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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is Bloomberg day Break Weekend, our global look at

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Speaker 2: the top stories in the coming week from our Daybreak

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Speaker 2: a look at GDP and PC data here in the

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Speaker 2: US what that could mean to federal reserve policy going forward.

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Speaker 2: I'm Tom Busby in New York. I'm Stephen Carol in London.

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Speaker 3: Who We're looking ahead to the presidential election in Iran

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Speaker 3: the country's foreign policy.

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Speaker 4: I'm Derek Prisner, looking at US China relations as presidential

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Speaker 4: candidates Biden and Trump prepared to debate.

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Speaker 5: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg

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Speaker 2: Good day to you. I'm Tom Busby, and we begin

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Speaker 2: today's program with some key economic data here in the

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Speaker 2: US this week are reading on first quarter GDP that's

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Speaker 2: a third and final reading, and the Personal Consumption Price

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Speaker 2: Index for May. That's the inflation measure closely monitored by

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Speaker 2: the Fed. What could it mean for consumers and for

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Speaker 2: Fed policy moving forward? Well, for more, we're joined by

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Speaker 2: Stuart Paul, us economist with Bloomberg Economics. Well Stewart, we've

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Speaker 2: seen some encouraging data on inflation CPI PPI over the

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Speaker 2: past two months. What do you expect to see this week?

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Speaker 1: We're expecting to see similarly encouraging signs when it comes

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Speaker 1: to PCEE inflation. We estimate, based on the CPI and

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Speaker 1: PPI data that we've already seen, that headline PCEE inflation

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Speaker 1: is going to decline to two point six percent in

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Speaker 1: May from about two point seven percent in April, and

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Speaker 1: that's really facilitated by a swing in gasoline prices. Gasoline

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Speaker 1: prices decline during the month of May. Typically gasoline prices

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Speaker 1: rise during summer driving season, so you have both the

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Speaker 1: actual price of the pump and the seasonal adjustment factor

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Speaker 1: weighing on headline pce inflation for May. The core PCE

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Speaker 1: measure which matters quite a bit more for the Federal

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Speaker 1: Reserve that's also going to show some encouraging signs by

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Speaker 1: slowing to two point six percent from about two point

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Speaker 1: eight percent prior. It's still the case that shelter is

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Speaker 1: undergirding core inflation measures, but we are seeing core goods

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Speaker 1: prices decline when we map CPI to PCE space, and

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Speaker 1: we also are seeing some softening services prices within the core.

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Speaker 1: If we're looking outside of shelter, we see declining prices

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Speaker 1: for airfares, for recreational services, for personal care services, some

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Speaker 1: of those more discretionary spending categories, and we think that

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Speaker 1: that's related to consumers starting to tell in their belt

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Speaker 1: a little bit. We did see pretty discouraging signs in

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Speaker 1: the retail sales report just last week.

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Speaker 2: But we also saw import prices down. That's a reaction

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Speaker 2: possibly to people not spending as much. And it looks

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Speaker 2: like all that US energy production at a record high

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Speaker 2: and a slight demand just really helping out, really changing things.

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Speaker 1: That's right, It is helping to weigh on a headline inflation.

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Speaker 6: Now.

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Speaker 2: The big question, of course, what could this mean to

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Speaker 2: the Federal Reserve. It's leftist benchmark lending rate unchanged seven

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Speaker 2: meetings in a row dating back to last September. Another

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Speaker 2: policy meeting at the end of next month, right the

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Speaker 2: thirtieth and thirty first of July, just five weeks away.

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Speaker 1: That's right, So any encouraging signs on the inflation front

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Speaker 1: bodes well for the interest rate outlook. The Fed in

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Speaker 1: its previous meeting changed its own outlook for interest rates.

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Speaker 1: It had previously expected to cut interest rates by seventy

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Speaker 1: five basis points this year, but in its most recent

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Speaker 1: update it's now showing just one twenty five basis point

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Speaker 1: cut this year. We think that the encouraging signs on

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Speaker 1: the inflation side and consumers starting to tighten their belt

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Speaker 1: could result in maybe two interest rate cuts this year,

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Speaker 1: perhaps in September and then one in December. It gets

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Speaker 1: a little bit tricky around election season, but with inflation

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Speaker 1: coming in, with inflation slowing on a monthly basis and

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Speaker 1: on an annual basis, with core inflation slowing, signs are

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Speaker 1: starting to point to the Fed perhaps being able to

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Speaker 1: cut two times this year, but probably only starting in September.

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Speaker 1: If they were to decide to get two cuts off

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Speaker 1: this year.

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Speaker 2: And as always, the key to this is a pattern.

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Speaker 2: That's right, Yeah, that's right.

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Speaker 1: So we have seen two encouraging monthly inflation prints. The

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Speaker 1: first quarter was a little bit rough, but we're starting

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Speaker 1: to see a bit more evidence that a trend is

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Speaker 1: building in that slowing inflation landscape.

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Speaker 2: Oh boy, well, let's that would be encouraging. Let's talk

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Speaker 2: about first quarter GDP. This is a third and final reading.

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Speaker 2: A prior reading reported a growth of one point three percent,

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Speaker 2: but we could see a little upside surprise to this.

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Speaker 1: Now we could see some modest revisions coming in, so

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Speaker 1: perhaps an upward revision of Q one GDP to an

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Speaker 1: annualized pace of growth about one and a half percent

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Speaker 1: from as you mentioned, one point three percent in the

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Speaker 1: second estimate. It's starting to get a little bit stale

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Speaker 1: for driving FED policy. So what's really going to matter

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Speaker 1: is the Friday Personal Income and Outlays report. And although

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Speaker 1: we are seeing more recent data showing personal income growth,

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Speaker 1: there is something that's stopping consumers from taking that income

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Speaker 1: and driving spending. There is something, perhaps more consumer caution,

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Speaker 1: that's going to lead to further slowing. Even if we

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Speaker 1: were to see an upward revision to Q one GDP,

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Speaker 1: as we look at the Q two data, we could

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Speaker 1: see some additional slowing as consumers become a little bit

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Speaker 1: more cautious.

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Speaker 2: Now that slight change in GDP. Is it the same

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Speaker 2: exact factors you know? Or is there something else what changed?

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Speaker 1: It's the same factors, It's just a little bit of

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Speaker 1: additional precision as time goes on, when the Bureau of

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Speaker 1: Labor Statistics in the Bureau of Economic Analysis has the

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Speaker 1: time to more precisely measure the factors that go into

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Speaker 1: gross domestic product and gross domestic income.

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Speaker 2: Okay, so first quarter GDP that is out on Thursday,

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Speaker 2: May Personal consumption Core Price Index out on Friday. A

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Speaker 2: lot to look forward to, and our thanks to Stuart paul,

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Speaker 2: Us economist with Bloomberg Economics. Moving to company earnings now,

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Speaker 2: the world's largest express transportation company, FedEx, reports its latest

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Speaker 2: earnings on Tuesday. What will the results tell us about

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Speaker 2: the health of US supply chains and business and consumer demand?

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Speaker 2: And for more? We're joined by Lee Clascal, Bloomberg Intelligence,

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Speaker 2: Senior Transport Logistics and shipping analysts. Well, Lee, what do

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Speaker 2: you expect to see from FedEx in its Q four

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Speaker 2: earnings this week?

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Speaker 7: Yeah?

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Speaker 6: I think that the company is going to report a

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Speaker 6: number that's probably more or less in line with consensus.

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Speaker 6: I don't think there's really any divergence from there. But

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Speaker 6: you know, what we do expect to see and we

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Speaker 6: really hope to see, is continued improvement on their cost

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Speaker 6: cutting measurements that they've been trying to reduce costs for

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Speaker 6: some time. They have two programs in place called Drive

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Speaker 6: and Network two point zero, and that's supposed to generate

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Speaker 6: around six billion dollars in cost savings for the company.

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Speaker 6: And you know, what the company is trying to do

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Speaker 6: is right size its network to kind of match the

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Speaker 6: realities of how its business has changed so much over

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Speaker 6: the years with more of a focus of B two

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Speaker 6: C business versus B to B business and B two

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Speaker 6: C business, which is, you know, shipments that go to

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Speaker 6: your house, whether you buy something online or otherwise. You know,

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Speaker 6: it tends to carry lower margins, and so they're trying

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Speaker 6: to improve that lower margin business by taking costs out.

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Speaker 2: Well. I think it's been working because in margin this year,

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Speaker 2: FedEx said it's worldwide headcount was down about twenty two

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Speaker 2: thousand over the past year or the prior year. Just

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Speaker 2: two weeks ago, it's had of plants to slash another

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Speaker 2: two thousand jobs in Europe. So are these cuts still

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Speaker 2: going on? Is FedEx still cutting jobs?

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Speaker 6: Yeah? I mean, they absolutely are, and they need to

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Speaker 6: write size. I mean, FedEx for a long time became

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Speaker 6: a little bloated, you know, over the years, and the

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Speaker 6: focus really wasn't so much on margin, shall I say?

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Speaker 6: It was probably about the air fleet and in other things.

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Speaker 6: And I think that you know, as management changes happened

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Speaker 6: at the company, kind of priorities have shifted, and you know,

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Speaker 6: the company has become a truly show me story. And

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Speaker 6: management has been producing some pretty good results over the

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Speaker 6: last couple of quarters, and we can we expect that

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Speaker 6: to continue. You know, a couple of months ago, it

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Speaker 6: announced that it was no longer doing the line Haull business,

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Speaker 6: the airline hall business for the US Postal service. That

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Speaker 6: business was, you know, about a two billion dollar revenue business,

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Speaker 6: but extremely low margin. And you know what that capacity.

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Speaker 6: They're able to free up that capacity, and not only

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Speaker 6: are they able to fill it with more profitable business

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Speaker 6: from small to mid sized car shippers, but they're also

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Speaker 6: able to say, hey, maybe we don't need ten planes

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Speaker 6: in a certain lane, maybe we can only you know,

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Speaker 6: we only need to do six flights as opposed to ten.

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Speaker 6: So they're able to kind of lower their own cost

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Speaker 6: structure by reducing their air network, which is which is

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Speaker 6: something that you know we expect to see and you

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Speaker 6: know that will definitely benefit its margins. And the company

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Speaker 6: is also going through a major transformation. For the longest time,

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Speaker 6: it operated separate ground and air networks, and now it's

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Speaker 6: it's becoming more of a hybrid where some of it's

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Speaker 6: you know, air freight business or vians I go through

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Speaker 6: its express network, are now going into trucking if it

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Speaker 6: makes sense, if it's not like you know, needs to

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Speaker 6: be there the next day, it might make sense pushed

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Speaker 6: into their trucking network, which carries significantly less costs and

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Speaker 6: so therefore, you know, better margins for the company. So

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Speaker 6: you know it, we're in early innings towards this shift.

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Speaker 6: They changed their reporting structure this month, so you know

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Speaker 6: we're going to see that going forward.

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Speaker 2: Now, those same cost cutting efforts, raining and spending, streamlining

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Speaker 2: operations as allowed fed X to announce plans to buy

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Speaker 2: back five billion dollars of its own share so at

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Speaker 2: least shareholders must be thrilled about this.

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Speaker 6: They are, They are outperforming their peers. You Know, what

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Speaker 6: I would say is investors are probably still remain a

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Speaker 6: little skeptical about FedEx and its ability to change its

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Speaker 6: cost structure. Again, that's why I mentioned it was a

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Speaker 6: show me story. They really need to prove and execute

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Speaker 6: on their plans to build positive sentiment sentiment amongst monks investors.

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Speaker 6: So that's something you know that we're we're really watching.

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Speaker 6: And then you know, you're also kind of in a

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Speaker 6: time where demand isn't great. Their express business volumes are

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Speaker 6: expected to be down on one one percent in the quarter.

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Speaker 6: Ground volumes, you know, might be up about one and

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Speaker 6: a half two percent in the quarter, and they're less

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Speaker 6: than truckload business fed X freight, you know volumes are

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Speaker 6: expected to be up less than one percent. So you know,

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Speaker 6: we have kind of a tepid demand outlook. Obviously, a

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Speaker 6: stronger consumer would bode well for them, A positive ISM

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Speaker 6: number would bode well for them. You know, positive industrial

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Speaker 6: production numbers would bode well for them. So you really

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Speaker 6: need to see the economy begin to accelerate from here

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Speaker 6: for that volume picture to get better. The kind of

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Speaker 6: good news for them is that comps do definitely become

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Speaker 6: easier in the second half of the calendar year, and

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Speaker 6: so you could see an acceleration of volume growth and

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Speaker 6: even you know, volume inflecting positive and business later on

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Speaker 6: the year, albeit you know, a low single digits.

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Speaker 2: Well just about six months ago before the holidays. FedEx's

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Speaker 2: latest earnings out this Tuesday, and our thanks to Lee Klascow,

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Speaker 2: Bloomberg Intelligence Senior Transport, Logistics and shipping analyst. Coming up

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Speaker 2: on Bloomberg day Break weekend to look ahead to the

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Speaker 2: presidential election in Iran and whether it could mean a

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Speaker 2: shift in the country's foreign policy. I'm Tom Busby and

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Speaker 2: this is Bloomberg. This is Bloomberg day Break Weekend, our

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Speaker 2: global look ahead at the top stories for investors in

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Speaker 2: the coming week. I'm Tom Busby in New York. Up

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Speaker 2: later in our program a look at US China relations.

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Speaker 2: As presidential candidates Joe Biden and Donald Trump prepare to

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Speaker 2: debate this week, but first Orian set to hold a

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Speaker 2: snap presidential election in the coming days that follows the

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Speaker 2: sudden death of former leader Ibraham Raisi in a helicopter

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Speaker 2: crash last month. But the vote comes at a time

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Speaker 2: of heightened tension between Iran and the West. For more,

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Speaker 2: let's go to London and bring in Bloomberg Daybreak europe

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Speaker 2: banker Stephen Carroll Tom Ibraham.

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Speaker 3: Raisi's death came at a sensitive time for Iran and

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Speaker 3: for the wider Middle East. Tehran came close to an

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Speaker 3: all out war with Israel in April when it launched

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Speaker 3: a direct military strike on Israel after its consulate in

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Speaker 3: Damascus was bombed. Now, the president's influence is limited in Iran,

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Speaker 3: but we could see some subtle shifts in policy when

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Speaker 3: the new president is elected. I've been discussing the context

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Speaker 3: for this election with Bloomberg's Golnarmotavali, who leads our coverage

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Speaker 3: of Iran.

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Speaker 8: TV debates are actually quite critical in Iranian elections because

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Speaker 8: what they do is that they give you an immediate

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Speaker 8: sense of how the candidates are and being received by

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Speaker 8: the public. It's the major exposure to the broader general public.

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Speaker 8: And I think last debate was kind of interesting because

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Speaker 8: it very much focused on the economy. So obviously there

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Speaker 8: was a lot of discussion about sanctions and inflation, which

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Speaker 8: is a massive problem in Iran and in Iraq's relationship

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Speaker 8: with the West and the broader global economy. This is

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Speaker 8: a very highly circumscribed process. So it's a ballot that's

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Speaker 8: very dominated by conservatives and hardliners, and we have only

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Speaker 8: one reformist candidate of the six that are running.

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Speaker 3: And who are the key names to be watching as

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Speaker 3: we move towards the polling.

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Speaker 8: Day, So the big names, I mean think it's important

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Speaker 8: to point out that quite a few important, very high

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Speaker 8: profile conservatives were disqualified, were not barred from running, which

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Speaker 8: is interesting, including people like Ali Larry Jaranni, who's a

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Speaker 8: very influential conservative politician. It's the second time he's been barred.

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Speaker 8: But the names that we need to keep deep and

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Speaker 8: said Jali Lee, who's a former nuclear negotiator under Ahmadi Needrard.

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Speaker 8: He's a very very radical, hardline, deeply religious person, very

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Speaker 8: anti Western, very anti US, opposed to the nuclear deal.

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Speaker 8: He very much is kind of in the mold of

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Speaker 8: let's keep our relationship with China and Russia as strong

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Speaker 8: as possible. We don't need the West, we don't need Europe.

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Speaker 8: We're very capable of being self sufficient economically. He's very

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Speaker 8: much of that mold. The other names that we need

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Speaker 8: to look out for are Masud Pezeshkian, who's the one

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Speaker 8: token reformist. But he's quite an influential and important reformist

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Speaker 8: because he was health minister under Moham Maghatami in the

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Speaker 8: late nineties and early two thousands, and he can become

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Speaker 8: quite a serious I mean, the cynical view is that

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Speaker 8: he's there just to lend legitimacy to the vote, so

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Speaker 8: that Harmonae and the establishment that run the islam Republic

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Speaker 8: can say, look, we don't just have hardliners, We've got

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Speaker 8: a reformist choice there as well. But the fact that

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Speaker 8: he's actually quite a serious reformist name actually raises the

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Speaker 8: possibility that he might boost turnout, and a boost in

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Speaker 8: turnout is always going to work in favor of moderates

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Speaker 8: and reformists.

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Speaker 3: Yeah, I'm interested to get your view on how engaged

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Speaker 3: the public has been in Iran in this campaign. Is

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Speaker 3: it something that people feel as is sort of addressing

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Speaker 3: the key issues in their lives.

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Speaker 8: I don't think so. I think for many years there's

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Speaker 8: been quite a strong sense of political disenfranchisement and disenchantment

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Speaker 8: in Iran. We've had some really violent uprisings and protests recently,

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Speaker 8: most notably in twenty nineteen and obviously more recently in

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Speaker 8: twenty twenty two after the death in police custody of

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Speaker 8: Maths Amini, who was arrested for allegedly violating these strict

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Speaker 8: Islamic dress codes that apply to women mostly. That caused

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Speaker 8: a huge convulsion across the country, and the establishment is rightly,

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Speaker 8: very very concerned about internal political dissent. I would say

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Speaker 8: that opposition to the whole system of the exact republic

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Speaker 8: it has been, and you know, has been an all

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Speaker 8: time high since the nineteen seventy nine revolution, for I

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Speaker 8: reckon for at least since twenty twenty two, and that's

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Speaker 8: something that individuals men like Harmony are worried about. Institutions

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Speaker 8: like the ILGC, the example revolution regard called, they're worried

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Speaker 8: about that, and they need to have as many people

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Speaker 8: participating in this election as they can again to give

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Speaker 8: that system and their own system a sense of legitimacy

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Speaker 8: and credibility. And that's why Pezeshkian's presence is so key

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Speaker 8: and important from a political point of view.

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Speaker 3: Can you just briefly explain the process here, just so

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Speaker 3: we can understand why we don't consider this to be

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Speaker 3: a free election.

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Speaker 8: Well, I don't know whether i'd say it's not entirely

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Speaker 8: a free election. It's a highly circumscribed These elections tend

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Speaker 8: to be very heavily stage stage managed from the outset.

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Speaker 8: So you have a procedure whereby individuals who have to

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Speaker 8: meet a certain criteria can go to the Interior Ministry

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Speaker 8: and apply to become to register to become presidential candidates.

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Speaker 8: The criteria some of it includes being between the age

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Speaker 8: of forty and seventy five or forty five and seventy

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Speaker 8: five I think I can't quite remember. You have to

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Speaker 8: have some experience in political office, and you have to

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Speaker 8: have no criminal records. And there are some things that

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Speaker 8: are less clear, like being a woman is something that's

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Speaker 8: it's up for debates whether the Uranian constitution prohibits women

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Speaker 8: from being presidents or not being a Sunday. You definitely

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Speaker 8: have to be a Muslim. There's never been a non

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Speaker 8: Shia Muslim president in Iran since nineteen seventy nine, since

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Speaker 8: we've had the presidency. So you have that process where

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Speaker 8: people who meet that criteria register and then once they've registered,

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Speaker 8: we have this very powerful non elected body called the

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Speaker 8: Guardian Council. That's made up of twelve theologians who basically

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Speaker 8: decide which of those two hundred or so people who've

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Speaker 8: registered can actually run. They're the people that decide who

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Speaker 8: gets disqualified. And that means that there's this perception that

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Speaker 8: it's a very stage managed process.

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Speaker 3: Talk us through how we should be thinking about this

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Speaker 3: from an international point of view. Obviously Iran has a

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Speaker 3: very tasty relationship with the West, first of all, and

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Speaker 3: how should people sitting in London or in Washington be

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Speaker 3: looking at this and thinking about this election.

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Speaker 8: I mean, I think they need to be looking at

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Speaker 8: not just who becomes president, but how how the entire

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Speaker 8: government administration is then managed afterwards. So what's critical, for instance,

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Speaker 8: is if hypothetically Pezeshkian, who's this token reformist, experienced candidate,

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Speaker 8: does win the majority of votes, if he becomes president,

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Speaker 8: what then happens to the foreign policy file? Because one

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Speaker 8: of the issues I think when Raharni, who managed to

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Speaker 8: kind of refashion himself as a moderate in twenty thirteen

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Speaker 8: when he ran for the election, he won that election

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Speaker 8: basically on a mandate of sanctions removal, better relations with

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Speaker 8: the West, and some kind of dayton with the US.

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Speaker 8: But the problem was that his foreign policy was constantly

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Speaker 8: being attacked by hardliners, and because he gave almost kind

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Speaker 8: of full reign to moderate politicians like Javad Zari, these

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Speaker 8: multi lingual, you know, very errudite, sort of articulate diplomats

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Speaker 8: to kind of schmooze in New York and go on

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Speaker 8: these promenade walks in Switzerland with men like John Kerry.

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Speaker 8: Stuff like that doesn't go down well amongst the hard

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Speaker 8: line within the hardline establishment in Tehran. So, for instance,

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Speaker 8: if someone like Peziskion does become president, you then have

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Speaker 8: to ask, well, if the foreign policy file is given

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Speaker 8: to hardliners and someone who de facto has the support

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Speaker 8: of the IRGC, maybe that will make for a less contentious,

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Speaker 8: paradoxically more stable administration and you can so I think

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Speaker 8: that's what we need to look out for. It's not

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Speaker 8: just who wins the top job, it's who looks after

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Speaker 8: the strategic decisions that are going to decide the kind

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Speaker 8: of direction of traveling. Yeah, exactly.

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Speaker 3: Yeah, I wonder also because because we're obviously very focused

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Speaker 3: on Iran's relationship with the region as well, and as

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Speaker 3: particularly you know, after the incidence with Israel in recent months.

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Speaker 7: Two.

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Speaker 3: I mean, how much of an impact could this election

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Speaker 3: have on how Israel interacts with its neighbors.

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Speaker 8: At the bottom line is that, you know, the Islamic

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Speaker 8: Republic is very much in terms of foreign policy, it's

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Speaker 8: almost defined by its support for Palestine, for Palestinians, and

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Speaker 8: it's also defined by the fact that it opposes the

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Speaker 8: very presence of the States of Israel, at least rhetorically.

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Speaker 8: That's the rhetoric that's not going to change.

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Speaker 6: Now.

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Speaker 8: There are kind of agreements and sort of arrangements or

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Speaker 8: relationships that are managed so that they kind of can

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Speaker 8: tolerate whatever consensus exists in the region. So, for instance,

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Speaker 8: they need a strong economic relationship with the UAE. They

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Speaker 8: have to Dubai has been referred to as Iran's economic lung,

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Speaker 8: for instance, for decades. So if you have these accords,

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Speaker 8: the so called Abraham Accords between the UAE and Israel,

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Speaker 8: for instance, Iran can and does turn a blind eye

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Speaker 8: to that and just keep it on a separate track

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Speaker 8: to its economic trade relationship with the UAE. That's something

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Speaker 8: that won't change regardless of who who becomes president. What

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Speaker 8: can change is if someone like Jali Lee who's, like

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Speaker 8: I said, very very conservative fundamentalist. If he's president, he

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Speaker 8: is probably less likely to be bothered about pragmatic outcomes

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Speaker 8: that protect Iran's trade relationship with the Europeans, for instance,

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Speaker 8: or he might be less concerned about preventing an escalation

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Speaker 8: over Iran's nuclear program with the US. He's much more

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Speaker 8: in the vein of if you want a Western comparison,

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Speaker 8: someone like John Bolton, he's more He's very focused on

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Speaker 8: this idea. It's almost a bit like I mean, Putin's

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Speaker 8: trip to North Korea made me think of Jali Lee

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Speaker 8: because that's something that I would think he almost would

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Speaker 8: aspire to that type of profile, a Putin type profile

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Speaker 8: where he goes on trips to countries like North Korea, Turkmenistan.

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Speaker 8: You know, he focuses on this non aligned, anti NATO,

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Speaker 8: anti US axis. So you know, if someone like Pezeshkian

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Speaker 8: was president, that there may be more of an effort.

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Speaker 8: I'm just speculating here to find some kind of balance

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Speaker 8: or to kind of take a more proactive role within

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Speaker 8: Palestinian politics in terms of balance, the kind of balancing

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Speaker 8: Iran's relationship with Hamas and not just Hesbonna, but also

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Speaker 8: Fatah as well right to take a more proactive, constructive.

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Speaker 3: Role thanks to Bloomberg's Gollnarmota Valley. I'm Stephen Carolyn London.

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Speaker 3: You can catch us every weekday morning here for Bloomberg

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Speaker 3: Daybreak here at beginning at six am in London and

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Speaker 3: one am on Wall Streets.

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Speaker 2: Tom Well, thank you, Steven, and coming up on Bloomberg

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Speaker 2: day Break weekend to look at US China relations as

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Speaker 2: presidential candidates in the US prepare to debate. I'm Tom

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Speaker 2: Busby and this is Bloomberg. I'm Tom Busby in New

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Speaker 2: York with your global look ahead at the top stories

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Speaker 2: for investors in the coming week. The first US presidential

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Speaker 2: debate between Joe Biden and Donald Trump will take place

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Speaker 2: this coming Thursday, June twenty seventh, and the US relationship

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Speaker 2: with China is sure to get a lot of attention.

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Speaker 2: For more, let's get to Bloomberg Daybreak Asia co host

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Speaker 2: Doug Krisner and Brian Curtis.

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Speaker 4: Tom this year's presidential election will shape the course of

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Speaker 4: relations between the US and China for the next four years.

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Speaker 6: Now.

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Speaker 4: To be fair, there are differences between these candidates and

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Speaker 4: their approaches to China, and there are similarities. Both agree

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Speaker 4: China's industrial and trade policies are putting American companies at

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Speaker 4: a disadvantage, and the two agree on keeping national security

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Speaker 4: a priority. They differ when it comes to the notion

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Speaker 4: of isolation.

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00:26:29,359 --> 00:26:31,159
Speaker 9: And that means that China may be put in a

436
00:26:31,240 --> 00:26:34,919
Speaker 9: difficult position. It's likely US policies on trade will get

437
00:26:34,960 --> 00:26:38,240
Speaker 9: even tougher going forward, as both President Biden and former

438
00:26:38,280 --> 00:26:41,680
Speaker 9: President Trump want to reduce US reliance on Chinese goods.

439
00:26:42,160 --> 00:26:45,280
Speaker 9: Among the products targeted by the new US levies are

440
00:26:45,440 --> 00:26:49,680
Speaker 9: electric vehicles, batteries, and semiconductors. And joining us now for

441
00:26:49,760 --> 00:26:53,200
Speaker 9: further discussion on this is Rebecca Chong Wilkins, Bloomberg Asia

442
00:26:53,280 --> 00:26:57,680
Speaker 9: Government and Politics correspondent and John Leu, Bloomberg Executive Editor

443
00:26:57,920 --> 00:27:01,040
Speaker 9: in Beijing. Rebecca, if I could go to you first,

444
00:27:01,640 --> 00:27:05,840
Speaker 9: Former President Trump initially started the trade war with China

445
00:27:05,960 --> 00:27:09,600
Speaker 9: to bring manufacturing back home to the United States, but

446
00:27:09,800 --> 00:27:13,440
Speaker 9: now he's talking more about raising tariffs and using that

447
00:27:13,560 --> 00:27:16,600
Speaker 9: as a way to increase US revenues. So this is

448
00:27:16,640 --> 00:27:19,919
Speaker 9: pretty interesting how it complicates the picture. President Biden has

449
00:27:20,000 --> 00:27:23,720
Speaker 9: been somewhat more targeted. Could this go all the way

450
00:27:23,960 --> 00:27:27,280
Speaker 9: to China's most favorite nation status being stripped.

451
00:27:27,480 --> 00:27:29,959
Speaker 10: I suppose when we think about Trump, the whole obvious

452
00:27:30,000 --> 00:27:32,840
Speaker 10: element is the unpredictability of where this will go. So

453
00:27:33,200 --> 00:27:35,720
Speaker 10: far bit from me to make a prediction on where

454
00:27:35,760 --> 00:27:38,080
Speaker 10: he'll direct his policy. But I think from Beijing's point

455
00:27:38,080 --> 00:27:40,560
Speaker 10: of view, it is precisely the unpredictability which is a

456
00:27:40,720 --> 00:27:45,400
Speaker 10: concern here. I spoke to an advisor to Beijing quite recently.

457
00:27:45,480 --> 00:27:49,160
Speaker 10: He sits on China's sort of top broader political committee,

458
00:27:49,440 --> 00:27:51,960
Speaker 10: and he said that, of course things haven't been easy

459
00:27:52,200 --> 00:27:56,720
Speaker 10: under Biden, but Biden has been somewhat constrained because he,

460
00:27:57,119 --> 00:28:00,640
Speaker 10: for example, works harder to build consensus among his allies,

461
00:28:00,960 --> 00:28:04,760
Speaker 10: and some other countries have sort of somewhat muted the position.

462
00:28:05,119 --> 00:28:07,439
Speaker 10: But when it comes to Trump, there is this element

463
00:28:07,480 --> 00:28:12,280
Speaker 10: of unpredictability which really makes it much more dangerous, potentially

464
00:28:13,000 --> 00:28:15,440
Speaker 10: makes them a much more dangerous character for Beijing to

465
00:28:15,520 --> 00:28:15,800
Speaker 10: deal with.

466
00:28:16,240 --> 00:28:19,399
Speaker 4: John Back in the twenty twenty presidential campaign, when Biden

467
00:28:19,440 --> 00:28:22,080
Speaker 4: and Trump last faced one another, there was this view

468
00:28:22,160 --> 00:28:26,440
Speaker 4: among some of the geopolitical watching community that Biden would

469
00:28:26,520 --> 00:28:30,280
Speaker 4: develop a multilateral approach in dealing with China and Trump.

470
00:28:30,600 --> 00:28:34,560
Speaker 4: The more isolationist approach. Now we've seen Biden kind of

471
00:28:34,640 --> 00:28:40,320
Speaker 4: marshal together some cooperation. I'm thinking of export controls on semiconductors. Japan,

472
00:28:40,600 --> 00:28:44,320
Speaker 4: the Netherlands involved with the US on that front. Is

473
00:28:44,920 --> 00:28:49,080
Speaker 4: Beijing prepared to deal with the Trump administration potentially that

474
00:28:49,240 --> 00:28:51,520
Speaker 4: would take more of an isolationist approach.

475
00:28:51,840 --> 00:28:55,000
Speaker 7: I think that Beijing's main concern with the Trump administration

476
00:28:55,400 --> 00:28:58,840
Speaker 7: is just as Rebecca outlined, the unpredictability. I think the

477
00:28:59,840 --> 00:29:03,240
Speaker 7: way that Trump goes about it, the style of that execution,

478
00:29:04,200 --> 00:29:07,400
Speaker 7: it being less reliant on allies, less reliant on trying

479
00:29:07,440 --> 00:29:11,280
Speaker 7: to build consensus, that probably plays into Beijing's hand more

480
00:29:11,520 --> 00:29:14,840
Speaker 7: than it hurts Beijing. If you look at Europe, for example,

481
00:29:14,960 --> 00:29:18,480
Speaker 7: if Trump were to simultaneously put in tariffs against China

482
00:29:18,600 --> 00:29:22,360
Speaker 7: and European goods, that would actually help China try and

483
00:29:22,480 --> 00:29:25,040
Speaker 7: strengthen its relationship with Europe and maybe to overcome some

484
00:29:25,160 --> 00:29:27,080
Speaker 7: of the trade challenges that exist there as well.

485
00:29:27,760 --> 00:29:32,440
Speaker 9: Doug mentioned semiconductors. That's such a key industry. The US

486
00:29:32,600 --> 00:29:36,720
Speaker 9: had some pretty famous battles with Japan on semiconductors going

487
00:29:36,800 --> 00:29:39,360
Speaker 9: way way back. The US had the early lead, Japan

488
00:29:39,560 --> 00:29:42,120
Speaker 9: won that lead back in the eighties, and then the

489
00:29:42,240 --> 00:29:46,240
Speaker 9: US rested it back decades later. I think the big

490
00:29:46,320 --> 00:29:48,920
Speaker 9: difference though, is that Japan was an ally all through it.

491
00:29:49,840 --> 00:29:55,280
Speaker 9: China is not. So is that industry semiconductors where the

492
00:29:55,680 --> 00:29:58,440
Speaker 9: real stakes are and where the real battles will lie.

493
00:29:58,760 --> 00:30:01,560
Speaker 7: I think it's become pretty clear that one of the key,

494
00:30:01,640 --> 00:30:04,840
Speaker 7: if not the most important arena for the competition between

495
00:30:04,880 --> 00:30:07,000
Speaker 7: the United States and China is in technology. So be

496
00:30:07,120 --> 00:30:11,000
Speaker 7: it chips, be it the AI that is powered by

497
00:30:11,080 --> 00:30:15,360
Speaker 7: those chips, and so I think no matter who becomes president,

498
00:30:15,480 --> 00:30:18,640
Speaker 7: I would expect the United States to continue to squeeze

499
00:30:18,680 --> 00:30:22,560
Speaker 7: as much as possible, because I think the ultimate objective

500
00:30:22,640 --> 00:30:24,440
Speaker 7: here for the US is to make sure that China

501
00:30:24,520 --> 00:30:28,320
Speaker 7: does not become does not reach some sort of technological

502
00:30:28,480 --> 00:30:33,320
Speaker 7: parody and potentially some sort of military parody that that

503
00:30:33,720 --> 00:30:35,400
Speaker 7: technological prowess would bring about.

504
00:30:35,760 --> 00:30:38,920
Speaker 4: Rebecca, let's talk a little bit about geopolitics right now,

505
00:30:39,000 --> 00:30:43,320
Speaker 4: particularly where Taiwan is concerned. What would we expect from

506
00:30:43,800 --> 00:30:47,080
Speaker 4: another Trump administration that is different from the way in

507
00:30:47,200 --> 00:30:50,120
Speaker 4: which the Biden administration has been tackling Taiwan.

508
00:30:50,560 --> 00:30:54,640
Speaker 10: Well, the Biden administration more recently seems to have slightly moderated,

509
00:30:55,000 --> 00:30:57,000
Speaker 10: and I will say there does seem to be a

510
00:30:57,120 --> 00:31:00,280
Speaker 10: faties of pragmatic view in Beijing when they have been

511
00:31:00,320 --> 00:31:03,320
Speaker 10: these sort of slip ups or certain comments around Taiwan.

512
00:31:03,440 --> 00:31:06,520
Speaker 10: Beijing has been relatively muted of late. It does seem

513
00:31:06,560 --> 00:31:09,440
Speaker 10: to understand that China, the issue of Taiwan, is of

514
00:31:09,520 --> 00:31:11,680
Speaker 10: course going to come up and be a very hot

515
00:31:11,760 --> 00:31:15,840
Speaker 10: topic in this US election, and that of course the

516
00:31:15,960 --> 00:31:18,480
Speaker 10: Overton window in terms of what people are willing to say,

517
00:31:18,560 --> 00:31:22,800
Speaker 10: has shifted across the board, whether it's in the Democratic

518
00:31:22,880 --> 00:31:27,440
Speaker 10: Party or among Republicans. But again, sorry to harp on

519
00:31:27,560 --> 00:31:28,960
Speaker 10: on the same issue, but I think it is this

520
00:31:29,120 --> 00:31:33,600
Speaker 10: problem of unpredictability where it is hard to anticipate where

521
00:31:33,720 --> 00:31:37,520
Speaker 10: Trump might move. And of course part of that is

522
00:31:37,600 --> 00:31:40,600
Speaker 10: because the whole position, the US position, is about maintaining

523
00:31:40,680 --> 00:31:43,280
Speaker 10: the status quo and maintaining this ambiguity.

524
00:31:43,880 --> 00:31:47,320
Speaker 9: Well, speaking of unpredictability, I mean President she himself has

525
00:31:47,400 --> 00:31:51,760
Speaker 9: been unpredictable in some ways in dealings with you know,

526
00:31:51,920 --> 00:31:55,920
Speaker 9: with the tech industry, with various sectors in China. And

527
00:31:56,040 --> 00:31:59,520
Speaker 9: I'm wondering if China wants to hit back at the

528
00:31:59,600 --> 00:32:02,760
Speaker 9: United Slate States, where is the United States most vulnerable

529
00:32:02,920 --> 00:32:03,160
Speaker 9: in a.

530
00:32:03,240 --> 00:32:07,280
Speaker 10: Sense, Well, it certainly does have room to maneuver. And

531
00:32:07,360 --> 00:32:09,360
Speaker 10: I would just say it's not just the United States

532
00:32:09,400 --> 00:32:11,280
Speaker 10: that it can hit back on, but also the EU.

533
00:32:11,440 --> 00:32:14,200
Speaker 10: And so, for example, before we had that EU decision

534
00:32:14,280 --> 00:32:16,760
Speaker 10: on tariffs, we did see sort of Chinese state media

535
00:32:16,800 --> 00:32:21,040
Speaker 10: and experts sort of trailing the possibility of retaliating with

536
00:32:21,600 --> 00:32:25,640
Speaker 10: tariffs or investigations into food, wine, planes, transport.

537
00:32:25,200 --> 00:32:25,560
Speaker 7: And so on.

538
00:32:26,720 --> 00:32:31,320
Speaker 10: But certainly it can consider moves like restricting trade and

539
00:32:31,520 --> 00:32:35,440
Speaker 10: market access. It could also think about going further to

540
00:32:35,560 --> 00:32:41,560
Speaker 10: restrict certain exports, and you know, it does have sort

541
00:32:41,560 --> 00:32:42,880
Speaker 10: of tools in its toolbox.

542
00:32:43,440 --> 00:32:46,560
Speaker 4: John to Bryan's point, when you consider companies American firms

543
00:32:46,720 --> 00:32:50,680
Speaker 4: like Apple or Tesla, any sense of how their dealings

544
00:32:50,760 --> 00:32:53,880
Speaker 4: with Beijing may change under a Trump administration.

545
00:32:53,480 --> 00:32:56,000
Speaker 7: I think there would be a lot of concern from

546
00:32:56,040 --> 00:32:59,960
Speaker 7: the likes of Apple and Tesla about potentially losing market

547
00:33:00,160 --> 00:33:03,320
Speaker 7: share in China because of something that Trump administration has undertaken.

548
00:33:03,560 --> 00:33:07,280
Speaker 7: I think Beijing will take a relatively restrained approach when

549
00:33:07,320 --> 00:33:10,160
Speaker 7: it comes to these companies because, for one, Apple employees

550
00:33:10,240 --> 00:33:14,160
Speaker 7: so many people in China making iPhones and iPads, et cetera.

551
00:33:14,520 --> 00:33:19,120
Speaker 7: Same for Tesla. China's the world's largest car market electric

552
00:33:19,200 --> 00:33:22,040
Speaker 7: car market, and Tesla's a huge player. And Tesla not

553
00:33:22,120 --> 00:33:24,840
Speaker 7: only makes cars in China for China, but is also

554
00:33:25,000 --> 00:33:27,440
Speaker 7: exporting a lot of electric cars that are produced in

555
00:33:27,520 --> 00:33:28,680
Speaker 7: Chia to other parts of the world.

556
00:33:28,920 --> 00:33:31,840
Speaker 9: I'm curious about the China bashing because it works pretty

557
00:33:31,880 --> 00:33:35,520
Speaker 9: well on both you know, President Biden and President Trump's

558
00:33:36,600 --> 00:33:40,000
Speaker 9: hustings when they're out talking to people. If we flip

559
00:33:40,080 --> 00:33:44,560
Speaker 9: that around in China, you live there in Beijing. Is

560
00:33:45,040 --> 00:33:47,560
Speaker 9: China pretty adept at US bashing? And how does that

561
00:33:47,640 --> 00:33:48,720
Speaker 9: play with the populace?

562
00:33:49,080 --> 00:33:52,880
Speaker 7: I think. I think the Chinese government is very adept

563
00:33:53,080 --> 00:33:56,479
Speaker 7: and very proactive about making sure that there's a perception

564
00:33:56,600 --> 00:33:58,600
Speaker 7: that it is standing up for the interests of the

565
00:33:58,680 --> 00:34:01,840
Speaker 7: Chinese people. And that comes in play when we're talking

566
00:34:01,840 --> 00:34:05,840
Speaker 7: about things like Taiwan, like the South China Sea, especially

567
00:34:06,120 --> 00:34:09,040
Speaker 7: during the last Trump administration, where there were slights such

568
00:34:09,120 --> 00:34:13,840
Speaker 7: as you know, Trump calling COVID the China flu in.

569
00:34:14,000 --> 00:34:16,960
Speaker 7: This is like that China. The Chinese government is very

570
00:34:17,080 --> 00:34:20,239
Speaker 7: compelled in those instances to stand up and to show

571
00:34:20,360 --> 00:34:24,320
Speaker 7: that it is fighting for you know, China's pride, prestige,

572
00:34:24,360 --> 00:34:27,960
Speaker 7: et cetera. And you know, as nationalism goes, I think

573
00:34:28,040 --> 00:34:30,560
Speaker 7: that is a tool for every government in every country

574
00:34:30,640 --> 00:34:35,080
Speaker 7: in the world. Patriotism, the love of one's country. That

575
00:34:35,239 --> 00:34:37,960
Speaker 7: is something the president, she and the government here will

576
00:34:38,000 --> 00:34:39,200
Speaker 7: play on to its advantage.

577
00:34:39,520 --> 00:34:42,759
Speaker 4: In May twenty twenty, I believe the Trump administration suspended

578
00:34:42,880 --> 00:34:47,520
Speaker 4: visas for Chinese graduate students with ties to universities affiliated

579
00:34:47,600 --> 00:34:51,239
Speaker 4: with the People's Liberation Army. Now President Biden upheld that

580
00:34:51,400 --> 00:34:55,319
Speaker 4: suspension students were still being denied visas as recently as

581
00:34:55,400 --> 00:34:59,600
Speaker 4: twenty twenty three. Rebecca, how is this situation going to

582
00:34:59,800 --> 00:35:03,680
Speaker 4: change change under any new administration, whether it's a new

583
00:35:03,719 --> 00:35:06,000
Speaker 4: Biden administration or a Trump administration.

584
00:35:06,760 --> 00:35:08,680
Speaker 10: Yeah, I think this issue of sort of people to

585
00:35:08,760 --> 00:35:12,480
Speaker 10: people exchanges, as it's formally put in diplomatic circles is

586
00:35:12,600 --> 00:35:15,240
Speaker 10: really a key one. And it's interesting because both President

587
00:35:15,280 --> 00:35:18,800
Speaker 10: student Ping and President Biden are trying to actually changes.

588
00:35:18,800 --> 00:35:21,879
Speaker 10: Both have highlighted the need to get these exchanges back

589
00:35:21,960 --> 00:35:24,600
Speaker 10: on the road, including at their sit down on the

590
00:35:24,680 --> 00:35:28,759
Speaker 10: sidelines of APEC in San Francisco November. But really we

591
00:35:28,880 --> 00:35:32,440
Speaker 10: haven't seen much sort of substantive progress at all, and

592
00:35:32,520 --> 00:35:35,279
Speaker 10: I will say, you know, sources and folks that sort

593
00:35:35,280 --> 00:35:37,759
Speaker 10: of business folks that I speak to do raise this

594
00:35:37,960 --> 00:35:41,240
Speaker 10: concern about the safety, their personal safety of going to China.

595
00:35:42,120 --> 00:35:44,279
Speaker 10: You know, whether or not that sort of substantiated, there

596
00:35:44,360 --> 00:35:48,600
Speaker 10: still is this sort of big perception issue over personal

597
00:35:48,680 --> 00:35:50,719
Speaker 10: safety when it comes to making these trips and when

598
00:35:50,760 --> 00:35:53,480
Speaker 10: it comes to sort of regularly resuming these ties. The

599
00:35:53,600 --> 00:35:57,440
Speaker 10: other big focus, particularly if Biden does win, we'll be

600
00:35:57,920 --> 00:36:00,600
Speaker 10: trying to get student exchanges back on the road.

601
00:36:01,520 --> 00:36:03,840
Speaker 9: So we don't know who's going to win the presidential election,

602
00:36:04,280 --> 00:36:07,600
Speaker 9: but we said in our introduction that we basically thought

603
00:36:07,680 --> 00:36:10,840
Speaker 9: that things would get tougher for China on the rhetoric

604
00:36:10,920 --> 00:36:14,640
Speaker 9: side in the US for sure going forward. And that's

605
00:36:14,880 --> 00:36:18,160
Speaker 9: up until the election. But what about afterwards, of course

606
00:36:18,200 --> 00:36:21,279
Speaker 9: it depends on who wins, Rebecca, But is there any

607
00:36:21,400 --> 00:36:24,440
Speaker 9: chance that things would settle down and relations could improve

608
00:36:24,560 --> 00:36:25,320
Speaker 9: after the election.

609
00:36:25,880 --> 00:36:27,960
Speaker 10: Well, yeah, of course, I think it's important to highlight

610
00:36:28,040 --> 00:36:32,080
Speaker 10: that campaign promises are not necessarily real world policies here

611
00:36:32,560 --> 00:36:35,359
Speaker 10: in any way. But you know, we think about when

612
00:36:35,440 --> 00:36:38,040
Speaker 10: Biden came in, some were expecting him to take a

613
00:36:38,760 --> 00:36:40,440
Speaker 10: ease up just a little bit, and in fact we

614
00:36:40,560 --> 00:36:43,520
Speaker 10: saw the opposite, He doubled down on those tariffs. So

615
00:36:43,560 --> 00:36:46,839
Speaker 10: even if we just continue on a similar momentum when

616
00:36:46,840 --> 00:36:49,799
Speaker 10: it comes to introducing more restrictions and more cubs, that's

617
00:36:49,800 --> 00:36:52,600
Speaker 10: still quite a sort of intense pressure that is being

618
00:36:52,680 --> 00:36:55,480
Speaker 10: placed on Beijing. Even if it's more predictable, it's easier

619
00:36:55,560 --> 00:36:58,600
Speaker 10: for them to understand the context. The other concern, as

620
00:36:58,680 --> 00:37:01,560
Speaker 10: John mentioned too, is if it is Biden, in particular,

621
00:37:01,640 --> 00:37:05,200
Speaker 10: if he's able to continue bringing other countries along and

622
00:37:05,400 --> 00:37:08,440
Speaker 10: lock and step moving with the US. We see, for example,

623
00:37:08,560 --> 00:37:12,719
Speaker 10: the EU probe into EVS and the EU which previously

624
00:37:12,800 --> 00:37:15,000
Speaker 10: had been somethink of a sort of striking trying to

625
00:37:15,000 --> 00:37:17,560
Speaker 10: strike a more middle path, let's say, something sort of

626
00:37:17,680 --> 00:37:20,320
Speaker 10: more moderate from the US, and keen to strike and

627
00:37:20,520 --> 00:37:23,240
Speaker 10: emphasize its difference from the US. We see the EU

628
00:37:23,360 --> 00:37:26,880
Speaker 10: and various European Union nations moving a little bit closer

629
00:37:27,160 --> 00:37:29,359
Speaker 10: to the US, So that is another concern too.

630
00:37:29,760 --> 00:37:32,360
Speaker 9: Rebecca, John, thanks so much for joining us and sharing

631
00:37:32,440 --> 00:37:35,760
Speaker 9: your insights with us. We've been chatting with Rebecca Cheng Wilkins,

632
00:37:35,840 --> 00:37:39,920
Speaker 9: Bloomberg Asia Government and Politics correspondent in John Liu, Bloomberg

633
00:37:40,040 --> 00:37:43,759
Speaker 9: Executive Editor in Beijing, I'm Brian Curtis in Hong Kong

634
00:37:43,800 --> 00:37:46,440
Speaker 9: along with Doug Krisner. You can catch us every weekday

635
00:37:46,480 --> 00:37:49,560
Speaker 9: here for Bloomberg Daybreak Asia, beginning at eight am in

636
00:37:49,640 --> 00:37:52,719
Speaker 9: Hong Kong and eight pm on Wall Street. Tom.

637
00:37:53,160 --> 00:37:55,960
Speaker 2: Thank you Brian, and thank you Doug. And that does

638
00:37:56,000 --> 00:37:58,839
Speaker 2: it for this edition of Bloomberg Daybreak Weekend. Join us

639
00:37:58,840 --> 00:38:01,120
Speaker 2: again Monday morning at five Wall Street time for the

640
00:38:01,200 --> 00:38:03,920
Speaker 2: latest on markets overseas and the news you need to

641
00:38:04,000 --> 00:38:07,359
Speaker 2: start your day. I'm Tom Busby. Stay with us. Top

642
00:38:07,440 --> 00:38:10,399
Speaker 2: stories and global business headlines are coming up right now