WEBVTT - Surveillance: Tariffs Are Attacks On Importers, Roach Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:30.640 Bloomberg dot Com, and of course on the Bloomberg Let's 0:00:30.640 --> 0:00:32.960 bring It. Michael Purvis shout we Weed in chief, Global 0:00:33.000 --> 0:00:36.599 Strategistic Joints us on the phone. Good morning to Mr Purvis. Mike, 0:00:36.600 --> 0:00:39.400 what do your tann in clients this week? Well, I 0:00:39.440 --> 0:00:41.279 think you have to stand back for a second and 0:00:41.320 --> 0:00:43.400 take stock to the fact that Trump has never had 0:00:43.400 --> 0:00:45.880 a stronger hand in which to go at China. Was 0:00:45.960 --> 0:00:49.960 all right, he's got very stable approval ratings. He's got 0:00:49.960 --> 0:00:52.120 a market that just a week and a half ago 0:00:52.200 --> 0:00:56.240 was that fresh highs um. He has also very importantly, 0:00:56.800 --> 0:00:59.200 you know, six months ago we didn't have the Powell 0:00:59.280 --> 0:01:02.120 put and now he does, and he can leverage that. Right, 0:01:02.160 --> 0:01:04.160 So it's an asset that he that that Trump can 0:01:04.240 --> 0:01:08.760 leverage for his policy goals um and and arguably his 0:01:08.840 --> 0:01:11.880 political goals of of really trying to come away with 0:01:11.920 --> 0:01:14.679 a with a real deal in China. So so I 0:01:14.720 --> 0:01:16.840 think that the narrative going into this a week ago 0:01:16.880 --> 0:01:18.840 and said, oh, this is just a couple more tweets 0:01:18.880 --> 0:01:21.080 here and some of the usual back and forth, and 0:01:21.080 --> 0:01:24.160 we're on the sort of slow but steady resolution to trade. 0:01:24.319 --> 0:01:26.600 I think you have to take, uh, you know, just 0:01:26.640 --> 0:01:28.920 step back and realize that a Trump is going to 0:01:29.040 --> 0:01:33.919 push this part. Now's the time and is still far away. 0:01:33.920 --> 0:01:36.119 So can you have to ask yourself the question, can 0:01:36.160 --> 0:01:38.480 Trump a board a six percent drop in the market 0:01:38.520 --> 0:01:41.360 and a fix it stays in the twenties for a 0:01:41.360 --> 0:01:44.440 few weeks or maybe even higher. I would suggest to 0:01:44.440 --> 0:01:46.640 you that he can. Well, let's talk about that. The 0:01:46.680 --> 0:01:49.320 three areas of potential policy support that I hear so 0:01:49.400 --> 0:01:52.760 much from so many people on programs like this. Three puts. 0:01:52.760 --> 0:01:54.840 The pound put the Trump put, the Sheep put the 0:01:54.840 --> 0:01:57.480 pound put effectively being that the Fed will be reactive 0:01:57.520 --> 0:01:59.960 to time of financial conditions. The Trump put a fact 0:02:00.000 --> 0:02:02.880 of the bank that he has market sensitive policy preferences, 0:02:03.160 --> 0:02:05.720 and that she put essentially being that she and China 0:02:05.800 --> 0:02:09.200 is willing to offset risks with more stimulus. The reasons 0:02:09.240 --> 0:02:12.600 to doubt the deployment and all the effectiveness of all 0:02:12.680 --> 0:02:17.120 three of them, Well, you know, I think to a 0:02:17.120 --> 0:02:19.359 certain degree you can you can almost think that Trump 0:02:19.440 --> 0:02:21.639 might be for the moment sort of coloring the market, 0:02:21.680 --> 0:02:25.079 you know, um where there is some sort of Trump 0:02:25.280 --> 0:02:30.560 Trump trump put here. Um. The question is is we 0:02:30.600 --> 0:02:33.120 don't really know the Chinese reaction function. I think the 0:02:33.120 --> 0:02:36.280 working narrative or assumption is is that, hey, you know, 0:02:36.400 --> 0:02:39.080 we've got the stronger hands. So it's just you know, 0:02:39.400 --> 0:02:43.080 you know, if everything is within our control. We don't 0:02:43.080 --> 0:02:46.200 really necessarily know that. We don't know what what what 0:02:46.200 --> 0:02:50.440 what China inks own internal um situation, at least how 0:02:50.440 --> 0:02:52.200 it BET is going to unravel there. So I think 0:02:52.200 --> 0:02:55.320 it's a little bit of a you can't necessarily assume 0:02:55.360 --> 0:02:58.600 that Trump put is is absolutely there because we don't 0:02:58.600 --> 0:03:02.240 know the Chinese reaction Punk, what are you doing on 0:03:02.280 --> 0:03:08.040 this Monday morning? Are you deploying capital to speculation or investment? 0:03:08.440 --> 0:03:13.720 Are you under the purvous desk? You know, you were 0:03:13.760 --> 0:03:16.919 just making a point about you're not seeing the correlations 0:03:16.960 --> 0:03:20.800 across asset classes really come together. And that's absolutely true. 0:03:20.840 --> 0:03:23.120 You started to see some things pick up. You saw 0:03:23.520 --> 0:03:27.200 certainly the Chinese currency volves pick up. That must spill 0:03:27.240 --> 0:03:30.160 over to the d M currency balls. You're not seeing it. 0:03:30.240 --> 0:03:32.480 But again we're just you know, we're just we just 0:03:32.520 --> 0:03:35.560 started with the equity move here. But the theme I 0:03:35.640 --> 0:03:39.520 really think is I've been advocating is that credit spreads 0:03:39.560 --> 0:03:42.480 have yet to back up, but that that's the replay 0:03:42.520 --> 0:03:45.000 of what happened in October equity lead. It's a little 0:03:45.000 --> 0:03:48.200 bit unusual usually creditly, so I think if you're looking, 0:03:48.280 --> 0:03:51.240 I think there's gonna be more risk of coming here. John, 0:03:51.400 --> 0:03:54.080 jump in here. This is Michael. This is really important. 0:03:54.160 --> 0:03:56.520 Credit spreads it not backed up, and I know we're 0:03:56.560 --> 0:03:59.880 weeks away from the next episode of the Real Yield John. 0:04:00.120 --> 0:04:04.720 The bond market is pricing economic slowdown this morning. Forget 0:04:04.760 --> 0:04:07.840 about spread. Let's distinction. Let's draw a distinction between the 0:04:07.840 --> 0:04:10.680 bond market you're talking about in the high yield market, 0:04:11.280 --> 0:04:14.640 the sovereign debt market treasuries Yes, yields a lot at 0:04:14.680 --> 0:04:16.839 the front end, and the way that they are suggesting 0:04:16.880 --> 0:04:19.240 that we have a market that is still believing that 0:04:19.279 --> 0:04:21.279 the next move could be a right cut the credit 0:04:21.320 --> 0:04:23.320 markets home. We had a great week of of issuance 0:04:23.400 --> 0:04:26.000 last week for investment cred and high and it was 0:04:26.040 --> 0:04:28.160 all sucked up and taken away pretty well. Spreads to 0:04:28.200 --> 0:04:30.360 widey yes, but I don't think the credit mark is 0:04:30.400 --> 0:04:32.840 this price for a material slowdown just yet. I don't 0:04:32.839 --> 0:04:35.880 see that, Michael, do you no? And that you know? 0:04:36.080 --> 0:04:38.120 I think if you go back to the narrative in 0:04:38.200 --> 0:04:41.760 October November, the framework back then was the credit wasn't 0:04:41.800 --> 0:04:44.920 really seeing a big economic slowdown. It was really sort 0:04:44.920 --> 0:04:47.479 of what happened was that there was a rerating of 0:04:47.480 --> 0:04:51.560 the equity risk premium and then that persisted UM and 0:04:51.560 --> 0:04:53.440 and all of a sudden there was pan risked off 0:04:53.480 --> 0:04:55.880 into November December, and then you know, that's when the 0:04:55.880 --> 0:04:58.600 credit spread, the high yield spread started backing up. That's 0:04:58.600 --> 0:05:00.600 what I'm saying right now. If you're looking, we're hedging, 0:05:01.000 --> 0:05:04.080 you know where the vics we're where it's at. Right. 0:05:04.320 --> 0:05:06.760 You can find cheaper hedging by simply taking a view 0:05:06.800 --> 0:05:08.800 that you know you can buy puts, for example on 0:05:08.839 --> 0:05:11.440 the h y G E t F that that tracks 0:05:11.440 --> 0:05:14.600 the high yield universe UM, which is where that ball 0:05:14.720 --> 0:05:17.040 is cheap. And that has looked a little bit, but 0:05:17.120 --> 0:05:19.039 not that much. I just think if there's more risk 0:05:19.080 --> 0:05:21.080 off coming, it will spread and you will see that 0:05:21.120 --> 0:05:24.159 cross ass a correlation spike. Final question, Let's talk about 0:05:24.240 --> 0:05:27.520 regions globally, there is a belief quite widely how that 0:05:27.560 --> 0:05:31.479 the hierarchy of vulnerability globally speaking is China first, then 0:05:31.560 --> 0:05:34.520 Europe M, and then the United States, the United States 0:05:34.520 --> 0:05:37.599 being the most relatively it's so insulated to the trade 0:05:37.680 --> 0:05:45.280 story that was playbook any different, um, it's a very 0:05:45.320 --> 0:05:49.280 fair question. Look, and you're we're talking economics not markets here, right, 0:05:50.080 --> 0:05:54.640 both consequentially? Okay, well, you know, just you know, economically, 0:05:56.240 --> 0:05:58.520 that would seem to be the right narrative there. I 0:05:58.560 --> 0:06:00.560 do think that there's a there's a real case though 0:06:00.600 --> 0:06:03.800 that the you know, Europe as the sort of this 0:06:03.800 --> 0:06:07.840 this UH spillover effect onto these China US focused trade 0:06:08.360 --> 0:06:11.080 that's that is very very significant here. So I'm not 0:06:11.160 --> 0:06:13.440 sure how much of a distinction throw on between China 0:06:13.520 --> 0:06:16.520 and Europe right now in terms of economic sensitivity there. 0:06:16.800 --> 0:06:18.600 I would certainly on the market side, I do think 0:06:18.680 --> 0:06:21.039 that the US equity market is certainly going to be 0:06:21.080 --> 0:06:23.400 among the most vulnerable, only because we've you know, we've 0:06:23.520 --> 0:06:27.479 added on two pe points since UH since December, and 0:06:27.520 --> 0:06:31.520 we've had record valuations relative valuations for example, the text 0:06:31.560 --> 0:06:35.520 sector relative to the SPX and so forth. That you 0:06:35.600 --> 0:06:37.880 have to leave it there with the market valuation and 0:06:37.960 --> 0:06:56.719 negative thirty seven and down Michael Purvis with weed this morning, John, 0:06:56.839 --> 0:06:59.719 you've got a plan, You've got a script with Stephen Roach, 0:06:59.760 --> 0:07:04.120 and then you've got tweets. What happened tweets? You just 0:07:04.240 --> 0:07:08.359 rip up the screw the tweet storm? Can you tweet? Professor? 0:07:09.000 --> 0:07:11.760 I can, but I don't. Well, you should come on. 0:07:11.760 --> 0:07:13.480 We'd love to hear from you. We would love to 0:07:13.520 --> 0:07:16.480 hear from from Professor Stephen Roach on Twitter. Come on, 0:07:16.960 --> 0:07:18.920 of Yeah, he's joined us in the studio. Great to 0:07:18.960 --> 0:07:21.960 see you, professor, the President saying the following there was 0:07:22.000 --> 0:07:24.080 no reason for the West consumer to pay the tariffs 0:07:24.400 --> 0:07:26.680 which take effect on China today. This has been proven 0:07:26.800 --> 0:07:28.960 recently when only four points were paid by the US 0:07:29.000 --> 0:07:31.760 twenty one points by China, because China subsidize his product 0:07:32.160 --> 0:07:34.400 to such a large degree. We've of course got to 0:07:34.440 --> 0:07:37.000 draw a distinction between who pays the tariff and who 0:07:37.080 --> 0:07:40.120 absorbs the higher cost. Mean, by definition, the importers pays 0:07:40.200 --> 0:07:42.880 the tariff, but who absorbs the higher cost? Far more nuance, 0:07:42.920 --> 0:07:47.320 wouldn't you say, professor, Not not nearly as nuanced as 0:07:47.360 --> 0:07:50.360 the President is trying to oviskate and have you believe 0:07:50.520 --> 0:07:55.360 you said it, Jonathan. Tariffs are attacks on importers. We 0:07:55.440 --> 0:07:59.400 are the importers. China is the exporter uh and um 0:07:59.440 --> 0:08:02.360 you know al to only if um uh, if there's 0:08:02.360 --> 0:08:05.679 diversion of trade away from China for a saving short 0:08:05.800 --> 0:08:09.400 US economy. Uh, those costs will go up because we'll 0:08:09.440 --> 0:08:13.560 be importing from higher cost nations other than China. Uh. 0:08:13.600 --> 0:08:17.280 And and so the President's got it completely wrong in 0:08:17.400 --> 0:08:22.880 terms of the impact of tariffs on US businesses and consumers. 0:08:22.920 --> 0:08:25.520 But at the beginning, you can't talk it products with 0:08:25.840 --> 0:08:29.160 high valuability of substitutes. You can talk at products that 0:08:29.240 --> 0:08:32.520 have high elasticity of demand. It puts the onus then 0:08:32.840 --> 0:08:35.560 on the exports to absorb the cost. There has been 0:08:35.760 --> 0:08:38.559 several research reports that suggests that has been the case. 0:08:38.920 --> 0:08:40.600 And the only pot that tried dispute. And I don't 0:08:40.600 --> 0:08:42.480 know what kind of research you're reading. I've seen two 0:08:42.520 --> 0:08:46.120 studies on the impact of Trump's tariffs put out by 0:08:46.840 --> 0:08:49.120 All Star casts of economists, and they have concluded that 0:08:49.440 --> 0:08:53.880 literally one of the President's tariffs have been borne by 0:08:54.120 --> 0:08:56.479 the costs of which have been born by US businesses, 0:08:56.800 --> 0:08:59.800 in US consumers by and I can give you one 0:09:00.040 --> 0:09:03.559 such report right now. ACoM polled Europe Network of Research 0:09:03.720 --> 0:09:06.719 is in the European Union. They essentially say that four 0:09:06.760 --> 0:09:09.760 point five percent have been paid by US consumers of 0:09:09.800 --> 0:09:15.440 the tariff, twenty five percent Chinese producers. And with all 0:09:15.520 --> 0:09:17.800 due respect, it's wrong. I don't I don't know where 0:09:17.840 --> 0:09:20.440 you get your research from. You read the paper to you, Okay, 0:09:20.480 --> 0:09:22.160 well I've got one out there too. I'll bring it 0:09:22.200 --> 0:09:24.760 in and one we'd love to look at it. Yeah. 0:09:27.200 --> 0:09:30.599 I look at the partial differentials of all this and 0:09:30.840 --> 0:09:33.280 to me, Steve Roach, it's like moving from the X 0:09:33.480 --> 0:09:37.040 y space. You're at Yale University, you're teaching, and the 0:09:37.240 --> 0:09:39.760 adults are in the x y Z space. They're in 0:09:39.840 --> 0:09:44.600 a three dimensional space. What is all the punditry missing here? 0:09:44.720 --> 0:09:48.719 What are we missing about the complexity and richness of this? 0:09:48.880 --> 0:09:54.760 William Klein oh I Adore Peterson Institute would say, the leakages, 0:09:54.880 --> 0:09:58.240 the adjacence eas here are off the chart, and nobody's 0:09:58.280 --> 0:10:02.800 talking about him Tom And that's a deep and important question. 0:10:03.040 --> 0:10:06.800 But but the you know, the the issue here is 0:10:07.120 --> 0:10:12.280 um I think, um, you know what. The there's a 0:10:12.320 --> 0:10:18.400 perception that America is strong, and we've been um egregiously 0:10:18.559 --> 0:10:22.240 damaged by China for generations, and so at this moment 0:10:22.280 --> 0:10:25.360 of great strength, we need to put them in in 0:10:25.440 --> 0:10:30.079 their place. And its absolutely allows for no possibility that 0:10:30.160 --> 0:10:33.520 this is a two way relationship. That yes, China relies 0:10:33.600 --> 0:10:35.920 on us, but we also rely on China, and so 0:10:36.080 --> 0:10:38.760 when we take actions against somebody that we rely on, 0:10:39.240 --> 0:10:43.520 there are consequences. That China has yet to respond to 0:10:43.800 --> 0:10:46.520 the increase in US tariffs, I can assure you they're 0:10:46.559 --> 0:10:51.319 going to UH and those responses will bear critically on 0:10:51.440 --> 0:10:55.120 our companies. Who is our biggest exporter, Tom the company 0:10:55.679 --> 0:10:58.400 it's it's Boeing Bowing is under a lot of pressure 0:10:58.440 --> 0:11:00.760 for other reasons. Do you think Wing is gonna get 0:11:00.800 --> 0:11:04.200 a uh, you know, a free pass in this next 0:11:04.360 --> 0:11:08.839 round of UH? Very quickly here, if Apple is a 0:11:08.880 --> 0:11:12.840 big exporter, or at least a prestigious exporter, and Apple 0:11:12.880 --> 0:11:14.839 doesn't get a free pass either, no one gets a 0:11:14.920 --> 0:11:17.880 free pass. I mean, whiskey from McConnell's Kentucky doesn't get 0:11:17.920 --> 0:11:20.840 a free pass. We all get that, But what about Apple? 0:11:21.120 --> 0:11:24.200 They won't get a free pass. Um. It's it's ludicrous 0:11:24.280 --> 0:11:27.000 to think that big companies who are account for a 0:11:27.120 --> 0:11:30.920 large portion of the bilateral trade flows between these two countries. 0:11:30.960 --> 0:11:36.400 All of a sudden, I get exact dispensation. I know 0:11:36.520 --> 0:11:38.600 you've got to go to run out of timer? How's 0:11:38.640 --> 0:11:41.280 a great inflation at yell? Are you giving out enough season? 0:11:42.480 --> 0:11:45.280 You know? You know we have we have, we have 0:11:45.480 --> 0:11:48.880 a good balance in our good bodies. And you know, 0:11:49.000 --> 0:11:51.599 not all students get, you know, the top grade that 0:11:51.640 --> 0:11:54.160 they aspired to. I just turned in my grades on Friday, 0:11:54.200 --> 0:11:57.280 and you know most of them have a small seminar, 0:11:57.400 --> 0:12:01.800 did extremely well, some of them did less well. Very good, 0:12:01.880 --> 0:12:04.200 Stephen Roach, thank you so much your university on an 0:12:04.240 --> 0:12:21.120 important day. Were thrilled. Thank you. This is an immense 0:12:21.280 --> 0:12:24.080 joy to have Kidgin with us, who's with a London 0:12:24.160 --> 0:12:27.959 School of Economics and has just an exceptional perspective on 0:12:28.160 --> 0:12:30.600 China the US. We do this with futures at negative 0:12:30.640 --> 0:12:35.319 forty down futures a negative three and Professor, what I 0:12:35.400 --> 0:12:38.400 want to do is go to u A seven names, 0:12:39.040 --> 0:12:48.040 g Lee, another Lee, Awang, Awangao and a Han that 0:12:48.280 --> 0:12:53.240 is the Chinese Communist Party committee that the trade delegation 0:12:53.400 --> 0:12:56.600 has to go home to in Beijing. How do they 0:12:56.760 --> 0:13:04.040 distill or respond to what they served in Washington. UM. 0:13:04.520 --> 0:13:08.839 For first of all, they have the Chinese people to 0:13:09.280 --> 0:13:13.800 to face, not just the top leadership. UM. The Chinese 0:13:13.880 --> 0:13:17.480 people UH still wants the Chinese government to stay strong 0:13:17.640 --> 0:13:23.480 against the US UM kind of demands. UH. The US tension. 0:13:23.600 --> 0:13:26.640 Trade tensions have caused a rise in the surgein nationalism 0:13:26.720 --> 0:13:29.959 in China. And the argument is also that if we 0:13:30.200 --> 0:13:32.560 if the Chinese cave in this time around, what's going 0:13:32.640 --> 0:13:34.520 to happen next? There will be in a worse position 0:13:34.840 --> 0:13:39.240 in the future. Well, the markets down in priced down 0:13:39.480 --> 0:13:42.400 and with the correlations that we're beginning to see the 0:13:42.480 --> 0:13:45.320 two year yield in five basis points, how does an 0:13:45.480 --> 0:13:51.120 international relations expert like you correlate all this politics into 0:13:51.320 --> 0:13:58.240 market moves? Uh. There are various forces at least inside 0:13:58.280 --> 0:14:02.520 the Chinese economy that is contributing to the to the 0:14:02.679 --> 0:14:06.880 market reactions. UM. Not only the uncertainty that has been 0:14:06.920 --> 0:14:09.760 brought about by trade war. Of course, the direct direct 0:14:09.840 --> 0:14:12.120 effects of the trade war has yet to be seen, 0:14:12.200 --> 0:14:15.599 but certainly uncertainty has caused much panic. But there is 0:14:15.600 --> 0:14:18.160 also a slowdown of the Chinese economy that has nothing 0:14:18.240 --> 0:14:20.600 to do with the trade war. And in particular more 0:14:21.080 --> 0:14:25.800 to do with the deleveraging process and in general policy uncertainty, 0:14:25.920 --> 0:14:29.920 how the Chinese businesses, the private entrepreneurs will be treated. 0:14:30.320 --> 0:14:33.240 These are all confounding elements. Just looking at the moves 0:14:33.240 --> 0:14:34.640 in the pre market. So I'm got to bring up 0:14:34.640 --> 0:14:37.560 pop but down five percent, red headline just across the 0:14:37.600 --> 0:14:41.800 blame bog terminal down five We're going to try and 0:14:41.880 --> 0:14:46.120 talk about this a little bit later. Not great futures, 0:14:46.680 --> 0:14:52.040 futures connecative fort sm down by one point four Excuse me, 0:14:52.440 --> 0:14:54.920 Professor I will come back in with a trade related 0:14:55.000 --> 0:14:58.320 question for you. We will avoid the uber conversation. A 0:14:58.360 --> 0:15:00.080 lot of people are looking for China's next move is 0:15:00.120 --> 0:15:02.200 both in terms of retaliation and in terms of the 0:15:02.280 --> 0:15:04.720 next move on stimulus. You've touched on that just a 0:15:04.760 --> 0:15:07.360 little bit. Talk to me about how limited the appetite 0:15:07.480 --> 0:15:10.160 is of the current government to actually reach for a 0:15:10.320 --> 0:15:13.840 full scale, large scale stimulus in a way that they 0:15:13.920 --> 0:15:16.200 had done in years previously. Why that's not happening this 0:15:16.280 --> 0:15:21.680 time around. The large stimulus in the past have created 0:15:21.720 --> 0:15:24.800 these huge credit expansions and credit cycles. That's causing a 0:15:24.880 --> 0:15:28.520 lot of the macroeconomic woes that we're observing today, So 0:15:28.680 --> 0:15:33.280 they want to avoid over using this kind of policies. Um. 0:15:33.400 --> 0:15:36.000 And of course we still have bubbles looming in the 0:15:36.120 --> 0:15:40.760 Chinese background, in the economic background. Um. But in terms 0:15:40.840 --> 0:15:44.600 of trade tensions, they of course want to seek a solution. 0:15:44.800 --> 0:15:47.760 But on the other hand, they probably don't want to 0:15:47.800 --> 0:15:49.880 have a reach of full solutions so that they can 0:15:49.920 --> 0:15:53.880 still continue the arguments with the US, because if the 0:15:54.040 --> 0:15:58.560 trade gets resolved, what's next? Those are more intractable problems 0:15:58.640 --> 0:16:01.320 for China to deal with. Wrestler. I brought this up 0:16:01.360 --> 0:16:03.280 with Steve Roach. It's one of the great books of 0:16:03.360 --> 0:16:07.160 the giant Jonathan Spence of Yale University that CON's great 0:16:07.240 --> 0:16:11.600 continent China in the Western mind is the thought process 0:16:11.840 --> 0:16:17.560 of modern Chinese leaders anywhere remotely near to China nine 0:16:18.360 --> 0:16:22.560 China eighty, you know, obviously not China nine fifty. But 0:16:23.280 --> 0:16:26.480 is this a modern set of leaders that were possibly 0:16:26.520 --> 0:16:31.360 going to miscalculate on? The modern set of leaders that 0:16:31.480 --> 0:16:35.280 we're thinking about will be the next generation of leaders, 0:16:35.320 --> 0:16:38.560 possibly the one that will succeed President She Okay, he 0:16:38.720 --> 0:16:42.080 will leave his term, don't don't you worry, um. But 0:16:42.680 --> 0:16:45.080 there is a lot of similarity still in terms of 0:16:45.200 --> 0:16:48.920 the paternalism in the system, the the stability, the kind 0:16:48.920 --> 0:16:51.800 of organization, the discipline, the outward view. And I would 0:16:51.840 --> 0:16:55.840 say that with President she Uh, there's definitely a stronger 0:16:56.240 --> 0:17:00.920 Chinese kind of a stance that China somehow not really 0:17:01.000 --> 0:17:04.000 going to sit in some global existing order, but possibly 0:17:04.119 --> 0:17:06.600 shaping it. And that's one big difference we've seen with 0:17:07.280 --> 0:17:09.600 compared to the past two leaders. Well, then let's get 0:17:09.640 --> 0:17:13.000 you out of the ivory tower in in into market tactics. 0:17:13.160 --> 0:17:16.440 What would you expect given what you just said, Is 0:17:16.520 --> 0:17:22.920 they quote unquote retaliate or not? They will? I suspect 0:17:22.920 --> 0:17:25.600 they will do some form of retaliation, if not fully 0:17:25.640 --> 0:17:29.399 symmetric or full scale, because that's not realistic that they 0:17:29.440 --> 0:17:34.040 will have to respond. Yes, professor, just the final question 0:17:34.119 --> 0:17:36.919 for you, your base case for retaliation from the Chinese? 0:17:37.000 --> 0:17:39.000 We still wait. The market is still nervously looking to 0:17:39.040 --> 0:17:42.360 see what it will be. You can't have accurate tip 0:17:42.480 --> 0:17:45.040 fitat of course, because China running imports so much from 0:17:45.040 --> 0:17:47.600 the United States versus what the United States imports from China. 0:17:47.960 --> 0:17:49.680 So what kind of scale are you looking for in 0:17:49.840 --> 0:17:53.800 terms of retaliation. I think they will still go for 0:17:54.080 --> 0:17:58.240 narrow UM industries, UM and agriculture, and those that will 0:17:58.320 --> 0:18:01.600 hurt the States that are political support based for President Trump. 0:18:01.680 --> 0:18:03.920 But it's really hard to say. Professor, thank you so much. 0:18:03.960 --> 0:18:05.680 Kay gin with us with a lot of moving news 0:18:05.760 --> 0:18:08.880 this morning. She is at the London School of Economics. Professor, 0:18:08.960 --> 0:18:11.320 we really look forward to seeing you at Queen Victoria 0:18:11.400 --> 0:18:29.120 Street here soon. This is the interview of the Day 0:18:29.720 --> 0:18:33.200 on Trade. A book came out a number of years ago, 0:18:33.320 --> 0:18:38.480 two eight pages. It's a Council on Foreign Relations book, 0:18:39.080 --> 0:18:41.320 and it's one of those books you hate because it's 0:18:41.400 --> 0:18:47.000 so intelligent, so densely intelligent, intelligently written that the two 0:18:47.840 --> 0:18:52.119 pages feels like four. But it's worth plowing through because 0:18:52.240 --> 0:18:57.000 it makes us so smart about the President's America and 0:18:57.200 --> 0:19:01.000 all of our America. Edward Alden. The book is Failure 0:19:01.080 --> 0:19:05.360 to Adjust, How Americans got left behind in the global economy. 0:19:05.440 --> 0:19:06.879 It was one of my books of the summer a 0:19:06.960 --> 0:19:10.320 few years ago. Ted Aldon. If you sat down with 0:19:10.440 --> 0:19:13.520 the President of the United States and you handed him 0:19:14.240 --> 0:19:17.560 a brief summary of Failure to Adjust, what would you 0:19:17.640 --> 0:19:22.520 tell President Trump? Well, I'd tell him that the United 0:19:22.520 --> 0:19:25.480 States made a lot of mistakes in the first era 0:19:25.720 --> 0:19:29.119 of globalization, and his job is to make sure we 0:19:29.200 --> 0:19:31.399 don't make a whole new series of mistakes in the 0:19:31.480 --> 0:19:33.920 era that we're in right now. And I'm afraid that's 0:19:34.119 --> 0:19:37.439 exactly what he's doing. Hopefully, hopefully he'd he'd pay attention 0:19:37.520 --> 0:19:40.080 long enough for me to say that, let us go 0:19:40.440 --> 0:19:43.000 to the theory and get it out of the way first. 0:19:43.680 --> 0:19:48.560 GLIB TV radio people like me can say it's mercantil 0:19:48.680 --> 0:19:52.399 is m The President's defenders would say, China has been 0:19:52.520 --> 0:19:56.520 cheating for years. Is it one the other? Is it both? 0:19:57.720 --> 0:19:59.400 I think it's both. I mean, I think the President's 0:19:59.400 --> 0:20:03.119 approaches clearly mercantilists, but the Chinese have been a mercantilist 0:20:03.200 --> 0:20:07.600 power for decades now, and the constraints of the w 0:20:07.760 --> 0:20:09.880 t O in a variety ways proved inadequate. I really 0:20:09.920 --> 0:20:11.920 think we didn't use the system as fully as we 0:20:11.960 --> 0:20:15.000 should have. But the President's complaints about China are legitimate. 0:20:15.040 --> 0:20:17.399 The concern is over the tactics, and that's obviously what 0:20:17.560 --> 0:20:20.160 the markets in the world are concerned over. I don't 0:20:20.160 --> 0:20:24.040 think anybody's arguing over the diagnosis. It's the prescription that's 0:20:24.080 --> 0:20:26.840 the problem. So it ted just specifically about the most 0:20:27.040 --> 0:20:29.239 the most recent round of negotiations. What do you think 0:20:29.320 --> 0:20:32.200 went wrong that derailed the momentum that seemed to be 0:20:32.280 --> 0:20:35.160 building up until maybe a week or two ago. Well, 0:20:35.200 --> 0:20:37.280 I mean, I I'm relying on the reporting here like 0:20:37.400 --> 0:20:40.520 everyone else, but I think it's clear that the Chinese 0:20:40.560 --> 0:20:44.159 backslided on some issues. I mean, the Chinese are tough negotiators, right, 0:20:44.240 --> 0:20:46.479 They're they're going to give as little as they can 0:20:46.520 --> 0:20:48.200 get away with. I think they thought they were in 0:20:48.280 --> 0:20:52.040 a stronger position than they were. What surprised me a 0:20:52.119 --> 0:20:55.680 little bit was the ferocity of the President's reaction to 0:20:55.880 --> 0:20:59.320 move so quickly to impose additional tariffs. And then we've 0:20:59.320 --> 0:21:02.320 got another round them that's going to be announced, possibly today, 0:21:02.400 --> 0:21:06.159 certainly sometime this week. The issues are huge, and I 0:21:06.200 --> 0:21:07.879 think anyone who believed there was going to be an 0:21:07.920 --> 0:21:12.120 easy deal was not paying attention. But I certainly expected 0:21:12.160 --> 0:21:14.479 we would get, you know, some kind of preliminary accord 0:21:14.560 --> 0:21:16.359 and then we'd see where it went next. But but 0:21:16.520 --> 0:21:18.960 things obviously work look a lot worse right at the moment. 0:21:19.160 --> 0:21:23.000 All Right, So China has reacted with its set of 0:21:23.200 --> 0:21:26.320 tariffs on some remaining goods. What do you think China 0:21:26.359 --> 0:21:30.240 will do next, Well, I mean China, as it actually 0:21:30.320 --> 0:21:33.520 has throughout this conflict, is behaving pretty cautiously. I mean, 0:21:33.600 --> 0:21:36.760 this is a retaliation that certainly doesn't come close to 0:21:36.880 --> 0:21:39.520 matching the dollar value of the of the U s tariffs. 0:21:39.920 --> 0:21:42.760 They're delaying in position until June one, and even then 0:21:43.119 --> 0:21:45.600 they're following the US lead and saying it's goods and transit. 0:21:45.720 --> 0:21:48.040 So that's another couple of weeks for ocean going goods. 0:21:48.359 --> 0:21:50.960 So I think the hope is that maybe when the 0:21:51.119 --> 0:21:54.240 President and Shijing paying meet for the G twenty SMIT 0:21:54.320 --> 0:21:57.200 in Japan, that that they can call the halts in this. 0:21:57.359 --> 0:22:00.040 So I think there's there's still h some room of 0:22:00.160 --> 0:22:03.760 playout the negotiations. The Chinese have been remarkably constrained in 0:22:03.920 --> 0:22:06.000 terms of their reaction, but as you know, these things 0:22:06.040 --> 0:22:09.000 can change quickly. Right if they reach a conclusion that 0:22:09.119 --> 0:22:11.840 there's no deal to be had, we could see ramp 0:22:11.920 --> 0:22:14.080 up pretty rapidly. Ted Alden, where this the book is 0:22:14.119 --> 0:22:16.199 failure to adjust, we are going to continue. I need 0:22:16.240 --> 0:22:17.879 to do a data check down. We go on the 0:22:18.000 --> 0:22:21.240 opening with a very nice bid to the market, and 0:22:21.280 --> 0:22:24.160 we're retesting that right now. We're a negative for eighty 0:22:24.200 --> 0:22:27.720 Now we're negative five twenty on the Dow, fifty nine 0:22:27.880 --> 0:22:31.000 SMP points down and the vix was under twenty now 0:22:31.119 --> 0:22:34.639 back above twenty, showing that new angst in the market. 0:22:34.920 --> 0:22:37.320 What am I watching most closely? We are now at 0:22:37.480 --> 0:22:41.040 lows in yield for the two year today two point 0:22:41.160 --> 0:22:45.480 one eight eight four, well under two point one nine percent. 0:22:45.560 --> 0:22:48.720 I'm looking for a retest of yen. We're almost there, 0:22:48.800 --> 0:22:51.520 Paul Sweeney on a one o nine o nine yen. 0:22:51.600 --> 0:22:54.760 So a new retest to this market at nine fifty 0:22:54.840 --> 0:22:57.600 three Wall Street Time. Thanks so, Ted. Just I mean, 0:22:57.720 --> 0:22:59.720 one of the things I think the market was looking for, 0:23:00.000 --> 0:23:02.000 are you know, really over the last several months, is 0:23:02.000 --> 0:23:05.120 maybe just some type of headline deal. Is that still 0:23:05.240 --> 0:23:07.880 on the table. It seems like it's certainly in both 0:23:07.960 --> 0:23:10.720 sides best interest, But even a minimalist type deal, do 0:23:10.720 --> 0:23:13.840 you think that is still a near term opportunity. I mean, 0:23:13.880 --> 0:23:16.320