Speaker 1: Brought you by Bank of America Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's a power
Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg Jim Glassman Joints. We were
Speaker 1: both off on Friday for Jobs Day. Perhaps we were
Speaker 1: both at the Super Bowl. Tom, I don't know, but
Speaker 1: let me let me just get your sense of what
Speaker 1: we saw in those numbers on on Friday. Hi, you
Speaker 1: reacted to the headline number, and I know you've dug
Speaker 1: into the numbers. You know, I'm I'm more interested in
Speaker 1: in the employment picture because weights trends which got everybody
Speaker 1: threw everybody off. We're are very volatile. So this month
Speaker 1: they're very soft. But uh, the fact, when you're saying
Speaker 1: steady job growth month after month, here we are eight
Speaker 1: years in recovery and we're still seeing this, it tells
Speaker 1: you we still have a lot of momentum. You would
Speaker 1: think that if we're getting close to full employment, these
Speaker 1: trends are gonna start slowing down, and just it's a
Speaker 1: reminder that we still have a lot of people out
Speaker 1: there looking for jobs, and it makes me feel like
Speaker 1: we're not yet up to our full potential to So
Speaker 1: that means to me there's more good news to come.
Speaker 1: So I was more focused on that now that The
Speaker 1: other thing is really interesting in the background. What you
Speaker 1: see going on is as the job market is doing better,
Speaker 1: there's more opportunities opening up. And what's happening is people,
Speaker 1: particularly in the thirty five year bracket, the participation rates
Speaker 1: coming back. So a lot of these guys dropped out
Speaker 1: during the recession, maybe they had support from family, but
Speaker 1: with the job market doing better, there's more compelling reason
Speaker 1: to come back in look for a job. And I
Speaker 1: think that's that's a healthy sign that this hidden unemployment
Speaker 1: that's been going on is really we're addressing it, and
Speaker 1: we're seeing lots of signs of this. So I I
Speaker 1: take more. I take comfort in the trends that we
Speaker 1: see in the employment numbers and that but by the way.
Speaker 1: The other thing that's interesting in this For the last
Speaker 1: couple of years we've been dealing with the the oil
Speaker 1: sector has been going through some major cutbacks and you're
Speaker 1: seeing it showing up in mining, utilities, and manufacturing and
Speaker 1: capex bending down. Well, uh, it looks to me like
Speaker 1: we're mostly working got through that because now you're starting
Speaker 1: to see job growth in mining, in manufacturing, and construction.
Speaker 1: So for so these are the three areas that have
Speaker 1: been kind of soft, and this report showed maybe the
Speaker 1: beginning of some return to something more normal. You mentioned
Speaker 1: the volatility of those those wage trends. If you take
Speaker 1: a step back, what are we seeing in terms of
Speaker 1: wage growth from a from a broader perspective, Well, these
Speaker 1: numbers show sort of the wage growth is shifted up
Speaker 1: from two percent annual growth forever to about two and
Speaker 1: a half percent. We're still doing a little better of
Speaker 1: an inflation but frankly, we would I would expect this
Speaker 1: is going to do a little better. It looked to
Speaker 1: me like we were heading our way towards three percent growth,
Speaker 1: which would be quite decent given where inflation is. And
Speaker 1: it may be that we're there. And the thing that's
Speaker 1: surprised everybody is there were a bunch of states that
Speaker 1: implemented minimum wages when minimum wage hikes in January that
Speaker 1: didn't show up. So I think you don't really know
Speaker 1: what's going on here until you see a couple of
Speaker 1: months behind you. Because these numbers are so volatile, they
Speaker 1: swing around a lot, and it wouldn't be surprising to
Speaker 1: me if by spring you see the trend is back
Speaker 1: to where we were thinking before two and a half.
Speaker 1: Heading toward three, I want to ask you about retraining.
Speaker 1: I was looking at your most recent note, and you're
Speaker 1: at there are five point five million unfilled job openings
Speaker 1: today compared with three point five to four million job
Speaker 1: openings the last time unemployment stood at the current level,
Speaker 1: implying that quite a few new jobs could be created
Speaker 1: by retraining folks. So people taking that more seriously, Yeah,
Speaker 1: you see moving towards them. You see in action businesses
Speaker 1: talk about this a lot. Uh. It's it's very difficult
Speaker 1: for small business to train people because what happens is
Speaker 1: you train them and then they jump. You can't you
Speaker 1: can't be sure they're gonna stay your job. So where
Speaker 1: I see it as more in the community college system,
Speaker 1: that's where go to Miami Day Community College. It's massive system.
Speaker 1: They've got a lot of specialized skill programs that tons
Speaker 1: of kids are going into. And I think, I think
Speaker 1: it's just a matter of time people figure out that
Speaker 1: where the opportunities are. You just can't turn yourself into
Speaker 1: a technician overnight. It takes time, and you've gotta get
Speaker 1: some skills that we used to get in shop class,
Speaker 1: or you're gonna have some interest in math. So I
Speaker 1: think it just takes time. And my guess is we
Speaker 1: won't be talking about this five years from now. But
Speaker 1: that's that's why to us economists, this is music to
Speaker 1: our ears because when we hear people complaining but they
Speaker 1: can't find people, that tells me there's opportunities there and
Speaker 1: it's not gonna be long before someone figures that out.
Speaker 1: Strike me as a successful public private partnership. When you
Speaker 1: look at the where the companies are working with these
Speaker 1: communic college yeah, you know what that The thing is
Speaker 1: what used to happen is you're union. Used to have
Speaker 1: a union as a shop that would set or set
Speaker 1: these up. Well, we don't a lot of people don't
Speaker 1: work in unions anymore, particularly manufacturing so we do. We're
Speaker 1: missing an institution that really used to do this. Jim,
Speaker 1: do you just presume a stronger dollar? No, I I
Speaker 1: don't think it makes I think the reason we've seen
Speaker 1: the dollar stronger in the last couple of years is
Speaker 1: because the FETE stopped doing quantitative easing, and the Europeans
Speaker 1: and the Japanese stepped in and and just emulated with
Speaker 1: the FETE was doing. So I don't think it's obvious
Speaker 1: that the US dollars should be stronger. The dollar is
Speaker 1: kind of on a trade weighted basis about where it's
Speaker 1: been on average over the last forty years, so to me,
Speaker 1: unless the US is able to sort of fundamentally change
Speaker 1: the amount of energy in the economy and generates all
Speaker 1: of this new optimism about productivity or something that's unique
Speaker 1: to the US and not others, I don't think there's
Speaker 1: a reason to expect the dollar to keep going up,
Speaker 1: And particularly now that we're seeing more signs maybe not
Speaker 1: in Greece, but in Europe, European and Japanese economies are
Speaker 1: doing a little better, so central banks are getting a
Speaker 1: little more You get the sense that people are thinking
Speaker 1: more about maybe slowing down the asset purchases, and that's
Speaker 1: why the Europeans are doing starting March. So that to me,
Speaker 1: that prospect is what kind of limits the upside for
Speaker 1: the dollar. Get trade balance date of here at eight
Speaker 1: thirty and you've written about trade deaths. That's how we
Speaker 1: should regard trade deaths. That's saying that you should seem
Speaker 1: as paid forward story. I think, so okay. So here
Speaker 1: here is that here's the US. We are among the
Speaker 1: richest of the economies in the world. Right America is
Speaker 1: already great, and and so is Europe. And in terms
Speaker 1: of living standard, much of the world is very poor.
Speaker 1: So to me, trade deficits symbolize an effort on our part.
Speaker 1: It allows companies that are countries that are allowed to
Speaker 1: access our consumer markets, means they can sell to us,
Speaker 1: means they can they can generate their own economic development.
Speaker 1: And so trade deficits are a sign that the world
Speaker 1: is all out of balance. There we're trading with people
Speaker 1: who are poor, but as they do better, they're going
Speaker 1: to be buying more of our stuff. And so to me,
Speaker 1: trade death there's a temporary dislocation that is uh is
Speaker 1: a reflection of a world that's out of saying it's
Speaker 1: not a reflection of countries manipulating their currency to take
Speaker 1: advantage of the US. It's a it's a sign of
Speaker 1: countries waking up. And you know, if you're if you're
Speaker 1: Bangladesh or India or China, you're living standards ten the
Speaker 1: US level. You're not going to be buying the same
Speaker 1: things that we're buying from them. So to me, this
Speaker 1: is a stepping stone to a world where we're all
Speaker 1: going to be doing better and we benefit from that
Speaker 1: process because as these as Asia in particular, continue to develop,
Speaker 1: there's vast new consumer markets that are gonna be developing,
Speaker 1: and our our businesses are gonna be benefiting from that. Americans,
Speaker 1: American jobs are going to be created by that. Is
Speaker 1: this conversation too colored by politics, in other words, to
Speaker 1: be focused too much on China and Mexico because of
Speaker 1: the debate over the border or about who is wh
Speaker 1: who is wielding a heavier hand in the age of
Speaker 1: Pacific region for instance. You know, I can understand the
Speaker 1: focus on China Mexicans. That's where the that's the most
Speaker 1: amic that there's were the biggest changes have taken place
Speaker 1: right in China is big, but it really is a
Speaker 1: mistake to think that China and Mexico are stealing our jobs.
Speaker 1: China and Mexico, as they develop, are creating jobs for us.
Speaker 1: We don't see them every day. Honestly, in my company,
Speaker 1: I don't know how much of JP Morgan's revenues are
Speaker 1: being generated by economic the economic pie growing, but I
Speaker 1: know it's true, and I know that I'm benefiting from
Speaker 1: what's going on around the world. Jim Glastman with US.
Speaker 1: He's economist for Commercial Banking and JP Morgan. Jim Blastman,
Speaker 1: you had a great phrase earlier this morning, bogged down. Well,
Speaker 1: you're bogged down by distractions, whether it's Mr Putin or
Speaker 1: the New England Patriots. We are bogged down. How do
Speaker 1: we get out of this boggedness. It's lovely to be
Speaker 1: bogged down by the patriots, but the problem is we're Yeah,
Speaker 1: it's just it's distracting from the issue that has been
Speaker 1: helping the market, which is focusing on economic initiatives to
Speaker 1: get the economy moving. Regulation, tax reform, infrastructure spending that's coming.
Speaker 1: We know that's percolating in the background. But I think
Speaker 1: all of this other stuff is really kind of worrying
Speaker 1: people that maybe if we're not careful, that can start
Speaker 1: fragmenting the team that's trying to put this together. So
Speaker 1: it's you know, the market, the markets holding on to
Speaker 1: the hope because we have not really seen where they're
Speaker 1: going to go on some of these things. And that
Speaker 1: doesn't have to happen tomorrow. But as long as we
Speaker 1: see that there there's reform coming their actions and we
Speaker 1: know it takes time to get a tax reform put
Speaker 1: in place, but as long as um it looks like
Speaker 1: we're moving in that direction, the you know, it doesn't
Speaker 1: disrupt the market, and I think the benefits from that
Speaker 1: we're sort of already been monetized. We've already seen the
Speaker 1: market move up a lot, and the benefits of the
Speaker 1: higher stock markets created a couple of trillion dollars of wealth.
Speaker 1: So that's going to be affecting consumer spending. But but
Speaker 1: but it's true, we really need to get we were
Speaker 1: hoping that the debate gets refocused on the economic issues
Speaker 1: and we get away from some of these other things
Speaker 1: that are distracting. How much do you pay attention to
Speaker 1: readings of sentiment when you're looking at capex, when you're
Speaker 1: looking at the inventory investment. What does sentiment tell us
Speaker 1: about that? You know, Normally, like consumer sentiment, I never
Speaker 1: really pay much attention to it because you can't spend sentiment.
Speaker 1: You have to spend your not to get money yet,
Speaker 1: you know, and the thing is, we're seeing car sales
Speaker 1: off the charts, so that tells you that the consumer
Speaker 1: is feeling pretty good about things. I think in the
Speaker 1: business area, sentiment does matter a lot because there's a
Speaker 1: lot of activity businesses do. Business investment, for example, in
Speaker 1: cap X, that requires that you have some confidence in
Speaker 1: the future. So sentiment can sometimes tell you if there's
Speaker 1: a mind a change in the mindset, and you know,
Speaker 1: if a business has has to put in place a
Speaker 1: project that requires confidence that things are gonna be better
Speaker 1: in the future. Business sentiment can tell you something about
Speaker 1: what's going on. And we are seeing an improvement in
Speaker 1: cap picks surveys, for example, that's probably more about sentiment
Speaker 1: than it is about real plans. That's what that's that's
Speaker 1: what we're gonna have to sort of watch to see
Speaker 1: whether in fact we do get follow up on some
Speaker 1: of this improvement that we've seen in the sentiment numbers.
Speaker 1: When you look at we've talked about energy and energy
Speaker 1: in the labor market. How big of a driver is
Speaker 1: the energy sector right now when you look at the
Speaker 1: US kind of how important is it to get it
Speaker 1: back online perhaps to where it was. Well, it was
Speaker 1: a big deal because you know, as of two thousand fourteen,
Speaker 1: employment was growing about two fifty thousand a month. It
Speaker 1: just kind of slowed down quite significantly to under two
Speaker 1: thousand as that industry was going through its cutback. So
Speaker 1: I don't know that, and it's a it's a big
Speaker 1: deal for the U. S. Economy. We still use more
Speaker 1: energy than we produced, but it's a real big deal
Speaker 1: for the economy. And it's hard to tell all the
Speaker 1: all the impact its seat of indirect I mean, it
Speaker 1: affects transportation, capex, oil servicing, and there's a lot of
Speaker 1: jobs to spin out of this. And now, folks, at
Speaker 1: seven twenty three oh seven on a Tuesday morning, we
Speaker 1: begin a discussion the Jim Glassman and I have done
Speaker 1: a few times tax reform. Greg Velier this morning in
Speaker 1: his travels is tax reform is front and center and
Speaker 1: even goes to the idea Jim Glassman back dating when
Speaker 1: we back date back to the advantages of tax reform,
Speaker 1: do you and does JP Morgan and your team do
Speaker 1: you do actually feel we'll see tax reform? We do
Speaker 1: because this seems that this is an important part of
Speaker 1: the program, and it seems to be supported by folks
Speaker 1: in the Senate and the House and the President, so
Speaker 1: it would be I mean, we do. We do have
Speaker 1: issues because our companies are not competitive on the global landscape,
Speaker 1: so we know that our corporate tax rate rate is
Speaker 1: putting companies out a disadvantaged compared to others. We would
Speaker 1: like to see the tax coach shift more to a
Speaker 1: consumption based tax and that's part of what's going on. Yeah,
Speaker 1: come on, we were you know, we were children when
Speaker 1: we were talking about know, yeah, we were. We were
Speaker 1: at one time they were trying to turn the tax
Speaker 1: code into a consumption based income tax code. Well diminish,
Speaker 1: you know, there was some bivirus and effort to do that.
Speaker 1: But I think it's I think it's reasonable to assume
Speaker 1: we're going to get some measure of tax reform here
Speaker 1: because it's an important part of the program. Jim Blastmo,
Speaker 1: thank you so much, greatly appreciate it. With Jim, what
Speaker 1: a perfect time to talk to Orville shall, David, why
Speaker 1: don't you bring in Mr Shaw? Absolutely few Americans know
Speaker 1: China as well as our next guests have as much
Speaker 1: experience focusing on the country. Orbit Show, co author of
Speaker 1: Wealth and Power, China's Long March to the Twenty Free Century,
Speaker 1: editor of The China Reader, and many other books. Now
Speaker 1: he is co chair of a task force the Asia
Speaker 1: Society convene to look at U. S. China relations. They're
Speaker 1: out with a new report just this morning. He's former
Speaker 1: dean of the Graduate School of Journalism at You see
Speaker 1: Burke now the Arthur Ross Director of the Center on
Speaker 1: US China Relations at the Age of Society. And Orville
Speaker 1: Shell joins us now from our bureau in Washington at
Speaker 1: d C. Great to have you with us, and why
Speaker 1: don't we start just by talking about the relationship, the U. S.
Speaker 1: China relationship that this president inherited. What does it look like? Well,
Speaker 1: I think he inherited one of the most important relationships
Speaker 1: in the world between two countries, but one that was
Speaker 1: increasingly out of balance. I think that China has been
Speaker 1: pressing in myriad ways in the South China see East
Speaker 1: China see has been somewhat of a laggered in terms
Speaker 1: of pitching into help constrict North Korea and keep them
Speaker 1: from gaining nuclear weapons. I think you see increasingly repressive
Speaker 1: environment within China itself, very level, unlevel playing field in
Speaker 1: terms of trade and investment within China itself. So I
Speaker 1: think Trump comes in at a time when already the
Speaker 1: sort of Chinese side, the equation was out of balance,
Speaker 1: and now he has in effect, uh thrown the puzzle
Speaker 1: on the floor on the American side as well. So
Speaker 1: we have a very curious situation where there are very
Speaker 1: few constants and everything is in the up for grabs
Speaker 1: and in the process of being kind of reinvented, if
Speaker 1: you will. We've seen North Korea amp up it's it's
Speaker 1: testing regime, testing more ballistic weapons. And one of the
Speaker 1: things that this report concludes is there needs to be
Speaker 1: more engagement between the US and China on that issue.
Speaker 1: When you look at President she does he strike you
Speaker 1: as someone who is willing to engage, wants to engage
Speaker 1: more with the US. At this point, I think that
Speaker 1: the Chinese government under Jinping has been quite distrustful of
Speaker 1: the United States, suspecting that deep down inside the agenda
Speaker 1: is regime change, because after all, they have a sort
Speaker 1: of a retrograde Leninist government. We have values differences, political
Speaker 1: system differences. On the other hand, I think President she
Speaker 1: is a realistic man. He knows that in this globalized
Speaker 1: world he has to get along with the major players.
Speaker 1: In the US is one of them. Uh. In Korea,
Speaker 1: we have a curious situation because we do actually share
Speaker 1: a very common interest with China. Neither country US or
Speaker 1: China wants to see Kim Jong un with nuclear weapons
Speaker 1: and and uh, you know, long range ballistic missiles. So
Speaker 1: the question is, is there any possibility with Trump the
Speaker 1: negotiator par excellence, of him coming to some sort of
Speaker 1: the deal was she on Korea where China agrees, yes,
Speaker 1: we'll cooperate with the US, will forge a better relationship,
Speaker 1: and will squeeze North Korea off, will shut off the
Speaker 1: oil pipeline, will close down the trading companies, will stop
Speaker 1: the banking that enables North koreata continue within the zero
Speaker 1: sum architecture and the certitude, which is very anti rable
Speaker 1: show within the certitude of our new administration, everyone vaults
Speaker 1: back to game theory. I think of an ode agerwal
Speaker 1: At Berkeley is someone who's really looked at the game
Speaker 1: theory of trade and diplomacy. What will be the game
Speaker 1: theoretic response of China to the possible actions of our
Speaker 1: new administration. Well, that's a very good question. I think
Speaker 1: you know. I'm here in Washington now, We've been talking
Speaker 1: with White House people and Senate Defense Department, State Department.
Speaker 1: As you go around, you find that nobody has an
Speaker 1: answer to that question. And Uh, this is sort of
Speaker 1: trumpion uh strategy at its sort of highest state of evolution.
Speaker 1: Now it's virtue is, of course, it does throw everyone
Speaker 1: off balance. It also throws the Chinese a little off balance.
Speaker 1: It puts them on notice that things are going to
Speaker 1: be different. So that's not in itself a bad thing.
Speaker 1: But you know, at some point you have to begin
Speaker 1: putting the thing, the puzzle back together. There. You have
Speaker 1: to have some new strategy to replace whatever it is
Speaker 1: that you've taken off the table. David, could I mention
Speaker 1: and I the professor, I can't believe I'm saying this.
Speaker 1: Forty years ago next year, you weren't cool unless you
Speaker 1: had in the People's Republic Orville Shell paperback. David, you
Speaker 1: had to be too cool for school if you didn't
Speaker 1: own a copy of that thirty nine years ago. Thirty
Speaker 1: nine years I mean you had to have it to
Speaker 1: pick up girls, professor, shall let me ask you. Let
Speaker 1: me ask you about who the point person should be
Speaker 1: on US China relations. There was there was a lot
Speaker 1: made of Terry Brandson being picked to be the ambassador
Speaker 1: to China. In actual fact, how much power does the
Speaker 1: ambassador to China have? In other words, is that the
Speaker 1: State Department who should be pushing for these relations to
Speaker 1: improve is at the Treasury Department. Where does that? Where
Speaker 1: does that come from? Well? I think the ambassador actually
Speaker 1: has very little power. And in the present scheme of
Speaker 1: things in China, our ambassadors lately have been completely got out.
Speaker 1: They can't even see a Vice minister, whereas the Chinese
Speaker 1: ambassador here is fetted at the highest levels, even gets
Speaker 1: into the White House to see the president. So here too,
Speaker 1: we are way out of balance. I think that, you know, uh,
Speaker 1: the president obviously has to set the tone, but I
Speaker 1: think in this administration it may well be that he
Speaker 1: sort of remands uh, more than day to day exercise
Speaker 1: of policy to his cabinet secretaries, as we've seen with
Speaker 1: Mattis just got back from Korea, Japan. Uh, and the
Speaker 1: President did kind of defer to him. Now, Tillerson is
Speaker 1: a smart, able man. Uh, He's got to get his
Speaker 1: sea legs and find out just exactly you know, where
Speaker 1: he's standing. But it's possible that he will be uh
Speaker 1: more and more in charge. And then we have people
Speaker 1: like in the White House Peter Navarro, who is an
Speaker 1: economist and who's staked his um, you know, his his
Speaker 1: future in the White House on trade. This is a
Speaker 1: very a delicate question, and he is um, I would say,
Speaker 1: quite neuralgic about China. You're you're being gracious. If you
Speaker 1: were to write in the People's Republican Americans firsthand View
Speaker 1: of China, if you were to rewrite it today, Orville Shell,
Speaker 1: how would you rewriting to explain to the Trump administration
Speaker 1: that it's not a zero sum America, it's not a
Speaker 1: zero sum system and in some way we need to
Speaker 1: work with China. How do you write that today? Well,
Speaker 1: that's the paradox. We absolutely have to work with China. Therefore,
Speaker 1: it doesn't make sense to meddle with the one China policy. Uh.
Speaker 1: You know, if you do that, you tear the whole
Speaker 1: edifice down on the other hand, it's also undeniably true
Speaker 1: that things need to change. Uh. The China has become
Speaker 1: much more assertive aggressive, uh, much less flexible, and you know,
Speaker 1: we cannot solve problems like nuclear proliferation, pandemics, climate change
Speaker 1: uh worth China as a partner if they have such
Speaker 1: a rigid posture. So this is the real question. Can
Speaker 1: we find some new grounds of of collective action or
Speaker 1: are the rather more negative retrograde uh uh tensions going
Speaker 1: to prevail. Do you foresee that we can have a
Speaker 1: conversation about trade with China without the bellicoast rhetoric. It
Speaker 1: seems like it's so imbued with that. It's been so
Speaker 1: imbued with that. Uh. Is there a chance we can
Speaker 1: put that aside? I think it's possible, actually, But the
Speaker 1: US is going to have to arch its back, as
Speaker 1: it did for instance on cyber hacking, where the you know,
Speaker 1: the Minister of Public Security came over here in a
Speaker 1: few days notice because he knew there was trouble and
Speaker 1: he knew that his president visit to Washington would be
Speaker 1: a failure if he didn't do it, and they worked
Speaker 1: something out. I think when the United States makes it
Speaker 1: indelibly clear to China. That's enough. This can't go on
Speaker 1: and there will be consequences. There's a price to pay
Speaker 1: if we don't work this out, then sometimes they come around.
Speaker 1: Or fiel Shell with us. He is co chair of
Speaker 1: the Task Force on US China Relations the Asia Society
Speaker 1: has assembled there out with a new report today, US
Speaker 1: Policy towards China, recommendations for a new administration. Or fiel
Speaker 1: Shell the Arthur Ross, director of the Center on US
Speaker 1: China Relations at AGE at the Asia Society. And or
Speaker 1: let me ask you about the history here. You've written
Speaker 1: more than fifteen books on China. The history is so
Speaker 1: important are you Are you worried about how cognizant this
Speaker 1: new administration is of the history of this relationship. Well,
Speaker 1: it's an incredibly important element in the U. S. China
Speaker 1: relationship because there's such tremendous sensitivities and the whole Chinese
Speaker 1: narrative about you know, China having been occupied by Japan,
Speaker 1: the Opium War, is the history of the West sort
Speaker 1: of predatory postures towards China, and this this, I think
Speaker 1: fuels it's the deep desire that's expressed in the most
Speaker 1: obvious ways by President she of China to become great again,
Speaker 1: in other words, to undergo a rejuvenation. And that's part
Speaker 1: of what I think is driving. It's pushing the South
Speaker 1: China see the East China. See it's sort of silk road,
Speaker 1: uh policies of trying to extend these roots maritime and
Speaker 1: overland to Europe. So China is really on the march
Speaker 1: an effort to regain its old sort of historical ascendant
Speaker 1: power not only within Asia but the world. Let me
Speaker 1: ask you to play that a little bit more. You've
Speaker 1: called it. President she a realistic man. What is his
Speaker 1: vision of China's role in the world. I think his is.
Speaker 1: The first step is China should be pre eminent in Asia.
Speaker 1: And this is why the Seventh Fleet and America's sort
Speaker 1: of twentieth century presence as the predominant sort of power
Speaker 1: in Asia, at least maritime power is uh not not acceptable.
Speaker 1: And that's why we see it claiming that the entire
Speaker 1: South China see in the so called nine dash line
Speaker 1: that goes all almost down to Indonesia. So you know it,
Speaker 1: it wants to rearrange the furniture of Asia in terms
Speaker 1: of who is in charge, who is calling the shots
Speaker 1: and in this sense too, it's very historically rentalent that
Speaker 1: it wants the surrounding powers Korea, Japan, Vietnam that once
Speaker 1: we're tribute bearing subsidiary nations to again being a subsidiary
Speaker 1: role to China the leader. Let me ask you about
Speaker 1: a watchword or a watch phrase, something we hear time
Speaker 1: and time again. That's civil society. And one of your
Speaker 1: recommendations here has to do with civil society saying that
Speaker 1: there are policies in place that harm US organizations, companies,
Speaker 1: individuals and the broader relationship, and the U s should
Speaker 1: respond to that. Haven't we been doing that? I think
Speaker 1: back on the last Strategic and Economic Dialogue, there was
Speaker 1: a whole component part on how how these organizations can
Speaker 1: act independently in China. How does that change? How does
Speaker 1: that conversation begin to change? You know, I think that
Speaker 1: as relations get more tents on a state to state
Speaker 1: level between our governments, it becomes ever more imperative that
Speaker 1: we have a functional sort of second set of muscles,
Speaker 1: namely in civil society, NGO's cultural exchange, you know, music education,
Speaker 1: And I would also say here the media is an
Speaker 1: incredibly important role and the playing field when it comes
Speaker 1: to the media is completely out of balance. China has
Speaker 1: any reporter from China can come in from the New
Speaker 1: China News Agency, the People's Daily. There's CCTV television channels
Speaker 1: playing in the US and Chinese and English radio networks.
Speaker 1: None of these things are possible for Americans in China.
Speaker 1: So this is another area where if we're gonna have
Speaker 1: a healthy relationship, we need to recalibrate. Did you ever
Speaker 1: meet Mao? I never? Did you say, Mr Trump remind
Speaker 1: you of Mao? Yeah, discuss that's quite a statement. Well,
Speaker 1: Mao and Trump are both populists. They're both I think
Speaker 1: quite anti elitist. They both are dedicated to sort of
Speaker 1: turning over the order such as it is. They both
Speaker 1: imagined themselves to be representing kind of people who've lost
Speaker 1: their voice, who are looked down upon, who feel disesteemed, disrespected,
Speaker 1: I think, and you know, Mal Datong had an expression
Speaker 1: that you can't uh, no construction can happen without destruction,
Speaker 1: and I think that's very similar to sort of Donald
Speaker 1: Trump's notion that they both grew up wealthy. Right, Well,
Speaker 1: Mal grew up he was sort of uh not a
Speaker 1: poor and a not a poor peasant family, but a
Speaker 1: peasant family, so he had a very different kind of
Speaker 1: rural upbringing. But interestingly he had tremendous issues as as
Speaker 1: we may say, with his father and became very anti authoritarian,
Speaker 1: which was I think fed into his pench for making revolution.
Speaker 1: And I think there was some of that in Donald
Speaker 1: Trump's family history as well. Last question, here's just about business.
Speaker 1: A lot of people in business say the biggest issue
Speaker 1: in China is cybersecurity. Just the last thirty seconds we
Speaker 1: have here, what do you recommend change with regard to
Speaker 1: cybersecurity in China. Well, there's a lot of hacking not
Speaker 1: just of government networks by the Chinese, but also theft
Speaker 1: of intellectual property and cyber hacking into corporate accounts. And uh,
Speaker 1: this is, you know, not something that the US accepts.
Speaker 1: And I think actually, as we said earlier, this is
Speaker 1: one of the areas where the U. S and China
Speaker 1: did actually come to an agreement that was reasonably affective.
Speaker 1: Thank you so much, or we'll show with the age
Speaker 1: of society with an important new task force on China,
Speaker 1: brought you by Bank of America Mary Lynch, dedicated to
Speaker 1: bringing our clients insights and solutions to meet the challenges
Speaker 1: of a transforming world. That's the power of global connections.
Speaker 1: Marylynch Pierce Federan Smith Incorporated Member s I p C.
Speaker 1: One of our favorite guests, Phil Verlager, who has been
Speaker 1: very cautious about an oil price recovery for decades of
Speaker 1: study out of m I T a few years ago
Speaker 1: studying oil as well, Phil, do you still maintain a
Speaker 1: cautious view of the certitude that oil will recover? Very cautious. Um,
Speaker 1: Thank you very much. Tom. It's what has happened is
Speaker 1: the open interest in features has surged. It's up over
Speaker 1: since the election, and globally we have something like five
Speaker 1: point three million barrels on the IMAX, UH the and
Speaker 1: the International Petroleum Exchange, and it's we could be at
Speaker 1: eight million barrels by the end of the year. That's
Speaker 1: eight billion barrels. If you look at the composition. There's
Speaker 1: a huge surge on the buying side from speculators they're
Speaker 1: betting on OPEC. Refiners have been big buyers. Uh and
Speaker 1: UH there's producers are using this as an opportunity to sell.
Speaker 1: And what this is doing is setting up a bubble. Uh. Now,
Speaker 1: maybe the bubble doesn't pomp. But based on this you've
Speaker 1: got first OPEC, which is uncertain. But secondly you have
Speaker 1: the what I'll call the Trump put like the Greenspan put.
Speaker 1: And what we're what we have is a situation where
Speaker 1: one way or another, US producers are pretty well guaranteed
Speaker 1: of high prices. The free market that Ronald Reagan opened
Speaker 1: in January closed January twentie of this year. Uh, if
Speaker 1: prices start to fall, we know some sort of protectionist
Speaker 1: measure will be taken. It could be the pre tax,
Speaker 1: or could be go ahead. I want to rip up
Speaker 1: the script here, folks. One the most important moments in
Speaker 1: Bloomberg on the Economy years ago was Dr Verligo talking
Speaker 1: about NAFTA and and fulfill what people don't know within
Speaker 1: your cottage industry of oil is you have real tangible,
Speaker 1: firsthand experience with NAFTA and the analysis of this border tax.
Speaker 1: Let I know David wants to jump in here. Let
Speaker 1: me ask you one simple question. Is NAFTA been as
Speaker 1: lousy of a deal is the President makes it? No,
Speaker 1: NAFTA has been a very good deal for consumers. It's
Speaker 1: been a terrible deal for many of the people who
Speaker 1: work in the auto industry and other industries because of
Speaker 1: all the jobs that have moved south. How many of
Speaker 1: those jobs would have been lost anyway. But the arguments
Speaker 1: in favor of trade agreements have always been the consumer benefits,
Speaker 1: lower prices. Uh. The downside has always been that UH
Speaker 1: jobs get lost and that they're supposed to be job retraining.
Speaker 1: My criticism has been that we we were happy with
Speaker 1: the consumer benefits and we didn't do enough for the
Speaker 1: people in Michigan, Wisconsin, Ohio, and Pennsylvania. And so it
Speaker 1: depends where you sit. But after I think for the
Speaker 1: economy has has been good. UM, but it's you know,
Speaker 1: ripping it up isn't going to change the trade deficit.
Speaker 1: Marty Selstein's right, he said it on Bloomberg TV. I'm
Speaker 1: sure he said it on Bloomberg Radio, that you know,
Speaker 1: the trade deficits a difference between savings and investment. And
Speaker 1: and everybody talking about the border tax UH neglects the
Speaker 1: fact that we're going to get a big jump in
Speaker 1: the dollar and we could wind up with a Mexican
Speaker 1: debt crisis or an Asian debt crisis third time around.
Speaker 1: Maybe this is the Chinese debt crisis. Still I went
Speaker 1: into this interview thinking we might need the stage a
Speaker 1: little intervention with you. You have you admittedly been obsessed
Speaker 1: with this border tax. Why have you been so concerned
Speaker 1: with it? What are you looking into? Well? I looked
Speaker 1: into it because I have plants who follow the do
Speaker 1: the oil market, and in fact, people don't understand it,
Speaker 1: and so I have you know, I just got on
Speaker 1: to it, and then I just started following it, and
Speaker 1: people kept saying, we'll keep going because nobody else is
Speaker 1: looking at it. I mean, we did the Brittle study
Speaker 1: in December what's the impact on the consumer price? And
Speaker 1: that it was sponsored by coke and the coke it's
Speaker 1: it's actually works against the things the coke industries but
Speaker 1: best interests, but they are they're worried about all the
Speaker 1: other implications. And uh I was I was the first
Speaker 1: person to start writing about it. And if nobody else
Speaker 1: writes about it, you know, in this business, what you
Speaker 1: try to do is kind of create a little uh
Speaker 1: economic advantage for yourself. You say that the ignorance regarding
Speaker 1: it should frighten everyone. What is what is the oil
Speaker 1: industry writ large not understand about this tax? What it's
Speaker 1: going to do? Is change the flow of products. One,
Speaker 1: so that Gulf Coast refiners are going to be supplying
Speaker 1: the East coast not your European two. Uh, everybody says, well, people,
Speaker 1: I want to export the last year, we had our
Speaker 1: year before last discussion on lifting the export fan. What
Speaker 1: it hasn't been noticed is every independent producer is going
Speaker 1: to be paying no tax. Uh. Nail Resources spends more
Speaker 1: than it takes in this. We know independence have always
Speaker 1: done this. They take they have essentially negative cash flow.
Speaker 1: That means they have zero taxes. So they're all going
Speaker 1: to be pushing to sell their crew to Valero or
Speaker 1: to other domestic producers and so Valero, of which can
Speaker 1: take up to a million barrels a day of domestic
Speaker 1: glow sweet crew will displace Canadian heavy crew, which costs
Speaker 1: more and take as much of its as light crew,
Speaker 1: but it won't be paying as much. It's going to
Speaker 1: you know, the the deduction of instead of depreciation of
Speaker 1: capital expenditures is going to have a significant impact. However,
Speaker 1: if a company wants to buy a coker, say from Europe,
Speaker 1: they won't be able to deduct the cost. So three
Speaker 1: billion dollars for a coker, well sorry, you know, depreciation nothing,
Speaker 1: you just have to take a write off. It is
Speaker 1: going to change the way all the business plans. And
Speaker 1: I don't think anybody, very few people have really played
Speaker 1: all the the moves. It's it's a chess game. And
Speaker 1: I keep getting feed back from companies saying, oh, we
Speaker 1: didn't think of that. What's the fair price of oil? Then?
Speaker 1: UH tell me and no, there's no fair And asked
Speaker 1: you that question eighteen times over the No. But the
Speaker 1: thing is, uh, there's all this buying. I mean, as
Speaker 1: I said, I call it the Trump put. So the
Speaker 1: producers and the speculators have all come in. If you
Speaker 1: remember the Greenspan put, as a Shiller Robert Shiller explained,
Speaker 1: whoever investors knew they thought there was a guarantee that
Speaker 1: Greenspan would intervene in the financial markets to prevent stocks
Speaker 1: from going down. Uh. Now with the Trump administration, we'll
Speaker 1: either get an import fee or we'll get this border tax,
Speaker 1: which will hold up crude at What is happening is
Speaker 1: all the independent producers seeing this are rushing expand drillings.
Speaker 1: What was it like Silverlager to teach up in Calgary?
Speaker 1: I mean they had a Canadian boom in Calgary. Is
Speaker 1: the boom over? Did they throw you out because they
Speaker 1: couldn't pay anymore? No, it was a It was a
Speaker 1: lot of It was a lot of fun. And I
Speaker 1: have friends up there just to the paper for the
Speaker 1: Canadian Patrol and produced association on the impact of the
Speaker 1: tax um because I ran into a problem. And then, uh,
Speaker 1: you can't uh if you under US tax code, if
Speaker 1: you buy a house up there, you pay Canadian taxes,
Speaker 1: pay worldwide taxes on your income. And so I was
Speaker 1: gonna wind up paying a marginal tax rate on my
Speaker 1: my professor salary. What's so what I did is fly
Speaker 1: back and John Tucker, I mean anybody can do that, right, Okay,
Speaker 1: So it was yeah, and the Canadian tax structure it was,
Speaker 1: it was different. And you know, a corporation would have
Speaker 1: put me a clue on that. The universities don't prepare
Speaker 1: the people quite as well. So we compromised. And but
Speaker 1: after three years, uh, the contractor was out and let everyone.
Speaker 1: My trend to the business move to New Jersey. But
Speaker 1: I like California, Colorado really nice. But so this is
Speaker 1: important when we talk simplistically about tax reform and corporate
Speaker 1: tax reduction abroad and all that money will come home.
Speaker 1: It's really quite a simplistic statement, isn't it. It's very simplistic.
Speaker 1: And that's the problem with doing any kind of taxes.
Speaker 1: You know, I worked for Mike wilmothal In in the
Speaker 1: Carter Treasury and I was the author with two other
Speaker 1: people of the crude oil Windfall profit tax. And I
Speaker 1: haven't done a lot of taxes writing. But what you
Speaker 1: learn is you have to be think about all the
Speaker 1: possible implications. It is a three dimensional chess game. It's
Speaker 1: not just a simple statement, Okay, all this cash is
Speaker 1: going to come home when we do this, and we
Speaker 1: did it I think a few years ago on corporate taxes,
Speaker 1: but it's uh, the corporate tax holiday, any kind of
Speaker 1: tax adjustment UH moves all sorts of things because companies
Speaker 1: have hundreds of lawyers and economists working out all the details.
Speaker 1: And if you suddenly just changed the whole whole spectrum, uh,
Speaker 1: it forces many radical changes. And and that's why this
Speaker 1: is it is quite worrisome. Let me ask you about
Speaker 1: energy policy. From moving from tax policy to energy policy
Speaker 1: and specific, what is this administration said about It's it's
Speaker 1: direction that it's going in. UH, you're gonna have a
Speaker 1: new head of the Interior Department who is from is
Speaker 1: from the from the region. We could say, do you
Speaker 1: have a clear sense of what the policy is going forward? Well, yes,
Speaker 1: they're going to open up the federal lands for drilling. UH.
Speaker 1: The Obama administration had imposed rules in terms of UH
Speaker 1: methane emissions, limited access to certain areas. They put the
Speaker 1: stage grounds on the endanger or trying to put the
Speaker 1: sage grounds on the endangered species list. They're gonna undo
Speaker 1: as many of those as possible and try to open
Speaker 1: it up as much US land as possible. Indians here
Speaker 1: in Colorado, the Indians have much more trouble getting selling,
Speaker 1: leasing their land for drilling because of all the hoops
Speaker 1: you have to jump through with the Interior Department, then
Speaker 1: neighboring UH landowners. They're going to open those lands up
Speaker 1: so that there's gonna be a lot more pushed to drill.
Speaker 1: I think at t v A they're going to push
Speaker 1: to use more coal. But it's it's essentially the supply
Speaker 1: is going to go up, and you combine opening lands
Speaker 1: up in some of these areas. Yeah, you know there's
Speaker 1: one area when I started there were twenty billion barrels
Speaker 1: of US reserves. A few months ago the uh USGS
Speaker 1: said there were twenty billion barrels in just one part
Speaker 1: of the Permian basin. The rate at which we're able
Speaker 1: to penetrate these reserves with new technology, so the IINK
Speaker 1: supply is just gonna mushroom. And uh four years from now,
Speaker 1: we're gonna be looking at this in the U s.
Speaker 1: Is it could be the case that the US is
Speaker 1: going to have to be looking for buyers for a
Speaker 1: crude oil because it's gonna have so much crude that
Speaker 1: we won't be able to consume at all. You know,
Speaker 1: the change is going to be quite dramatic. Give us
Speaker 1: your read on the state of technology in the energy
Speaker 1: sector today. We were talking with Jim Glassman at the
Speaker 1: top of the show about the slowdowns in the layoffs
Speaker 1: we've seen in the energy sector over these last few years.
Speaker 1: Is that impacted technological development in the energy sector. No,
Speaker 1: I don't think so. I think to the contrary, it's
Speaker 1: accelerated it more as law applies to the finding of
Speaker 1: finding oil, also to the renewables. UH say, technology is
Speaker 1: is changing at an increasing rate, so that I think
Speaker 1: the cost of rice. Data is the firm in Norway
Speaker 1: that looks at cost of drilling, and they they had
Speaker 1: shown it and following by ten percent excuse me, over
Speaker 1: the last several years and hight years, and I think
Speaker 1: it's going to increase the fifteen that costs of finding
Speaker 1: oil in the United States and many areas will will
Speaker 1: drop down to twenty dollars UH barrelers or maybe fifteen UH.
Speaker 1: And at the same time, the renewable technology costs are
Speaker 1: gonna come down. So that you know, for most of
Speaker 1: my career we've been looking at higher and higher energy costs. UH.
Speaker 1: It's quite possible that uh in ten years we're gonna
Speaker 1: be looking at oil being in many parts of the
Speaker 1: world less expensive and other reforms than less expensive than
Speaker 1: the water give us the the Opeque update I have
Speaker 1: to I have to ask here now that we're a
Speaker 1: few months out from those meetings and in Vienna, are
Speaker 1: the parties up holding their ends of the bargain and
Speaker 1: what effect is that having on energy here in the US.
Speaker 1: They're they're upholding their bargain into the bargain. UH. The
Speaker 1: compliance seems to be about so that's holding up prices
Speaker 1: right now. But I mean this is their last gasp.
Speaker 1: I mean they are the high cost producers except for
Speaker 1: Saudi Arabia. Yeah, five years from now, Venezuela is going
Speaker 1: to be a just a devastated state because of the
Speaker 1: all these technological changes that they're coming here. Argentina is
Speaker 1: starting to adopt them. Rush has got a lot of
Speaker 1: shale oil. The renewables are coming, renewables are going accelerating
Speaker 1: in developing countries. So you know, the beat shell Shell
Speaker 1: was probably pessimistic when they say oil demand is gonna
Speaker 1: peak in I think it probably peaks a little earlier.
Speaker 1: This situation is just changing so rapidly. Phil, Thank you
Speaker 1: so much, particularly those discussions on trade. Now to the
Speaker 1: border Texas well. Mr Furliger. Furliger, when he's with us,
Speaker 1: we get reams of emails. Send me his note. We
Speaker 1: protect the copyright of our guests, including notes at the margin,
Speaker 1: Volume x x I, number six. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter
Speaker 1: at Tom Keene. David Gura is at David Gura. Before
Speaker 1: the podcast you can always catch us worldwide. I'm Bloomberg Radio,
Speaker 1: brought you by Bank of America. Mary Lynch dedicated to
Speaker 1: bringing our cloth and it's insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the power of
Speaker 1: global connections. Mary Lynch, Pierce, Fenner and Smith, Incorporated, Member
Speaker 1: s I p C