Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Front
Speaker 1: and Center through the weekend. Then the President's tariffs. The
Speaker 1: decision unexpectedly came on Thursday, in the middle of talks.
Speaker 1: On Sunday, the president's senior trade advisors said the President
Speaker 1: does not want any nation excluded from these tariffs, said
Speaker 1: to be imposed as early as this week, the President
Speaker 1: tweeting earlier this morning, we have large trade deficits with
Speaker 1: Mexico and Canada. NAFTA, which is under renegotiation right now,
Speaker 1: has been a bad deal for the United States. For
Speaker 1: Mary a massive relocation of companies and jobs. Tariffs on
Speaker 1: steel and aluminum will only come off if new and
Speaker 1: fair nafter agreement is signed. Joining me now here in
Speaker 1: New York City, I'm pleased to say, is Luigi Zingalis.
Speaker 1: Here's the University of Chicago Booth School of Business, Professor,
Speaker 1: professors and Gala. Is great to have you with us
Speaker 1: this morning. So to begin with the question of whether
Speaker 1: we've seen heard the starting shot of a trade war?
Speaker 1: Have we? UM? I hope not. I think that we
Speaker 1: are used now to present Trump being a bit bombastic
Speaker 1: in his statements, and uh, I hope this is uh
Speaker 1: a bit of propaganda to start the negotiation of NAFTA
Speaker 1: from his Tonga position. UM. And they will not lead
Speaker 1: to a major trade war. But you know, nobody knows, Professor.
Speaker 1: A lot of people questioning the approach of this administration.
Speaker 1: Let's just talk about whether there is a problem. Is
Speaker 1: there a problem in your mind that needs addressing, UH,
Speaker 1: a problem in trade or probably the administration problem in trade? UM.
Speaker 1: I think that the United States is concerned about not
Speaker 1: having fair trading with other partners. I think there are
Speaker 1: as twach in other countries. I'm also sure that the
Speaker 1: best way to go about doing that is UH introducing
Speaker 1: tithes or making the statements the president makes. I think
Speaker 1: those statements are more directed to the political ward and
Speaker 1: to his supporters, rather than to achieve the final goal.
Speaker 1: What is the best approach? I think the best approach
Speaker 1: is trying to walk with various partners to make sure
Speaker 1: that there are conditions of fair trade on both sides UH,
Speaker 1: and that American goods can reach consumers in other countries
Speaker 1: as easily as UH foreign goods which our market. The
Speaker 1: international response so far as stank of hypocrisy for a
Speaker 1: lot of people. Europe trying to take the moral high
Speaker 1: ground on trade when there are significant barriers to entry
Speaker 1: into the European Union at this point, Why it's doing
Speaker 1: more of the same going to turn out any differently
Speaker 1: than it already has over the last couple of decades. Um,
Speaker 1: I think that you're wasting a good point, But I'm
Speaker 1: not so sure that fighting the way a person and
Speaker 1: Trump goes about fighting will deliver about outcome. Well, I
Speaker 1: just wonder what it is the right approach because ultimately, professors,
Speaker 1: so far all have heard is more of the same,
Speaker 1: and I felt to see how more of the same
Speaker 1: actually generates a different result. In fact, for many people,
Speaker 1: there is a strong argument here that maybe the likes
Speaker 1: of the European Union needed a serious reality check in
Speaker 1: the way that it's behaved over the last few years,
Speaker 1: and that maybe China needs one too, that China can
Speaker 1: no longer continue to be a leach on the international
Speaker 1: training system, and that something needs to change. Um, that's fair.
Speaker 1: But I'm also sure that by going after Canada, for example,
Speaker 1: because these tires end up penalizing particular Canada, going after
Speaker 1: Canada without a wheel explanation, I don't think that we
Speaker 1: are retaliating against Canada's targets or anything like that will
Speaker 1: lead to a better outcome. I think that having a
Speaker 1: more aggressive stance on trade justify based on what the
Speaker 1: other countries do. I think that that would be a
Speaker 1: better approach. Just because the time you're no, John's got
Speaker 1: a ton of questions for you as well. The tweet
Speaker 1: this weekend where he wants to go after foreign automobiles
Speaker 1: European automobiles. Explain to our audience the trade of going
Speaker 1: after BMW if they're also located in South Korea South
Speaker 1: South Carolina as well. I mean two one is the
Speaker 1: zip code. How do you go after Germany and BMW
Speaker 1: cars if x per cent of them are made in
Speaker 1: South Carolina? So one one inter petition you want a
Speaker 1: more cost to be made in South Carolina, And it
Speaker 1: says clearly the ties will not affected the cost produce
Speaker 1: in South Carolina, and so b n W well increases
Speaker 1: production here. If you were to to shut off or
Speaker 1: restrict imposts. But the experience we have seen in other
Speaker 1: countries is not that great. It's Brazil um as very
Speaker 1: high ties to the outside ward. But the biggest beneficial
Speaker 1: of these ties ex actually Fiat, which is a phone
Speaker 1: company located in Brazil. They are plans in Brazil and
Speaker 1: they can sell their cars at the higher price and
Speaker 1: make higher profits as a result of the restriction to trade.
Speaker 1: So the solution trade end up very often benefiting aquiiforon corporation. John,
Speaker 1: I want you to jump in here, but I'm glad
Speaker 1: to tell you, John that we've already talked to coach
Speaker 1: Singals about Italy enough. Thank you, thank you, and the
Speaker 1: knock on effect of that to the Italian What what
Speaker 1: is Professors and Goals have to say about that? How
Speaker 1: do you tie up the World Cup and the Italian election? Professor? Actually,
Speaker 1: I think that the performance of ealing the World Cup,
Speaker 1: both in the US tool where was eliminated in the
Speaker 1: first round and is in the coming one where we're
Speaker 1: not even participating, is an indication of the inefficiency of
Speaker 1: the training system and inefficiency in the management selection system.
Speaker 1: Are in the Italian Soccer Federation, which reflects the inefficiency
Speaker 1: in selection of Italy at large. I think that we
Speaker 1: need more matocracy, We need a change in in the
Speaker 1: if you want ruling elite, and that's exactly what the
Speaker 1: selections are trying to achieve. I'm not so sure that
Speaker 1: they were, but I think there is a deep dissatisfaction
Speaker 1: with the establishment um and uh, and I think that
Speaker 1: the vote yesterday indicates that very clearly. I think that's
Speaker 1: a sense of complacency after having one of the best
Speaker 1: teams in the world for for a couple of decades
Speaker 1: as well, professor, and I wonder whether that applies to
Speaker 1: the markets this morning, complacency that we've gotten used to
Speaker 1: an ECP that has taken care of everything for us,
Speaker 1: and that we can wake up and have gridlock in
Speaker 1: the third largest economy in Europe and in the market
Speaker 1: you can barely tell um. I think that the ocket
Speaker 1: this pretty smart. They know that votes are not that important,
Speaker 1: that the decision I'm making Frankfurt anyway, and so nothing changes.
Speaker 1: Antila Maya Dragi is Chairman of the European Central Bank.
Speaker 1: Nothing changes later would be interesting to see when I look, Luigi,
Speaker 1: where we are and just folks the headlines of the
Speaker 1: last few hours. I want to go back and revisit
Speaker 1: why Steve Bannon is enjoying the Italian elections so much.
Speaker 1: And the tine here is of a different kind of
Speaker 1: democratic process, not fascism, that's media inflammatory, but what kind
Speaker 1: of stringent democracy is making Mr Bannon so happy with
Speaker 1: Italian politics? So I think there is a clear attention
Speaker 1: between globalization democracy and national sovereignty, and I think that
Speaker 1: this is coming to a clear crash in Italy. Italy
Speaker 1: feels that the European Union is not taking care of
Speaker 1: its problems, starting with immigration. I heard earlier the new
Speaker 1: Ministry of Health in Germany saying that Europe should deal
Speaker 1: with the immigration problem. They should, but at the moment
Speaker 1: all the issues are to the countries at the borders.
Speaker 1: Is like in the United States, we let New Mexico
Speaker 1: deal with the problem of immigration and the rest of
Speaker 1: the country. I knows it, and and I think that
Speaker 1: that generated a lot of resentment in Italy. And the
Speaker 1: second is what we're saying earlier with Jonathan in Basically
Speaker 1: we are under supervision by the European Central Bank. So
Speaker 1: the country feels that it is not really a complete
Speaker 1: democracy because no matter what you vote in Rome, you're
Speaker 1: gonna add the decision making Frank Foot. So, I think
Speaker 1: that that that is a big anti European Philly that
Speaker 1: expressed itself in the vaut yesterday, and I guess that
Speaker 1: Steve Bannon is uh seeing that as a sign of
Speaker 1: the anti globalization trend all over the world. Professor Luig
Speaker 1: is In Gardas of the University of Chicago Booth School,
Speaker 1: I'm going to continue the conversation on trade as the
Speaker 1: tension continues to escalate between the United States and the
Speaker 1: rest of the world. For more inside, I'm pleased to
Speaker 1: say we're joined by Debra Lear of the Polston Institute,
Speaker 1: the vice chair of the Polston Institute, joining us from
Speaker 1: New Orleans. Debre, great to have you with us on
Speaker 1: the program. I asked this question at the top of
Speaker 1: the hour, and I'll ask it of you. Whether we've
Speaker 1: heard the first shot of potentially a trade water come well.
Speaker 1: Obviously very interesting idea. I mean, looking at the issues China,
Speaker 1: the tariffs actually don't have a significant impact, and what
Speaker 1: the Chinese have been doing um is taking very much
Speaker 1: a wait and see attitude. They've been following the rhetoric,
Speaker 1: but waiting to see what the actual actions will be
Speaker 1: before deciding what their own retaliation or next steps will be.
Speaker 1: Do you anticipate that that will be action? Well, you know,
Speaker 1: it's hard to predict that with this president um Already
Speaker 1: this morning he said that if there can be an
Speaker 1: apt to agreement, they will take the tariffs off. When
Speaker 1: it comes to China, China has already announced that they're
Speaker 1: planning to move forward with their own package of marketing
Speaker 1: opening measures. I'm sure in part they're hoping that that
Speaker 1: takes some of the wind out of the sales of
Speaker 1: the administration when it comes to trade action against them specifically.
Speaker 1: Ms Larry, you have you have worked with Secretary Paulson
Speaker 1: for years and here at the Paulson Institute, but far
Speaker 1: more importantly than that, you have been in direct advise
Speaker 1: it through Golden Sex and other entities in advising corporations.
Speaker 1: We haven't really covered that the last forty two business
Speaker 1: hours forty eight business hours. How would you expect corporations
Speaker 1: to adapt and adjust to presidential tweets? That can't ignore them,
Speaker 1: can they? Well, you know, it's very interesting. I was
Speaker 1: with a group of business leaders this past week who
Speaker 1: were talking about the fact that corporations are now taking
Speaker 1: on rules that they hadn't in the past, and climate
Speaker 1: change is a very good example of that, where they're
Speaker 1: taking on certain responsibilities that go beyond just being a
Speaker 1: making a profit for their shareholders. And we seem to
Speaker 1: see them moving into that same space when it comes
Speaker 1: to policy and trade policy. Certainly, in the past, corporations
Speaker 1: have always taken a stand. I've worked with corporations for
Speaker 1: the past, you know, twenty plus years in terms of
Speaker 1: what their advocacy has been in terms of US China
Speaker 1: relations in the economic relationship. But they really are taking
Speaker 1: a much greater role these days. Help me then, with
Speaker 1: a company that you advise that you know it can
Speaker 1: be fer Johnson and Johnson and other big fancy names.
Speaker 1: What does Tory Birch do with trade tariffs? Tory Birch
Speaker 1: isn't worried. This is a for those of you not know,
Speaker 1: this is a clothing line that you have to buy
Speaker 1: for your house to keep closets full. Um Debora. Tory
Speaker 1: Birch doesn't care about steel or aluminum. But they've got
Speaker 1: to care about import and export dynamics, don't they well,
Speaker 1: of course, and they care about the overall bilateral relationship
Speaker 1: with China, which is the most important in the world,
Speaker 1: and any negative backlash is going to have an impact
Speaker 1: on their business. Now that said, certainly there are a
Speaker 1: number of US businesses are very unhappy about the fact
Speaker 1: that China has not opened its markets as quickly as
Speaker 1: we had expected them to do. We've not seen significant
Speaker 1: market opening in the past ten years, so there is
Speaker 1: the frustration with that and a frustration with their level
Speaker 1: of intellectual property rights protection. Hopefully we'll see those all
Speaker 1: increase over the next five years. Debra, I'm still waiting
Speaker 1: for someone to tell me what is the best approach
Speaker 1: to deal with China to get them to drop these
Speaker 1: barriers to entry. What is it if it's not the
Speaker 1: one that this administration is currently pursuing. Look, I I
Speaker 1: was a trained negotiator in the ninety nineties under the
Speaker 1: Clinton administration, uh, And I think that it's a combination
Speaker 1: of two things. I think you have to be very
Speaker 1: clear and what it is that you want, and you
Speaker 1: have to be tough to take action if not. And
Speaker 1: we negotiated three three oh one agreements very successfully. Um
Speaker 1: too on intellectual property rights. Well, certainly there are still
Speaker 1: issues with it. What the agreements did was create the
Speaker 1: framework for protection, helping them establish first a world class
Speaker 1: legal structure, which is what you need before you can
Speaker 1: then hold them to implementation and enforcement. So I think
Speaker 1: it has to be a combination of one being very
Speaker 1: clear in your demands, but two being very tough if
Speaker 1: they don't follow through on their commitments. The conclusions so
Speaker 1: far those that the approach of previous administrations didn't work.
Speaker 1: Are you saying it did well? I think it's been,
Speaker 1: you know, a combination of things. One, certainly, we were
Speaker 1: able in the in the nineties to make significant progress
Speaker 1: on trade and bring China into the World Trade Organization.
Speaker 1: I think that was a very important step, and I
Speaker 1: know that this administration has different views, but I think
Speaker 1: that if you look at the overall results, services exports
Speaker 1: from the United States have been up over a thousand
Speaker 1: percent and US goods experts have grown over five since
Speaker 1: China came in. One of the failings has been that
Speaker 1: of the w t O to keep up with today's
Speaker 1: modern world of trade and to be able to handle
Speaker 1: a mega economy like China. So I think it's much
Speaker 1: a failing of some of the international institut tuitions as
Speaker 1: it is China's inability or lack of movement on opening up.
Speaker 1: If you look at what has happened, and there's obviously
Speaker 1: a lot of debate about Hi jimping and him taking
Speaker 1: consolidating control, but one of his biggest challenges has been
Speaker 1: his inability to ensure that policy is implemented on a
Speaker 1: consistent basis and the provinces and in the municipalities, and
Speaker 1: that was Jugentao's challenge, and we saw no significant market
Speaker 1: opening under Jugentile. Now, part of it is that the
Speaker 1: Obama administration did not push hard on these issues. They
Speaker 1: were willing to trade concessions on the environment for movement
Speaker 1: on market access. But also was Jugentao's inability to overcome
Speaker 1: some of the powerful forces who were opposing further competition
Speaker 1: from foreign firms. A lot of people might argue, actually
Speaker 1: that the Chinese have been fantastic just leveraging the rest
Speaker 1: of the world and their open markets or perceivably much
Speaker 1: more open markets than the Chinese market itself, and just
Speaker 1: haven't dropped their own barriers to entry, and that actually
Speaker 1: it's a very deliberate, a very deliberate policy of the
Speaker 1: Chinese to do so. In fact, you mentioned the nineties.
Speaker 1: The nineties probably not a very good comparison because the
Speaker 1: Chinese weren't the force that they are now in the
Speaker 1: nineteen nineties, and here and now quite clearly the policies
Speaker 1: of the nineties just don't apply today. Well, I think
Speaker 1: you're absolutely right that China is a very different animal
Speaker 1: than it was in the nineteen nineties, and it's much
Speaker 1: more powerful economically. But certainly the European Union in the
Speaker 1: United States have a lot of leverage with China to
Speaker 1: this day, and part of our leverage is their ability
Speaker 1: to access our own market. I've felt very strongly that
Speaker 1: we should be having bilateral negotiations with the Chinese to
Speaker 1: push them for further market opening. Those did not take
Speaker 1: place under the Obama administration until the last two years
Speaker 1: when we started bilateral investment treaty negotiations. Those were progressing
Speaker 1: very well, but they left it too late and it
Speaker 1: ran into the politics of the presidential election. Explained that
Speaker 1: bro and I was in Washington for the first meeting
Speaker 1: of Secretary Paulson with the Chinese, and it was an
Speaker 1: historic moment, and you know, there was a lot of
Speaker 1: talking and give and take. For those listening who are
Speaker 1: skeptical about bilateral meetings getting anything done, explain their value.
Speaker 1: I think it's several things. One, it's clear that you
Speaker 1: need to establish personal relations when you're doing negotiations because
Speaker 1: it brings about a certain level of trust and to
Speaker 1: build momentum towards addressing some of the larger and more
Speaker 1: complicated issues. Secretary Paulson will argue, of course, that the
Speaker 1: Strategic Economic Dialogue was making very good progress until the
Speaker 1: financial crisis hit and we moved away from pushing for
Speaker 1: reform of their financial sector, which was not the right
Speaker 1: time to be discussing that. To him, act really having
Speaker 1: very good cooperation with his Encounterport Vice Premier Jane Sean
Speaker 1: in taking steps that were very important to make sure
Speaker 1: that the financial the global financial system did not crash.
Speaker 1: Devil Lair, thank you so much for the pulse and
Speaker 1: institute greatly greatly appreciated. UH this morning right now with
Speaker 1: a brilliant research note is Shahab Jalanus of Credit Suite. Shab,
Speaker 1: congratulations to you and your team, not only on foreign
Speaker 1: exchange and on the VIX blow up, but buried in
Speaker 1: your note our phenomenal charts about the dynamics of capital goods.
Speaker 1: Our capital goods imports into America a bad thing. Tom Well, Ultimately,
Speaker 1: imports are necessary if you can't produce enough of the
Speaker 1: products that you need to grow your economy. Um and
Speaker 1: if capital goods of a better quality can come from overseas,
Speaker 1: or if there's some demand is so strong domestically that
Speaker 1: you need to import more from overseas than you produce locally,
Speaker 1: then they shouldn't really be a bad thing. So there's
Speaker 1: always obviously a political dimension to considering this issue. But
Speaker 1: in my view, no, that it's not a bad thing.
Speaker 1: To me. The heart of the matter, and I would
Speaker 1: love to be corrected by inn Wall is the word
Speaker 1: you just use, which is demand for goods. Isn't the
Speaker 1: boosted imports into America at a first order basis a
Speaker 1: question about our success and our demand for stuff? I
Speaker 1: think so. And I think the other dimension to consider
Speaker 1: here is if it's possible to spend more than you
Speaker 1: earn or consume more than you produce. It's partly because
Speaker 1: foreigners are prepared to either lend you money or invest
Speaker 1: in your country. So the other side of the trade
Speaker 1: deficit is obviously a financial accounts surplus, which reflects a
Speaker 1: willingness by feigners to invest in your country, and that's
Speaker 1: very important on many levels. But also when you look
Speaker 1: at the dollar, it's extremely important because the biggest risk
Speaker 1: to the currency would be a sudden loss of confidence
Speaker 1: from overseas investor. We say good morning to all listen
Speaker 1: and serious, serious actemption on one nineteen and digitally across
Speaker 1: steel and aluminum America. And we don't mean to belittle
Speaker 1: in any way the challenges of that industry. But all
Speaker 1: through the weekend reading shab was the idea that the president,
Speaker 1: with good intentions, is going to crush so many other industries.
Speaker 1: Does Credit Suite buy that idea? But the issue really
Speaker 1: is this is the direct GDP input from these industries
Speaker 1: from steel aluminum very very small, well below one percent
Speaker 1: of the sea even as a percentage of imports, you're
Speaker 1: looking at less than two percent of total imports. The
Speaker 1: question though, is this is firstly, clearly there's a direct
Speaker 1: role in terms of the input of these products into
Speaker 1: other industries, and that's a key concern, and you're seeing
Speaker 1: that reflected in the prices of equities of consuming companies
Speaker 1: for example. But beyond that, as well. I think one
Speaker 1: of the biggest issues here is what's the purpose of
Speaker 1: these tariffs. On the one hand, you here some advisers
Speaker 1: argues about national security. Other team to talk about China's
Speaker 1: production as a potentially of total steel production, which does
Speaker 1: seem to be unrelated to this issue. Others talk about
Speaker 1: nafter and today we've had suggestions that the US will
Speaker 1: lean on these tariffs as one form of negotiating new
Speaker 1: nafter arrangements. That the point, though, is what's the purpose?
Speaker 1: And secondly, how is the policy being formed? Is it
Speaker 1: through a cohesive approach? Is it just emotion? And these
Speaker 1: are issues that will disturb investors until we get better answers,
Speaker 1: especially when we know that there could be retaliation the
Speaker 1: point down the line. And so there's a good foundation
Speaker 1: to the key discussion then is with shahab Jaalin is
Speaker 1: with credit suite and foreign exchange. Then it's worth the dollar.
Speaker 1: And I did see in the literature this week and
Speaker 1: an ambiguity about dollar week, dollar strong, I would respectfully
Speaker 1: suggest consensus is tilting dollar week? Do I have that right?
Speaker 1: I think so that there's technical economic arguments that could
Speaker 1: be made around the lines of a smaller trade deficit
Speaker 1: down the line, if it were to materialize being something
Speaker 1: that obviously reduces some of the dollar outflows from the
Speaker 1: import balance. On the other hand, you know, you do
Speaker 1: have a lot of money that flows to the phone
Speaker 1: exchange markets that we're flect the capital account to reflect
Speaker 1: financial assets. And if you follow policies that globally are
Speaker 1: seen as destructive and at the same time you're a
Speaker 1: large beneficiary of global capital inflows, if those were to
Speaker 1: be hurt by following policies that are unpopular globally, then
Speaker 1: I think the dollar would suffer, and that's probably what
Speaker 1: we were lucky to see down the line. Well, well,
Speaker 1: then that in suffering. You know. By the way, I'd
Speaker 1: love to get you on set sometime on television and
Speaker 1: radio with your colleague in crime, James Sweeney. I think
Speaker 1: that would be just a very smart discussion to benefit
Speaker 1: Bloomberg worldwide. What but hub The idea here is dollar
Speaker 1: dynamics and maybe what Secretary Minution or President Trump would
Speaker 1: say is a weak dollar in a gradual trend is
Speaker 1: good for America. How do you respond to that. Well, again,
Speaker 1: it's it's uh a question of passing through the sectoral
Speaker 1: effect as well as the political signals that you get.
Speaker 1: So clearly a week of dollar would benefit exporting companies.
Speaker 1: On the other hand, if you are the US government
Speaker 1: and you are looking to borrow large amounts of money overseas,
Speaker 1: which is going to be potentially essential given the spending
Speaker 1: plans and the tax changes that have been made in
Speaker 1: the US, a weekly dollar may make things more difficult
Speaker 1: because foreigners may require higher real interest rates from you
Speaker 1: in order to Can you have a week dollar? This
Speaker 1: is critical? Can you have a week dollar and higher
Speaker 1: interest rates? Yes? I mean in the in the end,
Speaker 1: that's what we will probably end off with, in the
Speaker 1: sense that you need to make US financial assets, particularly
Speaker 1: US government debt, attractive to foreigners. And there's two different
Speaker 1: ways of doing that. One is to think in the currency.
Speaker 1: The second is to offer them higher real interest rates.
Speaker 1: And we've seen this story in emerging markets over the
Speaker 1: years again and again countries like in Turkey. This is typical.
Speaker 1: It's not typical of the US, certainly in last twenty
Speaker 1: to thirty years. So this is a new dynamic. The
Speaker 1: market will have to get used to this, folks. What
Speaker 1: you just heard there, I've been railing pim Fox was
Speaker 1: so angry at me this week and he said, Tommy,
Speaker 1: you shut up about income and substitution affect microeconomics. Chah,
Speaker 1: have you just nailed the microeconomics. It seems to be
Speaker 1: devoid in the Trump administration in that within any dynamic foundation,
Speaker 1: including interest rates, dollar at the minimum, within the Euclidean model,
Speaker 1: a Cartesian model X y axis at the minimum, there's
Speaker 1: two paths. There's the income effect in the substitution effect,
Speaker 1: and you can get this oddity of higher interest rates
Speaker 1: and weaker dollar. Right. Oh, yes, we've certainly had it
Speaker 1: in play since September at least, we've already had six
Speaker 1: months of this, so uh, you know, it's it's something
Speaker 1: that the show can persist down the line, and particularly
Speaker 1: you even have the foundation for it in terms of theory,
Speaker 1: because at the end of the day, if you are
Speaker 1: going to push larger and larger government deficits and you're
Speaker 1: trying to find foreigners, then you have to offer them
Speaker 1: back and that is a weekly dollar in higher interest rates.
Speaker 1: Now where this theory would be wrong. My theory would
Speaker 1: be if the economy generates such high tax revenues through growth,
Speaker 1: for example, that you don't end up needing foreign invent
Speaker 1: but we're skeptical about that. Okay, folks, what you've just
Speaker 1: heard there? And and I'm not going to attach Shab's
Speaker 1: name to this, because you know, I don't want to
Speaker 1: get him in trouble with his general counsel. But Pim,
Speaker 1: I'm going to put out on Twitter the distinction between
Speaker 1: the hicksie in and slut skin income substitution effects and
Speaker 1: is you know him? We have wonderful informed guests. I
Speaker 1: am so done with Shahab rich lose him. Um. Shahab
Speaker 1: just killed it there with credit sweez. The book is
Speaker 1: Failure to Adjust. We had the honor of speaking with
Speaker 1: Edward Alden one to five, ten times, but never more
Speaker 1: important than now on trade tariffs, on our myths, on
Speaker 1: the fictions that we have ted. Failure to Adjust. You
Speaker 1: open it in nineteen sixty one. You open it with
Speaker 1: the nostalgia of another America. I think everybody listening, whether
Speaker 1: they support or don't support the president, would suggest he
Speaker 1: is steeped in a nostalgia for another time and place.
Speaker 1: What's the president most get wrong about? Diving back to
Speaker 1: nineteen sixty one, Well, we we are a different economy.
Speaker 1: I mean in almost of American workers worked in manufacturing
Speaker 1: in one way or another. The rest of the world
Speaker 1: was still pretty flat on its back. So so we
Speaker 1: didn't have any real competitors. I mean, the labor unions
Speaker 1: in thought expanded trade was a great idea because we
Speaker 1: made everything better than anybody else. So so what's the problem.
Speaker 1: We just live in a very different world now, and
Speaker 1: I and I understand some of that nostalgia. I mean,
Speaker 1: it was a more equal world if you look at
Speaker 1: people's incomes. The pace and the pressure were probably lower
Speaker 1: back then. I mean I was a little kid, so
Speaker 1: there was a little pressure on me. But but I
Speaker 1: can understand the nostalgia. It's just not where we are anymore.
Speaker 1: And you've got to do with reality. It was a
Speaker 1: closed economy coming off of two major world wars, and
Speaker 1: one in particular coming out of you know, we just
Speaker 1: had on Ben Steel and the Marshall Plan and his
Speaker 1: magnificent new book on that, Ted Alden. We're not in
Speaker 1: a closed economy anymore, are we? No? I mean we
Speaker 1: weren't exactly closed then. We just, as I say, made
Speaker 1: everything better, so we didn't face a lot of competition.
Speaker 1: Now we live in a truly global economy, and there
Speaker 1: are a lot of benefits from that's only a lot
Speaker 1: of benefits for American consumers. There's been, you know, huge
Speaker 1: growth of wealth around the world, people moving out of
Speaker 1: probably a lot of great things about it. It's over
Speaker 1: the weekend in the Washington Post, Pim Fox, David Lynch
Speaker 1: his magnificent article in Ashtabula, Ohio. It was iron ore
Speaker 1: and then in they invented the arc welder type electric
Speaker 1: furnace for steel and new Cord picked it up and
Speaker 1: ran with it. Mini Mills ted Alden. Is it too late?
Speaker 1: Is it too late? When it comes to I mean,
Speaker 1: if we're going into a land of trade wars right now,
Speaker 1: does that signal that we really have uh sort of
Speaker 1: walked away from any substantive response to globalization in the
Speaker 1: United States. I mean, I hope not, because I hope
Speaker 1: is one thing. I got that, But I mean, you
Speaker 1: know how the system, you know how the system works,
Speaker 1: and now we're in a reactive face. We are in
Speaker 1: a reactive phase, and I fear there could be a
Speaker 1: lot of damage done. I mean, the world trading system
Speaker 1: is not that robust. It's fragile in a lot of ways,
Speaker 1: and I think we could see a lot of dangerous
Speaker 1: backsliding over the next couple of years. I mean, it's
Speaker 1: not going to solve any of the problems, and so
Speaker 1: we're gonna have to deal with this one way or another.
Speaker 1: I just worry we're gonna be digging out of an
Speaker 1: even deeper hole than the one we're in at the moment. Well,
Speaker 1: that's where I was going with this. How do you
Speaker 1: do that? I mean, what what would you advise people who,
Speaker 1: let's say, have the ability to make decisions about where
Speaker 1: to either deploy their capital or where to educate their children. Uh,
Speaker 1: let me take the ladder. I'm in the middle of
Speaker 1: a big project right now with Penny Pritzker, the comment
Speaker 1: former Commerce secretary, and John Engler, the former Michigan governor,
Speaker 1: on exactly that. I mean, our educational systems need to
Speaker 1: be far more closely aligned with working opportunities. You look
Speaker 1: at companies complaining about their inability to get the right
Speaker 1: sort of skilled workers. You look at the lack of
Speaker 1: opportunities for people to only high school education, when if
Speaker 1: we could just get them through community college, the doors
Speaker 1: open up. There are so many things that could be
Speaker 1: done on that front. You look around the country. They're
Speaker 1: great state initiatives in places like Colorado and elsewhere. So
Speaker 1: there's a lot to be optimistic about. But but Washington's
Speaker 1: got to start waking up to some of this stuff.
Speaker 1: Linolnroviding these stupid wards Lincoln, the linkage Pim Fox on
Speaker 1: trade dynamics and children and education. That's the trade policy
Speaker 1: called tuition where you export dollars and you import homework,
Speaker 1: like six hours of homework a weekend. That kind of well,
Speaker 1: and you hope that it leads to some kind of
Speaker 1: critical thinking skills. But I mean you mentioned Colorado and no,
Speaker 1: I mean specifically, Ted Alden, what would you recommend to
Speaker 1: people to do who I'm trying to plan their future
Speaker 1: when they feel they have absolutely no control over the
Speaker 1: outcare question, I think you've got You've got to learn
Speaker 1: how to be adaptable in a modern economy, right, which
Speaker 1: is you need to arm yourself with a set of
Speaker 1: skills that carry you through your life. You're gonna have
Speaker 1: to relearn things, uh throughout your life. And and this
Speaker 1: is hard for people, and I'm not it is hard,
Speaker 1: and and part of the responsibility government is to help
Speaker 1: make those tools available for America's not handouts but make
Speaker 1: it possible to get the education they need. Make sure that,
Speaker 1: you know, say they're working in the gig economy rather
Speaker 1: than working a full time job, that they have some
Speaker 1: basic set of benefits that they can look forward to
Speaker 1: a retirement, that if they're sick, they've got some kind
Speaker 1: of cover. There are ways to design our systems to
Speaker 1: work in the fast moving economy that we're part of.
Speaker 1: We're just not doing that of the country. Why don't
Speaker 1: we have what I'm gonna call job credits, almost back
Speaker 1: to the sixties, for direct foreign rather direct domestic investment
Speaker 1: to create domestic jobs. That you know, it's almost like
Speaker 1: an LBJ kind of thing that Republicans get their arms around.
Speaker 1: Why a job credit? I mean, I think we could
Speaker 1: do versions of that. I actually, I mean there are
Speaker 1: aspects of the tax bill, quite honestly, that I like
Speaker 1: that that gives some incentives for companies to invest here
Speaker 1: in the United States. The part of the Trump agenda
Speaker 1: that I've liked is the constant jaw boning for companies
Speaker 1: to invest back here in the United States and take
Speaker 1: some ownership of this economy, not just to see themselves
Speaker 1: as global citizens. So anything that pushes in that direction.
Speaker 1: I think it is very positive, but you don't need
Speaker 1: to do that by declaring a trade war with the
Speaker 1: rest of the world. Again, we got to work with
Speaker 1: our allies while we're looking after our own. Ted oldn't
Speaker 1: thank you so much. Greatly appreciated. Can't say enough, folks
Speaker 1: about failure to adjust. How wic it's got left behind
Speaker 1: it is? It very important. It reads densely but very informative,
Speaker 1: with minimal mathematics. It's not like a heavy mathlift as well.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.