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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

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Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Abbe

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Speaker 1: Joseph Cohen with us, and what a pleasure it is

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Speaker 1: to have her with us, with early the giant of

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Speaker 1: Bloomberg Intelligence, someone with decades of experience and securities research

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Speaker 1: in media and also in this new area of technology.

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Speaker 1: Paul Sweeney and Abbey Joseph Cohen on what Alphabet and

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Speaker 1: the rest of them wrought? Paul, I want to open

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Speaker 1: this up with the joy of having Abby with us

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Speaker 1: to what we're observing. They own the ad business thirties

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Speaker 1: and it's about the cop Douglas function that you and

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Speaker 1: I studied, an Abby lectured on and studied. The bottom

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Speaker 1: line has returns to scale have disappeared. There's a new

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Speaker 1: math and technologists are winning with this. What is Google, Amazon, Facebook,

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Speaker 1: the rest of them? When they destroy our normal returns

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Speaker 1: to scale? What are they wrought? What are they all?

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Speaker 1: They wrought? Incredible market share across their businesses. So we

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Speaker 1: just look at the internet advertising business, which is growing

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Speaker 1: twenty percent a year and dwarfing television. It's now over

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Speaker 1: seventy billion dollars in the US. It's really down to

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Speaker 1: two players, Facebook and Google. And you take a look

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Speaker 1: at e commerce. What is who is the dominant player

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Speaker 1: in e commerce? Amazon because they can reinvest money Jeff

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Speaker 1: Bezos reinvest in his business like no one else can,

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Speaker 1: can build a scale that no one else can build.

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Speaker 1: And so you see the kind of market shares that

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Speaker 1: Amazon hasn't, a power that Amazon has, and how they

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Speaker 1: can go into other businesses such as the grocery business

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Speaker 1: and disrupt that just with the drop of a hat effectively.

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Speaker 1: So it the scale we're seeing from some of these

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Speaker 1: technology companies. And the next frontier is going to be

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Speaker 1: the cloud. We've got two or three major players in

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Speaker 1: the cloud. Uh, we're seeing just extraordinary scale when you

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Speaker 1: hear this, and almost a generational shift from the returns

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Speaker 1: to scale that we all study Graham down and Condell

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Speaker 1: and the rest. Does the government need to intervene? I

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Speaker 1: mean this the concentration here of cash flows alone, does

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Speaker 1: it Does it demand government interference? Clearly? That's the conclusion

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Speaker 1: from the Europeans where they are we going to be

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Speaker 1: more European. I I think that if the Europeans are European,

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Speaker 1: that also protects us to some extent. And yes, I

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Speaker 1: do think that there is a need for government to

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Speaker 1: at least look at whether there are some elements of

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Speaker 1: this that needs to be regulated. One point that you

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Speaker 1: made has to do with market share. But let's talk

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Speaker 1: about something that we can all feel a little more directly,

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Speaker 1: and that is privacy concerns, um, and also some of

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Speaker 1: the other issues that the Europeans have been very active on,

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Speaker 1: and that is whether personal data is being sufficiently well protected. UM.

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Speaker 1: And what we did discover is when they implemented their

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Speaker 1: last round of regulatory increases a month or two ago,

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Speaker 1: many of us were affected by it as well. We

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Speaker 1: began to see some of that benefit. Most importantly, Uh,

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Speaker 1: they are and many people here too are raising alarm

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Speaker 1: bills saying let's look at it, UM. And so I'm

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Speaker 1: not coming to a conclusion about exactly what sort of

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Speaker 1: government involvement where government regulation would be appropriate, but it

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Speaker 1: is something that we have basically been ignoring to this point, UM. Paul.

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Speaker 1: To Abby's point, if you want, if you're an investor

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Speaker 1: and you actually want to remain outside the data privacy

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Speaker 1: issues swirling around a lot of these big companies, is

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Speaker 1: there anyone else apart from Apple that can give you

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Speaker 1: that safety? Well, you know, Amazon effectively, you know, as

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Speaker 1: being you know, their core e commerce business. You know,

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Speaker 1: it's kind of outside of that. We've kind of raised

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Speaker 1: the issue that Amazon is actually becoming a significant advertising

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Speaker 1: play for digital advertising, trying to break up that duopoly

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Speaker 1: between Facebook, uh and Google. So we're looking for Amazon

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Speaker 1: to have close to three billion dollars of advertising this year,

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Speaker 1: which is small for Amazon, but it's a huge growth

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Speaker 1: rate for them. So it just appears, as Abby mentioned that,

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Speaker 1: you know, when you look at the technology space, really

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Speaker 1: over the last twenty five or thirty years, starting with

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Speaker 1: Microsoft and their operating system, the Europeans have really taken

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Speaker 1: the lead on regulating the U S technology sector. The

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Speaker 1: US has had a very very light hand. We noticed

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Speaker 1: a little bit of a change when the you know,

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Speaker 1: the US Congress brought Mark Zuckerberg in front of them

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Speaker 1: a month or so ago. That really marked a change,

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Speaker 1: and it really raised the question amongst investors is is

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Speaker 1: this the point where the US Congress and the regulative

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Speaker 1: environment is going to step up its view of the

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Speaker 1: technology business. To date, it's taking a very light hand. Yeah,

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Speaker 1: but if you look at Alphabet, I'm sorry, just one

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Speaker 1: very observation, and that is when Mark Zuckerberg appeared before Congress,

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Speaker 1: it became very clear that the members of our Congress

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Speaker 1: were ill informed with regard to the technology business. And

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Speaker 1: it is very difficult to see that cast of characters

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Speaker 1: making good decisions. So it would be important for us

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Speaker 1: to build expertise someplace in terms of people who really

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Speaker 1: do understand how technology works and is affecting the economy

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Speaker 1: and consumers in particular. Well, we talked to lex Web

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Speaker 1: in the last hour about the the idea that that

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Speaker 1: the other bets at Alphabet. You know they're there, and

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Speaker 1: I guess they're important, but it's a core ad business.

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Speaker 1: Why should they stop? I mean, I mean, what is

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Speaker 1: the motivation for Google or or or Amazon and basis

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Speaker 1: We talked to Ken Lang going to home Depot the

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Speaker 1: other day of the advantages of competing with the Amazon

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Speaker 1: because they keep you going. They're not going to stop.

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Speaker 1: There's no indication now we've seen there they're spending It's

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Speaker 1: one of the issues at Alphabet when we see the

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Speaker 1: spending in Alphabet, Amazon, Facebook, they continue to spend significant

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Speaker 1: amounts of money, you know, double Digital. They're spending its partley,

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Speaker 1: I think they're spending it smarting because they're spending it

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Speaker 1: on people and technology. So we like to see R

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Speaker 1: and D, and the R and D remains very high

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Speaker 1: at these companies. We're seeing a lot of spending in

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Speaker 1: the cloud. We're seeing a lot of spending on talent.

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Speaker 1: They add another four thousand people over the quarter, and

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Speaker 1: these are all high end engineers. So the companies continue

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Speaker 1: to reinvest in their business, which I think creates you

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Speaker 1: know what people like refer to as a mote. We

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Speaker 1: are thrilled to bring you Abby Joseph Cohen of Goldman Sachs.

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Speaker 1: And there could be any number of themes to speak

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Speaker 1: of with her. Yes, it's about equity investment, far and

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Speaker 1: more it is about intellectual rigor, her work with the

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Speaker 1: c f a institute of which I'm a member, as

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Speaker 1: well her publications within their many academic journals, including a

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Speaker 1: rather high level of Mathewiness as well. That makes your

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Speaker 1: appropriate to speak of the mathematician Cliff Affness of Tufts

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Speaker 1: and of course his work in Chicago with Eugene Fama,

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Speaker 1: and this idea of factor investing. Let's partition out what

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Speaker 1: we all learned into momentum, into value, into quality, small cap,

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Speaker 1: large cap, but a few other things and will do better.

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Speaker 1: And obviously Cliff and a q R has proven he

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Speaker 1: can do this better. But is it by what he

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Speaker 1: does do with factor investing or is it something that

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Speaker 1: helps him avoid doing things? Which is it? I believe

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Speaker 1: it's the combination. Tom and I have to say that

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Speaker 1: factor analysis is something that many people are now familiar with,

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Speaker 1: But when Cliff was a relatively young person in the

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Speaker 1: industry at Goldman Sachs and we discussed factor analysis, and

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Speaker 1: I don't mean to toot my horn here, but I

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Speaker 1: was one of the few people in the research department

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Speaker 1: who is familiar with it because factor analysis is a

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Speaker 1: technique that's been around for a long time for things

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Speaker 1: like economic development and e can m growth. What a

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Speaker 1: q R has done, which is unusual and extremely well

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Speaker 1: executed by Cliff and his team, has been to apply

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Speaker 1: the mathematics of factor analysis to financial markets. And it

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Speaker 1: is a question of finding opportunity. But as you point

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Speaker 1: out also to find risks. And so this is a

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Speaker 1: discipline because if you're within folks, it's not like the

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Speaker 1: bell curve of your high school class. It's a long,

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Speaker 1: normal distribution, and as you know, it's asymmetric where you

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Speaker 1: lose more on the downside than gain on the upside.

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Speaker 1: Factor analysis assist you in losing less, I would suggest,

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Speaker 1: and that's been the charm of a q R. It

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Speaker 1: also helps explain what's going on. It helps explain why

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Speaker 1: certain sector, certain securities are performing well, those with high

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Speaker 1: correlation to growth, those with high correlation to exports, those

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Speaker 1: with low correlation to other factors. And this is really

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Speaker 1: important and it's intellectual the appealing because it explains things.

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Speaker 1: It's not a magical black box. It actually is a

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Speaker 1: box that helps explain what's happening in the economy and

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Speaker 1: what's happening in the financial markets, not just in the

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Speaker 1: United States but globally. Um Ay, Joseph Kin, how should

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Speaker 1: investors prepare and where should they invest to I guess

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Speaker 1: be more prepared for the economy of the future. So

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Speaker 1: I don't know whether it moves from you know, the

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Speaker 1: sharing economy to artificial intelligence, and whether that also engulfs

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Speaker 1: driverless cars. There are so many issues, and I'm glad

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Speaker 1: that you mentioned just a handful of them. I always

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Speaker 1: start with valuation. The valuation of the SMP five hundred

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Speaker 1: right now is just about where it should be, which

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Speaker 1: means we really need to look for miss pricing, either

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Speaker 1: on the upside or downside, so we can avoid some

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Speaker 1: of those big problems. But as you properly point out,

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Speaker 1: we need to identify longer term opportunities because they may

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Speaker 1: very well be mispriced. One of the concern I have

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Speaker 1: right now is there such enthusiasm for some of these

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Speaker 1: new technologies, they are not priced in a cheap manner

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Speaker 1: in the marketplace. And what that tells me is not

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Speaker 1: that those stocks are going to go down, but rather

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Speaker 1: if there is some unfortunate information, unfortunate development, unfortunate news,

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Speaker 1: even if it's just a quarter or two, there's not

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Speaker 1: much margin or cushion for error, and that becomes a concern.

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Speaker 1: Am I keen on technology? Of course, we all are

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Speaker 1: just taking a look at the impact on our economy,

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Speaker 1: but we also have to recognize that technologies uh to

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Speaker 1: use just the parlance and the vernacular. They don't have

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Speaker 1: to be just cool, they actually have to produce a

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Speaker 1: product and one where this is sustainable business model. But

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Speaker 1: does the bigger you know player take all I know

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Speaker 1: Tom wants talking about Amazon. How much bigger can Amazon

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Speaker 1: actually become? And can they completely dominate everything we do

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Speaker 1: day today? I'm going to go back to one of

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Speaker 1: the first readings I did for the c f A program,

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Speaker 1: and it was a case study of the International Business

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Speaker 1: Machines Company, which in the nineteen fifties and nineteen sixties

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Speaker 1: many investors at that point viewed that its growth was

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Speaker 1: going to be unlimited. Uh and if you just did

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Speaker 1: some simple arithmetic, ten years later, it was going to

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Speaker 1: account for more than fifty of US g d P. Obviously,

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Speaker 1: things do not grow to the sky. Things happen um

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Speaker 1: and and so I happen to not be commenting on

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Speaker 1: the company you asked about, just to say, let's take

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Speaker 1: a look at sustainable models. It's the business model, but

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Speaker 1: also what happens in terms of exogenous factors. Let's combine

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Speaker 1: in here Immotson of Yale with Robin wiggles Worth, great

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Speaker 1: article in the ft on factor analysis. Here's the chart

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Speaker 1: I use it down here in instead of the SMP

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Speaker 1: but they look remarkably the same. The going back to

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Speaker 1: the beginning of the twentieth century, the huge depression moved

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Speaker 1: there and then a log move up up and higher.

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Speaker 1: And I want to go in here to momentum. I

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Speaker 1: know you're not going to comment on Amazon. I'm just

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Speaker 1: using that is this era's trophy. Momentum is such a

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Speaker 1: dangerous thing. It goes back to Weinberg of your Golden Sex,

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Speaker 1: the trees growing to the sky. Are we anywhere near

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Speaker 1: a tree's going to the sky? Abby? Joseph Cohen Factor analysis.

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Speaker 1: I'll tell you what our factor analysis is now showing,

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Speaker 1: and that is momentum stocks have actually underperformed the SNP

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Speaker 1: five by about ten percentage points year to date. That

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Speaker 1: doesn't mean all momentum stocks, but on average we've also

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Speaker 1: seen underperformance of about that magnitude for stocks with international exposure.

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Speaker 1: So what we're basically seeing is that investors with a

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Speaker 1: market that is roughly at fair value are becoming more

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Speaker 1: careful in their selection process, and that's exactly what they

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Speaker 1: should be doing. Is cash a new asset for you?

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Speaker 1: Uh hash is an asset for us and something that

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Speaker 1: investors should not be thinking about either. In or out,

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Speaker 1: but rather as equities rise and evaluations do not improve

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Speaker 1: because perhaps not prices rise more uh than the earnings

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Speaker 1: underneath them are growing, it's time to raise cash levels. UM.

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Speaker 1: We also have been recommending to raise cash, as I

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Speaker 1: mentioned before, from fixed income, because so many fixed income

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Speaker 1: markets don't really seem to offer good value at this point. John,

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Speaker 1: thank you so much. We'll continue this discussion on Bloomberg

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Speaker 1: Radio with Mr Farrell. We'll do that worldwide, of course.

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Speaker 1: Abby Joseph Cohn is advisory director and senior investment strategists

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Speaker 1: at Golden Sex John Farren Our Studios in Washington and

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Speaker 1: Tom Keenan New York. And with this just speaking with

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Speaker 1: Avy Joseph Cohen of Golden SAX and now ahead of

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Speaker 1: their commodities research. Just by chance the two of them

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Speaker 1: back to back here, Jeffrey Curry uh and and great

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Speaker 1: to speak to you, Jeff and I want to go

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Speaker 1: more holistic away from what's oil gonna do to the

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Speaker 1: basic idea of what do you observe in the commodity markets,

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Speaker 1: about the disparity of GDP growth nation to nation, and

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Speaker 1: also the make of America great boom that we're seeing

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Speaker 1: now in the US. What do commodities tell you about

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Speaker 1: those unique two thousand and eighteen features. I think when

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Speaker 1: you look at the split between copper and oil, it

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Speaker 1: tells you a lot Oil is a developed market commodity

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Speaker 1: and copper and the medals complex or an emerging market commodity.

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Speaker 1: The tightness, the strength in oil is substantially greater than

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Speaker 1: the rest of the commodity complex, which is an indication

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Speaker 1: that the strength and demand is coming out of the

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Speaker 1: developed markets. Yeah. You even in Europe surprising to the

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Speaker 1: upside for the first time in many years, while you

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Speaker 1: have weakness coming out of Brazil, Russia and the rest

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Speaker 1: best of the emerging markets. And it's unusual this late

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Speaker 1: in the business cycle that you would see such a

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Speaker 1: predominance of oil over the arrest of the complex. And

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Speaker 1: the only other time we saw that was the dot

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Speaker 1: com boom in late so it's a pretty rare dynamic

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Speaker 1: to see this playing out. So, Jeff, I guess the

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Speaker 1: question we've got to Alaska is whether the weakness we

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Speaker 1: see in emerging markets that's captured by the compass story

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Speaker 1: starts to bleed into a weak a macro backdrop and

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Speaker 1: developed economies and post crew down with it. Do you

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Speaker 1: see that happening? Actually, when we look at what's going

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Speaker 1: on right now, I got to call it the terrible trio.

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Speaker 1: You have rising rates, high oil, and a strong dollar.

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Speaker 1: Rarely do you ever see that trio. And when you

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Speaker 1: see that trio is substantially tightening to the emerging market.

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Speaker 1: So it's usually And again, last time we saw this

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Speaker 1: trio was deer than dot com bubble, where you had,

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Speaker 1: you know, extreme strong growth in the US that was

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Speaker 1: not being shared by the rest of the world. And

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Speaker 1: eventually you had the strength in the US, propelled through

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Speaker 1: higher oil, rising rates, end up killing off the emerging market.

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Speaker 1: So I'm not so worried about the emerging markets creating

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Speaker 1: um a drag on the developed markets as as I

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Speaker 1: am about the develop markets putting more pressure on the

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Speaker 1: emerging markets. Nonetheless, I would say that dynamic has weakened.

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Speaker 1: Oils come off to seventy two, and the dollars weaker.

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Speaker 1: Just something esoteric like live cattle. I mean, two thousand

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Speaker 1: went nowhere, arise through the next decade, and then the

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Speaker 1: boom obviously two thousand ten, up we go and we're

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Speaker 1: back at that base now threatening to break support and

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Speaker 1: The background story is with tariff talk, there's a huge

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Speaker 1: backup of meat in America that can't be exported. That's

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Speaker 1: one of those little micro data points. How do you

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Speaker 1: treat that? At Goldman Sex. In fact, when we look

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Speaker 1: at what has changed in the in the the the

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Speaker 1: trade war dynamic, it has become much more damaged in

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Speaker 1: to commodities, a tangible thing. And here's the reason why

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Speaker 1: we went from a concept of a trade war and

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Speaker 1: then sometime in mid June to July, we went to

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Speaker 1: a physical trade war. And once it became physical, it

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Speaker 1: ceased to be a macro dynamic and became much more

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Speaker 1: of a micro dynamic. Because not only do you see

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Speaker 1: that happening in the meats markets, but if you look

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Speaker 1: at like metals, even down to aluminum, the type of

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Speaker 1: rolled aluminum versus slab aluminum, all of these dynamics start

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Speaker 1: to matter the President. We featured this Jeff about an

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Speaker 1: hour ago. I don't even know if you've seen this

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Speaker 1: in the blur. Tariffs are the greatest. Either a country

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Speaker 1: which is treated the United States unfairly untrade negotiates a

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Speaker 1: fair deal, or it gets hits with tariffs. It's as

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Speaker 1: simple as that and everybody's talking exclamation point. Remember we

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Speaker 1: are the quote piggy bank unquote that's being robbed. All

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Speaker 1: will be great exclamation point. So you get a cup

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Speaker 1: of coffee with the President to explain that, you know,

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Speaker 1: mercantile economics ain't gonna cut it in the modern world.

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Speaker 1: What do you say to Mr Trump? I think one

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Speaker 1: of the key dynamics in global trade now that separates

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Speaker 1: even from the six hundreds today is the interdependency of production,

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Speaker 1: meaning that a car, the transmission could be produced in Mexico,

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Speaker 1: the you know, the the drive train is produced in Europe.

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Speaker 1: You know transmissions in uh India. You put it all together.

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Speaker 1: Given the interdependency, it's very difficult to take one of

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Speaker 1: the links out. And you see that with with with

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Speaker 1: the autos, which I think is gonna be a big

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Speaker 1: issue in the US. Coming up here with Europe is

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Speaker 1: that the drive trains are produced in Europe shipped to

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Speaker 1: the US. The cars are produced in the US and

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Speaker 1: then shipped elsewhere in the world. SUVs that come out

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Speaker 1: of South Carolina go all over the world. And that's

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Speaker 1: our to European production. So which one are you taxing?

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Speaker 1: European production or US production. Jeff, The supply chains are

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Speaker 1: clearly very complex at the moment. I think arguably, though,

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Speaker 1: what was seeing in terms of economic impact is it's

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Speaker 1: hurting China more than it's hurting the United States of America.

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Speaker 1: This morning. There's a huge question being goss and it's

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Speaker 1: whether we're at an inflection point with the Chinese authorities

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Speaker 1: as they shift away from de leveraging and towards perhaps

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Speaker 1: some kind of stimulus. What's your read on what's happening

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Speaker 1: in China right now, Jeff Oh, I think you hit

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Speaker 1: the nail on the head. It's the deleveraging issue. De

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Speaker 1: Leveraging in its own was not concerning when you had

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Speaker 1: strong external demands, so they could de lever and have

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Speaker 1: policy focused on de leveraging as long as they had

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Speaker 1: strong external demand to offset it. The problem now is

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Speaker 1: they don't have that strong external demand. They have a

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Speaker 1: trade war on top of that, on top of the

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Speaker 1: de leveraging, which is why copper has sold off tremendus.

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Speaker 1: So you look at the fundamentals of copper today, they're

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Speaker 1: not that bad. They don't warrant the sell off that

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Speaker 1: we've seen, which by the way, was as big as

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Speaker 1: what we saw in ninety six near and Sumi Tomas,

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Speaker 1: so it's a sub stantial sell off. Um. We believe

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Speaker 1: that as you look forward, the market has um put,

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Speaker 1: you know, pricing in a far greater decline in demand

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Speaker 1: of four hundred thousand tons and what really should be

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Speaker 1: um the likely outcome going for because I think we

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Speaker 1: look at the policy is hey, they've reversed course, they're

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Speaker 1: starting to create stamus. We saw some of that this morning. UM.

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Speaker 1: So that's why we would view copper as being a

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Speaker 1: buy right here. So, Jeff, we've seen this movie a

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Speaker 1: couple of times. Quite a few times. Growth starts to

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Speaker 1: pull low up pressures build. The Chinese don't completely capitulate

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Speaker 1: on their efforts, but they drift back towards pushing the

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Speaker 1: credit lever once again, Jeff, Does that still have as

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Speaker 1: much bang for its buck than it did, say, two

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Speaker 1: years ago? No, But I think it goes to the

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Speaker 1: the issue Tom was talking about micro versus the macro.

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Speaker 1: Um Because of a macro perspective, it doesn't have the

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Speaker 1: same bang as a buck, But if you get down

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Speaker 1: into the weeds and look at the micro it does.

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Speaker 1: And if you look at what they did when they

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Speaker 1: tried to cool the property market. They targeted high, high

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Speaker 1: cost marginal developers this time around as of trying to

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Speaker 1: target the rest of the industry. And I think that

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Speaker 1: this is a common theme across and just not China,

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Speaker 1: but the rest of the world is that everything is

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Speaker 1: going down to the micro, like the meat markets, like

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Speaker 1: targeting high end property developers as opposed to the property

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Speaker 1: market in China. So that's the way they're going after

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Speaker 1: it now, because you're right, hitting it on a macro

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Speaker 1: basis just doesn't have the same bang as it had before. Yeah,

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Speaker 1: and and words guilty of that. I mean, John's not,

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Speaker 1: but I'm guilty of that. I've always going macro or

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Speaker 1: this micro stuff really really matters within this and with

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Speaker 1: the long on copper, the memories of nineties our our

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Speaker 1: e M politics and their linkage to commodities as naive

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Speaker 1: and fragile as they were in August of my short

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Speaker 1: answer is going to be no on that. And the

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Speaker 1: reason why has to do with the fact that you

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Speaker 1: don't have the same debt dynamic of external demand or

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Speaker 1: external debt driven by dollar with a potential for a

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Speaker 1: weakening currency. The only one who still has that set

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Speaker 1: up is Argentina, and you've already paid the price in

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Speaker 1: Argentina until a lesser extent um. Uh. Turkey. But yeah,

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Speaker 1: when we think about, you know, what's happening outside of Brazil,

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Speaker 1: Argentina and Turkey, it doesn't look that bad. India, Indonesia dynamic.

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Speaker 1: Indonesia is not as vulnerable as they were in the nineties. No,

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Speaker 1: not even close, because they've learned from their mistakes. Jeffrey Curry,

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Speaker 1: thank you so much. Never enough time I had a

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Speaker 1: commodity research at Golden sick pharaon Washington would teariff slash

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Speaker 1: taxes our front and center. I'm Tim kenw York. Now

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Speaker 1: with this very lovely of Syracuse Universe city and of

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Speaker 1: course a Peterson Institute. She writes piercing direct work on

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Speaker 1: stuff that usually blah blah blah blah blah within the media. Mary,

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Speaker 1: you've just killed it with Cohen, Setton and Young on

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Speaker 1: Actually what auto tariffs mean? What does the number one

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Speaker 1: message when you go through the mathiness of these new

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Speaker 1: taxes on European cars? Well, the taxes will be on

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Speaker 1: cars that contain content from Europe as well as other

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Speaker 1: places including perhaps Mexico and Canada. And the net effect

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Speaker 1: very clearly is going to raise is to be raising

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Speaker 1: prices on the auto laws when Americans go to shop

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Speaker 1: for a new vehicle. What is the elasticity? Do we

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Speaker 1: have any history of understanding that if you raise the

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Speaker 1: price of an Audi Q five by five thousand seventy dollars,

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Speaker 1: what actually happens to unit dynamics? Well, we do know

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Speaker 1: that most of that extra tax absolutely passed through the consumers.

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Speaker 1: There will be some consumers who drop out of the

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Speaker 1: market or fall to a lower priced vehicle. On that

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Speaker 1: we don't know exactly how many. However, we do have

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Speaker 1: estimates that up to two percent of the workforce in

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Speaker 1: the auto industry UH could find themselves without jobs as

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Speaker 1: a result of lower sales. So these taxes are high

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Speaker 1: and they will have an impact on consumers and on

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Speaker 1: the industry. Mary, I don't know whether you would characterize

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Speaker 1: where we are currently as a trade war, but when

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Speaker 1: people do, they're looking almost exclusively at it through tariffs,

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Speaker 1: and to some extent, we could be quite close to

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Speaker 1: exhausting that policy Leaver at the moment, because the United

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Speaker 1: States has made it quite clear they are ready to

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Speaker 1: put tariffs on every single import that comes from China

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Speaker 1: into the United States. The Chinese can't play tippit tad

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Speaker 1: on tariffs. They don't have enough imports coming from the

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Speaker 1: US into China. So I'm just trying to wander what

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Speaker 1: other sphere will this take place in? How will this

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Speaker 1: play out outside of just tariffs? Okay, we have a

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Speaker 1: lot of rooms still to play this out. Don't forget.

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Speaker 1: The tariffs have not been fully nearly fully implemented yet.

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Speaker 1: We just had the first trunch of the first round. Uh.

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Speaker 1: Today we're having hearings on the second trunch, or about

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00:25:14,320 --> 00:25:17,639
Speaker 1: sixteen billion dollars worth of trade would be subject to

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00:25:17,680 --> 00:25:21,040
Speaker 1: new tariffs. When President Trump said he will go the

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Speaker 1: full five and five billion, that's still a lot of

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Speaker 1: pain to be felt. So we've got a long way

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Speaker 1: to go on the tariffs and how Americans feel about

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Speaker 1: those tariffs. China does have other ways to retaliate, including

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Speaker 1: slowing down delivery of our goods. Uh. Don't forget we

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Speaker 1: have companies based in China that sell three hundred billion

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Speaker 1: dollars worth of goods too in services to the Chinese economy.

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Speaker 1: My own view, however, is that China will not retaliate

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Speaker 1: in those ways. For a very simple reason. China very

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00:25:58,359 --> 00:26:03,600
Speaker 1: much benefits from and values its position in global value chains.

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00:26:04,160 --> 00:26:07,639
Speaker 1: It needs new investment. Contrary to popular belief, it is

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00:26:07,680 --> 00:26:12,359
Speaker 1: not an innovative powerhouse. Yet it still lags most of

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00:26:12,400 --> 00:26:15,800
Speaker 1: the world developed world in terms of its innovative capacity.

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00:26:16,200 --> 00:26:19,320
Speaker 1: It needs foreign investment. It's not going to shoot itself

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Speaker 1: in the foot by making itself inhospitable to foreign investors.

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Speaker 1: So to some extent, some people might argue the US

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Speaker 1: has the upper hand um with the sort of tension

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Speaker 1: with the Chinese at the moment, Does the United States

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00:26:31,680 --> 00:26:35,760
Speaker 1: have the upper hand with the Europeans tomorrow? No. I

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00:26:35,800 --> 00:26:38,480
Speaker 1: think in general the idea that the US has the

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00:26:38,560 --> 00:26:41,399
Speaker 1: upper hand is mistaken, and it's based on the views

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Speaker 1: the US is such a large importer that we can

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Speaker 1: affect other countries in a negative way. Clearly we can

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Speaker 1: affect under other countries in a negative way, and we are.

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Speaker 1: But don't forget it's us against the whole world that

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Speaker 1: makes us a lot smaller. UH. Let's in the case

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Speaker 1: of Europe or China, countries have ways to go around

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00:27:02,359 --> 00:27:06,199
Speaker 1: what we're doing. We've already seen some US companies UH

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00:27:06,320 --> 00:27:09,840
Speaker 1: saying that they will move operations overseas to avoid these tariffs,

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00:27:09,840 --> 00:27:12,119
Speaker 1: because once you're free of US soil, you don't have

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00:27:12,200 --> 00:27:16,280
Speaker 1: to pay the taxport well, so it really gives an

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00:27:16,280 --> 00:27:20,320
Speaker 1: incentive for companies to work around them. Okay, some Mercedes

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00:27:20,359 --> 00:27:23,000
Speaker 1: has a sprinter van. It's like a cargo van, folks,

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00:27:23,600 --> 00:27:25,919
Speaker 1: and it's made inducel door for except they tear it

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00:27:26,000 --> 00:27:29,240
Speaker 1: apart and take it over to Land and South Carolina

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00:27:29,800 --> 00:27:34,359
Speaker 1: to reassemble it to get around all this malarkey. Right, Well,

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00:27:34,440 --> 00:27:36,960
Speaker 1: there are lots of things like that that happen, and

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00:27:37,000 --> 00:27:40,359
Speaker 1: it's due to all these tariffs that that change the

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00:27:40,359 --> 00:27:45,320
Speaker 1: way firms uh produce. None of them are productivity enhancing,

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00:27:45,359 --> 00:27:49,440
Speaker 1: They all are efficiency reducing. So the fact that that's

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00:27:49,480 --> 00:27:52,800
Speaker 1: already happening is an example of basically an inefficient type

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00:27:52,840 --> 00:27:55,600
Speaker 1: of production taking something down. We're just going to see

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00:27:55,600 --> 00:27:57,800
Speaker 1: a whole lot more of it with these tariffs. Okay,

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Speaker 1: with these tariffs these I hate that we're terrorist, folks,

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00:28:00,680 --> 00:28:05,040
Speaker 1: it's tax With these taxes, are we going to see

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00:28:05,119 --> 00:28:07,879
Speaker 1: something like be careful what you wish for and that

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00:28:08,000 --> 00:28:10,800
Speaker 1: we're going to get the first order condition, but the

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00:28:10,840 --> 00:28:15,240
Speaker 1: second or third order conditions are going to kill us. Yes,

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00:28:15,720 --> 00:28:18,320
Speaker 1: This is going to hurt, and we're already seeing it

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Speaker 1: hurting in farm country because many of our trading partners

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Speaker 1: understand that that is a place of a pressure point

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Speaker 1: for the US. We've seen tariffs already on beef, cereal, sorgum, soybeans, fish, Christians. Yeah,

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Speaker 1: these are gonna hurt, and they're going to hurt very

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Speaker 1: targeted parts of America and very lovely. Thank you so much,

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00:28:40,960 --> 00:28:44,320
Speaker 1: greatly appreciate it with Syracuse University, you know, so with Peterson.

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Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

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00:28:55,960 --> 00:29:01,280
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

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00:29:01,320 --> 00:29:05,560
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

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Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.