Speaker 1: This is Bloomberg Business Week with Carol Masser and Jason
Speaker 1: Kelly on Bloomberg Radio. All right, you are listening to
Speaker 1: Bloomberg Business Week. Trade obviously one of our big stories
Speaker 1: on this Wednesday. Understandably so Phase one of the US
Speaker 1: China trade deal. It's done. We've got two great voices
Speaker 1: with us now to talk about this. David Readal is President,
Speaker 1: founder of Real Research Group. He joins us on the
Speaker 1: phone from San Francisco. Also here with us in our
Speaker 1: Bloomberg Interactor Broker studio right here in New York City,
Speaker 1: Stefan Sila. He's Cela. He is managing partner at Bridge
Speaker 1: Park Advisor's former Under Secretary of Commerce for International Trade
Speaker 1: UM and this was during the Obama administration. So, gentlemen,
Speaker 1: great to have you here with us. Stephan, I want
Speaker 1: to start with you this trade deal Phase one, Phase
Speaker 1: two is expected shortly. I don't think we're necessarily expecting
Speaker 1: a phase three. We'll have to wait and see. What
Speaker 1: do you make of the news. Well, I'm not sure, Carol,
Speaker 1: i'd expect to phase two so fast either. I mean,
Speaker 1: it did take the better part of three years to
Speaker 1: get to where we are today, and for sure. Um,
Speaker 1: there was some real progress in the administration deserves some
Speaker 1: real credit, but we haven't tackled what are the most
Speaker 1: difficult issues, which are the structural issues with the Chinese economy,
Speaker 1: broad market access for foreign firms and including US businesses,
Speaker 1: as well as the state support of local firms in particular, UM,
Speaker 1: the s o s, the state owned enterprises, subsidies at
Speaker 1: the government propose subsidies exactly, and um, you know, as
Speaker 1: a result of that, UM, you know, I kind of
Speaker 1: have a balanced view of what was announced today, which
Speaker 1: is real progress has been made, but there's still real
Speaker 1: work left to do. And so I would think of
Speaker 1: this more as a ceasefire than actually a real um
Speaker 1: uh ending of the conflict. All right, So David Rido,
Speaker 1: come on in here. Help us understand this from the
Speaker 1: Chinese perspective, because obviously we saw a lot of pump
Speaker 1: and circumstance here in the United States down in Washington today,
Speaker 1: a full room with the President sort of name checking
Speaker 1: so so many people as we went through, uh, that
Speaker 1: whole process. But if you're over in Beijing, Shanghai, how
Speaker 1: are you viewing this deal? Well, it's it's it's a
Speaker 1: transaction more than a deal. Right, They didn't have to
Speaker 1: give up anything structural or related to their industrial policy,
Speaker 1: so that's a big win for Beijing. Uh, they are
Speaker 1: required to make some additional purchases of US goods and services,
Speaker 1: quite a substantial amount in fact, which will have a
Speaker 1: positive impact on the US economy. There are also a
Speaker 1: couple of areas where things opened up a little bit
Speaker 1: for financial services companies and things like that. But really
Speaker 1: they didn't have to make any of the big structural
Speaker 1: changes which they have no interest in making about their
Speaker 1: industrial policy and how they run their economy. So they
Speaker 1: got some relief on some tariffs that have been implemented,
Speaker 1: so sort of sort of causing a problem and then
Speaker 1: solving it right, which is is a is a transactional
Speaker 1: move for any negotiation, um, and then gave a little
Speaker 1: bit of market access. But it remains to be seen,
Speaker 1: um what the fundamental impact is on Chinese business. I
Speaker 1: have to say, David, I wonder how much of this
Speaker 1: was really kind of a political agreement versus really a
Speaker 1: better trade agreement, And it feels like in some ways
Speaker 1: politics were much more at play, not just on the
Speaker 1: part of the U S certainly in an election year,
Speaker 1: but also on the part of the Chinese who are
Speaker 1: facing you know, some pressure at home to kind of
Speaker 1: you know, get something done as well. That's true. I
Speaker 1: would say that the political pressure is much more acute
Speaker 1: in the United States, where these taxes on American consumers
Speaker 1: in the form of tariffs, we're really exacting a toll,
Speaker 1: a political toll as well as an economic tool. Uh
Speaker 1: here at here at home. I've always said that Chinese
Speaker 1: have virtually unlimited ability to absorb tariffs with their substantial reserves.
Speaker 1: They're huge control of major swact the economy and a
Speaker 1: very um populist that's willing to go along with nationalistic
Speaker 1: themes um. So I think the Chinese will take this
Speaker 1: as a win. Um. They'll show some relief for their
Speaker 1: their constituents without giving away the store, which is the
Speaker 1: way that they run their economy and their industrial policy.
Speaker 1: So Stephane, I'm gonna ask you the same question to
Speaker 1: ask Steve Schwartzman earlier when he joined me from just
Speaker 1: outside the White House, having been in that room, which is,
Speaker 1: if you're an investor, if you're running a company, does
Speaker 1: this deal, transaction agreement, whatever we want to call it,
Speaker 1: does it change your behavior in the near term and
Speaker 1: how Yeah, So, I think Jason, the answer to that
Speaker 1: is a decided yes, because fundamentally, what it does is
Speaker 1: reduces some of the uncertainty, It quells some of the fear.
Speaker 1: Um it gets rid of this notion that there's going
Speaker 1: to be further escalation, and as a result of that,
Speaker 1: I think this will be good for the markets, good
Speaker 1: for investors, and good for businesses, but um, it is
Speaker 1: not going to get to some of the long term
Speaker 1: aspects that are still going to weigh on the minds
Speaker 1: of businesses going forward. Stefan, Do we need China like
Speaker 1: we used to need China and just trying to need
Speaker 1: the US like it used to need the US? You know,
Speaker 1: that's that's an interesting question, Carol. In the end, historically,
Speaker 1: what has happened is we become an integrated world. Old
Speaker 1: um and supply chains have merged and we've been moving
Speaker 1: in that direction. The question is now, are we going
Speaker 1: to become a bipolar world in which there is going
Speaker 1: to be a Chinese access access in the US access
Speaker 1: and companies are going to arrange supply chains and businesses
Speaker 1: around That notion clearly would be less efficient for the
Speaker 1: global economy and would cost US and Chinese companies real growth.
Speaker 1: And that really remains to be seen, which is, are
Speaker 1: we going to figure out a system in which our
Speaker 1: economy and their economy are going to be able to
Speaker 1: coexist effectively and fairly over the long term. And there's
Speaker 1: no precedent for that, so we don't know. So, David,
Speaker 1: I want to make sure that we get to to
Speaker 1: one specific question with you, which is this is not
Speaker 1: just about the U. S And China. We you know,
Speaker 1: we talk a lot about these two nations, and yet
Speaker 1: there's another very powerful country. We got a reminder of
Speaker 1: that today with Vladimir Putin essentially rearranging his own government.
Speaker 1: Russia has a role in in this drama as well.
Speaker 1: Tell us about that, they really do. And it's interesting
Speaker 1: because after trade, or maybe in front of trade, the
Speaker 1: biggest flash point of US China relations is the South
Speaker 1: China Sea and this massive territory grab that China has
Speaker 1: made into the South China Sea, through which a third
Speaker 1: of global trade travels, also tremendous oil reserves and fisheries
Speaker 1: reserves and so and so forth. This has been a
Speaker 1: great frustration to their neighbors like Vietnam and the Philippines
Speaker 1: and other places who have overlapping claims on some of
Speaker 1: those territories. Now Here comes Russia, who has been in
Speaker 1: military um maneuvers and exercises with with China in recent years,
Speaker 1: but allowing for an encouraging oil exploration in these contested
Speaker 1: waters with joint ventures with companies in Vietnam and the Philippines.
Speaker 1: That's a fascinating way for Russia to insert themselves into
Speaker 1: this region and really becoming a playing a role for
Speaker 1: those US allies to sort of needle China and push
Speaker 1: back on China's territorial ambitions without going directly uh into
Speaker 1: the into the arms of the US. So it's a
Speaker 1: it's a fascinating development and one I think we're all
Speaker 1: going to need to keep an eye on because those
Speaker 1: three big powers contesting those uh those important waters of
Speaker 1: the South China see could really be a flash point
Speaker 1: in the next five retention, Jason, but I would say that, um,
Speaker 1: you know, the Russian economy is still reasonably relatively small,
Speaker 1: and it's very focused on natural resources, and in terms
Speaker 1: of the commercial relationship, Russia isn't particularly relevant. They are,
Speaker 1: as David said, from a geo political strategic UM base
Speaker 1: is very relevant. But in terms of really global trade flows,
Speaker 1: Russia's that, you know, Europe is far more important. Stephan
Speaker 1: ce Leg still with US managing partner Bridge Park Advisors
Speaker 1: here in New York City. Uh So, just you know,
Speaker 1: before we get back into the trade deal, I do
Speaker 1: want to ask you, you know here on you don't
Speaker 1: have to worry about just about them that. Um, that's
Speaker 1: become my favorite moment of the day. So thank you
Speaker 1: very much. You know you're also a deal making guy.
Speaker 1: You're a Wall Street guy. What's the mood on on
Speaker 1: Wall Street? Right now? It's bank earnings week. Um. Look,
Speaker 1: obviously bank earnings, including my former former employer, Bank of
Speaker 1: America today were somewhat disappointing. Fixed income trading obviously was
Speaker 1: a bright spot. Um, but interest margins have been coming down.
Speaker 1: I think overall the U S economy is quite healthy,
Speaker 1: and overall that is the most important thing in terms
Speaker 1: of what is going to drive bank earnings going forward.
Speaker 1: And I think this conversation we're having about trade is
Speaker 1: clearly incrementally helpful for the reasons I've suggested, which is
Speaker 1: going to remove this cloak of uncertainty that has been
Speaker 1: over the economy. It's going to help at least drive
Speaker 1: some investment going forward by companies, and companies are going
Speaker 1: to be able to plan more effectively if they believe
Speaker 1: that this is going to be pushed to the side
Speaker 1: for the foreseeable future. So one would expect that in
Speaker 1: terms of you know, company needs their attitude beam or
Speaker 1: upbe just got about thirty seconds here, we should expect
Speaker 1: to see more capital expenditures right going out and doing things,
Speaker 1: whether it's buying plants, hiring more or what have you. Yes,
Speaker 1: And I guess the question is, Carol, is this going
Speaker 1: to be enough to really drive renewed foreign investment in
Speaker 1: the US, because this is not just a China story, right,
Speaker 1: We're still also fighting with Europe, for example, threatening a
Speaker 1: whole host of tariffs on cars and wine and a
Speaker 1: whole host of other things, and that is obviously going
Speaker 1: to give companies pause about further integrating supply chains. It
Speaker 1: really comes back to your your question, which are company
Speaker 1: is going to be looking to be less globally integrated
Speaker 1: going forward at the expense of the global economy. Stephan
Speaker 1: See still with this managing partner Bridge Park Advisors, also
Speaker 1: a former Undersecretary of Commerce for International Trade at the U. S.
Speaker 1: Department of Commerce during the Obama administration. So here's the question.
Speaker 1: I'm gonna use your phrase back to you. Was the
Speaker 1: light worth the candle for all of this trade? Full
Speaker 1: credit to you. I did not make that up, that's
Speaker 1: your I'm not sure I could have coined that phrase,
Speaker 1: but I certainly repurposed it. Um. You know, look, I
Speaker 1: think Jason, there were clearly some real costs to the U. S. Economy. Um.
Speaker 1: There were costs to our treasury. There were cost to
Speaker 1: our businesses, their cost to our consumers, there are cost
Speaker 1: to our workers. Um. But we did make some progress.
Speaker 1: I think at the end of the day, it's going
Speaker 1: to be hard to answer that question until we see
Speaker 1: if this preest sages a phase one and phase two,
Speaker 1: Phase two or three phase three deal. If the answer
Speaker 1: to that is yes, and this is a first step
Speaker 1: to a larger series of agreements that were able to
Speaker 1: reach with China, I would say the answer. I would
Speaker 1: say affirmatively that it was worth the pain, um, in
Speaker 1: our economy. If the answer to that is no, I
Speaker 1: probably would have concluded that there would have been a
Speaker 1: more effective way to come uh to these this conclusion
Speaker 1: than the way that the administration UM proceeded. What do
Speaker 1: we well, what do you think the administration did wrong? Well? Um,
Speaker 1: I'd say a couple of things, Carol. One is we
Speaker 1: did this unilaterally and didn't approach China with our friends
Speaker 1: and allies, which would have given us a much more
Speaker 1: effective bargaining position. Two is this focus on tariffs I
Speaker 1: think was misguided. Um. I think the president believes that
Speaker 1: tariffs are paid, We're paid by China. I think that
Speaker 1: the economists have been pretty clear that that has not
Speaker 1: been the case. And I think thirdly, perhaps most importantly,
Speaker 1: is this focus on our bilateral trade deficit as being
Speaker 1: the right metric to focus on in terms of our
Speaker 1: trade relationship. And I think economists have also been clear
Speaker 1: that bilateral trade deficits are not the result of trade policy,
Speaker 1: but they are the result of consumption savings, exchange rates.
Speaker 1: And to some degree, these purchases, the two dollars of
Speaker 1: purchases which China has been committed to, are going to
Speaker 1: also come out of purchase is by others. And it
Speaker 1: is not incremental. It is not a zero zero sum game. Unfortunately,
Speaker 1: and so I guess as we look around the world,
Speaker 1: we think about Europe. There we think about U S
Speaker 1: m c A, Carolusa called Usmica. But it's an unfortunate obviously,
Speaker 1: have no marines in your family. So what where else
Speaker 1: do we need to be worried about trade in the
Speaker 1: world from the US perspective? Or what's the number one
Speaker 1: place that we should be thinking about? What have to
Speaker 1: be Europe? Right because kicking collectively, Europe is obviously our
Speaker 1: largest trading partner, the Canada and Mexico. Things seems to
Speaker 1: have largely have been solved with the U S m
Speaker 1: c A. One could have asked the same question, was
Speaker 1: the light worth the candle in terms of all of
Speaker 1: that drama because most of the things we got in
Speaker 1: U S m c A were frankly in the Trans
Speaker 1: Pacific Partnership, which I spent so many years working on
Speaker 1: in my government service. But it was helpful and that's
Speaker 1: put to the side. And so I think the next
Speaker 1: big dog in the room is going to be how
Speaker 1: we interact with Europe and the EU, and is a
Speaker 1: part of that obviously um with the United Kingdom. I
Speaker 1: was going to stay with the UK. I mean that
Speaker 1: to me becomes one of the more interesting conversations, not
Speaker 1: the least of which because you've got Trump versus Johnson,
Speaker 1: or Trump and Johnson together. Uh, talk about a couple.
Speaker 1: Although I would say Jason that don't forget both our
Speaker 1: economy and their economies are open economies and so our
Speaker 1: issues are incremental issues. We don't have substantive tariffs in
Speaker 1: our two countries. We have broad based open markets and
Speaker 1: market access for our companies. The United Kingdom is a
Speaker 1: huge investor in the U S and vice versa. So clearly,
Speaker 1: while there are things to do, um uh, there's not
Speaker 1: kind of the big tall trees to chop down. Stephen,
Speaker 1: I have to ask you, are we as a nation
Speaker 1: being left behind because we are pursuing rather than multilateral
Speaker 1: multilateral you know, trade um deals and doing bilateral especially
Speaker 1: with a country like China in terms of its role
Speaker 1: in this global economy. Are we making a big mistake
Speaker 1: that's going to hurt us for years to come because
Speaker 1: I do feel like China is exploring multilateral agreements around
Speaker 1: the globe. They are and they're doing their own version
Speaker 1: of the T p P the r st um. Uh.
Speaker 1: The one thing I would say, Carol is it's hard
Speaker 1: to leave the United States out of any global commercial
Speaker 1: economic discussion given the size and strength and importance of
Speaker 1: our economy, even if even though it feels like we're
Speaker 1: pulling back, well, what I would say is we're not
Speaker 1: going to be to you to use your phrase left out.
Speaker 1: Is it going to cost us growth? Might have cost
Speaker 1: us jobs? I think the answer to that is yes, um.
Speaker 1: And I think equally as importantly, what is going to
Speaker 1: be the impact to peace and prosperity globally? So don't
Speaker 1: forget this system that we've created since World War Two
Speaker 1: has led to the longest period of time without a
Speaker 1: major um a major power conflict. It has led to
Speaker 1: a period of time where we bought more people out
Speaker 1: of poverty or around the world because of this global integration.
Speaker 1: And the question is how is that going to slow down?
Speaker 1: And what is going to be the ancillary knock on
Speaker 1: effects to the US that aren't just narrowly commercial and economic. Alright,
Speaker 1: having you here, loved catching up with you. Thank you
Speaker 1: so much for spending so much time with this. Stephan
Speaker 1: see like managing partner Bridge Park Advisors, and of course
Speaker 1: former Under Secretary of Commerce for International Trade at the
Speaker 1: Department of Commerce,