1 00:00:06,320 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,000 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Your 5 00:00:33,040 --> 00:00:35,920 Speaker 1: top story through the week. President Donald Trump heading for 6 00:00:35,960 --> 00:00:38,400 Speaker 1: a showdown with America's allies at a Group of Seventh 7 00:00:38,440 --> 00:00:41,640 Speaker 1: summit this week in Quebec, Canada, with the European Union 8 00:00:41,720 --> 00:00:45,560 Speaker 1: and Canada threatening retaliatory measures unless he reversed his course 9 00:00:45,760 --> 00:00:49,240 Speaker 1: on new steel and aluminum terrorists. Allen Zetna, I'm pleased 10 00:00:49,240 --> 00:00:51,400 Speaker 1: to say, joins us in the New York studio MORGANE. 11 00:00:51,400 --> 00:00:55,320 Speaker 1: Sandley's chief US economist, Ellen. Good morning to you. Just 12 00:00:55,400 --> 00:00:59,480 Speaker 1: how disruptive is this possible showdown this weekend? Well, I 13 00:00:59,480 --> 00:01:02,480 Speaker 1: think it will um give indications of whether there's going 14 00:01:02,520 --> 00:01:05,399 Speaker 1: to be continued escalation or do we get some d 15 00:01:05,600 --> 00:01:11,880 Speaker 1: escalatory tone. Uh. And you know things are escalating when 16 00:01:11,880 --> 00:01:15,440 Speaker 1: you let the steel in the lunar tariff exemptions expire. 17 00:01:16,000 --> 00:01:19,440 Speaker 1: Then you wait for an EU response response likely to 18 00:01:19,520 --> 00:01:21,520 Speaker 1: be something like we'll hear the goods from the U 19 00:01:21,600 --> 00:01:23,399 Speaker 1: s we're going to target, and then what do we 20 00:01:23,440 --> 00:01:26,520 Speaker 1: have in our back pocket tear us on autos, which 21 00:01:26,560 --> 00:01:30,440 Speaker 1: then starts to target specific countries in Europe where we 22 00:01:30,520 --> 00:01:34,039 Speaker 1: think the trade abuses are are happening. This is how 23 00:01:34,520 --> 00:01:38,280 Speaker 1: escalation plays out UH, and this is what keeps uncertainty 24 00:01:38,319 --> 00:01:42,360 Speaker 1: going UH and what continues to threaten to dampen investment 25 00:01:42,600 --> 00:01:46,000 Speaker 1: in the US despite the tax stimulus that we put 26 00:01:46,000 --> 00:01:48,160 Speaker 1: in place this year. Very few signs at the moment 27 00:01:48,320 --> 00:01:50,440 Speaker 1: here in the United States that this tariff talk and 28 00:01:50,480 --> 00:01:53,000 Speaker 1: the escalation and retreat between the United States and the 29 00:01:53,040 --> 00:01:55,720 Speaker 1: rest of the world is hurting growth. Yeah, so we've 30 00:01:55,760 --> 00:01:57,880 Speaker 1: had a nice We think that we're going through a 31 00:01:58,240 --> 00:02:00,800 Speaker 1: nice rebound that we expected in the second quarter. That 32 00:02:00,840 --> 00:02:05,160 Speaker 1: first quarter weakness UH in growth was transitory UM, and 33 00:02:05,200 --> 00:02:08,480 Speaker 1: we are tracking. You've got tracking anywhere from in the 34 00:02:08,560 --> 00:02:11,280 Speaker 1: in the fives down into the threes. But when you're 35 00:02:11,280 --> 00:02:14,120 Speaker 1: talking about tracking in the threes as being some of 36 00:02:14,120 --> 00:02:17,040 Speaker 1: the lowest GDP tracking we've seen, it's clear we're getting 37 00:02:17,040 --> 00:02:19,920 Speaker 1: a rebound in the second quarter. Now, is that specifically 38 00:02:19,960 --> 00:02:24,720 Speaker 1: coming from investment? UM? If you look at current UH shipments, 39 00:02:25,160 --> 00:02:29,440 Speaker 1: it points to still a nice lift to investment, which 40 00:02:29,680 --> 00:02:33,560 Speaker 1: in the US we've argued we've been uh in the 41 00:02:33,600 --> 00:02:39,360 Speaker 1: midst of an ongoing uh cyclical upturning capex prior to 42 00:02:39,480 --> 00:02:42,320 Speaker 1: even the tax stimulus being put in place. Um. What 43 00:02:42,360 --> 00:02:44,680 Speaker 1: we are seeing though, that we're watching closely is that 44 00:02:45,000 --> 00:02:48,600 Speaker 1: shipments uh sorry, orders, some of the forward looking indicators 45 00:02:48,600 --> 00:02:51,800 Speaker 1: in the Durable Goods report, let's say, are suggesting a 46 00:02:51,800 --> 00:02:55,440 Speaker 1: weaker pipeline going forward. Now we don't know yet if 47 00:02:55,480 --> 00:02:59,600 Speaker 1: that's just normal fluctuations or if it's companies finally putting 48 00:02:59,600 --> 00:03:01,440 Speaker 1: their money where their mouth is, because they're telling us 49 00:03:01,440 --> 00:03:05,120 Speaker 1: in the surveys we're worried. We're uncertain, we may not 50 00:03:05,240 --> 00:03:07,480 Speaker 1: know our future pricing structure, we may not know off 51 00:03:07,480 --> 00:03:11,399 Speaker 1: supply chains will be disrupted. That typically is what depresses investment. 52 00:03:11,880 --> 00:03:13,760 Speaker 1: Yet we're not seeing it come through in the numbers. 53 00:03:13,840 --> 00:03:18,040 Speaker 1: Yet they're still investing. Capex plans, by our measure, are 54 00:03:18,080 --> 00:03:20,560 Speaker 1: still near record high. So that's what's really important here, 55 00:03:20,639 --> 00:03:23,880 Speaker 1: because the administration a very bullish on economic growth, and 56 00:03:23,919 --> 00:03:25,959 Speaker 1: they're very bullish on a supply side response that you 57 00:03:25,960 --> 00:03:29,240 Speaker 1: will get this improvement, this uptick, and a capex cyclist, 58 00:03:29,280 --> 00:03:32,640 Speaker 1: you know about better than anyone confidence leads investments. So 59 00:03:32,760 --> 00:03:35,760 Speaker 1: you're basically assuming that that soft data that we're starting 60 00:03:35,800 --> 00:03:38,200 Speaker 1: to see kind of hit a little bit, will bleed 61 00:03:38,200 --> 00:03:40,560 Speaker 1: into the hard data into the capex decisions. Perhaps in 62 00:03:40,560 --> 00:03:42,200 Speaker 1: the back half of this year. Well, that's what we 63 00:03:42,280 --> 00:03:44,360 Speaker 1: have to watch. Uh. And of course the back half 64 00:03:44,400 --> 00:03:47,120 Speaker 1: of the year. This year becomes more difficult for a 65 00:03:47,200 --> 00:03:51,000 Speaker 1: whole host of reasons. Um. One, third quarter earnings growth 66 00:03:51,320 --> 00:03:54,280 Speaker 1: is likely where we top out because going forward the 67 00:03:54,360 --> 00:03:57,040 Speaker 1: year on your comps through that will be increasingly difficult. 68 00:03:57,040 --> 00:03:59,560 Speaker 1: It's something that Mike Wilson, our chief US Equities trying 69 00:03:59,560 --> 00:04:01,760 Speaker 1: to just have has been noting and one reason why 70 00:04:01,760 --> 00:04:05,600 Speaker 1: he's more bearish on on equities than our peers. For 71 00:04:05,640 --> 00:04:09,440 Speaker 1: this year, you've got fading effects of tax stimulus. We 72 00:04:09,480 --> 00:04:13,200 Speaker 1: don't drop tax rates every year, um and so in 73 00:04:13,240 --> 00:04:15,720 Speaker 1: the back half of this year, you've already had investors 74 00:04:15,760 --> 00:04:18,840 Speaker 1: digest every bit of perfection we can digest from the 75 00:04:18,880 --> 00:04:23,120 Speaker 1: tax stimulus, and then that starts to fade. Here, you 76 00:04:23,279 --> 00:04:28,479 Speaker 1: earned your stripes with piercing analysis of the American consumer. 77 00:04:29,120 --> 00:04:32,080 Speaker 1: Years ago. I was like, who is this person? I 78 00:04:32,120 --> 00:04:34,880 Speaker 1: can't pronounce? Years ago in two thousand three, you called 79 00:04:34,920 --> 00:04:39,719 Speaker 1: me the Pollyanna economy. Who is this guy in the 80 00:04:39,760 --> 00:04:45,280 Speaker 1: boat staring at me with the piercing bo You nailed 81 00:04:45,720 --> 00:04:50,320 Speaker 1: the granularity of the consumer experience in America. What do 82 00:04:50,360 --> 00:04:53,360 Speaker 1: you see right now? So right now, I tell you 83 00:04:53,440 --> 00:04:57,120 Speaker 1: I'm I am a walking example of the consumer dynamic 84 00:04:57,160 --> 00:05:01,839 Speaker 1: in America today. I did no, No, that's that's a 85 00:05:01,880 --> 00:05:06,200 Speaker 1: whole different animal. My fly fishing passion. Let's set that aside, 86 00:05:06,360 --> 00:05:11,159 Speaker 1: because that that's never spending on fly fishing equipment never wanes. Um. 87 00:05:11,160 --> 00:05:18,880 Speaker 1: But I did my nails yesterday myself, Tom gas, not 88 00:05:19,000 --> 00:05:22,400 Speaker 1: a bad job. Can I send my family to you? Yeah? 89 00:05:22,960 --> 00:05:31,040 Speaker 1: Right right, we can wait. Wait let me but let 90 00:05:31,040 --> 00:05:33,360 Speaker 1: me tell you why, because this is important. So one 91 00:05:33,400 --> 00:05:35,440 Speaker 1: thing that we noted coming into this year about the U. 92 00:05:35,560 --> 00:05:38,480 Speaker 1: S consumer was that the wealthy, We're not going to 93 00:05:38,600 --> 00:05:40,880 Speaker 1: spend a lot of pent up demand has been met there. 94 00:05:41,000 --> 00:05:43,920 Speaker 1: That's where the tax uncertainty is. No one's quite sure 95 00:05:43,960 --> 00:05:48,120 Speaker 1: exactly what their tax bill. Right. So my husband came 96 00:05:48,160 --> 00:05:50,960 Speaker 1: to me and said, honey, this is a buckle down year. 97 00:05:51,040 --> 00:05:53,320 Speaker 1: And I looked at him and said, does that involve Sacks? 98 00:05:54,040 --> 00:05:56,839 Speaker 1: Because if sax Fifth Avenue is a buckle down year, 99 00:05:57,200 --> 00:06:00,719 Speaker 1: right then short sacks he has if I have to, 100 00:06:01,120 --> 00:06:03,719 Speaker 1: if I have to curb my spending at Saxford Avenue, 101 00:06:04,040 --> 00:06:06,160 Speaker 1: and then I'll tell you a lot. But the top 102 00:06:06,200 --> 00:06:10,400 Speaker 1: income quintile in the US represents of all consumers spending 103 00:06:10,800 --> 00:06:14,600 Speaker 1: and spending on luxury goods the year over year growth rate, 104 00:06:14,640 --> 00:06:16,680 Speaker 1: and that has fallen off the map. And I would 105 00:06:16,680 --> 00:06:19,719 Speaker 1: agree with you the mystery of these text because nobody 106 00:06:19,760 --> 00:06:21,680 Speaker 1: really knows. Can I just John jump in here? But 107 00:06:21,760 --> 00:06:24,080 Speaker 1: I got has James Gorman seeing the color of that 108 00:06:24,160 --> 00:06:27,880 Speaker 1: nail polish? No, not today, Okay, I you know that 109 00:06:27,960 --> 00:06:36,159 Speaker 1: could be Just mute the mic, just mute the mic 110 00:06:36,200 --> 00:06:39,080 Speaker 1: and stick. I knew I was going to get in 111 00:06:39,120 --> 00:06:41,760 Speaker 1: trouble mentioning nail. Honestly this morning. Honestly, Tom Key's not 112 00:06:41,760 --> 00:06:43,400 Speaker 1: gonna let this go for the next couple of hours. 113 00:06:43,720 --> 00:06:46,920 Speaker 1: Where I see a key distinction between where you see 114 00:06:46,960 --> 00:06:48,839 Speaker 1: growth going and the rest of the streets. Not this year, 115 00:06:49,200 --> 00:06:53,000 Speaker 1: it's next year. It's um the low twos. When this 116 00:06:53,080 --> 00:06:55,520 Speaker 1: administration of many people are looking for the threes, the 117 00:06:55,600 --> 00:06:58,719 Speaker 1: high twos, what takes more constant against the low twos. Well, again, 118 00:06:58,760 --> 00:07:02,640 Speaker 1: it goes back to the faith uh stimulus of tax policy. Again, 119 00:07:02,680 --> 00:07:05,360 Speaker 1: we don't drop rates every year. You tend to absorb 120 00:07:05,520 --> 00:07:09,440 Speaker 1: the delta from stimulus in the year that's it's enacted, 121 00:07:09,880 --> 00:07:14,840 Speaker 1: and then those comps everything beyond that becomes more difficult. Um, 122 00:07:15,040 --> 00:07:18,960 Speaker 1: what is holding growth above two percent next year is 123 00:07:19,080 --> 00:07:24,280 Speaker 1: the raising of the budget caps and just direct government investment. 124 00:07:24,680 --> 00:07:27,119 Speaker 1: When we pulled that into that numbers, it actually took 125 00:07:27,360 --> 00:07:30,080 Speaker 1: what was the high ones growth forecast up to two 126 00:07:30,120 --> 00:07:33,720 Speaker 1: point one next year because you have to account for that. 127 00:07:33,760 --> 00:07:35,880 Speaker 1: So we didn't just put in tax stimulus with the 128 00:07:35,920 --> 00:07:38,880 Speaker 1: corporate tax cuts individual tax cuts. We followed it up 129 00:07:38,880 --> 00:07:42,440 Speaker 1: in February blowing past the budget caps, raising the budget 130 00:07:42,440 --> 00:07:46,080 Speaker 1: caps to put in even more government investment on top 131 00:07:46,120 --> 00:07:49,400 Speaker 1: of that. And that is just direct mathematics. You've got 132 00:07:49,400 --> 00:07:52,360 Speaker 1: to pull that into your numbers. Still, that just gets 133 00:07:52,400 --> 00:07:55,800 Speaker 1: us to a low two's growth rate. So the Federal 134 00:07:55,840 --> 00:07:58,320 Speaker 1: reserve set up for the more constandard reality of a 135 00:07:58,360 --> 00:08:00,920 Speaker 1: significant slow down next year. Well, I think that if 136 00:08:01,160 --> 00:08:03,320 Speaker 1: you look at their numbers, right, they they've got to 137 00:08:03,560 --> 00:08:06,520 Speaker 1: seven on the books today Q four over Q four 138 00:08:06,560 --> 00:08:10,360 Speaker 1: GDP this year slowing to two four. We've got two 139 00:08:10,360 --> 00:08:12,400 Speaker 1: four slowing to to one. So the delta is the 140 00:08:12,480 --> 00:08:16,800 Speaker 1: same right, but all of us expect growth to continue 141 00:08:17,480 --> 00:08:22,280 Speaker 1: above potential primary living, primarily lifted by tax stimulus. Um. 142 00:08:22,320 --> 00:08:24,400 Speaker 1: If you were to ask a policymaker if there's a 143 00:08:24,440 --> 00:08:27,680 Speaker 1: difference between their two four expectation in our to one, 144 00:08:28,000 --> 00:08:30,880 Speaker 1: they would say there's no difference. It's more to me 145 00:08:31,080 --> 00:08:34,240 Speaker 1: GDP numbers are more what story can you tell behind it? 146 00:08:34,280 --> 00:08:37,480 Speaker 1: And there's a story of fading tax stimulus here. It's 147 00:08:37,520 --> 00:08:41,240 Speaker 1: been fantastic. Allen Senter, thank you so much, greatly appreciate this. 148 00:08:41,280 --> 00:08:43,920 Speaker 1: This morning we will have to ever back is two eighteen. 149 00:08:44,360 --> 00:09:00,920 Speaker 1: I'm full, to say the least. This next guess. They 150 00:09:00,960 --> 00:09:03,480 Speaker 1: picked up the phone on Thursday and I said to 151 00:09:03,600 --> 00:09:07,319 Speaker 1: Ridica of our crack team. I said, Ridica, this resume 152 00:09:07,520 --> 00:09:09,920 Speaker 1: is like off the chart. Meant we got to get 153 00:09:10,000 --> 00:09:12,720 Speaker 1: him in Monday. Do what you can. And you know, 154 00:09:12,880 --> 00:09:16,880 Speaker 1: it's like National Bureau of Economic Research in the US 155 00:09:17,040 --> 00:09:24,560 Speaker 1: Senate and George Washington University. John quote his utter ignorance 156 00:09:24,600 --> 00:09:29,040 Speaker 1: of anything soccer related. It's a constant source of embarrassment 157 00:09:29,480 --> 00:09:32,640 Speaker 1: for fellow Europeans in the office. So I said, this 158 00:09:32,679 --> 00:09:34,800 Speaker 1: guy would be perfect for John Farrell. Why don't you 159 00:09:34,840 --> 00:09:37,600 Speaker 1: bring him in John Federico, I am so so sorry 160 00:09:37,640 --> 00:09:38,960 Speaker 1: that you're gonna have to deal with this for the 161 00:09:39,000 --> 00:09:42,920 Speaker 1: next ten minutes. Federica Sante Eurasia Group associate joins us. Now, 162 00:09:43,000 --> 00:09:45,600 Speaker 1: so we skipped the football conversation, which we already had it. 163 00:09:45,640 --> 00:09:48,040 Speaker 1: We already had it in a World Cup Italy and 164 00:09:48,120 --> 00:09:50,000 Speaker 1: would you like to skip that, Federico, would you like 165 00:09:50,040 --> 00:09:51,959 Speaker 1: to make a quick comment, that's fine with me. I mean, 166 00:09:51,960 --> 00:09:54,199 Speaker 1: Italy is not even in the World Cup. I didn't 167 00:09:54,240 --> 00:09:56,880 Speaker 1: know that. That's why he's bringing it up. That's that's 168 00:09:56,920 --> 00:10:00,280 Speaker 1: exactly why he's bringing up, Federico. Politics has taken over. 169 00:10:00,760 --> 00:10:02,720 Speaker 1: We have a government. There's going to be a confidence 170 00:10:02,760 --> 00:10:05,320 Speaker 1: vote in parliament today. Talked to me about the government 171 00:10:05,320 --> 00:10:08,560 Speaker 1: we now have in Italy and whether the fear that 172 00:10:08,640 --> 00:10:13,679 Speaker 1: existed last week at times was was justified. Well, I 173 00:10:13,679 --> 00:10:15,400 Speaker 1: would say so, and it's I think it's safe to 174 00:10:15,400 --> 00:10:17,600 Speaker 1: say that political risk is very much back in the 175 00:10:17,760 --> 00:10:20,720 Speaker 1: Eurozone after a period of relative calm that we saw. 176 00:10:21,559 --> 00:10:23,800 Speaker 1: I think it was some relief in the markets last week. 177 00:10:23,800 --> 00:10:25,520 Speaker 1: As you know, we're really on the basis that the 178 00:10:25,559 --> 00:10:28,199 Speaker 1: government was formed, indeed and new elections avoided, which I 179 00:10:28,240 --> 00:10:30,720 Speaker 1: believe people had come to see us the worst possible outcome, 180 00:10:30,840 --> 00:10:33,959 Speaker 1: mainly based on the expectation that populous parties would do 181 00:10:34,040 --> 00:10:36,839 Speaker 1: even better in case of a revote. Also, Savona will 182 00:10:36,880 --> 00:10:39,400 Speaker 1: not be Finance minister after all, which is positive in 183 00:10:39,400 --> 00:10:42,040 Speaker 1: the sense that he had openly anti euro views is 184 00:10:42,080 --> 00:10:44,280 Speaker 1: still in the cabinet, but in a sort of less 185 00:10:44,320 --> 00:10:46,880 Speaker 1: consequential rule. But you know this said, I still think 186 00:10:46,920 --> 00:10:49,320 Speaker 1: that the outlook is very much a negative one and 187 00:10:49,360 --> 00:10:51,760 Speaker 1: it's a case of I believe things having to get 188 00:10:51,760 --> 00:10:53,560 Speaker 1: a lot worse before they get better. We have an 189 00:10:53,559 --> 00:10:57,880 Speaker 1: openly hostile, um europhobic government in Europe, I mean the 190 00:10:57,920 --> 00:10:59,840 Speaker 1: shape of Italy, and we talked about this risk federate. 191 00:11:00,040 --> 00:11:02,800 Speaker 1: Let's talk about this risk. What is the risk? Is 192 00:11:02,840 --> 00:11:05,000 Speaker 1: it read denomination risk or is it just the risk 193 00:11:05,080 --> 00:11:07,800 Speaker 1: that this is a country that wants to spend a 194 00:11:07,840 --> 00:11:10,760 Speaker 1: little bit more an issue a few more bonds. I 195 00:11:10,800 --> 00:11:12,480 Speaker 1: think it's more of the latter, But I would say 196 00:11:12,520 --> 00:11:16,880 Speaker 1: that's problematic enough. The more outlandish items in the coalition 197 00:11:16,880 --> 00:11:20,040 Speaker 1: government's program were removed, so um, you know, there's no 198 00:11:20,120 --> 00:11:23,200 Speaker 1: mention of introducing a mechanism for leaving the year Zone, 199 00:11:23,200 --> 00:11:27,680 Speaker 1: for example of ECB buy backs of Italian government debt, 200 00:11:27,679 --> 00:11:30,280 Speaker 1: for example, which were really scared I think investors when 201 00:11:30,320 --> 00:11:32,760 Speaker 1: the first draft of the coalition agreement was leaked. But 202 00:11:32,800 --> 00:11:34,800 Speaker 1: what's left there's no less worrying. I mean they're talking 203 00:11:34,840 --> 00:11:37,160 Speaker 1: about a huge fiscal expansion. Estimate it to be over 204 00:11:37,200 --> 00:11:40,000 Speaker 1: a hundred billion, that six percent of GDP. That's simply 205 00:11:40,000 --> 00:11:42,160 Speaker 1: not sustainable for a country like Italy at the moment. 206 00:11:42,280 --> 00:11:44,560 Speaker 1: I put out on Tim King books the other day. Somebody, 207 00:11:44,760 --> 00:11:47,280 Speaker 1: somebody who's a fan, set me and he said, give 208 00:11:47,280 --> 00:11:49,520 Speaker 1: me three books on Italy. I mean, John, seriously, you 209 00:11:49,559 --> 00:11:52,480 Speaker 1: know twenty books on Italy. I don't know. And within 210 00:11:52,520 --> 00:11:55,680 Speaker 1: you know, I did the usual books. But within that 211 00:11:56,400 --> 00:11:59,640 Speaker 1: is the history, which is this is repetitive or is 212 00:11:59,679 --> 00:12:03,680 Speaker 1: this find different? How unique to you is this moment 213 00:12:03,760 --> 00:12:08,800 Speaker 1: for Italy versus the four two times since Napoleon. Well 214 00:12:08,840 --> 00:12:12,000 Speaker 1: we've definitely been here before, both in Italy and also 215 00:12:12,040 --> 00:12:13,960 Speaker 1: in terms of other countries in the Eurozone. And in 216 00:12:13,960 --> 00:12:15,840 Speaker 1: fact we've tended to look at this through the lens 217 00:12:15,880 --> 00:12:19,000 Speaker 1: of Greece and twenty fift or Portugal in twenty sixteen, 218 00:12:19,080 --> 00:12:21,840 Speaker 1: for example. So parties are good new governments coming to 219 00:12:21,920 --> 00:12:24,800 Speaker 1: power on a platform of rolling back austerity and essentially 220 00:12:25,600 --> 00:12:28,880 Speaker 1: boosting domestic men throw higher spending. But again this clashes 221 00:12:28,960 --> 00:12:32,240 Speaker 1: directly with new European rules, particularly on deficits. So I 222 00:12:32,280 --> 00:12:34,959 Speaker 1: don't think this ends with Italy leaving the Eurozone. But 223 00:12:35,040 --> 00:12:38,400 Speaker 1: again it's still a problematic scenario. How do you respond 224 00:12:39,000 --> 00:12:44,120 Speaker 1: when you hear conversation strategist Pundon's economists say Italy is 225 00:12:44,160 --> 00:12:47,920 Speaker 1: a wealthy nation? How can they be so messed up? 226 00:12:48,480 --> 00:12:52,559 Speaker 1: If interview after interview says Italy is a wealthy nation, Well, 227 00:12:52,600 --> 00:12:54,480 Speaker 1: it is when you look at savings wakes, for example, 228 00:12:54,480 --> 00:12:57,760 Speaker 1: it is it's much closer to Germany. Right. The problem is, um, 229 00:12:57,960 --> 00:13:00,840 Speaker 1: the economy just simply hasn't been growing, and also the 230 00:13:00,840 --> 00:13:03,560 Speaker 1: government has trouble collecting as many tactics as you should. 231 00:13:03,640 --> 00:13:05,840 Speaker 1: So I think that's really that the heart of the problem. 232 00:13:06,200 --> 00:13:08,600 Speaker 1: We talk about this harder the problem and whether the 233 00:13:08,600 --> 00:13:12,240 Speaker 1: government's new approaches is the wrong one. Why isn't it 234 00:13:12,280 --> 00:13:14,720 Speaker 1: the right one? Why isn't it the right thing? That 235 00:13:14,960 --> 00:13:17,880 Speaker 1: an economy but it's basically been strangled by the single 236 00:13:17,920 --> 00:13:20,520 Speaker 1: currency over much of the last decade, shouldn't go out 237 00:13:20,520 --> 00:13:22,600 Speaker 1: there and say to the rest of the Europeans you 238 00:13:22,640 --> 00:13:24,720 Speaker 1: know what we should spend more. Look at our GDP, 239 00:13:24,800 --> 00:13:26,840 Speaker 1: it's something performing the rest of the continent. We need 240 00:13:26,880 --> 00:13:29,520 Speaker 1: to loosen the fiscal purse strings here and actually you 241 00:13:29,559 --> 00:13:32,360 Speaker 1: need to do the same thing over in Germany. That's 242 00:13:32,360 --> 00:13:34,160 Speaker 1: a good point. Actually this is the age all debate 243 00:13:34,200 --> 00:13:36,600 Speaker 1: about fiscal austerity in the Eurozone. I think there's some 244 00:13:36,679 --> 00:13:38,400 Speaker 1: truth to that. I think Italy could probably use a 245 00:13:38,440 --> 00:13:40,480 Speaker 1: little more fiscal leeway. And there's no doubt in my 246 00:13:40,600 --> 00:13:45,960 Speaker 1: mind that the Eurozone fisical governance waywork is clearly pro cyclical. 247 00:13:46,000 --> 00:13:48,360 Speaker 1: It doesn't make things easier, particularly in times of crisis 248 00:13:48,400 --> 00:13:50,319 Speaker 1: or in the case of countries like Italy that just 249 00:13:50,360 --> 00:13:53,280 Speaker 1: simply haven't been growing. The problem is physical expansion alone. 250 00:13:53,360 --> 00:13:55,160 Speaker 1: Once solved the problem, you need to combine that with 251 00:13:55,240 --> 00:13:57,760 Speaker 1: more structural reforms, and that's something that the new government 252 00:13:57,960 --> 00:13:59,920 Speaker 1: is definitely not planning to do. There's no appetite to 253 00:13:59,920 --> 00:14:02,120 Speaker 1: do that at all in Italy right now, no, not 254 00:14:02,120 --> 00:14:04,079 Speaker 1: at all. In fact, whether they're talking about is rolling 255 00:14:04,120 --> 00:14:06,680 Speaker 1: back pass reforms that were seen as crucial for steping 256 00:14:06,720 --> 00:14:09,200 Speaker 1: off the four back in eleven. Right, So this combination 257 00:14:09,240 --> 00:14:11,840 Speaker 1: I think is very problematic. This government has actually showing 258 00:14:11,880 --> 00:14:14,760 Speaker 1: themselves to be incredibly politically savvy. Um what they did 259 00:14:14,880 --> 00:14:18,840 Speaker 1: last week with President Mattarella actually was was a stroker genius. 260 00:14:19,040 --> 00:14:21,760 Speaker 1: They introduced someone they probably knew would not get approved 261 00:14:21,760 --> 00:14:24,240 Speaker 1: as the Finance Minister of Italy and what they got 262 00:14:24,320 --> 00:14:26,840 Speaker 1: as a result was a boost in the ratings in 263 00:14:26,880 --> 00:14:29,640 Speaker 1: Italy from the electorate. And they also knew the president 264 00:14:29,720 --> 00:14:31,200 Speaker 1: knew that if they went back to the electorate, if 265 00:14:31,200 --> 00:14:34,040 Speaker 1: there was another round of elections, these parties would do 266 00:14:34,160 --> 00:14:36,880 Speaker 1: better because of it. I don't think we should underestimate 267 00:14:37,120 --> 00:14:40,280 Speaker 1: how savvy politically speaking these two parties are. I do 268 00:14:40,440 --> 00:14:42,920 Speaker 1: wonder the risk later this year that ultimately they pushed 269 00:14:42,920 --> 00:14:45,120 Speaker 1: things too far and don't get what they want from 270 00:14:45,120 --> 00:14:48,280 Speaker 1: the Europeans. What is the risk now that the agenda 271 00:14:48,360 --> 00:14:51,400 Speaker 1: on the table is actually a moderate one compared to 272 00:14:51,640 --> 00:14:53,680 Speaker 1: the agenda that could be on the table in twelve 273 00:14:53,720 --> 00:14:57,040 Speaker 1: months times if the Europeans don't get their act together 274 00:14:57,440 --> 00:14:59,680 Speaker 1: and accept what is happening in Italy at the moment. 275 00:15:00,240 --> 00:15:03,160 Speaker 1: I think that there's a very real risk. They're surely 276 00:15:03,200 --> 00:15:06,200 Speaker 1: politically savvy, particularly in terms of you know, the League, 277 00:15:06,200 --> 00:15:07,640 Speaker 1: which is the far right party. I think that they 278 00:15:07,680 --> 00:15:09,960 Speaker 1: played this very well as you said, the problem is 279 00:15:10,160 --> 00:15:14,640 Speaker 1: their coalition program is really it's very hard to reconcile with, 280 00:15:15,280 --> 00:15:17,560 Speaker 1: you know, the constraints imposed on the government by the 281 00:15:17,560 --> 00:15:19,800 Speaker 1: fragile state of the Italian economy, and also of course 282 00:15:20,160 --> 00:15:22,680 Speaker 1: European rules, which are are really a proxy for what 283 00:15:23,160 --> 00:15:25,040 Speaker 1: you know, let's say, market disciplines. So I think at 284 00:15:25,040 --> 00:15:27,200 Speaker 1: some point there's got to be a some kind of 285 00:15:27,200 --> 00:15:30,640 Speaker 1: flashpoint or or standoff between the government and the European Union. 286 00:15:30,800 --> 00:15:33,360 Speaker 1: How do you respond to people that say Italy is 287 00:15:33,440 --> 00:15:35,400 Speaker 1: like Greece. I just don't buy it for a minute. 288 00:15:35,400 --> 00:15:37,800 Speaker 1: I mean, well, the situation is very different, right it 289 00:15:37,840 --> 00:15:40,280 Speaker 1: really still has market access and not an available program 290 00:15:40,320 --> 00:15:42,680 Speaker 1: much bigger country. I think the dynamic is the same 291 00:15:42,760 --> 00:15:46,120 Speaker 1: in the sense that um taking the Commission, the European 292 00:15:46,160 --> 00:15:49,080 Speaker 1: Commission head on and taking markets head on is ultimately 293 00:15:49,120 --> 00:15:51,400 Speaker 1: a self defeating strategy. So I do expect the government 294 00:15:51,400 --> 00:15:54,800 Speaker 1: alter to back off, to back off to what to 295 00:15:54,960 --> 00:15:58,080 Speaker 1: materially scale down the its ambitions in terms of fiscal 296 00:15:58,120 --> 00:16:01,760 Speaker 1: expansion in particular, or more likely even the coalition to 297 00:16:01,800 --> 00:16:04,040 Speaker 1: break down. Rather than any move towards your exit, the 298 00:16:04,080 --> 00:16:07,760 Speaker 1: real question is how much market pressure market discipline are 299 00:16:07,760 --> 00:16:10,680 Speaker 1: we going to have to see before that happens. Federic, 300 00:16:11,120 --> 00:16:27,480 Speaker 1: It's catch out with you. The President tweets he has 301 00:16:27,560 --> 00:16:31,560 Speaker 1: been more than active this morning. We had a tweet 302 00:16:31,640 --> 00:16:34,160 Speaker 1: fifty five minutes ago, but one in twelve minutes and 303 00:16:34,240 --> 00:16:37,080 Speaker 1: one in ten minutes as well. These are more on 304 00:16:37,240 --> 00:16:40,000 Speaker 1: domestic issues right now. He does point out this is 305 00:16:40,000 --> 00:16:44,440 Speaker 1: the best time all capital letters e v R. This 306 00:16:44,560 --> 00:16:46,880 Speaker 1: is the best time ever to look for a job, 307 00:16:46,960 --> 00:16:49,960 Speaker 1: quoting James Freeman of the Wall Street Journal, that's a 308 00:16:49,960 --> 00:16:53,600 Speaker 1: good talking point without imposing of the Peterson Institute joining 309 00:16:53,640 --> 00:16:57,080 Speaker 1: us right now on international economics add amount of domestic 310 00:16:57,160 --> 00:16:59,160 Speaker 1: basis is the Is it the best time ever to 311 00:16:59,200 --> 00:17:03,160 Speaker 1: look for a job? Not ever, but in an awfully 312 00:17:03,200 --> 00:17:05,400 Speaker 1: long time? Tom, I mean you and I both know 313 00:17:05,440 --> 00:17:07,320 Speaker 1: there were people coming out of high school, coming out 314 00:17:07,320 --> 00:17:10,720 Speaker 1: of college. You for several years had a really tough time. 315 00:17:11,160 --> 00:17:13,840 Speaker 1: We are now seeing, by every measure we've got on 316 00:17:14,000 --> 00:17:17,920 Speaker 1: labor markets that there is demand for labor, that people 317 00:17:17,960 --> 00:17:20,240 Speaker 1: can find jobs, that people feel safe to look for 318 00:17:20,280 --> 00:17:22,760 Speaker 1: a new job if they want to switch jobs. We're 319 00:17:22,760 --> 00:17:26,320 Speaker 1: still not seeing wage growth, but we're definitely getting their unemployment. 320 00:17:26,840 --> 00:17:29,840 Speaker 1: Does this better gross even if it's a short term 321 00:17:29,880 --> 00:17:32,879 Speaker 1: three point five four percent, or even if it's sustained 322 00:17:32,960 --> 00:17:38,119 Speaker 1: make America great again. Does it lead to better productivity 323 00:17:38,200 --> 00:17:42,080 Speaker 1: or is it the other way around? Uh, It's going 324 00:17:42,119 --> 00:17:44,960 Speaker 1: to lead to better measured productivity to some degree because 325 00:17:45,000 --> 00:17:47,359 Speaker 1: there's an inherent measurement issue that when the economy is 326 00:17:47,400 --> 00:17:50,080 Speaker 1: doing well, services seem to be more productive when they 327 00:17:50,160 --> 00:17:52,879 Speaker 1: actually are just more used. There's also going to be 328 00:17:52,880 --> 00:17:56,000 Speaker 1: a certain amount of increase in productivity because just you 329 00:17:56,119 --> 00:18:00,400 Speaker 1: pay people better and you make better use of your equipment. Nonetheless, 330 00:18:00,440 --> 00:18:04,640 Speaker 1: the underlying productivity issues are not being resolves right now. 331 00:18:04,680 --> 00:18:08,320 Speaker 1: If anything, they've improved the tiny bit. But that this 332 00:18:08,320 --> 00:18:10,960 Speaker 1: this HoTT economy is a good basis, but it's not 333 00:18:11,000 --> 00:18:14,159 Speaker 1: going to be right Okay, within your prodigious abilities and 334 00:18:14,200 --> 00:18:18,080 Speaker 1: the people that you work with at the Peterson Institute, 335 00:18:18,160 --> 00:18:21,639 Speaker 1: let me ask you an open question. What upsets you most? 336 00:18:21,720 --> 00:18:25,720 Speaker 1: What is the distinctive feature it upsets you most about 337 00:18:25,760 --> 00:18:32,600 Speaker 1: this administration's trade policy. The incredible arbitrary, short term nature 338 00:18:32,680 --> 00:18:35,359 Speaker 1: of the decision making. I don't mean just that they're 339 00:18:36,480 --> 00:18:40,160 Speaker 1: basically incompetently assuming everyone roll over when they threaten them, 340 00:18:40,200 --> 00:18:43,560 Speaker 1: and nobody from Mexico to Beijing to Berlin is doing so. 341 00:18:44,240 --> 00:18:47,080 Speaker 1: What I mean is that they're assuming that if they 342 00:18:47,080 --> 00:18:49,639 Speaker 1: play hardball on the short term deal and keep changing 343 00:18:49,680 --> 00:18:52,360 Speaker 1: their mind and do things for short term advantage without 344 00:18:52,400 --> 00:18:56,320 Speaker 1: paying attention to the rules, they end up hurting the US, 345 00:18:56,320 --> 00:18:59,200 Speaker 1: making people less willing to make deals, to turing investment. 346 00:18:59,640 --> 00:19:04,600 Speaker 1: It's an incredible intervention into markets in an arbitrary, autocratic way. 347 00:19:04,920 --> 00:19:08,280 Speaker 1: It's not capitalist, it's not republican, it's not pro growth. 348 00:19:08,600 --> 00:19:12,200 Speaker 1: What should the allies do in response, Adam, It's a 349 00:19:12,240 --> 00:19:14,760 Speaker 1: fair question, Johnathan. I mean. I I gave a speech 350 00:19:14,760 --> 00:19:17,920 Speaker 1: in Brussels right after Trump was elected, now a long 351 00:19:17,960 --> 00:19:19,720 Speaker 1: time ago, and I said, there may come a point 352 00:19:19,720 --> 00:19:22,080 Speaker 1: at which everyone's just gonna have to slap the US 353 00:19:22,200 --> 00:19:25,560 Speaker 1: upside the head UH to wake us up. And I 354 00:19:25,600 --> 00:19:29,120 Speaker 1: think we're at that point. Um, We've got now Mexico 355 00:19:29,160 --> 00:19:32,800 Speaker 1: and Canada standing up against US terris and preparing to retaliate. 356 00:19:32,840 --> 00:19:35,280 Speaker 1: We've got the EU preparing to retaliate. We've even got 357 00:19:35,320 --> 00:19:38,159 Speaker 1: Japan preparing to retaliate. And of course China is not 358 00:19:38,160 --> 00:19:41,359 Speaker 1: an ally and is retaliating. And this is without any 359 00:19:41,359 --> 00:19:44,680 Speaker 1: real coordinated effort on their part. And I think it's 360 00:19:44,800 --> 00:19:47,720 Speaker 1: unfortunately the right thing for the Allies to do at 361 00:19:47,760 --> 00:19:49,960 Speaker 1: this point, and they have to retaliate as close to 362 00:19:50,160 --> 00:19:52,840 Speaker 1: w t O rules as they can, and there's plenty 363 00:19:52,840 --> 00:19:54,600 Speaker 1: of room for that. It's just gonna be a little 364 00:19:54,640 --> 00:19:57,320 Speaker 1: faster than w t O rules would normally allow. Adam, 365 00:19:57,359 --> 00:20:00,000 Speaker 1: why don't the Allies look at the barriers to entry 366 00:20:00,160 --> 00:20:03,920 Speaker 1: between themselves and then make a deal between themselves to 367 00:20:04,040 --> 00:20:07,439 Speaker 1: cut tariffs. I mean, for instance, the EU still has 368 00:20:07,480 --> 00:20:10,200 Speaker 1: significant barriers to entry for the Japanese to come into 369 00:20:10,240 --> 00:20:13,680 Speaker 1: the European Union vice versa. Or if you looking deals 370 00:20:13,720 --> 00:20:16,120 Speaker 1: across the planet, why don't they getting together? And actually, 371 00:20:16,160 --> 00:20:18,120 Speaker 1: if they want to secure the moral high ground here, 372 00:20:18,280 --> 00:20:21,919 Speaker 1: why don't they do it in practice? Well, it's a 373 00:20:21,920 --> 00:20:25,600 Speaker 1: fair question, and there are two factors at work. One is, 374 00:20:25,800 --> 00:20:27,880 Speaker 1: as Paul Krugman noted in a blog the other day, 375 00:20:27,880 --> 00:20:31,480 Speaker 1: as we all know, trade negotiations should be a lot 376 00:20:31,560 --> 00:20:35,800 Speaker 1: of maybe not unilateral, but willingness to cut tariffs, especially 377 00:20:35,800 --> 00:20:38,359 Speaker 1: in deals, and it turns out to be very hard 378 00:20:38,400 --> 00:20:41,920 Speaker 1: because producer interests and political imagery places a big role. 379 00:20:42,520 --> 00:20:44,680 Speaker 1: But the second thing is some of what you're talking 380 00:20:44,720 --> 00:20:47,119 Speaker 1: about us it's already happening. I mean, the EU is 381 00:20:47,200 --> 00:20:50,120 Speaker 1: making trade deals or has made trade deals with Canada, 382 00:20:50,200 --> 00:20:54,439 Speaker 1: Mexico and Japan. Canada Mexico are continuing to deal with 383 00:20:54,480 --> 00:20:58,480 Speaker 1: each other on after whatever the Trump administration does. Japan 384 00:20:58,640 --> 00:21:01,959 Speaker 1: is doing CPTP beat and showed more leadership there than 385 00:21:02,000 --> 00:21:04,480 Speaker 1: we thought, and is looking at a Mexico deal. So 386 00:21:04,760 --> 00:21:07,400 Speaker 1: you know, this is some of that is already happening. 387 00:21:08,240 --> 00:21:12,439 Speaker 1: And will this affect FED policy? I mean, why ACAIL 388 00:21:12,520 --> 00:21:15,280 Speaker 1: C plus I plus J plus n X does the 389 00:21:15,520 --> 00:21:20,639 Speaker 1: n X ballet end up affecting Sherman Paul's path? Not much. 390 00:21:20,760 --> 00:21:24,480 Speaker 1: I mean, this is going to maybe slow the rate 391 00:21:24,480 --> 00:21:26,840 Speaker 1: of hikes, but only if we get such a big 392 00:21:26,880 --> 00:21:29,880 Speaker 1: trade shock that it ends up being a negative supply shock. 393 00:21:29,960 --> 00:21:31,679 Speaker 1: I mean, there's not going to be any inflation that 394 00:21:31,760 --> 00:21:35,000 Speaker 1: matters coming out of this UM. And if it is, 395 00:21:35,040 --> 00:21:36,919 Speaker 1: inflation is going to be a one time what what 396 00:21:37,040 --> 00:21:39,240 Speaker 1: central bankers consider a one time shock. You wait to 397 00:21:39,280 --> 00:21:41,560 Speaker 1: see whether it passes through or not before you react, 398 00:21:41,840 --> 00:21:45,840 Speaker 1: So the usual focus on inflation will not cause them 399 00:21:45,880 --> 00:21:50,320 Speaker 1: to look at this unemployment. It unfortunately is likely to 400 00:21:50,359 --> 00:21:55,120 Speaker 1: affect employment, particularly Peterson Stute. We released this analysis of 401 00:21:55,280 --> 00:21:57,560 Speaker 1: how many jobs will be displaced in the auto industry 402 00:21:57,600 --> 00:22:01,640 Speaker 1: and suppliers if this terrapor is out. It's somewhere between 403 00:22:02,040 --> 00:22:05,000 Speaker 1: two hundred thousand if the US just the self harm, 404 00:22:05,119 --> 00:22:10,520 Speaker 1: six hundred thousand if the UM if if the Allies retaliate. 405 00:22:11,320 --> 00:22:14,440 Speaker 1: Either way, that's real human pain. But in the macro economy, 406 00:22:14,480 --> 00:22:16,880 Speaker 1: a hundred fifty million workforce, that's not going to change. 407 00:22:16,920 --> 00:22:20,399 Speaker 1: But policy, it's all about what happens to the dollar, 408 00:22:20,680 --> 00:22:24,560 Speaker 1: what happens to the interest rates. That's the investment side, 409 00:22:24,640 --> 00:22:27,080 Speaker 1: is where the real effective felt on macro and that's 410 00:22:27,119 --> 00:22:29,600 Speaker 1: the feed. Dr Poston, thank you so much, and again 411 00:22:29,640 --> 00:22:32,479 Speaker 1: we're looking at that dollar after her run here over 412 00:22:32,520 --> 00:22:34,520 Speaker 1: the last number of months, Adam Poston is with the 413 00:22:34,520 --> 00:22:37,680 Speaker 1: Peterson Institute. No doubt he'll be writing up a storm 414 00:22:37,720 --> 00:22:41,119 Speaker 1: here as everyone else's in the coming days and weeks 415 00:22:54,720 --> 00:22:57,000 Speaker 1: with us. Robert G. Capp and we've been talking about 416 00:22:57,000 --> 00:23:00,280 Speaker 1: his book Asia Caldron in the South China see The 417 00:23:00,359 --> 00:23:02,560 Speaker 1: Jewel of the Moment and one of my books of 418 00:23:02,600 --> 00:23:05,000 Speaker 1: the summer's The Return of Marco Polo's Road, and in 419 00:23:05,119 --> 00:23:09,399 Speaker 1: it are older and updated essays by Kaplan and also 420 00:23:09,480 --> 00:23:12,639 Speaker 1: some new material as well. Robert Kaplan. I would go 421 00:23:12,680 --> 00:23:16,359 Speaker 1: back to December of two thousand one, You're wonderful essay, 422 00:23:16,400 --> 00:23:19,080 Speaker 1: which I remember crystal clear at the time, looking the 423 00:23:19,119 --> 00:23:23,800 Speaker 1: world in the eye of the marvelous Samuel Samuel Huntington's 424 00:23:24,480 --> 00:23:27,480 Speaker 1: up at Harvard, What would the gentleman of our clashing 425 00:23:27,680 --> 00:23:31,160 Speaker 1: and of our civilizations? What would he think of trade? 426 00:23:31,359 --> 00:23:36,360 Speaker 1: Of Trump trade policy? Uh sam Huntington's who died at 427 00:23:36,400 --> 00:23:38,720 Speaker 1: the end of two thousand and eight, would say that 428 00:23:39,280 --> 00:23:44,240 Speaker 1: the current emerging trade war between China and the United 429 00:23:44,280 --> 00:23:50,199 Speaker 1: States vindicates his prediction of of an arrogant West and 430 00:23:50,320 --> 00:23:55,960 Speaker 1: an assertive East, and a warlike and a warlike Muslim 431 00:23:56,359 --> 00:24:00,440 Speaker 1: Middle East. Look at it this way. Um free trade 432 00:24:01,080 --> 00:24:04,800 Speaker 1: with part of a policy of liberal world order building 433 00:24:04,880 --> 00:24:07,919 Speaker 1: for seventy five years after World War Two. But if 434 00:24:07,960 --> 00:24:14,320 Speaker 1: we're entering a period of geopolitical competition, trade becomes an 435 00:24:14,440 --> 00:24:18,080 Speaker 1: aspect of that. You know, a trade war is merely 436 00:24:18,119 --> 00:24:24,240 Speaker 1: an aspect of a world at a moral geopolitical competition. 437 00:24:24,640 --> 00:24:28,720 Speaker 1: So it is not unusual. It's very logical that we're 438 00:24:28,760 --> 00:24:32,680 Speaker 1: seeing these trade tensions as we move out of liberal 439 00:24:32,760 --> 00:24:37,639 Speaker 1: world order building into an era of just stark competition 440 00:24:37,800 --> 00:24:42,639 Speaker 1: between blocks of countries and continents, Robert Kaplan, how do 441 00:24:42,640 --> 00:24:46,199 Speaker 1: you respond to critics that may say free trade is 442 00:24:46,240 --> 00:24:49,760 Speaker 1: really just another proxy for stability, which is a proxy 443 00:24:49,800 --> 00:24:57,640 Speaker 1: for American dominance. Um, that's true. Um, but that American 444 00:24:57,760 --> 00:25:03,159 Speaker 1: dominance has brought a world whereby you have access to 445 00:25:03,280 --> 00:25:07,720 Speaker 1: hydro carbons at maritime choke points, you have you know, 446 00:25:07,800 --> 00:25:10,960 Speaker 1: you have a general you have you have a world 447 00:25:11,040 --> 00:25:15,879 Speaker 1: where there is less, where violence is contained contained at 448 00:25:15,920 --> 00:25:21,080 Speaker 1: the edges, there is no major interstate warfare. That's all 449 00:25:21,280 --> 00:25:24,800 Speaker 1: part of the system created by the United States after 450 00:25:24,880 --> 00:25:29,960 Speaker 1: World War Two that has benefited everybody, including the Chinese, 451 00:25:30,320 --> 00:25:34,720 Speaker 1: because the Chinese Navy, as bigger and better as it gets, 452 00:25:34,760 --> 00:25:39,200 Speaker 1: still still relies on the United States Navy to provide 453 00:25:39,680 --> 00:25:44,080 Speaker 1: uh to provide safe and secure sea lines of communication 454 00:25:44,440 --> 00:25:48,560 Speaker 1: where piracy is can confine to the edges. So you 455 00:25:48,600 --> 00:25:51,520 Speaker 1: believe that the Chinese leaders see the United States Navy 456 00:25:51,600 --> 00:25:55,280 Speaker 1: is securing their trade routes up until now they have, 457 00:25:55,720 --> 00:25:58,760 Speaker 1: and the fact that they're now challenging the United States 458 00:25:58,920 --> 00:26:03,320 Speaker 1: Navy means that they believe that the Chinese Navy is 459 00:26:03,400 --> 00:26:07,240 Speaker 1: reaching a level of maturity where it can that where 460 00:26:07,240 --> 00:26:11,720 Speaker 1: it can protect its own trade roads. Trade routes across 461 00:26:11,840 --> 00:26:16,680 Speaker 1: the Indian Ocean, which is the world's global energy interstate, 462 00:26:17,119 --> 00:26:19,960 Speaker 1: connecting the you know, the the oil and east in 463 00:26:20,000 --> 00:26:23,280 Speaker 1: the Middle East and and the customers in Asia. Robert 464 00:26:23,359 --> 00:26:27,480 Speaker 1: Kaplan does, does all of this allude to Elizabeth Economy's 465 00:26:27,480 --> 00:26:30,840 Speaker 1: new effort the Third Revolution, and that we're seeing a 466 00:26:31,000 --> 00:26:36,560 Speaker 1: third revolution out of China that we are unprepared for. Well, 467 00:26:36,600 --> 00:26:40,040 Speaker 1: what exactly do you mean, Tom Bios? President? She is president. 468 00:26:40,119 --> 00:26:44,160 Speaker 1: She has has changed the debate, the dialogue, the thrust 469 00:26:44,680 --> 00:26:48,880 Speaker 1: of the federal system within Beijing, and maybe hearkens back 470 00:26:48,920 --> 00:26:54,520 Speaker 1: to Mao or leaders of that. Absolutely, yeah, that's absolutely true. 471 00:26:54,800 --> 00:26:59,960 Speaker 1: We've had let's call it enlightened authoritarianism under non charisma 472 00:27:00,040 --> 00:27:07,360 Speaker 1: matic collegial technocrats from basically the end of Mouse Tong's rule, uh, 473 00:27:07,400 --> 00:27:11,200 Speaker 1: you know, and between Dung Shall Ping and the emergence 474 00:27:11,240 --> 00:27:14,159 Speaker 1: of she a few years five years ago or so, 475 00:27:14,640 --> 00:27:18,680 Speaker 1: we've had this kind of enlightened collegial, non charismatic rule. 476 00:27:19,160 --> 00:27:21,960 Speaker 1: She has changed the model. He you know, now we're 477 00:27:22,000 --> 00:27:28,040 Speaker 1: seeing a more centralized charismatic uh cult of personality developing. 478 00:27:28,400 --> 00:27:32,000 Speaker 1: His Trump changed the model in America. I believe that 479 00:27:32,080 --> 00:27:35,880 Speaker 1: he has because I believe that the print and typewriter 480 00:27:36,040 --> 00:27:39,800 Speaker 1: age was conducive to a certain kind of American president, 481 00:27:40,320 --> 00:27:44,359 Speaker 1: and the digital video era is conducive to another kind 482 00:27:44,800 --> 00:27:48,280 Speaker 1: of which Trump is. It doesn't mean every future president 483 00:27:48,400 --> 00:27:51,040 Speaker 1: is going to be like Trump, but it does mean 484 00:27:51,440 --> 00:27:55,960 Speaker 1: that American democracy is changing its personality according to the 485 00:27:56,080 --> 00:28:01,400 Speaker 1: technology uh in which it operates. Would it be useful 486 00:28:01,680 --> 00:28:06,760 Speaker 1: for the American political class and academics to spend more 487 00:28:06,800 --> 00:28:09,000 Speaker 1: time trying to figure out how to live in a 488 00:28:09,040 --> 00:28:11,879 Speaker 1: world with a dominant China rather than trying to go 489 00:28:12,040 --> 00:28:14,439 Speaker 1: head to head or toe to toe with it in 490 00:28:14,640 --> 00:28:20,240 Speaker 1: within a military or even in a in a trade climate. Well, Actually, 491 00:28:21,560 --> 00:28:25,520 Speaker 1: a significant part of the of the elite we'll call 492 00:28:25,560 --> 00:28:29,679 Speaker 1: it the American elite in Washington, New York, elsewhere, you know, 493 00:28:29,960 --> 00:28:33,840 Speaker 1: already understands that we're going to have to get along 494 00:28:33,880 --> 00:28:36,520 Speaker 1: with a China that is, you know, that is not 495 00:28:36,600 --> 00:28:41,040 Speaker 1: only emerging, but which is inexorable in returning to power 496 00:28:41,440 --> 00:28:45,680 Speaker 1: after about a hundred and seventy five years of decline. UH. 497 00:28:45,720 --> 00:28:50,840 Speaker 1: The The administration, however, believes believes opposite. It believes that 498 00:28:50,920 --> 00:28:53,560 Speaker 1: it can uh you know, that it can stand up 499 00:28:53,600 --> 00:28:58,080 Speaker 1: to China both in terms of Trade and General Maddess. 500 00:28:58,360 --> 00:29:02,960 Speaker 1: The Secretary of Defense is certainly being more aggressive than 501 00:29:03,080 --> 00:29:07,480 Speaker 1: the secretaries of Defense under Obama. In Asia, you have 502 00:29:07,600 --> 00:29:10,880 Speaker 1: been a supporter of a neo realism or realism, and 503 00:29:10,920 --> 00:29:13,920 Speaker 1: this goes back to Marscheimer, which I mentioned earlier of Chicago, 504 00:29:14,040 --> 00:29:18,280 Speaker 1: but as much to Dr Kissinger. How do you respond, 505 00:29:18,440 --> 00:29:22,880 Speaker 1: Robert Kaplan, when you see Dr Kissinger sitting with President 506 00:29:23,000 --> 00:29:28,000 Speaker 1: Trump giving advice as the Elder States been giving wisdom, 507 00:29:28,120 --> 00:29:31,640 Speaker 1: what would you like Dr Kissinger to do in those moments? Well, 508 00:29:31,680 --> 00:29:35,000 Speaker 1: first of all, I'm a bit relieved that he's giving 509 00:29:35,040 --> 00:29:39,400 Speaker 1: advice to um, to Donald Trump, because Kissinger, you know, 510 00:29:39,520 --> 00:29:46,960 Speaker 1: basically represents a moderate Republican realist internationalism in other words, 511 00:29:47,080 --> 00:29:52,240 Speaker 1: moderation as center right realist edge. So whatever he must 512 00:29:52,240 --> 00:29:55,040 Speaker 1: be saying to Trump, you know, has to help to 513 00:29:55,120 --> 00:29:59,040 Speaker 1: try to moderate him. The question is is Trump listening 514 00:29:59,200 --> 00:30:02,400 Speaker 1: Because simply because you go in and brief somebody once 515 00:30:02,480 --> 00:30:05,680 Speaker 1: every few months does not mean you have the kind 516 00:30:05,720 --> 00:30:09,200 Speaker 1: of influence over him compared to the people who brief 517 00:30:09,320 --> 00:30:13,600 Speaker 1: him every day. So we shouldn't exaggerate that. UM, I 518 00:30:13,640 --> 00:30:16,200 Speaker 1: think what what i'd like, you know, and I'd like 519 00:30:16,360 --> 00:30:21,600 Speaker 1: the President Trump to be hearing is that, Um, you know, 520 00:30:21,680 --> 00:30:26,600 Speaker 1: the last thing American needs is a military conflict with China, 521 00:30:26,720 --> 00:30:30,959 Speaker 1: a live fire military conflict with China. And you know, 522 00:30:31,120 --> 00:30:35,000 Speaker 1: because that would lead into or or even a state 523 00:30:35,040 --> 00:30:38,520 Speaker 1: of tension that is so high that we're back in 524 00:30:38,600 --> 00:30:44,680 Speaker 1: an age of major interstate high tension rivalry, which we 525 00:30:44,760 --> 00:30:48,720 Speaker 1: have not exist seen since the early days of the 526 00:30:48,760 --> 00:30:52,280 Speaker 1: Cold War. Robert Kaplan, we've been talking about you in 527 00:30:52,320 --> 00:30:55,840 Speaker 1: your book, The Return of Marco Polo's World War Strategy 528 00:30:55,920 --> 00:30:59,680 Speaker 1: and American Interests in the twenty one Century. Are you 529 00:30:59,720 --> 00:31:03,720 Speaker 1: going to read Seymour Hirsh's new book, Reporter, because he's 530 00:31:03,720 --> 00:31:08,920 Speaker 1: certainly got a different take on people such as Henry Kissinger. Um. 531 00:31:10,160 --> 00:31:13,400 Speaker 1: I'm very familiar with what Seymour Hirsch has written on 532 00:31:13,560 --> 00:31:18,280 Speaker 1: Henry Kissinger. UM. I'll be very interested in seeing the book. Um, 533 00:31:18,320 --> 00:31:21,440 Speaker 1: it's you know, it's unclear it will say anything worse 534 00:31:21,520 --> 00:31:27,120 Speaker 1: than Seymour Hirsh has already written about Henry Kissinger. So 535 00:31:27,160 --> 00:31:30,160 Speaker 1: do you think that the United States has the uh, 536 00:31:30,200 --> 00:31:35,160 Speaker 1: the intellectual ability to deal with it increasingly powerful China. 537 00:31:35,320 --> 00:31:39,000 Speaker 1: I think the United States certainly has the intellectual ability. 538 00:31:39,120 --> 00:31:43,840 Speaker 1: The question is will the political structure and establishment be 539 00:31:43,920 --> 00:31:47,960 Speaker 1: able to harness that ability and craft the moderate policy. 540 00:31:48,480 --> 00:31:51,080 Speaker 1: Robert Captain, thank you so much, greatly appreciated. He's with 541 00:31:51,120 --> 00:31:54,520 Speaker 1: your raise A group. A prolific author read The Return 542 00:31:54,560 --> 00:31:58,720 Speaker 1: of Marco Polo's World War Strategy an American Interest in 543 00:31:58,720 --> 00:32:01,320 Speaker 1: the Century. I just can't say enough about the book. 544 00:32:02,000 --> 00:32:04,920 Speaker 1: Um it was an immediate book of my summer, that 545 00:32:05,040 --> 00:32:08,000 Speaker 1: with Garret Grafts The Threat Matrix on Mueller and the 546 00:32:08,040 --> 00:32:11,160 Speaker 1: FBI as well. But I really can't say enough about 547 00:32:11,200 --> 00:32:14,720 Speaker 1: the value of the set of essays in the Return 548 00:32:15,320 --> 00:32:20,240 Speaker 1: of Marco Polo's World to sharpen the discourse on America, 549 00:32:20,960 --> 00:32:32,640 Speaker 1: China and Asia. Thanks for listening to the Bloomberg Surveillance podcast. 550 00:32:33,000 --> 00:32:37,920 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 551 00:32:38,080 --> 00:32:42,400 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 552 00:32:42,520 --> 00:32:46,400 Speaker 1: Keane before the podcast. You can always catch us worldwide. 553 00:32:46,840 --> 00:32:47,920 Speaker 1: I'm Bloomberg Radio.