WEBVTT - Trump Tariffs Imperil Mexico Relationship: Duncan Wood 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa brahma Witz. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.560 at Bloomberg dot com. President Trump announced via tweet a 0:00:24.600 --> 0:00:27.840 five percent terrafon all imports from Mexico unless it takes 0:00:27.920 --> 0:00:32.040 quote decisive measures to stem migrants entering the US. To 0:00:32.080 --> 0:00:34.200 get a sense of what this means for the US 0:00:34.360 --> 0:00:37.960 Mexican relationship, returned to Duncan Wood. Duncan is director of 0:00:38.040 --> 0:00:40.920 the Mexico Institute at the Wilson Center based in Washington, 0:00:41.000 --> 0:00:43.519 d C. Duncan, thank you so much for joining us. 0:00:43.560 --> 0:00:45.400 I guess let's start off with just a sense of 0:00:45.760 --> 0:00:49.160 how significant is this move by President Trump to impose 0:00:49.240 --> 0:00:52.879 these tariffs potentially. I think it's hugely significant, um in 0:00:52.920 --> 0:00:55.920 the sense, well in two senses. First of all, what's 0:00:55.920 --> 0:00:58.960 going to mean for the bilateral relationship and for the 0:00:59.080 --> 0:01:02.320 generally positive two relations that have existed so far between 0:01:03.000 --> 0:01:07.160 Trump and President Lopoes or Ador in Mexico. And secondly, 0:01:07.200 --> 0:01:09.840 I think it's hugely significant in terms of domestic politics 0:01:09.840 --> 0:01:12.200 here in the United States. Um, this is going to 0:01:12.280 --> 0:01:19.240 have broad, far reaching and perhaps unpredicted UH consequences for 0:01:19.240 --> 0:01:23.360 for the election in so Duncan. President Trump said that 0:01:23.400 --> 0:01:25.800 if he imposes her up, some Mexico companies will leave 0:01:25.800 --> 0:01:29.720 that country to avoid paying them. Do you agree. I 0:01:29.720 --> 0:01:32.240 actually don't think that that's that's the case, at least 0:01:32.240 --> 0:01:34.200 in the short term. I think that what we're going 0:01:34.280 --> 0:01:37.240 to see is we're going to see a rather vigorous 0:01:37.280 --> 0:01:41.759 response from the Mexican government retaliatory tariffs which will hit 0:01:42.400 --> 0:01:47.400 United States agricultural exporters in particular, and that will bring 0:01:47.960 --> 0:01:51.840 first of all, the the US Senate to pressure the president. 0:01:52.200 --> 0:01:54.200 And secondly, I think the President is going to have 0:01:54.240 --> 0:01:58.600 to accept that this may be in fact counterproductive. But 0:01:58.800 --> 0:02:00.680 you know, one of the things that Exco has going 0:02:00.680 --> 0:02:03.680 for it right now is that Mexico is often seen 0:02:03.720 --> 0:02:07.280 as being an alternative to China in terms of producing 0:02:07.320 --> 0:02:10.359 for export to the United States due to the trade 0:02:10.360 --> 0:02:12.959 tensions that exist between the US and China. Right now, 0:02:13.680 --> 0:02:17.840 Mexico has been benefiting enormously. If these tariffs are applied 0:02:17.919 --> 0:02:20.480 in the you know, not just in a short term way, 0:02:20.520 --> 0:02:22.800 but in the long term as a long term measure, 0:02:22.840 --> 0:02:24.160 then I think we're going to see that that will 0:02:24.200 --> 0:02:28.200 obviously compromise Mexican competitiveness, but to try to delink the 0:02:28.240 --> 0:02:31.080 Mexican and US economies at this point in time, where 0:02:31.080 --> 0:02:34.640 we see a North American manufacturing platform that is highly 0:02:34.720 --> 0:02:37.520 integrated supply chains that have been built up over a 0:02:37.520 --> 0:02:41.000 period of thirty years, it's just unreasonable to think that 0:02:41.000 --> 0:02:43.639 that's going to be the case. And in many areas 0:02:43.760 --> 0:02:45.720 of the of the U S economy, we're going to 0:02:45.800 --> 0:02:50.720 see prices going up for US goods that depend upon 0:02:50.880 --> 0:02:55.120 imports of parts from Mexico. And that's going to compromise 0:02:55.160 --> 0:02:59.120 not just the h the consumers in here in the 0:02:59.200 --> 0:03:01.079 United States who are going to pay more for their goods, 0:03:01.160 --> 0:03:03.919 but it's also going to compromise the competitiveness of American 0:03:04.000 --> 0:03:07.200 firms as they try to compete in the global economy. So, Duncan, 0:03:07.240 --> 0:03:10.240 one of the questions is, you know, for will these 0:03:10.480 --> 0:03:13.880 teriffs move Mexico to act as a president once do 0:03:13.880 --> 0:03:17.120 you think they will be effective? There's a serious problem 0:03:17.120 --> 0:03:20.160 in the logic here, and that is that Mexico could 0:03:20.200 --> 0:03:23.640 do more if it wanted to. Mexico is already doing 0:03:23.680 --> 0:03:27.240 an enormous amount. Between January and March of this year, 0:03:27.720 --> 0:03:32.520 Mexico has been deporting ever increasing numbers of Central Americans. 0:03:32.840 --> 0:03:35.760 So between January and March of this year, they deported 0:03:35.800 --> 0:03:40.800 around twenty two thousand Central Americans from Mexican territory. If 0:03:40.840 --> 0:03:43.360 we look back over the last five years, Mexico has 0:03:43.400 --> 0:03:47.160 deported more Central Americans from Mexican territory than the US 0:03:47.240 --> 0:03:51.680 has from US territory. So Mexico is already doing a lot. Secondly, 0:03:51.760 --> 0:03:56.360 Mexico does not have scare spare resources to apply to 0:03:56.560 --> 0:03:58.960 this these kind of programs, and the United States is 0:03:59.000 --> 0:04:01.320 not offering any and of aid in the past. I mean, 0:04:01.320 --> 0:04:03.200 particularly if we go back to two thousand and fourteen, 0:04:03.440 --> 0:04:06.600 when the United States pressured Mexico to implement something called 0:04:06.600 --> 0:04:09.440 the Plan Fronterra sor or the or their Southern Border Plan. 0:04:09.840 --> 0:04:15.560 The United States provided enormous amounts of financial, um logistical 0:04:15.640 --> 0:04:18.360 and technical aid to enable them to do that. This 0:04:18.480 --> 0:04:21.760 is just a cold demand on the part of of 0:04:21.800 --> 0:04:24.719 President Trump that the Mexicans can do more. Mexico is 0:04:24.720 --> 0:04:28.680 already in um a period of fiscal austerity they called 0:04:28.720 --> 0:04:32.880 actually republican austerity there, and the president is desperately trying 0:04:32.920 --> 0:04:37.360 to to to balance his budget, so there's not a 0:04:37.360 --> 0:04:40.159 lot of spare resources available. So I don't see how 0:04:40.200 --> 0:04:43.039 they could possibly do more. And here's the problem is that, 0:04:43.080 --> 0:04:46.400 in fact, it may result in less willingness on the 0:04:46.440 --> 0:04:49.440 part of the Mexican government to continue collaborating with the 0:04:49.520 --> 0:04:53.840 United States. So, duncan, I'm trying to understand the legality 0:04:54.240 --> 0:04:58.680 of putting these tariffs on goods coming from Mexico given 0:04:58.680 --> 0:05:01.960 the current trade agreement in place, because President Trump is 0:05:02.000 --> 0:05:04.360 not doing it for that, he's saying he's doing it 0:05:04.440 --> 0:05:09.320 because of what he's basically for the immigration issues. Does 0:05:09.360 --> 0:05:12.800 this sort of violate any provisions within the existing agreements? 0:05:13.839 --> 0:05:19.320 So um, the President has powers under under U S 0:05:19.400 --> 0:05:23.719 Law to enact economic measures for reasons of a natural 0:05:23.880 --> 0:05:27.000 national emergency, and so that's really what he's that's the 0:05:27.520 --> 0:05:31.520 justification that he's using here. Mexico will say that this 0:05:31.600 --> 0:05:34.440 is actually a violation of the NAFTA. There's also a 0:05:34.520 --> 0:05:38.200 violation of w t O law, and Mexico will use 0:05:38.200 --> 0:05:42.920 that as their justification for enacting retaliatory tariffs. UM. Now 0:05:42.920 --> 0:05:45.160 the United States will president will say that he is 0:05:45.200 --> 0:05:48.440 justified according to US law. But we've already heard Senator 0:05:48.520 --> 0:05:51.400 Chuck grass Lee come out and say that he believes 0:05:51.440 --> 0:05:54.120 that the President has exceeded his powers here. So this 0:05:54.160 --> 0:05:57.719 will clearly become a congressional fight as well. And that's 0:05:57.720 --> 0:05:59.839 where I see that the President is probably going to 0:06:00.320 --> 0:06:04.960 find that he's on on on week or on firm ground. UM. 0:06:05.000 --> 0:06:09.680 And particularly we see pressure mounting up in rural constituencies, 0:06:09.760 --> 0:06:14.440 amongst amongst farmers in particular, a constituency that he desperately 0:06:14.480 --> 0:06:17.880 needs for his re election bid in twenty duncan Ultimately, 0:06:17.960 --> 0:06:21.159 what do you think this trade issue, these tariff issue, 0:06:21.320 --> 0:06:23.080 what effect will have on this U S m c 0:06:23.240 --> 0:06:26.680 A deal, the greater broader deal. Well, it it muddies 0:06:26.680 --> 0:06:30.200 the waters here in the United States because it's just 0:06:30.279 --> 0:06:32.400 another issue. I mean, we had just got rid of 0:06:32.760 --> 0:06:35.640 Section to thirty two tariffs on aluminum steel that was 0:06:35.680 --> 0:06:39.479 seen as being a major sticking point to getting Canada 0:06:39.520 --> 0:06:42.480 and Mexico to ratify the treaty from their From their end, 0:06:43.120 --> 0:06:45.719 we know that there is enormous tension between the White 0:06:45.720 --> 0:06:50.359 House and Speaker Pelosi, and Speaker Pelosi seems very reluctant 0:06:50.360 --> 0:06:53.440 to move ahead at this point with a ratification process 0:06:53.480 --> 0:06:57.400 here in the United States UM. And now with these measures, 0:06:57.600 --> 0:07:00.480 I think we're just going to see that in Mexico 0:07:01.320 --> 0:07:05.640 the Congress which had begun considering UM the U. S. M. 0:07:05.720 --> 0:07:08.560 C Adrian Agreement there, which is has the status of 0:07:08.560 --> 0:07:10.239 a treaty in Mexico, it is not just an agreement, 0:07:10.320 --> 0:07:13.840 is actually a treaty. They call it the Mexico United 0:07:13.880 --> 0:07:19.360 States Canada Treaty, their t mech UM that requires approval 0:07:19.400 --> 0:07:23.360 by the Mexican Senate. And whilst there was generally a 0:07:23.400 --> 0:07:27.160 positive attitude towards ratification after the repeal of the Section 0:07:27.200 --> 0:07:29.960 two tariffs, now I can see that this is going 0:07:29.960 --> 0:07:32.960 to generate a backlash there and a lot of people 0:07:33.280 --> 0:07:35.600 within the Mexican political system. We're going to say, why 0:07:35.640 --> 0:07:38.640 would we sign a free trade deal with a partner 0:07:38.720 --> 0:07:43.080 that is going to continually find another excuse to punish 0:07:43.160 --> 0:07:46.480 US UM using tariffs for things over which we have 0:07:46.640 --> 0:07:49.360 very little control. Duncan would thank you so much for 0:07:49.400 --> 0:07:52.200 being with us and breaking it down. Duncan Wood, director 0:07:52.240 --> 0:07:55.640 of the Mexico Institute at the Wilson Center in Washington, 0:07:55.840 --> 0:08:13.640 d C. Well, Lisa, I have to admit that I 0:08:13.680 --> 0:08:17.480 was not aware how many cars and car parts we 0:08:17.720 --> 0:08:21.360 import from Mexico. But it's a lot, like a real lot. 0:08:21.560 --> 0:08:23.680 So it al us explained how big it is. We 0:08:23.760 --> 0:08:26.840 welcome Alan Baum. He's a principal, that's a technico cf 0:08:26.920 --> 0:08:30.200 a term. Alan Baun principle from Bauman Associates. He joins 0:08:30.280 --> 0:08:32.880 us from West Bloomfield, Michigan. So I'm sure he knows 0:08:32.920 --> 0:08:35.480 a thing or two about cars. So Alan, just give 0:08:35.559 --> 0:08:40.160 us some history as to why Mexico is such a 0:08:40.200 --> 0:08:43.720 big supplier of autos to the U. S Well. The 0:08:43.720 --> 0:08:46.760 the obvious one, of course is cost, the lower cost 0:08:46.840 --> 0:08:50.280 of labor, but it's also trade, and of course in 0:08:50.320 --> 0:08:53.440 this case it's trade, not the way the President is 0:08:53.480 --> 0:08:57.400 talking about it, but the Mexican trade laws with the 0:08:57.480 --> 0:09:00.520 rest of the world. They have a lot of no 0:09:00.720 --> 0:09:07.480 tariff agreements, and so companies from Japan, from Germany, from Korea, 0:09:07.960 --> 0:09:11.199 uh flock as well as of course the US flock 0:09:11.600 --> 0:09:15.600 to Mexico in order to provide vehicles not just to 0:09:16.000 --> 0:09:19.120 North America but to the world. So one thing I'm 0:09:19.120 --> 0:09:23.280 I'm struggling to understand. Could Forward and General Motors both 0:09:23.320 --> 0:09:26.520 of their shares Downgental Motors four point three percent to 0:09:26.600 --> 0:09:30.240 climb this morning? Could they just shift their supply chains 0:09:30.440 --> 0:09:35.080 out of Mexico, avoid the tariffs, avoid the political fallout, Uh, 0:09:35.080 --> 0:09:38.000 and you know, perhaps increased costs a bit, but immunize 0:09:38.040 --> 0:09:42.480 themselves from these types of trading certainties. And of course 0:09:42.480 --> 0:09:46.760 the answer is no. If they could, that would mean 0:09:46.760 --> 0:09:52.040 they were running extremely inefficient plants, having the capability to 0:09:52.160 --> 0:09:56.080 move from one plant in one country to another. Uh. 0:09:56.160 --> 0:09:59.680 The whole system is, of course tied together. Uh. And 0:10:00.280 --> 0:10:04.560 even that's even true with their suppliers. Even if they said, Okay, 0:10:04.720 --> 0:10:07.160 we're gonna stick with the same suppliers because we know 0:10:07.240 --> 0:10:09.560 those are good companies, but we just want you to 0:10:09.640 --> 0:10:13.280 move to plants outside of Mexico, again, that would be 0:10:13.520 --> 0:10:17.280 very poor management on the part of their supply base. So, Ellen, 0:10:17.679 --> 0:10:20.360 given what you know about these automakers in the current 0:10:20.360 --> 0:10:24.360 competitive landscape, how do you think the automakers if these 0:10:24.360 --> 0:10:26.720 tariffs do go through, and maybe they go through, and 0:10:26.720 --> 0:10:30.640 maybe the highest levels that the president is proposing, to 0:10:30.679 --> 0:10:32.720 what extent do you think they will pass along price 0:10:33.200 --> 0:10:35.600 increases versus you know, trying to eat it in the margin. 0:10:35.679 --> 0:10:38.080 I mean, how do you think they'll react? Well, As 0:10:38.120 --> 0:10:42.920 with any product, it's based upon what the consumer will bear. Uh. 0:10:42.960 --> 0:10:47.199 And so if we're talking about crossovers and and uh 0:10:47.520 --> 0:10:51.680 sport utility vehicles and trucks, which are more popular with consumers, 0:10:51.720 --> 0:10:54.160 perhaps they'll be able to pass some of it along 0:10:54.720 --> 0:10:57.760 with respect to cars that are a harder sell right now, 0:10:58.240 --> 0:11:01.520 they're not selling without the tariffs, they wouldn't sell very 0:11:01.559 --> 0:11:05.360 well with them. UH. So it'll be a case by 0:11:05.400 --> 0:11:09.280 case decision. And it's also a very short term decision. 0:11:09.640 --> 0:11:14.240 You know. The way these tariffs, proposed tariffs are are posited, uh, 0:11:14.280 --> 0:11:18.880 they would go up uh on a monthly basis. So 0:11:19.080 --> 0:11:22.120 what you might do uh and this would be very 0:11:22.160 --> 0:11:26.120 disruptive and very expensive, but you might do it anyway. UH. 0:11:26.280 --> 0:11:28.120 Normally you have a little bit of a pause in 0:11:28.200 --> 0:11:33.600 production uh in the summertime, both for UH for for 0:11:34.280 --> 0:11:37.400 updating your plants. Obviously to give your workers a little 0:11:37.400 --> 0:11:40.280 bit of a break to do some maintenance. Maybe you 0:11:40.400 --> 0:11:43.959 defer all that and you just keep plugging. UH. And 0:11:44.280 --> 0:11:47.880 July and August are oftentimes when when things slow down 0:11:47.920 --> 0:11:51.800 when changes are made. Uh. The the even worse situation 0:11:51.960 --> 0:11:55.000 for general motors. For example, there in the middle of 0:11:55.040 --> 0:11:59.760 a changeover in Mexico for their new pickup trucks. Uh 0:11:59.800 --> 0:12:03.560 and uh so they are a little bit down anyway. 0:12:03.960 --> 0:12:07.040 Uh and they're ramping up. So this couldn't come at 0:12:07.040 --> 0:12:11.080 a worse time. So if both automakers and suppliers said 0:12:11.520 --> 0:12:13.520 we're not going to stop in July, we're not going 0:12:13.559 --> 0:12:17.440 to stop in August. Uh. There are people jumping out 0:12:17.440 --> 0:12:21.199 of windows, I'm sure uh in uh in a number 0:12:21.240 --> 0:12:24.640 of places. Hopefully they're not on a high floor. Um 0:12:24.679 --> 0:12:27.800 to to try to figure that all out. So Ellen, 0:12:27.840 --> 0:12:30.080 does anyone benefit from me? I mean I was thinking 0:12:30.120 --> 0:12:33.200 this morning, perhaps used car values will go up in 0:12:33.200 --> 0:12:35.880 the wake of this. Is there anything? Is there anyone 0:12:35.920 --> 0:12:39.680 who's gonna sort of cash in a little Uh? That's 0:12:39.720 --> 0:12:45.000 certainly possible. Um And for example, Ford H doesn't import 0:12:45.120 --> 0:12:48.560 fully built up F one fifties or or super duties 0:12:48.640 --> 0:12:53.439 from Mexico, whereas f C A and GM do uh 0:12:53.480 --> 0:12:57.160 their own products obviously, uh So so those are those 0:12:57.160 --> 0:13:01.840 are slight differences there. Uh. There are some suppliers that 0:13:02.120 --> 0:13:06.480 perhaps don't have as much of a base in Mexico. Uh. 0:13:06.559 --> 0:13:09.199 Then there are companies like Matulsa, which is a Mexican 0:13:09.240 --> 0:13:14.400 based company that supplies North America. Obviously they've got huge issues. 0:13:14.600 --> 0:13:18.679 I mean, let's let's carry this forward. We're talking three 0:13:18.720 --> 0:13:22.680 point nine million vehicles a year built in Mexico, two 0:13:22.720 --> 0:13:28.240 point six million engines, and one point eight million transmissions. 0:13:28.320 --> 0:13:32.000 So uh, the question becomes, uh, you know, how does 0:13:32.080 --> 0:13:36.199 and and these parts go back and forth? Uh? The 0:13:36.280 --> 0:13:39.880 issue apparently is there's no credit when you export something 0:13:39.920 --> 0:13:42.439 from the US, but when you bring it back as 0:13:42.480 --> 0:13:46.800 a fully assembled product, is it is the tariff on 0:13:46.840 --> 0:13:51.439 the entire thing? Even more, is this even legal? And 0:13:51.520 --> 0:13:54.280 I'm not a lawyer, which means I'm not a trade lawyer. 0:13:54.520 --> 0:13:57.199 But there are side letters in the new U S 0:13:57.400 --> 0:14:00.839 m c A. Some people believe those great those side 0:14:00.920 --> 0:14:04.200 letters are already in effect, and those side letters might 0:14:04.360 --> 0:14:08.000 make these tips illegal. Yeah, obviously we would have to 0:14:08.040 --> 0:14:10.720 go through a court process for that. Alan Baum, thank 0:14:10.760 --> 0:14:13.120 you so much for being with us. Great Great Insight 0:14:13.240 --> 0:14:17.000 Alabama's principle for Baum and Associates, a Michigan based research 0:14:17.040 --> 0:14:36.640 firm focused on automotive industries. We're getting more of a 0:14:36.720 --> 0:14:40.040 sense of how China plans to retaliate against the U 0:14:40.160 --> 0:14:43.360 S when it comes to the escalating trade tensions, Possible 0:14:43.440 --> 0:14:46.800 curbs on rare earth exports to the United States in 0:14:46.880 --> 0:14:51.520 certain key economic areas, and unreliable entities list joining us 0:14:51.520 --> 0:14:55.000 now to discuss what these mean for a potential trade deal, 0:14:55.120 --> 0:14:58.680 is Mike McDonald, chief economist for financial products at Bloomberg 0:14:59.240 --> 0:15:02.160 here in our a greater active broker studios. How likely 0:15:02.200 --> 0:15:03.680 is it, Mike there, we're actually gonna get a trade 0:15:03.720 --> 0:15:06.080 deal at this point? Okay, So it's my view. Uh, 0:15:06.120 --> 0:15:09.680 you know, I had been optimistic previously on this show. Um, 0:15:09.800 --> 0:15:12.080 subsequently my baseline, I don't. I don't think we're going 0:15:12.120 --> 0:15:17.360 to get a deal at this point. Um, I would 0:15:17.400 --> 0:15:23.160 say being optimistic alright, So what changed for you? So? 0:15:23.360 --> 0:15:26.200 I mean I think that you know, when when we 0:15:26.240 --> 0:15:29.000 first heard, you know, three or four weeks ago, and 0:15:29.000 --> 0:15:30.440 we all thought there was going to be a deal, 0:15:30.520 --> 0:15:33.760 we thought that there had been alignment into views, concessions 0:15:33.760 --> 0:15:35.480 hadn't made, there was going to be signing. I think 0:15:35.520 --> 0:15:39.160 what actually happened was there was fundamental differences that weren't 0:15:39.160 --> 0:15:42.480 being aired. Primarily, Uh, you know, I think from the 0:15:42.560 --> 0:15:45.400 Chinese perspective, they came in to negotiate a trade deal, 0:15:46.000 --> 0:15:49.160 and they left the negotiations feeling like they were negotiating 0:15:49.320 --> 0:15:52.160 terms of surrender and not actually a trade deal. And 0:15:52.240 --> 0:15:55.080 it seemed like the two sides were immovable in terms 0:15:55.080 --> 0:15:56.400 of what they were going to agree on. And I 0:15:56.440 --> 0:15:59.800 think some of the core points were, um the Chinese 0:16:00.160 --> 0:16:02.200 that they were going to bend to the will of 0:16:02.240 --> 0:16:04.960 the US negotiators, and once they signed the deal, the 0:16:05.000 --> 0:16:07.840 tariffs that were in place, we're going to remain in 0:16:07.880 --> 0:16:10.880 place until they felt they had accomplished enough to justify 0:16:10.920 --> 0:16:13.480 the removal of their tariffs. And I think that's something 0:16:13.520 --> 0:16:17.000 that they were just unwilling to agree with and sign uh. 0:16:17.000 --> 0:16:19.200 And I don't think the US negotiators were willing to 0:16:19.280 --> 0:16:21.600 change their view on that. Uh. And then if you 0:16:21.640 --> 0:16:24.400 think about I think what happened in Mexico. You know, 0:16:24.440 --> 0:16:27.400 if you were to ask me that probability question yesterday, 0:16:27.400 --> 0:16:28.880 maybe I would have gone a little bit higher. But 0:16:28.920 --> 0:16:31.240 now you have to put yourself in the perspective of 0:16:31.280 --> 0:16:34.880 the Chinese. So even if they did sign a trade deal, 0:16:35.120 --> 0:16:38.000 look at what happened with Mexico. So the Chinese are 0:16:38.000 --> 0:16:40.320 worried that they're going to remain a punching bag of 0:16:40.360 --> 0:16:44.520 Trump's going into the election. So they have a trade deal, tariffs, 0:16:44.520 --> 0:16:47.400 they're gone. All of a sudden, something happens and they 0:16:47.400 --> 0:16:49.560 get a tweet saying, you know, we're putting tariffs on 0:16:49.680 --> 0:16:52.120 for a reason. Why, Oh that is actually unrelated to 0:16:52.160 --> 0:16:54.760 the trade deal that we signed. It's this is punitive 0:16:54.840 --> 0:16:58.040 for some other action that's taking place. I see. So 0:16:58.280 --> 0:17:00.640 I guess then if that's if you're as case at 0:17:00.640 --> 0:17:03.200 this point is that no trade deal will get uh, 0:17:03.800 --> 0:17:06.639 we'll get we'll get done at this point, then play 0:17:06.680 --> 0:17:10.040 out what happens. I mean, the unreliable entities list from China, 0:17:10.200 --> 0:17:14.480 the rare Earth's curves, the you know, walk us through 0:17:14.520 --> 0:17:17.560 what this means. Yeah, I mean, I wrote on Bloomberg Opinion, 0:17:17.640 --> 0:17:19.440 I wrote something over a year ago at this point 0:17:19.520 --> 0:17:23.600 talking about the potential repercussions of targeting Chinese tech companies, 0:17:23.640 --> 0:17:26.919 and the repercussions wouldn't just end at tariffs. Uh, it 0:17:26.960 --> 0:17:30.359 would be China beginning to target US companies that it 0:17:30.400 --> 0:17:33.119 has some control over, either that do business in China 0:17:33.240 --> 0:17:35.000 or have some sort of production in China. So I 0:17:35.040 --> 0:17:38.439 think this is a step in that direction. Right in 0:17:38.480 --> 0:17:40.959 the U S. We you know, there's checks and balances 0:17:41.040 --> 0:17:43.919 and and and certain um processes that have to be 0:17:43.960 --> 0:17:46.400 followed to go after a company. China is much more 0:17:46.480 --> 0:17:48.640 command economy, run out of the center. So if there's 0:17:48.640 --> 0:17:50.800 something they want to pass that restricts a company from 0:17:50.840 --> 0:17:53.720 doing business in that country, it's a lot easier to 0:17:53.800 --> 0:17:55.600 do than it would be here. So they have a 0:17:55.640 --> 0:17:58.239 lot of they can move quicker on that front. UH. 0:17:58.320 --> 0:18:01.520 And as you see the UH trade war escalate outside 0:18:01.520 --> 0:18:05.280 of just tariffs, UH, this is going to continue to progress. 0:18:05.320 --> 0:18:07.520 And now we've seen actually the trade war go beyond 0:18:07.640 --> 0:18:10.720 China to also now move to Mexico, who again you know, 0:18:10.840 --> 0:18:13.280 just had this trade deal agreed with the US, but 0:18:13.320 --> 0:18:16.360 it didn't seem to matter. Alright, So, Mike, it appears 0:18:16.359 --> 0:18:18.680 at President Trump and President She are going to meet 0:18:18.720 --> 0:18:21.560 at the G twenty coming up. Any reason to have 0:18:21.640 --> 0:18:24.000 some optimism that if you just put these two in 0:18:24.040 --> 0:18:26.240 a room, that maybe they can paper over some of 0:18:26.280 --> 0:18:28.320 these bigger issues here. I mean, it's hard to see 0:18:28.359 --> 0:18:30.680 that right now. If if you think back to last year, 0:18:30.720 --> 0:18:33.040 it was a similar meeting that they had in Argentina 0:18:33.359 --> 0:18:35.679 that kind of kicked the can on the problem. But 0:18:35.800 --> 0:18:41.160 the differences seem so fundamental. Without one side um seismically 0:18:41.280 --> 0:18:44.199 changing their beliefs, it's hard to see a deal. So 0:18:44.240 --> 0:18:46.359 maybe there's the the can gets kicked a little bit. 0:18:46.400 --> 0:18:49.159 But I'm not overly optimistic. You know, there's there's a 0:18:49.240 --> 0:18:51.440 chance something could happen, but you know, I factored that 0:18:51.480 --> 0:18:54.560 into my baseline view. Do you think that this is 0:18:54.600 --> 0:18:57.479 going to kick the global economy into recession? Well, I 0:18:57.520 --> 0:19:00.840 think that, you know, the market is certainly justified to 0:19:00.920 --> 0:19:04.440 begin pricing in rate cuts by the Fed, especially now 0:19:04.440 --> 0:19:07.560 with this Mexico x escalation. If you have you know, 0:19:07.680 --> 0:19:10.800 if you combine Mexican in Chinese imports to the US, 0:19:10.960 --> 0:19:13.600 you're talking about something like a third of all imports, 0:19:13.600 --> 0:19:16.439 and you're putting that at a tariff. A lot of 0:19:16.440 --> 0:19:18.640 these are consumer goods, a lot of these are inputs 0:19:18.640 --> 0:19:22.280 to supply chain. So yeah, there's there's a really meaningful 0:19:22.400 --> 0:19:24.879 risk that you could enter at least a mild recession 0:19:24.960 --> 0:19:27.800 if this goes full throttle. And I'm just looking at 0:19:27.840 --> 0:19:29.760 the w I r P function as I do ten 0:19:29.960 --> 0:19:31.840 every day, it seems like but now it's all the 0:19:31.880 --> 0:19:33.959 way up to about a nine chance of a rate 0:19:33.960 --> 0:19:36.080 cut by the year end. Does that seem kind of 0:19:36.080 --> 0:19:41.560 reasonable from your perspective with with the recent escalation. Um, yeah, 0:19:41.760 --> 0:19:43.919 I mean it's if this, if they follow through and 0:19:44.000 --> 0:19:46.160 you know that. The thing is, I think people realize 0:19:46.200 --> 0:19:49.040 that it's not trust rhetoric, there's action being put behind it. 0:19:49.080 --> 0:19:51.359 Now we've seen the tariffs with China, we need to 0:19:51.359 --> 0:19:53.880 see what happens with Mexico. There seems to be a 0:19:53.920 --> 0:19:58.080 big misunderstanding who's actually paying for these tariffs. Obviously was 0:19:58.119 --> 0:20:00.320 paying for these The importers are paying for them. So 0:20:00.359 --> 0:20:03.360 I mean it's it's it's it's a tax. It is 0:20:03.520 --> 0:20:05.200 a tax on importers. I mean there was a point 0:20:05.240 --> 0:20:07.240 in time where there was no income tax in this country. 0:20:07.320 --> 0:20:11.679 The only tax was tariffs. Um, in my time, before 0:20:11.680 --> 0:20:13.760 all of our time. Alright, So alright, well, Mike, we'll 0:20:13.760 --> 0:20:15.159 follow up on this because I'm sure this is a 0:20:15.200 --> 0:20:18.440 story that will just keep developing. Mike McDonagh, chief economist 0:20:18.480 --> 0:20:20.880 for Financial Products for Bloomberg joinius here in our Bloomberg 0:20:20.880 --> 0:20:23.560 eleven three oh studios. Thanks so much. My takeaway is 0:20:24.160 --> 0:20:28.760 a ten chance of trade negotiations between China in the US. 0:20:28.840 --> 0:20:33.320 That's optimistic that's that's optimistic, Mike. Yeah, that's optimistic, Mike. Alright, Mike, 0:20:33.680 --> 0:20:51.080 thanks very much. Potential tariffs on Mexico are also rattling markets. 0:20:51.440 --> 0:20:54.240 Take an additional perspective, we turned to Mark Chandler Marcus, 0:20:54.280 --> 0:20:57.960 I'm managing partner in chief market strategist for Bannockburn Global 0:20:58.040 --> 0:21:00.520 Forex based in New York City. Market so much for 0:21:00.600 --> 0:21:04.560 joining US. How disruptive do you think these new potential 0:21:04.600 --> 0:21:08.160 tariffs on Mexico could be for the U? S economy? Yeah? 0:21:08.160 --> 0:21:10.000 I don't think that the real danger in the short 0:21:10.080 --> 0:21:12.440 run of the US economy per se. It's not good 0:21:12.760 --> 0:21:14.840 in a sense that you know, last year, the US 0:21:14.880 --> 0:21:17.440 economy is doing so well because we got tax cuts, 0:21:17.480 --> 0:21:20.040 and this year were getting tax increases and it's import 0:21:20.119 --> 0:21:23.439 tax increases. But I think that the disruption is I 0:21:23.440 --> 0:21:25.560 think it could affect the UH. You know, we were 0:21:25.560 --> 0:21:29.399 just beginning the legislative process for ratification of the NAFTA 0:21:29.440 --> 0:21:32.400 two point oh deal. I think that puts this at risk. 0:21:32.440 --> 0:21:34.679 And if if you think about the other trade partners 0:21:34.720 --> 0:21:36.840 we have, I mean, what can they take away from this? 0:21:36.880 --> 0:21:39.440 It means that even a pending trade agreement with Mexico 0:21:40.000 --> 0:21:43.560 is not enough to save them from from such a 0:21:43.640 --> 0:21:48.320 surprise and tariffs. And so I think it's a questions. 0:21:48.359 --> 0:21:52.720 I think, uh, other countries willingness to take US negotiations 0:21:52.720 --> 0:21:55.600 seriously if the US can still prepare ups on on 0:21:55.720 --> 0:21:58.880 on Mexico despite having a free trade agreement, their free 0:21:58.880 --> 0:22:00.920 trade agreement in the works, because we still have the 0:22:00.960 --> 0:22:03.840 first and after of course. Yeah, so this of course 0:22:03.880 --> 0:22:06.520 brings us to China, because China and the US have 0:22:06.640 --> 0:22:09.280 been mired and ongoing discussions about how to resolve their 0:22:09.320 --> 0:22:12.960 trade differences in the dispute there. Uh it what doesn't 0:22:13.000 --> 0:22:17.879 mean for emerging markets right now that the prospect of 0:22:17.920 --> 0:22:22.960 a US China trade deal looks increasingly remote. Yeah, I 0:22:23.040 --> 0:22:25.560 thought that Mexico would have been one of the beneficiaries 0:22:26.280 --> 0:22:29.000 some countries, some and we see this right, some companies 0:22:29.119 --> 0:22:31.520 trying to move out of China, recognizing that the US 0:22:31.560 --> 0:22:35.240 and China might be in for sustained economic tension, do 0:22:35.240 --> 0:22:38.200 they want to move production closer to the US. Mexico 0:22:38.280 --> 0:22:42.640 is an obvious choice. In fact, since March Mexican, Uh, 0:22:42.840 --> 0:22:46.000 the US imports more from Mexico and it does from China. 0:22:46.560 --> 0:22:49.240 And so I think that for a lot of emerging markets. 0:22:49.240 --> 0:22:51.160 I mean other emerging markets might stand to benefit. Now, 0:22:51.320 --> 0:22:54.560 maybe those countries in East Asia or maybe some other 0:22:54.600 --> 0:22:59.280 places in South America. Central America could be a beneficiary too. 0:22:59.359 --> 0:23:01.080