Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg day Break Weekend, our global look at
Speaker 2: the top stories in the coming week from our Daybreak
Speaker 2: anchors all around the world. Straight ahead on the program,
Speaker 2: and look ahead to some key data in the US
Speaker 2: how it may impact FED policy moving forward. I'm Tom
Speaker 2: Lusby in New York.
Speaker 3: I'm Kroline, Hepkeitt in London, where we're asking what next
Speaker 3: in the global AI race.
Speaker 4: I'm dek Chrisner looking at the potential fallout of Donald
Speaker 4: Trump's trade war with China.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Tom Busby. We begin today's
Speaker 2: program with some key economic data here in the US.
Speaker 2: CPI data on Wednesday, US retail sales on Friday. Now
Speaker 2: for more on these readings, what they tell us about
Speaker 2: the consumer, how they may impact FED policy, moving forward,
Speaker 2: we're joined by Stuart paul Us, economist with Bloomberg Economics. Stuart,
Speaker 2: thank you for being here. Now, before we look ahead,
Speaker 2: let's start with some important data we just got at
Speaker 2: the end of this past week, the January jobs report.
Speaker 2: Why don't you tell us those numbers and how do
Speaker 2: you read this?
Speaker 5: So my read of the January jobs report is that
Speaker 5: it's a bit mixed. The data are a bit mixed.
Speaker 5: Headline job growth actually surprised to the downside. We had
Speaker 5: just one hundred and forty three thousand jobs added in January.
Speaker 5: That's below our estimate about two hundred thousand jobs added
Speaker 5: during the month. And in addition to that, there were
Speaker 5: downward revisions of past month's data. But and this is
Speaker 5: where it gets to be a little bit mixed, the
Speaker 5: downward revisions weren't as steep as we had expected. As
Speaker 5: most of Wall Street had expected, we saw just six
Speaker 5: hundred and ten thousand fewer workers on payrolls at the
Speaker 5: end of twenty twenty four. Most folks were expecting over
Speaker 5: nine hundred thousand fewer workers on payrolls at the end
Speaker 5: of twenty twenty four. So those downward revisions weren't actually
Speaker 5: as steep as folks had expected. Where we did see
Speaker 5: a little bit of negative details were in some of
Speaker 5: the industry level composition of those revisions. So at the
Speaker 5: end of twenty twenty four, there were fewer workers working
Speaker 5: in professional and business services, leisure and hospitality, manufacturing, some
Speaker 5: of those more cyclically sensitive industries. So we take the
Speaker 5: downward revisions, we take the industry level composition, we take
Speaker 5: slowing payroll growth to start twenty twenty five, and it's
Speaker 5: really just not a great picture in terms of the
Speaker 5: labor market right now. It does characterize labor market cool.
Speaker 2: But we did see the unemployment rate move lower.
Speaker 5: That's exactly right. Adding to the mixed nature of this
Speaker 5: job report, we see the unemployment rate inching lower. Some
Speaker 5: of that is because of updates and revisions to how
Speaker 5: the household survey is computed. A lot of it comes
Speaker 5: from revisions or updates to the total population. The estimate
Speaker 5: of the population increased by about three million people, and
Speaker 5: the number of people who the Bureau of Labor Statistics
Speaker 5: estimates are employed increased by way more than we had anticipated.
Speaker 5: That creates downward pressure on the unemployment.
Speaker 2: Where people joining the workforce, unemployment I mean sounds like
Speaker 2: former President Biden left on a pretty high note here.
Speaker 2: If it's four percent unemployment.
Speaker 5: That's right. Adding to his economic legacy of delivering a
Speaker 5: slower pace of inflation without creating a massive disturbance in
Speaker 5: the labor market. That's going to be part of his
Speaker 5: economic legacy. And so again, you know, as he exited
Speaker 5: on the twentieth of January, this is a rather favorable
Speaker 5: little detail for his economic legacy. But in terms of
Speaker 5: the job to report overall, it is a pretty mixed picture.
Speaker 5: Payrolls not looking great, but then again unemployment inching down.
Speaker 2: Now you mentioned inflation and the legacy of former President Biden,
Speaker 2: I mean, it has been the bete noir for this
Speaker 2: economy and for consumers. And what are you expecting to
Speaker 2: see on Wednesday? That would be the January CPI. Everybody
Speaker 2: goes to the gas station, everybody tries to buy eggs
Speaker 2: if there are eggs in there. There's a lot into this.
Speaker 2: What do you expect to see and why? What is
Speaker 2: the reason it is so stubbornly high.
Speaker 5: We're expecting to see headline inflation registering zero point three
Speaker 5: percent on a monthly basis. That's a little bit slower
Speaker 5: than we saw in December. There are a couple tricky
Speaker 5: seasonal factors operating the background that are allowing for that
Speaker 5: slow down in the monthly pace of headline inflation. But
Speaker 5: underneath the surface, what's going on the sumer level for
Speaker 5: headline inflation is that gasoline prices are exceptionally stable through
Speaker 5: the winter. Typically, you would expect to see a major
Speaker 5: decline in December that never materialized that boosted the December number.
Speaker 5: Now as we get into January, there's less of that
Speaker 5: going on again. Just at the pump, things are relatively stable,
Speaker 5: and so we're going to see a little bit of
Speaker 5: a slow down to the pace of headline inflation. When
Speaker 5: it comes to the core, we're also expecting to see
Speaker 5: just barely zero point three percent monthly inflation. That's faster
Speaker 5: than we saw it in December zero point two percent December,
Speaker 5: but favorable base effect will allow the annual measure of
Speaker 5: core inflation to inch down just a little bit to
Speaker 5: three point one percent, still stubbornly high. It's still characteristic
Speaker 5: of that long last mile to the FEDS two percent target,
Speaker 5: And a lot of what's going on in the background
Speaker 5: is that goods disinflation deflation in goods, which is typical
Speaker 5: for the US decade, It's just not there. We're just
Speaker 5: not getting that goods deflation that we would typically rely on.
Speaker 2: Now on Friday, we're gonna see the result of this
Speaker 2: with retail sales for January. What are you expecting to see?
Speaker 2: Is the consumer pulling back? And is it not just
Speaker 2: low way journers but all consumers.
Speaker 5: What I'm really seeing for the retail sales number is
Speaker 5: a consequence of pretty negative weather consequences from the polar vortex.
Speaker 5: In January. We saw really dismal auto sales during the month.
Speaker 5: The annualized pace of auto sales fell to about fifteen
Speaker 5: point six million units from sixteen point eight million units
Speaker 5: in December. So that major decline is characteristic of folks
Speaker 5: who just really don't want to walk the lot and
Speaker 5: get pitched on, you know, the undercoat cealant by the salesman.
Speaker 5: It's just too cold to do that during the month
Speaker 5: of January during a polar vortex. And when you have
Speaker 5: auto sales declining like that, that could result in headline
Speaker 5: retail sales declining by that zero point four percent during
Speaker 5: the month. And that's what we expect well a.
Speaker 2: Lot to look forward to. Our thanks to Stuart paul Us,
Speaker 2: economist with Bloomberg Economics. We move next to corporate earnings
Speaker 2: from the fast food giant McDonald's. It's fourth quarter results
Speaker 2: out on Monday. For more on the world's biggest burger chain,
Speaker 2: the state of the fast food industry, and whether consumers
Speaker 2: are pulling back on their spending. We're joined by Michael Halen,
Speaker 2: Bloomberg Intelligence Senior Restaurant and food service analyst. Michael, thank
Speaker 2: you for joining us. Now, Like every other dining establishment,
Speaker 2: McDonald's has how to face a lot of challenges. Rising costs,
Speaker 2: look at the price of eggs, higher salaries, cautious consumer spending.
Speaker 2: It also had an E Coli outbreak last year that
Speaker 2: may have really set things back. So what are you
Speaker 2: looking for in this earnings report out on Monday.
Speaker 6: Yeah, I think this earning report is going to be
Speaker 6: kind of ugly, So, you know, to your point, e
Speaker 6: Coli through a wrench into things. They had started off
Speaker 6: the quarter well October seem store sales were up mid
Speaker 6: single digits, Traffic was positive. They had kind of re
Speaker 6: established themselves as as you know, one of the big
Speaker 6: dogs in terms of value providers in there in the
Speaker 6: restaurant business in the United States. With their five dollars
Speaker 6: meal deal, it was going really well. Uh and then
Speaker 6: they were hit that E Coli outbreak. And so from
Speaker 6: data we've seen and you know, just what we expect
Speaker 6: November and December, we're probably pretty pretty tough months for
Speaker 6: the chain. You know, I think what the street is
Speaker 6: really interested in is how January is doing so far. Right,
Speaker 6: They've they've revamped their mcvalue menu, which hasn't been touched
Speaker 6: in quite some time, and we think that could could
Speaker 6: create some buzz. You know, the street really wanted to
Speaker 6: see some some progress here on the same source.
Speaker 2: Sales and traffic. Well, I'd say more than any other chain,
Speaker 2: they are pretty nimble. They're willing to change. And how
Speaker 2: do you think they McDonald's did reacting to that ecali scare.
Speaker 2: I mean they shut things down right away. That quarter
Speaker 2: pounder was unavailable I think nationwide even for a while,
Speaker 2: just to la fears. But how do you think they
Speaker 2: came back from that?
Speaker 6: Yeah, so sales and traffic haven't bat back. I think
Speaker 6: they handled it pretty well. They quickly, you know, stop
Speaker 6: serving quarter pounders and quick got to the bottom of
Speaker 6: the issue. You know, I think what's going to help
Speaker 6: McDonald's versus say Chipotle, which was the last you know,
Speaker 6: largely coal air brick in the industry. You know, we
Speaker 6: think this is going to be a much shallower event
Speaker 6: for McDonald's because it wasn't their fault. It wasn't because
Speaker 6: of poor procedures or cleanliness issues or cross contamination or
Speaker 6: anything like that. They receive bags of onions from a
Speaker 6: distributor that were infected with E. Coli, right, And so
Speaker 6: for that reason, we think this is going to be
Speaker 6: a much shallower impact the same sort of sales. We
Speaker 6: had some work done by a partner of ours, Cognovi Labs.
Speaker 6: They use AI to analyze tweets and online forums and
Speaker 6: things of that nature. And what their research found for
Speaker 6: us was that mentions of ecal i quickly faded throughout
Speaker 6: the fourth quarter in November and by year end, and
Speaker 6: also the negative emotions tied to ecoali comments dissipated pretty quickly.
Speaker 6: And so that what that tells us is that we
Speaker 6: think this is going to be a much faster recovery
Speaker 6: than ben Chipotle experience. We don't know if it's going
Speaker 6: to be the end of by the end of one
Speaker 6: Q or not. But you know, there's a potential for
Speaker 6: them to increase sales LITW single digits here in the
Speaker 6: second quarter, which, like I said earlier, the street wants
Speaker 6: to see progress. We want to see progress in this
Speaker 6: earnings report. We want to hear that January is doing
Speaker 6: better than December, which did better than November.
Speaker 2: Right right, right now. You mentioned the five dollars meal
Speaker 2: deals that they had, and everybody, it seems, came up
Speaker 2: with our own meal deals after that, and not just
Speaker 2: fast food but quick service restaurants, casual dining chains. Do
Speaker 2: you think that really changed the industry McDonald's launching those
Speaker 2: five dollars It seems like that started. I think in
Speaker 2: June of last year they extended it still going on.
Speaker 2: You say, now they're going to revamp their mcvalue meal.
Speaker 2: I mean, is this for right now here to stay?
Speaker 6: Yeah, And I'd say that the big reason is that
Speaker 6: that quick service chains are heavily frequented by low income consumers,
Speaker 6: and low income consumers are are still being impacted more
Speaker 6: than other consumers by inflation. Inflation is cumulative, right, and
Speaker 6: so last year was a restaurant's recession. And that's why
Speaker 6: we saw McDonald's start to lean into this. You know,
Speaker 6: early in the year. Last year, there was a lot
Speaker 6: of shade being thrown at McDonald's because a big mac
Speaker 6: meal was eighteen dollars at a store in Connecticut, right,
Speaker 6: And there was other quick service and fast casual names
Speaker 6: like five Guys actually had a twenty two or twenty
Speaker 6: three dollars meal deal, right, And so it was really
Speaker 6: important for Quick Service to re establish that value proposition,
Speaker 6: and that's why they did these five dollars meal deals,
Speaker 6: and that's why they're going to continue to do them.
Speaker 7: Right.
Speaker 6: It was a tough year for restaurants, and Quick Service
Speaker 6: had to do what they could to keep the low
Speaker 6: income consumers coming back. You know, we're we're more bullish
Speaker 6: on twenty twenty five. You know, with asset prices including
Speaker 6: SMP bitcoin, home prices all near all time highs, we think,
Speaker 6: you know, middle income, higher income consumers are going to
Speaker 6: spend more. You know, we think there could be you know,
Speaker 6: the results since the election have been better as well,
Speaker 6: and so and some of the economic data that we watch,
Speaker 6: and so, you know, for that reason, the low income
Speaker 6: consumer could be a little bit better too. But you know,
Speaker 6: because of the impacts of inflation on them, we think
Speaker 6: quick services is probably the segment of the industry we're
Speaker 6: the least excited about in twenty twenty five, and so
Speaker 6: you're going to continue to see these discounts.
Speaker 2: Oh that's good. Well McDonald's Q four earnings along with
Speaker 2: the return of the Shamrock shake out on Monday, Haart
Speaker 2: thanks to Michael Hale and Bloomberg Intelligence Senior restaurant and
Speaker 2: food service Adaly. Coming up on Bloomberg day Break Weekend,
Speaker 2: we'll look at what comes next in the global AI race.
Speaker 2: I'm Tom Busby, and this is Bloomberg. This is Bloomberg
Speaker 2: day Break Weekend, our global look ahead at the top
Speaker 2: stories for investors in the coming week. I'm Tom Busby
Speaker 2: in New York. Up later in our program, we'll look
Speaker 2: at the potential fallout of Donald Trump's trade war with China.
Speaker 2: But first, a summit on artificial intelligence taking place in
Speaker 2: Paris this week, set to bring together the biggest names
Speaker 2: in the sector, including government officials and business leaders. But
Speaker 2: this comes after Chinese startup Deep Seek jolted competitors around
Speaker 2: the world with a debut of its AI model, trained
Speaker 2: at just a fraction of the cost of rivals. How
Speaker 2: will the international community respond for more? Let's go to
Speaker 2: London and bring in Bloomberg day Break europe banker Caroline
Speaker 2: hepger Tom.
Speaker 3: The AI Action Summit is duced to take place in
Speaker 3: Paris in the next few days and at a fascinating moment.
Speaker 3: It will be the first trip abroad for the newly
Speaker 3: installed US Vice President jd. Vance. The Trump administration is
Speaker 3: keen to take a leading role in this area. Just
Speaker 3: look at President Trump's Stargate initiative, a one hundred billion
Speaker 3: dollar venture designed to accelerate AI development. Plus, the gathering
Speaker 3: takes place in the wake of Chinese firm Deep Seeks model,
Speaker 3: raising questions about the billions of dollars firms have spent
Speaker 3: to develop artificial intelligence technology and whether Beijing is closing
Speaker 3: the gap with the US in this rapidly developing sphere.
Speaker 3: So what's in store at the Paris AI Action Summit
Speaker 3: and beyond for the industry, I've been asking Bloomberg's Technology
Speaker 3: opinion columnist Pami Olsen.
Speaker 7: The summit came about in twenty twenty three as an
Speaker 7: AI safety summit in the UK and Bletchley Park which
Speaker 7: is kind of famed for being home to a lot
Speaker 7: of computer related innovation, and it was brought together, I think,
Speaker 7: out of concern about the speed at which AI was
Speaker 7: developing and the sense that there needed to be guardrails
Speaker 7: put in place. And there was a lot of talk
Speaker 7: back then about not just the short term risks of AI,
Speaker 7: such as the rise of misinformation that chatbots could contribute to,
Speaker 7: or the way that they could perhaps entrench certain stereotypes,
Speaker 7: racial stereotypes, gender stereotypes, and biases, but also the potential
Speaker 7: existential risk that AI could bring to civilization. These were
Speaker 7: the sorts of things that Rishie Sunak, who was the
Speaker 7: British Prime Minister at the time and he was hosting
Speaker 7: the event, spoke about. It's a very different tone this
Speaker 7: time around. The name has changed from AI Safety Summit
Speaker 7: to AI Action Summit, and I think that's a very
Speaker 7: interesting sting potential shift there in how governments want to
Speaker 7: approach AI Now. They seem to be more eager to
Speaker 7: kind of remain ahead in this race and maybe even
Speaker 7: stimulate and encourage their own national champions more so than
Speaker 7: putting guardrails in place for companies, which was really the
Speaker 7: focus of the first of the first stummit.
Speaker 3: Yeah, so why is this taking place now?
Speaker 8: Then?
Speaker 7: Well, as I understand it, this is an annual event,
Speaker 7: and so there was one in twenty twenty three, then
Speaker 7: there was another one in Seoul, South Korea last year,
Speaker 7: and this year we've got one in Paris. That the
Speaker 7: reason these have started is again just because of these
Speaker 7: rapid advancements. You know, since chat GPT came out two
Speaker 7: years ago, the rate at which AI models have been
Speaker 7: improving is even taking scientists by surprise. You know, some
Speaker 7: of the academic studying this stuff will read one paper.
Speaker 7: By the time they've finished reading it, it's sort of
Speaker 7: out of date because Anthropic or open AI or Google
Speaker 7: have come up with something more incredible, like a video
Speaker 7: generation tool. And you know, for businesses, investors, and policy makers,
Speaker 7: it's been very tricky just to keep up, whether it's
Speaker 7: to try and plug these systems into your businesses or
Speaker 7: try and put the standards in place to keep them safe.
Speaker 7: So and the other reason why I think this is
Speaker 7: happening is I think that governments have realized over the
Speaker 7: last decade that Silicon Valley companies should not be left
Speaker 7: to regulate themselves and governments need to come together and
Speaker 7: maybe put together some sort of international agency related to
Speaker 7: the United Nations that can put some standards in place
Speaker 7: that companies have a perhaps a legal obligation to follow,
Speaker 7: because you know, there is nothing like that yet in existence.
Speaker 7: And just a case in point, Google announced that they
Speaker 7: are now removing their own ban on the use of
Speaker 7: their AI for a military purpose, for weapons and for
Speaker 7: surveillance tools, and so this has really caused a lot
Speaker 7: of concern and consternation, particularly among civil society organizations and
Speaker 7: policy makers that really governments need to step in and.
Speaker 3: Do something interesting. So in terms of the heads of
Speaker 3: state who are going to be there and the important
Speaker 3: players out of Silicon Valley, who do you think will
Speaker 3: be them? And obviously in Manu and Macon, but also
Speaker 3: possibly JD. Vans possibly the other Silicon Valley leaders. Could
Speaker 3: things get a bit tense given that everybody is jostling
Speaker 3: to be at the forefront of this AI race.
Speaker 7: You know, at first I thought there might be a
Speaker 7: lot of tension between the US and China, so as
Speaker 7: there always is on this topic of AI governance. But
Speaker 7: it was interesting when the first AI s at International
Speaker 7: AI sam It happened in the UK two years ago.
Speaker 7: China sent uh this kind of biace minister for Science
Speaker 7: and Technology, and he was really kept at arm's length
Speaker 7: on these kind of national security concerns. Now I think
Speaker 7: it's going to be different. I think that China's officials,
Speaker 7: and China is sending one of its top government officials
Speaker 7: a very close ally to Jijiping, much higher ranking than
Speaker 7: the guy who came the first time. I think he's
Speaker 7: going to be given a much warmer welcome, just because
Speaker 7: of deep seat that the Chinese company that in the
Speaker 7: last couple of weeks has really shocked the market with
Speaker 7: its ability to make AI models so efficiently and really
Speaker 7: disrupt the economics of this new market. And so just
Speaker 7: given what Chinese companies have been achieving in research and development,
Speaker 7: I think the Chinese officials there are going to be
Speaker 7: given a warmer welcome. Overall, there might well be some
Speaker 7: some tensions over what policy should be, but also it
Speaker 7: really just depends on who ends up who ends up
Speaker 7: going to represent the United States, and I believe some
Speaker 7: quite high ranking people from India are going to be
Speaker 7: there as well. And again that's I think again that
Speaker 7: comes down to what happened with deep Seat Deep Deep
Speaker 7: Seek showed that the you know, the current AI race
Speaker 7: in it, the guaranteed winners are not necessarily American companies,
Speaker 7: America's tech giants. It could be smaller companies from developing nations.
Speaker 3: Yeah, which is which is fascinating, isn't it that Deep
Speaker 3: Seek has for such a rethink. But a lot of
Speaker 3: the big US companies are still committed to spending on
Speaker 3: on growth open AI in particular and others. I wonder
Speaker 3: whether there's any development in on that front. As far
Speaker 3: as you're concerned.
Speaker 7: I think the spending is going to continue, and we
Speaker 7: saw a commitment to that actually just in last week
Speaker 7: when tech companies like Microsoft and Meta Platforms were announcing
Speaker 7: their earnings. So it was an awkward time for them
Speaker 7: because they had just been completely undercut in a way
Speaker 7: by deep Seek, and then they had to talk to
Speaker 7: their investors about these tens of billions of dollars They
Speaker 7: want to continue spending on AI, and I think actually
Speaker 7: they can continue. They do have some justification to spend
Speaker 7: that much because in the last week there have been
Speaker 7: a lot of security concerns raised about deep Seek. Some
Speaker 7: security researchers have said that although deep Seek made its
Speaker 7: model very efficient, it's actually really low on the scale
Speaker 7: when it comes to the ability for people to jail
Speaker 7: break its model, meaning they could get it to do
Speaker 7: things it's not supposed to, or steal private information that
Speaker 7: the model is kind of plugged into. So I think
Speaker 7: that would really hurt deep seak prospects in terms of
Speaker 7: getting business customers potentially, And that is a little bit
Speaker 7: of a vindication for the tech giants who are spending
Speaker 7: a lot on infrastructure, billions and billions of dollars on infrastructure,
Speaker 7: which isn't just the power AI, but also to keep
Speaker 7: it secure.
Speaker 3: And tell us also a little bit about one of
Speaker 3: the other ventures within AI, which is Stargate and what's
Speaker 3: kind of happening with that and why people think it's
Speaker 3: so interesting what may come in the weeks and months ahead.
Speaker 7: Yeah, so I think we really it's it's an open
Speaker 7: question because this is a project that was a five
Speaker 7: hundred billion dollar project to really just boost the infrastructure
Speaker 7: investment in the US on AI data center spending and
Speaker 7: so forth. I've heard some people say that five hundred
Speaker 7: million like the billion. It doesn't it doesn't need to
Speaker 7: be that high. That for what the government is trying
Speaker 7: to do and what open ai is trying to do
Speaker 7: as a potential beneficiary to all this just does not
Speaker 7: need that amount of funding. But we'll see, i suppose,
Speaker 7: in the in the months ahead, whether open ai actually
Speaker 7: is able to make good on some of the discoveries
Speaker 7: that deep seek has made, because remember deep seek is
Speaker 7: not strictly open source, but it's it's an open weights
Speaker 7: uh model, and that it has put the blueprints for
Speaker 7: its incredibly efficient model on the Internet for anybody to
Speaker 7: copy and use. So if open ai and Microsoft and
Speaker 7: Google just start poppying what China has come up with,
Speaker 7: they're probably going to start building much more efficient AI
Speaker 7: models and maybe they won't need all that infrastructure that
Speaker 7: has been you know, applauded and talked up in the
Speaker 7: last few weeks with Stargate.
Speaker 3: We've had that. Of course, the big tech companies are
Speaker 3: ditching commitments to TODI as the federal government in the
Speaker 3: US is how much of a role do you think
Speaker 3: the regulation is going to play now in determining the
Speaker 3: future of AI? And this is also very important as
Speaker 3: we sit in Europe and think about the tensions between
Speaker 3: you know, the European understanding of safety for consumers and
Speaker 3: a very different approach in the US.
Speaker 9: Yeah, And I think that's something hopefully that will actually
Speaker 9: gain some more attention at this summit in the next
Speaker 9: few days, because what we've seen, you know, what I
Speaker 9: talked about in the beginning, is this kind of shift
Speaker 9: in tone and in terms of governments being not just
Speaker 9: in the US but even in the UK shifting away
Speaker 9: from framing themselves as you know, standard bearers, putting in
Speaker 9: the standards and the guardrails for companies to build AI safely.
Speaker 7: And I hope that we will continue to sort of
Speaker 7: continue that confidence in that role that governments have to play.
Speaker 3: My thanks there to Bloomberg's Pami Olson for joining me.
Speaker 3: So technology with the potential to transform our lives and
Speaker 3: for some global leaders a matter of national security. Where
Speaker 3: will the world's journey with AI take us?
Speaker 7: Next?
Speaker 3: We will have full coverage of the AI Action Summit
Speaker 3: in Paris for you here on Bloomberg. I'm Caroline Hepka
Speaker 3: in London and you can catch us every weekday morning
Speaker 3: for Blueberg Daybreak you at beginning at six am in London.
Speaker 3: That's one am on Wall Street. Tom.
Speaker 2: Thanks Caroline and coming up on Bloomberg day Break weekend,
Speaker 2: we'll look at the potential fallout of Donald Trump's trade
Speaker 2: war with China. I'm Tom Busby and this is Bloomberg.
Speaker 2: This is Bloomberg day Break Weekend, our global look ahead
Speaker 2: at the top stories for investors in the coming week.
Speaker 2: Tom Busby and New York. President Trump has to some
Speaker 2: extent made good on his promises of tariffs. The US
Speaker 2: reaching deals to delay implementing tariffs on neighbors Canada and Mexico,
Speaker 2: but tariffs on Chinese goods are now in effect. And
Speaker 2: for a look at the potential fallout, let's get to
Speaker 2: the host of the Daybreak Asia podcast, Doug Krisner.
Speaker 4: Tom, the US China trade war seems to be underway.
Speaker 4: Donald Trump's thread of those US tariffs loomed over the
Speaker 4: presidential campaign and they're now a reality, a blanket ten
Speaker 4: percent tariff on all Chinese goods imported to the US.
Speaker 4: So the question now is where do we go from here.
Speaker 4: Let's cross to Singapore where we find Bloomberg opinion columnist
Speaker 4: Karishma Vaswani. She has been writing about the potential backlash.
Speaker 4: Karishma joining us from our studios in the Lion City.
Speaker 4: Thank you for making time to chat with us. It's
Speaker 4: always a pleasure. Can I start by getting your initial
Speaker 4: reaction to what we know so far.
Speaker 10: I think what you're seeing from the United States and
Speaker 10: from President Donald Trump is a degree of what he
Speaker 10: said that he was going to do on the campaign trail,
Speaker 10: that he was going to be tough on drugs, he
Speaker 10: was going to be tough when it came to trade.
Speaker 10: You know, one of the things I found particularly notable
Speaker 10: in my research was that with regards to some of
Speaker 10: the most important issues for Americans, and you'll know this well, Doug,
Speaker 10: you know, being based out there, that they wanted their
Speaker 10: leader to focus on drugs, possibly even more so, some
Speaker 10: surveys suggested, than reducing the budget deficit and even unemployment.
Speaker 10: So that's what he's showing to his domestic audience. He's saying, Look,
Speaker 10: I'm tying tariffs and trade to this issue of drugs
Speaker 10: coming into our borders and immigrants coming into our borders,
Speaker 10: and I'm going to show the world whose boss now.
Speaker 10: In the short term, as I argue in my column,
Speaker 10: he seems to have achieved that, certainly with Canada and Mexico,
Speaker 10: In the long term, I feel like this will be
Speaker 10: a massive reputational damage to the United States in terms
Speaker 10: of its image as a fair player, a global act,
Speaker 10: and a force of stability. Instead, I think countries will
Speaker 10: be looking at the US and trying to figure out
Speaker 10: their Trump two point zero playbook, and you know, getting
Speaker 10: a sense that the US under Trump is going to
Speaker 10: be quite unpredictable. And then that brings us to China.
Speaker 4: Of course, Yes, well that's the next question. What do
Speaker 4: we know about the degree to which this is resonating
Speaker 4: in Beijing. I mean, this is not the first time
Speaker 4: that President Trump has dealt with Chinese President Chi Jinping.
Speaker 4: There was a trade war during the first Trump administration.
Speaker 4: Is this resonating in a slightly different fashion now?
Speaker 10: I think it is simply because China is in a
Speaker 10: very different position now. One the economy isn't as strong
Speaker 10: as it was back then.
Speaker 11: Two.
Speaker 10: I think it is fair to say that sigen Ping
Speaker 10: President Cigenping is looking to legitimize his image as a
Speaker 10: sort of, you know, somebody who can bring stability to
Speaker 10: the Chinese economy and to the political situation. It's impossible
Speaker 10: to know, of course, given how opaque it is it's
Speaker 10: like a black box out there. But certainly when you
Speaker 10: look at economic indicators, use unemployment, all of that, that's
Speaker 10: been under pressure for quite some time in China, so
Speaker 10: you know it is coming off a back foot. But
Speaker 10: I thought it was really interesting that what we saw,
Speaker 10: instead of a capitulation the way you know, the Canada
Speaker 10: and Mexico actions have been perceived to be, what we
Speaker 10: saw instead was proper retaliation, and China decided to hit back,
Speaker 10: or at least threaten to retaliate with its own set
Speaker 10: of taros, saying that it would implement a fifteen percent
Speaker 10: tarafon coal and liquified natural gas products, as well as
Speaker 10: a ten percent tarifon crude oil, agricultural machinery, and large
Speaker 10: engine cars imported from the US from the tenth to February.
Speaker 10: So that still gives us some time. Between the two men,
Speaker 10: Siagean Ping and Donald Trump. You know, it's been indicated
Speaker 10: from the US that they're going to have a conversation.
Speaker 10: He has talked. Trump has talked in the past about
Speaker 10: what a good relationship he has with Sigean Ping. He's
Speaker 10: talked about TikTok being on the table, And I think
Speaker 10: all of this is quite perform pomative from both sides,
Speaker 10: saying like, look, we're willing to deal, but it has
Speaker 10: to be on our terms as well. I think that's
Speaker 10: what you're getting from the Chinese right.
Speaker 4: So at the same time that those retaliatory tariffs were announced,
Speaker 4: China launched an antitrust probe into Google. I thought that
Speaker 4: was very interesting. I spoke earlier with Annabel Droolers, she
Speaker 4: is our tech reporter from Hong Kong. Here's what she
Speaker 4: had to say.
Speaker 8: Well, it is a little bit confusing, actually, you could
Speaker 8: probably say because a lot of people would know that
Speaker 8: that Google hasn't been available as a search engine in
Speaker 8: China going all the way back to twenty ten. So
Speaker 8: you know, the question is really what exactly is China
Speaker 8: going to be looking into. And essentially what they're announced
Speaker 8: is an investigation into Alphabet's Google for alleged antitrust violations.
Speaker 8: The real focus of this is perhaps going to pertain
Speaker 8: and this is what our Bloomberg intelligence team is saying,
Speaker 8: but it could relate to the market dominance of the
Speaker 8: Google Android mobile phone operating system, which is in China's
Speaker 8: smartphone sector of course, and according to data from IDC,
Speaker 8: approximately seventy percent of smartphone sort are sold in China.
Speaker 8: We're Android based last year, so that could be the
Speaker 8: sort of the broader focus that.
Speaker 4: Is Annabel Jewelers our tech reporter in Hong Kong. Let's
Speaker 4: get back to our conversation with Kriishma Vaswani Karishma. Where
Speaker 4: do we go from here in terms of the tension
Speaker 4: on the technology side between the US and China. We
Speaker 4: know that during the Biden administration those strict export controls
Speaker 4: were put in place on semiconductors. This became revisited with
Speaker 4: the story on deep Seek a couple of weeks ago.
Speaker 4: Now we're talking about Google. Where do we go here
Speaker 4: on the tech front?
Speaker 10: Yeah, I think Google, you know, it's a bit of
Speaker 10: a symbolic gesture, to be very honest, and I think,
Speaker 10: you know, our tech correspondent in Hong Kong sort of
Speaker 10: alluded to that. I see it as quite a separate
Speaker 10: issue from things like deep Seek, as well as the
Speaker 10: limited access for Chinese firms pretty much no access to
Speaker 10: high end US technology. And I think what China is
Speaker 10: saying with that is, look, this is our first south
Speaker 10: and it's not a big one. It's not something that
Speaker 10: could really hurt you all that much. You know, it's
Speaker 10: still an investigation at this point and it hasn't reached
Speaker 10: any sort of decision yet. But I think what China
Speaker 10: is showing by saying that it's looking into this and
Speaker 10: it's a big, massive American tech company, is that, you know,
Speaker 10: you know, push us a little bit further, Trump, and
Speaker 10: we could go further too, And if you want to
Speaker 10: get into this tip for tat retaliatory kind of battle,
Speaker 10: we can do that. We did that in the first
Speaker 10: administration and if you look back, it's quite interesting. And
Speaker 10: some of our colleagues have written about this on the
Speaker 10: Bloomberg website as well, tracking the first set of tariffs
Speaker 10: during the first trade war and looking at pretty much
Speaker 10: the sort of mirroring of what China did every time
Speaker 10: Trump put in a new set of tariffs. And I'm
Speaker 10: sure you know this phrase in dating culture, Doug, but
Speaker 10: matching your energy recently learned that, and I think that's
Speaker 10: what China is trying to do at this point as well,
Speaker 10: but not to the extent that it would antagonize Trump completely.
Speaker 10: It's to leave that door open and say we're willing
Speaker 10: to talk, but it has to also work in our favor.
Speaker 4: You know, I mentioned the export controls that were put
Speaker 4: in place under the Biden administration. Those were not unilateral.
Speaker 4: The cooperation came from Japan also the Netherlands. Are we
Speaker 4: in a situation now where Trump is functioning more unilaterally
Speaker 4: and could that be problematic for the United States going forward?
Speaker 10: I think it's extremely problematic, and I think it's a
Speaker 10: really good question that you've posed. It's frankly, it's the
Speaker 10: focus of one of my columns coming up, so I'll
Speaker 10: be sure to come up and talk to you about
Speaker 10: that when I do publish. But I think this is
Speaker 10: a huge issue because what Trump has done with regards
Speaker 10: to the actions, for example, with close allies like Canada
Speaker 10: and Mexico. The signal that sends to other countries like Japan,
Speaker 10: South Korea is that we're all at risk, right Like,
Speaker 10: if Canada and Mexico aren't safe, then who is safe?
Speaker 10: And in the past, the Biden administry worked really effectively
Speaker 10: in places like the South China Sea in the Indo
Speaker 10: Pacific from business, trade and geopolitics to say, look, it's
Speaker 10: in your interests to side with us, and yes, China
Speaker 10: is a massive trading partner for you, but we're going
Speaker 10: to keep you safe. We are on your side, and
Speaker 10: that built a degree of goodwill that I think a
Speaker 10: lot of the time is sort of lost in the
Speaker 10: geopolitical conversation when it comes to looking back at the
Speaker 10: Biden administration and you know, we have to be fair.
Speaker 10: There were lots of missteps as well. But I think
Speaker 10: the key thing going forward if Trump is serious about
Speaker 10: keeping Americans safe, about ensuring that American supremacy to some
Speaker 10: extent is still you know, valid and something that is
Speaker 10: respected around the world, then tearing up trading agreements, not
Speaker 10: paying attention to close allies like Japan and South Korea,
Speaker 10: not making sure that these sort of alliances are in
Speaker 10: place in the Indo Pacific, in South China Sea. That
Speaker 10: will make America a more dangerous place and reduce the
Speaker 10: supremacy of the United States on the international state.
Speaker 4: Very recently, US Secretary of State Marco Rubio traveled to
Speaker 4: Panama and he essentially echoed Trump's complaints about Chinese influence
Speaker 4: or certain parts of the Panama Canal. How do you
Speaker 4: think that resonated in Beijing.
Speaker 10: I think that will worry them a lot, because you know,
Speaker 10: the Chinese have managed to parley their economic influence into
Speaker 10: geopolitical influence around the world. That was what Belton Road
Speaker 10: was definitely about. And you know, again, I think it's
Speaker 10: important to take a balanced view here. What Rubio is
Speaker 10: saying is not necessarily wrong. It's just the methods I
Speaker 10: think that he's using might seem a bit heavy handed
Speaker 10: when you look at the way international diplomacy might well
Speaker 10: be conducted. But it does echo a lot of what
Speaker 10: the Biden administration has said before as well.
Speaker 4: Karishma, thank you so much for joining us. That's Korishma Vaswani,
Speaker 4: columnist for Bloomberg Opinion. So let's turn out and get
Speaker 4: some deeper market analysis. I spoke with Stephanie Leon. She
Speaker 4: is the chief investment officer at Stashua. We know the
Speaker 4: situation in China is quite different from what it was
Speaker 4: during the last Trump administration, and I'm wondering whether She
Speaker 4: Jinping knows or feels that he has a much weaker
Speaker 4: hand to play right now.
Speaker 11: Yes, I think, I mean to a certain extent. Of course,
Speaker 11: the economic situation now is a lot weaker in China,
Speaker 11: but I also think that there is kind of a
Speaker 11: change in the global view from both sides of the continents.
Speaker 11: Right from a US perspective, of course, if you ask
Speaker 11: a medium Phota a few years ago, they would be
Speaker 11: much more pro China. Now today, I think it's sort
Speaker 11: of just across the aisle. People are kind of seeing
Speaker 11: China as a as a threat, more as a competition
Speaker 11: than a friendly kind of trade neighbor. Also from the
Speaker 11: China side, we have to recognize that, I mean, the
Speaker 11: leadership from President she is basically that we have to
Speaker 11: develop our own economy.
Speaker 5: Right.
Speaker 11: They can't rely on the external trade. It can't rely
Speaker 11: on a clio global trade anymore like they've done before,
Speaker 11: and therefore there is a lot more focus on developing
Speaker 11: the domestic economy, and I think that's kind of where
Speaker 11: the government is focusing on now. Of course, in the
Speaker 11: past few months we've seen some gestures of stimulus, but
Speaker 11: I think largely what the market wants is from the
Speaker 11: government to directly stimulate consumption and also investment in that
Speaker 11: so far we haven't seen that.
Speaker 4: So I'm trying to understand Stephanie, whether or not this
Speaker 4: US China trade war will become protracted. Okay, ten percent
Speaker 4: may not be a lot initially, but Trump has already
Speaker 4: said that this tariff could go as high as sixty percent,
Speaker 4: and I'm imagining that that would inflict a lot of
Speaker 4: pain on the export economy in China.
Speaker 11: Yeah, I think. I mean, if eventually sixty percent gets imposed,
Speaker 11: and it gets imposed on the most critical components, then
Speaker 11: I think, yes, of course it will depen growth in China,
Speaker 11: given that export is the very, very important But I
Speaker 11: think we also to remember that also dampests growth and
Speaker 11: push us up inflation potentially in the US as well.
Speaker 11: And I mean Trump administration knows that.
Speaker 4: That was definitely Young chief investment officer at Stashaway and
Speaker 4: I'm Doug Krisner. You can catch us weekdays for the
Speaker 4: Daybreak Asia podcast. It's available wherever you get your podcast.
Speaker 2: Tom. Thank you, Doug. And that does it for this
Speaker 2: edition of Bloomberg day Break Weekend. Join us again Monday
Speaker 2: morning at five am Wall Street Time for the latest
Speaker 2: on markets overseas and the news you need to start
Speaker 2: your day. I'm Tom Buzby. Stay with us. Top stories
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