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Speaker 1: Hi, everyone, Welcome to the weekend edition of Bloomberg Business Week.
Speaker 1: This week a holiday and shortened trading week due to
Speaker 1: Good Friday. Even so a super super busy week thanks
Speaker 1: to earnings from a few more big Wall Street banks,
Speaker 1: Golden City and ba A. Also Netflix out with Results
Speaker 1: United too. All of the earnings news can be found
Speaker 1: at Bloomberg dot com and on the Bloomberg.
Speaker 3: We also had a steady flow of tariff headlines. It's
Speaker 3: President Trump's trade war showed no signs of letting up,
Speaker 3: leaving investors risk averse, and so with that in mind,
Speaker 3: we take a look at how Mara a Lago membership
Speaker 3: fees help explain Donald Trump's tariff obsession.
Speaker 1: Plus tariff's, a weaker US dollar and investors turning their
Speaker 1: back on US dollar denominated assets could be the beginning
Speaker 1: of the end of US economic choke points, and the
Speaker 1: US is top place in the geopolitical power world order.
Speaker 3: Including when it comes to so called rare earth minerals.
Speaker 3: What you need to know on that coming up a
Speaker 3: little later this hour.
Speaker 1: First up, tariff, tariff, tariff.
Speaker 3: I am a tariff man.
Speaker 4: To me, the most beautiful word in the dictionary is tariff.
Speaker 4: Build your plant in the United States and you don't
Speaker 4: have any tariffs. We will establish a minimum baseline tariff
Speaker 4: of ten percent. You notice that on the chart, and
Speaker 4: that'll be on other countries to help rebuild our economy
Speaker 4: and to prevent cheating. The tariffs give us great power
Speaker 4: to negotiate, always have, and I really think we're helped
Speaker 4: a lot by the tariff situation that's going on, which
Speaker 4: is a good situation, not a bit.
Speaker 3: It's great. It's going to be legendary.
Speaker 1: You watch well, and I gotta say, hey, if you
Speaker 1: talk to our Bloomberg News team who visited mar A
Speaker 1: Lago last summer to talk to then candidate Donald Trump,
Speaker 1: tariffs definitely came up in their conversation and interview with
Speaker 1: him as well, or at least somebody who also liked
Speaker 1: Tariff's writing about Trump's fascination with them and the marri
Speaker 1: A Lago connection. Let's head to Washington, d C. And
Speaker 1: Bloomberg business Week National correspondent Josh Green. Josh, we all
Speaker 1: do remember the cover story a Business Week head of
Speaker 1: the presidential elections, a picture of Donald Trump. You had
Speaker 1: a group a Bloomberg editorial, really our finest went to
Speaker 1: mar A Lago to talk with him, interview him. Take
Speaker 1: us back there and some of the things that you
Speaker 1: guys covered and what really struck you the most, maybe
Speaker 1: surprised you the most.
Speaker 3: Yeah, you know.
Speaker 5: So last July we went down to mar A Lago
Speaker 5: to interview Trump. A team of us did from Business.
Speaker 5: We had a couple of days before his first and
Speaker 5: what turned out to be infamous debate with Joe Biden.
Speaker 5: Trump had wrapped up the Republican nomination, and so we
Speaker 5: were down there to talk about what Trump's plans for
Speaker 5: the economy WO looked like in a second term. And
Speaker 5: so we covered what we thought were all the major issues,
Speaker 5: you know, tax cuts, deregulation, climate, the Federal Reserve, what
Speaker 5: his plans were for Jerome Powell.
Speaker 3: But Trump kept.
Speaker 5: Bringing up William McKinley unprompted the twenty fifth president, and
Speaker 5: as we were leaving the interview, me and my college
Speaker 5: kind of looked at each other and thought, you know,
Speaker 5: that was a lo odd I haven't heard Trump bring
Speaker 5: up William McKinley before, and I thought about it that
Speaker 5: on Liberation Day April second, when Trump instituted this global
Speaker 5: regime of tariffs that temporarily crashed the stock market. Have
Speaker 5: a lot of banks and analysts worry about recession calls,
Speaker 5: and so in the new issue of BusinessWeek, I kind
Speaker 5: of went back over that interview because I think, in hindsight,
Speaker 5: it offered a lot of insight into kind of the
Speaker 5: way Trump's mind works, especially around tariffs, and kind of
Speaker 5: what he might be thinking and what might be driving
Speaker 5: the obsession that you guys so ably illustrated there on
Speaker 5: the intro that has Trump so on ratcheting up tariffs
Speaker 5: even as starf markets are falling around the world and
Speaker 5: a lot of people are worrying more and more about recessions.
Speaker 3: I mean, you can go back and read that story
Speaker 3: the cover of BusinessWeek. It was the August issue, and
Speaker 3: a lot has certainly changed since then. I mean, even
Speaker 3: back then he was running against Joe Biden. But Josh,
Speaker 3: I still think tariff's caught a lot of people off guard.
Speaker 3: Even if you go back, as you write to members
Speaker 3: of his inner circle, his administration, even back then, they
Speaker 3: didn't necessarily think that he would do what he did
Speaker 3: on April. Second, why did it catch everyone off guard?
Speaker 5: I think caught everybody off guard for a couple of reasons.
Speaker 5: Number one, obviously, Trump cared and instituted tariffs during his
Speaker 5: first term, but he did it at a level that
Speaker 5: wasn't so extreme that markets sort of plunged right away.
Speaker 5: A lot of people thought that, of course Trump is
Speaker 5: going to do something on tariffs. He'll probably do something
Speaker 5: on tariffs in China, you know, maybe some other sectoral
Speaker 5: tariffs around the margins, but he's not going to do
Speaker 5: any thing extreme. I think that was the belief because
Speaker 5: most economists on the right and the left agree that
Speaker 5: tariffs are inflationary, including his own Treasury Secretary Scott Besson,
Speaker 5: who I mentioned in the piece. I think the other reason, though,
Speaker 5: is that a lot of folks believe that Trump's rhetoric
Speaker 5: around tariffs was really a negotiating ploy, and there was
Speaker 5: a kind of comfort, I think, in hindsight, false comfort,
Speaker 5: in the conventional wisdom that while Trump talked a big
Speaker 5: game on tariffs, what he really cared about was the
Speaker 5: stock market, and he views that as kind of like
Speaker 5: an imprimature of his own success. At the stock market's high,
Speaker 5: Trump gets on social media and brags about it. I
Speaker 5: think the belief was that had dropped too low, Trump
Speaker 5: would stop whatever he was doing to drive it down
Speaker 5: and do whatever he could to talk it back up.
Speaker 5: And that really hasn't happened much this time around. So
Speaker 5: I think people just misread and misunderstood. I would certainly
Speaker 5: include myself in this camp the degree to which Trump
Speaker 5: was intent upon raising up these tariffs, and so my
Speaker 5: piece explores why that might be and what we might
Speaker 5: have missed the first time around.
Speaker 1: Yeah, I got to tell you, you know this idea, and
Speaker 1: you say this that to take the president, at least
Speaker 1: the first time around, you know, take them seriously, but
Speaker 1: not literally. And now we realize, wait, no, no, no,
Speaker 1: he really wants us to take them literally. That was
Speaker 1: all wrong. And so since our read on President Trump
Speaker 1: was not necessarily on the money or the guardrails were
Speaker 1: there during the first term, and it's different this time around.
Speaker 1: We don't really know, Josh, what comes next?
Speaker 2: Do we no?
Speaker 5: And when I say we, that includes Trump's inner circle,
Speaker 5: because you know, we talked to a lot of them,
Speaker 5: and a lot of them were blindsided. I actually moderated
Speaker 5: a panel discussion on Liberation Day with one of his
Speaker 5: former top advisors, Steve Bannon, and I asked Bannon on stage,
Speaker 5: do you know what's coming? What countries are going to
Speaker 5: get hit? And he said, well, this is all still
Speaker 5: up in the air. It's still being litigated. So even
Speaker 5: Trump's closest to allies didn't really know what was coming then,
Speaker 5: and I'm pretty confident don't know what's coming next. Because
Speaker 5: Trump is an impulsive guy. He reacts to what other
Speaker 5: countries do, and so really anything could happen looking forward.
Speaker 5: So what I tried to do was kind of go
Speaker 5: back to what I think of his first principles when
Speaker 5: it comes to Trump and tariff, and explore a little
Speaker 5: bit what his motivation might be and what he might
Speaker 5: be thinking.
Speaker 3: So let's talk a little bit about that and kind
Speaker 3: of go more with what Bannon told you then and
Speaker 3: what you've learned from Steve Benn and we should know.
Speaker 3: You're also the author of Devil's Bargain, a book that
Speaker 3: really goes deep on Steve Bannon, among other books that
Speaker 3: you've written. Josh, So you've spent many years reporting on him,
Speaker 3: writing about him, you know him really Well, what did
Speaker 3: we learn about his goals? President Trump's goals through Steve Bannon?
Speaker 5: Well, you know, I think I've spent the last couple
Speaker 5: of weeks going around to people in Trump's orbit, people
Speaker 5: on Wall Street, people on politics, and saying, what do
Speaker 5: you think is what do you think is driving Trump's
Speaker 5: obsession with tariff's, How does he view them and why
Speaker 5: is he moving in a direction that seems to run
Speaker 5: counter to the economic interests of the United States and
Speaker 5: his own administration, Or at least that's the argument that
Speaker 5: a lot of people have been making. I thought one
Speaker 5: of the best answers came from Steve Bannon. Bannon said that,
Speaker 5: you know, Trump looks at the United States, which in
Speaker 5: the same way that he looks like mar A Lago's
Speaker 5: private club as this prime piece of real estate, and
Speaker 5: that foreign countries should have to pay more, essentially a
Speaker 5: VIP rate to have access to America's market, and that
Speaker 5: made me recall like an odd thing that had happened
Speaker 5: during this Business Week Trump interview last July. In the
Speaker 5: middle of the interview, the club manager for mar A
Speaker 5: Lago wandered in, and Trump stopped the interview, called him over,
Speaker 5: and had him sort of boast to us, the Bloomberg
Speaker 5: reporters about how Trump was raising club dues at mar
Speaker 5: A Lago from seven hundred thousand dollars to a million dollars.
Speaker 5: And you know, in hindsight, I really do think that
Speaker 5: that shed some light on the way that Trump's mind
Speaker 5: works when it comes to tariffs. He was making clear
Speaker 5: to us at the time. You know, Trump felt vindicated.
Speaker 5: He'd been ostracized from politics briefly after January sixth, but
Speaker 5: he'd managed to kind of return, climb back and win
Speaker 5: the GOP nomination in a route people now wanted to
Speaker 5: be close to him, important people, business leaders, And so
Speaker 5: he was raising the price of admissions to his club.
Speaker 5: And I think the same view kind of prevails for
Speaker 5: Trump when it comes to the United States trading with
Speaker 5: foreign countries. That Trump views the US market as a
Speaker 5: prime piece of real estate. He's gotten into office, and
Speaker 5: now what he's going to do is sort of raise
Speaker 5: the membership fees for countries who want to do business
Speaker 5: with the United States. That's really what these tariffs are.
Speaker 5: Never mind the economic effects, the side effects, and the
Speaker 5: ripple effects that this has had on international trade patterns,
Speaker 5: on equities markets around the world, on the uncertainty it's
Speaker 5: caused for US and foreign businesses, that's what seems to
Speaker 5: be driving Trump. And I found that a pretty compelling
Speaker 5: answer from Bannon and a pretty compelling insight into the
Speaker 5: way that Trump's mind works when he thinks about these
Speaker 5: big issues.
Speaker 1: Josh, I'm curious and all your reporting, and I mean
Speaker 1: this with no disrespect in terms of the president, not you,
Speaker 1: but I mean thanks Carol no no, no, no, no, no yeah,
Speaker 1: or you know our door, but I mean sorry, they
Speaker 1: came out wrong. That's one of those days. What I
Speaker 1: mean is, you know, I was thinking about his fascination
Speaker 1: with McKinley, right, and if you really go back and
Speaker 1: read history books and so on and so forth, you
Speaker 1: realize how that just turned out so badly. Does the
Speaker 1: president read history? Does he read you know? I am curious.
Speaker 1: I know there's a lot that probably crosses his desks,
Speaker 1: and he relies on advisors as a lot of presidents
Speaker 1: do right for some reason, so on and so forth.
Speaker 1: But a lot of past presidents have also been incredible
Speaker 1: readers right and trying to understand situations. What do we
Speaker 1: know about President Trump in terms of how he assesses
Speaker 1: a situation?
Speaker 5: You know, I have wondered this myself. Trump definitely does read,
Speaker 5: but what he tends to read are paper printouts of
Speaker 5: like computer screens. Like I was in his office once
Speaker 5: interviewing him, and he had a folder of like paper
Speaker 5: printouts from the Drudge Report. So I don't think he's
Speaker 5: reading history books about the McKinley era yet. At the
Speaker 5: same time, and you can go back and actually read
Speaker 5: the unredacted transcript of our interview Trump from July, he
Speaker 5: makes several specific citations to things like the McKinley Tariff
Speaker 5: Act of eighteen ninety, So clearly he had been either
Speaker 5: reading or well briefed on a lot of what he
Speaker 5: was talking about, this kind of late nineteenth century American
Speaker 5: history and McKinley and tariffs. So it's kind of a
Speaker 5: mystery to me, and one I've wondered a lot about
Speaker 5: who exactly imparted this information to him, How he absorbed it,
Speaker 5: but clearly it's something that he's really keyed on and
Speaker 5: continues to key on. It shaped and effected his worldview,
Speaker 5: and it's obviously affecting US policy like right now in
Speaker 5: the moment. So it's something I hope to keep kind
Speaker 5: of doing more reporting on. But I have to be honest,
Speaker 5: it's a little baffling to me to understand quite how
Speaker 5: he became so obsessed with McKinley. I suspect it was
Speaker 5: somebody around him, an advisor, whether Peter Navarro or a Steve
Speaker 5: Bannon someone like that who really is pro tariffs, had
Speaker 5: kind of filled his head with this stuff. But Trump
Speaker 5: was pretty bought in then and still seems pretty brought
Speaker 5: in now.
Speaker 3: So, Josh, based on the reporting that you've done, the
Speaker 3: time you've spent with the president in recent years, the
Speaker 3: time you've spent with Steve benn and other close advisors
Speaker 3: to the president, what do you think our audience needs
Speaker 3: to understand about the longevity of tariffs and how they
Speaker 3: will be present in our lives during this administration.
Speaker 5: I think the main thing is is, like tariffs are
Speaker 5: a core Donald Trump belief going back as long as
Speaker 5: he has commented on public policy. So I think he
Speaker 5: means this. He isn't doing these things or taking these
Speaker 5: positions opportunistically. This is core to his being and how
Speaker 5: he sees the world.
Speaker 3: As I right in the BusinessWeek.
Speaker 5: You know, generally, when presidents have a big idea, all presidents,
Speaker 5: they tend to cling to it come hell or high water,
Speaker 5: whether things are going well or whether they're not going well.
Speaker 5: And so I would expect Trump, you know, while he
Speaker 5: may relent on the margins, while he may adjust things
Speaker 5: on the tariff front, to stick with these is a
Speaker 5: key policy tool throughout his administration. So I think it's
Speaker 5: something people are going to have to watch and continue
Speaker 5: to grapple with.
Speaker 3: That was Bloomberg Business Week National correspondent Josh Green.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 1: We are certainly living in uncertain times. CEOs are commenting
Speaker 1: about it as earning season got underway this past week,
Speaker 1: United CEO went so far as to offer not one,
Speaker 1: but two possible earning scenarios, saying its twenty twenty five
Speaker 1: outlook remains achievable, but also warning that a recession could
Speaker 1: nearly have its profit forecast.
Speaker 3: This uncertainty is the result of the trade war and
Speaker 3: tariff tit for tat. The longer it goes on, the
Speaker 3: harder it is to ignore the nagging feeling that the
Speaker 3: global economic order is being redone.
Speaker 1: So we wanted to once again check in with Edward Fishman,
Speaker 1: his senior research scholar professor at Columbia University School of
Speaker 1: International and Public Affairs. We recently talked with him about
Speaker 1: his new book Points, American Power in the Age of
Speaker 1: Economic Warfare, and he is back here in our studio.
Speaker 1: It is good to have you here because as this
Speaker 1: continues to go on, the longer it goes on, we
Speaker 1: continue to think about what are the economic repercussions that
Speaker 1: could be the future of the US. How are you
Speaker 1: thinking about that? How is it kind of evolving the
Speaker 1: longer this goes on.
Speaker 6: So look, a big theme of my book, Chow Points,
Speaker 6: is that there are these choke points in the global economy,
Speaker 6: areas where one country has a dominant position and there
Speaker 6: are few, if any substitutes, and these choke points have
Speaker 6: been what have been primarily used for economic warfare. The
Speaker 6: dollar and the US financial system is the most important
Speaker 6: choke point in the global economy. It's the one that
Speaker 6: America has relied on for sanctions against Iran Russia. And
Speaker 6: the thing that has been.
Speaker 1: Because by everything being dollar denominated, that means in order
Speaker 1: to transact, right, it's got to go through dollars, and
Speaker 1: basically we have control over our dollar denominated assets and
Speaker 1: those points throughout the financial system.
Speaker 6: That's right, I mean, I think if you just look
Speaker 6: at it from a numbers basis, I mean, America is
Speaker 6: something like ten percent of global trade, and ninety percent
Speaker 6: of foreign exchange transactions involves a dollar, So the dollars
Speaker 6: being used in transactions that have nothing to do with
Speaker 6: US goods being traded from one country to another. So
Speaker 6: I think the thing that has been most concerning to me, frankly,
Speaker 6: over the last week or two of when Trump has
Speaker 6: really escalated the use of tariffs is we have seen,
Speaker 6: I think, for the first time, at least in my
Speaker 6: professional life, real concerns that the dollar may be losing
Speaker 6: some of its safe haven status. And this obviously is
Speaker 6: concerning from the perspective that we all understand in terms
Speaker 6: of the dollar's role as the world's reserve currency is
Speaker 6: necessary for the way that we run our political economy,
Speaker 6: the way that we fund budget depth sits. But I
Speaker 6: think also from a geopolitical perspective, there are concerns that
Speaker 6: if we were to undermine the dollar's role in the
Speaker 6: international financial system, it would significantly constrain the ability of
Speaker 6: the US government to impose impactful sanctions on foreign countries.
Speaker 3: The impactful sanctions is certainly one part of this, but
Speaker 3: the other part of this is the global economic world order,
Speaker 3: or the economic world order, I should say, and just
Speaker 3: the fact that the US and the dollar have really
Speaker 3: stood at the intersection of so much. When you talk
Speaker 3: about that being at risk, what exactly do you mean,
Speaker 3: what in your view could happen?
Speaker 7: Right?
Speaker 6: So, what would it mean for the dollar to lose
Speaker 6: its position as the world's reserve currency. I think, at
Speaker 6: the very baseline level of it, the dollar by virtue
Speaker 6: of basically there being limitless demand for American treasuries. We
Speaker 6: have not had to balance our budget in decades, right,
Speaker 6: so I think we're the dollar actually to just be
Speaker 6: another currency, and US treasuries just to be another form
Speaker 6: of sovereign debt. We'd actually have to worry about things
Speaker 6: like what does our fiscal situation look like in the
Speaker 6: United States.
Speaker 1: Explain that, carry that out for people who and be like,
Speaker 1: I'm not making the connection because I think so much
Speaker 1: of what's happening in the last week and a half.
Speaker 1: We have to understand how this all connects, right, because
Speaker 1: I think people I don't know just walk it through
Speaker 1: for us.
Speaker 8: Sure.
Speaker 6: Yeah, so right now, we run deficits of budget deficits
Speaker 6: every year. It's something like seven percent of goal of GDP,
Speaker 6: which is significantly higher than it has been historically. What
Speaker 6: that means is we take in less revenue than we
Speaker 6: spend as a federal government.
Speaker 8: Right.
Speaker 6: The way that we plug that deficit, the way that
Speaker 6: we finance the spending that doesn't come from American taxpayers
Speaker 6: is through issuing debt that then is in the form.
Speaker 3: Of US treasuries.
Speaker 4: Right.
Speaker 6: Part of the reason that there's effectively limitless demand for
Speaker 6: US treasuries is because of the dollar's role as a
Speaker 6: world's reserve currency, because it's considered this safe asset that
Speaker 6: in any time of need, basically you can always turn
Speaker 6: it into cash. At a relatively stable level. But what
Speaker 6: we've seen in the last week is something that's quite unusual,
Speaker 6: where treasure yields have gone up as the dollar's value
Speaker 6: has actually weakened. As normally you'd expect as treasure yields
Speaker 6: to go up, that the dollar would strengthen because there'd
Speaker 6: be more demand for American assets. What this suggests is
Speaker 6: that there's something going on that there might be this
Speaker 6: new risk premium being built in to American assets that
Speaker 6: hasn't existed before.
Speaker 3: The new risk premium. Notwithstanding, what would you say to
Speaker 3: somebody who's listening right now or watching right now and says,
Speaker 3: wait a second, this would be could be a good
Speaker 3: thing for the United States to start only spending the
Speaker 3: money that it has every year. It's a fair point.
Speaker 6: At the same time, it would require a massive change
Speaker 6: in how all of our lives work, right, because the
Speaker 6: lion's share of American federal outlays every year are in
Speaker 6: things like Medicare, Social Security entitlement programs that Americans rely on.
Speaker 3: Yeah, I think Elon Musk has brought that to attention
Speaker 3: many times over the last couple of months when talking
Speaker 3: doge Right, although that has not been a focus of dose.
Speaker 6: Right, it is anything you've seen expansion in things like
Speaker 6: Medicare advantage payments, right, that has been covered innother Bloomberg
Speaker 6: media recently. So, look, I think that we would have
Speaker 6: to have a substantial cut in government spending and, by
Speaker 6: the way, a concomitant rise in taxes. But I think
Speaker 6: there's a broader point that's more near term, because there
Speaker 6: are people in the Trump administration orbit who actually view
Speaker 6: the dollar's role as the world's reserve currency as bad
Speaker 6: for the US economy. Not an exorbitant privilege, but something
Speaker 6: that undermines our export competitiveness. Because just to spell this
Speaker 6: out and sort of playing.
Speaker 1: Specially, it's more expensive exactly, right, But what.
Speaker 6: We're seeing is that, yes, if the dollar is valued
Speaker 6: at a lower level, then there will be specific sectors
Speaker 6: of the American economy that may be more competitive on
Speaker 6: global markets.
Speaker 8: Right.
Speaker 6: But everyone is hurt by a weeker dollar because also
Speaker 6: all of us in the United States are paid in dollars.
Speaker 6: So if our dollars are less valuable, we have lower
Speaker 6: purchasing power and we are poor, right, we are paychecks
Speaker 6: go less, they don't buy as much for us.
Speaker 1: Isn't it also important to talk about trade deficits. Everybody
Speaker 1: thinks bad, bad, trade deficit. But that also has implications
Speaker 1: as well in terms of demand for dollars, right, And
Speaker 1: it also we want to be buying things because that
Speaker 1: gives people dollars and they in turn can buy US
Speaker 1: based assets. Right, there's like this relationship as well.
Speaker 3: That's right.
Speaker 4: Yeah.
Speaker 6: I mean the flip side of a trade deficit is
Speaker 6: that we have you know, financial asset financing that's coming
Speaker 6: into the United States.
Speaker 4: Right.
Speaker 6: We have other countries who are investing in American assets. Right,
Speaker 6: So that is you know why you need you know,
Speaker 6: the current account and the capital account have to balance,
Speaker 6: so current. A current account deficit will mean a capital
Speaker 6: account surplus, right.
Speaker 3: So that's right.
Speaker 6: I think if you truly were able to balance American trade,
Speaker 6: you would, by definition have less capital coming into the
Speaker 6: United States.
Speaker 1: Can I also ask you we have don't we have
Speaker 1: a service surplus?
Speaker 3: We do? Yes?
Speaker 1: And is that a good or bad thing?
Speaker 3: I think it's a great thing.
Speaker 6: I mean, look, I think there's been this, you know,
Speaker 6: you know memes now about should Americans be you know,
Speaker 6: screwing in screws in iPhones or something like that. I
Speaker 6: think most Americans frankly would rather work a services job
Speaker 6: for the same pay than working in a factory.
Speaker 3: Well, that was the whole idea with globalization in the
Speaker 3: nineteen nineties, if you go back, and that was sort
Speaker 3: of the promise that we were told by politicians, let's
Speaker 3: move the jobs to other countries, and what we'll do
Speaker 3: is we'll retrain the workforce here so they can do
Speaker 3: more vis oriented jobs and jobs that are in a
Speaker 3: different part of the economy. That didn't end up happening.
Speaker 6: Well, I mean, to be fair, up until recently, we've
Speaker 6: been at full employment, you know, so we haven't had
Speaker 6: massive unemployment in the United States.
Speaker 3: True, But I mean if you go back even to
Speaker 3: the first Trump administration and the analysis of why he
Speaker 3: won States and why Democrats lost in a lot of
Speaker 3: these areas, there was a lot of criticism that these
Speaker 3: were areas that had been hollowed out with the loss
Speaker 3: of jobs moving abroad. And that seems to be still
Speaker 3: what the president is speaking to at this point, to
Speaker 3: go back to an era where those manufacturing jobs come back.
Speaker 4: Yes.
Speaker 6: Look, I think that clearly there have been regional effects
Speaker 6: that have not been distributed equally, and they are parts
Speaker 6: of for instance, my home state of Pennsylvania, that have
Speaker 6: been really hit hard by this process, right, And so
Speaker 6: I do think that the federal government has not done
Speaker 6: a particularly good job at figuring out how to you know,
Speaker 6: continue to provide a decent standard of living for people
Speaker 6: in these regions of the United States. But I would say, though,
Speaker 6: and if we're going to take Trump's arguments about manufacturing seriously,
Speaker 6: I think the best argument isn't so much about unemployment,
Speaker 6: because as we've discussed, we have been at full employment.
Speaker 6: There is a lot of sector service sector employment in
Speaker 6: the United States.
Speaker 4: Right.
Speaker 6: The best argument is really the national security argument, where
Speaker 6: there are potentially some aspects of manufacturing where you would
Speaker 6: want domestic sources.
Speaker 7: Right.
Speaker 6: And by the way, even Joe Biden, going back to
Speaker 6: his presidency, imposed one hundred percent tariffs on Chinese electric
Speaker 6: vehicles because there was a view that we didn't want
Speaker 6: buid to eat Tesla's lunch. Right, We didn't want Chinese
Speaker 6: evs that were better, more efficient, cheaper than you know,
Speaker 6: the evs made by Tesla and GM to come in
Speaker 6: and swamp the American market because it's a security concern
Speaker 6: if we're dependent on Chinese cars right. So I think
Speaker 6: there are specific sectors where this is. This is a
Speaker 6: relevant point for national security, the harder I mean, we.
Speaker 1: Have defense manufacturers forts exactly.
Speaker 6: I agree, And I've written an essay in the Boston
Speaker 6: Globe a month ago in association with my book Choke
Speaker 6: Points about the pharmaceutical supply chain. This is something that
Speaker 6: certainly the United States needs, not only more domestic sources
Speaker 6: of manufacturing, but what I would call trusted supply chains.
Speaker 7: Right.
Speaker 6: You don't want to be reliant on China for you know,
Speaker 6: pharmaceutical additives, right. Do we want to do everything domestically?
Speaker 6: Do we want autarchy? I don't think so. But do
Speaker 6: we want to be less reliant on adversaries like China?
Speaker 6: I think that's a very worthy national security goal.
Speaker 1: So, going back to your book, book Choke Points, I'm
Speaker 1: thinking about China and how they are wielding kind of
Speaker 1: their choke points. I thought about the tariffs and the
Speaker 1: kind of salvel that they lobbied back at the United
Speaker 1: States when it comes to rare earth minerals like that
Speaker 1: is very targeted and many would say very very smart
Speaker 1: because of their incredible control over It's not that we
Speaker 1: don't have it, but they are set up in a
Speaker 1: much more productive system, right in terms of refining and
Speaker 1: so on and so forth. Walk us through that and
Speaker 1: how they are fighting back.
Speaker 6: Yes, thank you for bringing this up, Carol, because I
Speaker 6: think one of the things I've been most frustrated about
Speaker 6: of the coverage of the US China situation in the
Speaker 6: last week is this discussion of a trade war. Right,
Speaker 6: We're not seeing a trade war. We're seeing something much broader.
Speaker 6: We're seeing a multi domain economic war in which tariffs
Speaker 6: are just one weapon that's being used, and in fact,
Speaker 6: they're not even the most powerful weapon. Yeah, you look
Speaker 6: at how China's retaliating. Right, Yes, they have tariffs that
Speaker 6: they put on American imports. But if you're just going
Speaker 6: tariff for tariff, America has more to tariff than China
Speaker 6: has to tariff, because we're importing a lot more from
Speaker 6: China than they're importing from US. But what China has
Speaker 6: been doing since twenty eighteen, since the first salvo of
Speaker 6: tariffs came into place, They've been preparing things like export
Speaker 6: controls on critical minerals that America relies on, from everything
Speaker 6: from batteries to ammunition. Right, they've been sanctioning US companies,
Speaker 6: so PVH got sanctioned. Recently, a Skidio, the biggest drone
Speaker 6: manufacturer in Silicon value, was sanctioned, and now they've got
Speaker 6: a ration batteries. Each customer now only gets one battery
Speaker 6: per drone, right, which is pretty absurd when you think
Speaker 6: about it. Yeah, Ilumina, the big DNA sequencing company, got
Speaker 6: sanctioned by China. You're also seeing things like anti monopoly
Speaker 6: investigations into Nvidia and Alphabet right, So China is not
Speaker 6: retaliating in sort of a symmetric manner, only they're also
Speaker 6: fighting asymmetrically.
Speaker 3: That was Edward Fishman, senior research scholar and professor at
Speaker 3: Columbia University School of International and Public Affairs. We recently
Speaker 3: talked with him on his new book, Choke Points American
Speaker 3: power in the Age of Economic Warfare.
Speaker 2: This is the Bloomberg Business Week Daily podcast. Listen live
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Speaker 2: flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 1: We got news this past week that President Trump has
Speaker 1: launched a probe into the need for tariffs on critical minerals,
Speaker 1: the latest action in an expanding trade war that has
Speaker 1: targeted key sectors of the global economy.
Speaker 3: The order covers a range of minerals, including rare earth
Speaker 3: elements that the US government considers quote building blocks of
Speaker 3: our defense industrial base and crucial to building jet engines,
Speaker 3: missile guidance systems, advanced computers, as well as radar, optics
Speaker 3: and communications equipment.
Speaker 1: So we wanted to go deep on rare earths to
Speaker 1: understand how they fit into the trade war, if there
Speaker 1: are alternatives, how much leverage they give to China, and more.
Speaker 3: To do this, we caught up with Graceland Baskern, director
Speaker 3: of the Critical Mineral Security Program at the Center for
Speaker 3: Strategic and International Studies, and we were also joined by
Speaker 3: Bloomberg News Metals and Mining reporter Joe Doe. Joe, rare
Speaker 3: earths on the surface sounds like they're rare, but I'm
Speaker 3: learning that they're not actually that rare, right, They're not rare.
Speaker 3: They come from the earth. Though they come from the earth,
Speaker 3: that part is true.
Speaker 9: It's hard to find them in density, right. So the
Speaker 9: rare earths are like literally in your backyard, you just
Speaker 9: like dug up some dirt. You could be like, oh,
Speaker 9: there are rare earths in this, but you know, we
Speaker 9: live in New York, right, But it's the same as like, oh,
Speaker 9: well I take zinc as you know, a vitamin or
Speaker 9: you know whatever. It might be, right, but in terms
Speaker 9: of industrial scale, right, because you need rare earth to
Speaker 9: create things like permanent magnets, and permanent magnets allow for
Speaker 9: wind turbines to keep moving and for electric motors to
Speaker 9: keep moving. I mean that's really all like the main
Speaker 9: thing regular people should know. To find the density is
Speaker 9: quite difficult. It's not like they're just in.
Speaker 1: Your backyard, like a huge pile graceland. Come on in,
Speaker 1: your background is pretty incredible. A mining economist, critical minerals
Speaker 1: in trade. You began your career in South Africa's platinum belt,
Speaker 1: spent five years at the World Bank in South Africa.
Speaker 1: So tell us a little bit about like what don't
Speaker 1: we really know about rare earth minerals, and then we
Speaker 1: want to kind of roll into this how the US
Speaker 1: China trade war plays into all of this. But come
Speaker 1: on in and welcome, Welcome.
Speaker 10: Thanks so much for having me. So you know, as
Speaker 10: Joe said, rare earths aren't rare, They're everywhere. But why
Speaker 10: we're really vulnerable for them is that once you dig
Speaker 10: them out of the ground, you have to separate them,
Speaker 10: and that those separation facilities are primarily in China. So
Speaker 10: for heavy rare earths, they actually separate over ninety percent
Speaker 10: of the world's heavy raarers and about eighty percent of
Speaker 10: light rarers. Now the problem is is that that means
Speaker 10: once they go to China, China can apply any sort
Speaker 10: of export restriction to them, and they actually started doing
Speaker 10: this about fifteen years ago when China first cut off
Speaker 10: Japan from rare earth exports because they got into an
Speaker 10: argument about a fishing trawler. So we have seen minerals
Speaker 10: and even rare earths at the very beginning be weaponized
Speaker 10: over time. For US, it's a national security challenge because
Speaker 10: rare earths go into almost every form of defense technology,
Speaker 10: from fighter jets and warships to missiles and tanks.
Speaker 3: Gracelin, can we build the facilities here in the US
Speaker 3: that could process those rare earth so then the United
Speaker 3: States gains control over some of the.
Speaker 10: Share absolutely and we are building them. The problem is
Speaker 10: that none of these facilities come online overnight.
Speaker 1: So over the last five years.
Speaker 10: The Department of Defense, through something called the Defense Production Act,
Speaker 10: has given out over three hundred million dollars to build
Speaker 10: these facilities in Texas, in Canada, and for some rare ers,
Speaker 10: it'll be the first major facility outside of China.
Speaker 3: Canada that maybe five years ago that worked. We're not
Speaker 3: going to talk about that right now, but that made
Speaker 3: my ears perk up because of what's going on between
Speaker 3: the US and Canada right now.
Speaker 1: But can we produce enough and jo come on back
Speaker 1: in here enough in terms of to meet the demand
Speaker 1: that we need here in the US for things.
Speaker 9: Not right now? Yeah, I mean this is you know
Speaker 9: where Gracelin's getting at here is very similar to the
Speaker 9: story of steel and copper and like all these other
Speaker 9: things anything manufacturing right like this is the approach of
Speaker 9: the Trump administration is bring all manufacturing back to the
Speaker 9: United States of America. To maybe take a phrase from
Speaker 9: our president, sounds great, it doesn't work right like, you
Speaker 9: can do it, but as Grayson says, it's going to
Speaker 9: take you a while. I mean, MP materials is like
Speaker 9: the big critical minerals company in the United States. Yeah,
Speaker 9: and they're still shipping a significant amount of their rare
Speaker 9: earth pulled out of the ground to China to be processed. Yes,
Speaker 9: they're currently working on integrating everything and having their own processing,
Speaker 9: But you talk to anybody in the market and they're
Speaker 9: like that, even when they get fully scaled up to
Speaker 9: what they say they want to do, it's just not
Speaker 9: enough on.
Speaker 1: Their own graycelon. So it sounds like China has a
Speaker 1: great weapon in this trade war to get the US
Speaker 1: to maybe bend a little bit. Is that fair?
Speaker 10: Absolutely, So let's talk about the export restrictions that just
Speaker 10: came out this week. So they're not actually a ban.
Speaker 10: If you think about restrictions, you start with something that
Speaker 10: we call non automatic licensing, which means you have to
Speaker 10: apply to get a permit to be able to export
Speaker 10: the minerals. Then you have tariffs, you have quotas, those
Speaker 10: are your mid tier, and then you have a ban.
Speaker 10: What China did this week was the lightest form of restriction,
Speaker 10: for lack of a better word, is they put in
Speaker 10: the non automatic licensing. But if the trade war continues
Speaker 10: to accelerate, they can continue to tighten those restrictions and ultimately,
Speaker 10: because there are so few facilities that can give us
Speaker 10: the rarers that we need outside of China. That's going
Speaker 10: to undermine our national security. It's in things like semiconductors,
Speaker 10: so it's going to affect our economic security, and it's
Speaker 10: going to affect our energy security, given that they are
Speaker 10: in many forms of energy technology.
Speaker 1: So as your read on what China did by taking
Speaker 1: the easiest member measure and or the least punitive measure
Speaker 1: a strong diplomatic sign to the US that we're open
Speaker 1: to negotiating.
Speaker 10: I think it's a sign to both China and the US, Like, ultimately,
Speaker 10: these companies are all Chinese and cutting off exports altogether
Speaker 10: would be economically consequential to them. So it's a sign
Speaker 10: there that, look that there is room that we need
Speaker 10: to get ready, we need to buffer, you know, be
Speaker 10: ready for potential changes. But it is also assigned to
Speaker 10: the US that they didn't go all the way to
Speaker 10: the very end and ban exports immediately.
Speaker 3: Joe, how long in your view do you think the
Speaker 3: US will have to rely on China for processing?
Speaker 9: A long time?
Speaker 3: I mean I want to talk in one hand, counting.
Speaker 9: Or not anywhere in the New Yar term, and to
Speaker 9: jump off what Graceland just said, they didn't put an
Speaker 9: export ban or an export control on everything, Like the
Speaker 9: two most common rare earths are untouched by this.
Speaker 3: Right.
Speaker 9: So the way I've heard the subscribe from Graceland and
Speaker 9: from other people in the rare earth's space, right the
Speaker 9: critical mineral space is like Chinese policymakers are incredibly sharp.
Speaker 9: They know the score, they know what impacts what. And
Speaker 9: when this came out, initially people in the market were saying, oh, whoa, okay,
Speaker 9: they're going to restrict these you know, seven or so
Speaker 9: rare earth critical minerals. But then what they started realizing was,
Speaker 9: oh my gosh, this includes like actual magnets, this also
Speaker 9: includes actual products that are shipped to the United Sts dates.
Speaker 9: And that's when, especially in the defense community, people were
Speaker 9: calling up and saying, whoa hold on? This is an
Speaker 9: interesting shot across the bout because you might remember gallium
Speaker 9: and Germanium had export controls put on back in the fall,
Speaker 9: and that was like a follow up to prior year
Speaker 9: where China had said they were looking at it. I mean,
Speaker 9: we had reporting a year ago that said when the
Speaker 9: gallium Germanium shot came from China. That was the panic
Speaker 9: button that went off across the DOE, the DoD and
Speaker 9: all the other departments. So we had one very high
Speaker 9: senior White House official who told us that was the
Speaker 9: moment when everybody finally got it and understood how serious
Speaker 9: this was. And that was under the Biden administration. So
Speaker 9: this isn't new right like China. It is my point
Speaker 9: of they know the score, which is they'll roll out
Speaker 9: something here, they'll roll out something there, and it's it's
Speaker 9: a warning sign, right. It's like, hey, we're doing this,
Speaker 9: and we're making the people that matter most realize it first.
Speaker 3: And contextualize this for us because in the negotiations between
Speaker 3: the US and China, which do not exist right now,
Speaker 3: but we'll ostensibly have to exist when it comes to
Speaker 3: resolving this trade war. That's the whole idea here. How
Speaker 3: important is the card of rare earth.
Speaker 10: Rare earth will be important, minerals will be important. If
Speaker 10: we take a step back, and you know, with Joe
Speaker 10: Is said as how this is escalated. Even from the
Speaker 10: previous administration of germanium gallium antimony was banned in the fall,
Speaker 10: we saw tungsten came at the start of this year,
Speaker 10: is that we.
Speaker 1: Are actually vulnerable.
Speaker 10: You know, we kind of sometimes throw all minerals into
Speaker 10: rare earths or rares into minerals, but when I go
Speaker 10: beyond rare earth, we're getting increasing restrictions coming out and
Speaker 10: all of these commodities that we're being hit by or
Speaker 10: ones that we often don't have alternate supply of, but
Speaker 10: we may have limited stockpiles of and that we need
Speaker 10: for our fundamental security. So expect to see minerals, I think,
Speaker 10: feature very strongly in the conversation, including raarers, because of
Speaker 10: the fact that we are dependent on China for close
Speaker 10: to two dozen critical minerals.
Speaker 1: All right, So final thoughts here, just got about a minute,
Speaker 1: minute and a half here left. So Joe, I don't know.
Speaker 1: I guess to watch the negotiations between US and China,
Speaker 1: right and what they say specifically in this area. This
Speaker 1: is a really really important sign in terms of what's happening.
Speaker 9: Yeah, we've all focused on tariffs for the past week,
Speaker 9: and for the past two or three days, we've really
Speaker 9: focused on the China terraffs because everything else apparently is
Speaker 9: on pause. One hundred and twenty five percent or whatever
Speaker 9: the latest number is, right, and what we've seen from
Speaker 9: China in this context, the rare earth of what they've
Speaker 9: done is they have different tools to respond to punitive
Speaker 9: terriffs from the President of the United States, because on
Speaker 9: some level, when you're just saying one hundred and twenty
Speaker 9: five percent tariff on all imports coming from your country,
Speaker 9: it's like the market's like, well, what does that actually mean?
Speaker 9: Right in China's response, they come back in very specific ways,
Speaker 9: and this is one of them.
Speaker 1: Very just I get it, target it right.
Speaker 9: So like, great, you hit us with a big, big tariff,
Speaker 9: guess what we're going to do this this one very
Speaker 9: specifically here, and maybe initially nobody in the market notices it,
Speaker 9: but people like Graceland and others are like, whoa, hey,
Speaker 9: let's take a look at this.
Speaker 3: That's Bloomberg News Medals and Mining reporter Joe Doe and
Speaker 3: Graceland Baskrin, director of the Critical Minerals Security Program at
Speaker 3: the Center for Strategic and International Studies.
Speaker 1: I think it's really interesting everybody's once again talking about
Speaker 1: where earth minerals although as do you like to say,
Speaker 1: not so over here? Yeah, But the point is that,
Speaker 1: right that we heard from our conversation that they're found
Speaker 1: in kind of small batches, and that's why it makes
Speaker 1: it a little bit complicated and so much in terms of
Speaker 1: I guess the refining is happening over in China, but
Speaker 1: there could be some very significant implications.
Speaker 3: Yeah, there could. I mean, as Graceland told us in
Speaker 3: our conversation with her, Japan was kind of ready for
Speaker 3: this because of this territorial dispute that they had like
Speaker 3: twenty eleven ish, So they now have this one year
Speaker 3: stockpile of what they consider critical.
Speaker 1: Right.
Speaker 3: We don't have that here. Companies here don't have that.
Speaker 3: And in fact, Graceland and her organization on Monday came
Speaker 3: out with this new report and it answers the question
Speaker 3: about filling a gap in a shortfall, and she basically
Speaker 3: says no, there's no separation of rare earth happening right now.
Speaker 2: In the United States, you're listening to the Bloomberg Business
Speaker 2: Weekdaily Podcast. Catch us live weekday afternoons from two to
Speaker 2: five pm Eastern Listen on Apple CarPlay and Android Auto
Speaker 2: with the Bloomberg Business app, or watch us live on YouTube.
Speaker 1: We continue to focus on news out of Washington, DC,
Speaker 1: the explosion and changing of tariff terms have led to
Speaker 1: a lot of volatility in global financial markets and questions
Speaker 1: about the global outlook.
Speaker 3: It also risks adding to the inflation concerns here in
Speaker 3: the United States. Bottom line, it's a tough environment. As
Speaker 3: we heard this past week from Golden and Sachs CEO
Speaker 3: David Solomon on his earnings call with analysts.
Speaker 7: This uncertainty around the path forward and fears over the
Speaker 7: potentially escalating effects of the trade war have created material
Speaker 7: risks to the US and global economy. We are encouraged
Speaker 7: by the administration's recent actions to pursue a more gradual
Speaker 7: policy process that allows for considered negotiations with many countries,
Speaker 7: but how policies will evolve is still unknown.
Speaker 1: Of course, that was Goldbn's CEO David Solomon. Unknowns uncertainties
Speaker 1: not easy, any of it for the Fed to determine
Speaker 1: monetary policy going forward. And as Bloomberg's Christine Harper writes
Speaker 1: in a Bloomberg opinion piece looking back at former Fetchair,
Speaker 1: Paul Volker's career could provide lessons for President Trump and
Speaker 1: his administration. Christine, by the way, is Bloomberg News editorial
Speaker 1: board member co author with Paul Volker, of the book
Speaker 1: about his life. It's entitled Keeping at It, The Quest
Speaker 1: for Sound Money and Good Government. Christine joins us here
Speaker 1: in studio. I said, when you walked in, we've been
Speaker 1: thinking about you a lot, because we've talked about Paul
Speaker 1: Volker before with you in kind of stressful times and
Speaker 1: certainly these higher infleetionary times. Paul Volker, you write about
Speaker 1: two episodes during his life that are important. One takes
Speaker 1: us back to the administration of Richard Nixon in nineteen
Speaker 1: seventy one. Go there with us.
Speaker 11: Yeah, So he was part of he was a younger
Speaker 11: member of the Nixon administration. He was Under Secretary of
Speaker 11: Monetary Affairs, which he actually remembers as being one of
Speaker 11: the greatest job in the world.
Speaker 1: He loved it.
Speaker 11: But at that time, the US had this unsustainable requirement
Speaker 11: that it honored this thirty five dollars per ounce price
Speaker 11: for gold. And at that point, after decades of overseas
Speaker 11: spending of dollars on the Marshall Plan and various investments
Speaker 11: overseas countries abroad had so many dollars that everybody kind
Speaker 11: of knew there wasn't really enough gold to back at all.
Speaker 11: And so it was up to the Nixon administration to
Speaker 11: sort of admit that and come out with an announcement,
Speaker 11: and it was a unilateral declaration on a Sunday night
Speaker 11: in August in nineteen seventy one. Vulgar was very involved
Speaker 11: in a whole weekend of talks about it at Camp David.
Speaker 11: In the lead up. Everybody was surprised. It was known
Speaker 11: as the Nixon Shock, and they they recognized that suddenly
Speaker 11: taking the value of gold off of any kind of
Speaker 11: anchor meant that there could be just chaos and the
Speaker 11: value of the dollar could plummet. So they put on
Speaker 11: all these wage and price controls at the same time,
Speaker 11: they created tariffs. They tried to do all these things
Speaker 11: to manage the fallout, and also Vulker was immediately sent
Speaker 11: overseas to start talking to the financial leaders of every
Speaker 11: country major country.
Speaker 1: An extensive plan.
Speaker 11: There was an extensive plan to be sure. They weren't perfect.
Speaker 11: They did some crazy things, and they had this Treasury
Speaker 11: secretary at the time, John Connolly, who only lasted for
Speaker 11: eighteen months under Nixon, who was a sort of Texas character,
Speaker 11: and he he was a little nuts. But then George
Speaker 11: Schultz came along and they had a much more focused
Speaker 11: sort of way of dealing with it. So it wasn't perfect,
Speaker 11: but it was compared to what we're seeing with Trump
Speaker 11: and these tariffs. It was there was a rationale to
Speaker 11: it that everybody could understand. There was real economic thinking
Speaker 11: behind it.
Speaker 3: So that was nineteen seventy one. Fast forward to nineteen
Speaker 3: seventy nine when Vulker becomes Jimmy Carter's fed chair. Fed chair.
Speaker 11: Yeah, because the result of having no anchor to the
Speaker 11: dollar was that there was inflation. I mean, there were
Speaker 11: other reasons for the inflation and for the problems, but
Speaker 11: you know, the value of the dollar was thinking inflation
Speaker 11: was incredibly high. It was it was destroying the American economy,
Speaker 11: and so Jimmy Carter brought in Paul Vulker, even though
Speaker 11: Vulker told him before he when he sort of was
Speaker 11: talked to for the job, I'm going to do whatever
Speaker 11: it takes to kill inflation. That might mean to higher
Speaker 11: interest rates, it could be really bad for the economy,
Speaker 11: and Jimmy Carter chose him anyway. So it pretty much
Speaker 11: was one of the factors that say Jimmy Carter's reelection
Speaker 11: because the economy got really it was really tough, but
Speaker 11: it was successful bringing down inflation, and the sort of
Speaker 11: vulgar commitment to price stability right was so powerful, and
Speaker 11: so you know, the integrity he had in pursuing that
Speaker 11: aim was so completely believable that from then on, instead
Speaker 11: of the gold standard, the dollar was known as being
Speaker 11: on the vulgar standard.
Speaker 1: It's pretty wild. I mean, are we in the process
Speaker 1: of kind of losing that concept and idea.
Speaker 11: So that was sort of the point I was making
Speaker 11: in my piece was that, you know, really what the
Speaker 11: vulgar standard amounts to is this belief that there are
Speaker 11: public servants in America, whether they're you know, appointed or
Speaker 11: political or civil servants, but who are going to do
Speaker 11: what's right for America and make sure there's price stability
Speaker 11: and make sure there's sort of economic rationale behind things.
Speaker 11: Of course, it's not always been perfect. There have been mistakes,
Speaker 11: but when there are crises, you see over and over
Speaker 11: again these political figures will sort of retreat to the
Speaker 11: background and let experts like you know, when George Bush
Speaker 11: was dealing with the financial crisis, it was really Hank
Speaker 11: Paulson and Bernanki who were handling it for America but
Speaker 11: Butch wasn't kind of you know, back then there wasn't
Speaker 11: so much tweeting, but he wasn't like getting in the
Speaker 11: middle of it so much. And and you know, even
Speaker 11: when Bill Clinton was dealing with, you know, the bond
Speaker 11: market turmoil at the beginning of his you know, he
Speaker 11: recognized that Bob Rubin had more expertise. And so we've
Speaker 11: had presidents that listened to economic experts. This feels different
Speaker 11: because really a lot of anybody who looks at what
Speaker 11: the administration put out has immediately mocked the you.
Speaker 1: Know confidence certainly in the United States, right and.
Speaker 11: The yeah, and I mean when they saw the the
Speaker 11: formula that was used to justify the tariffs, I mean,
Speaker 11: none of it makes sense. The various explanations coming out
Speaker 11: from the administrations contradict each other. So even if you
Speaker 11: think that the general idea of being presenting a new
Speaker 11: trade order in the world makes sense, the way they're
Speaker 11: going about it is so haphazard that, you know, as
Speaker 11: David Solomon was saying, like nobody knows what's happening, and
Speaker 11: it's very hard to make any sort of forward planning.
Speaker 3: As Carol mentioned, we're seeing this hit consumer confidence. Yeah,
Speaker 3: you know, going into this term, a question that we
Speaker 3: asked a lot of our guests, Christine, was do we
Speaker 3: see maybe the markets, the bond market or the equity
Speaker 3: market or both become checks to what the president is doing,
Speaker 3: at least when it comes to his economic agenda. In
Speaker 3: your view, did we see that happen last week?
Speaker 11: Well, I'm not an expert on what's making the administration
Speaker 11: do anything, but.
Speaker 3: I don't think anybody is except for the president.
Speaker 11: I've just seen the reporting saying that Trump said, you
Speaker 11: know that the bond market was getting a little queasy
Speaker 11: or whatever words he used about guardrails here. Yeah, I
Speaker 11: mean the borrowing costs of the United States government is
Speaker 11: a huge guardrail. I mean, none of the administration policies
Speaker 11: are going to succeed if suddenly we're paying a huge
Speaker 11: amount more in interest every year. So you know, you
Speaker 11: can cut as many federal jobs as you want, you
Speaker 11: can cut all the services from the federal government. But
Speaker 11: if we're if all that you know, savings is you know,
Speaker 11: overtaken by having to pay more on interest on our debt.
Speaker 11: I don't know where where that's getting us.
Speaker 1: What do you think the president could do in terms
Speaker 1: of you know, or he and his key economic advisors
Speaker 1: to maintain the confidence in the US by citizens of
Speaker 1: the US and also the global world. Well, based on
Speaker 1: what well.
Speaker 11: I think, you know, it does seem that a more
Speaker 11: consistent approach would be helpful. If that's what you hear
Speaker 11: from business leaders, that's what you hear from foreign leaders.
Speaker 11: They want to understand what the aims are here. They
Speaker 11: want to clear path forward and you know, not a
Speaker 11: daily change in the in the tariff regime and plans
Speaker 11: and you know, not sort of terroriffts by tweet that doesn't.
Speaker 1: Whether I want to ask you what if you think
Speaker 1: what if that's his aim is to just constantly upset
Speaker 1: people and keep them kind of on edge, whether it's
Speaker 1: global leaders, whether he definitely has shown a difference to
Speaker 1: the equity market, it's certainly the bond market that caught
Speaker 1: his attention. But what if that is his strategy? What
Speaker 1: could be as you think about you've covered so much
Speaker 1: in terms of crises and just made off crypto like
Speaker 1: just so many things your purview, How do you like,
Speaker 1: how how are we thinking about kind of the US
Speaker 1: as an economic and financial.
Speaker 11: Might Yeah, I mean the US is sort of based
Speaker 11: on this idea that you can your money is safe
Speaker 11: lending to the US government. And if we have a
Speaker 11: policy that nobody understands or trusts and seems all to
Speaker 11: be designed to satisfy the whims of one person, it's
Speaker 11: going to be harder and harder for us to maintain that,
Speaker 11: and that would be really damaging for Americans. So ideally,
Speaker 11: what would be good to see you, to say, back
Speaker 11: to your question, is for you know, the president to
Speaker 11: start listening to some of his I mean, it does
Speaker 11: sound like Treasury Secretary of Scott Pisens taking sort of
Speaker 11: the on the lead on this. The markets certainly trust
Speaker 11: him a bit more. He's talked a lot more about it,
Speaker 11: kind of a gradual approach, and so, you know, I
Speaker 11: think there's hope. That's why markets seem to be a
Speaker 11: little quieter today that you know, maybe some reason will prevail.
Speaker 11: It's but I mean, the president is very impulsive and
Speaker 11: so it's it's very hard to know what will really happen.
Speaker 3: Yeah, what are potential long term risks in your view
Speaker 3: if during this administration the US moves away from this
Speaker 3: vulgar standard, right, does that have ramifications beyond the selection?
Speaker 5: Well?
Speaker 11: Sure, I mean, I think what you see is that
Speaker 11: the borrowing costs of the US go up because you know,
Speaker 11: people whether it's American citizens or people overseas, just start
Speaker 11: putting their money, the money that they want to make
Speaker 11: sure is there no matter what, They're not necessarily going
Speaker 11: to put it in treasuries or or all of it
Speaker 11: in treasuries. They might start finding other places. That's good
Speaker 11: for you know, other countries and their debt or other markets,
Speaker 11: but it's bad for the US borrowing. And you know,
Speaker 11: you just see inflation cause because you'll have higher costs
Speaker 11: for Americans having to try to buy things overseas. I
Speaker 11: think there's just all these privileges Americans have gotten used
Speaker 11: to knowing that the dollar was sort of needed by
Speaker 11: everybody in the world and sought sought after, and the
Speaker 11: same with you know, US treasuries is at risk, I think,
Speaker 11: I mean, it's not going to go away immediately, but
Speaker 11: we've taken it for granted for a long time.
Speaker 1: Phil like J. Powell could find himself in a really
Speaker 1: complicated right in terms of if tavis make things more
Speaker 1: expensive and there's more inflation pressures in what could be
Speaker 1: potentially a slow in growth environment. Yeah, that's tricky.
Speaker 11: Yeah, I mean you saw that in the seventies after
Speaker 11: the Nixon chaka you So basically these bouts of stagflation
Speaker 11: and it was really hard. I mean the FED at
Speaker 11: the time wasn't able to deal with the inflation. They
Speaker 11: were too concerned about the slow growth and they you know,
Speaker 11: basically Arthur Burns, that FED German at the time, was
Speaker 11: a close political ally of Richard Dixon, and many people
Speaker 11: believe he just let inflation, you know, happen because he
Speaker 11: wanted to make sure Nixon could get re elected and
Speaker 11: that turned out to be a really big problem for
Speaker 11: the US economy.
Speaker 1: Twenty five seconds. If Paul Volker was here, what would
Speaker 1: you want to ask him about this environment? Just quickly? Well,
Speaker 1: I know he would.
Speaker 11: I mean, at the big point he wanted to make
Speaker 11: in the book was the importance of competent government. It
Speaker 11: was a true public servit right, Yeah, And so he
Speaker 11: realized sort of like the big takeaway at the end
Speaker 11: of his life was we need to have good, well
Speaker 11: trained people staffing the US government. So I think he
Speaker 11: would be really upset at all the ways we're treating
Speaker 11: federal workers.
Speaker 3: Christine Harper is Bloomberg News editorial board member and the
Speaker 3: co author with Paul Vulker, of the book about his life.
Speaker 3: It's called Keeping at It, The Quest for Sound Money
Speaker 3: and Good Government.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
Speaker 2: each weekday starting at two pm Eastern on Apple car
Speaker 2: Play and the Android Auto with the Bloomberg Business App.
Speaker 2: You can also listen live on Amazon Alexa from our
Speaker 2: flagship New York station, Just Say Alexa played Bloomberg eleven.
Speaker 1: Thirty following our list of fifty companies to watch. We
Speaker 1: talked about that back in January. Here are ten names
Speaker 1: you should know for better or worse. Specifically for the
Speaker 1: second quarter, Bloomberg Intelligence Alice have dug into their scenarios
Speaker 1: to identify the most interesting companies. Tim from a larger
Speaker 1: group of high confidence focus ideas.
Speaker 3: Biscuits, handbags, chatbots. I'm just going to say to share
Speaker 3: the names that made the grade with us. As Tim Craighead,
Speaker 3: he's Bloomberg Intelligence Senior European Strategists's director of Research Content.
Speaker 3: He joins us from London. Check out this story at
Speaker 3: Bloomberg dot com Slash business Week, also, of course, on
Speaker 3: the Bloomberg terminal. First up before we get to the handbags,
Speaker 3: the biscuits and the chatbots. Remind us how you continue
Speaker 3: to come up with the lists of stocks and companies
Speaker 3: to watch. How do you get there? What's the process?
Speaker 8: Now? Great to be on with you. It's all about
Speaker 8: our focus ideas. These are high conviction, fundamental calls that
Speaker 8: we think are different from what the market is thinking discounting.
Speaker 8: And there's catalyst a head that we think will turn
Speaker 8: the market's mindset towards ours. And in this instance, the
Speaker 8: catalyst the triggers that we're thinking about are all coming
Speaker 8: up in the second quarter. So that's how the list
Speaker 8: comes together.
Speaker 1: And what I have to say, we always look forward
Speaker 1: to it, Tim, because you guys really do do the
Speaker 1: homework and the research. But it's not just buy this
Speaker 1: company or not that you're saying by or sell. But
Speaker 1: it's not like, okay, this is just all good news.
Speaker 1: You also are like, here's some concerns and here's why
Speaker 1: this one there might be some clouds over it.
Speaker 8: Absolutely, and these are solid fundamental calls. Investors are going
Speaker 8: to make up their own mind of buying or selling.
Speaker 8: What we're looking for is where there's a disconnect in
Speaker 8: terms of what the market is thinking about relative to
Speaker 8: what we think is going on. And you're right with
Speaker 8: this list of ten and there's three of them, so
Speaker 8: thirty percent where we've got concerns.
Speaker 3: Indeed, so not a lot has changed, but quite a
Speaker 3: bit has changed, I'll say, in the past couple of
Speaker 3: months since you first came up with that list of fifty, what.
Speaker 1: Like, we've talked about tariffs or some TARIFFSIPC, those sorts
Speaker 1: of things.
Speaker 3: So how did you take those things into account when
Speaker 3: coming up with this list or even when doing the
Speaker 3: analysis that brought us these names.
Speaker 8: Well, certainly there are some that have nothing to do
Speaker 8: with those those key headlines, and we can get to those.
Speaker 8: But certainly those issues of tariffs, US policies that are
Speaker 8: being put into place, as well as deep seek and
Speaker 8: how that's changing the tenor of AI have fed into
Speaker 8: certain elements here. So to take the tariff issue, either
Speaker 8: one of you, certainly listeners have shopped on Timu in
Speaker 8: the States and beyond ultra low priced e commerce platform. Well,
Speaker 8: that's owned by a company called PDD and it's Chinese.
Speaker 8: It's one of the big Chinese tech companies, and they're
Speaker 8: going to be impacted by whatever constraints continue to coalesce
Speaker 8: around tariffs. At the same time, they're also looking to
Speaker 8: expand TIMU beyond the US, and that's a lot of
Speaker 8: money that's being spent. We think that there's margin erosion
Speaker 8: that's going to happen here and different, but sticking in
Speaker 8: the low priced retail front. But brick and mortar, Doalarrama
Speaker 8: is a Canadian dollar store.
Speaker 3: Okay, this is one we never heard of. Full disclosure.
Speaker 8: Yeah, fair enough. Well you're not very well. You know,
Speaker 8: you're one of the Americans who's not saying you're a
Speaker 8: Canadian at this point. I suppose. So you've got Dollar
Speaker 8: Rama that it's estimates, it's earnings expectations if held up.
Speaker 8: But Dollar Tree, dollar stores, others have seen some cuts
Speaker 8: and we think be it with slowing wage growth, inflation
Speaker 8: picking up issues from the standpoint of trade policies, that
Speaker 8: you're going to see estimate erosion with Dollarrama. You mentioned
Speaker 8: it in just a moment ago. Tesla doing relatively well
Speaker 8: versus the other auto companies. It's arguably one of the
Speaker 8: best placed companies when it comes to getting through navigating
Speaker 8: the tariff issues. But beyond that, there's a new model.
Speaker 8: Why that's starting to ramp up and you'll see sales
Speaker 8: we think, start to accelerate through the second quarter. And
Speaker 8: nobody's paying an attention to the battery storage business that
Speaker 8: they've got, which is a really big business. We think
Speaker 8: that's going to grow into the utility space. Those all
Speaker 8: sort of revolve around the Tarif issue and not to
Speaker 8: keep going here, but AI Deep Seek all of that's
Speaker 8: a big focus. We have a lot of companies on
Speaker 8: the fifty to watch for the year, but teleperformance is
Speaker 8: a new idea for us. And this is a call center.
Speaker 8: This is old school you know who do you get
Speaker 8: the phone call from? Related to whatever?
Speaker 1: Alright, hang up on wait, no, no.
Speaker 8: No, no. This is actually one of the world's largest
Speaker 8: call centers. It's based in France. We've got you know,
Speaker 8: operations everywhere. But we think they're going to get efficiencies
Speaker 8: from AI. Think about being a call center person and
Speaker 8: how much better you're going to be with the information
Speaker 8: that AI is going to be able to generate for
Speaker 8: you as you're making your next phone call or you know,
Speaker 8: the phone calls coming in. From a customer service perspective,
Speaker 8: we think it's an opportunity be it every bud he's
Speaker 8: thinking if you look at the stock and the earnings estimates,
Speaker 8: that this company isn't a bad shape.
Speaker 1: Tim When you do these lists, you guys also get
Speaker 1: into often management change and restructuring opportunities, and you have
Speaker 1: a couple of companies along those lines as well.
Speaker 8: We do think along the lines of driving on your
Speaker 8: vacation as you start to think about the summer and
Speaker 8: you're on the highway going south and you take a
Speaker 8: break and you go to a cracker barrel. Have either
Speaker 8: one of you all done that?
Speaker 3: Not many, many years? I have many.
Speaker 1: I think I have family tips like it's.
Speaker 3: So regional in the US though, yeah it is.
Speaker 8: But they've suffered three years of earnings expectation cuts. There's
Speaker 8: not many positive opinions on Wall Street. But we see
Speaker 8: a wholesale change here, menu revamp, services, and the way
Speaker 8: that they're dealing with their employees has been revamp. We
Speaker 8: see a revival and earnings changing. And the same thing
Speaker 8: at a very different scale could be said about Caring.
Speaker 8: This is a luxury goods company. You know, the biggest
Speaker 8: brand that they have is Gucci, and again they've suffered
Speaker 8: three years of earnings estimate cuts and we think that
Speaker 8: with a new CEO at Gucci, a new head of design,
Speaker 8: that there's rejuvenation at the brand that's gonna start to
Speaker 8: show through. And second quarter is gonna be quite critical.
Speaker 7: All right.
Speaker 1: So along with Europe, China is another stock market that's
Speaker 1: garnering a lot of attention right now. We have talked
Speaker 1: so much about Europe and opportunities versus the United States,
Speaker 1: but let's talk to China. What's geared to Beijing's stimulus
Speaker 1: measures and who might benefit as a result.
Speaker 8: We think that this is a big deal. It's interesting.
Speaker 8: I was in our Hong Kong office back about six
Speaker 8: months ago and there was a lot of discussion about
Speaker 8: ABC anything but China. That's now shifted. I was back
Speaker 8: about three or four weeks ago, and it's now it's
Speaker 8: the ABC. But it's like all of word China, and
Speaker 8: Beijing is indeed putting through more stimulus measures. They're trying
Speaker 8: to be proactive about how to deal with the tariffs,
Speaker 8: but they know they have to deal with their own
Speaker 8: problems about demographics and the policies and the property crisis,
Speaker 8: and with a lot of stimulus measures, this is now
Speaker 8: starting to show evidence of the turnaround, and with that,
Speaker 8: you've got more interested in the stock market. And the
Speaker 8: way that global investors are getting into Chinese stocks is
Speaker 8: through the Hong Kong Stock Exchange. With a number of
Speaker 8: overseas programs. IPOs are starting to come back to life.
Speaker 8: We think Hong Kong Stock Exchange is going to see
Speaker 8: positive estomer revisions. At the same time, Beijing is lowering
Speaker 8: interest rates, and with lower interest rates, that can pressure
Speaker 8: earnings estimates for banks because you've got lower interest coming through,
Speaker 8: and we think that there's a net interest margin or
Speaker 8: profit margin erosion that's going to hit companies like the
Speaker 8: Agricultural Bank of China ag Bank, along with a couple
Speaker 8: of the other big state owned enterprise banking companies. So
Speaker 8: that's that's a negative, notwithstanding the positive view we have
Speaker 8: on China turning things around.
Speaker 3: Well on that and these are not two names that
Speaker 3: are on this list, but Tesla's and you spoke about
Speaker 3: that a little bit by d M. Shall me. I
Speaker 3: don't know if Americans fully understand and grasps the innovations
Speaker 3: being made in the vehicles coming from those companies.
Speaker 8: It is amazing. We did a report and if you've
Speaker 8: got a terminal. You can find these own a bi
Speaker 8: space Deep Deep Deep Ive reports. One on Made in
Speaker 8: China twenty twenty five and what this looked at was
Speaker 8: some in depth analysis on the industrial policy that Beijing
Speaker 8: and put in in twenty fifteen to drive innovation across
Speaker 8: a whole host of industries. One of those industries was
Speaker 8: autos with a focus on moving towards electrification and BYD
Speaker 8: is the poster child. And if you don't know, BYD
Speaker 8: actually stands for build your Dream and the technology that
Speaker 8: they are now putting into their cars is second to none,
Speaker 8: and the price points are quite compelling. They just announced
Speaker 8: a charging device that are charging infrastructure that allows you
Speaker 8: to get a full charge in five minutes.
Speaker 1: That's quick.
Speaker 8: That's quicker than a that's quicker than a gas than
Speaker 8: they pumping gas in your car. It's pretty cool.
Speaker 1: Listen, always always love going through these lists with you
Speaker 1: and love when you guys have an update or new list.
Speaker 1: We should point out too, there's a couple of healthcare
Speaker 1: companies where innovation is the theme, and so we highly
Speaker 1: recommend everybody check out the complete story and the complete
Speaker 1: list of companies. You can read it on the Bloomberg
Speaker 1: and at Bloomberg dot com slash BusinessWeek.
Speaker 3: That's Tim craighead of Bloomberg Intelligence, on the companies that
Speaker 3: you need to watch.
Speaker 1: Yeah, I think it's kind of interesting. We should point out.
Speaker 1: We reminded everybody that we talked to Tim a few
Speaker 1: weeks ago. It is in the current issue at Bloomberg
Speaker 1: BusinessWeek magazine that you can catch on the terminal at
Speaker 1: Bloomberg dot com slash business Week and of course on newstands.
Speaker 1: But you know, these are things that they lay out.
Speaker 1: They look at fundamentals, and he was standing by, you know,
Speaker 1: certainly this list, and I think about Tesla on it
Speaker 1: because you know, slumping below fifty percent share of California
Speaker 1: electric car market. I feel like every day there are
Speaker 1: some headlines talking about the challenges at Tesla.
Speaker 3: Tim, you want to talk about Tesla, I want to
Speaker 3: talk about cracker Barrel. That's good.
Speaker 1: You're always hungry, it is.
Speaker 3: Actually, don't I don't. I think I went once in
Speaker 3: college and I don't think i've been since.
Speaker 1: You kind of go when you have to always, I
Speaker 1: always going like out a road trip.
Speaker 3: Well, yeah, exactly when we were talking to Tim, I
Speaker 3: was looking up on the map. I was like, where
Speaker 3: are these things? Anyway? There actually are some in New Jersey, Carrol.
Speaker 1: Anyway, check out the list, folks, it's really interesting. If
Speaker 1: you want to get the complete one, as we said,
Speaker 1: you can find it on Bloomberg and at Bloomberg dot Com.
Speaker 2: You're listening to the Bloomberg Business Weekdaily podcast. Catch US
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch US live on YouTube.
Speaker 1: President Trump escalated his administration's fight with Harvard University by
Speaker 1: threatening its tax exempt status after the school defied the
Speaker 1: government's demands to change its policies in exchange for billions
Speaker 1: of dollars of federal funding. And we should point out
Speaker 1: Harvard is fighting back.
Speaker 3: And you'll recall that a bit less than a month ago,
Speaker 3: President Trump said that the Education Department's one point six
Speaker 3: trillion dollars student loan portfolio would be handled by the
Speaker 3: Small Business Administration. The move coming amid worries that his
Speaker 3: efforts to overhaul the federal government could reduce programs and services.
Speaker 1: Well, we've got a great pair of voices to talk higher.
Speaker 1: Ed Janet Lauren is higher education finance reporter for Bloomberg News,
Speaker 1: and Gillian Berman is Assistant Managing editor News and Enterprise
Speaker 1: over at MarketWatch. She's also the author of a new book,
Speaker 1: Sunk Cost, Who's to Blame for the Nation's broken student
Speaker 1: loan system? And How to Fix It?
Speaker 3: Janet, do you want to start with you and Harvard?
Speaker 3: Because I think it's fair to say shots fired.
Speaker 12: Yes, for sure. Harvard released a letter that was sent
Speaker 12: to it last Friday by the government by a multitask force,
Speaker 12: multi agency task force, sort of stepping up their demands
Speaker 12: if they want to continue their flow of billions of
Speaker 12: dollars in federal research funding. They released that letter along
Speaker 12: with one from two law firms, saying they were not
Speaker 12: going to accept their demands and said there were certain
Speaker 12: lines that they could not cross in terms of academic freedom.
Speaker 12: They had a whole list of things such as the
Speaker 12: government wanted to curbs on doing things and admissions and
Speaker 12: governance and hiring in lots of things. And they said no.
Speaker 12: And a couple of hours later, the federal government said
Speaker 12: we're freezing two point two billion dollars in loans.
Speaker 1: I'm sorry, in grants.
Speaker 12: It's a big deal. And it's a lot of money.
Speaker 12: And you say, well, but they have a fifty three
Speaker 12: billion dollar endowment, why can't they spend it? Well, seventy
Speaker 12: percent of it is restricted and it isn't a bank account.
Speaker 12: But certainly you know they have some liquidity. You know,
Speaker 12: they have a one point five billion dollar line of credit.
Speaker 12: We saw last week they issued bonds of seven hundred
Speaker 12: and fifty million dollars. But it is a lot of
Speaker 12: money because eleven percent of their entire budget comes from
Speaker 12: the federal government in these research grants.
Speaker 1: I got to say, when we tak higher education, there's
Speaker 1: just a lot of money either way you look at
Speaker 1: and now someone like Harvard has a huge endowment, which
Speaker 1: gives it an incredible cushion. Having said that, I want
Speaker 1: to pull out a little bit and talk about the
Speaker 1: money that is in higher education. We all remember, is
Speaker 1: it ten fifteen years ago that headline that came across
Speaker 1: that said college debt was higher than credit card debt,
Speaker 1: And we all stopped and be like, how did we
Speaker 1: get here? Jillian, come on in on that starry story.
Speaker 1: This is what you get into because I think we
Speaker 1: spend so much time, how did we get to this point?
Speaker 1: How did we.
Speaker 13: Yeah, so, you know, there there are several different factors,
Speaker 13: but that headline you talked talked about really came in
Speaker 13: the wake of the Great Recession, and that was a
Speaker 13: huge moment for the explosion in student debt. We saw
Speaker 13: states pull back from funding their public colleges, which means
Speaker 13: students and families had to take on more of that funding. Obviously,
Speaker 13: families didn't have as much money to tap themselves or
Speaker 13: equity in their homes. And then also because of the
Speaker 13: you know, the sort of loose labor market, students who
Speaker 13: graduated with this debt had trouble finding jobs that could
Speaker 13: help them repay it.
Speaker 7: So the Great.
Speaker 13: Recession was, you know, sort of a really big moment
Speaker 13: for student debts.
Speaker 3: It's a unique problem to the US, though, and this
Speaker 3: is something that doesn't have than in other countries. But
Speaker 3: at the same time, we also have the best one
Speaker 3: could say, we have among the best universities in the world,
Speaker 3: not every one of them, but certainly these are institutions
Speaker 3: that are recognized internationally. What is so different about the
Speaker 3: US system that allows something like this to happen.
Speaker 13: Yeah, So the way that we fund colleges in the
Speaker 13: US is largely through students, so you know, it's sort
Speaker 13: of like a voucher. The student decides where they want
Speaker 13: to take that government money. And a lot of other
Speaker 13: countries where you know, we think about having little student debt,
Speaker 13: the government is doing more direct funding of the schools themselves.
Speaker 13: And you know that design of the system here in
Speaker 13: the US that was on purpose. We like to have,
Speaker 13: you know, what we call like diversity of institutions and
Speaker 13: you know, sort of the ability for the market to
Speaker 13: play out.
Speaker 12: So in the Trump administration has said they're interested in,
Speaker 12: of course, shutting down the Education Department, which after two
Speaker 12: thousand and nine began just for single loans and now
Speaker 12: we're at a huge amount. I think it would be
Speaker 12: the fifth largest US bank in America. Is moving it
Speaker 12: away from the Education Department to another agency Trump a
Speaker 12: Small Business SBA. Would that be reasonable?
Speaker 13: It depends who you ask. I think, you know, the
Speaker 13: way there hasn't been much detail, first of all about
Speaker 13: that plan, but I think the way that they envision
Speaker 13: it is, you know, maybe moving some of the staff
Speaker 13: at the Department of Education that handles this stuff over
Speaker 13: to SBA. Even still, I think people who work on
Speaker 13: these things are are worried that it could cause a
Speaker 13: lot of disruption. We already have some evidence that the
Speaker 13: staff cuts have caused disruption for borrowers and for students
Speaker 13: as they try to access those funds. So I think
Speaker 13: it could post some challenges.
Speaker 3: You know, I kind of approach this differently now that
Speaker 3: I have kids, because now I need to save for college.
Speaker 1: I's going to cost you a million dollars a year?
Speaker 3: Well, that's just wondering. I mean, everybody's sitting around here
Speaker 3: does have to think about it.
Speaker 1: Funny but not funny.
Speaker 3: I know you're not done yet.
Speaker 1: No, I'm not done yet, because there's you know, it's
Speaker 1: we're also an environment where it's like okay, now go
Speaker 1: get the masters.
Speaker 3: You know, where I was in college, it was like okay,
Speaker 3: twenty in the twenties to thirty thousand dollars per year.
Speaker 3: Now we're at what carroll.
Speaker 12: Sixty seventy eighty d everything all in total cost of attendance.
Speaker 3: Yeah, you know, I was thinking that it couldn't get
Speaker 3: any more expensive, Jillian, but that obviously wasn't the case.
Speaker 3: The system has to break at some point.
Speaker 13: No, yeah, I mean people keep saying that, and we'll see.
Speaker 13: I think that some of the disruption, you know, caused
Speaker 13: by the cuts at the Department of Education, may you know,
Speaker 13: push some things in another direction. Also, you know a
Speaker 13: lot of people have done some reporting on how gen
Speaker 13: Z is really less interested in college and so you
Speaker 13: know that could put some enrollment pressure on these schools
Speaker 13: and force them to bring down the cost.
Speaker 1: How much fault do you put at universities and colleges
Speaker 1: where the price just seems to go up and up
Speaker 1: and up, and they're like, we've got to pay because
Speaker 1: it's for teachers, it's for facilities.
Speaker 3: XYZ deans and food college.
Speaker 1: That it has outpaced inflation many times over.
Speaker 13: Yeah, I mean, I think the argument that I take
Speaker 13: in the book is that in a lot of cases,
Speaker 13: the colleges are sort of like responding to incentives created
Speaker 13: by the system. So, I mean, one big example is
Speaker 13: if you talk about graduate school. In the mid two thousands,
Speaker 13: the government allowed for people to start borrowing up to
Speaker 13: the cost of attendance for graduate school, and then kind
Speaker 13: of shortly after that, the number of master's degree programs
Speaker 13: exploded at universities.
Speaker 1: And there's a financial like pipeline right exactly.
Speaker 13: Yeah, and at the time, like even Republican lawmakers, you know,
Speaker 13: didn't really think that much about the consequences of that decision,
Speaker 13: you know, and if you were to ask them now
Speaker 13: that that would be a no go.
Speaker 12: What about loan limits? Are those those that have been
Speaker 12: talked about. Certainly they're in place for undergraduates, but for
Speaker 12: for graduates students instead of up to the cost of attendance.
Speaker 12: What do you think would happen there?
Speaker 13: So that I think, you know, some congressional Republicans are
Speaker 13: interested in doing something like that. You know, I think
Speaker 13: in a lot of ways it makes sense. And then
Speaker 13: you know, of course there's other people who will tell you, well,
Speaker 13: if that happens, then you're going to be sending people
Speaker 13: to the private market where you know, often they're fear protection.
Speaker 13: So it's like a tricky, tricky balance.
Speaker 1: Or not as many will go to school, right or
Speaker 1: not as many we'll go to school, which which some
Speaker 1: have argued. You know, we all laugh about it, but
Speaker 1: it's not funny. But you know, you need a plumber,
Speaker 1: an electrician or somebody in the construction industry. There's like
Speaker 1: you're fighting for these people, and they all talk about
Speaker 1: it that there's nobody there to do these things and
Speaker 1: whether or not we go back to trades people. You know,
Speaker 1: that's another argument.
Speaker 13: Right right, exactly.
Speaker 3: Yeah, So, Jillian, we talk about this in the context
Speaker 3: of what's happening in Washington right now, and a lot
Speaker 3: has changed in this administration, and I we're at a
Speaker 3: point where I think it's fair to say that the
Speaker 3: Trump administration is in a combative stance with colleges and
Speaker 3: universities right now. How do you look at what's happening
Speaker 3: in Washington is really reshaping higher education in the US?
Speaker 13: Yeah, I mean, I think, you know, part of the
Speaker 13: reason that there's been some political will for the kind
Speaker 13: of stuff that the trum administration is doing is because
Speaker 13: of questions around the value of higher ed. You know,
Speaker 13: if people thought that they were getting their money's worth,
Speaker 13: it would be harder to attack these institutions. So, you know,
Speaker 13: I think it will raise some questions about you know,
Speaker 13: about that going forward.
Speaker 3: In your view, Janet, is it realistic to think that
Speaker 3: in an institution like Harvard, for example, could lose its
Speaker 3: tax exempt status.
Speaker 12: It's hard to predict anything these days, but what it
Speaker 12: do do an institution like Harvard, So Harvard doesn't pay
Speaker 12: property taxes? I mean, unless it's a business expense, like
Speaker 12: if they run a parking garage, they would pay taxes.
Speaker 12: They're able to issue tax exempt bonds. They do pay
Speaker 12: an endownment tex As of twenty seventeen. Their donors get
Speaker 12: a tax break. If you give money to Harvard, you
Speaker 12: get a tax break. So there's a lot of things,
Speaker 12: and especially going to the bond market. They just had
Speaker 12: taxable debt, but they do have the ability to have
Speaker 12: non tax exempt debt.
Speaker 1: So, Jillian, where do you see this going right, because
Speaker 1: it just feels like the velocity continues, the debt continues
Speaker 1: to grow, it continues to be a story we you know,
Speaker 1: talk about it, and it really is difficult on a
Speaker 1: younger generation who want to buy homes perhaps and have families,
Speaker 1: but they're stuck paying off their college loans and that
Speaker 1: has an economic impact.
Speaker 13: Unfortunately. You know, it seems like we may be stuck
Speaker 13: in the pattern that we're in for a while. You know,
Speaker 13: there's there's not a lot of political will to change
Speaker 13: the system that the people who have the power to
Speaker 13: do it really are Congress, and you know, part of
Speaker 13: the reason why we've had so many changes in policy
Speaker 13: and borrowers experience so much whiplash is because the executive
Speaker 13: branch has tried to do it, but you know, they
Speaker 13: only have so much power, so it just gets reversed
Speaker 13: the next time.
Speaker 1: Do you anticipate that more kids might go outside the
Speaker 1: United States for college and that that could at some
Speaker 1: point have an impact?
Speaker 7: Oh?
Speaker 13: Interesting, I you know, I don't know. That's definitely often
Speaker 13: abdicated as a as a cheaper option, So we'll see.
Speaker 3: Yeah, you know, it's talking though, as somebody recently, and
Speaker 3: even the schools outside the US are been that much
Speaker 3: less expensive.
Speaker 12: I was going to say, then you've got to pay
Speaker 12: for them to get overseas a plane ticket.
Speaker 3: Yeah, sounds like you've been thinking about this. Janet, Hey
Speaker 3: Jillian before we let you go. You know, if we're
Speaker 3: talking in five years, do you think this problem will
Speaker 3: have gotten better gotten worse?
Speaker 1: Will there be some cost? Part two?
Speaker 13: I think maybe unfortunately the way it's looking not better.
Speaker 3: Necessarily classes not half full in any way.
Speaker 13: Classes, I mean, I guess you know, you know what,
Speaker 13: there have been some states that have you know, really
Speaker 13: tried to invest more in helping their residents go to college.
Speaker 13: And we actually have seen evidence that the cost of
Speaker 13: public college on average is going down a little bit.
Speaker 13: So it's unclear if that trend's going to continue, but
Speaker 13: maybe it will.
Speaker 1: I remember was it Bloomberg who did the survey and
Speaker 1: they said or was it Jared Dillion? I don't know
Speaker 1: it was either, Like, unless it's Harvard or an ivy
Speaker 1: league that state schools increasing year.
Speaker 3: That's that's Jared's view.
Speaker 1: Basically, you get more bang for your back in terms
Speaker 1: of but I thought we did some.
Speaker 13: Research to Yeah, I think you guys, Yeah, had had
Speaker 13: a great piece about right, sort of the value of
Speaker 13: a lot of different public.
Speaker 1: Life, why the return on investment? Right, and in terms
Speaker 1: of like so maybe you know, people start to think
Speaker 1: more closely. Yeah, it's fascinating. I can't tell you how
Speaker 1: many times it comes up. And whenever we have anybody
Speaker 1: right from a college is like, why does it cost
Speaker 1: so much?
Speaker 12: They don't always have a great answer.
Speaker 3: Janet Lauren is higher education finance reporter for Bloomberg News,
Speaker 3: and Jillian Berman is Assistant Managing editor News and Enterprise
Speaker 3: at MarketWatch. She's also the author of a new book,
Speaker 3: Sunk Costs, Who's to Blame for the Nation's broken student
Speaker 3: loan system? And how to fix it.
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