WEBVTT - We Are in a Reactive Phase, Alden Says 0:00:00.080 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.800 Bloomberg dot Com, and of course, on the Bloomberg Front 0:00:33.880 --> 0:00:37.159 and Center through the weekend. Then the President's tariffs. The 0:00:37.240 --> 0:00:40.400 decision unexpectedly came on Thursday, in the middle of talks. 0:00:40.440 --> 0:00:43.839 On Sunday, the president's senior trade advisors said the President 0:00:43.880 --> 0:00:47.000 does not want any nation excluded from these tariffs, said 0:00:47.040 --> 0:00:50.240 to be imposed as early as this week, the President 0:00:50.320 --> 0:00:53.400 tweeting earlier this morning, we have large trade deficits with 0:00:53.479 --> 0:00:57.440 Mexico and Canada. NAFTA, which is under renegotiation right now, 0:00:57.560 --> 0:00:59.720 has been a bad deal for the United States. For 0:00:59.800 --> 0:01:03.680 Mary a massive relocation of companies and jobs. Tariffs on 0:01:03.800 --> 0:01:06.920 steel and aluminum will only come off if new and 0:01:06.959 --> 0:01:10.280 fair nafter agreement is signed. Joining me now here in 0:01:10.280 --> 0:01:13.119 New York City, I'm pleased to say, is Luigi Zingalis. 0:01:13.160 --> 0:01:16.560 Here's the University of Chicago Booth School of Business, Professor, 0:01:16.680 --> 0:01:18.319 professors and Gala. Is great to have you with us 0:01:18.360 --> 0:01:20.720 this morning. So to begin with the question of whether 0:01:20.720 --> 0:01:23.119 we've seen heard the starting shot of a trade war? 0:01:23.400 --> 0:01:27.679 Have we? UM? I hope not. I think that we 0:01:27.760 --> 0:01:30.800 are used now to present Trump being a bit bombastic 0:01:30.920 --> 0:01:33.960 in his statements, and uh, I hope this is uh 0:01:34.520 --> 0:01:38.720 a bit of propaganda to start the negotiation of NAFTA 0:01:38.840 --> 0:01:43.600 from his Tonga position. UM. And they will not lead 0:01:43.640 --> 0:01:48.440 to a major trade war. But you know, nobody knows, Professor. 0:01:48.480 --> 0:01:51.040 A lot of people questioning the approach of this administration. 0:01:51.120 --> 0:01:53.280 Let's just talk about whether there is a problem. Is 0:01:53.320 --> 0:01:56.400 there a problem in your mind that needs addressing, UH, 0:01:56.400 --> 0:02:01.040 a problem in trade or probably the administration problem in trade? UM. 0:02:01.120 --> 0:02:06.000 I think that the United States is concerned about not 0:02:06.560 --> 0:02:09.120 having fair trading with other partners. I think there are 0:02:09.120 --> 0:02:11.480 as twach in other countries. I'm also sure that the 0:02:11.520 --> 0:02:16.040 best way to go about doing that is UH introducing 0:02:16.080 --> 0:02:20.000 tithes or making the statements the president makes. I think 0:02:20.000 --> 0:02:23.680 those statements are more directed to the political ward and 0:02:23.720 --> 0:02:27.520 to his supporters, rather than to achieve the final goal. 0:02:27.639 --> 0:02:30.200 What is the best approach? I think the best approach 0:02:30.280 --> 0:02:34.160 is trying to walk with various partners to make sure 0:02:34.639 --> 0:02:39.120 that there are conditions of fair trade on both sides UH, 0:02:39.160 --> 0:02:44.760 and that American goods can reach consumers in other countries 0:02:45.320 --> 0:02:49.480 as easily as UH foreign goods which our market. The 0:02:49.480 --> 0:02:52.560 international response so far as stank of hypocrisy for a 0:02:52.560 --> 0:02:54.639 lot of people. Europe trying to take the moral high 0:02:54.639 --> 0:02:57.040 ground on trade when there are significant barriers to entry 0:02:57.240 --> 0:02:59.919 into the European Union at this point, Why it's doing 0:03:00.040 --> 0:03:03.200 more of the same going to turn out any differently 0:03:03.400 --> 0:03:07.160 than it already has over the last couple of decades. Um, 0:03:07.200 --> 0:03:09.480 I think that you're wasting a good point, But I'm 0:03:09.480 --> 0:03:12.320 not so sure that fighting the way a person and 0:03:12.320 --> 0:03:15.640 Trump goes about fighting will deliver about outcome. Well, I 0:03:15.680 --> 0:03:18.040 just wonder what it is the right approach because ultimately, professors, 0:03:18.080 --> 0:03:20.080 so far all have heard is more of the same, 0:03:20.360 --> 0:03:21.960 and I felt to see how more of the same 0:03:22.360 --> 0:03:25.600 actually generates a different result. In fact, for many people, 0:03:25.639 --> 0:03:27.959 there is a strong argument here that maybe the likes 0:03:28.000 --> 0:03:31.320 of the European Union needed a serious reality check in 0:03:31.320 --> 0:03:33.880 the way that it's behaved over the last few years, 0:03:33.880 --> 0:03:36.120 and that maybe China needs one too, that China can 0:03:36.120 --> 0:03:38.200 no longer continue to be a leach on the international 0:03:38.240 --> 0:03:42.720 training system, and that something needs to change. Um, that's fair. 0:03:42.760 --> 0:03:46.720 But I'm also sure that by going after Canada, for example, 0:03:46.720 --> 0:03:50.880 because these tires end up penalizing particular Canada, going after 0:03:50.960 --> 0:03:55.120 Canada without a wheel explanation, I don't think that we 0:03:55.160 --> 0:04:00.280 are retaliating against Canada's targets or anything like that will 0:04:00.360 --> 0:04:04.760 lead to a better outcome. I think that having a 0:04:04.800 --> 0:04:09.600 more aggressive stance on trade justify based on what the 0:04:09.600 --> 0:04:12.400 other countries do. I think that that would be a 0:04:12.440 --> 0:04:14.839 better approach. Just because the time you're no, John's got 0:04:14.840 --> 0:04:18.720 a ton of questions for you as well. The tweet 0:04:18.760 --> 0:04:22.080 this weekend where he wants to go after foreign automobiles 0:04:22.240 --> 0:04:27.600 European automobiles. Explain to our audience the trade of going 0:04:27.680 --> 0:04:33.040 after BMW if they're also located in South Korea South 0:04:33.520 --> 0:04:38.480 South Carolina as well. I mean two one is the 0:04:38.560 --> 0:04:43.320 zip code. How do you go after Germany and BMW 0:04:43.360 --> 0:04:46.760 cars if x per cent of them are made in 0:04:46.800 --> 0:04:51.479 South Carolina? So one one inter petition you want a 0:04:51.560 --> 0:04:53.680 more cost to be made in South Carolina, And it 0:04:53.720 --> 0:04:58.760 says clearly the ties will not affected the cost produce 0:04:58.839 --> 0:05:01.760 in South Carolina, and so b n W well increases 0:05:01.760 --> 0:05:05.800 production here. If you were to to shut off or 0:05:05.880 --> 0:05:09.880 restrict imposts. But the experience we have seen in other 0:05:09.920 --> 0:05:14.160 countries is not that great. It's Brazil um as very 0:05:14.240 --> 0:05:19.040 high ties to the outside ward. But the biggest beneficial 0:05:19.080 --> 0:05:21.880 of these ties ex actually Fiat, which is a phone 0:05:21.920 --> 0:05:25.000 company located in Brazil. They are plans in Brazil and 0:05:25.040 --> 0:05:26.880 they can sell their cars at the higher price and 0:05:26.960 --> 0:05:30.000 make higher profits as a result of the restriction to trade. 0:05:30.240 --> 0:05:37.559 So the solution trade end up very often benefiting aquiiforon corporation. John, 0:05:37.560 --> 0:05:39.719 I want you to jump in here, but I'm glad 0:05:39.760 --> 0:05:42.000 to tell you, John that we've already talked to coach 0:05:42.040 --> 0:05:46.040 Singals about Italy enough. Thank you, thank you, and the 0:05:46.120 --> 0:05:48.440 knock on effect of that to the Italian What what 0:05:48.560 --> 0:05:50.480 is Professors and Goals have to say about that? How 0:05:50.520 --> 0:05:54.760 do you tie up the World Cup and the Italian election? Professor? Actually, 0:05:55.680 --> 0:05:58.760 I think that the performance of ealing the World Cup, 0:05:59.120 --> 0:06:01.640 both in the US tool where was eliminated in the 0:06:01.680 --> 0:06:04.120 first round and is in the coming one where we're 0:06:04.160 --> 0:06:08.640 not even participating, is an indication of the inefficiency of 0:06:08.680 --> 0:06:13.200 the training system and inefficiency in the management selection system. 0:06:13.320 --> 0:06:17.719 Are in the Italian Soccer Federation, which reflects the inefficiency 0:06:17.760 --> 0:06:20.560 in selection of Italy at large. I think that we 0:06:20.600 --> 0:06:24.479 need more matocracy, We need a change in in the 0:06:24.680 --> 0:06:28.960 if you want ruling elite, and that's exactly what the 0:06:29.080 --> 0:06:31.560 selections are trying to achieve. I'm not so sure that 0:06:31.600 --> 0:06:34.600 they were, but I think there is a deep dissatisfaction 0:06:34.680 --> 0:06:37.960 with the establishment um and uh, and I think that 0:06:38.279 --> 0:06:42.120 the vote yesterday indicates that very clearly. I think that's 0:06:42.160 --> 0:06:44.320 a sense of complacency after having one of the best 0:06:44.320 --> 0:06:46.120 teams in the world for for a couple of decades 0:06:46.160 --> 0:06:48.080 as well, professor, and I wonder whether that applies to 0:06:48.080 --> 0:06:50.800 the markets this morning, complacency that we've gotten used to 0:06:50.800 --> 0:06:53.120 an ECP that has taken care of everything for us, 0:06:53.400 --> 0:06:55.080 and that we can wake up and have gridlock in 0:06:55.080 --> 0:06:57.400 the third largest economy in Europe and in the market 0:06:57.400 --> 0:07:00.279 you can barely tell um. I think that the ocket 0:07:00.320 --> 0:07:03.760 this pretty smart. They know that votes are not that important, 0:07:03.800 --> 0:07:07.919 that the decision I'm making Frankfurt anyway, and so nothing changes. 0:07:08.120 --> 0:07:12.200 Antila Maya Dragi is Chairman of the European Central Bank. 0:07:12.440 --> 0:07:18.120 Nothing changes later would be interesting to see when I look, Luigi, 0:07:18.760 --> 0:07:20.960 where we are and just folks the headlines of the 0:07:21.040 --> 0:07:24.160 last few hours. I want to go back and revisit 0:07:24.920 --> 0:07:29.280 why Steve Bannon is enjoying the Italian elections so much. 0:07:29.760 --> 0:07:32.520 And the tine here is of a different kind of 0:07:32.560 --> 0:07:38.880 democratic process, not fascism, that's media inflammatory, but what kind 0:07:39.160 --> 0:07:44.600 of stringent democracy is making Mr Bannon so happy with 0:07:44.720 --> 0:07:49.160 Italian politics? So I think there is a clear attention 0:07:49.320 --> 0:07:56.600 between globalization democracy and national sovereignty, and I think that 0:07:57.200 --> 0:08:03.000 this is coming to a clear crash in Italy. Italy 0:08:03.080 --> 0:08:07.560 feels that the European Union is not taking care of 0:08:08.040 --> 0:08:13.760 its problems, starting with immigration. I heard earlier the new 0:08:13.760 --> 0:08:17.360 Ministry of Health in Germany saying that Europe should deal 0:08:17.400 --> 0:08:19.720 with the immigration problem. They should, but at the moment 0:08:20.480 --> 0:08:23.840 all the issues are to the countries at the borders. 0:08:23.960 --> 0:08:27.240 Is like in the United States, we let New Mexico 0:08:27.560 --> 0:08:29.640 deal with the problem of immigration and the rest of 0:08:29.680 --> 0:08:31.680 the country. I knows it, and and I think that 0:08:31.680 --> 0:08:34.840 that generated a lot of resentment in Italy. And the 0:08:34.880 --> 0:08:39.079 second is what we're saying earlier with Jonathan in Basically 0:08:39.240 --> 0:08:44.960 we are under supervision by the European Central Bank. So 0:08:46.080 --> 0:08:49.400 the country feels that it is not really a complete 0:08:49.440 --> 0:08:52.280 democracy because no matter what you vote in Rome, you're 0:08:52.280 --> 0:08:55.040 gonna add the decision making Frank Foot. So, I think 0:08:55.040 --> 0:09:00.400 that that that is a big anti European Philly that 0:09:00.600 --> 0:09:03.480 expressed itself in the vaut yesterday, and I guess that 0:09:03.559 --> 0:09:07.280 Steve Bannon is uh seeing that as a sign of 0:09:07.400 --> 0:09:13.120 the anti globalization trend all over the world. Professor Luig 0:09:13.200 --> 0:09:16.400 is In Gardas of the University of Chicago Booth School, 0:09:30.080 --> 0:09:32.480 I'm going to continue the conversation on trade as the 0:09:32.600 --> 0:09:35.920 tension continues to escalate between the United States and the 0:09:36.000 --> 0:09:38.040 rest of the world. For more inside, I'm pleased to 0:09:38.040 --> 0:09:41.319 say we're joined by Debra Lear of the Polston Institute, 0:09:41.360 --> 0:09:44.720 the vice chair of the Polston Institute, joining us from 0:09:44.880 --> 0:09:46.680 New Orleans. Debre, great to have you with us on 0:09:46.720 --> 0:09:48.600 the program. I asked this question at the top of 0:09:48.600 --> 0:09:50.400 the hour, and I'll ask it of you. Whether we've 0:09:50.400 --> 0:09:56.360 heard the first shot of potentially a trade water come well. 0:09:56.400 --> 0:10:00.520 Obviously very interesting idea. I mean, looking at the issues China, 0:10:01.040 --> 0:10:04.520 the tariffs actually don't have a significant impact, and what 0:10:04.559 --> 0:10:08.600 the Chinese have been doing um is taking very much 0:10:08.640 --> 0:10:11.880 a wait and see attitude. They've been following the rhetoric, 0:10:12.000 --> 0:10:14.319 but waiting to see what the actual actions will be 0:10:14.320 --> 0:10:17.839 before deciding what their own retaliation or next steps will be. 0:10:18.720 --> 0:10:24.560 Do you anticipate that that will be action? Well, you know, 0:10:24.640 --> 0:10:27.760 it's hard to predict that with this president um Already 0:10:27.800 --> 0:10:29.800 this morning he said that if there can be an 0:10:29.840 --> 0:10:32.880 apt to agreement, they will take the tariffs off. When 0:10:32.880 --> 0:10:35.520 it comes to China, China has already announced that they're 0:10:35.520 --> 0:10:37.960 planning to move forward with their own package of marketing 0:10:37.960 --> 0:10:40.880 opening measures. I'm sure in part they're hoping that that 0:10:40.960 --> 0:10:44.120 takes some of the wind out of the sales of 0:10:44.160 --> 0:10:48.080 the administration when it comes to trade action against them specifically. 0:10:49.360 --> 0:10:52.400 Ms Larry, you have you have worked with Secretary Paulson 0:10:52.480 --> 0:10:56.520 for years and here at the Paulson Institute, but far 0:10:56.600 --> 0:10:59.760 more importantly than that, you have been in direct advise 0:11:00.000 --> 0:11:04.160 it through Golden Sex and other entities in advising corporations. 0:11:04.240 --> 0:11:07.120 We haven't really covered that the last forty two business 0:11:07.160 --> 0:11:13.000 hours forty eight business hours. How would you expect corporations 0:11:13.040 --> 0:11:17.960 to adapt and adjust to presidential tweets? That can't ignore them, 0:11:18.040 --> 0:11:23.080 can they? Well, you know, it's very interesting. I was 0:11:23.120 --> 0:11:25.520 with a group of business leaders this past week who 0:11:25.520 --> 0:11:28.640 were talking about the fact that corporations are now taking 0:11:28.640 --> 0:11:31.959 on rules that they hadn't in the past, and climate 0:11:32.040 --> 0:11:34.400 change is a very good example of that, where they're 0:11:34.440 --> 0:11:38.000 taking on certain responsibilities that go beyond just being a 0:11:39.080 --> 0:11:43.080 making a profit for their shareholders. And we seem to 0:11:43.160 --> 0:11:46.439 see them moving into that same space when it comes 0:11:46.480 --> 0:11:50.359 to policy and trade policy. Certainly, in the past, corporations 0:11:50.360 --> 0:11:53.240 have always taken a stand. I've worked with corporations for 0:11:53.280 --> 0:11:56.840 the past, you know, twenty plus years in terms of 0:11:56.920 --> 0:11:59.600 what their advocacy has been in terms of US China 0:11:59.640 --> 0:12:03.000 relations in the economic relationship. But they really are taking 0:12:03.000 --> 0:12:06.640 a much greater role these days. Help me then, with 0:12:06.720 --> 0:12:09.360 a company that you advise that you know it can 0:12:09.400 --> 0:12:12.680 be fer Johnson and Johnson and other big fancy names. 0:12:13.400 --> 0:12:18.880 What does Tory Birch do with trade tariffs? Tory Birch 0:12:19.080 --> 0:12:21.440 isn't worried. This is a for those of you not know, 0:12:21.520 --> 0:12:23.880 this is a clothing line that you have to buy 0:12:23.920 --> 0:12:27.840 for your house to keep closets full. Um Debora. Tory 0:12:27.880 --> 0:12:31.880 Birch doesn't care about steel or aluminum. But they've got 0:12:31.880 --> 0:12:36.959 to care about import and export dynamics, don't they well, 0:12:37.000 --> 0:12:40.520 of course, and they care about the overall bilateral relationship 0:12:40.600 --> 0:12:42.960 with China, which is the most important in the world, 0:12:43.600 --> 0:12:48.160 and any negative backlash is going to have an impact 0:12:48.200 --> 0:12:51.000 on their business. Now that said, certainly there are a 0:12:51.080 --> 0:12:53.880 number of US businesses are very unhappy about the fact 0:12:53.960 --> 0:12:56.640 that China has not opened its markets as quickly as 0:12:56.800 --> 0:13:00.000 we had expected them to do. We've not seen significant 0:13:00.080 --> 0:13:03.480 market opening in the past ten years, so there is 0:13:03.520 --> 0:13:06.200 the frustration with that and a frustration with their level 0:13:06.240 --> 0:13:10.640 of intellectual property rights protection. Hopefully we'll see those all 0:13:10.760 --> 0:13:14.160 increase over the next five years. Debra, I'm still waiting 0:13:14.160 --> 0:13:16.520 for someone to tell me what is the best approach 0:13:16.600 --> 0:13:18.400 to deal with China to get them to drop these 0:13:18.400 --> 0:13:20.680 barriers to entry. What is it if it's not the 0:13:20.679 --> 0:13:25.880 one that this administration is currently pursuing. Look, I I 0:13:25.960 --> 0:13:28.439 was a trained negotiator in the ninety nineties under the 0:13:28.440 --> 0:13:32.160 Clinton administration, uh, And I think that it's a combination 0:13:32.200 --> 0:13:33.960 of two things. I think you have to be very 0:13:34.000 --> 0:13:36.600 clear and what it is that you want, and you 0:13:36.679 --> 0:13:39.120 have to be tough to take action if not. And 0:13:39.160 --> 0:13:44.200 we negotiated three three oh one agreements very successfully. Um 0:13:44.240 --> 0:13:47.240 too on intellectual property rights. Well, certainly there are still 0:13:47.320 --> 0:13:50.120 issues with it. What the agreements did was create the 0:13:50.160 --> 0:13:54.280 framework for protection, helping them establish first a world class 0:13:54.360 --> 0:13:56.440 legal structure, which is what you need before you can 0:13:56.480 --> 0:13:59.960 then hold them to implementation and enforcement. So I think 0:14:00.000 --> 0:14:03.200 it has to be a combination of one being very 0:14:03.240 --> 0:14:06.920 clear in your demands, but two being very tough if 0:14:06.920 --> 0:14:10.280 they don't follow through on their commitments. The conclusions so 0:14:10.440 --> 0:14:13.400 far those that the approach of previous administrations didn't work. 0:14:13.440 --> 0:14:17.680 Are you saying it did well? I think it's been, 0:14:18.160 --> 0:14:22.000 you know, a combination of things. One, certainly, we were 0:14:22.040 --> 0:14:25.480 able in the in the nineties to make significant progress 0:14:25.480 --> 0:14:28.640 on trade and bring China into the World Trade Organization. 0:14:28.760 --> 0:14:30.760 I think that was a very important step, and I 0:14:30.760 --> 0:14:33.960 know that this administration has different views, but I think 0:14:34.040 --> 0:14:38.040 that if you look at the overall results, services exports 0:14:38.040 --> 0:14:40.320 from the United States have been up over a thousand 0:14:40.320 --> 0:14:44.720 percent and US goods experts have grown over five since 0:14:44.800 --> 0:14:47.760 China came in. One of the failings has been that 0:14:48.040 --> 0:14:50.680 of the w t O to keep up with today's 0:14:50.760 --> 0:14:53.360 modern world of trade and to be able to handle 0:14:53.920 --> 0:14:57.920 a mega economy like China. So I think it's much 0:14:57.920 --> 0:15:00.640 a failing of some of the international institut tuitions as 0:15:00.680 --> 0:15:06.080 it is China's inability or lack of movement on opening up. 0:15:06.560 --> 0:15:09.720 If you look at what has happened, and there's obviously 0:15:09.760 --> 0:15:13.760 a lot of debate about Hi jimping and him taking 0:15:13.840 --> 0:15:17.480 consolidating control, but one of his biggest challenges has been 0:15:17.640 --> 0:15:21.120 his inability to ensure that policy is implemented on a 0:15:21.160 --> 0:15:24.960 consistent basis and the provinces and in the municipalities, and 0:15:25.040 --> 0:15:28.800 that was Jugentao's challenge, and we saw no significant market 0:15:28.840 --> 0:15:32.520 opening under Jugentile. Now, part of it is that the 0:15:32.560 --> 0:15:36.160 Obama administration did not push hard on these issues. They 0:15:36.200 --> 0:15:41.000 were willing to trade concessions on the environment for movement 0:15:41.000 --> 0:15:46.080 on market access. But also was Jugentao's inability to overcome 0:15:46.120 --> 0:15:50.000 some of the powerful forces who were opposing further competition 0:15:50.160 --> 0:15:53.320 from foreign firms. A lot of people might argue, actually 0:15:53.360 --> 0:15:57.320 that the Chinese have been fantastic just leveraging the rest 0:15:57.320 --> 0:16:01.400 of the world and their open markets or perceivably much 0:16:01.440 --> 0:16:04.520 more open markets than the Chinese market itself, and just 0:16:04.560 --> 0:16:07.240 haven't dropped their own barriers to entry, and that actually 0:16:07.280 --> 0:16:11.120 it's a very deliberate, a very deliberate policy of the 0:16:11.200 --> 0:16:14.359 Chinese to do so. In fact, you mentioned the nineties. 0:16:14.440 --> 0:16:16.880 The nineties probably not a very good comparison because the 0:16:16.960 --> 0:16:19.360 Chinese weren't the force that they are now in the 0:16:19.480 --> 0:16:24.280 nineteen nineties, and here and now quite clearly the policies 0:16:24.320 --> 0:16:29.400 of the nineties just don't apply today. Well, I think 0:16:29.600 --> 0:16:32.280 you're absolutely right that China is a very different animal 0:16:32.280 --> 0:16:34.200 than it was in the nineteen nineties, and it's much 0:16:34.200 --> 0:16:37.400 more powerful economically. But certainly the European Union in the 0:16:37.480 --> 0:16:39.760 United States have a lot of leverage with China to 0:16:39.840 --> 0:16:43.240 this day, and part of our leverage is their ability 0:16:43.280 --> 0:16:46.720 to access our own market. I've felt very strongly that 0:16:46.800 --> 0:16:50.160 we should be having bilateral negotiations with the Chinese to 0:16:50.200 --> 0:16:53.200 push them for further market opening. Those did not take 0:16:53.200 --> 0:16:56.560 place under the Obama administration until the last two years 0:16:56.600 --> 0:17:01.080 when we started bilateral investment treaty negotiations. Those were progressing 0:17:01.160 --> 0:17:03.640 very well, but they left it too late and it 0:17:03.760 --> 0:17:07.920 ran into the politics of the presidential election. Explained that 0:17:08.040 --> 0:17:10.480 bro and I was in Washington for the first meeting 0:17:10.480 --> 0:17:12.959 of Secretary Paulson with the Chinese, and it was an 0:17:13.000 --> 0:17:15.600 historic moment, and you know, there was a lot of 0:17:15.640 --> 0:17:18.760 talking and give and take. For those listening who are 0:17:18.920 --> 0:17:25.600 skeptical about bilateral meetings getting anything done, explain their value. 0:17:28.080 --> 0:17:30.960 I think it's several things. One, it's clear that you 0:17:31.000 --> 0:17:35.159 need to establish personal relations when you're doing negotiations because 0:17:35.200 --> 0:17:38.480 it brings about a certain level of trust and to 0:17:38.720 --> 0:17:42.040 build momentum towards addressing some of the larger and more 0:17:42.080 --> 0:17:45.879 complicated issues. Secretary Paulson will argue, of course, that the 0:17:45.960 --> 0:17:50.000 Strategic Economic Dialogue was making very good progress until the 0:17:50.000 --> 0:17:54.280 financial crisis hit and we moved away from pushing for 0:17:54.480 --> 0:17:57.400 reform of their financial sector, which was not the right 0:17:57.440 --> 0:18:00.520 time to be discussing that. To him, act really having 0:18:00.640 --> 0:18:04.800 very good cooperation with his Encounterport Vice Premier Jane Sean 0:18:05.600 --> 0:18:08.520 in taking steps that were very important to make sure 0:18:08.600 --> 0:18:11.640 that the financial the global financial system did not crash. 0:18:12.200 --> 0:18:13.960 Devil Lair, thank you so much for the pulse and 0:18:14.000 --> 0:18:31.680 institute greatly greatly appreciated. UH this morning right now with 0:18:31.920 --> 0:18:37.320 a brilliant research note is Shahab Jalanus of Credit Suite. Shab, 0:18:37.880 --> 0:18:41.480 congratulations to you and your team, not only on foreign 0:18:41.480 --> 0:18:45.439 exchange and on the VIX blow up, but buried in 0:18:45.520 --> 0:18:52.240 your note our phenomenal charts about the dynamics of capital goods. 0:18:53.000 --> 0:19:03.080 Our capital goods imports into America a bad thing. Tom Well, Ultimately, 0:19:03.720 --> 0:19:07.800 imports are necessary if you can't produce enough of the 0:19:07.800 --> 0:19:10.679 products that you need to grow your economy. Um and 0:19:10.720 --> 0:19:14.520 if capital goods of a better quality can come from overseas, 0:19:14.720 --> 0:19:17.960 or if there's some demand is so strong domestically that 0:19:18.040 --> 0:19:20.879 you need to import more from overseas than you produce locally, 0:19:21.440 --> 0:19:24.480 then they shouldn't really be a bad thing. So there's 0:19:24.520 --> 0:19:27.800 always obviously a political dimension to considering this issue. But 0:19:27.880 --> 0:19:29.720 in my view, no, that it's not a bad thing. 0:19:30.480 --> 0:19:32.880 To me. The heart of the matter, and I would 0:19:32.920 --> 0:19:36.000 love to be corrected by inn Wall is the word 0:19:36.040 --> 0:19:40.480 you just use, which is demand for goods. Isn't the 0:19:40.600 --> 0:19:46.600 boosted imports into America at a first order basis a 0:19:46.720 --> 0:19:52.800 question about our success and our demand for stuff? I 0:19:52.840 --> 0:19:55.720 think so. And I think the other dimension to consider 0:19:55.760 --> 0:20:00.399 here is if it's possible to spend more than you 0:20:00.480 --> 0:20:04.600 earn or consume more than you produce. It's partly because 0:20:04.640 --> 0:20:08.159 foreigners are prepared to either lend you money or invest 0:20:08.200 --> 0:20:10.960 in your country. So the other side of the trade 0:20:11.000 --> 0:20:15.720 deficit is obviously a financial accounts surplus, which reflects a 0:20:15.760 --> 0:20:19.440 willingness by feigners to invest in your country, and that's 0:20:19.560 --> 0:20:23.120 very important on many levels. But also when you look 0:20:23.160 --> 0:20:27.040 at the dollar, it's extremely important because the biggest risk 0:20:27.080 --> 0:20:29.359 to the currency would be a sudden loss of confidence 0:20:29.400 --> 0:20:32.119 from overseas investor. We say good morning to all listen 0:20:32.160 --> 0:20:36.560 and serious, serious actemption on one nineteen and digitally across 0:20:36.680 --> 0:20:40.600 steel and aluminum America. And we don't mean to belittle 0:20:40.680 --> 0:20:45.160 in any way the challenges of that industry. But all 0:20:45.240 --> 0:20:50.080 through the weekend reading shab was the idea that the president, 0:20:50.200 --> 0:20:55.080 with good intentions, is going to crush so many other industries. 0:20:55.280 --> 0:20:58.960 Does Credit Suite buy that idea? But the issue really 0:20:59.040 --> 0:21:04.439 is this is the direct GDP input from these industries 0:21:04.520 --> 0:21:08.800 from steel aluminum very very small, well below one percent 0:21:08.840 --> 0:21:12.000 of the sea even as a percentage of imports, you're 0:21:12.000 --> 0:21:15.119 looking at less than two percent of total imports. The 0:21:15.480 --> 0:21:19.040 question though, is this is firstly, clearly there's a direct 0:21:19.520 --> 0:21:22.760 role in terms of the input of these products into 0:21:22.800 --> 0:21:25.399 other industries, and that's a key concern, and you're seeing 0:21:25.400 --> 0:21:29.760 that reflected in the prices of equities of consuming companies 0:21:29.800 --> 0:21:32.520 for example. But beyond that, as well. I think one 0:21:32.560 --> 0:21:35.280 of the biggest issues here is what's the purpose of 0:21:35.280 --> 0:21:38.840 these tariffs. On the one hand, you here some advisers 0:21:39.040 --> 0:21:42.840 argues about national security. Other team to talk about China's 0:21:42.880 --> 0:21:46.040 production as a potentially of total steel production, which does 0:21:46.440 --> 0:21:49.440 seem to be unrelated to this issue. Others talk about 0:21:49.480 --> 0:21:53.199 nafter and today we've had suggestions that the US will 0:21:53.880 --> 0:21:57.360 lean on these tariffs as one form of negotiating new 0:21:57.440 --> 0:22:00.920 nafter arrangements. That the point, though, is what's the purpose? 0:22:01.040 --> 0:22:04.280 And secondly, how is the policy being formed? Is it 0:22:04.560 --> 0:22:09.440 through a cohesive approach? Is it just emotion? And these 0:22:09.440 --> 0:22:12.880 are issues that will disturb investors until we get better answers, 0:22:13.000 --> 0:22:16.080 especially when we know that there could be retaliation the 0:22:16.359 --> 0:22:18.440 point down the line. And so there's a good foundation 0:22:18.480 --> 0:22:21.200 to the key discussion then is with shahab Jaalin is 0:22:21.240 --> 0:22:25.280 with credit suite and foreign exchange. Then it's worth the dollar. 0:22:25.520 --> 0:22:27.440 And I did see in the literature this week and 0:22:27.560 --> 0:22:32.360 an ambiguity about dollar week, dollar strong, I would respectfully 0:22:32.400 --> 0:22:35.480 suggest consensus is tilting dollar week? Do I have that right? 0:22:36.560 --> 0:22:41.120 I think so that there's technical economic arguments that could 0:22:41.119 --> 0:22:45.720 be made around the lines of a smaller trade deficit 0:22:45.800 --> 0:22:48.879 down the line, if it were to materialize being something 0:22:48.920 --> 0:22:52.280 that obviously reduces some of the dollar outflows from the 0:22:52.280 --> 0:22:54.960 import balance. On the other hand, you know, you do 0:22:55.119 --> 0:22:58.280 have a lot of money that flows to the phone 0:22:58.320 --> 0:23:01.639 exchange markets that we're flect the capital account to reflect 0:23:01.720 --> 0:23:06.080 financial assets. And if you follow policies that globally are 0:23:06.119 --> 0:23:09.240 seen as destructive and at the same time you're a 0:23:09.320 --> 0:23:14.000 large beneficiary of global capital inflows, if those were to 0:23:14.200 --> 0:23:17.840 be hurt by following policies that are unpopular globally, then 0:23:17.880 --> 0:23:19.959 I think the dollar would suffer, and that's probably what 0:23:20.000 --> 0:23:22.560 we were lucky to see down the line. Well, well, 0:23:22.560 --> 0:23:25.720 then that in suffering. You know. By the way, I'd 0:23:25.720 --> 0:23:28.080 love to get you on set sometime on television and 0:23:28.200 --> 0:23:31.159 radio with your colleague in crime, James Sweeney. I think 0:23:31.240 --> 0:23:34.080 that would be just a very smart discussion to benefit 0:23:34.160 --> 0:23:38.800 Bloomberg worldwide. What but hub The idea here is dollar 0:23:38.920 --> 0:23:43.400 dynamics and maybe what Secretary Minution or President Trump would 0:23:43.440 --> 0:23:47.840 say is a weak dollar in a gradual trend is 0:23:47.960 --> 0:23:52.720 good for America. How do you respond to that. Well, again, 0:23:52.760 --> 0:23:57.359 it's it's uh a question of passing through the sectoral 0:23:57.560 --> 0:24:00.520 effect as well as the political signals that you get. 0:24:01.119 --> 0:24:05.320 So clearly a week of dollar would benefit exporting companies. 0:24:05.680 --> 0:24:08.320 On the other hand, if you are the US government 0:24:08.600 --> 0:24:12.280 and you are looking to borrow large amounts of money overseas, 0:24:12.320 --> 0:24:15.880 which is going to be potentially essential given the spending 0:24:15.920 --> 0:24:18.840 plans and the tax changes that have been made in 0:24:18.880 --> 0:24:21.879 the US, a weekly dollar may make things more difficult 0:24:22.080 --> 0:24:25.600 because foreigners may require higher real interest rates from you 0:24:25.840 --> 0:24:28.639 in order to Can you have a week dollar? This 0:24:28.720 --> 0:24:31.280 is critical? Can you have a week dollar and higher 0:24:31.480 --> 0:24:34.760 interest rates? Yes? I mean in the in the end, 0:24:34.800 --> 0:24:37.320 that's what we will probably end off with, in the 0:24:37.359 --> 0:24:41.240 sense that you need to make US financial assets, particularly 0:24:41.560 --> 0:24:45.399 US government debt, attractive to foreigners. And there's two different 0:24:45.400 --> 0:24:47.560 ways of doing that. One is to think in the currency. 0:24:48.080 --> 0:24:51.840 The second is to offer them higher real interest rates. 0:24:51.880 --> 0:24:54.720 And we've seen this story in emerging markets over the 0:24:54.760 --> 0:24:58.280