1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,400 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Tiffany Wannaga Pimpos 10 00:00:37,640 --> 00:00:39,440 Speaker 2: is going to join us in the meantime. Tiffany, Welcome 11 00:00:39,479 --> 00:00:41,720 Speaker 2: to the program. Is the store still open for a 12 00:00:41,800 --> 00:00:43,240 Speaker 2: Rake Cup in September? 13 00:00:45,520 --> 00:00:45,760 Speaker 3: Yeah? 14 00:00:45,800 --> 00:00:48,000 Speaker 4: I mean, I think this CPI was completely in line 15 00:00:48,040 --> 00:00:52,120 Speaker 4: with expectations how we've characterized the sort of Terra related 16 00:00:52,159 --> 00:00:55,760 Speaker 4: pass through. The evidence is that it's happening, but it's 17 00:00:55,800 --> 00:00:59,280 Speaker 4: happening slower than I think many people expected going back 18 00:00:59,320 --> 00:01:03,760 Speaker 4: to April, when when the more dramatic TERRFF announcements were 19 00:01:03,800 --> 00:01:09,320 Speaker 4: first implemented or announced. It's happening more slowly and across industries, 20 00:01:09,600 --> 00:01:11,600 Speaker 4: you know, it's it's more uneven, you know. So I 21 00:01:11,600 --> 00:01:13,800 Speaker 4: think the broader story here that we're still seeing is 22 00:01:13,840 --> 00:01:17,240 Speaker 4: that it's very concentrated within goods, it's happening slowly, and 23 00:01:17,280 --> 00:01:20,679 Speaker 4: outside of that, you know, inflationary pressures look very manageable. 24 00:01:21,040 --> 00:01:23,520 Speaker 4: So I think for a federal reserve, that is a 25 00:01:23,640 --> 00:01:24,479 Speaker 4: very good sign. 26 00:01:24,840 --> 00:01:25,000 Speaker 5: You know. 27 00:01:25,040 --> 00:01:28,440 Speaker 4: In addition to that, there's I would argue, better news 28 00:01:28,480 --> 00:01:31,280 Speaker 4: in terms of the so called second round effects with 29 00:01:31,560 --> 00:01:34,680 Speaker 4: higher prices leading to higher wages and getting. 30 00:01:34,400 --> 00:01:35,720 Speaker 3: More into the inflationary process. 31 00:01:35,720 --> 00:01:40,520 Speaker 4: We've actually seen inflation expectations from various surveys start to moderate. 32 00:01:40,600 --> 00:01:43,559 Speaker 4: The University of Michigan survey, which we'll get later this week, 33 00:01:43,840 --> 00:01:46,480 Speaker 4: the longer term inflation expectation index for that one had 34 00:01:46,800 --> 00:01:49,600 Speaker 4: accelerated more, but it's moderated more recently. So I think 35 00:01:49,640 --> 00:01:52,400 Speaker 4: all of this points to, you know, a central bank 36 00:01:52,520 --> 00:01:56,080 Speaker 4: that can get on with normalizing policy rates back to neutral. 37 00:01:56,200 --> 00:01:58,360 Speaker 2: It's definitely something we've been exploring throughund the whole of 38 00:01:58,360 --> 00:02:00,600 Speaker 2: this morning, and to be fair, over the last several months. 39 00:02:00,640 --> 00:02:04,400 Speaker 2: Is whether tariff delayed. That's a taroft story is delayed 40 00:02:04,440 --> 00:02:07,880 Speaker 2: by the fact that we've seen fantastic infantry management from 41 00:02:07,880 --> 00:02:10,360 Speaker 2: some of the retailers at the moment, and that maybe 42 00:02:10,400 --> 00:02:12,440 Speaker 2: we haven't seen the full extent of this. When would 43 00:02:12,440 --> 00:02:14,799 Speaker 2: you get comfortable that we've seen the limits of it all. 44 00:02:17,160 --> 00:02:19,320 Speaker 4: Yeah, I mean, I think, like you know, we expect 45 00:02:19,520 --> 00:02:21,640 Speaker 4: a good portion of the pass through over the next 46 00:02:21,680 --> 00:02:24,320 Speaker 4: several months. But I think the bottom line is is 47 00:02:24,680 --> 00:02:28,560 Speaker 4: that companies have room. It appears that companies have room 48 00:02:29,240 --> 00:02:32,360 Speaker 4: as a result of still high margins coming out of 49 00:02:32,360 --> 00:02:35,160 Speaker 4: the pandemic. Companies have room to sort of more slowly 50 00:02:35,240 --> 00:02:38,120 Speaker 4: pass this on to consumers. And and so what that 51 00:02:38,160 --> 00:02:40,200 Speaker 4: means is that, you know, goods inflation could be a 52 00:02:40,200 --> 00:02:43,840 Speaker 4: little bit more persistent over time, but you're not necessarily 53 00:02:43,880 --> 00:02:47,840 Speaker 4: going to have that bigger surge that many people expected 54 00:02:47,960 --> 00:02:50,480 Speaker 4: as you get that faster price level adjustment this year. 55 00:02:50,760 --> 00:02:52,120 Speaker 4: So I think for the FED, I think that's all 56 00:02:52,120 --> 00:02:54,119 Speaker 4: good news. You know. The other thing that we see 57 00:02:54,160 --> 00:02:56,080 Speaker 4: when we look at you know, a range of data, 58 00:02:56,440 --> 00:03:00,280 Speaker 4: you know, is that companies so far are absorbing we 59 00:03:00,320 --> 00:03:03,320 Speaker 4: think the lions share of the additional costs of tariffs, 60 00:03:03,520 --> 00:03:06,120 Speaker 4: and as I mentioned, they can do it. Their margins 61 00:03:06,200 --> 00:03:10,440 Speaker 4: were elevated post pandemic. That has remained the case, and 62 00:03:10,480 --> 00:03:12,560 Speaker 4: so they do have room here. You know, at least 63 00:03:12,560 --> 00:03:16,800 Speaker 4: the largest companies have room to sort of manage this process, 64 00:03:16,840 --> 00:03:18,120 Speaker 4: and we think that's what they're doing. 65 00:03:18,200 --> 00:03:19,280 Speaker 3: You know. The other thing. 66 00:03:19,240 --> 00:03:22,960 Speaker 4: Is is the tax legislation that was recently passed, the 67 00:03:22,960 --> 00:03:27,400 Speaker 4: One Big Beautiful Bill, that is, you know, reducing the 68 00:03:27,480 --> 00:03:30,960 Speaker 4: effective tax rates for a lot of companies, especially those 69 00:03:30,960 --> 00:03:32,720 Speaker 4: companies that are capital intensive. 70 00:03:32,800 --> 00:03:33,840 Speaker 3: They invest a lot. 71 00:03:34,040 --> 00:03:38,320 Speaker 4: They're getting you know, upfront expensing tax credits and that 72 00:03:38,400 --> 00:03:41,480 Speaker 4: will help offset the impact of the tariffs as well. 73 00:03:41,480 --> 00:03:43,840 Speaker 4: A lot of those tax credits were retroactive for twenty 74 00:03:43,880 --> 00:03:46,560 Speaker 4: twenty five. So all of that just means that companies 75 00:03:46,600 --> 00:03:49,200 Speaker 4: do have a little bit of flexibility here and can 76 00:03:49,320 --> 00:03:50,440 Speaker 4: manage the pass through rate. 77 00:03:50,880 --> 00:03:53,120 Speaker 6: So, Timmy, are you basically saying that because of the 78 00:03:53,120 --> 00:03:55,480 Speaker 6: One Big Beautiful Bill, companies are able to eat more 79 00:03:55,520 --> 00:03:57,680 Speaker 6: of the higher terifts from this administration. 80 00:04:00,080 --> 00:04:02,200 Speaker 3: Yeah, I mean, I certainly think that that's the case. 81 00:04:02,600 --> 00:04:06,400 Speaker 4: You know. Now, the you know, what we estimate in 82 00:04:06,480 --> 00:04:09,600 Speaker 4: terms of the tax savings in aggregate for twenty twenty 83 00:04:09,640 --> 00:04:13,600 Speaker 4: five is around you know, one hundred and fifty billion. 84 00:04:14,240 --> 00:04:19,440 Speaker 4: The tariff tax collections that are happening, we annualize at 85 00:04:19,440 --> 00:04:22,880 Speaker 4: about three hundred and fifty billions. So the tax legislation 86 00:04:22,960 --> 00:04:26,599 Speaker 4: is not completely offsetting the additional taxes paid by tariffs, 87 00:04:26,880 --> 00:04:29,880 Speaker 4: but it certainly is in mitigating some of it. And 88 00:04:30,160 --> 00:04:32,200 Speaker 4: so that's why, you know, we've argued you'll still see 89 00:04:32,240 --> 00:04:36,480 Speaker 4: we think some pass through of higher tariffs on two prices, 90 00:04:36,560 --> 00:04:39,320 Speaker 4: you'll get some price adjustment. But we think the risk 91 00:04:39,400 --> 00:04:41,839 Speaker 4: here is just that it takes longer than many people 92 00:04:41,880 --> 00:04:44,520 Speaker 4: are expecting, you know, the inflationary effects of this in 93 00:04:44,560 --> 00:04:47,159 Speaker 4: the back half of this year somewhat less, you know, 94 00:04:47,160 --> 00:04:47,760 Speaker 4: and again. 95 00:04:47,600 --> 00:04:49,640 Speaker 3: That just sets the federal reserve up. 96 00:04:49,600 --> 00:04:55,360 Speaker 4: To you know, to continues to restart its cutting cycle 97 00:04:55,760 --> 00:04:58,440 Speaker 4: to get back ultimately to neutral policy rates. 98 00:04:58,480 --> 00:05:00,440 Speaker 7: Tiffany Wold, thank you. 99 00:05:00,520 --> 00:05:02,520 Speaker 2: David Kenny, a JP Mork and Asset Management with us 100 00:05:02,520 --> 00:05:04,480 Speaker 2: around a table with David, good morning. Not going to 101 00:05:04,520 --> 00:05:06,160 Speaker 2: ask you that question. I just want to ask you 102 00:05:06,240 --> 00:05:08,640 Speaker 2: the following. When will you be comfortable that we've seen 103 00:05:08,640 --> 00:05:10,520 Speaker 2: the limits of this? How many more months of data 104 00:05:10,600 --> 00:05:11,039 Speaker 2: do you need? 105 00:05:11,960 --> 00:05:12,920 Speaker 7: We're just getting started. 106 00:05:13,000 --> 00:05:15,160 Speaker 8: I mean, what we saw today was plenty of inflation 107 00:05:15,440 --> 00:05:17,599 Speaker 8: without tariff effects. We didn't have a big increase in 108 00:05:17,640 --> 00:05:19,680 Speaker 8: new car prices. We never big increasing in a paro 109 00:05:19,720 --> 00:05:22,159 Speaker 8: of prices. But let's look at where we did see 110 00:05:22,160 --> 00:05:25,120 Speaker 8: an increase. Airline fares will come down a lot because the. 111 00:05:25,160 --> 00:05:26,360 Speaker 7: Airline industry was very weak. 112 00:05:26,400 --> 00:05:28,600 Speaker 8: But if you look at the recent data on people 113 00:05:28,680 --> 00:05:32,799 Speaker 8: going through TSA checkpoints, it's firmed up, and so domestic 114 00:05:32,839 --> 00:05:35,560 Speaker 8: airline travel is now back on a positive year over 115 00:05:35,640 --> 00:05:39,440 Speaker 8: year basis. We've got a lot of fiscal stimuls going 116 00:05:39,520 --> 00:05:41,719 Speaker 8: to kick into the economy early next year, but. 117 00:05:41,839 --> 00:05:42,800 Speaker 7: Also in the tariffs. 118 00:05:43,720 --> 00:05:46,719 Speaker 8: Even in July we saw a lot of money collected, 119 00:05:46,800 --> 00:05:49,160 Speaker 8: but it still equates to about a tariff rate of 120 00:05:49,200 --> 00:05:52,520 Speaker 8: about eight percent. We think this whole tariff rate is 121 00:05:52,560 --> 00:05:54,840 Speaker 8: going to go up to about fourteen and a half 122 00:05:54,960 --> 00:05:57,600 Speaker 8: percent measured by that later. So we've got most of 123 00:05:57,640 --> 00:05:59,880 Speaker 8: this tariff increase still ahead of us in terms of 124 00:06:00,160 --> 00:06:02,480 Speaker 8: just affecting the data. And then you know, people say, oh, 125 00:06:02,520 --> 00:06:03,760 Speaker 8: the retailer is going to eat it. 126 00:06:04,040 --> 00:06:06,120 Speaker 7: No they're not. They just wrote the check. So so 127 00:06:06,200 --> 00:06:07,000 Speaker 7: of course, of course it. 128 00:06:07,000 --> 00:06:09,120 Speaker 8: Looks like they're eating at Walmart writes a check, but 129 00:06:09,240 --> 00:06:11,760 Speaker 8: eventually they're going to pass it on, and yes, they've 130 00:06:11,760 --> 00:06:13,680 Speaker 8: got good margins, but how do they manage to sustain 131 00:06:13,760 --> 00:06:16,240 Speaker 8: these margins because they're great at figuring it out and 132 00:06:16,320 --> 00:06:18,680 Speaker 8: figuring out how to stiff consumers, and that's what they'll do. 133 00:06:19,160 --> 00:06:21,600 Speaker 8: And so this thing will feed through. It's just a 134 00:06:21,680 --> 00:06:23,840 Speaker 8: matter of a number of number of months. And you know, 135 00:06:23,920 --> 00:06:26,600 Speaker 8: inflation is going up, but it's going up very steadily, 136 00:06:26,839 --> 00:06:29,280 Speaker 8: and it will be above we think about three and 137 00:06:29,320 --> 00:06:30,960 Speaker 8: a half percent in CPI by the end of the year. 138 00:06:31,000 --> 00:06:33,240 Speaker 2: You've made some important points here. One is that you 139 00:06:33,400 --> 00:06:35,600 Speaker 2: believe that goods prices will continue to affirm through the 140 00:06:35,680 --> 00:06:37,560 Speaker 2: year ahead, and that you're not going to see an 141 00:06:37,600 --> 00:06:39,920 Speaker 2: offset from services. Is that right? 142 00:06:40,680 --> 00:06:43,640 Speaker 8: That's correct, because what's going to happen is the economy 143 00:06:43,720 --> 00:06:46,400 Speaker 8: is going to be slower in the second half of 144 00:06:46,440 --> 00:06:48,640 Speaker 8: this year as these this goods inflation feeds through. But 145 00:06:48,720 --> 00:06:50,760 Speaker 8: the big kicker here that people are not talking about 146 00:06:51,120 --> 00:06:54,320 Speaker 8: is a huge rush of income tax refunds that's going 147 00:06:54,360 --> 00:06:55,520 Speaker 8: to kick in and the start of the next year. 148 00:06:55,560 --> 00:06:57,640 Speaker 8: It's going to be like an extra stimulus check. 149 00:06:58,200 --> 00:06:59,960 Speaker 7: And that you know, we've seen what happens. 150 00:07:00,120 --> 00:07:02,520 Speaker 8: You give him as a cookie, he's going to want 151 00:07:02,520 --> 00:07:04,080 Speaker 8: a glass of milk. You give an American consumer a 152 00:07:04,120 --> 00:07:06,280 Speaker 8: stimulus check, they will spend it and You're going to 153 00:07:06,320 --> 00:07:08,280 Speaker 8: have a surge of spending in the first half of 154 00:07:08,320 --> 00:07:10,800 Speaker 8: next year with limited supply because of all these terriff 155 00:07:10,840 --> 00:07:13,040 Speaker 8: and supply chain disruptions. You are going to get a 156 00:07:13,120 --> 00:07:15,280 Speaker 8: second round of inflation, which is going to sustain inflation 157 00:07:15,600 --> 00:07:19,000 Speaker 8: well above three percent, which begs the question of why 158 00:07:19,040 --> 00:07:22,480 Speaker 8: again is a FED cutting Well that if infation's heading 159 00:07:22,560 --> 00:07:23,760 Speaker 8: the wrong way slowly. 160 00:07:23,600 --> 00:07:24,920 Speaker 6: That was going my next question to you, what does 161 00:07:24,960 --> 00:07:26,600 Speaker 6: the FED do with this kind of data? 162 00:07:27,240 --> 00:07:28,720 Speaker 7: They should stay on hold. 163 00:07:29,000 --> 00:07:32,560 Speaker 8: There is I think there's very little argument that in 164 00:07:32,720 --> 00:07:35,720 Speaker 8: favor of the FED cutting rates. Rates are not abnormally high. 165 00:07:35,760 --> 00:07:37,520 Speaker 8: I don't know why they think three percent is a 166 00:07:37,560 --> 00:07:39,280 Speaker 8: neutral rate in the long run, It doesn't equate to 167 00:07:39,360 --> 00:07:42,400 Speaker 8: history before the pandemic. I think something four four and 168 00:07:42,440 --> 00:07:44,360 Speaker 8: a half percent is more of a neutral rate anyway, 169 00:07:44,760 --> 00:07:46,840 Speaker 8: But there is no urgency about cutting rates, and now 170 00:07:47,040 --> 00:07:49,560 Speaker 8: I think they will cut rates for political reasons, which 171 00:07:49,600 --> 00:07:51,880 Speaker 8: is very unfortunate. But I don't think they should based 172 00:07:51,880 --> 00:07:52,360 Speaker 8: on these data. 173 00:07:52,480 --> 00:07:54,760 Speaker 6: As you're talking, traders are actually adding to betts of 174 00:07:54,880 --> 00:07:57,960 Speaker 6: September fed raate cup because this basically came in in 175 00:07:58,080 --> 00:08:01,239 Speaker 6: line when it comes to inflation. Why for political reasons 176 00:08:01,280 --> 00:08:04,560 Speaker 6: when actually we saw a trend three months of not 177 00:08:04,680 --> 00:08:06,520 Speaker 6: so great unemployment numbers. 178 00:08:06,840 --> 00:08:09,160 Speaker 8: Well yeah, but if you look at the overall mosaic 179 00:08:09,600 --> 00:08:12,480 Speaker 8: of employment, it's still growing. And remember we've got to 180 00:08:12,560 --> 00:08:14,960 Speaker 8: labor supply problem too. And one of the things that 181 00:08:15,040 --> 00:08:17,560 Speaker 8: Jay Powell pointed out is he's not looking at payroll growth, 182 00:08:17,560 --> 00:08:19,559 Speaker 8: he's looking at the unemployment range. If you've got fewer 183 00:08:20,480 --> 00:08:22,560 Speaker 8: jobs being created, but we've got fewer workers, then you 184 00:08:22,640 --> 00:08:24,560 Speaker 8: still got a certain amount of inflationary pressure. You just 185 00:08:24,640 --> 00:08:28,240 Speaker 8: said that the growth potentially of the economy has gone down. Well, 186 00:08:28,440 --> 00:08:30,200 Speaker 8: they can't do anything about that. So if you're not 187 00:08:30,720 --> 00:08:33,520 Speaker 8: this economy is not going to spark a huge surge 188 00:08:33,559 --> 00:08:35,640 Speaker 8: in unemployment. And I think the basic point is by 189 00:08:35,679 --> 00:08:37,160 Speaker 8: the end of the year, we think maybe four and 190 00:08:37,160 --> 00:08:39,920 Speaker 8: a half percent unemployment, we think over three percent in inflation. 191 00:08:40,080 --> 00:08:43,440 Speaker 8: They're missing their inflation target by more than unemployment. Therefore 192 00:08:43,559 --> 00:08:45,160 Speaker 8: they shouldn't be come just. 193 00:08:45,160 --> 00:08:47,560 Speaker 2: Tanning this up, though, but you believe they will be cuttack. 194 00:08:47,760 --> 00:08:49,880 Speaker 2: So you've got a federal Reserve cutting interest rates at 195 00:08:49,880 --> 00:08:51,640 Speaker 2: a time when inflation is picking up. And the key 196 00:08:51,679 --> 00:08:54,199 Speaker 2: phrase you used with second round effects, you don't believe 197 00:08:54,240 --> 00:08:55,720 Speaker 2: this is a one off. You're actually going to see 198 00:08:55,720 --> 00:08:58,240 Speaker 2: second round effects in the first half of twenty six. 199 00:08:58,679 --> 00:08:59,880 Speaker 2: What's your market for you on something? 200 00:09:00,440 --> 00:09:03,679 Speaker 8: Well, so I think it's the Markt view is not 201 00:09:03,720 --> 00:09:06,240 Speaker 8: too bad because I think, for again, for political reasons, 202 00:09:06,240 --> 00:09:08,400 Speaker 8: I think unfortunately feder will cut twice this year, maybe 203 00:09:08,400 --> 00:09:10,480 Speaker 8: three times next year. They'll get going and cutting. It's 204 00:09:10,520 --> 00:09:12,280 Speaker 8: not going to really change the economy that much. But 205 00:09:12,360 --> 00:09:15,120 Speaker 8: if you bring long term bring short rates down enough, 206 00:09:15,440 --> 00:09:18,400 Speaker 8: it does push extra liquidity into the equity market. So 207 00:09:18,480 --> 00:09:21,439 Speaker 8: you could just maintain these bubbly acid markets. What we've 208 00:09:21,480 --> 00:09:24,000 Speaker 8: got is a tortoise of an economy and a hair 209 00:09:24,080 --> 00:09:27,119 Speaker 8: of a market, and we're just giving more sugar. 210 00:09:26,880 --> 00:09:27,280 Speaker 7: To the hair. 211 00:09:27,679 --> 00:09:30,040 Speaker 2: That's the stock story. What about a fixed income story 212 00:09:30,200 --> 00:09:32,040 Speaker 2: for bonds? Because we've had guest staff. The guests come 213 00:09:32,080 --> 00:09:34,120 Speaker 2: on this program and site get ready for speryeld curve. 214 00:09:34,320 --> 00:09:35,880 Speaker 2: The guy aggressive at the front end, you're going to 215 00:09:35,920 --> 00:09:38,640 Speaker 2: see yields LOWA. At the long end, you're going to 216 00:09:38,679 --> 00:09:39,840 Speaker 2: say a questionable development. 217 00:09:40,240 --> 00:09:43,120 Speaker 8: Well, you know it's again it's hard for a tortoise 218 00:09:43,120 --> 00:09:46,319 Speaker 8: psych economy to generate a really steep yield curve. So 219 00:09:46,920 --> 00:09:48,440 Speaker 8: but I think you could see rates move up a bit, 220 00:09:48,520 --> 00:09:52,079 Speaker 8: I wouldn't be I wouldn't be long duration here because 221 00:09:52,080 --> 00:09:54,160 Speaker 8: I don't think this economy is going to go in 222 00:09:54,200 --> 00:09:54,600 Speaker 8: for a session. 223 00:09:54,640 --> 00:09:57,120 Speaker 7: I think by the time that the tariffs really. 224 00:09:57,040 --> 00:09:59,760 Speaker 8: Hit going to be on the verge of physical stimulus 225 00:09:59,760 --> 00:10:01,640 Speaker 8: because of this income tax refund thing, and that will 226 00:10:01,720 --> 00:10:04,480 Speaker 8: keep this keep this economy moving forward. And if the 227 00:10:04,520 --> 00:10:06,880 Speaker 8: economy is moving forward, you got inflation printing at three, 228 00:10:07,120 --> 00:10:09,360 Speaker 8: you shouldn't really have a long bond lower than four two. 229 00:10:09,600 --> 00:10:11,160 Speaker 2: What do you think inflation is going to pay cat 230 00:10:11,280 --> 00:10:12,200 Speaker 2: in the next twelve months. 231 00:10:12,240 --> 00:10:14,079 Speaker 8: I think CPI is going to peek out about three 232 00:10:14,120 --> 00:10:16,400 Speaker 8: and a half percent and then hang there between three 233 00:10:16,480 --> 00:10:18,760 Speaker 8: three and a half percent through about June of next year, 234 00:10:18,760 --> 00:10:20,600 Speaker 8: and then find it's going to come down again because 235 00:10:20,800 --> 00:10:22,760 Speaker 8: this is sugar you know, these income tax refunds. 236 00:10:22,800 --> 00:10:25,000 Speaker 7: It's a sugar rush. It's not proteine. It will wear 237 00:10:25,000 --> 00:10:25,319 Speaker 7: her off. 238 00:10:25,360 --> 00:10:27,000 Speaker 8: And then by the end of next year, then I 239 00:10:27,040 --> 00:10:28,959 Speaker 8: think the economy is finding cuding it unless, of course, 240 00:10:29,000 --> 00:10:30,959 Speaker 8: you get some more stimulus. And that's really the problem, 241 00:10:31,000 --> 00:10:33,440 Speaker 8: because if the Fed keeps on cutting rates whenever, whenever, 242 00:10:33,640 --> 00:10:36,040 Speaker 8: you know, the other side of Washington asks them to 243 00:10:36,720 --> 00:10:39,640 Speaker 8: then it enables more and more rounds of fiscal stimulus 244 00:10:39,679 --> 00:10:41,560 Speaker 8: to always keep this economy a little bit too hot. 245 00:10:41,720 --> 00:10:43,600 Speaker 7: So it's not it's not you know, it's called inflammation. 246 00:10:43,720 --> 00:10:44,480 Speaker 7: Doctors don't like it. 247 00:10:44,760 --> 00:10:45,040 Speaker 2: David. 248 00:10:45,040 --> 00:10:45,920 Speaker 7: It's got a hair from you. 249 00:10:56,000 --> 00:10:59,520 Speaker 2: It's the nicest This morning, Chinese authorities urging local companies 250 00:10:59,559 --> 00:11:02,280 Speaker 2: to avoid using a Video's eight twenty chip. So its 251 00:11:02,320 --> 00:11:04,040 Speaker 2: just telling us here at Bloomberger the firms are being 252 00:11:04,080 --> 00:11:08,040 Speaker 2: discouraged from using the chips, especially for government related purposes. 253 00:11:08,160 --> 00:11:10,360 Speaker 2: Joining US snout to discuss as John Leber, if you 254 00:11:10,480 --> 00:11:12,480 Speaker 2: raise a group, John malcome to the program, sir. I 255 00:11:12,559 --> 00:11:14,679 Speaker 2: just wonder what the endgame has here for the Chinese 256 00:11:14,720 --> 00:11:16,560 Speaker 2: and what ultimately they're trying to achieve. 257 00:11:17,679 --> 00:11:19,480 Speaker 5: I think the end games that the Chinese want to 258 00:11:19,520 --> 00:11:21,679 Speaker 5: have their own chip and they don't want to be 259 00:11:21,720 --> 00:11:24,160 Speaker 5: dependent on the US tech stack. And that's one of 260 00:11:24,200 --> 00:11:27,679 Speaker 5: the reasons that Trump allowed these H twenty exports was 261 00:11:27,840 --> 00:11:30,040 Speaker 5: because he bought into the argument that if the US 262 00:11:30,600 --> 00:11:34,160 Speaker 5: dominates chip technology, and if the Chinese learned to rely 263 00:11:34,320 --> 00:11:36,679 Speaker 5: on that in their own technology stacks, then it brings them. 264 00:11:37,000 --> 00:11:39,520 Speaker 5: It gives the US more power, not less here and 265 00:11:39,600 --> 00:11:42,920 Speaker 5: if the Chinese recognized that argument, it's somewhat valid, and 266 00:11:43,040 --> 00:11:45,000 Speaker 5: so what they want to do is encourage people not 267 00:11:45,120 --> 00:11:47,440 Speaker 5: to use the American tech. And they know also how 268 00:11:47,520 --> 00:11:50,800 Speaker 5: vulnerable they are to things like the foreign direct Product 269 00:11:50,880 --> 00:11:53,800 Speaker 5: rule and the other rules that the US has used 270 00:11:54,120 --> 00:11:57,160 Speaker 5: to weaponize their own technology supply chain over the past 271 00:11:57,200 --> 00:11:59,920 Speaker 5: several years. And now that's the long term game here. 272 00:12:00,240 --> 00:12:02,319 Speaker 5: I think the H twenty is just one part of that. 273 00:12:03,200 --> 00:12:06,079 Speaker 5: But technological development is going to determine what happens here, 274 00:12:06,160 --> 00:12:08,240 Speaker 5: not necessarily export controls. 275 00:12:08,600 --> 00:12:11,640 Speaker 6: John when it comes to Nvidia and AMD selling these chips, 276 00:12:11,679 --> 00:12:14,520 Speaker 6: getting these export licenses to go back into China. 277 00:12:14,720 --> 00:12:16,280 Speaker 3: What kind of pushback have. 278 00:12:16,360 --> 00:12:19,200 Speaker 6: You heard in Washington from both individuals who are questioning 279 00:12:19,240 --> 00:12:22,080 Speaker 6: whether the fifteen percent revenue cash back to the United 280 00:12:22,120 --> 00:12:24,360 Speaker 6: States is legal and the China Hawks as well in 281 00:12:24,400 --> 00:12:25,280 Speaker 6: the Trump administration. 282 00:12:26,200 --> 00:12:28,599 Speaker 5: Yeah, I mean the fifteen percent revenue take makes it 283 00:12:28,720 --> 00:12:30,839 Speaker 5: look like to certain people, and I think this is 284 00:12:30,880 --> 00:12:33,400 Speaker 5: a valid argument that national security is now for sale. 285 00:12:33,600 --> 00:12:35,520 Speaker 5: I'm sure a lot of companies will be very happy 286 00:12:35,800 --> 00:12:38,559 Speaker 5: if they had the opportunity to buy their way out 287 00:12:38,600 --> 00:12:42,240 Speaker 5: of US regulations that otherwise ban them from doing business. 288 00:12:42,320 --> 00:12:44,439 Speaker 5: You know, in a way, this is a version of 289 00:12:44,520 --> 00:12:48,240 Speaker 5: a carbon tax, where you're selling you're purchasing the right 290 00:12:48,320 --> 00:12:52,080 Speaker 5: to pollute. Here, you're purchasing the right to undermine America's 291 00:12:52,160 --> 00:12:55,480 Speaker 5: national security by selling these chips to the Chinese, which 292 00:12:55,520 --> 00:12:57,800 Speaker 5: a lot of China Hawks in Washington are not happy 293 00:12:57,840 --> 00:13:00,720 Speaker 5: about because they believe that this is a needabling Chinese 294 00:13:00,760 --> 00:13:03,719 Speaker 5: technological development. This is a contrary to the policy of 295 00:13:03,760 --> 00:13:06,800 Speaker 5: the Biden administration and up until last week, the policy 296 00:13:06,840 --> 00:13:09,280 Speaker 5: of the Trump administration, which was of course to deny 297 00:13:09,440 --> 00:13:11,720 Speaker 5: the Chinese access to these chips. This is a very 298 00:13:11,760 --> 00:13:14,440 Speaker 5: controversial move. It's never been done before as far as 299 00:13:14,520 --> 00:13:17,280 Speaker 5: we're aware, and you know there's Trump's getting a lot 300 00:13:17,320 --> 00:13:21,040 Speaker 5: of pushback, both from the security hawks and also people 301 00:13:21,080 --> 00:13:24,280 Speaker 5: who argue this is an illegal export tax, which I'm 302 00:13:24,320 --> 00:13:27,240 Speaker 5: pretty confident they'll find their way around. But this is 303 00:13:27,320 --> 00:13:28,640 Speaker 5: something new we've never seen before. 304 00:13:28,920 --> 00:13:30,559 Speaker 3: Do you think this is a one off or we're 305 00:13:30,600 --> 00:13:32,400 Speaker 3: going to see more policy. 306 00:13:32,160 --> 00:13:34,880 Speaker 5: Like this, that's a good question. I think we don't 307 00:13:34,960 --> 00:13:37,560 Speaker 5: know yet. I don't think there's a lot of areas 308 00:13:37,760 --> 00:13:41,360 Speaker 5: where this type of thing is doable, where you know 309 00:13:41,480 --> 00:13:45,920 Speaker 5: you've got an export ban that somebody wants to that 310 00:13:46,280 --> 00:13:48,040 Speaker 5: they're offering the chance to raise some revenue off of 311 00:13:48,120 --> 00:13:50,000 Speaker 5: So I'm not sure where else we could see it, 312 00:13:50,080 --> 00:13:51,640 Speaker 5: but we still have. You Know, one of the things 313 00:13:51,640 --> 00:13:53,920 Speaker 5: that's really surprising to me to remember all the time 314 00:13:54,040 --> 00:13:55,640 Speaker 5: is there's still three and a half years left in 315 00:13:55,679 --> 00:13:58,760 Speaker 5: this administration, and we know Trump loves to do these 316 00:13:58,840 --> 00:14:01,240 Speaker 5: types of deals. So it wouldn't surprise me to see 317 00:14:01,280 --> 00:14:02,959 Speaker 5: this show up in other areas. It's just hard to 318 00:14:03,000 --> 00:14:04,000 Speaker 5: predict which ones yet. 319 00:14:04,160 --> 00:14:05,839 Speaker 2: Well, John, let's talk about what we learned from the 320 00:14:06,080 --> 00:14:09,640 Speaker 2: first term under President Trump. In Trump Volume one, there 321 00:14:09,800 --> 00:14:12,760 Speaker 2: was a coherent ideology governing trade policy. Whether you liked 322 00:14:12,800 --> 00:14:15,480 Speaker 2: it or not, I happened to be sympathetic to the 323 00:14:15,520 --> 00:14:18,360 Speaker 2: concerns they had about reciprocity in a country like China 324 00:14:18,360 --> 00:14:21,240 Speaker 2: who had put barriers to entry up all over the place. John, 325 00:14:21,280 --> 00:14:24,320 Speaker 2: Now I'm struggling with what the framework is exactly this 326 00:14:24,440 --> 00:14:24,960 Speaker 2: time around. 327 00:14:25,000 --> 00:14:26,680 Speaker 7: How you explaining this to people at the moment. 328 00:14:27,880 --> 00:14:29,760 Speaker 5: Yeah, I mean a huge difference between this term and 329 00:14:29,840 --> 00:14:32,280 Speaker 5: last term is you don't have the strong personality of 330 00:14:32,360 --> 00:14:35,160 Speaker 5: Robert Leitheiser directing a lot of Trump's trade policies. What 331 00:14:35,320 --> 00:14:38,200 Speaker 5: you have instead is the strong personality of Donald Trump 332 00:14:38,440 --> 00:14:41,960 Speaker 5: directing these policies, and Trump is going every which way, 333 00:14:42,440 --> 00:14:45,800 Speaker 5: and you know, it's obvious that in some cases he's 334 00:14:45,880 --> 00:14:48,000 Speaker 5: motivated to get a deal. We saw that with all 335 00:14:48,080 --> 00:14:50,920 Speaker 5: these countries pre August first, and in other cases you 336 00:14:51,000 --> 00:14:54,760 Speaker 5: see personal relationships starting to sour and take over the 337 00:14:55,520 --> 00:14:58,040 Speaker 5: ability for the US to cut deals, like what's happening 338 00:14:58,120 --> 00:14:59,800 Speaker 5: with the US and India. 339 00:15:00,200 --> 00:15:00,320 Speaker 3: Now. 340 00:15:00,640 --> 00:15:02,560 Speaker 5: I think at the core of it, though Trump remains 341 00:15:02,600 --> 00:15:05,880 Speaker 5: a very transactional guy. He's somebody that wants to see 342 00:15:06,360 --> 00:15:09,560 Speaker 5: higher tariffs, and he's somebody that wants to do deals 343 00:15:09,640 --> 00:15:11,880 Speaker 5: in order to keep those in order to get those tariffs. 344 00:15:12,720 --> 00:15:14,640 Speaker 5: With China, you know, they've been able to leverage their 345 00:15:14,760 --> 00:15:18,480 Speaker 5: use of rare earths and critical minerals to great effect. 346 00:15:18,840 --> 00:15:21,600 Speaker 5: The US national security community is in a panic about 347 00:15:21,680 --> 00:15:25,160 Speaker 5: its ability to build weapons in the United States because 348 00:15:25,400 --> 00:15:27,840 Speaker 5: of the Chow points that China has been using to 349 00:15:27,960 --> 00:15:31,760 Speaker 5: deny the US those critical minerals and Trump himself, and 350 00:15:32,000 --> 00:15:33,880 Speaker 5: that's driving a lot of the China policy right now. 351 00:15:33,920 --> 00:15:35,840 Speaker 5: So I don't think there's a consistent strain that you 352 00:15:35,880 --> 00:15:38,040 Speaker 5: can pull through here, but it is worth pointing out 353 00:15:38,240 --> 00:15:40,720 Speaker 5: that Trump ran on a campaign of higher tariffs, and 354 00:15:40,840 --> 00:15:43,280 Speaker 5: now the US is getting them with an average effective 355 00:15:43,320 --> 00:15:46,120 Speaker 5: rate somewhere in the mid to high teens. And that's 356 00:15:46,160 --> 00:15:49,840 Speaker 5: a huge shift that reflects Trump's own personality and his 357 00:15:49,960 --> 00:15:50,880 Speaker 5: own policy parpers. 358 00:15:50,880 --> 00:15:53,280 Speaker 2: Well, let's just sit on that transactional nature. Nothing new, 359 00:15:53,400 --> 00:15:56,960 Speaker 2: quite well understood. Where people struggle, is what defines whether 360 00:15:57,040 --> 00:15:59,680 Speaker 2: it's a good transaction or a bad transaction, and what 361 00:15:59,800 --> 00:16:02,160 Speaker 2: kind of feedback loops is the president's sensitive too. 362 00:16:03,680 --> 00:16:05,880 Speaker 5: Well, Clearly he's sensitive to feedback from the private sector. 363 00:16:05,920 --> 00:16:07,840 Speaker 5: I mean, the reason that the Liberation Day tariffs were 364 00:16:07,880 --> 00:16:09,920 Speaker 5: paused in the first place was because of what he 365 00:16:10,000 --> 00:16:12,200 Speaker 5: called the yippiness in the bond market. So that's one 366 00:16:12,360 --> 00:16:15,320 Speaker 5: type of feedback. Another type of feedback he's clearly sensitive 367 00:16:15,320 --> 00:16:18,320 Speaker 5: to is direct feedback from the business community. His meeting 368 00:16:18,360 --> 00:16:21,360 Speaker 5: with Jensen Wong directly led to the selling of these 369 00:16:21,480 --> 00:16:24,280 Speaker 5: H twenty chips into China. And I also think that 370 00:16:24,360 --> 00:16:27,320 Speaker 5: he's sensitive to the positive feedback he's getting from the 371 00:16:27,400 --> 00:16:31,320 Speaker 5: deals that are happening where his US trading partners aren't 372 00:16:31,320 --> 00:16:34,200 Speaker 5: putting up any real resistance here, nobody's retaliating. I think 373 00:16:34,240 --> 00:16:37,400 Speaker 5: that's an important point, is that he's faced virtually zero retaliation, 374 00:16:37,720 --> 00:16:40,440 Speaker 5: and that's allowed him to get away with these higher tariffs. 375 00:16:41,040 --> 00:16:43,840 Speaker 5: And I think going forward, the feedback that might cause 376 00:16:43,880 --> 00:16:47,680 Speaker 5: him the reverse course would be economic weakness, major complaints 377 00:16:47,720 --> 00:16:51,200 Speaker 5: from the US business community, big businesses who are going 378 00:16:51,240 --> 00:16:53,000 Speaker 5: to have the ear of the president, and I think 379 00:16:53,040 --> 00:16:55,360 Speaker 5: that that means that probably small businesses are getting left 380 00:16:55,400 --> 00:16:57,960 Speaker 5: out of this because he's not necessarily hearing their voices. 381 00:16:58,160 --> 00:16:59,680 Speaker 6: John, when it comes to the trade agreement, we have 382 00:16:59,760 --> 00:17:03,120 Speaker 6: core have the punting of the negotiations. When it comes 383 00:17:03,200 --> 00:17:06,680 Speaker 6: to China and the United States, you mentioned the victory 384 00:17:06,760 --> 00:17:10,440 Speaker 6: really of Beijing using those rare earth magnets in lieu 385 00:17:10,520 --> 00:17:13,040 Speaker 6: of making sure they can loosen up export controls. Would 386 00:17:13,040 --> 00:17:18,400 Speaker 6: you say Beijing has the leverage going into November, Not necessarily. 387 00:17:18,480 --> 00:17:19,800 Speaker 5: I mean, I think you have to be mindful of 388 00:17:19,800 --> 00:17:21,919 Speaker 5: the fact that China is going to face higher tariffs. 389 00:17:22,000 --> 00:17:25,240 Speaker 5: They're just comfortable their system is prepared for a level 390 00:17:25,680 --> 00:17:27,760 Speaker 5: of higher tariffs and they can deal with tariffs in 391 00:17:27,840 --> 00:17:30,680 Speaker 5: the thirty percent range, which is where we think tariffs 392 00:17:30,720 --> 00:17:33,000 Speaker 5: on China are going to end up here. However, you know, 393 00:17:33,000 --> 00:17:34,479 Speaker 5: I don't want to play down the fact that they 394 00:17:34,560 --> 00:17:38,680 Speaker 5: have been able to play this critical mineral game very 395 00:17:38,800 --> 00:17:41,320 Speaker 5: very well in the US is obviously very serious sensitive 396 00:17:41,359 --> 00:17:44,280 Speaker 5: to it. But this is not necessarily a positive story 397 00:17:44,320 --> 00:17:45,480 Speaker 5: from the Chinese economy either. 398 00:17:45,880 --> 00:17:47,680 Speaker 6: When it comes to what the United States wants to 399 00:17:47,720 --> 00:17:50,560 Speaker 6: see out of China. They're dealing with export controls, They're 400 00:17:50,600 --> 00:17:52,760 Speaker 6: dealing with rare eergs. The President the other day was 401 00:17:52,880 --> 00:17:56,399 Speaker 6: truthing about soybeans. What else is on the list before 402 00:17:56,480 --> 00:18:00,600 Speaker 6: potentially she and Trump can meet and get to this 403 00:18:00,760 --> 00:18:01,960 Speaker 6: grand bargain of a deal. 404 00:18:03,040 --> 00:18:04,720 Speaker 5: Yeah, I mean, we don't see a grand bargain. I 405 00:18:04,720 --> 00:18:06,600 Speaker 5: think we don't think a grand bargain is necessarily the 406 00:18:06,680 --> 00:18:08,520 Speaker 5: right way to describe this. We're thinking about this as 407 00:18:08,520 --> 00:18:10,840 Speaker 5: a very transactional deal. So the US is going to 408 00:18:10,920 --> 00:18:14,040 Speaker 5: raise its tariff levels on Chinese goods. China will make 409 00:18:14,080 --> 00:18:17,000 Speaker 5: some purchase commitments about market access. They're not going to 410 00:18:17,040 --> 00:18:20,120 Speaker 5: fundamentally reform their economy, which was of course the goal 411 00:18:20,280 --> 00:18:22,440 Speaker 5: in Trump won and the goal of some of the 412 00:18:22,560 --> 00:18:26,080 Speaker 5: Chinahawks in this administration. But what they're going to do 413 00:18:26,200 --> 00:18:29,159 Speaker 5: is make enough promises to buy enough time that they 414 00:18:29,200 --> 00:18:31,320 Speaker 5: can live with these thirty percent tariffs and then hope 415 00:18:31,359 --> 00:18:34,880 Speaker 5: to fight that out in the next presidential term. I'm 416 00:18:34,920 --> 00:18:37,720 Speaker 5: not at all convinced these tariffs are going down even 417 00:18:37,880 --> 00:18:40,160 Speaker 5: after President Trump's term is over. None of the China 418 00:18:40,200 --> 00:18:43,000 Speaker 5: tariffs went down after his first term, and these things 419 00:18:43,080 --> 00:18:44,200 Speaker 5: have a way of being enduring. 420 00:18:44,600 --> 00:18:46,719 Speaker 2: John, I appreciate the update, the reaction from you, sir 421 00:18:46,840 --> 00:18:49,000 Speaker 2: as always, thank you, John labor there if you write 422 00:18:49,000 --> 00:19:00,880 Speaker 2: your group and listen with the economy of the Hoover 423 00:19:01,000 --> 00:19:03,480 Speaker 2: Institution and the former senior advisor for China and the 424 00:19:03,520 --> 00:19:07,040 Speaker 2: Commis Department under President Biden. Elizabeth, welcome back to the program. 425 00:19:07,160 --> 00:19:07,960 Speaker 7: It's going to hear from you. 426 00:19:08,160 --> 00:19:10,040 Speaker 2: I want to lead on your expertise here and your 427 00:19:10,119 --> 00:19:12,520 Speaker 2: experience and something I know you're thinking about the moment. 428 00:19:12,720 --> 00:19:15,760 Speaker 2: Are we blurring the lines between national security and trade? 429 00:19:17,680 --> 00:19:20,240 Speaker 1: Yeah, I mean I think that is a question that 430 00:19:20,359 --> 00:19:23,520 Speaker 1: was clearly raised over the past week or two with 431 00:19:23,640 --> 00:19:29,439 Speaker 1: the President's President Trump's decision to reverse his administration's earlier 432 00:19:29,480 --> 00:19:32,920 Speaker 1: decision April decision to put the export controls on in 433 00:19:33,040 --> 00:19:36,359 Speaker 1: Vidia's H twenty chit. You know, typically you put an 434 00:19:36,359 --> 00:19:41,159 Speaker 1: export control on technology that you believe could contribute to 435 00:19:42,280 --> 00:19:46,120 Speaker 1: you know, a country or companies in that country developing 436 00:19:46,160 --> 00:19:47,800 Speaker 1: military capabilities. 437 00:19:47,240 --> 00:19:49,080 Speaker 9: That will undermine your national security. 438 00:19:49,160 --> 00:19:49,720 Speaker 4: So that was the. 439 00:19:50,160 --> 00:19:54,000 Speaker 1: Decision that the administration made just in April, and then 440 00:19:54,080 --> 00:19:57,480 Speaker 1: we saw, you know, just earlier this month, that the 441 00:19:57,560 --> 00:20:02,160 Speaker 1: President reversed that decision without any explanation as to why 442 00:20:02,680 --> 00:20:05,119 Speaker 1: that decision was being reversed. And I think it points 443 00:20:05,160 --> 00:20:07,439 Speaker 1: to a larger challenge with its administration and that they 444 00:20:07,480 --> 00:20:10,840 Speaker 1: have not yet articulated a real China strategy. We don't 445 00:20:10,960 --> 00:20:14,159 Speaker 1: know whether this president considers China to continue to be 446 00:20:14,359 --> 00:20:17,280 Speaker 1: the greatest long term strategic threat, which is something that 447 00:20:17,400 --> 00:20:20,760 Speaker 1: his first administration did put out there as part of 448 00:20:20,800 --> 00:20:24,879 Speaker 1: a China strategy that helps an administration set priorities, you know, 449 00:20:25,119 --> 00:20:26,679 Speaker 1: understand the trade offs that you're. 450 00:20:26,560 --> 00:20:27,840 Speaker 9: Going to make or not make. 451 00:20:28,440 --> 00:20:31,399 Speaker 1: But without that kind of overarching framework, we don't know, 452 00:20:31,800 --> 00:20:33,880 Speaker 1: you know, where this president is coming. 453 00:20:33,720 --> 00:20:37,560 Speaker 9: From, where he's going, whether everything is up for negotiation moving. 454 00:20:37,440 --> 00:20:40,240 Speaker 6: Forward, Elizabeth, given your work in the Commerce Department, have 455 00:20:40,320 --> 00:20:43,760 Speaker 6: you ever seen anything like this, some corporation able to 456 00:20:43,800 --> 00:20:46,359 Speaker 6: get their hands on a license because they're willing to 457 00:20:46,400 --> 00:20:48,639 Speaker 6: give some of the revenue back to the US government. 458 00:20:49,840 --> 00:20:52,240 Speaker 1: No, I mean, that was certainly a new twist, but 459 00:20:52,359 --> 00:20:54,919 Speaker 1: even taking one step back from that, it's a new 460 00:20:55,000 --> 00:20:58,520 Speaker 1: twist to have the head of the Bureau of Industry 461 00:20:58,560 --> 00:21:02,240 Speaker 1: and Security, Jeffick Kessler, go to London to be part 462 00:21:02,400 --> 00:21:05,280 Speaker 1: of the trade negotiations with China. You know, in the 463 00:21:05,320 --> 00:21:08,600 Speaker 1: Bide administration and frankly, in all previous administrations, you would 464 00:21:08,680 --> 00:21:13,920 Speaker 1: never consider linking export controls with trade negotiations. Export controls 465 00:21:13,960 --> 00:21:16,800 Speaker 1: deal with broad issues of foreign policy and national security. 466 00:21:17,240 --> 00:21:19,960 Speaker 1: You know, tying them in some way to trade really 467 00:21:20,040 --> 00:21:22,879 Speaker 1: makes no sense. But that's what this administration has opened, 468 00:21:22,920 --> 00:21:26,240 Speaker 1: the sort of the door to So I think it's 469 00:21:26,280 --> 00:21:29,720 Speaker 1: a it's a bigger problem, even more than just this 470 00:21:29,880 --> 00:21:30,760 Speaker 1: one off decision. 471 00:21:30,880 --> 00:21:33,400 Speaker 9: Is just this new, you know world that we found 472 00:21:33,440 --> 00:21:33,920 Speaker 9: ourselves in. 473 00:21:34,320 --> 00:21:37,320 Speaker 1: And as far as the fifteen percent revenue, you know, 474 00:21:37,520 --> 00:21:40,440 Speaker 1: the sort of you know, Nvidian A and D having 475 00:21:40,480 --> 00:21:43,400 Speaker 1: to give fifteen percent of their China the revenues from 476 00:21:43,480 --> 00:21:46,199 Speaker 1: the sale of these chips back to the US government. 477 00:21:46,400 --> 00:21:49,920 Speaker 1: Of course, that only sort of amplifieser reinforces the sense 478 00:21:50,000 --> 00:21:53,520 Speaker 1: that somehow our national security is up for sale, because 479 00:21:53,640 --> 00:21:55,560 Speaker 1: you know, does that mean that all chips moving forward, 480 00:21:55,640 --> 00:21:58,159 Speaker 1: or even other goods that the United States you know, 481 00:21:58,359 --> 00:22:00,840 Speaker 1: sells to China, can all that be subject to some 482 00:22:01,040 --> 00:22:04,080 Speaker 1: kind of new tax of some sort, and the revenues 483 00:22:04,119 --> 00:22:05,520 Speaker 1: will have to come back to the US government. 484 00:22:05,760 --> 00:22:07,920 Speaker 9: It really is fundamentally. 485 00:22:07,440 --> 00:22:11,080 Speaker 1: Changing the nature of the inter relationship between national security 486 00:22:11,080 --> 00:22:13,040 Speaker 1: and trade, and frankly just trade generally. 487 00:22:13,400 --> 00:22:16,720 Speaker 6: There's a number of issues brewing between these two economies. Fentanyl, 488 00:22:17,000 --> 00:22:21,840 Speaker 6: China continuously buying Russian and Iranian crude, disagreements about US 489 00:22:22,000 --> 00:22:25,440 Speaker 6: business operations in China when they sit down. What do 490 00:22:25,520 --> 00:22:28,760 Speaker 6: you think is the US's main goal out of this relationship. 491 00:22:30,040 --> 00:22:31,640 Speaker 1: I mean, I would have said in the first Trump 492 00:22:31,640 --> 00:22:35,680 Speaker 1: administration that there was an emphasis placed first on, of course, 493 00:22:35,880 --> 00:22:41,240 Speaker 1: securing these big purchase agreements that again President Trump seems 494 00:22:41,280 --> 00:22:44,480 Speaker 1: to place as a top priority. He mentioned just yesterday 495 00:22:44,520 --> 00:22:49,240 Speaker 1: or the day before, having China quadruple its purchases of soybeans. 496 00:22:49,280 --> 00:22:52,240 Speaker 9: Of course, China's already diversified away from the US. 497 00:22:52,359 --> 00:22:54,720 Speaker 1: It gets seventy percent or more of its soy beans 498 00:22:54,760 --> 00:22:58,000 Speaker 1: for Brazil now because of the tariffs that the president began, 499 00:22:58,480 --> 00:23:00,960 Speaker 1: the tariff war that he started when he first came 500 00:23:01,160 --> 00:23:01,680 Speaker 1: into power. 501 00:23:01,720 --> 00:23:05,360 Speaker 9: But I think number one, yes, getting more purchases from 502 00:23:05,440 --> 00:23:05,959 Speaker 9: the Chinese. 503 00:23:06,000 --> 00:23:09,359 Speaker 1: But I think also the US wants to secure and 504 00:23:09,480 --> 00:23:13,399 Speaker 1: stable supply of rare earth elements from China, which are 505 00:23:13,520 --> 00:23:18,080 Speaker 1: of course essential for both our national security and technology industries. 506 00:23:18,760 --> 00:23:21,080 Speaker 1: And we saw what happened when China put the squeeze 507 00:23:21,119 --> 00:23:24,600 Speaker 1: on those, you know earlier, just a month or two ago. 508 00:23:25,560 --> 00:23:27,840 Speaker 1: You know, companies in the United States really began to 509 00:23:27,880 --> 00:23:30,880 Speaker 1: feel the pinch. So I think that's probably the second priority. 510 00:23:30,960 --> 00:23:33,159 Speaker 1: And then all of the trade adjacent issues that you 511 00:23:33,359 --> 00:23:37,919 Speaker 1: just mentioned, fentanyl, you know, China's economic support for Russia 512 00:23:38,520 --> 00:23:42,320 Speaker 1: in its war of aggression against Ukraine, you know, TikTok 513 00:23:42,800 --> 00:23:45,639 Speaker 1: is still standing out there. But I think those fundamental 514 00:23:45,760 --> 00:23:49,480 Speaker 1: issues around the Chinese economy, things like China's export of 515 00:23:49,520 --> 00:23:53,520 Speaker 1: its overcapacity in many areas of core technologies, I think 516 00:23:53,520 --> 00:23:55,120 Speaker 1: those are going to be very difficult for the Trump 517 00:23:55,160 --> 00:23:57,480 Speaker 1: administration to make progress on. I don't think they have 518 00:23:57,640 --> 00:24:00,560 Speaker 1: the leverage that they need, or maybe that they even 519 00:24:00,600 --> 00:24:03,480 Speaker 1: think they have to get China to sort of fundamentally 520 00:24:03,640 --> 00:24:05,439 Speaker 1: change the way that it does business. 521 00:24:05,600 --> 00:24:07,200 Speaker 2: We're up against the clock, heare. But in the forty 522 00:24:07,240 --> 00:24:09,800 Speaker 2: five seconds we have left, Elizabeth, why has it been 523 00:24:09,840 --> 00:24:12,160 Speaker 2: so difficult to convince the Chinese they need to rebalance 524 00:24:12,200 --> 00:24:14,840 Speaker 2: their economy when so many economists agree that it might 525 00:24:14,880 --> 00:24:15,439 Speaker 2: be good for them. 526 00:24:17,080 --> 00:24:18,879 Speaker 1: I mean, I think she Jinping has a vision of 527 00:24:19,119 --> 00:24:22,400 Speaker 1: how the Chinese economy should work in which is reliant 528 00:24:22,480 --> 00:24:26,720 Speaker 1: on exports and have the investment investment now into core technologies, 529 00:24:26,840 --> 00:24:29,400 Speaker 1: and he believes it is working for the Chinese economy 530 00:24:29,880 --> 00:24:33,680 Speaker 1: and is willing to suppress Chinese consumer demand and Chinese 531 00:24:33,760 --> 00:24:36,480 Speaker 1: incomes to achieve what he believes will be will put 532 00:24:36,560 --> 00:24:39,320 Speaker 1: China in a stronger long term putting moving forward. 533 00:24:39,800 --> 00:24:43,720 Speaker 2: Elizabeth Economy of the Hoover Institution, Elizabeth, thank you appreciate it. 534 00:24:43,800 --> 00:24:47,760 Speaker 2: As always, this is the Bloomberg Surveillance podcast, bringing you 535 00:24:48,200 --> 00:24:51,560 Speaker 2: the best in markets, economics, and geopolitics. You can watch 536 00:24:51,600 --> 00:24:54,360 Speaker 2: the show live on Bloomberg TV weekday mornings from six 537 00:24:54,400 --> 00:24:57,960 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, 538 00:24:58,280 --> 00:25:01,080 Speaker 2: Spotify or anywhere else you lists, and as always on 539 00:25:01,119 --> 00:25:08,040 Speaker 2: the Bloomberg Terminal and the Bloomberg Business out Mm hmm