WEBVTT - Trump Tariff Talk Rattles Markets

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

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<v Speaker 1>in the US, Donald Trump was sworn in as the

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<v Speaker 1>forty seventh President of the United States, and after his inauguration,

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<v Speaker 1>headlines from the White House created volatility in markets. President

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<v Speaker 1>Trump is planning to impose tariffs on America's neighbors.

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<v Speaker 2>We're thinking in terms of twenty five percent on Mexico

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<v Speaker 2>and Canada, because they're allowing vast numbers of people. Canada

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<v Speaker 2>is very bad abuseral, so vast numbers of people to

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<v Speaker 2>come in and fentanyl to come in.

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<v Speaker 1>President Trump speaking earlier from the Oval Office, and in

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<v Speaker 1>a moment we'll hear more on the tariff story from

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<v Speaker 1>Professor Daniel Dresner of Tufts University. But first market reaction

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<v Speaker 1>to today's news. I'm joined now by Bloomberg m Live

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

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<v Speaker 1>a pleasure to have the chance to benefit from your insight,

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<v Speaker 1>particularly given the fact that I know your eyes are

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<v Speaker 1>glued to your Bloomberg terminal and your seeing the ructions

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<v Speaker 1>in markets, more so in the foreign exchange. There's been

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<v Speaker 1>a dramatic reversal here in the dollar hasn't.

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<v Speaker 3>There absolutely, and we came in I remember waking up

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<v Speaker 3>this morning and the markets were really happy because, you know,

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<v Speaker 3>we saw that there was more measured approach to tariff.

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<v Speaker 3>So President Trump didn't sign anything or focus on tariffs

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<v Speaker 3>on day one. A lot of the focus was just

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<v Speaker 3>on domestic issues. So markets were really excited, and we

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<v Speaker 3>saw the dollar declines and there was a huge sigh

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<v Speaker 3>of relief and we were coming in thinking that it

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<v Speaker 3>will be a risk positive day, and then we get

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<v Speaker 3>headlines about imposing tariffs on Mexico and Canada and that

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

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<v Speaker 3>thing is clear is that yet sure, we don't know

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<v Speaker 3>which the direction of the dollar, and it can change

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<v Speaker 3>at a moment's notice. But one thing we know that

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<v Speaker 3>it's very clear is that we should expect volatility, especially

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<v Speaker 3>in the next four years, and headline risk is going

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<v Speaker 3>to dominate.

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<v Speaker 1>No doubt about that. I'm seeing the Canadian dollar right

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<v Speaker 1>now weaken against the greenback by about one percent. One

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<v Speaker 1>of the interesting things though, if you look at the

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<v Speaker 1>treasury market, where yields are actually lower across the curve,

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<v Speaker 1>and I know it was a market holiday in the US,

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<v Speaker 1>we observed Mlkday, so no trading in cash markets. There

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<v Speaker 1>was some global trading in futures, and if you look

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<v Speaker 1>at what was going on, it seemed to be a

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<v Speaker 1>little curious because most people are of the view that

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<v Speaker 1>a lot of the economic policies from the incoming Trump administration,

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<v Speaker 1>particularly as they relate to tariffs, are viewed as inflationary

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<v Speaker 1>that would argue for higher yields. So to your point,

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<v Speaker 1>early in the day, no mention of tariffs, sigh of relief,

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

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<v Speaker 1>unlike what's happening with the dollar, where you're getting the

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<v Speaker 1>knee jerk in the opposite direction. Do you have a

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<v Speaker 1>sense of why that's happening.

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<v Speaker 3>I think the currency markets just in general is going

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<v Speaker 3>to bear the brunt of this volatility. There is still

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<v Speaker 3>a lot lack of clarity in terms of you know,

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<v Speaker 3>especially there's so many components that are really coming in

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<v Speaker 3>in terms of yields. So for example, we still have

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<v Speaker 3>you know, FED policy is one aspect of it, and

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<v Speaker 3>then of course you have fiscal policy, so you don't

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<v Speaker 3>know what exactly the trend is going to be in

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<v Speaker 3>terms of tax cuts, and then of course the tariffs.

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<v Speaker 3>The delay in tariffs will suggest that you would get

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<v Speaker 3>you wouldn't get a spike up in inflation anytime soon.

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<v Speaker 3>So it placates the markets in terms of thinking that

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<v Speaker 3>inflation's on a good trajectory lower and that can continue.

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<v Speaker 3>And that extends, especially if tariffs are delayed. So even

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<v Speaker 3>the tariffs that he's imposing on Canada and Mexico won't

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<v Speaker 3>be till the first of February. Remember, a lot of

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<v Speaker 3>market participants had thought that we would get stuff on

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<v Speaker 3>day one, and the delay just playcates the Marcus just

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<v Speaker 3>a little bit. But of course you can't get too

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<v Speaker 3>complacent in this environment.

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

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<v Speaker 1>on Friday. What does the conversation that President Trump is

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

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<v Speaker 1>I think that most people were saying, hey, okay, they

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<v Speaker 1>can go maybe twenty five basis points they can tighten,

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<v Speaker 1>which is I think the conventional wisdom here now. But

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<v Speaker 1>the caveat is unless there's something maybe like a curveball

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<v Speaker 1>that may come from President Trump. And I'm wondering if

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<v Speaker 1>we got a little bit of a curve ball tonight.

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<v Speaker 3>Yeah, that was the thing. It was almost seen as

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<v Speaker 3>a done deal from the BOJ that they would hike

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<v Speaker 3>on Friday, barring any surprises from the Trump administration. But

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<v Speaker 3>now that Trump has said tariffs on Mexico and Japan,

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<v Speaker 3>it still softens the blow because I think the real

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<v Speaker 3>concern for Asia is what happens with China and the

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<v Speaker 3>broader implications on the region. If we recall what happened

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<v Speaker 3>during the last trade war in twenty eighteen and twenty nineteen,

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<v Speaker 3>this region suffered quite tremendously, and especially because a lot

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<v Speaker 3>of this region not only are they heavily reliant on

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<v Speaker 3>China for trade, but also they are looking for the

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<v Speaker 3>currencies are very much tied to the C and Y,

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<v Speaker 3>So there's a combination of the two in terms of

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<v Speaker 3>not only are they dependent on them economically, but also

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<v Speaker 3>a from a market standpoint. So that brings us back

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<v Speaker 3>to what does a BOJ do. And I think they're

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<v Speaker 3>still on course for a rate hike, especially with China

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<v Speaker 3>not in the picture yet, and that might be their

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<v Speaker 3>only window as of now is to take it to

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<v Speaker 3>hike by twenty five basis points or else risk not

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<v Speaker 3>doing anything at all because of what is yet to

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<v Speaker 3>come from the Trump administration.

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

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<v Speaker 1>starting your day with us. Mary Nicola Bloomberg m Live strategist,

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<v Speaker 1>joining us here on the Daybreak Asia podcast. Welcome back

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

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<v Speaker 1>take a closer look at the US tariff story. So

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<v Speaker 1>we know now that goods from Canada and Mexico could

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<v Speaker 1>potentially be the subject of tariffs, although President Trump really

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

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<v Speaker 1>he ordered his administration to address unfair trade practices globally

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<v Speaker 1>and to investigate whether Beijing has complied with a deal

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<v Speaker 1>signed during the first Trump term. For more, we heard

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<v Speaker 1>from Professor Daniel Dresner of Tufts University. He spoke with

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<v Speaker 1>Bloomberg's Nmel Jewelers and David Inglase.

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<v Speaker 4>Professor, thank you so much for joining us on the

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<v Speaker 4>show and quite a eventful lots to unpack. Is I

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<v Speaker 4>think an understate meant today? We were thinking originally we'd

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<v Speaker 4>be talking a lot about China, but now it's Canada

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<v Speaker 4>and Mexico. Do you think that gives us a good

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<v Speaker 4>sense of where you think the conversation will be front

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<v Speaker 4>loaded these next few weeks at least.

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<v Speaker 5>Well, given the Trump gave a deadline I believe of

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<v Speaker 5>February first for the tariffs on Canada and Mexico, that

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<v Speaker 5>obviously is going to be front of mine. But in

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<v Speaker 5>comments today he also talked about the idea of imposing

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<v Speaker 5>tariffs across the board, as well as more tariffs on China.

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<v Speaker 5>With Trump, you always have to wait and see if

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<v Speaker 5>there's actually anything implemented as opposed to what he is

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<v Speaker 5>threatening to do. Because with Trump, he's obviously trying to

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<v Speaker 5>hope that he can successfully coerce other countries into making

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<v Speaker 5>concessions and thereby doesn't actually have to impose any of

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<v Speaker 5>the tariffs, which I'm sure his advisors might actually tell

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<v Speaker 5>him are going to be expensive to the United States

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<v Speaker 5>and are going to be problematic in terms of trying

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<v Speaker 5>to keep prices down in the United States, which is

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<v Speaker 5>one of the things that presumably got him elected last November.

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<v Speaker 6>So that strategy of coercion. Talk to us about how

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<v Speaker 6>the mad man theory plays into that.

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<v Speaker 5>Sure, the logic Trump always has and his one sort

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<v Speaker 5>of truly unique gift in politics is that he is

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<v Speaker 5>willing to ignore and indeed transgress foreign policy norms that

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<v Speaker 5>previous presidents might have adhered to. So the idea of

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<v Speaker 5>sanctioning allies, which is relatively rare for the United States,

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<v Speaker 5>Trump is eager to do because he believes that the

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<v Speaker 5>United States has an asymmetric advantage over more dependent countries

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<v Speaker 5>like Canada and Mexico. And I believe Trump also thinks

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<v Speaker 5>that if he can successfully coerce the likes of Canada

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<v Speaker 5>and Mexico, that that will send a message to the

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<v Speaker 5>Chinas of the world that he will be an extremely

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<v Speaker 5>resolute bargainer. Now, Trump might actually succeed in getting a

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<v Speaker 5>few concessions from Canada and Mexico, It's always worth remembering

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<v Speaker 5>that during his first term, Trump tried to do this

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<v Speaker 5>with South Korea, for example, and with Mexico Canada in

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<v Speaker 5>terms of renegotiating trade deals. He got a few token concessions,

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

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<v Speaker 5>his belief that if he can successfully coerce allies, that'll

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<v Speaker 5>translate into successful bargaining pressure against the likes of China.

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<v Speaker 5>There's no evidence that's true in terms of international relations,

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<v Speaker 5>and there was no evidence that that was true during

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

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<v Speaker 5>see a replay of that bargaining dynamic in his second term.

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<v Speaker 4>Your outlook just to pivot to China. What are your

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<v Speaker 4>expectations between relations there?

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<v Speaker 5>This sort of depends upon who is running US foreign policy.

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<v Speaker 5>Is it Donald Trump's advisors or is it Donald Trump.

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<v Speaker 5>The one thing that most of Trump's advisors, with the

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<v Speaker 5>exception of Elon Musk, have in common is that they

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<v Speaker 5>are all extremely hawkish towards China. They believe that China

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<v Speaker 5>is the most paramount threat to the United States. It's

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<v Speaker 5>the only country that's a potential peer competitor for the

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<v Speaker 5>United States, and by all of that logic, you would

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

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<v Speaker 5>it's worth remembering that during Trump's first term he was

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<v Speaker 5>willing to sacrifice just about every other pillar of American

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<v Speaker 5>foreign policy, whether it was protesting human rights abuses in

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<v Speaker 5>Hinjong or the crackdown in Hong Kong, or China's throwing

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<v Speaker 5>its weight around in the South China Sea or in

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<v Speaker 5>the East China Sea so long as he could negotiate

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<v Speaker 5>some sort of economic deal with China. And this is

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<v Speaker 5>in the end what led to the Phase one trade

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<v Speaker 5>deal in twenty twenty, which proved to be decidedly underwhelming.

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<v Speaker 5>If Trump believes that he can cut any kind of

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<v Speaker 5>grand bargain with Shi Jinping, that is the route he

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

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<v Speaker 5>this way, then he's going to have no choice but

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<v Speaker 5>to listen to his advisors, and you're likely to see

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<v Speaker 5>a ratcheting up of tensions. I think the thing that

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<v Speaker 5>I would predict would be you'll see an initial, you know, display,

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<v Speaker 5>or an attempt to demonstrate tough bargaining. And then the

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<v Speaker 5>question is is that if China offers any kind of concession,

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<v Speaker 5>will Trump take the first offer that he gets or

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<v Speaker 5>will he hold out? If I had to bet frankly,

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<v Speaker 5>I think he'll take the first offer he gets.

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<v Speaker 4>Right, and you know, the we we don't have the

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<v Speaker 4>benefit of hindsight because the pandemic happened, and the you

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<v Speaker 4>know the what would have been the result of the

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<v Speaker 4>first trade war and if China did push over to

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<v Speaker 4>buy and we would never know what I guess my

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<v Speaker 4>follow up here is we've heard recently since Donald Trump

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<v Speaker 4>got elected again, he's not as tied down to ideology

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<v Speaker 4>as you know former other presidents are concerned. So I

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<v Speaker 4>guess my question there is do you think he is

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<v Speaker 4>as concerned about China's economic rise as a threat to

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<v Speaker 4>the US as most of the people around him.

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<v Speaker 5>I think he is concerned about China's economic rise, and

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<v Speaker 5>since that, Donald Trump, he as an ideology, It's just

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<v Speaker 5>an ideology that is not one that previous presidents have had.

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<v Speaker 5>His The ideology is actually, in terms of economics, very

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<v Speaker 5>zero sum in terms of thinking, which is, if the

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<v Speaker 5>United States is running a trade deficit with a country,

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<v Speaker 5>that means the United States is losing and that other

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<v Speaker 5>country is willing or winning. And just as he was

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<v Speaker 5>fearful of Japan's rise in the nineteen eighties, he has

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

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<v Speaker 5>But that said, this goes against Trump's other impulses, which

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<v Speaker 5>is that he is very much attracted to authoritarians. He

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<v Speaker 5>you know, admires authoritarians who can actually exercise power in

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<v Speaker 5>a relatively unconstrained manner. And so I think he also

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<v Speaker 5>believes that he can sit down with Shijinping and negotiate

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<v Speaker 5>some kind of deal. The question is whether the deal

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<v Speaker 5>provides anything of actual value to the United States or not.

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<v Speaker 5>And this is where I think in the end, you

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<v Speaker 5>always have to remember that as much as Trump listens

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<v Speaker 5>to his various advisors, he was president for four years.

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<v Speaker 5>He is far more confident now that he can do

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<v Speaker 5>the job in a way that he was not in

0:13:03.440 --> 0:13:06.480
<v Speaker 5>twenty seventeen. So I strongly suspect that he will in

0:13:06.559 --> 0:13:09.760
<v Speaker 5>the end follow his own counsel and not necessarily listen

0:13:09.800 --> 0:13:11.040
<v Speaker 5>to that of his advisors.

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<v Speaker 6>The challenge, though, as well, is that world leaders, autocrats

0:13:18.800 --> 0:13:23.280
<v Speaker 6>or not from democratic countries as well, they're familiar with

0:13:23.600 --> 0:13:27.320
<v Speaker 6>how Trump operates. Do you think we get Trump one

0:13:27.360 --> 0:13:29.880
<v Speaker 6>point zero or do you think that this version is

0:13:30.040 --> 0:13:34.120
<v Speaker 6>so radically different that it actually does actually become sort

0:13:34.120 --> 0:13:38.199
<v Speaker 6>of destabilizing force that actually acts effectively. Again, going back

0:13:38.240 --> 0:13:41.040
<v Speaker 6>to the mad Man theory, right.

0:13:41.200 --> 0:13:43.120
<v Speaker 5>The problem, as you say, is that the mad Man

0:13:43.240 --> 0:13:47.840
<v Speaker 5>theory only works historically. It doesn't have a great track record.

0:13:47.880 --> 0:13:50.000
<v Speaker 5>But to the extent that it does work, the only

0:13:50.040 --> 0:13:54.240
<v Speaker 5>way it does work is if other leaders really believe

0:13:54.240 --> 0:13:57.000
<v Speaker 5>that Trump is going to follow through on his threats. Now,

0:13:57.360 --> 0:14:00.000
<v Speaker 5>there's a degree to which the idea that Trump will

0:14:00.040 --> 0:14:03.280
<v Speaker 5>sanction as allies that's entirely believable, and so it is

0:14:03.520 --> 0:14:07.079
<v Speaker 5>likely that that, you know, Trump's efforts at coercion might

0:14:07.160 --> 0:14:10.680
<v Speaker 5>yield some modest successes with allies. The problem is is

0:14:10.720 --> 0:14:13.280
<v Speaker 5>that the countries that he really wants the big concessions

0:14:13.280 --> 0:14:17.360
<v Speaker 5>from are the Chinas of the world. And as you say,

0:14:17.600 --> 0:14:21.160
<v Speaker 5>they've seen this playbook before, and we've already seen it

0:14:21.200 --> 0:14:23.360
<v Speaker 5>as sort of escalating, you know, tit for tat in

0:14:23.440 --> 0:14:27.200
<v Speaker 5>terms of US export controls and now Chinese export controls

0:14:28.000 --> 0:14:29.640
<v Speaker 5>as a way to sort of, you know, engage in

0:14:29.680 --> 0:14:31.880
<v Speaker 5>what I think the New York Times referred to as

0:14:32.160 --> 0:14:37.640
<v Speaker 5>supply chain warfare. So I think they've taken Donald Trump's measure.

0:14:38.400 --> 0:14:41.720
<v Speaker 5>And this is where things get dangerous, because, as you say,

0:14:41.840 --> 0:14:44.800
<v Speaker 5>if other people don't believe that you're making you're going

0:14:44.800 --> 0:14:47.800
<v Speaker 5>to act as crazy as you're claiming, you then have

0:14:47.920 --> 0:14:50.640
<v Speaker 5>one of two choices, and they're both unpalatable. One is

0:14:50.640 --> 0:14:53.280
<v Speaker 5>is that you back down, in which case you lose

0:14:53.320 --> 0:14:56.400
<v Speaker 5>all credibility. The other is you actually have to follow

0:14:56.400 --> 0:14:58.640
<v Speaker 5>through on some of these crazy threats. Which can lead

0:14:59.240 --> 0:15:02.600
<v Speaker 5>to a dangerous escalation of tensions. And my concern is

0:15:02.600 --> 0:15:05.520
<v Speaker 5>is that that's the choice. That's the unappetizing choice that

0:15:05.600 --> 0:15:08.600
<v Speaker 5>Donald Trump might face three or six months from now.

0:15:10.800 --> 0:15:13.040
<v Speaker 4>Daniel final final questions for you, do you think he'll

0:15:13.080 --> 0:15:15.200
<v Speaker 4>be able to end the war in Ukraine and what

0:15:15.200 --> 0:15:18.080
<v Speaker 4>does it mean for his relations with Europe?

0:15:18.600 --> 0:15:19.800
<v Speaker 5>Well, what he said he was going to do this

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<v Speaker 5>on day one, and you know it's close to midnight

0:15:21.960 --> 0:15:25.920
<v Speaker 5>in the States, so I suspect not. I think the

0:15:26.000 --> 0:15:28.360
<v Speaker 5>problem with ending the war in Ukraine is that while

0:15:28.360 --> 0:15:31.840
<v Speaker 5>I have no doubt that the Trump administration could pressure

0:15:32.000 --> 0:15:35.640
<v Speaker 5>Ukraine into making concessions, the question is whether they could

0:15:35.640 --> 0:15:40.800
<v Speaker 5>get Vladimir Putin and Russia to make similar concessions, And

0:15:40.920 --> 0:15:45.480
<v Speaker 5>there Russia's demonstrated absolutely zero inclination to make any kind

0:15:45.480 --> 0:15:47.680
<v Speaker 5>of compromise. I think the best they could hope for

0:15:48.040 --> 0:15:51.840
<v Speaker 5>would be some sort of frozen conflict, but Russia's not

0:15:51.960 --> 0:15:54.960
<v Speaker 5>really displayed much of an interest until now in doing that.

0:15:55.000 --> 0:15:58.080
<v Speaker 5>And it's worth remembering that, you know, the Russian Duma

0:15:58.560 --> 0:16:03.480
<v Speaker 5>annexed the four provinces that Russia has troops in, and

0:16:03.560 --> 0:16:08.160
<v Speaker 5>so by Russia's framing they've legally annexed these territories. Any

0:16:08.240 --> 0:16:12.360
<v Speaker 5>kind of ceasefire would have to recognize that Ukraine controls

0:16:12.360 --> 0:16:15.040
<v Speaker 5>some of you know, Russian sovereign territory, at least by

0:16:15.160 --> 0:16:18.080
<v Speaker 5>Russia's own laws, and I suspect they're going to be

0:16:18.160 --> 0:16:18.880
<v Speaker 5>unwilling to do that.

0:16:21.400 --> 0:16:25.400
<v Speaker 6>I was Daniel Dresner, the Distinguished Professor of International Politics

0:16:25.400 --> 0:16:27.560
<v Speaker 6>at TUFs University. Thanks so much for joining us.

0:16:30.480 --> 0:16:33.800
<v Speaker 1>Thanks for listening to today's episode of the Bloomberg Daybreak

0:16:33.960 --> 0:16:37.280
<v Speaker 1>Asia Edition podcast. Each weekday, we look at the story

0:16:37.360 --> 0:16:41.640
<v Speaker 1>shaping markets, finance, and geopolitics in the Asia Pacific. You

0:16:41.680 --> 0:16:45.680
<v Speaker 1>can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

0:16:45.800 --> 0:16:48.760
<v Speaker 1>or anywhere else you listen. Join us again tomorrow for

0:16:48.880 --> 0:16:52.360
<v Speaker 1>insight on the market moves from Hong Kong to Singapore

0:16:52.720 --> 0:16:56.440
<v Speaker 1>and Australia. I'm Doug Prisoner and this is Bloomberg