WEBVTT - 62: What Have We Done?

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<v Speaker 1>Brought to you by Bank of America. Merrill Lynch. Seeing

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<v Speaker 1>what others have seen, but uncovering what others may not.

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<v Speaker 1>Global Research that helps you harness disruption voted top global

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<v Speaker 1>research from five years running. Merrill Lynch, Pierce, Fenner and

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<v Speaker 1>Smith Incorporated. Hi, and welcome back to Bloomberg Benchmark, a

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<v Speaker 1>show about the global economy. Today is November nine, but

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<v Speaker 1>it is the day after election day in the US,

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<v Speaker 1>so obviously we're going to be talking about what a

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<v Speaker 1>Trump president means for both the US economy and all

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<v Speaker 1>over the world. So I'm here with Dan and Scott.

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<v Speaker 1>It's just us, it's just the bench Park team today,

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<v Speaker 1>and we're going to try to hit all of the

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<v Speaker 1>major topics. We're going to talk about Mexico, China, EU.

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<v Speaker 1>But let's just jump in, all right, Dan, First question

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<v Speaker 1>I want to ask you. Trump is sitting in the

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<v Speaker 1>Oval Office. It's his first economic briefing as the president

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<v Speaker 1>of the United the States. What does the world look like?

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<v Speaker 1>What do they tell him? The first thing he confronts

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<v Speaker 1>is that he is a prisoner of the two to

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<v Speaker 1>three percent world. So what do we mean by that?

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<v Speaker 1>We mean continued projections ever since the world economy began

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<v Speaker 1>growing again, that it would grow between two percent and

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<v Speaker 1>three These I m F numbers published twice a year.

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<v Speaker 1>Stephen pol Is, the government of the Bank of Canada,

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<v Speaker 1>called this two to three percent world the world of

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<v Speaker 1>serial disappointment. We just can't seem to break through it.

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<v Speaker 1>Two percent of the advanced economies, three for everyone else.

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<v Speaker 1>It's just been unyieldingly the same. Okay, And so that's

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<v Speaker 1>what they're going to tell him. That's what he will find.

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<v Speaker 1>And is that a disappointment? Is that A I don't,

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<v Speaker 1>I don't. I guess I'm trying to figure out, is

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<v Speaker 1>that in the world will look in the world we

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<v Speaker 1>live in? Okay, No one economy swims alone. Now, the

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<v Speaker 1>United States is the largest, still by quite a considerable margin,

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<v Speaker 1>but it is only one and you know, many, many,

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<v Speaker 1>many US corporations are part of this global supply chain

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<v Speaker 1>which spans the world. Where influenced by China, Japan, Germany,

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<v Speaker 1>and we influence them, probably more than they would care

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<v Speaker 1>to recognize. But you just can't swim alone. No GDP

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<v Speaker 1>is an Ireland got it. So he's going to realize

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<v Speaker 1>that the world is perhaps weren't connected. Prisoner of the

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<v Speaker 1>two to three serial disappointment. Okay, moving over to Mexico.

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<v Speaker 1>That was a country that Trump brought on, brought up

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<v Speaker 1>quite a bit during the campaign, and a few weeks

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<v Speaker 1>ago on Benchmark, we spoke about what Mexican trade actually

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<v Speaker 1>looks like after a trip that Dan went on to Selector,

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<v Speaker 1>which of course is a Mexican department store. And just

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<v Speaker 1>in case you weren't listening to that episode, we looked

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<v Speaker 1>at where the goods in Mexico actually come from, and

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<v Speaker 1>quite a bit we're from the US. So Scott, can

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<v Speaker 1>you talk about how you can actually untangle that? Well, Look,

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<v Speaker 1>this is a deep, deep trading relationship that benefits both sides. Uh.

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<v Speaker 1>The U s exports to Mexico. UH in the first

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<v Speaker 1>nine months of this year totaled one hundred and seventy

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<v Speaker 1>two billion dollars, which makes it the second largest destination

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<v Speaker 1>behind Canada and and overall worldwide UH for trade, it's

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<v Speaker 1>the third biggest trading partner of the US behind Canada

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<v Speaker 1>and China. So it's it's not going to be easy.

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<v Speaker 1>I mean, it's still possible that uh, you know, Trump,

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<v Speaker 1>especially if he has the support of Congress, could potentially

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<v Speaker 1>withdraw from NAFTA UH with six months written notice, and

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<v Speaker 1>you know that would obviously affect Canada as well. But

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<v Speaker 1>you have so many different products, so many companies that

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<v Speaker 1>have located in Mexico. I was reading one story that said,

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<v Speaker 1>it's almost it's almost like it's a continuous economy in

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<v Speaker 1>some ways between the US and Mexico. So as much

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<v Speaker 1>as Trump wants to build a wall and and change

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<v Speaker 1>the relations in that way, it's going to be really

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<v Speaker 1>wrenching to completely upend that that relationship economically. But if

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<v Speaker 1>Trump is indeed hell bent on desolving these relationships, what

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<v Speaker 1>can Dan tell me about what he can actually do

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<v Speaker 1>without congressional approvalges kind of in the privacy of his

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<v Speaker 1>new oval of quite a lot, According to Gary Hufbauer

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<v Speaker 1>the Peterson Institute for International Economics in Washington. For example,

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<v Speaker 1>the president can proclaim additional duties to maintain what are

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<v Speaker 1>called reciprocal concessions with Canada and Mexico. He can impose

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<v Speaker 1>import restrictions after finding some kind of national security risk.

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<v Speaker 1>He can impose a maximum tariff or some kind of

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<v Speaker 1>other restriction for a hundred and fifty days. No national

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<v Speaker 1>security investigation is required. There After a foreign country is

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<v Speaker 1>perceived to be restricting US commerce, the President can take

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<v Speaker 1>retaliate reaction. And there's this thing called Trading with the

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<v Speaker 1>Enemy Act n. Seventeen. Trading with the Enemy. This is

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<v Speaker 1>the name of a trade agreement, not a movie. It's like,

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<v Speaker 1>this is the name of an Act of Congress. Now

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<v Speaker 1>the date nine seventeen. We're going to go back to

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<v Speaker 1>World War One, Woodrow Wilson. But anyway, according to that,

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<v Speaker 1>the president has very broad wartime powers to regulate all

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<v Speaker 1>forms of international commerce, sees and freeze foreign assets. Now

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<v Speaker 1>here's the tricky thing. Statute does not actually define what

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<v Speaker 1>war is. So there's okay. And of course we've spoken

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<v Speaker 1>so much about the wall, and that's of course what

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<v Speaker 1>he meant by Mexico paints for the wall. It's through

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<v Speaker 1>these prohibitive tariffs and duties that could be placed via

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<v Speaker 1>all of them. I think he literally means the Mexican

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<v Speaker 1>government would pay for the physical construction. I think we

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<v Speaker 1>need to move on because there's no way we can

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<v Speaker 1>talk about I think he how about this. What he

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<v Speaker 1>has said he meant in the campaign is that the

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<v Speaker 1>Mexican government or Mexican corporations would pay for the construction

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<v Speaker 1>of that wall. There is just so much to unpack

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<v Speaker 1>in the wall. I'd say, let's move to a different

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<v Speaker 1>wall in the world, the Great Wall of China. How's

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<v Speaker 1>that first segue? Dandy like that? You know, China got

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<v Speaker 1>a lot of attention from Donald Trump during the campaign,

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<v Speaker 1>and to be fair, not just him. Nevertheless, he is

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<v Speaker 1>the winner. So but this is a very different type

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<v Speaker 1>of China and an economic relationship with China. Then he's

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<v Speaker 1>that he's inheriting compared with what President Obama inherited from

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<v Speaker 1>George W. Bush. At this point in two thousand and eight,

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<v Speaker 1>China was not the world's second largest economy. Japan was.

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<v Speaker 1>Where was it on the list? It was number three,

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<v Speaker 1>was number after US and Japan's Now, look, it's true

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<v Speaker 1>the China's economy is much bigger, but in some ways

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<v Speaker 1>China's economic challenges are greater. So the years of double

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<v Speaker 1>digit economic growth in China appear to be behind us.

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<v Speaker 1>We've settled into this growth of six or seven, number one,

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<v Speaker 1>number two. It's an economy that increasingly dominated by services

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<v Speaker 1>and consumption. Very few American companies are going to go

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<v Speaker 1>to Guangdong and open a furniture factory wage bills are

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<v Speaker 1>going up and up in China. Okay, um at the

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<v Speaker 1>vaunted Chinese current accounts surplus, which includes merchandise trade curplus,

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<v Speaker 1>was ten of China's GDP when Barack Obama was elected.

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<v Speaker 1>It's now about three and according to I MF forecasts,

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<v Speaker 1>by the time the election rolls around, it might not

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<v Speaker 1>exist at all. And by the way, this manipulation thing, right,

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<v Speaker 1>So if China's manipulating its currency now, it's about preventing

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<v Speaker 1>it from falling faster. Chinese currency has been weakening, not stronger.

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<v Speaker 1>So in response to the concerns of manufacturing, does Donald

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<v Speaker 1>Trump want a weaker Chinese currency, because that's what would

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<v Speaker 1>happen if China was ordered or told to butt out

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<v Speaker 1>of f X intervention. I don't know if he wants

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<v Speaker 1>a weaker Chinese currency. Whatever. Whatever he wants is for

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<v Speaker 1>the US to win, you know, and he can define

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<v Speaker 1>that winning whatever he whenever he finds the facts in

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<v Speaker 1>the end. Right, Okay, that's great. But if China is

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<v Speaker 1>manipulating its currency now and he says he'll say that

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<v Speaker 1>day one, mind you, we've sort of heard that before. Nevertheless,

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<v Speaker 1>if he goes ahead and does that. It would be

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<v Speaker 1>because China is intervening to stop the juan weakening. Further,

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<v Speaker 1>if your economy is softer, your currency is not going

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<v Speaker 1>to appreciate. Now the tendency is for you want to

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<v Speaker 1>depreciate if they take the extreme devil's advocate position down.

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<v Speaker 1>You could say that going way backt to you know,

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<v Speaker 1>ten or twenty years ago, China has has net manipulated

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<v Speaker 1>its currency downward. And and thus Trump still wants China

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<v Speaker 1>to pay for that and should unwind its reserves even

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<v Speaker 1>more to strengthen the yun to where it presumably should be. Yeah,

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<v Speaker 1>and that's a popular view. But I guess the impression

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<v Speaker 1>that we should leave our listeners with is this is

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<v Speaker 1>a very different kind of Chinese economy that Donald Trump's

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<v Speaker 1>inheriting compared with the one Barack Obamba inherited from George

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<v Speaker 1>It's not even by it's not even led by a

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<v Speaker 1>exports and investment anymore. It's I mean, it's really shifted

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<v Speaker 1>in large parts of consumers and uh um services. I mean,

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<v Speaker 1>you know when you go there and I lived there

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<v Speaker 1>for three years, it's just you know, everywhere you still

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<v Speaker 1>have the factories, but you just have such a consumer economy.

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<v Speaker 1>China is litted with russ belts. Visited one of them myself,

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<v Speaker 1>where steel manufacturers have moved on on to find something

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<v Speaker 1>cheaper and something more cost effective. And this is within China.

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<v Speaker 1>I mean, it's a very different type of economic beast.

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<v Speaker 1>Regardless of the fact that he was campaigning on a

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<v Speaker 1>platform I shouldn't very different kind of economic animal than

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<v Speaker 1>it was. But regardless of the fact that he was

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<v Speaker 1>campaigning on this platform that as if China hadn't changed,

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<v Speaker 1>Since it doesn't, he so that and that's the he

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<v Speaker 1>was campaigning on what is largely a caricature of the

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<v Speaker 1>way the Chinese economy was and what sort of sticks

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<v Speaker 1>in the popular imagination. You know is at an event

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<v Speaker 1>at the Asia Society and not so long ago where

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<v Speaker 1>we in the audience were told that most top US

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<v Speaker 1>journalists have never been to China. I found that pretty

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<v Speaker 1>amazing and pretty frightening. Let's hope they're not writing about

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<v Speaker 1>national security or economics. Let's hope we're going to take

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<v Speaker 1>a short break for a word from our sponsor, and

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<v Speaker 1>when we get back, we're going to be talking about

0:10:55.679 --> 0:11:08.800
<v Speaker 1>some of the economic implications back at home. Brought to

0:11:08.840 --> 0:11:11.760
<v Speaker 1>you by Bank of America. Merrill Lynch. Seeing what others

0:11:11.800 --> 0:11:15.000
<v Speaker 1>have seen, but uncovering with others may not. Global Research

0:11:15.040 --> 0:11:18.600
<v Speaker 1>that helps you harness disruption voted top global research from

0:11:18.640 --> 0:11:22.359
<v Speaker 1>five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated.

0:11:30.480 --> 0:11:33.600
<v Speaker 1>Welcome back. So we've traveled around the world. We've looked

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<v Speaker 1>at Mexico, we've looked at China. So let's talk about

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<v Speaker 1>what happens actually back home. I mean, we've been talking

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<v Speaker 1>about a lot of bringing back manufacturing jobs. I mean, Scott,

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<v Speaker 1>how can he actually do that? That's a good question,

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<v Speaker 1>and we really, you know, it really remains to be

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<v Speaker 1>seen whether you know, it'll really take some either bullying

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<v Speaker 1>of manufacturers or major tax incentive of or you know,

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<v Speaker 1>some some something that we don't really know about that

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<v Speaker 1>that would actually um help create those jobs. I mean,

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<v Speaker 1>they've come down so far from where they were, say

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<v Speaker 1>thirty years ago, they've barely grown under Obama, and he's

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<v Speaker 1>gotten some credit for helping return some of those jobs.

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<v Speaker 1>But the bottom line is that you know, you talked

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<v Speaker 1>to almost any economists and they'll say it's going to

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<v Speaker 1>be really tough to bring back, you know, jobs, The

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<v Speaker 1>manufacturing jobs to where they were in the seventies. Say,

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<v Speaker 1>even though there's this mystique about it that you know,

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<v Speaker 1>this is this is what will make America great if

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<v Speaker 1>we can bring back those jobs. But you know, Trump

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<v Speaker 1>is actually placed to create twenty five million jobs. There

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<v Speaker 1>are just under eight million unemployed people in the in

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<v Speaker 1>the country. So you know, you have to look at

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<v Speaker 1>how he's going to take people out of the labor force. Uh,

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<v Speaker 1>I mean, I mean who are out of the labor

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<v Speaker 1>force and back put them back in. Uh. You know,

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<v Speaker 1>that would pretend actually make up some of those jobs.

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<v Speaker 1>But you know, there's there's a lot of tax I

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<v Speaker 1>think I think he's heavily relying on the proposals to

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<v Speaker 1>have to cut corporate taxes that would perhaps help spur

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<v Speaker 1>investment and this diminishing relative importance of manufacturing. By the way,

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<v Speaker 1>the US is not the only one where this is happening.

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<v Speaker 1>This is happening right around the Western world and in

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<v Speaker 1>some cases parts of the Eastern world. It's certainly true

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<v Speaker 1>of the UK, It's probably true of Germany, is probably

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<v Speaker 1>true of Japan, and as we said, China is now

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<v Speaker 1>a services and consumption economy. It's no longer dominated by

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<v Speaker 1>manufacturing and exports. I mean, like you just mentioned, China

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<v Speaker 1>has its own rest belt just the way we do.

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<v Speaker 1>I mean, it's it's not unique to the U S.

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<v Speaker 1>It's it's just um. I mean. One other thing he

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<v Speaker 1>mentioned too, was talking about infrastructure bringing, you know, kind

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<v Speaker 1>of improving those you know, the crumbling bridges and roads

0:13:54.880 --> 0:13:56.880
<v Speaker 1>that we keep hearing so much about. I mean, Dan,

0:13:57.000 --> 0:13:59.920
<v Speaker 1>how plausible is that is the plentities proposed? Okay, Well,

0:14:00.160 --> 0:14:03.360
<v Speaker 1>comes the tough part. You've got to translate what you

0:14:03.440 --> 0:14:07.440
<v Speaker 1>say in the campaign to actual government policy, and then

0:14:07.520 --> 0:14:10.240
<v Speaker 1>depending on what that is, you've got to get something past.

0:14:10.360 --> 0:14:12.440
<v Speaker 1>I mean, this was going to be true of Hillary

0:14:12.480 --> 0:14:15.920
<v Speaker 1>Clinton as well if she were the winner. Okay, but look,

0:14:16.000 --> 0:14:19.680
<v Speaker 1>let's take it at face value. Some infra infrastructure spending,

0:14:20.000 --> 0:14:23.960
<v Speaker 1>a massive tax cut, well, that could translate into quite

0:14:24.000 --> 0:14:27.920
<v Speaker 1>a fiscal boost at a time when the unemployment rate

0:14:28.040 --> 0:14:32.480
<v Speaker 1>is already quite low and monetary policy is quite easy.

0:14:32.520 --> 0:14:34.600
<v Speaker 1>That could be quite a boost. Whether it gets us

0:14:34.640 --> 0:14:37.360
<v Speaker 1>to the three or four percent but he said he

0:14:37.400 --> 0:14:40.040
<v Speaker 1>wants to get to is another question. And whether it's

0:14:40.080 --> 0:14:43.800
<v Speaker 1>actually long lasting or or something that's just temporary and

0:14:43.880 --> 0:14:46.680
<v Speaker 1>results in temporary construction jobs. You know, it has to

0:14:46.720 --> 0:14:51.280
<v Speaker 1>be spent very smartly in a way that would encourage

0:14:51.840 --> 0:14:54.520
<v Speaker 1>future development, I would suppose. And if you look at

0:14:54.520 --> 0:14:57.760
<v Speaker 1>the way US financial markets are performing today, never mind

0:14:57.880 --> 0:15:01.880
<v Speaker 1>the swoon last night, performing today, they're behaving as if

0:15:01.920 --> 0:15:04.840
<v Speaker 1>there will be some kind of boost to the economy

0:15:04.880 --> 0:15:07.760
<v Speaker 1>from the fact that the same party controls the White

0:15:07.800 --> 0:15:13.080
<v Speaker 1>House and both Houses of Congress, meaning that the prospects

0:15:13.160 --> 0:15:18.400
<v Speaker 1>for some fiscal expansion are there. So there actually might

0:15:18.480 --> 0:15:21.480
<v Speaker 1>be maybe a bright side to what happened last night

0:15:21.480 --> 0:15:23.480
<v Speaker 1>in the US. Well, I don't want to characterize it

0:15:23.520 --> 0:15:26.760
<v Speaker 1>as good or bad. What the markets are telling you

0:15:26.920 --> 0:15:30.800
<v Speaker 1>is that there is a decent prospect of some fiscal stimulus. Okay,

0:15:31.120 --> 0:15:34.160
<v Speaker 1>Dan Scott, thank you so much for giving your your

0:15:34.200 --> 0:15:37.600
<v Speaker 1>wonderful insights on what the global economy might look like

0:15:37.680 --> 0:15:41.160
<v Speaker 1>now that Donald Trump is our president elect. Thanks for

0:15:41.240 --> 0:15:44.040
<v Speaker 1>joining us on Benchmark. You can find us on Bloomberg

0:15:44.080 --> 0:15:49.680
<v Speaker 1>dot com, iTunes, pocket cast, Stitcher, SoundCloud, and a few others.

0:15:49.800 --> 0:15:52.360
<v Speaker 1>Um while you're there, take a moment to rate and

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<v Speaker 1>And you can follow me on Twitter at the real

0:15:57.520 --> 0:16:01.600
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0:16:01.680 --> 0:16:04.640
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0:16:04.880 --> 0:16:08.520
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