WEBVTT - Bloomberg Surveillance TV: August 12th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.400 Bloomberg Terminal and the Bloomberg Business App. Tiffany Wannaga Pimpos 0:00:37.640 --> 0:00:39.440 is going to join us in the meantime. Tiffany, Welcome 0:00:39.479 --> 0:00:41.720 to the program. Is the store still open for a 0:00:41.800 --> 0:00:43.240 Rake Cup in September? 0:00:45.520 --> 0:00:45.760 Yeah? 0:00:45.800 --> 0:00:48.000 I mean, I think this CPI was completely in line 0:00:48.040 --> 0:00:52.120 with expectations how we've characterized the sort of Terra related 0:00:52.159 --> 0:00:55.760 pass through. The evidence is that it's happening, but it's 0:00:55.800 --> 0:00:59.280 happening slower than I think many people expected going back 0:00:59.320 --> 0:01:03.760 to April, when when the more dramatic TERRFF announcements were 0:01:03.800 --> 0:01:09.320 first implemented or announced. It's happening more slowly and across industries, 0:01:09.600 --> 0:01:11.600 you know, it's it's more uneven, you know. So I 0:01:11.600 --> 0:01:13.800 think the broader story here that we're still seeing is 0:01:13.840 --> 0:01:17.240 that it's very concentrated within goods, it's happening slowly, and 0:01:17.280 --> 0:01:20.679 outside of that, you know, inflationary pressures look very manageable. 0:01:21.040 --> 0:01:23.520 So I think for a federal reserve, that is a 0:01:23.640 --> 0:01:24.479 very good sign. 0:01:24.840 --> 0:01:25.000 You know. 0:01:25.040 --> 0:01:28.440 In addition to that, there's I would argue, better news 0:01:28.480 --> 0:01:31.280 in terms of the so called second round effects with 0:01:31.560 --> 0:01:34.680 higher prices leading to higher wages and getting. 0:01:34.400 --> 0:01:35.720 More into the inflationary process. 0:01:35.720 --> 0:01:40.520 We've actually seen inflation expectations from various surveys start to moderate. 0:01:40.600 --> 0:01:43.559 The University of Michigan survey, which we'll get later this week, 0:01:43.840 --> 0:01:46.480 the longer term inflation expectation index for that one had 0:01:46.800 --> 0:01:49.600 accelerated more, but it's moderated more recently. So I think 0:01:49.640 --> 0:01:52.400 all of this points to, you know, a central bank 0:01:52.520 --> 0:01:56.080 that can get on with normalizing policy rates back to neutral. 0:01:56.200 --> 0:01:58.360 It's definitely something we've been exploring throughund the whole of 0:01:58.360 --> 0:02:00.600 this morning, and to be fair, over the last several months. 0:02:00.640 --> 0:02:04.400 Is whether tariff delayed. That's a taroft story is delayed 0:02:04.440 --> 0:02:07.880 by the fact that we've seen fantastic infantry management from 0:02:07.880 --> 0:02:10.360 some of the retailers at the moment, and that maybe 0:02:10.400 --> 0:02:12.440 we haven't seen the full extent of this. When would 0:02:12.440 --> 0:02:14.799 you get comfortable that we've seen the limits of it all. 0:02:17.160 --> 0:02:19.320 Yeah, I mean, I think, like you know, we expect 0:02:19.520 --> 0:02:21.640 a good portion of the pass through over the next 0:02:21.680 --> 0:02:24.320 several months. But I think the bottom line is is 0:02:24.680 --> 0:02:28.560 that companies have room. It appears that companies have room 0:02:29.240 --> 0:02:32.360 as a result of still high margins coming out of 0:02:32.360 --> 0:02:35.160 the pandemic. Companies have room to sort of more slowly 0:02:35.240 --> 0:02:38.120 pass this on to consumers. And and so what that 0:02:38.160 --> 0:02:40.200 means is that, you know, goods inflation could be a 0:02:40.200 --> 0:02:43.840 little bit more persistent over time, but you're not necessarily 0:02:43.880 --> 0:02:47.840 going to have that bigger surge that many people expected 0:02:47.960 --> 0:02:50.480 as you get that faster price level adjustment this year. 0:02:50.760 --> 0:02:52.120 So I think for the FED, I think that's all 0:02:52.120 --> 0:02:54.119 good news. You know. The other thing that we see 0:02:54.160 --> 0:02:56.080 when we look at you know, a range of data, 0:02:56.440 --> 0:03:00.280 you know, is that companies so far are absorbing we 0:03:00.320 --> 0:03:03.320 think the lions share of the additional costs of tariffs, 0:03:03.520 --> 0:03:06.120 and as I mentioned, they can do it. Their margins 0:03:06.200 --> 0:03:10.440 were elevated post pandemic. That has remained the case, and 0:03:10.480 --> 0:03:12.560 so they do have room here. You know, at least 0:03:12.560 --> 0:03:16.800 the largest companies have room to sort of manage this process, 0:03:16.840 --> 0:03:18.120 and we think that's what they're doing. 0:03:18.200 --> 0:03:19.280 You know. The other thing. 0:03:19.240 --> 0:03:22.960 Is is the tax legislation that was recently passed, the 0:03:22.960 --> 0:03:27.400 One Big Beautiful Bill, that is, you know, reducing the 0:03:27.480 --> 0:03:30.960 effective tax rates for a lot of companies, especially those 0:03:30.960 --> 0:03:32.720 companies that are capital intensive. 0:03:32.800 --> 0:03:33.840 They invest a lot. 0:03:34.040 --> 0:03:38.320 They're getting you know, upfront expensing tax credits and that 0:03:38.400 --> 0:03:41.480 will help offset the impact of the tariffs as well. 0:03:41.480 --> 0:03:43.840 A lot of those tax credits were retroactive for twenty 0:03:43.880 --> 0:03:46.560 twenty five. So all of that just means that companies 0:03:46.600 --> 0:03:49.200 do have a little bit of flexibility here and can 0:03:49.320 --> 0:03:50.440 manage the pass through rate. 0:03:50.880 --> 0:03:53.120 So, Timmy, are you basically saying that because of the 0:03:53.120 --> 0:03:55.480 One Big Beautiful Bill, companies are able to eat more 0:03:55.520 --> 0:03:57.680 of the higher terifts from this administration. 0:04:00.080 --> 0:04:02.200 Yeah, I mean, I certainly think that that's the case. 0:04:02.600 --> 0:04:06.400 You know. Now, the you know, what we estimate in 0:04:06.480 --> 0:04:09.600 terms of the tax savings in aggregate for twenty twenty 0:04:09.640 --> 0:04:13.600 five is around you know, one hundred and fifty billion. 0:04:14.240 --> 0:04:19.440 The tariff tax collections that are happening, we annualize at 0:04:19.440 --> 0:04:22.880 about three hundred and fifty billions. So the tax legislation 0:04:22.960 --> 0:04:26.599 is not completely offsetting the additional taxes paid by tariffs, 0:04:26.880 --> 0:04:29.880 but it certainly is in mitigating some of it. And 0:04:30.160 --> 0:04:32.200 so that's why, you know, we've argued you'll still see 0:04:32.240 --> 0:04:36.480 we think some pass through of higher tariffs on two prices, 0:04:36.560 --> 0:04:39.320 you'll get some price adjustment. But we think the risk 0:04:39.400 --> 0:04:41.839 here is just that it takes longer than many people 0:04:41.880 --> 0:04:44.520 are expecting, you know, the inflationary effects of this in 0:04:44.560 --> 0:04:47.159 the back half of this year somewhat less, you know, 0:04:47.160 --> 0:04:47.760 and again. 0:04:47.600 --> 0:04:49.640 That just sets the federal reserve up. 0:04:49.600 --> 0:04:55.360 To you know, to continues to restart its cutting cycle 0:04:55.760 --> 0:04:58.440 to get back ultimately to neutral policy rates. 0:04:58.480 --> 0:05:00.440 Tiffany Wold, thank you. 0:05:00.520 --> 0:05:02.520 David Kenny, a JP Mork and Asset Management with us 0:05:02.520 --> 0:05:04.480 around a table with David, good morning. Not going to 0:05:04.520 --> 0:05:06.160 ask you that question. I just want to ask you 0:05:06.240 --> 0:05:08.640 the following. When will you be comfortable that we've seen 0:05:08.640 --> 0:05:10.520 the limits of this? How many more months of data 0:05:10.600 --> 0:05:11.039 do you need? 0:05:11.960 --> 0:05:12.920 We're just getting started. 0:05:13.000 --> 0:05:15.160 I mean, what we saw today was plenty of inflation 0:05:15.440 --> 0:05:17.599 without tariff effects. We didn't have a big increase in 0:05:17.640 --> 0:05:19.680 new car prices. We never big increasing in a paro 0:05:19.720 --> 0:05:22.159 of prices. But let's look at where we did see 0:05:22.160 --> 0:05:25.120 an increase. Airline fares will come down a lot because the. 0:05:25.160 --> 0:05:26.360 Airline industry was very weak. 0:05:26.400 --> 0:05:28.600 But if you look at the recent data on people 0:05:28.680 --> 0:05:32.799 going through TSA checkpoints, it's firmed up, and so domestic 0:05:32.839 --> 0:05:35.560 airline travel is now back on a positive year over 0:05:35.640 --> 0:05:39.440 year basis. We've got a lot of fiscal stimuls going 0:05:39.520 --> 0:05:41.719 to kick into the economy early next year, but. 0:05:41.839 --> 0:05:42.800 Also in the tariffs. 0:05:43.720 --> 0:05:46.719 Even in July we saw a lot of money collected, 0:05:46.800 --> 0:05:49.160 but it still equates to about a tariff rate of 0:05:49.200 --> 0:05:52.520 about eight percent. We think this whole tariff rate is 0:05:52.560 --> 0:05:54.840 going to go up to about fourteen and a half 0:05:54.960 --> 0:05:57.600 percent measured by that later. So we've got most of 0:05:57.640 --> 0:05:59.880 this tariff increase still ahead of us in terms of 0:06:00.160 --> 0:06:02.480 just affecting the data. And then you know, people say, oh, 0:06:02.520 --> 0:06:03.760 the retailer is going to eat it. 0:06:04.040 --> 0:06:06.120 No they're not. They just wrote the check. So so 0:06:06.200 --> 0:06:07.000 of course, of course it. 0:06:07.000 --> 0:06:09.120 Looks like they're eating at Walmart writes a check, but 0:06:09.240 --> 0:06:11.760 eventually they're going to pass it on, and yes, they've 0:06:11.760 --> 0:06:13.680 got good margins, but how do they manage to sustain 0:06:13.760 --> 0:06:16.240 these margins because they're great at figuring it out and 0:06:16.320 --> 0:06:18.680 figuring out how to stiff consumers, and that's what they'll do. 0:06:19.160 --> 0:06:21.600 And so this thing will feed through. It's just a 0:06:21.680 --> 0:06:23.840 matter of a number of number of months. And you know, 0:06:23.920 --> 0:06:26.600 inflation is going up, but it's going up very steadily, 0:06:26.839 --> 0:06:29.280 and it will be above we think about three and 0:06:29.320 --> 0:06:30.960 a half percent in CPI by the end of the year. 0:06:31.000 --> 0:06:33.240 You've made some important points here. One is that you 0:06:33.400 --> 0:06:35.600 believe that goods prices will continue to affirm through the 0:06:35.680 --> 0:06:37.560 year ahead, and that you're not going to see an 0:06:37.600 --> 0:06:39.920 offset from services. Is that right? 0:06:40.680 --> 0:06:43.640 That's correct, because what's going to happen is the economy 0:06:43.720 --> 0:06:46.400 is going to be slower in the second half of 0:06:46.440 --> 0:06:48.640 this year as these this goods inflation feeds through. But 0:06:48.720 --> 0:06:50.760 the big kicker here that people are not talking about 0:06:51.120 --> 0:06:54.320 is a huge rush of income tax refunds that's going 0:06:54.360 --> 0:06:55.520 to kick in and the start of the next year. 0:06:55.560 --> 0:06:57.640 It's going to be like an extra stimulus check. 0:06:58.200 --> 0:06:59.960 And that you know, we've seen what happens. 0:07:00.120 --> 0:07:02.520 You give him as a cookie, he's going to want 0:07:02.520 --> 0:07:04.080 a glass of milk. You give an American consumer a 0:07:04.120 --> 0:07:06.280 stimulus check, they will spend it and You're going to 0:07:06.320 --> 0:07:08.280 have a surge of spending in the first half of 0:07:08.320 --> 0:07:10.800 next year with limited supply because of all these terriff 0:07:10.840 --> 0:07:13.040 and supply chain disruptions. You are going to get a 0:07:13.120 --> 0:07:15.280 second round of inflation, which is going to sustain inflation 0:07:15.600 --> 0:07:19.000 well above three percent, which begs the question of why 0:07:19.040 --> 0:07:22.480 again is a FED cutting Well that if infation's heading 0:07:22.560 --> 0:07:23.760 the wrong way slowly. 0:07:23.600 --> 0:07:24.920 That was going my next question to you, what does 0:07:24.960 --> 0:07:26.600 the FED do with this kind of data? 0:07:27.240 --> 0:07:28.720 They should stay on hold. 0:07:29.000 --> 0:07:32.560 There is I think there's very little argument that in 0:07:32.720 --> 0:07:35.720 favor of the FED cutting rates. Rates are not abnormally high. 0:07:35.760 --> 0:07:37.520 I don't know why they think three percent is a 0:07:37.560 --> 0:07:39.280 neutral rate in the long run, It doesn't equate to 0:07:39.360 --> 0:07:42.400 history before the pandemic. I think something four four and 0:07:42.440 --> 0:07:44.360 a half percent is more of a neutral rate anyway, 0:07:44.760 --> 0:07:46.840 But there is no urgency about cutting rates, and now 0:07:47.040 --> 0:07:49.560 I think they will cut rates for political reasons, which 0:07:49.600 --> 0:07:51.880 is very unfortunate. But I don't think they should based 0:07:51.880 --> 0:07:52.360 on these data. 0:07:52.480 --> 0:07:54.760 As you're talking, traders are actually adding to betts of 0:07:54.880 --> 0:07:57.960 September fed raate cup because this basically came in in 0:07:58.080 --> 0:08:01.239 line when it comes to inflation. Why for political reasons 0:08:01.280 --> 0:08:04.560 when actually we saw a trend three months of not 0:08:04.680 --> 0:08:06.520 so great unemployment numbers. 0:08:06.840 --> 0:08:09.160 Well yeah, but if you look at the overall mosaic 0:08:09.600 --> 0:08:12.480 of employment, it's still growing. And remember we've got to 0:08:12.560 --> 0:08:14.960 labor supply problem too. And one of the things that 0:08:15.040 --> 0:08:17.560 Jay Powell pointed out is he's not looking at payroll growth, 0:08:17.560 --> 0:08:19.559 he's looking at the unemployment range. If you've got fewer 0:08:20.480 --> 0:08:22.560 jobs being created, but we've got fewer workers, then you 0:08:22.640 --> 0:08:24.560 still got a certain amount of inflationary pressure. You just 0:08:24.640 --> 0:08:28.240 said that the growth potentially of the economy has gone down. Well, 0:08:28.440 --> 0:08:30.200 they can't do anything about that. So if you're not 0:08:30.720 --> 0:08:33.520 this economy is not going to spark a huge surge 0:08:33.559 --> 0:08:35.640 in unemployment. And I think the basic point is by 0:08:35.679 --> 0:08:37.160 the end of the year, we think maybe four and 0:08:37.160 --> 0:08:39.920 a half percent unemployment, we think over three percent in inflation. 0:08:40.080 --> 0:08:43.440 They're missing their inflation target by more than unemployment. Therefore 0:08:43.559 --> 0:08:45.160 they shouldn't be come just. 0:08:45.160 --> 0:08:47.560 Tanning this up, though, but you believe they will be cuttack. 0:08:47.760 --> 0:08:49.880 So you've got a federal Reserve cutting interest rates at 0:08:49.880 --> 0:08:51.640 a time when inflation is picking up. And the key 0:08:51.679 --> 0:08:54.199 phrase you used with second round effects, you don't believe 0:08:54.240 --> 0:08:55.720 this is a one off. You're actually going to see 0:08:55.720 --> 0:08:58.240 second round effects in the first half of twenty six. 0:08:58.679 --> 0:08:59.880 What's your market for you on something? 0:09:00.440 --> 0:09:03.679 Well, so I think it's the Markt view is not 0:09:03.720 --> 0:09:06.240 too bad because I think, for again, for political reasons, 0:09:06.240 --> 0:09:08.400 I think unfortunately feder will cut twice this year, maybe 0:09:08.400 --> 0:09:10.480 three times next year. They'll get going and cutting. It's 0:09:10.520 --> 0:09:12.280 not going to really change the economy that much. But 0:09:12.360 --> 0:09:15.120 if you bring long term bring short rates down enough, 0:09:15.440 --> 0:09:18.400 it does push extra liquidity into the equity market. So 0:09:18.480 --> 0:09:21.439 you could just maintain these bubbly acid markets. What we've 0:09:21.480 --> 0:09:24.000 got is a tortoise of an economy and a hair 0:09:24.080 --> 0:09:27.119 of a market, and we're just giving more sugar. 0:09:26.880 --> 0:09:27.280 To the hair. 0:09:27.679 --> 0:09:30.040 That's the stock story. What about a fixed income story 0:09:30.200 --> 0:09:32.040 for bonds? Because we've had guest staff. The guests come 0:09:32.080 --> 0:09:34.120 on this program and site get ready for speryeld curve. 0:09:34.320 --> 0:09:35.880 The guy aggressive at the front end, you're going to 0:09:35.920 --> 0:09:38.640 see yields LOWA. At the long end, you're going to 0:09:38.679 --> 0:09:39.840 say a questionable development. 0:09:40.240 --> 0:09:43.120 Well, you know it's again it's hard for a tortoise 0:09:43.120 --> 0:09:46.319 psych economy to generate a really steep yield curve. So 0:09:46.920 --> 0:09:48.440 but I think you could see rates move up a bit, 0:09:48.520 --> 0:09:52.079 I wouldn't be I wouldn't be long duration here because 0:09:52.080 --> 0:09:54.160 I don't think this economy is going to go in 0:09:54.200 --> 0:09:54.600 for a session. 0:09:54.640 --> 0:09:57.120 I think by the time that the tariffs really. 0:09:57.040 --> 0:09:59.760 Hit going to be on the verge of physical stimulus 0:09:59.760 --> 0:10:01.640 because of this income tax refund thing, and that will 0:10:01.720 --> 0:10:04.480 keep this keep this economy moving forward. And if the 0:10:04.520 --> 0:10:06.880 economy is moving forward, you got inflation printing at three, 0:10:07.120 --> 0:10:09.360 you shouldn't really have a long bond lower than four two. 0:10:09.600 --> 0:10:11.160 What do you think inflation is going to pay cat 0:10:11.280 --> 0:10:12.200 in the next twelve months. 0:10:12.240 --> 0:10:14.079 I think CPI is going to peek out about three 0:10:14.120 --> 0:10:16.400 and a half percent and then hang there between three 0:10:16.480 --> 0:10:18.760 three and a half percent through about June of next year, 0:10:18.760 --> 0:10:20.600 and then find it's going to come down again because 0:10:20.800 --> 0:10:22.760 this is sugar you know, these income tax refunds. 0:10:22.800 --> 0:10:25.000 It's a sugar rush. It's not proteine. It will wear 0:10:25.000 --> 0:10:25.319 her off. 0:10:25.360 --> 0:10:27.000 And then by the end of next year, then I 0:10:27.040 --> 0:10:28.959 think the economy is finding cuding it unless, of course, 0:10:29.000 --> 0:10:30.959 you get some more stimulus. And that's really the problem, 0:10:31.000 --> 0:10:33.440 because if the Fed keeps on cutting rates whenever, whenever, 0:10:33.640 --> 0:10:36.040 you know, the other side of Washington asks them to 0:10:36.720 --> 0:10:39.640 then it enables more and more rounds of fiscal stimulus 0:10:39.679 --> 0:10:41.560 to always keep this economy a little bit too hot. 0:10:41.720 --> 0:10:43.600 So it's not it's not you know, it's called inflammation. 0:10:43.720 --> 0:10:44.480 Doctors don't like it. 0:10:44.760 --> 0:10:45.040 David. 0:10:45.040 --> 0:10:45.920 It's got a hair from you. 0:10:56.000 --> 0:10:59.520 It's the nicest This morning, Chinese authorities urging local companies 0:10:59.559 --> 0:11:02.280 to avoid using a Video's eight twenty chip. So its 0:11:02.320 --> 0:11:04.040 just telling us here at Bloomberger the firms are being 0:11:04.080 --> 0:11:08.040 discouraged from using the chips, especially for government related purposes. 0:11:08.160 --> 0:11:10.360 Joining US snout to discuss as John Leber, if you 0:11:10.480 --> 0:11:12.480 raise a group, John malcome to the program, sir. I 0:11:12.559 --> 0:11:14.679 just wonder what the endgame has here for the Chinese 0:11:14.720 --> 0:11:16.560 and what ultimately they're trying to achieve. 0:11:17.679 --> 0:11:19.480 I think the end games that the Chinese want to 0:11:19.520 --> 0:11:21.679 have their own chip and they don't want to be 0:11:21.720 --> 0:11:24.160 dependent on the US tech stack. And that's one of 0:11:24.200 --> 0:11:27.679 the reasons that Trump allowed these H twenty exports was 0:11:27.840 --> 0:11:30.040 because he bought into the argument that if the US 0:11:30.600 --> 0:11:34.160 dominates chip technology, and if the Chinese learned to rely 0:11:34.320 --> 0:11:36.679 on that in their own technology stacks, then it brings them. 0:11:37.000 --> 0:11:39.520 It gives the US more power, not less here and 0:11:39.600 --> 0:11:42.920 if the Chinese recognized that argument, it's somewhat valid, and 0:11:43.040 --> 0:11:45.000 so what they want to do is encourage people not 0:11:45.120 --> 0:11:47.440 to use the American tech. And they know also how 0:11:47.520 --> 0:11:50.800 vulnerable they are to things like the foreign direct Product 0:11:50.880 --> 0:11:53.800 rule and the other rules that the US has used 0:11:54.120 --> 0:11:57.160 to weaponize their own technology supply chain over the past 0:11:57.200 --> 0:11:59.920 several years. And now that's the long term game here. 0:12:00.240 --> 0:12:02.319 I think the H twenty is just one part of that. 0:12:03.200 --> 0:12:06.079 But technological development is going to determine what happens here, 0:12:06.160 --> 0:12:08.240 not necessarily export controls. 0:12:08.600 --> 0:12:11.640 John when it comes to Nvidia and AMD selling these chips, 0:12:11.679 --> 0:12:14.520 getting these export licenses to go back into China. 0:12:14.720 --> 0:12:16.280 What kind of pushback have. 0:12:16.360 --> 0:12:19.200 You heard in Washington from both individuals who are questioning 0:12:19.240 --> 0:12:22.080 whether the fifteen percent revenue cash back to the United 0:12:22.120 --> 0:12:24.360 States is legal and the China Hawks as well in 0:12:24.400 --> 0:12:25.280 the Trump administration. 0:12:26.200 --> 0:12:28.599 Yeah, I mean the fifteen percent revenue take makes it 0:12:28.720 --> 0:12:30.839 look like to certain people, and I think this is 0:12:30.880 --> 0:12:33.400 a valid argument that national security is now for sale. 0:12:33.600 --> 0:12:35.520 I'm sure a lot of companies will be very happy 0:12:35.800 --> 0:12:38.559 if they had the opportunity to buy their way out 0:12:38.600 --> 0:12:42.240 of US regulations that otherwise ban them from doing business. 0:12:42.320 --> 0:12:44.439 You know, in a way, this is a version of 0:12:44.520 --> 0:12:48.240 a carbon tax, where you're selling you're purchasing the right 0:12:48.320 --> 0:12:52.080 to pollute. Here, you're purchasing the right to undermine America's 0:12:52.160 --> 0:12:55.480 national security by selling these chips to the Chinese, which 0:12:55.520 --> 0:12:57.800 a lot of China Hawks in Washington are not happy 0:12:57.840 --> 0:13:00.720 about because they believe that this is a needabling Chinese 0:13:00.760 --> 0:13:03.719 technological development. This is a contrary to the policy of 0:13:03.760 --> 0:13:06.800 the Biden administration and up until last week, the policy 0:13:06.840 --> 0:13:09.280 of the Trump administration, which was of course to deny 0:13:09.440 --> 0:13:11.720 the Chinese access to these chips. This is a very 0:13:11.760 --> 0:13:14.440 controversial move. It's never been done before as far as 0:13:14.520 --> 0:13:17.280 we're aware, and you know there's Trump's getting a lot 0:13:17.320 --> 0:13:21.040 of pushback, both from the security hawks and also people 0:13:21.080 --> 0:13:24.280 who argue this is an illegal export tax, which I'm 0:13:24.320 --> 0:13:27.240 pretty confident they'll find their way around. But this is 0:13:27.320 --> 0:13:28.640 something new we've never seen before. 0:13:28.920 --> 0:13:30.559 Do you think this is a one off or we're 0:13:30.600 --> 0:13:32.400 going to see more policy. 0:13:32.160 --> 0:13:34.880 Like this, that's a good question. I think we don't 0:13:34.960 --> 0:13:37.560 know yet. I don't think there's a lot of areas 0:13:37.760 --> 0:13:41.360 where this type of thing is doable, where you know 0:13:41.480 --> 0:13:45.920 you've got an export ban that somebody wants to that 0:13:46.280 --> 0:13:48.040 they're offering the chance to raise some revenue off of 0:13:48.120 --> 0:13:50.000 So I'm not sure where else we could see it, 0:13:50.080 --> 0:13:51.640 but we still have. You Know, one of the things 0:13:51.640 --> 0:13:53.920 that's really surprising to me to remember all the time 0:13:54.040 --> 0:13:55.640 is there's still three and a half years left in 0:13:55.679 --> 0:13:58.760 this administration, and we know Trump loves to do these 0:13:58.840 --> 0:14:01.240 types of deals. So it wouldn't surprise me to see 0:14:01.280 --> 0:14:02.959 this show up in other areas. It's just hard to 0:14:03.000 --> 0:14:04.000 predict which ones yet. 0:14:04.160 --> 0:14:05.839 Well, John, let's talk about what we learned from the 0:14:06.080 --> 0:14:09.640 first term under President Trump. In Trump Volume one, there 0:14:09.800 --> 0:14:12.760 was a coherent ideology governing trade policy. Whether you liked 0:14:12.800 --> 0:14:15.480 it or not, I happened to be sympathetic to the 0:14:15.520 --> 0:14:18.360 concerns they had about reciprocity in a country like China 0:14:18.360 --> 0:14:21.240 who had put barriers to entry up all over the place. John, 0:14:21.280 --> 0:14:24.320 Now I'm struggling with what the framework is exactly this 0:14:24.440 --> 0:14:24.960 time around. 0:14:25.000 --> 0:14:26.680 How you explaining this to people at the moment. 0:14:27.880 --> 0:14:29.760 Yeah, I mean a huge difference between this term and 0:14:29.840 --> 0:14:32.280 last term is you don't have the strong personality of 0:14:32.360 --> 0:14:35.160 Robert Leitheiser directing a lot of Trump's trade policies. What 0:14:35.320 --> 0:14:38.200 you have instead is the strong personality of Donald Trump 0:14:38.440 --> 0:14:41.960 directing these policies, and Trump is going every which way, 0:14:42.440 --> 0:14:45.800 and you know, it's obvious that in some cases he's 0:14:45.880 --> 0:14:48.000 motivated to get a deal. We saw that with all 0:14:48.080 --> 0:14:50.920 these countries pre August first, and in other cases you 0:14:51.000 --> 0:14:54.760 see personal relationships starting to sour and take over the 0:14:55.520 --> 0:14:58.040 ability for the US to cut deals, like what's happening 0:14:58.120 --> 0:14:59.800 with the US and India. 0:15:00.200 --> 0:15:00.320 Now. 0:15:00.640 --> 0:15:02.560 I think at the core of it, though Trump remains 0:15:02.600 --> 0:15:05.880 a very transactional guy. He's somebody that wants to see 0:15:06.360 --> 0:15:09.560 higher tariffs, and he's somebody that wants to do deals 0:15:09.640 --> 0:15:11.880 in order to keep those in order to get those tariffs. 0:15:12.720 --> 0:15:14.640 With China, you know, they've been able to leverage their 0:15:14.760 --> 0:15:18.480 use of rare earths and critical minerals to great effect. 0:15:18.840 --> 0:15:21.600 The US national security community is in a panic about 0:15:21.680 --> 0:15:25.160 its ability to build weapons in the United States because 0:15:25.400 --> 0:15:27.840 of the Chow points that China has been using to 0:15:27.960 --> 0:15:31.760 deny the US those critical minerals and Trump himself, and 0:15:32.000 --> 0:15:33.880 that's driving a lot of the China policy right now. 0:15:33.920 --> 0:15:35.840 So I don't think there's a consistent strain that you 0:15:35.880 --> 0:15:38.040 can pull through here, but it is worth pointing out 0:15:38.240 --> 0:15:40.720 that Trump ran on a campaign of higher tariffs, and 0:15:40.840 --> 0:15:43.280 now the US is getting them with an average effective 0:15:43.320 --> 0:15:46.120 rate somewhere in the mid to high teens. And that's 0:15:46.160 --> 0:15:49.840 a huge shift that reflects Trump's own personality and his 0:15:49.960 --> 0:15:50.880 own policy parpers. 0:15:50.880 --> 0:15:53.280 Well, let's just sit on that transactional nature. Nothing new, 0:15:53.400 --> 0:15:56.960 quite well understood. Where people struggle, is what defines whether 0:15:57.040 --> 0:15:59.680 it's a good transaction or a bad transaction, and what 0:15:59.800 --> 0:16:02.160 kind of feedback loops is the president's sensitive too. 0:16:03.680 --> 0:16:05.880 Well, Clearly he's sensitive to feedback from the private sector. 0:16:05.920 --> 0:16:07.840 I mean, the reason that the Liberation Day tariffs were 0:16:07.880 --> 0:16:09.920 paused in the first place was because of what he 0:16:10.000 --> 0:16:12.200 called the yippiness in the bond market. So that's one 0:16:12.360 --> 0:16:15.320 type of feedback. Another type of feedback he's clearly sensitive 0:16:15.320 --> 0:16:18.320 to is direct feedback from the business community. His meeting 0:16:18.360 --> 0:16:21.360 with Jensen Wong directly led to the selling of these 0:16:21.480 --> 0:16:24.280 H twenty chips into China. And I also think that 0:16:24.360 --> 0:16:27.320 he's sensitive to the positive feedback he's getting from the 0:16:27.400 --> 0:16:31.320 deals that are happening where his US trading partners aren't 0:16:31.320 --> 0:16:34.200 putting up any real resistance here, nobody's retaliating. I think 0:16:34.240 --> 0:16:37.400 that's an important point, is that he's faced virtually zero retaliation, 0:16:37.720 --> 0:16:40.440 and that's allowed him to get away with these higher tariffs. 0:16:41.040 --> 0:16:43.840 And I think going forward, the feedback that might cause 0:16:43.880 --> 0:16:47.680 him the reverse course would be economic weakness, major complaints 0:16:47.720 --> 0:16:51.200 from the US business community, big businesses who are going 0:16:51.240 --> 0:16:53.000 to have the ear of the president, and I think 0:16:53.040 --> 0:16:55.360 that that means that probably small businesses are getting left 0:16:55.400 --> 0:16:57.960 out of this because he's not necessarily hearing their voices. 0:16:58.160 --> 0:16:59.680 John, when it comes to the trade agreement, we have 0:16:59.760 --> 0:17:03.120 core have the punting of the negotiations. When it comes 0:17:03.200 --> 0:17:06.680 to China and the United States, you mentioned the victory 0:17:06.760 --> 0:17:10.440 really of Beijing using those rare earth magnets in lieu 0:17:10.520 --> 0:17:13.040 of making sure they can loosen up export controls. Would 0:17:13.040 --> 0:17:18.400 you say Beijing has the leverage going into November, Not necessarily. 0:17:18.480 --> 0:17:19.800 I mean, I think you have to be mindful of 0:17:19.800 --> 0:17:21.919 the fact that China is going to face higher tariffs. 0:17:22.000 --> 0:17:25.240 They're just comfortable their system is prepared for a level 0:17:25.680 --> 0:17:27.760 of higher tariffs and they can deal with tariffs in 0:17:27.840 --> 0:17:30.680 the thirty percent range, which is where we think tariffs 0:17:30.720 --> 0:17:33.000 on China are going to end up here. However, you know, 0:17:33.000 --> 0:17:34.479 I don't want to play down the fact that they 0:17:34.560 --> 0:17:38.680 have been able to play this critical mineral game very 0:17:38.800 --> 0:17:41.320 very well in the US is obviously very serious sensitive 0:17:41.359 --> 0:17:44.280 to it. But this is not necessarily a positive story 0:17:44.320 --> 0:17:45.480 from the Chinese economy either. 0:17:45.880 --> 0:17:47.680 When it comes to what the United States wants to 0:17:47.720 --> 0:17:50.560 see out of China. They're dealing with export controls, They're 0:17:50.600 --> 0:17:52.760 dealing with rare eergs. The President the other day was 0:17:52.880 --> 0:17:56.399