WEBVTT - Phase One Trade Deal Signals `Cease Fire'

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Jason

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<v Speaker 1>Kelly on Bloomberg Radio. All right, you are listening to

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<v Speaker 1>Bloomberg Business Week. Trade obviously one of our big stories

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<v Speaker 1>on this Wednesday. Understandably so Phase one of the US

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<v Speaker 1>China trade deal. It's done. We've got two great voices

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<v Speaker 1>with us now to talk about this. David Readal is President,

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<v Speaker 1>founder of Real Research Group. He joins us on the

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<v Speaker 1>phone from San Francisco. Also here with us in our

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<v Speaker 1>Bloomberg Interactor Broker studio right here in New York City,

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<v Speaker 1>Stefan Sila. He's Cela. He is managing partner at Bridge

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<v Speaker 1>Park Advisor's former Under Secretary of Commerce for International Trade

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<v Speaker 1>UM and this was during the Obama administration. So, gentlemen,

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<v Speaker 1>great to have you here with us. Stephan, I want

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<v Speaker 1>to start with you this trade deal Phase one, Phase

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<v Speaker 1>two is expected shortly. I don't think we're necessarily expecting

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<v Speaker 1>a phase three. We'll have to wait and see. What

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<v Speaker 1>do you make of the news. Well, I'm not sure, Carol,

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<v Speaker 1>i'd expect to phase two so fast either. I mean,

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<v Speaker 1>it did take the better part of three years to

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<v Speaker 1>get to where we are today, and for sure. Um,

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<v Speaker 1>there was some real progress in the administration deserves some

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<v Speaker 1>real credit, but we haven't tackled what are the most

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<v Speaker 1>difficult issues, which are the structural issues with the Chinese economy,

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<v Speaker 1>broad market access for foreign firms and including US businesses,

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<v Speaker 1>as well as the state support of local firms in particular, UM,

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<v Speaker 1>the s o s, the state owned enterprises, subsidies at

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<v Speaker 1>the government propose subsidies exactly, and um, you know, as

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<v Speaker 1>a result of that, UM, you know, I kind of

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<v Speaker 1>have a balanced view of what was announced today, which

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<v Speaker 1>is real progress has been made, but there's still real

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<v Speaker 1>work left to do. And so I would think of

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<v Speaker 1>this more as a ceasefire than actually a real um

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<v Speaker 1>uh ending of the conflict. All right, So David Rido,

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<v Speaker 1>come on in here. Help us understand this from the

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<v Speaker 1>Chinese perspective, because obviously we saw a lot of pump

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<v Speaker 1>and circumstance here in the United States down in Washington today,

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<v Speaker 1>a full room with the President sort of name checking

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<v Speaker 1>so so many people as we went through, uh, that

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<v Speaker 1>whole process. But if you're over in Beijing, Shanghai, how

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<v Speaker 1>are you viewing this deal? Well, it's it's it's a

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<v Speaker 1>transaction more than a deal. Right, They didn't have to

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<v Speaker 1>give up anything structural or related to their industrial policy,

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<v Speaker 1>so that's a big win for Beijing. Uh, they are

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<v Speaker 1>required to make some additional purchases of US goods and services,

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<v Speaker 1>quite a substantial amount in fact, which will have a

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<v Speaker 1>positive impact on the US economy. There are also a

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<v Speaker 1>couple of areas where things opened up a little bit

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<v Speaker 1>for financial services companies and things like that. But really

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<v Speaker 1>they didn't have to make any of the big structural

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<v Speaker 1>changes which they have no interest in making about their

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<v Speaker 1>industrial policy and how they run their economy. So they

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<v Speaker 1>got some relief on some tariffs that have been implemented,

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<v Speaker 1>so sort of sort of causing a problem and then

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<v Speaker 1>solving it right, which is is a is a transactional

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<v Speaker 1>move for any negotiation, um, and then gave a little

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<v Speaker 1>bit of market access. But it remains to be seen,

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<v Speaker 1>um what the fundamental impact is on Chinese business. I

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<v Speaker 1>have to say, David, I wonder how much of this

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<v Speaker 1>was really kind of a political agreement versus really a

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<v Speaker 1>better trade agreement, And it feels like in some ways

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<v Speaker 1>politics were much more at play, not just on the

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<v Speaker 1>part of the U S certainly in an election year,

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<v Speaker 1>but also on the part of the Chinese who are

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<v Speaker 1>facing you know, some pressure at home to kind of

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<v Speaker 1>you know, get something done as well. That's true. I

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<v Speaker 1>would say that the political pressure is much more acute

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<v Speaker 1>in the United States, where these taxes on American consumers

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<v Speaker 1>in the form of tariffs, we're really exacting a toll,

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<v Speaker 1>a political toll as well as an economic tool. Uh

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<v Speaker 1>here at here at home. I've always said that Chinese

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<v Speaker 1>have virtually unlimited ability to absorb tariffs with their substantial reserves.

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<v Speaker 1>They're huge control of major swact the economy and a

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<v Speaker 1>very um populist that's willing to go along with nationalistic

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<v Speaker 1>themes um. So I think the Chinese will take this

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<v Speaker 1>as a win. Um. They'll show some relief for their

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<v Speaker 1>their constituents without giving away the store, which is the

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<v Speaker 1>way that they run their economy and their industrial policy.

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<v Speaker 1>So Stephane, I'm gonna ask you the same question to

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<v Speaker 1>ask Steve Schwartzman earlier when he joined me from just

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<v Speaker 1>outside the White House, having been in that room, which is,

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<v Speaker 1>if you're an investor, if you're running a company, does

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<v Speaker 1>this deal, transaction agreement, whatever we want to call it,

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<v Speaker 1>does it change your behavior in the near term and

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<v Speaker 1>how Yeah, So, I think Jason, the answer to that

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<v Speaker 1>is a decided yes, because fundamentally, what it does is

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<v Speaker 1>reduces some of the uncertainty, It quells some of the fear.

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<v Speaker 1>Um it gets rid of this notion that there's going

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<v Speaker 1>to be further escalation, and as a result of that,

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<v Speaker 1>I think this will be good for the markets, good

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<v Speaker 1>for investors, and good for businesses, but um, it is

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<v Speaker 1>not going to get to some of the long term

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<v Speaker 1>aspects that are still going to weigh on the minds

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<v Speaker 1>of businesses going forward. Stefan, Do we need China like

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<v Speaker 1>we used to need China and just trying to need

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<v Speaker 1>the US like it used to need the US? You know,

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<v Speaker 1>that's that's an interesting question, Carol. In the end, historically,

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<v Speaker 1>what has happened is we become an integrated world. Old

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<v Speaker 1>um and supply chains have merged and we've been moving

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<v Speaker 1>in that direction. The question is now, are we going

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<v Speaker 1>to become a bipolar world in which there is going

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<v Speaker 1>to be a Chinese access access in the US access

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<v Speaker 1>and companies are going to arrange supply chains and businesses

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<v Speaker 1>around That notion clearly would be less efficient for the

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<v Speaker 1>global economy and would cost US and Chinese companies real growth.

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<v Speaker 1>And that really remains to be seen, which is, are

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<v Speaker 1>we going to figure out a system in which our

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<v Speaker 1>economy and their economy are going to be able to

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<v Speaker 1>coexist effectively and fairly over the long term. And there's

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<v Speaker 1>no precedent for that, so we don't know. So, David,

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<v Speaker 1>I want to make sure that we get to to

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<v Speaker 1>one specific question with you, which is this is not

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<v Speaker 1>just about the U. S And China. We you know,

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<v Speaker 1>we talk a lot about these two nations, and yet

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<v Speaker 1>there's another very powerful country. We got a reminder of

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<v Speaker 1>that today with Vladimir Putin essentially rearranging his own government.

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<v Speaker 1>Russia has a role in in this drama as well.

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<v Speaker 1>Tell us about that, they really do. And it's interesting

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<v Speaker 1>because after trade, or maybe in front of trade, the

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<v Speaker 1>biggest flash point of US China relations is the South

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<v Speaker 1>China Sea and this massive territory grab that China has

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<v Speaker 1>made into the South China Sea, through which a third

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<v Speaker 1>of global trade travels, also tremendous oil reserves and fisheries

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<v Speaker 1>reserves and so and so forth. This has been a

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<v Speaker 1>great frustration to their neighbors like Vietnam and the Philippines

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<v Speaker 1>and other places who have overlapping claims on some of

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<v Speaker 1>those territories. Now Here comes Russia, who has been in

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<v Speaker 1>military um maneuvers and exercises with with China in recent years,

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<v Speaker 1>but allowing for an encouraging oil exploration in these contested

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<v Speaker 1>waters with joint ventures with companies in Vietnam and the Philippines.

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<v Speaker 1>That's a fascinating way for Russia to insert themselves into

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<v Speaker 1>this region and really becoming a playing a role for

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<v Speaker 1>those US allies to sort of needle China and push

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<v Speaker 1>back on China's territorial ambitions without going directly uh into

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<v Speaker 1>the into the arms of the US. So it's a

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<v Speaker 1>it's a fascinating development and one I think we're all

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<v Speaker 1>going to need to keep an eye on because those

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<v Speaker 1>three big powers contesting those uh those important waters of

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<v Speaker 1>the South China see could really be a flash point

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<v Speaker 1>in the next five retention, Jason, but I would say that, um,

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<v Speaker 1>you know, the Russian economy is still reasonably relatively small,

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<v Speaker 1>and it's very focused on natural resources, and in terms

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<v Speaker 1>of the commercial relationship, Russia isn't particularly relevant. They are,

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<v Speaker 1>as David said, from a geo political strategic UM base

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<v Speaker 1>is very relevant. But in terms of really global trade flows,

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<v Speaker 1>Russia's that, you know, Europe is far more important. Stephan

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<v Speaker 1>ce Leg still with US managing partner Bridge Park Advisors

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<v Speaker 1>here in New York City. Uh So, just you know,

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<v Speaker 1>before we get back into the trade deal, I do

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<v Speaker 1>want to ask you, you know here on you don't

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<v Speaker 1>have to worry about just about them that. Um, that's

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<v Speaker 1>become my favorite moment of the day. So thank you

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<v Speaker 1>very much. You know you're also a deal making guy.

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<v Speaker 1>You're a Wall Street guy. What's the mood on on

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<v Speaker 1>Wall Street? Right now? It's bank earnings week. Um. Look,

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<v Speaker 1>obviously bank earnings, including my former former employer, Bank of

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<v Speaker 1>America today were somewhat disappointing. Fixed income trading obviously was

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<v Speaker 1>a bright spot. Um, but interest margins have been coming down.

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<v Speaker 1>I think overall the U S economy is quite healthy,

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<v Speaker 1>and overall that is the most important thing in terms

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<v Speaker 1>of what is going to drive bank earnings going forward.

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<v Speaker 1>And I think this conversation we're having about trade is

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<v Speaker 1>clearly incrementally helpful for the reasons I've suggested, which is

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<v Speaker 1>going to remove this cloak of uncertainty that has been

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<v Speaker 1>over the economy. It's going to help at least drive

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<v Speaker 1>some investment going forward by companies, and companies are going

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<v Speaker 1>to be able to plan more effectively if they believe

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<v Speaker 1>that this is going to be pushed to the side

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<v Speaker 1>for the foreseeable future. So one would expect that in

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<v Speaker 1>terms of you know, company needs their attitude beam or

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<v Speaker 1>upbe just got about thirty seconds here, we should expect

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<v Speaker 1>to see more capital expenditures right going out and doing things,

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<v Speaker 1>whether it's buying plants, hiring more or what have you. Yes,

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<v Speaker 1>And I guess the question is, Carol, is this going

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<v Speaker 1>to be enough to really drive renewed foreign investment in

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<v Speaker 1>the US, because this is not just a China story, right,

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<v Speaker 1>We're still also fighting with Europe, for example, threatening a

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<v Speaker 1>whole host of tariffs on cars and wine and a

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<v Speaker 1>whole host of other things, and that is obviously going

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<v Speaker 1>to give companies pause about further integrating supply chains. It

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<v Speaker 1>really comes back to your your question, which are company

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<v Speaker 1>is going to be looking to be less globally integrated

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<v Speaker 1>going forward at the expense of the global economy. Stephan

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<v Speaker 1>See still with this managing partner Bridge Park Advisors, also

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<v Speaker 1>a former Undersecretary of Commerce for International Trade at the U. S.

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<v Speaker 1>Department of Commerce during the Obama administration. So here's the question.

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<v Speaker 1>I'm gonna use your phrase back to you. Was the

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<v Speaker 1>light worth the candle for all of this trade? Full

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<v Speaker 1>credit to you. I did not make that up, that's

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<v Speaker 1>your I'm not sure I could have coined that phrase,

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<v Speaker 1>but I certainly repurposed it. Um. You know, look, I

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<v Speaker 1>think Jason, there were clearly some real costs to the U. S. Economy. Um.

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<v Speaker 1>There were costs to our treasury. There were cost to

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<v Speaker 1>our businesses, their cost to our consumers, there are cost

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<v Speaker 1>to our workers. Um. But we did make some progress.

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<v Speaker 1>I think at the end of the day, it's going

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<v Speaker 1>to be hard to answer that question until we see

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<v Speaker 1>if this preest sages a phase one and phase two,

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<v Speaker 1>Phase two or three phase three deal. If the answer

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<v Speaker 1>to that is yes, and this is a first step

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<v Speaker 1>to a larger series of agreements that were able to

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<v Speaker 1>reach with China, I would say the answer. I would

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<v Speaker 1>say affirmatively that it was worth the pain, um, in

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<v Speaker 1>our economy. If the answer to that is no, I

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<v Speaker 1>probably would have concluded that there would have been a

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<v Speaker 1>more effective way to come uh to these this conclusion

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<v Speaker 1>than the way that the administration UM proceeded. What do

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<v Speaker 1>we well, what do you think the administration did wrong? Well? Um,

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<v Speaker 1>I'd say a couple of things, Carol. One is we

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<v Speaker 1>did this unilaterally and didn't approach China with our friends

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<v Speaker 1>and allies, which would have given us a much more

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<v Speaker 1>effective bargaining position. Two is this focus on tariffs I

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<v Speaker 1>think was misguided. Um. I think the president believes that

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<v Speaker 1>tariffs are paid, We're paid by China. I think that

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<v Speaker 1>the economists have been pretty clear that that has not

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<v Speaker 1>been the case. And I think thirdly, perhaps most importantly,

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<v Speaker 1>is this focus on our bilateral trade deficit as being

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<v Speaker 1>the right metric to focus on in terms of our

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<v Speaker 1>trade relationship. And I think economists have also been clear

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<v Speaker 1>that bilateral trade deficits are not the result of trade policy,

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<v Speaker 1>but they are the result of consumption savings, exchange rates.

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<v Speaker 1>And to some degree, these purchases, the two dollars of

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<v Speaker 1>purchases which China has been committed to, are going to

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<v Speaker 1>also come out of purchase is by others. And it

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<v Speaker 1>is not incremental. It is not a zero zero sum game. Unfortunately,

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<v Speaker 1>and so I guess as we look around the world,

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<v Speaker 1>we think about Europe. There we think about U S

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<v Speaker 1>m c A, Carolusa called Usmica. But it's an unfortunate obviously,

0:12:20.640 --> 0:12:27.200
<v Speaker 1>have no marines in your family. So what where else

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<v Speaker 1>do we need to be worried about trade in the

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<v Speaker 1>world from the US perspective? Or what's the number one

0:12:31.960 --> 0:12:33.640
<v Speaker 1>place that we should be thinking about? What have to

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<v Speaker 1>be Europe? Right because kicking collectively, Europe is obviously our

0:12:38.280 --> 0:12:41.120
<v Speaker 1>largest trading partner, the Canada and Mexico. Things seems to

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<v Speaker 1>have largely have been solved with the U S m

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<v Speaker 1>c A. One could have asked the same question, was

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<v Speaker 1>the light worth the candle in terms of all of

0:12:47.920 --> 0:12:50.079
<v Speaker 1>that drama because most of the things we got in

0:12:50.240 --> 0:12:52.839
<v Speaker 1>U S m c A were frankly in the Trans

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<v Speaker 1>Pacific Partnership, which I spent so many years working on

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<v Speaker 1>in my government service. But it was helpful and that's

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<v Speaker 1>put to the side. And so I think the next

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<v Speaker 1>big dog in the room is going to be how

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<v Speaker 1>we interact with Europe and the EU, and is a

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<v Speaker 1>part of that obviously um with the United Kingdom. I

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<v Speaker 1>was going to stay with the UK. I mean that

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<v Speaker 1>to me becomes one of the more interesting conversations, not

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<v Speaker 1>the least of which because you've got Trump versus Johnson,

0:13:19.440 --> 0:13:23.120
<v Speaker 1>or Trump and Johnson together. Uh, talk about a couple.

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<v Speaker 1>Although I would say Jason that don't forget both our

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<v Speaker 1>economy and their economies are open economies and so our

0:13:30.000 --> 0:13:33.640
<v Speaker 1>issues are incremental issues. We don't have substantive tariffs in

0:13:33.760 --> 0:13:36.719
<v Speaker 1>our two countries. We have broad based open markets and

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<v Speaker 1>market access for our companies. The United Kingdom is a

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<v Speaker 1>huge investor in the U S and vice versa. So clearly,

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<v Speaker 1>while there are things to do, um uh, there's not

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<v Speaker 1>kind of the big tall trees to chop down. Stephen,

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<v Speaker 1>I have to ask you, are we as a nation

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<v Speaker 1>being left behind because we are pursuing rather than multilateral

0:13:56.080 --> 0:14:00.000
<v Speaker 1>multilateral you know, trade um deals and doing bilateral especially

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<v Speaker 1>with a country like China in terms of its role

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<v Speaker 1>in this global economy. Are we making a big mistake

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<v Speaker 1>that's going to hurt us for years to come because

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<v Speaker 1>I do feel like China is exploring multilateral agreements around

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<v Speaker 1>the globe. They are and they're doing their own version

0:14:14.600 --> 0:14:17.400
<v Speaker 1>of the T p P the r st um. Uh.

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<v Speaker 1>The one thing I would say, Carol is it's hard

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<v Speaker 1>to leave the United States out of any global commercial

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<v Speaker 1>economic discussion given the size and strength and importance of

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<v Speaker 1>our economy, even if even though it feels like we're

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<v Speaker 1>pulling back, well, what I would say is we're not

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<v Speaker 1>going to be to you to use your phrase left out.

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<v Speaker 1>Is it going to cost us growth? Might have cost

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<v Speaker 1>us jobs? I think the answer to that is yes, um.

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<v Speaker 1>And I think equally as importantly, what is going to

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<v Speaker 1>be the impact to peace and prosperity globally? So don't

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<v Speaker 1>forget this system that we've created since World War Two

0:14:50.320 --> 0:14:53.160
<v Speaker 1>has led to the longest period of time without a

0:14:53.240 --> 0:14:56.840
<v Speaker 1>major um a major power conflict. It has led to

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<v Speaker 1>a period of time where we bought more people out

0:14:59.000 --> 0:15:03.200
<v Speaker 1>of poverty or around the world because of this global integration.

0:15:03.480 --> 0:15:05.800
<v Speaker 1>And the question is how is that going to slow down?

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<v Speaker 1>And what is going to be the ancillary knock on

0:15:07.880 --> 0:15:12.280
<v Speaker 1>effects to the US that aren't just narrowly commercial and economic. Alright,

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<v Speaker 1>having you here, loved catching up with you. Thank you

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<v Speaker 1>so much for spending so much time with this. Stephan

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<v Speaker 1>see like managing partner Bridge Park Advisors, and of course

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<v Speaker 1>former Under Secretary of Commerce for International Trade at the

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<v Speaker 1>Department of Commerce,