Speaker 1: Brought to you by Bank of America. Merrill Lynch. Seeing
Speaker 1: what others have seen, but uncovering what others may not.
Speaker 1: Global Research that helps you harness disruption voted top global
Speaker 1: research from five years running. Merrill Lynch, Pierce, Fenner and
Speaker 1: Smith Incorporated. Hi, and welcome back to Bloomberg Benchmark, a
Speaker 1: show about the global economy. Today is November nine, but
Speaker 1: it is the day after election day in the US,
Speaker 1: so obviously we're going to be talking about what a
Speaker 1: Trump president means for both the US economy and all
Speaker 1: over the world. So I'm here with Dan and Scott.
Speaker 1: It's just us, it's just the bench Park team today,
Speaker 1: and we're going to try to hit all of the
Speaker 1: major topics. We're going to talk about Mexico, China, EU.
Speaker 1: But let's just jump in, all right, Dan, First question
Speaker 1: I want to ask you. Trump is sitting in the
Speaker 1: Oval Office. It's his first economic briefing as the president
Speaker 1: of the United the States. What does the world look like?
Speaker 1: What do they tell him? The first thing he confronts
Speaker 1: is that he is a prisoner of the two to
Speaker 1: three percent world. So what do we mean by that?
Speaker 1: We mean continued projections ever since the world economy began
Speaker 1: growing again, that it would grow between two percent and
Speaker 1: three These I m F numbers published twice a year.
Speaker 1: Stephen pol Is, the government of the Bank of Canada,
Speaker 1: called this two to three percent world the world of
Speaker 1: serial disappointment. We just can't seem to break through it.
Speaker 1: Two percent of the advanced economies, three for everyone else.
Speaker 1: It's just been unyieldingly the same. Okay, And so that's
Speaker 1: what they're going to tell him. That's what he will find.
Speaker 1: And is that a disappointment? Is that A I don't,
Speaker 1: I don't. I guess I'm trying to figure out, is
Speaker 1: that in the world will look in the world we
Speaker 1: live in? Okay, No one economy swims alone. Now, the
Speaker 1: United States is the largest, still by quite a considerable margin,
Speaker 1: but it is only one and you know, many, many,
Speaker 1: many US corporations are part of this global supply chain
Speaker 1: which spans the world. Where influenced by China, Japan, Germany,
Speaker 1: and we influence them, probably more than they would care
Speaker 1: to recognize. But you just can't swim alone. No GDP
Speaker 1: is an Ireland got it. So he's going to realize
Speaker 1: that the world is perhaps weren't connected. Prisoner of the
Speaker 1: two to three serial disappointment. Okay, moving over to Mexico.
Speaker 1: That was a country that Trump brought on, brought up
Speaker 1: quite a bit during the campaign, and a few weeks
Speaker 1: ago on Benchmark, we spoke about what Mexican trade actually
Speaker 1: looks like after a trip that Dan went on to Selector,
Speaker 1: which of course is a Mexican department store. And just
Speaker 1: in case you weren't listening to that episode, we looked
Speaker 1: at where the goods in Mexico actually come from, and
Speaker 1: quite a bit we're from the US. So Scott, can
Speaker 1: you talk about how you can actually untangle that? Well, Look,
Speaker 1: this is a deep, deep trading relationship that benefits both sides. Uh.
Speaker 1: The U s exports to Mexico. UH in the first
Speaker 1: nine months of this year totaled one hundred and seventy
Speaker 1: two billion dollars, which makes it the second largest destination
Speaker 1: behind Canada and and overall worldwide UH for trade, it's
Speaker 1: the third biggest trading partner of the US behind Canada
Speaker 1: and China. So it's it's not going to be easy.
Speaker 1: I mean, it's still possible that uh, you know, Trump,
Speaker 1: especially if he has the support of Congress, could potentially
Speaker 1: withdraw from NAFTA UH with six months written notice, and
Speaker 1: you know that would obviously affect Canada as well. But
Speaker 1: you have so many different products, so many companies that
Speaker 1: have located in Mexico. I was reading one story that said,
Speaker 1: it's almost it's almost like it's a continuous economy in
Speaker 1: some ways between the US and Mexico. So as much
Speaker 1: as Trump wants to build a wall and and change
Speaker 1: the relations in that way, it's going to be really
Speaker 1: wrenching to completely upend that that relationship economically. But if
Speaker 1: Trump is indeed hell bent on desolving these relationships, what
Speaker 1: can Dan tell me about what he can actually do
Speaker 1: without congressional approvalges kind of in the privacy of his
Speaker 1: new oval of quite a lot, According to Gary Hufbauer
Speaker 1: the Peterson Institute for International Economics in Washington. For example,
Speaker 1: the president can proclaim additional duties to maintain what are
Speaker 1: called reciprocal concessions with Canada and Mexico. He can impose
Speaker 1: import restrictions after finding some kind of national security risk.
Speaker 1: He can impose a maximum tariff or some kind of
Speaker 1: other restriction for a hundred and fifty days. No national
Speaker 1: security investigation is required. There After a foreign country is
Speaker 1: perceived to be restricting US commerce, the President can take
Speaker 1: retaliate reaction. And there's this thing called Trading with the
Speaker 1: Enemy Act n. Seventeen. Trading with the Enemy. This is
Speaker 1: the name of a trade agreement, not a movie. It's like,
Speaker 1: this is the name of an Act of Congress. Now
Speaker 1: the date nine seventeen. We're going to go back to
Speaker 1: World War One, Woodrow Wilson. But anyway, according to that,
Speaker 1: the president has very broad wartime powers to regulate all
Speaker 1: forms of international commerce, sees and freeze foreign assets. Now
Speaker 1: here's the tricky thing. Statute does not actually define what
Speaker 1: war is. So there's okay. And of course we've spoken
Speaker 1: so much about the wall, and that's of course what
Speaker 1: he meant by Mexico paints for the wall. It's through
Speaker 1: these prohibitive tariffs and duties that could be placed via
Speaker 1: all of them. I think he literally means the Mexican
Speaker 1: government would pay for the physical construction. I think we
Speaker 1: need to move on because there's no way we can
Speaker 1: talk about I think he how about this. What he
Speaker 1: has said he meant in the campaign is that the
Speaker 1: Mexican government or Mexican corporations would pay for the construction
Speaker 1: of that wall. There is just so much to unpack
Speaker 1: in the wall. I'd say, let's move to a different
Speaker 1: wall in the world, the Great Wall of China. How's
Speaker 1: that first segue? Dandy like that? You know, China got
Speaker 1: a lot of attention from Donald Trump during the campaign,
Speaker 1: and to be fair, not just him. Nevertheless, he is
Speaker 1: the winner. So but this is a very different type
Speaker 1: of China and an economic relationship with China. Then he's
Speaker 1: that he's inheriting compared with what President Obama inherited from
Speaker 1: George W. Bush. At this point in two thousand and eight,
Speaker 1: China was not the world's second largest economy. Japan was.
Speaker 1: Where was it on the list? It was number three,
Speaker 1: was number after US and Japan's Now, look, it's true
Speaker 1: the China's economy is much bigger, but in some ways
Speaker 1: China's economic challenges are greater. So the years of double
Speaker 1: digit economic growth in China appear to be behind us.
Speaker 1: We've settled into this growth of six or seven, number one,
Speaker 1: number two. It's an economy that increasingly dominated by services
Speaker 1: and consumption. Very few American companies are going to go
Speaker 1: to Guangdong and open a furniture factory wage bills are
Speaker 1: going up and up in China. Okay, um at the
Speaker 1: vaunted Chinese current accounts surplus, which includes merchandise trade curplus,
Speaker 1: was ten of China's GDP when Barack Obama was elected.
Speaker 1: It's now about three and according to I MF forecasts,
Speaker 1: by the time the election rolls around, it might not
Speaker 1: exist at all. And by the way, this manipulation thing, right,
Speaker 1: So if China's manipulating its currency now, it's about preventing
Speaker 1: it from falling faster. Chinese currency has been weakening, not stronger.
Speaker 1: So in response to the concerns of manufacturing, does Donald
Speaker 1: Trump want a weaker Chinese currency, because that's what would
Speaker 1: happen if China was ordered or told to butt out
Speaker 1: of f X intervention. I don't know if he wants
Speaker 1: a weaker Chinese currency. Whatever. Whatever he wants is for
Speaker 1: the US to win, you know, and he can define
Speaker 1: that winning whatever he whenever he finds the facts in
Speaker 1: the end. Right, Okay, that's great. But if China is
Speaker 1: manipulating its currency now and he says he'll say that
Speaker 1: day one, mind you, we've sort of heard that before. Nevertheless,
Speaker 1: if he goes ahead and does that. It would be
Speaker 1: because China is intervening to stop the juan weakening. Further,
Speaker 1: if your economy is softer, your currency is not going
Speaker 1: to appreciate. Now the tendency is for you want to
Speaker 1: depreciate if they take the extreme devil's advocate position down.
Speaker 1: You could say that going way backt to you know,
Speaker 1: ten or twenty years ago, China has has net manipulated
Speaker 1: its currency downward. And and thus Trump still wants China
Speaker 1: to pay for that and should unwind its reserves even
Speaker 1: more to strengthen the yun to where it presumably should be. Yeah,
Speaker 1: and that's a popular view. But I guess the impression
Speaker 1: that we should leave our listeners with is this is
Speaker 1: a very different kind of Chinese economy that Donald Trump's
Speaker 1: inheriting compared with the one Barack Obamba inherited from George
Speaker 1: It's not even by it's not even led by a
Speaker 1: exports and investment anymore. It's I mean, it's really shifted
Speaker 1: in large parts of consumers and uh um services. I mean,
Speaker 1: you know when you go there and I lived there
Speaker 1: for three years, it's just you know, everywhere you still
Speaker 1: have the factories, but you just have such a consumer economy.
Speaker 1: China is litted with russ belts. Visited one of them myself,
Speaker 1: where steel manufacturers have moved on on to find something
Speaker 1: cheaper and something more cost effective. And this is within China.
Speaker 1: I mean, it's a very different type of economic beast.
Speaker 1: Regardless of the fact that he was campaigning on a
Speaker 1: platform I shouldn't very different kind of economic animal than
Speaker 1: it was. But regardless of the fact that he was
Speaker 1: campaigning on this platform that as if China hadn't changed,
Speaker 1: Since it doesn't, he so that and that's the he
Speaker 1: was campaigning on what is largely a caricature of the
Speaker 1: way the Chinese economy was and what sort of sticks
Speaker 1: in the popular imagination. You know is at an event
Speaker 1: at the Asia Society and not so long ago where
Speaker 1: we in the audience were told that most top US
Speaker 1: journalists have never been to China. I found that pretty
Speaker 1: amazing and pretty frightening. Let's hope they're not writing about
Speaker 1: national security or economics. Let's hope we're going to take
Speaker 1: a short break for a word from our sponsor, and
Speaker 1: when we get back, we're going to be talking about
Speaker 1: some of the economic implications back at home. Brought to
Speaker 1: you by Bank of America. Merrill Lynch. Seeing what others
Speaker 1: have seen, but uncovering with others may not. Global Research
Speaker 1: that helps you harness disruption voted top global research from
Speaker 1: five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated.
Speaker 1: Welcome back. So we've traveled around the world. We've looked
Speaker 1: at Mexico, we've looked at China. So let's talk about
Speaker 1: what happens actually back home. I mean, we've been talking
Speaker 1: about a lot of bringing back manufacturing jobs. I mean, Scott,
Speaker 1: how can he actually do that? That's a good question,
Speaker 1: and we really, you know, it really remains to be
Speaker 1: seen whether you know, it'll really take some either bullying
Speaker 1: of manufacturers or major tax incentive of or you know,
Speaker 1: some some something that we don't really know about that
Speaker 1: that would actually um help create those jobs. I mean,
Speaker 1: they've come down so far from where they were, say
Speaker 1: thirty years ago, they've barely grown under Obama, and he's
Speaker 1: gotten some credit for helping return some of those jobs.
Speaker 1: But the bottom line is that you know, you talked
Speaker 1: to almost any economists and they'll say it's going to
Speaker 1: be really tough to bring back, you know, jobs, The
Speaker 1: manufacturing jobs to where they were in the seventies. Say,
Speaker 1: even though there's this mystique about it that you know,
Speaker 1: this is this is what will make America great if
Speaker 1: we can bring back those jobs. But you know, Trump
Speaker 1: is actually placed to create twenty five million jobs. There
Speaker 1: are just under eight million unemployed people in the in
Speaker 1: the country. So you know, you have to look at
Speaker 1: how he's going to take people out of the labor force. Uh,
Speaker 1: I mean, I mean who are out of the labor
Speaker 1: force and back put them back in. Uh. You know,
Speaker 1: that would pretend actually make up some of those jobs.
Speaker 1: But you know, there's there's a lot of tax I
Speaker 1: think I think he's heavily relying on the proposals to
Speaker 1: have to cut corporate taxes that would perhaps help spur
Speaker 1: investment and this diminishing relative importance of manufacturing. By the way,
Speaker 1: the US is not the only one where this is happening.
Speaker 1: This is happening right around the Western world and in
Speaker 1: some cases parts of the Eastern world. It's certainly true
Speaker 1: of the UK, It's probably true of Germany, is probably
Speaker 1: true of Japan, and as we said, China is now
Speaker 1: a services and consumption economy. It's no longer dominated by
Speaker 1: manufacturing and exports. I mean, like you just mentioned, China
Speaker 1: has its own rest belt just the way we do.
Speaker 1: I mean, it's it's not unique to the U S.
Speaker 1: It's it's just um. I mean. One other thing he
Speaker 1: mentioned too, was talking about infrastructure bringing, you know, kind
Speaker 1: of improving those you know, the crumbling bridges and roads
Speaker 1: that we keep hearing so much about. I mean, Dan,
Speaker 1: how plausible is that is the plentities proposed? Okay, Well,
Speaker 1: comes the tough part. You've got to translate what you
Speaker 1: say in the campaign to actual government policy, and then
Speaker 1: depending on what that is, you've got to get something past.
Speaker 1: I mean, this was going to be true of Hillary
Speaker 1: Clinton as well if she were the winner. Okay, but look,
Speaker 1: let's take it at face value. Some infra infrastructure spending,
Speaker 1: a massive tax cut, well, that could translate into quite
Speaker 1: a fiscal boost at a time when the unemployment rate
Speaker 1: is already quite low and monetary policy is quite easy.
Speaker 1: That could be quite a boost. Whether it gets us
Speaker 1: to the three or four percent but he said he
Speaker 1: wants to get to is another question. And whether it's
Speaker 1: actually long lasting or or something that's just temporary and
Speaker 1: results in temporary construction jobs. You know, it has to
Speaker 1: be spent very smartly in a way that would encourage
Speaker 1: future development, I would suppose. And if you look at
Speaker 1: the way US financial markets are performing today, never mind
Speaker 1: the swoon last night, performing today, they're behaving as if
Speaker 1: there will be some kind of boost to the economy
Speaker 1: from the fact that the same party controls the White
Speaker 1: House and both Houses of Congress, meaning that the prospects
Speaker 1: for some fiscal expansion are there. So there actually might
Speaker 1: be maybe a bright side to what happened last night
Speaker 1: in the US. Well, I don't want to characterize it
Speaker 1: as good or bad. What the markets are telling you
Speaker 1: is that there is a decent prospect of some fiscal stimulus. Okay,
Speaker 1: Dan Scott, thank you so much for giving your your
Speaker 1: wonderful insights on what the global economy might look like
Speaker 1: now that Donald Trump is our president elect. Thanks for
Speaker 1: joining us on Benchmark. You can find us on Bloomberg
Speaker 1: dot com, iTunes, pocket cast, Stitcher, SoundCloud, and a few others.
Speaker 1: Um while you're there, take a moment to rate and
Speaker 1: review the show so that more listeners can find us.
Speaker 1: And you can follow me on Twitter at the real
Speaker 1: Daniel Moss just joking at you, almost d see And
Speaker 1: I'm at Scott Admund L A and m A N.
Speaker 1: And I'm just by Kate Smith. There's no just there.
Speaker 1: See you next week. Brought to you by Bank of America.
Speaker 1: Merrill Lynch. Seeing what others have seen, but uncovering what
Speaker 1: others may not. Global Research that helps you harness disruption
Speaker 1: voted top global research from five years running. Merrill Lynch, Pierce,
Speaker 1: Fenner and Smith Incorporated