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Speaker 1: Welcome to the Daybreak Asia podcast. I'm Doug Prisner. On Monday,

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Speaker 1: in the US, Donald Trump was sworn in as the

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Speaker 1: forty seventh President of the United States, and after his inauguration,

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Speaker 1: headlines from the White House created volatility in markets. President

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Speaker 1: Trump is planning to impose tariffs on America's neighbors.

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Speaker 2: We're thinking in terms of twenty five percent on Mexico

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Speaker 2: and Canada, because they're allowing vast numbers of people. Canada

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Speaker 2: is very bad abuseral, so vast numbers of people to

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Speaker 2: come in and fentanyl to come in.

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Speaker 1: President Trump speaking earlier from the Oval Office, and in

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Speaker 1: a moment we'll hear more on the tariff story from

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Speaker 1: Professor Daniel Dresner of Tufts University. But first market reaction

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Speaker 1: to today's news. I'm joined now by Bloomberg m Live

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Speaker 1: strategist Mary Nicola, who joins us from Singapore. It's always

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Speaker 1: a pleasure to have the chance to benefit from your insight,

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Speaker 1: particularly given the fact that I know your eyes are

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Speaker 1: glued to your Bloomberg terminal and your seeing the ructions

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Speaker 1: in markets, more so in the foreign exchange. There's been

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Speaker 1: a dramatic reversal here in the dollar hasn't.

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Speaker 3: There absolutely, and we came in I remember waking up

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Speaker 3: this morning and the markets were really happy because, you know,

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Speaker 3: we saw that there was more measured approach to tariff.

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Speaker 3: So President Trump didn't sign anything or focus on tariffs

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Speaker 3: on day one. A lot of the focus was just

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Speaker 3: on domestic issues. So markets were really excited, and we

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Speaker 3: saw the dollar declines and there was a huge sigh

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Speaker 3: of relief and we were coming in thinking that it

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Speaker 3: will be a risk positive day, and then we get

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Speaker 3: headlines about imposing tariffs on Mexico and Canada and that

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Speaker 3: you know, there's potential for tariffs on China. So one

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Speaker 3: thing is clear is that yet sure, we don't know

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Speaker 3: which the direction of the dollar, and it can change

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Speaker 3: at a moment's notice. But one thing we know that

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Speaker 3: it's very clear is that we should expect volatility, especially

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Speaker 3: in the next four years, and headline risk is going

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Speaker 3: to dominate.

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Speaker 1: No doubt about that. I'm seeing the Canadian dollar right

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Speaker 1: now weaken against the greenback by about one percent. One

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Speaker 1: of the interesting things though, if you look at the

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Speaker 1: treasury market, where yields are actually lower across the curve,

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Speaker 1: and I know it was a market holiday in the US,

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Speaker 1: we observed Mlkday, so no trading in cash markets. There

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Speaker 1: was some global trading in futures, and if you look

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Speaker 1: at what was going on, it seemed to be a

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Speaker 1: little curious because most people are of the view that

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Speaker 1: a lot of the economic policies from the incoming Trump administration,

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Speaker 1: particularly as they relate to tariffs, are viewed as inflationary

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Speaker 1: that would argue for higher yields. So to your point,

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Speaker 1: early in the day, no mention of tariffs, sigh of relief,

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Speaker 1: yields come in, but they're remaining at lower levels right now,

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Speaker 1: unlike what's happening with the dollar, where you're getting the

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Speaker 1: knee jerk in the opposite direction. Do you have a

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Speaker 1: sense of why that's happening.

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Speaker 3: I think the currency markets just in general is going

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Speaker 3: to bear the brunt of this volatility. There is still

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Speaker 3: a lot lack of clarity in terms of you know,

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Speaker 3: especially there's so many components that are really coming in

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Speaker 3: in terms of yields. So for example, we still have

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Speaker 3: you know, FED policy is one aspect of it, and

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Speaker 3: then of course you have fiscal policy, so you don't

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Speaker 3: know what exactly the trend is going to be in

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Speaker 3: terms of tax cuts, and then of course the tariffs.

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Speaker 3: The delay in tariffs will suggest that you would get

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Speaker 3: you wouldn't get a spike up in inflation anytime soon.

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Speaker 3: So it placates the markets in terms of thinking that

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Speaker 3: inflation's on a good trajectory lower and that can continue.

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Speaker 3: And that extends, especially if tariffs are delayed. So even

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Speaker 3: the tariffs that he's imposing on Canada and Mexico won't

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Speaker 3: be till the first of February. Remember, a lot of

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Speaker 3: market participants had thought that we would get stuff on

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Speaker 3: day one, and the delay just playcates the Marcus just

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Speaker 3: a little bit. But of course you can't get too

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Speaker 3: complacent in this environment.

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Speaker 1: Here's where it gets interesting. We've got a BOJ meeting

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Speaker 1: on Friday. What does the conversation that President Trump is

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Speaker 1: having right now, how does that impact the boj's thinking.

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Speaker 1: I think that most people were saying, hey, okay, they

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Speaker 1: can go maybe twenty five basis points they can tighten,

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Speaker 1: which is I think the conventional wisdom here now. But

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Speaker 1: the caveat is unless there's something maybe like a curveball

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Speaker 1: that may come from President Trump. And I'm wondering if

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Speaker 1: we got a little bit of a curve ball tonight.

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Speaker 3: Yeah, that was the thing. It was almost seen as

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Speaker 3: a done deal from the BOJ that they would hike

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Speaker 3: on Friday, barring any surprises from the Trump administration. But

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Speaker 3: now that Trump has said tariffs on Mexico and Japan,

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Speaker 3: it still softens the blow because I think the real

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Speaker 3: concern for Asia is what happens with China and the

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Speaker 3: broader implications on the region. If we recall what happened

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Speaker 3: during the last trade war in twenty eighteen and twenty nineteen,

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Speaker 3: this region suffered quite tremendously, and especially because a lot

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Speaker 3: of this region not only are they heavily reliant on

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Speaker 3: China for trade, but also they are looking for the

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Speaker 3: currencies are very much tied to the C and Y,

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Speaker 3: So there's a combination of the two in terms of

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Speaker 3: not only are they dependent on them economically, but also

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Speaker 3: a from a market standpoint. So that brings us back

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Speaker 3: to what does a BOJ do. And I think they're

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Speaker 3: still on course for a rate hike, especially with China

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Speaker 3: not in the picture yet, and that might be their

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Speaker 3: only window as of now is to take it to

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Speaker 3: hike by twenty five basis points or else risk not

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Speaker 3: doing anything at all because of what is yet to

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Speaker 3: come from the Trump administration.

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Speaker 1: Mary, it's always a pleasure. Thank you so much for

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Speaker 1: starting your day with us. Mary Nicola Bloomberg m Live strategist,

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Speaker 1: joining us here on the Daybreak Asia podcast. Welcome back

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Speaker 1: to the Daybreak Asia Podcast. I'm Doug Chrisner. Now let's

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Speaker 1: take a closer look at the US tariff story. So

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Speaker 1: we know now that goods from Canada and Mexico could

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Speaker 1: potentially be the subject of tariffs, although President Trump really

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Speaker 1: did not address a plan for potential tariffs targeting Chinese goods. Instead,

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Speaker 1: he ordered his administration to address unfair trade practices globally

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Speaker 1: and to investigate whether Beijing has complied with a deal

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Speaker 1: signed during the first Trump term. For more, we heard

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Speaker 1: from Professor Daniel Dresner of Tufts University. He spoke with

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Speaker 1: Bloomberg's Nmel Jewelers and David Inglase.

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Speaker 4: Professor, thank you so much for joining us on the

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Speaker 4: show and quite a eventful lots to unpack. Is I

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Speaker 4: think an understate meant today? We were thinking originally we'd

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Speaker 4: be talking a lot about China, but now it's Canada

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Speaker 4: and Mexico. Do you think that gives us a good

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Speaker 4: sense of where you think the conversation will be front

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Speaker 4: loaded these next few weeks at least.

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Speaker 5: Well, given the Trump gave a deadline I believe of

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Speaker 5: February first for the tariffs on Canada and Mexico, that

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Speaker 5: obviously is going to be front of mine. But in

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Speaker 5: comments today he also talked about the idea of imposing

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Speaker 5: tariffs across the board, as well as more tariffs on China.

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Speaker 5: With Trump, you always have to wait and see if

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Speaker 5: there's actually anything implemented as opposed to what he is

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Speaker 5: threatening to do. Because with Trump, he's obviously trying to

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Speaker 5: hope that he can successfully coerce other countries into making

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Speaker 5: concessions and thereby doesn't actually have to impose any of

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Speaker 5: the tariffs, which I'm sure his advisors might actually tell

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Speaker 5: him are going to be expensive to the United States

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Speaker 5: and are going to be problematic in terms of trying

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Speaker 5: to keep prices down in the United States, which is

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Speaker 5: one of the things that presumably got him elected last November.

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Speaker 6: So that strategy of coercion. Talk to us about how

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Speaker 6: the mad man theory plays into that.

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Speaker 5: Sure, the logic Trump always has and his one sort

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Speaker 5: of truly unique gift in politics is that he is

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Speaker 5: willing to ignore and indeed transgress foreign policy norms that

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Speaker 5: previous presidents might have adhered to. So the idea of

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Speaker 5: sanctioning allies, which is relatively rare for the United States,

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Speaker 5: Trump is eager to do because he believes that the

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Speaker 5: United States has an asymmetric advantage over more dependent countries

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Speaker 5: like Canada and Mexico. And I believe Trump also thinks

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Speaker 5: that if he can successfully coerce the likes of Canada

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Speaker 5: and Mexico, that that will send a message to the

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Speaker 5: Chinas of the world that he will be an extremely

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Speaker 5: resolute bargainer. Now, Trump might actually succeed in getting a

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Speaker 5: few concessions from Canada and Mexico, It's always worth remembering

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Speaker 5: that during his first term, Trump tried to do this

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Speaker 5: with South Korea, for example, and with Mexico Canada in

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Speaker 5: terms of renegotiating trade deals. He got a few token concessions,

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Speaker 5: but frankly not much. Trump's category error, though, is always

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Speaker 5: his belief that if he can successfully coerce allies, that'll

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Speaker 5: translate into successful bargaining pressure against the likes of China.

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Speaker 5: There's no evidence that's true in terms of international relations,

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Speaker 5: and there was no evidence that that was true during

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Speaker 5: Trump's first term, And unfortunately, it seems we're going to

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Speaker 5: see a replay of that bargaining dynamic in his second term.

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Speaker 4: Your outlook just to pivot to China. What are your

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Speaker 4: expectations between relations there?

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Speaker 5: This sort of depends upon who is running US foreign policy.

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Speaker 5: Is it Donald Trump's advisors or is it Donald Trump.

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Speaker 5: The one thing that most of Trump's advisors, with the

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Speaker 5: exception of Elon Musk, have in common is that they

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Speaker 5: are all extremely hawkish towards China. They believe that China

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Speaker 5: is the most paramount threat to the United States. It's

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Speaker 5: the only country that's a potential peer competitor for the

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Speaker 5: United States, and by all of that logic, you would

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Speaker 5: expect to see a heightened pressure put on China. That said, again,

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Speaker 5: it's worth remembering that during Trump's first term he was

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Speaker 5: willing to sacrifice just about every other pillar of American

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Speaker 5: foreign policy, whether it was protesting human rights abuses in

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Speaker 5: Hinjong or the crackdown in Hong Kong, or China's throwing

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Speaker 5: its weight around in the South China Sea or in

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Speaker 5: the East China Sea so long as he could negotiate

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Speaker 5: some sort of economic deal with China. And this is

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Speaker 5: in the end what led to the Phase one trade

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Speaker 5: deal in twenty twenty, which proved to be decidedly underwhelming.

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Speaker 5: If Trump believes that he can cut any kind of

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Speaker 5: grand bargain with Shi Jinping, that is the route he

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Speaker 5: will take. If, on the other hand, China doesn't act

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Speaker 5: this way, then he's going to have no choice but

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Speaker 5: to listen to his advisors, and you're likely to see

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Speaker 5: a ratcheting up of tensions. I think the thing that

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Speaker 5: I would predict would be you'll see an initial, you know, display,

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Speaker 5: or an attempt to demonstrate tough bargaining. And then the

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Speaker 5: question is is that if China offers any kind of concession,

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Speaker 5: will Trump take the first offer that he gets or

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Speaker 5: will he hold out? If I had to bet frankly,

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Speaker 5: I think he'll take the first offer he gets.

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Speaker 4: Right, and you know, the we we don't have the

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Speaker 4: benefit of hindsight because the pandemic happened, and the you

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Speaker 4: know the what would have been the result of the

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Speaker 4: first trade war and if China did push over to

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Speaker 4: buy and we would never know what I guess my

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Speaker 4: follow up here is we've heard recently since Donald Trump

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Speaker 4: got elected again, he's not as tied down to ideology

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Speaker 4: as you know former other presidents are concerned. So I

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Speaker 4: guess my question there is do you think he is

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Speaker 4: as concerned about China's economic rise as a threat to

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Speaker 4: the US as most of the people around him.

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Speaker 5: I think he is concerned about China's economic rise, and

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Speaker 5: since that, Donald Trump, he as an ideology, It's just

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Speaker 5: an ideology that is not one that previous presidents have had.

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Speaker 5: His The ideology is actually, in terms of economics, very

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Speaker 5: zero sum in terms of thinking, which is, if the

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Speaker 5: United States is running a trade deficit with a country,

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Speaker 5: that means the United States is losing and that other

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Speaker 5: country is willing or winning. And just as he was

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Speaker 5: fearful of Japan's rise in the nineteen eighties, he has

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Speaker 5: been concerned about China's rise for the last decade or so.

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Speaker 5: But that said, this goes against Trump's other impulses, which

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Speaker 5: is that he is very much attracted to authoritarians. He

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Speaker 5: you know, admires authoritarians who can actually exercise power in

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Speaker 5: a relatively unconstrained manner. And so I think he also

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Speaker 5: believes that he can sit down with Shijinping and negotiate

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Speaker 5: some kind of deal. The question is whether the deal

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Speaker 5: provides anything of actual value to the United States or not.

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Speaker 5: And this is where I think in the end, you

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Speaker 5: always have to remember that as much as Trump listens

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Speaker 5: to his various advisors, he was president for four years.

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Speaker 5: He is far more confident now that he can do

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Speaker 5: the job in a way that he was not in

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Speaker 5: twenty seventeen. So I strongly suspect that he will in

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Speaker 5: the end follow his own counsel and not necessarily listen

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Speaker 5: to that of his advisors.

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Speaker 6: The challenge, though, as well, is that world leaders, autocrats

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Speaker 6: or not from democratic countries as well, they're familiar with

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Speaker 6: how Trump operates. Do you think we get Trump one

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Speaker 6: point zero or do you think that this version is

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Speaker 6: so radically different that it actually does actually become sort

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Speaker 6: of destabilizing force that actually acts effectively. Again, going back

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Speaker 6: to the mad Man theory, right.

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Speaker 5: The problem, as you say, is that the mad Man

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Speaker 5: theory only works historically. It doesn't have a great track record.

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Speaker 5: But to the extent that it does work, the only

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Speaker 5: way it does work is if other leaders really believe

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Speaker 5: that Trump is going to follow through on his threats. Now,

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Speaker 5: there's a degree to which the idea that Trump will

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Speaker 5: sanction as allies that's entirely believable, and so it is

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Speaker 5: likely that that, you know, Trump's efforts at coercion might

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Speaker 5: yield some modest successes with allies. The problem is is

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Speaker 5: that the countries that he really wants the big concessions

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Speaker 5: from are the Chinas of the world. And as you say,

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Speaker 5: they've seen this playbook before, and we've already seen it

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Speaker 5: as sort of escalating, you know, tit for tat in

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Speaker 5: terms of US export controls and now Chinese export controls

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Speaker 5: as a way to sort of, you know, engage in

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Speaker 5: what I think the New York Times referred to as

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Speaker 5: supply chain warfare. So I think they've taken Donald Trump's measure.

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Speaker 5: And this is where things get dangerous, because, as you say,

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Speaker 5: if other people don't believe that you're making you're going

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Speaker 5: to act as crazy as you're claiming, you then have

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Speaker 5: one of two choices, and they're both unpalatable. One is

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Speaker 5: is that you back down, in which case you lose

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Speaker 5: all credibility. The other is you actually have to follow

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Speaker 5: through on some of these crazy threats. Which can lead

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Speaker 5: to a dangerous escalation of tensions. And my concern is

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Speaker 5: is that that's the choice. That's the unappetizing choice that

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Speaker 5: Donald Trump might face three or six months from now.

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Speaker 4: Daniel final final questions for you, do you think he'll

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Speaker 4: be able to end the war in Ukraine and what

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Speaker 4: does it mean for his relations with Europe?

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Speaker 5: Well, what he said he was going to do this

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Speaker 5: on day one, and you know it's close to midnight

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Speaker 5: in the States, so I suspect not. I think the

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Speaker 5: problem with ending the war in Ukraine is that while

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Speaker 5: I have no doubt that the Trump administration could pressure

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Speaker 5: Ukraine into making concessions, the question is whether they could

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Speaker 5: get Vladimir Putin and Russia to make similar concessions, And

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Speaker 5: there Russia's demonstrated absolutely zero inclination to make any kind

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Speaker 5: of compromise. I think the best they could hope for

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Speaker 5: would be some sort of frozen conflict, but Russia's not

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Speaker 5: really displayed much of an interest until now in doing that.

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Speaker 5: And it's worth remembering that, you know, the Russian Duma

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Speaker 5: annexed the four provinces that Russia has troops in, and

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Speaker 5: so by Russia's framing they've legally annexed these territories. Any

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Speaker 5: kind of ceasefire would have to recognize that Ukraine controls

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Speaker 5: some of you know, Russian sovereign territory, at least by

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Speaker 5: Russia's own laws, and I suspect they're going to be

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Speaker 5: unwilling to do that.

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Speaker 6: I was Daniel Dresner, the Distinguished Professor of International Politics

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Speaker 6: at TUFs University. Thanks so much for joining us.

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Speaker 1: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 1: Asia Edition podcast. Each weekday, we look at the story

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Speaker 1: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 1: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 1: or anywhere else you listen. Join us again tomorrow for

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Speaker 1: insight on the market moves from Hong Kong to Singapore

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Speaker 1: and Australia. I'm Doug Prisoner and this is Bloomberg