WEBVTT - Surveillance: Trade is Not Isolated, Kaplan Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.360 Bloomberg dot Com, and of course on the Bloomberg What 0:00:33.479 --> 0:00:35.800 a week Ahead, then a Federal reserved decision and the 0:00:35.800 --> 0:00:39.040 payrolls report they will come to you Wednesday Friday, respectively. 0:00:39.320 --> 0:00:42.640 And Secretary Minution heading to China with a big delegation 0:00:42.680 --> 0:00:45.400 to talk trade at a time when the Commist Department 0:00:45.520 --> 0:00:49.199 is wrestling with request with allies for tariff exemptions and 0:00:49.280 --> 0:00:51.720 really pleased to say that this morning, this Monday, We're 0:00:51.800 --> 0:00:54.640 joined by Peter Henry is ny U Stern School of 0:00:54.680 --> 0:00:58.600 Business Dean emeritus and economists as well. Peter, fantastic to 0:00:58.600 --> 0:01:01.160 have you with us on the program kickoff things this week. 0:01:01.280 --> 0:01:03.760 Good morning, good morning, delight to be with you. Let's 0:01:03.760 --> 0:01:06.120 begin with a Secretary Monution going to China show. We're 0:01:06.120 --> 0:01:08.560 heading to Beijing with a big trade delegation, Allies trying 0:01:08.560 --> 0:01:11.760 to work out whether the tariffs on aluminium still applied 0:01:11.760 --> 0:01:14.600 to them and whether they'll get tariff exemptions. Extended. Do 0:01:14.600 --> 0:01:16.759 you have any clarity on on the direction to travel 0:01:16.800 --> 0:01:20.080 of this specific issue, Pisa, Well, I'm not being on 0:01:20.160 --> 0:01:22.680 the forecast how this how this negotiation is going to 0:01:22.720 --> 0:01:24.520 turn out. I think that's probably a fool's errand but 0:01:24.560 --> 0:01:27.240 I think the big picture to remember here is that 0:01:27.360 --> 0:01:30.240 the global economy is deeply depending on the United States 0:01:30.240 --> 0:01:33.120 and China having good relations, and that's got to be 0:01:33.160 --> 0:01:37.640 the center sort of negotiating stance of both both parties, because, 0:01:38.280 --> 0:01:40.560 you know, forgetting that, we lose sight of the fact 0:01:40.600 --> 0:01:43.959 that the United States has been benefiting enormously from lower 0:01:44.000 --> 0:01:47.480 consumer goods prices from from trade with China for years, 0:01:47.880 --> 0:01:50.120 and so trying to get a better deal in some 0:01:50.160 --> 0:01:54.320 sense for US corporations, it's imperative to remember that the 0:01:54.440 --> 0:01:56.560 US economy, the world economy is a lot better off 0:01:56.600 --> 0:01:59.080 as a result of having more not less trade. We're 0:01:59.440 --> 0:02:01.280 sort of low and side of the fact as well, 0:02:01.320 --> 0:02:02.960 that much of what is on the table is just 0:02:03.000 --> 0:02:05.280 a proposal on the table and not a real change 0:02:05.320 --> 0:02:08.440 in policy. Um, are you surprised that we're a year 0:02:08.520 --> 0:02:11.880 and change into this administration and actually haven't seen a 0:02:12.040 --> 0:02:15.320 substantial change in policy. Had a lot of proposals, a 0:02:15.360 --> 0:02:17.440 lot of retrick, but no real change in policy as 0:02:17.480 --> 0:02:20.000 far as I could see. Yeah, I think you know, 0:02:20.040 --> 0:02:22.960 you've seen a lot of volatility in terms of what 0:02:23.040 --> 0:02:24.799 sort of come out of in terms of proposals from 0:02:24.800 --> 0:02:27.200 this administration. I mean, you saw it about a week 0:02:27.240 --> 0:02:31.320 ago now when President Trump uh indicated he wanted to 0:02:31.360 --> 0:02:33.880 be back in as part of tp TPP and then 0:02:33.960 --> 0:02:36.040 not part of TPP. I mean, I think that's the 0:02:36.080 --> 0:02:38.240 sort of thing you're alluding to. A bigger vision around trade, 0:02:38.240 --> 0:02:41.480 which says, look, the United States is only five percent 0:02:41.520 --> 0:02:44.600 of the world's population, but we're twenty percent of global GDP, 0:02:44.960 --> 0:02:47.160 and that would never happen without a world of free trade, 0:02:47.400 --> 0:02:49.040 and in fact, we should be pushing for more of 0:02:49.080 --> 0:02:51.799 that and creating more of a positive some outcome which 0:02:51.800 --> 0:02:53.560 will be good not only for the United States, but 0:02:53.760 --> 0:02:55.920 be good for the world, but in particularly would be 0:02:55.919 --> 0:02:57.639 good for the U. S consumers and the US workers. 0:02:57.800 --> 0:02:59.440 And now we haven't seen that. We had a day 0:02:59.440 --> 0:03:02.440 of hope on Friday between North and South Korea and 0:03:02.480 --> 0:03:06.040 the President actually congratulating President She some warm words for 0:03:06.080 --> 0:03:08.240 President She for the amount of pressure that he's put 0:03:08.280 --> 0:03:10.359 on North Korea and I guess the big question mark 0:03:10.400 --> 0:03:12.280 at this point is whether we can blend continue to 0:03:12.280 --> 0:03:14.960 blend the foreign policy effort of this administration with the 0:03:15.000 --> 0:03:18.120 international trade story as well, because the President himself has 0:03:18.160 --> 0:03:20.440 done that, and you just wonder whether there's an open 0:03:20.520 --> 0:03:23.360 door to walk back some of this retric on trade 0:03:23.440 --> 0:03:26.239 now that some improvement has been made on the North 0:03:26.280 --> 0:03:28.720 Korea side of things. I think it's an important point. 0:03:28.760 --> 0:03:31.800 I think that anything which, if you will, sort of 0:03:31.840 --> 0:03:39.360 de escalates the rhetoric around trade wars or retaliation and 0:03:39.440 --> 0:03:43.480 recognizes the positive some nature of global trade, I think 0:03:43.480 --> 0:03:45.800 would be would be useful, would be useful from the 0:03:45.960 --> 0:03:48.880 from the point of view of not um not backing 0:03:49.720 --> 0:03:52.480 people into corners. But also I think I think markets 0:03:52.480 --> 0:03:54.800 would welcome that as well, and I think that would 0:03:55.080 --> 0:03:57.400 reduce some of the volatively we've seen it recently. Just 0:03:57.440 --> 0:03:59.240 in terms of what Marcus are looking at this morning, 0:03:59.280 --> 0:04:02.480 deal flow really picking up another one crossing the Bloomberg 0:04:02.560 --> 0:04:04.840 Married vacations to acquire I l G in a cash 0:04:05.240 --> 0:04:07.160 and stock deal, and Tom King you add that on 0:04:07.200 --> 0:04:11.400 to Sprint t Mobile this morning, a deal with Marathon 0:04:11.520 --> 0:04:13.520 in the in the oil space, the energy space, and 0:04:13.520 --> 0:04:15.400 over in the UK. Of course, Walmart is selling that 0:04:15.480 --> 0:04:17.960 steak in in Asta to Saintsbury's two. So a lot 0:04:17.960 --> 0:04:20.960 of deal flow this Monday morning. I wonder higher rates, 0:04:21.160 --> 0:04:23.880 like money was cheap, let's get it done now, maybe 0:04:23.920 --> 0:04:25.960 I really wonder about that. A lot of stock deal 0:04:26.360 --> 0:04:28.120 in this, and you just look at the equity as 0:04:28.160 --> 0:04:30.680 a currency, and I think some companies are trying to 0:04:30.720 --> 0:04:33.680 spend it while they can. Yeah, well let's go, let's go. 0:04:33.960 --> 0:04:35.600 We got Dean Henry with us, which is a good 0:04:35.640 --> 0:04:40.040 reason too. I should excuse me, John Dean Emeritus Henry 0:04:40.520 --> 0:04:49.599 with us as well. I just called him Peter long before, 0:04:49.920 --> 0:04:53.839 long before you darken the door, n y you. It 0:04:53.960 --> 0:04:56.719 was one of my original sponsors, and we always thanks 0:04:56.760 --> 0:05:00.560 during School of Business for their support of bloombergun the economy, 0:05:00.600 --> 0:05:02.720 in Bloomberg Surveillance. Thank you. We've had a lot of 0:05:02.760 --> 0:05:05.039 your students over the years. They've done very well. Really, 0:05:05.120 --> 0:05:07.680 yes they have. Yeah, I mean Tanya I think pulled 0:05:07.680 --> 0:05:11.240 a quality c you know, can we can we just 0:05:11.480 --> 0:05:13.839 can we just think of Tanya for a little while 0:05:14.040 --> 0:05:18.719 that she's been called it was a miracle she got 0:05:18.720 --> 0:05:24.360 through Stern students to listen to this. They do it's 0:05:24.360 --> 0:05:42.840 a forced podcast for the first time. I will have 0:05:42.920 --> 0:05:45.479 two books of the summer. That's how good the book 0:05:45.520 --> 0:05:48.960 flow is. Ben Garrett Grafts The Threat Matrix is on 0:05:49.040 --> 0:05:52.400 the Federal Bureau of Investigation and on the Robert Mueller 0:05:52.480 --> 0:05:55.159 that we Don't Know And the other book took at 0:05:55.240 --> 0:05:58.840 least three seconds to decide to feature is a book 0:05:58.839 --> 0:06:02.000 of the summer. Robert call Plan Agree or Disagree has 0:06:02.080 --> 0:06:06.440 driven the debate on realist foreign policy in America for decades. 0:06:06.520 --> 0:06:10.000 His new book, The Return of Marco Polo's World, is 0:06:10.000 --> 0:06:14.120 a set of articles and new observations which is definitive. 0:06:14.240 --> 0:06:19.000 Robert Kaplan joins us in Washington in FM Studios. He 0:06:19.160 --> 0:06:22.919 is with your Asia group, Ian Bremer Shop, among other abilities. 0:06:22.960 --> 0:06:26.960 What's your number one message to Mr Manutian going to China, 0:06:27.279 --> 0:06:31.279 Robert Kaplan. I think the number one message Tom is 0:06:31.320 --> 0:06:36.480 to preserve the relationship that um you know, that trade 0:06:36.760 --> 0:06:39.919 has the ability if you have a really you know, 0:06:40.040 --> 0:06:45.120 tumultuous trading relationship that's not well defined, that's not on board. 0:06:45.440 --> 0:06:48.880 This affects the military situation in the South and East 0:06:48.960 --> 0:06:53.839 China Sea. It affects politics throughout the Indo Pacific in 0:06:53.920 --> 0:06:58.400 Central Asia. In other words, trade is not isolated. It's 0:06:58.480 --> 0:07:02.760 all part of a geopol clitical mix within the synthesis. 0:07:02.800 --> 0:07:04.440 And this is the heart of your book as the 0:07:04.480 --> 0:07:08.040 complexities that need to be thought through the reality as 0:07:08.040 --> 0:07:11.880 we have a president who is bilateral, he says, and 0:07:11.960 --> 0:07:15.400 many would say, my deal or the highway is the theory. 0:07:15.760 --> 0:07:21.720 How do you drag this president into a more complex discussion? Um? 0:07:21.760 --> 0:07:25.440 I think what you do is um. You well, first 0:07:25.440 --> 0:07:28.960 of all, you have advisors, and the advisors, as extreme 0:07:29.000 --> 0:07:33.040 as some of them may be, maybe are still far 0:07:33.120 --> 0:07:37.040 more nuanced than the president is. And you, you know, 0:07:37.120 --> 0:07:40.280 you just tell him that, you know, if you do this, 0:07:40.600 --> 0:07:43.560 here are all the consequences. Here are all the second 0:07:43.600 --> 0:07:47.760 and third and fourth order effects. And China is developing 0:07:47.920 --> 0:07:51.480 a society and a system that is going to be 0:07:51.880 --> 0:07:53.840 uh you know, that is going to be not only 0:07:53.880 --> 0:07:56.760 a great competitor of the United States it already is, 0:07:57.040 --> 0:08:00.720 but is on track to overtake the United States in 0:08:00.760 --> 0:08:04.960 the decades to come unless we're very careful and can 0:08:05.000 --> 0:08:08.640 compete with them throughout Eurasia and the rest of the 0:08:08.680 --> 0:08:12.520 world in a very sly fashion. So Robert at the 0:08:12.560 --> 0:08:14.520 moment and Jonathan by the way, speaking, and great to 0:08:14.560 --> 0:08:16.240 have you with us on the program. Thank you for 0:08:16.320 --> 0:08:18.680 joining us. Robert Um the guest. The question for me 0:08:18.760 --> 0:08:21.840 is China sort of establishes the Silk Road strategy for 0:08:21.880 --> 0:08:24.480 the whole region. What is the geo strategic sort of 0:08:24.920 --> 0:08:27.600 aim of the United States and this administration for Asia 0:08:27.680 --> 0:08:31.920 right now? Well, I think, Um, we've had seventy five 0:08:32.080 --> 0:08:35.800 years of new of liberal world order building, and the 0:08:35.880 --> 0:08:38.640 mistake that many of us have made is to think 0:08:38.679 --> 0:08:42.240 that that's normal. But in the long span of history, 0:08:42.320 --> 0:08:45.920 the period between nineteen and the coming to power of 0:08:46.000 --> 0:08:50.720 Donald Trump has been an historical aberration. Most of history 0:08:50.960 --> 0:08:58.320 is geopolitical jockeying, positioning, wars, competition, rivalry, and trade can 0:08:58.440 --> 0:09:03.640 be just an adjunct to geopolitical rivalry, whereas free trade 0:09:03.880 --> 0:09:07.360 is an adjunct to liberal world order building. So what 0:09:07.480 --> 0:09:12.080 Trump really signifies is a return in you know, is 0:09:12.559 --> 0:09:17.400 you know is counterintuitive? Is this sounds Trump actually signifies 0:09:17.440 --> 0:09:21.760 a return to a more traditional form of world history. 0:09:22.040 --> 0:09:23.880 Expand on that a little bit, what were the the 0:09:23.920 --> 0:09:27.200 implications the consequence of that approach being? Robert, Well, the 0:09:27.280 --> 0:09:32.080 consequences of this The twentieth century was about ideological warfare, 0:09:32.360 --> 0:09:35.000 and that led to the deaths of tens of million, 0:09:35.080 --> 0:09:39.240 a hundred and fifty million people in two world wars, etcetera. 0:09:39.960 --> 0:09:44.760 Geopolitical conflict is less bloody, um but it but, but 0:09:44.920 --> 0:09:48.920 it's equally tumultuous. If you look at the eighteenth century, 0:09:48.960 --> 0:09:52.560 the nineteenth century, the problems you know, you know, British 0:09:52.559 --> 0:09:57.160 Foreign Minister Castle Reay during the Napoleonic Wars. This is 0:09:57.200 --> 0:10:00.240 the period we're back to um where you have the 0:10:00.320 --> 0:10:04.600 United States, China, and Russia UH competing with each other 0:10:04.679 --> 0:10:09.920 with lesser powers like Iran, India, et cetera. Where where 0:10:09.920 --> 0:10:15.320 where a bipolar world during the Cold War was very stable. Um, 0:10:15.440 --> 0:10:19.160 but we're entering a world where it's not even multipolarity. 0:10:19.240 --> 0:10:23.240 It's more fractured than that. Robert kapp in one final question, 0:10:23.320 --> 0:10:26.400 and these are people that have actually read your books, 0:10:26.440 --> 0:10:29.240 and no doubt we'll give a serious skim and full 0:10:29.320 --> 0:10:33.960 read of the return of Marco Polo's World. How should 0:10:34.280 --> 0:10:39.400 Republican state department types respond to this president? Many are 0:10:39.480 --> 0:10:42.760 saying they won't serve this president. I think of Nick 0:10:42.840 --> 0:10:47.199 Burns with his public service, Richard hass with his public service, 0:10:47.600 --> 0:10:51.040 and others should they stay away from this president or 0:10:51.080 --> 0:10:54.320 with a new secretary of State, should they choose to 0:10:54.520 --> 0:10:58.080 serve as a public duty? Uh? Tom. The way it 0:10:58.160 --> 0:11:01.280 works in Washington is we have of such a vast 0:11:01.440 --> 0:11:07.599 imperial system of under secretaries, assistant secretaries, deputy under secretaries, 0:11:07.679 --> 0:11:11.360 and on and on that you decide to serve based 0:11:11.400 --> 0:11:15.160 on whether you trust the person who's hired you. So 0:11:15.360 --> 0:11:19.280 if they trust Mike Pompeo as State, they should go 0:11:19.320 --> 0:11:22.439 to work for him. If they trust Jim Maddis at 0:11:22.440 --> 0:11:25.160 the Defense Department, they should go to work for him. 0:11:25.200 --> 0:11:29.359 If they do not trust John Bolton at National Security, 0:11:29.400 --> 0:11:31.760 they should not go to work for him. It's a 0:11:31.880 --> 0:11:36.080 very diversified system so that it you know, of course 0:11:36.120 --> 0:11:40.240 it matters who's the president, but what matters particularly is 0:11:40.320 --> 0:11:43.160 who their boss is and if they can trust their 0:11:43.240 --> 0:11:47.880 boss both morally and philosophically. Robert Capa, thank you so 0:11:47.960 --> 0:11:50.640 much for visiting us today. His book my book of 0:11:50.679 --> 0:11:53.400 the summer, The Return of Marco Polis World. I'll feature 0:11:53.400 --> 0:12:09.680 that out on social We like to do interviews after 0:12:09.880 --> 0:12:15.679 interview where there's a theme and there is a good conversation. 0:12:15.760 --> 0:12:18.719 We did that with Ian Bremer Thursday, Friday last week, 0:12:18.840 --> 0:12:22.480 Robert Kaplan joining us with this wonderful the Return of 0:12:22.480 --> 0:12:24.800 Marco Polos World, one of my books of the summer, 0:12:25.240 --> 0:12:27.800 and now joining us James Travitz, who had my book 0:12:28.160 --> 0:12:31.960 of the Summer a year or two ago, is leaders bookshelf, 0:12:32.679 --> 0:12:35.720 just absolutely superb. He is, of course at Fletcher School. 0:12:36.000 --> 0:12:40.400 Admirals Tavidez, good morning. In Robert Kaplan's book, chapter after 0:12:40.559 --> 0:12:43.480 chapter he circles back to where he was with the 0:12:43.480 --> 0:12:46.640 Asia Cauldron and five years ago, which is a South 0:12:46.840 --> 0:12:52.040 China sea and submarines. Does your US Navy need a 0:12:52.160 --> 0:12:57.760 new Himan rick Over to drive forward submarine development. We've 0:12:57.760 --> 0:13:01.520 actually got a terrific Chief of Naval Operations who is 0:13:01.559 --> 0:13:06.760 a submariner, Tom Admiral John Richardson, and he's just superb. 0:13:07.200 --> 0:13:13.600 He focuses on the connections between our submarine force, cyber technology, 0:13:13.679 --> 0:13:18.920 unmanned vehicles, and our ability to use our strategic deterrence 0:13:19.000 --> 0:13:22.800 at sea, so that that Rickover is walking the streets 0:13:22.840 --> 0:13:25.120 today and we're lucky to have them. Do we need 0:13:25.320 --> 0:13:28.520 a larger navy? Robert Keppelan says no, we need a 0:13:28.559 --> 0:13:32.800 more intelligently deployed navy. But if we're gonna have a 0:13:32.880 --> 0:13:36.160 return of Marco Polo. The span from at least the 0:13:36.200 --> 0:13:40.040 Persian Gulf across the Indian Ocean, through the Straits of 0:13:40.120 --> 0:13:43.080 Malacca up through South China Sea up to Korea. With 0:13:43.160 --> 0:13:47.480 all the news last week that screams to be navy, Navy, Navy, 0:13:48.160 --> 0:13:51.520 it does indeed. And my latest book tom is Seapower, 0:13:51.640 --> 0:13:54.800 The History and Geopolitics of the World's Ocean, and it 0:13:54.880 --> 0:13:57.360 talks about this. What we are recognized is that Marco 0:13:57.480 --> 0:14:01.320 Polo went from east to west. What's happening now from 0:14:01.400 --> 0:14:06.480 west to east one belt, one road. China is reversing 0:14:06.760 --> 0:14:10.199 the voyages of Marco Polo and moving across that area. 0:14:10.760 --> 0:14:13.600 And so we need a bigger navy. I don't think 0:14:13.640 --> 0:14:16.160 it has to be thousands of ships, but we're only 0:14:16.280 --> 0:14:18.880 at about two hundred and seventy. We need to be 0:14:18.960 --> 0:14:22.640 up around three twenty three d and thirty ships will 0:14:22.680 --> 0:14:25.560 get there, but we also need to deploy it more 0:14:25.600 --> 0:14:28.880 intelligently and focus. As you said, and as Robert Captain 0:14:28.920 --> 0:14:33.000 would agree, on the South China see Admirals Travitas. Has 0:14:33.120 --> 0:14:38.560 China ever initiated a conflict with a Western power? No, 0:14:38.920 --> 0:14:42.280 they have never done so, and they have always held 0:14:42.320 --> 0:14:45.720 themselves and here's really the point, held themselves above the 0:14:45.760 --> 0:14:48.480 rest of the world. They think of themselves as that 0:14:49.240 --> 0:14:53.200 middle kingdom between heaven and Earth, and they've always felt 0:14:53.320 --> 0:14:56.040 we don't need to do that. That resulted a course 0:14:56.160 --> 0:15:00.680 in invasions of China from Western powers. Now, what we 0:15:00.720 --> 0:15:05.640 should remember is that China has attacked other Asian nations 0:15:05.720 --> 0:15:08.360 in the past and will continue to do that as 0:15:08.360 --> 0:15:11.440 they consolidate power in the region. And if we don't 0:15:11.480 --> 0:15:13.880 want the South China Sea in the Western Pacific to 0:15:13.920 --> 0:15:16.520 turn into a Chinese lake, we're going to have to 0:15:16.560 --> 0:15:20.360 remain engaged. Having said that, would we want the Gulf 0:15:20.360 --> 0:15:24.880 of Mexico to turn into a non US lake? You know, 0:15:25.080 --> 0:15:28.600 in the nineteenth century, of course, we had the Monroe Doctrine, 0:15:28.640 --> 0:15:31.480 which was designed for that not to happen. But I 0:15:31.520 --> 0:15:34.640 think we've matured in our geopolitics, and the idea that 0:15:34.680 --> 0:15:37.600 the United States has a desire or a need to 0:15:37.680 --> 0:15:42.280 simply declare the Gulf of Mexico territorial sea and build 0:15:42.320 --> 0:15:47.160 a nine dash line around it is preposterous, and I 0:15:47.240 --> 0:15:49.840 don't think that we should allow China to do the 0:15:49.880 --> 0:15:53.240 equivalent around the South China Sea. Having said that, are 0:15:53.240 --> 0:15:55.880 we misinformed in terms of what we believe to be 0:15:55.960 --> 0:16:00.400 the threat from China. I think that there is a 0:16:00.440 --> 0:16:04.280 little bit of China hysteria out there to the degree 0:16:04.400 --> 0:16:08.280 that we believe China wants to dominate the world. I 0:16:08.320 --> 0:16:11.240 don't think they do. But here's what they want. They 0:16:11.280 --> 0:16:15.120 want control of the South China see because it represents hydrocarbons, 0:16:15.160 --> 0:16:18.440 which is the missing card in their strategic suite. They 0:16:18.480 --> 0:16:23.320 want the ability to dominate East Asia and move their 0:16:23.360 --> 0:16:25.520 goods in the way they want to. And they want 0:16:25.560 --> 0:16:28.680 to get into the Indian Ocean. So they're not reaching 0:16:28.720 --> 0:16:33.480 for global hegemony, but really regional control. It would not 0:16:33.560 --> 0:16:35.600 be a good thing for the United States to see 0:16:35.760 --> 0:16:39.000 that to China at this point. Does the President understand 0:16:39.080 --> 0:16:43.400 that dialogue? I haven't seen, and I'm talking more from 0:16:43.400 --> 0:16:46.840 a military standpoint. ADDM mean, we've got the trade discussion 0:16:46.840 --> 0:16:50.760 in a bilateral slash my way or the highway dialogue. 0:16:51.120 --> 0:16:56.840 But does the President understand astra Vita's kaplan world. I 0:16:56.920 --> 0:16:59.800 don't think he does, And of course he famously is 0:16:59.840 --> 0:17:01.880 not a great reader of books. But a lot of 0:17:01.920 --> 0:17:04.919 your listeners are Tom and on this one, I'd recommend 0:17:05.119 --> 0:17:10.560 Graham Allison. He's a brilliant his new his new book, 0:17:11.000 --> 0:17:15.200 Destined for War China in the US and the Century. 0:17:15.200 --> 0:17:17.800 And as you know, Tom, there's no question mark at 0:17:17.800 --> 0:17:21.639 the end of that title. So Graham takes a pretty 0:17:21.640 --> 0:17:25.000 aggressive view towards China. I think if you read that book, 0:17:25.040 --> 0:17:27.920 you get a pretty good understanding. Perhaps someone should summarize 0:17:27.920 --> 0:17:31.080 it for the president. Do you believe that there will 0:17:31.119 --> 0:17:34.800 be a war between the United States and China? I 0:17:34.920 --> 0:17:38.480 do not. I believe over the long term, throughout the century, 0:17:38.920 --> 0:17:42.920 our interests converge more than they diverge. But if we 0:17:43.000 --> 0:17:46.760 are foolish about it and are either too aggressive that 0:17:46.800 --> 0:17:49.240 would lead to war, or if we're too passive that 0:17:49.280 --> 0:17:51.520 would lead to war. We have to kind of dial 0:17:51.680 --> 0:17:54.520 this one in. I'm gonna put out on Twitter, folks, 0:17:54.520 --> 0:17:58.639 Bloomberg Radio. We'll see at first see Power, James Travids. 0:17:58.760 --> 0:18:00.919 It is just read it for the first time. The 0:18:01.000 --> 0:18:02.920 admiral went to see you don't have to read it 0:18:02.920 --> 0:18:05.240 for anything else. He's like in the smallest boat in 0:18:05.280 --> 0:18:07.840 the Davy. He's got his float, he's on his arms. 0:18:07.840 --> 0:18:10.840 He's like eighteen or nineteen years old and he's going 0:18:10.880 --> 0:18:13.280 out of San Diego Harbor, and you know it's just 0:18:13.560 --> 0:18:29.440 that alone is worth reading. Right now, Sarah Sanator joins 0:18:29.520 --> 0:18:32.840 us with Bernstein, and we love having her on to 0:18:32.920 --> 0:18:36.120 talk about I guess our national diet and our national 0:18:36.240 --> 0:18:39.960 food and Sarah, I want to ask a basic McDonald's 0:18:40.000 --> 0:18:43.679 one oh one question, which is a butch cassidy. Who 0:18:43.760 --> 0:18:46.679 are these guys? And I do that Looking at the 0:18:46.720 --> 0:18:50.800 two thousand seventeen annual report quote, we have committed to 0:18:50.880 --> 0:18:54.160 getting more of our restaurants in the hands of our 0:18:54.280 --> 0:19:00.359 franchise ease and developmental licensee strategic partners. There's enough ease 0:19:00.400 --> 0:19:02.520 in there for me to know that's a bunch of 0:19:02.520 --> 0:19:06.520 hot air. What does mc Who is McDonald's. Do they 0:19:06.640 --> 0:19:11.480 really own the restaurants that we're eating out of. I 0:19:11.720 --> 0:19:13.800 don't know if I would characterize that is hot air 0:19:13.960 --> 0:19:17.959 because they answer your question, Um, McDonald's is a brand owner. 0:19:18.160 --> 0:19:23.280 So their job, frankly is to do things that for 0:19:23.359 --> 0:19:28.119 the brand. So think about marketing and menu innovation and 0:19:29.240 --> 0:19:33.239 essentially how they want their global footprint to look, and 0:19:33.280 --> 0:19:35.800 then they leave it in the hands of their partners, 0:19:35.840 --> 0:19:41.480 the franchise ease, the licensese to execute against that plan. So, yes, 0:19:41.520 --> 0:19:43.639 there are a lot of ease in there, but I 0:19:43.680 --> 0:19:47.000 don't think that that diminishes the fact that the strategy 0:19:47.040 --> 0:19:50.159 is working for them. The strategy has been brilliant with 0:19:50.359 --> 0:19:53.760 lower revenue growth. Explain how you go from twenty seven 0:19:53.800 --> 0:19:58.720 billion of revenue down to two ish billion and that's 0:19:58.760 --> 0:20:01.679 a good thing. What does it mean that they're five 0:20:01.760 --> 0:20:04.280 billion short on revenue from where they were a couple 0:20:04.280 --> 0:20:07.760 of years ago. Yeah, in this case, one of the 0:20:07.840 --> 0:20:10.680 rare cases, we're shrinking the top line is a good 0:20:10.680 --> 0:20:13.959 thing because it reflects the fact that instead of running restaurants, 0:20:14.320 --> 0:20:18.200 they're just collecting the royalty from them. So right, so 0:20:18.600 --> 0:20:21.880 instead of reporting acent of sales for a restaurant, they're 0:20:21.880 --> 0:20:25.959 only reporting called fifteen percent of sales. But those are 0:20:26.160 --> 0:20:30.160 very high margin. They basically have minimal costs associated with them, 0:20:30.240 --> 0:20:33.240 just the cost of owning the real estate as McDonald's 0:20:33.280 --> 0:20:36.520 tends to do um and not much else. Beautifully explained, 0:20:36.760 --> 0:20:40.480 they take cents or so down to eb Yeah. Well, Sarah, 0:20:40.560 --> 0:20:42.159 I want to go through the menu. I want you 0:20:42.200 --> 0:20:43.840 to go through the menu if you can, because many 0:20:43.840 --> 0:20:46.560 people may not be familiar with things like turtle drinks 0:20:46.720 --> 0:20:49.960 or even being able to use your mobile app to 0:20:50.040 --> 0:20:52.800 pay for things at McDonald's. Go through the menu, force 0:20:52.880 --> 0:20:55.720 tell us what's working for them, and don't leave out 0:20:55.760 --> 0:21:02.840 the garlic. I'll try not to. I think the working 0:21:02.880 --> 0:21:04.480 for them is but we think of as the bar 0:21:04.560 --> 0:21:07.119 bill strategy, which is on the one end you have 0:21:07.520 --> 0:21:11.560 you know, more premium products. Last year there was a 0:21:11.560 --> 0:21:15.440 real focus on these signature crafted hamburgers, which had three 0:21:15.440 --> 0:21:17.680 different builds that you could choose from, and you could 0:21:17.760 --> 0:21:21.760 choose either uh hamburger or a chicken sandwich, and you 0:21:21.760 --> 0:21:24.080 could choose different kinds of buns. So it's sort of 0:21:24.119 --> 0:21:27.000 what I would call mask customization. And they were frankly 0:21:27.200 --> 0:21:30.160 very well received because they're pretty delicious. So you had, 0:21:30.280 --> 0:21:33.000 you know, things like a Pico de Gaio which also 0:21:33.080 --> 0:21:38.040 had guercomole which tasted like real guacamole um, and other builds, 0:21:38.600 --> 0:21:40.639 the two other builds, both of which had bacon, because 0:21:40.680 --> 0:21:43.480 because everything tastes better with bacon. So on the one 0:21:43.560 --> 0:21:45.679 end you had that the premium, and then on the 0:21:45.680 --> 0:21:49.760 other end you had them really emphasizing being competitive in value, 0:21:49.800 --> 0:21:54.280 as cvster Brick would say, so um not necessarily being 0:21:54.359 --> 0:21:57.400 the lowest price point and every item at every time, 0:21:57.440 --> 0:22:00.080 but having an offering like the Mick Pick two for 0:22:00.200 --> 0:22:03.119 two or the dollar soda two dollar coffee that was 0:22:03.240 --> 0:22:07.520 very compelling UM to two restaurant goers. And we're seeing 0:22:07.520 --> 0:22:11.560 that again this year with them one to three dollar 0:22:11.680 --> 0:22:14.040 value menu on the on the low end, but then 0:22:14.080 --> 0:22:17.800 also this fresh beef quarter pounder, which again UM is 0:22:17.840 --> 0:22:19.879 now available in New York area and it's it's a 0:22:20.000 --> 0:22:23.560 very good sandwich. So McDonald's is really trying to stay 0:22:23.560 --> 0:22:27.480 true to this UM for honestly being a progressive burger 0:22:27.520 --> 0:22:30.639 company UM, such that they have good food that tastes 0:22:30.680 --> 0:22:34.040 good as well sourced, but also a value price point 0:22:34.040 --> 0:22:36.919 that can appeal broadly. Sarah, How are they able to 0:22:36.920 --> 0:22:41.000 do this so quickly? You know, I think, UM. You know, 0:22:41.040 --> 0:22:46.040 what we saw with the leadership turnover in was was 0:22:46.119 --> 0:22:48.800 really a cultural shift and that was very much the focus, 0:22:48.920 --> 0:22:53.399 which is, you know, be fast, be nimble, fail fast, 0:22:53.440 --> 0:22:56.440 as they say, UM, but make sure that that if 0:22:56.440 --> 0:22:59.359 there's a demand for a product in the market, that 0:22:59.480 --> 0:23:02.439 McDonald is going to meet it. So you know, All 0:23:02.520 --> 0:23:04.320 day Breakfast is a good example of this. You know, 0:23:04.359 --> 0:23:07.920 that's probably the most requested and new item or menu edition, 0:23:08.480 --> 0:23:11.520 probably since they added breakfast in the seventies. And yet 0:23:11.560 --> 0:23:13.960 for a very long time the system was hesitant because 0:23:13.960 --> 0:23:16.760 the operational challenges. And I think you know, the focus 0:23:16.840 --> 0:23:19.600 this time with this management team is to make sure 0:23:19.760 --> 0:23:22.520 that things like operational challenges didn't stand in the way. 0:23:22.600 --> 0:23:25.200 Same with fresh beef quarter pounders. It's a good sandwich. 0:23:25.440 --> 0:23:28.480 They know it tested well, people liked it, and they 0:23:28.480 --> 0:23:29.800 were going to figure out a way to bring it 0:23:29.840 --> 0:23:32.760 to market. All right. For Tom that doesn't necessarily get 0:23:32.800 --> 0:23:35.800 the mic cafe that has been so popular. He can 0:23:35.800 --> 0:23:38.280 now get it into mic Cafe in a bottle. Tell 0:23:38.359 --> 0:23:40.640 us about those kinds of ventures, because it's not only 0:23:40.720 --> 0:23:44.040 Mick Cafe in a bottle. There's Mick Cafe bags, cake cups, 0:23:44.040 --> 0:23:47.520 and canisters. That's right. I mean, this is still a 0:23:47.640 --> 0:23:49.840 very very small piece of their business. You know, it's 0:23:50.040 --> 0:23:52.040 it's and it's always it's always going to be hard 0:23:52.080 --> 0:23:54.920 to to move the needle um. You know, in the US, 0:23:54.960 --> 0:23:57.520 when you have fourteen thousand restaurants doing you know, two 0:23:57.600 --> 0:24:01.159