker 7: of the things he said in all the four areas
Speaker 7: that I spoke about. I think the risks are very high,
Speaker 7: but it is not certain, and so for the moment,
Speaker 7: I am going to determinedly stay optimistic and consider that
Speaker 7: tariffs will be used as a negotiating tool and we
Speaker 7: will not fall into a tit for tach trade war.
Speaker 7: But you're absolutely right, the risks are definitely there, and
Speaker 7: I think if you are any country that is subject
Speaker 7: to Donald Trump's tariffs, that's going to be a very
Speaker 7: tough decision. How far do you go to retaliate.
Speaker 1: Well, we'll all have that determination to stay optimistic. Thank
Speaker 1: you so much to Elizabeth Economy of the Hoover Institution,
Speaker 1: Sandy Mitton Bedows of the Economists.
Speaker 2: It's sticking with us. Coming up.
Speaker 1: Republicans and Democrats were on the ballot this week, But
Speaker 1: was capitalism as well? And if so, how to do
Speaker 1: We'll talk about what this week's election meant for the
Speaker 1: role of capitalism overall, as we're joined again by former
Speaker 1: Bridgewater Chief Investment strategists Rebecca Patterson. That's next on this
Speaker 1: special election edition of Wall Street Week on Bloomberg. This
Speaker 1: is a special election edition of Wall Street Week. I'm
Speaker 1: David Weston. This program each week presents stories of capitalism,
Speaker 1: the force that underlies the economy, markets, and business. In
Speaker 1: voting for various candidates. This week, Americans may have been
Speaker 1: casting votes not only for the candidates, but on the
Speaker 1: role of capitalism in our society as well. To begin
Speaker 1: to tell the story of how capitalism fared, we welcome
Speaker 1: back now, Zanni Mitton, beto's editor in chief of the Economist,
Speaker 1: and former Bridgewater Chief investment strategist Rebecca Patterson. So I'm
Speaker 1: going to start with you, Zanny. If we really say
Speaker 1: capitalism was on about it, how.
Speaker 2: Did it do?
Speaker 7: So there were two very different visions of capitalism on
Speaker 7: the ballot. I think the Commonaharis vision, which was really
Speaker 7: in a ex tension of the Biden administration, was a
Speaker 7: big state, a state which had pushed used industrial policy
Speaker 7: actively to push for domestic jobs, but which had allowed,
Speaker 7: because of its very big stimulus, inflation to get out
Speaker 7: of control. But it's really a kind of more protective state,
Speaker 7: quite a lot of redistribution. The vision that Donald Trump
Speaker 7: promises is a unleashing Elon Musk style of capitalism, capitalist innovation,
Speaker 7: massive tax cutting, getting rid of the kind of burden
Speaker 7: of the state. But also, interestingly, I think two elements
Speaker 7: which run counter to that, the deportations, which are really
Speaker 7: huge infringements on the free movement of people, and the tariffs,
Speaker 7: which are blocking competition from abroad. So, you know, trum quonomics,
Speaker 7: if you will, has a kind of an interesting vision
Speaker 7: of capitalism because it talks a big game about it
Speaker 7: being the free market, but actually it's not completely free.
Speaker 7: And I think the other interesting element to me is
Speaker 7: just how much this becomes a capitalism for special interests,
Speaker 7: because there are if you are a powerful person who
Speaker 7: has the presidents here, I think for the coming four years,
Speaker 7: you are going to be so much better off than
Speaker 7: if you are a powerful person who the president doesn't like.
Speaker 7: And so I think we could see a deregulatory wave
Speaker 7: which would be good for growth and would be more
Speaker 7: akin to the sort of free market capitalism, but with
Speaker 7: these constraints that come from tariffs, and then this very
Speaker 7: weird winner picking that depends on whether President Trump likes
Speaker 7: you or not.
Speaker 1: So, Recca, I want to pick up on what Zanny
Speaker 1: said talking about the free movement of people across borders
Speaker 1: what about the movement of capital, because an essential part
Speaker 1: of capitalism is free movement of capital, and we hear,
Speaker 1: for example, inbound investment regulations protectedly on China. Will the
Speaker 1: Trump administration this time allow capital.
Speaker 2: To move freely?
Speaker 3: Well, certainly there's a hope that these tariffs, and we've
Speaker 3: heard this on the campaign trail, that the tariffs will
Speaker 3: force foreign companies to invest more in America. If you
Speaker 3: don't want to be tariffed, bring your companies, your workers,
Speaker 3: your technology, your money here. I think there's a question
Speaker 3: if that will happen. You know, in Trump's first turn,
Speaker 3: we actually saw a bit of a slowing in foreign
Speaker 3: direct investment into the United States. And I don't know
Speaker 3: what will happen. I don't think anyone does for sure.
Speaker 3: But if we had tariffs across the world around everyone,
Speaker 3: is it going to make our foreign allies more or
Speaker 3: less excited about putting money here? And so I worry
Speaker 3: a little bit about capital coming in, and that capital
Speaker 3: is important. You know, we talk about a manufacturing renaissance.
Speaker 3: Last year, almost a quarter of all manufacturing jobs were
Speaker 3: for US affiliates of foreign companies. So this FDI is
Speaker 3: foreign direct investment that comes in builds factories, it gives
Speaker 3: US tech transfer which helps our capitalism TSMC Taiwan, Semi
Speaker 3: in Arizona, great case in point, but it does create jobs.
Speaker 3: So I think we need to be careful about that
Speaker 3: capital movement. And to your point, Siphius, so basically the
Speaker 3: multi agency group that's trying to oversee.
Speaker 5: Money coming in and out of the country.
Speaker 3: For national security reasons, there's a good chance that gets
Speaker 3: tightened further, and so that could also slow capital coming
Speaker 3: across borders. And I generally think the more of those restrictions,
Speaker 3: all else equal, I think it can be a net
Speaker 3: negative for.
Speaker 5: The US Now.
Speaker 3: Of course, national security matters, but we want to be
Speaker 3: careful we don't push that envelope too far.
Speaker 7: I mean, the interesting thing about the US is that
Speaker 7: it's I mean, this election has happened at a time
Speaker 7: when the US economy is, as you've discussed many times
Speaker 7: on this show, is in an extraordinarily strong situation. And
Speaker 7: that doesn't mean I'm not belittling the very real concerns
Speaker 7: people have had about high inflation. But right now, this
Speaker 7: is an economy that is the envy of the world,
Speaker 7: and it's been the envy of the world because it
Speaker 7: is a magnet for global capital. It's a place where
Speaker 7: innovative ideas, thanks to liquid capital markets and venture capital
Speaker 7: and so forth, can be turned into huge businesses very quickly.
Speaker 7: There is a relatively light regulatory touch, but there is
Speaker 7: a rule of law that people believe in, and there
Speaker 7: is a kind of stability that comes from institutions that
Speaker 7: are there and sort of set the rules. And I
Speaker 7: think all of those things are potentially kind of being
Speaker 7: thrown up in the air, and they may come to
Speaker 7: a better place. I mean, if Elon Musk comes in
Speaker 7: with his Department of Cost Cutting and finds too trillion
Speaker 7: to slash from the federal spending, it's going to be
Speaker 7: dramatic change. Some of that change may be good, some
Speaker 7: of it, I would imagine, would be, you know, gut
Speaker 7: wrenching and probably not so good. Similarly, deregulation, I think
Speaker 7: there are plenty of errors actually whether you could usefully
Speaker 7: deregulate in this country permitting reform desperately necessary to build
Speaker 7: the infrastructure that's necessary. But if you throw away all rules,
Speaker 7: Let's say, in artificial intelligence, do we really want a
Speaker 7: free for all in AI with no guards whatsoever? And
Speaker 7: so What worries me is that you're going to have
Speaker 7: a kind of deregulatory agenda that is defined by special interests.
Speaker 7: I hope that's not the case, but I really worry
Speaker 7: that it is the people closest to Donald Trump, who
Speaker 7: get his ear, who get to define what a regulatory
Speaker 7: agenda is and what the capitalism is.
Speaker 1: If you will, let me add one other elematis, and
Speaker 1: that's industrial policy, which was on the ascendancy under I
Speaker 1: think a person Biden with things like the Chips and
Speaker 1: Science Act and then Fish and Production Act, and it's
Speaker 1: been a bond of contention between the United States and
Speaker 1: Europe to some extent. Does that go away now or
Speaker 1: at least diminish?
Speaker 7: I think it just changes, it has a different form.
Speaker 7: I don't think it goes away at all, in the
Speaker 7: sense that you know, tariffs, selected tariffs are effectively a
Speaker 7: form of industrial policy. They're favoring certain domestic industries. Will
Speaker 7: all of the or some of the IRA's subsidies go, yes,
Speaker 7: although it's worth remembering that most of those subsidies go
Speaker 7: to red steaks, and so there will be a lot
Speaker 7: of Republican politicians and indeed a lot of Republican voting
Speaker 7: CEOs who have benefited from them, who are going to
Speaker 7: be lobbying furiously that they get that those tax credits stay.
Speaker 1: President Trump has a close friend in tech named Elon Musk.
Speaker 1: Tell us about what this means for tech and particularly AI,
Speaker 1: which is the big topic we talk about NonStop around here.
Speaker 2: Did AI win or lose this week?
Speaker 3: Well, I think oh AI definitely wins this week. And
Speaker 3: I think AI and the US is comparative advantage, and
Speaker 3: technology generally is a huge, huge support for our economy,
Speaker 3: for our stock market, given the waight it has in
Speaker 3: the stock market. A lot of the outperformance of the
Speaker 3: US versus the rest of the world is because of tech.
Speaker 5: I agree with Zanny though.
Speaker 3: I mean, when you think about the executive order that
Speaker 3: got passed last year in the United States around artificial intelligence,
Speaker 3: it wasn't trying to stemy innovation. It was meant to
Speaker 3: ensure that there was collaboration between the public and private
Speaker 3: sector and between the US government and its allies. So
Speaker 3: we're all understanding leading edge technology the same way, and
Speaker 3: we can look out for those risks and make sure
Speaker 3: that AI gives us the benefits, and hopefully we minimize
Speaker 3: some of the negative tails that could come from AI.
Speaker 3: So my hope is that by the time President Trump
Speaker 3: goes back into office, someone's whispered in his ear that
Speaker 3: it's not a guardrail, it's not slowing us down, it's
Speaker 3: helping us protect from that tail risk. You don't want
Speaker 3: to wake up and see happened while you were sleeping.
Speaker 7: I think it's going to depend so often, right policy
Speaker 7: is personnel, and it really depends who he puts into positions,
Speaker 7: particularly on everything, but certainly on AI and I. You know,
Speaker 7: is he going to be in favor of open source?
Speaker 7: Is he going to be in favor of the big
Speaker 7: leading models?
Speaker 1: You know.
Speaker 7: On the one hand, you know, you think, as you say, rightly,
Speaker 7: the US is in a very strong position because these
Speaker 7: dominant companies in AI are US companies. On the other hand,
Speaker 7: you know, Vice President elect jd Vance has been has
Speaker 7: said a lot of things very favorable about Lena Khan
Speaker 7: and about the importance of trustbusting and the importance of competition.
Speaker 7: The capabilities, as you discussed very frequently, are growing so dramatically.
Speaker 7: So now is the time to be cognizant of what
Speaker 7: all of this means and to think about it, worry
Speaker 7: about it. I'm not in the camp that you should
Speaker 7: sort of over regulate, but you should have serious people
Speaker 7: thinking seriously about what do we want to do. And
Speaker 7: and I worry that we're going to be infused a
Speaker 7: little bit with that kind of West Coast mentality of
Speaker 7: gopher brogue. And you know, no government is better always
Speaker 7: and who cares about the consequences, and the terroriffs have
Speaker 7: the potential to really splinter things.
Speaker 3: You know that China continues to push on its own
Speaker 3: that this bricks grouping of countries gets even more strength
Speaker 3: within it.
Speaker 5: Because they think they have to.
Speaker 3: And that could include things like AI and technology, it
Speaker 3: could include financial markets, the dollar based system. And then meanwhile,
Speaker 3: we need our allies. We need ASML in the Netherlands
Speaker 3: to do what we're doing, We need companies around the world.
Speaker 3: And so are we going to continue to have that
Speaker 3: cooperation and collaboration if we're continuing to put up the
Speaker 3: walls at home? And I'm hoping that these countries realize
Speaker 3: it's in their interest to keep working with us, regardless
Speaker 3: of who's in office and the policies. But it is
Speaker 3: something I would put on my keep me up at night.
Speaker 7: List.
Speaker 1: So one last quick one, which is after the election,
Speaker 1: come back to foreign direct investment. Is it more likely
Speaker 1: the United States will attract more foreign direct investment?
Speaker 3: I mean President elect Trump has suggested he's going to
Speaker 3: create low tax zones focused on manufacturing to try to
Speaker 3: bring in these companies. You won't have tariffs if you
Speaker 3: put money here, and we're going to give.
Speaker 5: You these tax breaks.
Speaker 3: I'm curious to see what actually gets enacted, what gets past,
Speaker 3: what happens how quickly. But if you are, you know,
Speaker 3: one of these discount retailers or apparel makers in China
Speaker 3: right now, and your supply is coming from there, how
Speaker 3: big is that price change if you come to the US,
Speaker 3: even with those tax breaks. I don't know if that's
Speaker 3: going to be their first port of call or if
Speaker 3: they're going to be shopping around the world first.
Speaker 7: Yeah, I'm not sure that. If I was an parale maker,
Speaker 7: I would be rushing here, but pretty much everybody else
Speaker 7: will be. This was already an economy that was attracting
Speaker 7: enormous amounts of foreid investment, and it was doing so
Speaker 7: because it's got cutting edge technology and it's called booming
Speaker 7: growth and subsidies yes, and subsidies, but I think you'll
Speaker 7: still get assistance for favored sectors. You will still have
Speaker 7: a fast growing economy. And if you have the good
Speaker 7: elements of or potentially good elements of a Trump agenda,
Speaker 7: So if you have, you know, corporate tax cuts, they'll
Speaker 7: be unaffordable eventually, but they'll be fine for a few years,
Speaker 7: and you have significant deregulation. I think this will be
Speaker 7: a magnet for places, and it will be politically expedient
Speaker 7: for companies to be seen to be doing something. So unfortunately,
Speaker 7: I totally agree with you that this fragmentation of the
Speaker 7: world economy in the medium to long term, I think
Speaker 7: is a terrible thing. And I'm you know, I work
Speaker 7: for a newspaper magazine that has spent one hundred and
Speaker 7: eighty years arguing against the tariff's and I'm not going
Speaker 7: to change my mind now. But in the short term,
Speaker 7: it is possible that they put together a cocktail that
Speaker 7: will draw in a lot.
Speaker 1: Of money, but we'll remain determinedly optimistic.
Speaker 7: It's my new resolution.
Speaker 2: I'm with that.
Speaker 1: It's any mitten Bedos and Rebecca Patterson, thank you so
Speaker 1: much for being here on Wall Street Week. That does
Speaker 1: it for this episode of Wall Street Week, I'm David Weston.
Speaker 2: This is Bloomberg.
Speaker 1: See you next week for more stories of capitalism.