1 00:00:02,480 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,640 --> 00:00:12,840 Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. 3 00:00:12,920 --> 00:00:15,400 Speaker 2: You can join Brian Curtis and myself for the stories, 4 00:00:15,440 --> 00:00:18,520 Speaker 2: making news and moving markets in the APAC region. You 5 00:00:18,600 --> 00:00:21,439 Speaker 2: can subscribe to the show anywhere you get your podcast 6 00:00:21,520 --> 00:00:24,919 Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the 7 00:00:24,920 --> 00:00:26,080 Speaker 2: Bloomberg Business app. 8 00:00:27,120 --> 00:00:30,280 Speaker 3: A China trade lobby group says that China may consider 9 00:00:30,400 --> 00:00:34,920 Speaker 3: raising temporary tearriffs to twenty five percent on imported cars 10 00:00:34,960 --> 00:00:38,199 Speaker 3: with large engines. Joining us now for some discussion of 11 00:00:38,240 --> 00:00:42,320 Speaker 3: this is Linda lu Bloomberg China Cars Reporter. So, Linda, 12 00:00:42,360 --> 00:00:44,680 Speaker 3: you say in your story that we had two hundred 13 00:00:44,720 --> 00:00:47,800 Speaker 3: and fifty thousand cars with engines more than two and 14 00:00:47,840 --> 00:00:52,000 Speaker 3: a half liters imported into China twenty twenty three. I'm 15 00:00:52,000 --> 00:00:55,040 Speaker 3: curious whether most of those come from the US and 16 00:00:55,240 --> 00:00:58,600 Speaker 3: Europe And sounds like a big number, quarter of a million, 17 00:00:58,720 --> 00:00:58,960 Speaker 3: is it. 18 00:01:00,080 --> 00:01:04,320 Speaker 1: Yeah, it's interesting looking at this right now, we're trying 19 00:01:04,319 --> 00:01:08,280 Speaker 1: to figure out from the custom stata which automakers will 20 00:01:08,319 --> 00:01:12,080 Speaker 1: be impacted. But if you compare that to the number 21 00:01:12,200 --> 00:01:16,320 Speaker 1: of electric vehicles that China exports, it's actually still smaller. 22 00:01:16,840 --> 00:01:20,200 Speaker 1: China exported one point five million evs last year, with 23 00:01:20,360 --> 00:01:23,600 Speaker 1: about six hundred and thirty eight thousand going to Europe 24 00:01:24,040 --> 00:01:27,880 Speaker 1: and North America. Like with the US, which already had 25 00:01:27,959 --> 00:01:31,720 Speaker 1: a high tariff, last year, they only received about fifty 26 00:01:31,760 --> 00:01:34,360 Speaker 1: two thousand evs from China. 27 00:01:34,560 --> 00:01:39,280 Speaker 2: So I'm imagining names like BMW, Audi, Mercedes, Benz and 28 00:01:39,319 --> 00:01:42,960 Speaker 2: then from the US side, Cadillac some of the luxury models. 29 00:01:42,959 --> 00:01:44,280 Speaker 2: Would that be a safe assumption. 30 00:01:45,200 --> 00:01:50,840 Speaker 1: Yes, that's right. China now is such a big automaking country, 31 00:01:50,920 --> 00:01:55,840 Speaker 1: they more than capable of essentially filling audio demand for 32 00:01:56,000 --> 00:02:00,440 Speaker 1: cars domestically. But obviously there's some luxury models that are 33 00:02:00,440 --> 00:02:02,760 Speaker 1: not made in China, and like you said, those brands 34 00:02:03,040 --> 00:02:06,160 Speaker 1: would be the usual suspects when you're looking at imported 35 00:02:06,240 --> 00:02:07,160 Speaker 1: cars into China. 36 00:02:08,000 --> 00:02:10,440 Speaker 3: So this came from an interview from Leopin who is 37 00:02:10,440 --> 00:02:14,280 Speaker 3: the chief expert of China Automotive Technology and Research Center. 38 00:02:15,000 --> 00:02:17,760 Speaker 3: It was in the Global Times newspaper, and I think 39 00:02:17,800 --> 00:02:19,919 Speaker 3: I'm not sure whether or not we would have picked 40 00:02:20,000 --> 00:02:22,240 Speaker 3: up on it so much except for the China Chamber 41 00:02:22,240 --> 00:02:24,919 Speaker 3: of Commerce to the EU talked about this and said 42 00:02:24,960 --> 00:02:28,560 Speaker 3: that there would be implications, what would have to happen 43 00:02:28,600 --> 00:02:29,960 Speaker 3: next for this to become policy. 44 00:02:30,919 --> 00:02:34,760 Speaker 1: Yeah, we also were looking at the Global Times interview 45 00:02:34,840 --> 00:02:39,240 Speaker 1: yesterday and not sure how much of an indication this 46 00:02:39,320 --> 00:02:43,360 Speaker 1: is that China may eventually move to raise the tariffs. 47 00:02:43,720 --> 00:02:48,480 Speaker 1: We're all really waiting to see whether an official director 48 00:02:48,600 --> 00:02:53,079 Speaker 1: will come from one of China's government agencies, such as 49 00:02:53,560 --> 00:02:56,920 Speaker 1: the Ministry of Commerce or Customs, where they will officially 50 00:02:57,280 --> 00:03:00,360 Speaker 1: announce the raising of the tariffs. 51 00:03:00,400 --> 00:03:02,880 Speaker 2: It feels like we're in a new phase of a 52 00:03:02,960 --> 00:03:05,200 Speaker 2: trade war, wouldn't you say, when it comes to vehicles, 53 00:03:05,240 --> 00:03:10,440 Speaker 2: particularly evs that are maybe exported from China to other markets, 54 00:03:10,440 --> 00:03:14,600 Speaker 2: and now we're looking at possible punitive tariffs, temporary though 55 00:03:14,639 --> 00:03:19,040 Speaker 2: they may be, that would target European and American manufactured 56 00:03:19,120 --> 00:03:20,120 Speaker 2: luxury cars. 57 00:03:20,960 --> 00:03:26,040 Speaker 1: Yes, I completely agree. And actually since the EU launching 58 00:03:26,160 --> 00:03:29,919 Speaker 1: the anti subsidy investigation into Chinese evs, we've seen a 59 00:03:29,960 --> 00:03:33,440 Speaker 1: whole series of tips for tat between China and the 60 00:03:33,480 --> 00:03:36,520 Speaker 1: EU and obviously the US and January does ye China 61 00:03:36,600 --> 00:03:42,880 Speaker 1: announced in anti dumping investigation into Brandy, which we think 62 00:03:43,000 --> 00:03:47,120 Speaker 1: maybe a response to the EU investigation, and then with 63 00:03:47,280 --> 00:03:52,240 Speaker 1: the US essentially quadrupling the imput tariffs for Chinese evs. 64 00:03:52,400 --> 00:03:56,280 Speaker 1: Then in recent weeks we also saw China announcing another 65 00:03:56,320 --> 00:04:01,000 Speaker 1: investigation into chemicals are being dumped from the EU. So 66 00:04:01,080 --> 00:04:03,600 Speaker 1: there's a whole series of moves that I would say 67 00:04:03,880 --> 00:04:07,400 Speaker 1: is really just developing this trade war. 68 00:04:08,040 --> 00:04:11,280 Speaker 3: Behind the scenes here, Linda, how much is this affecting 69 00:04:11,360 --> 00:04:14,800 Speaker 3: the status of some of the jvs in China that 70 00:04:14,880 --> 00:04:18,240 Speaker 3: involves so many foreign companies, you know, pairing up with 71 00:04:18,360 --> 00:04:19,160 Speaker 3: local companies. 72 00:04:19,839 --> 00:04:24,440 Speaker 1: I would say with these tariffs, it's probably not going 73 00:04:24,480 --> 00:04:27,719 Speaker 1: to have such a big impact on the jvs because 74 00:04:28,040 --> 00:04:31,600 Speaker 1: a lot of their sales in China come from locally 75 00:04:31,640 --> 00:04:36,920 Speaker 1: manufactured vehicles, and there the trenders in the Chinese market 76 00:04:36,960 --> 00:04:40,479 Speaker 1: these days. The jvs such as General Motors, are the 77 00:04:40,520 --> 00:04:44,160 Speaker 1: one with Ford, as well as the European joint ventures. 78 00:04:44,200 --> 00:04:48,760 Speaker 1: They're all essentially suffering a hit to their sales because 79 00:04:48,800 --> 00:04:52,720 Speaker 1: of China's fast transitioned to evs, and that's something they 80 00:04:52,760 --> 00:04:55,440 Speaker 1: don't have strong offerings in and they're trying very hard 81 00:04:55,440 --> 00:04:56,000 Speaker 1: to catch up. 82 00:04:56,279 --> 00:04:57,880 Speaker 2: Linda, do you have a sense of what this may 83 00:04:57,960 --> 00:05:01,359 Speaker 2: mean for Tesla, an American company with a factory in 84 00:05:01,400 --> 00:05:05,440 Speaker 2: Shanghai making vehicles not only for the domestic market, but 85 00:05:05,520 --> 00:05:07,080 Speaker 2: for exportation as well. 86 00:05:07,880 --> 00:05:11,400 Speaker 1: Yeah, things could be dicey for Tesla because, as Elon 87 00:05:11,520 --> 00:05:15,080 Speaker 1: Musk himself has said, the Shanghai factory is one of 88 00:05:15,120 --> 00:05:19,160 Speaker 1: Tesla's most efficient and they turned out about half of 89 00:05:19,279 --> 00:05:25,119 Speaker 1: Tesla's global deliveries last year. And so if the EU 90 00:05:25,240 --> 00:05:29,800 Speaker 1: were to levy tariffs on Chinese made EV's going into 91 00:05:29,839 --> 00:05:33,839 Speaker 1: the block, that could be a hit to Tesla. As 92 00:05:33,880 --> 00:05:38,920 Speaker 1: for the US North American markets, I think Tesla's local 93 00:05:39,000 --> 00:05:43,159 Speaker 1: factories there supply that market. But obviously with Chaye tensines 94 00:05:43,200 --> 00:05:45,760 Speaker 1: getting worse, it's not going to be good for any 95 00:05:45,800 --> 00:05:48,799 Speaker 1: business that's trying to do business over the world. 96 00:05:49,480 --> 00:05:51,520 Speaker 3: And just because we're talking about two and a half 97 00:05:51,560 --> 00:05:55,640 Speaker 3: leaders here on cars and these are larger engine cars, 98 00:05:55,680 --> 00:05:58,000 Speaker 3: so are a lot of the jvs and local domestic 99 00:05:58,040 --> 00:06:01,880 Speaker 3: manufacturers that produce these types of cars as well. 100 00:06:02,040 --> 00:06:05,960 Speaker 1: Yes, I would say they produce a whole range of cars, 101 00:06:06,120 --> 00:06:10,200 Speaker 1: you know, from very few efficient smaller vehicles to really 102 00:06:10,360 --> 00:06:12,320 Speaker 1: beg gas guzzlers. 103 00:06:12,360 --> 00:06:15,640 Speaker 3: So they would presumably benefit if some of the foreign 104 00:06:15,640 --> 00:06:18,800 Speaker 3: models are closed out a bit by much higher costs. 105 00:06:19,320 --> 00:06:21,720 Speaker 3: So that's something that we can watch, you know, in 106 00:06:21,800 --> 00:06:25,240 Speaker 3: terms of investing Linda, thank you for joining us on 107 00:06:25,279 --> 00:06:29,680 Speaker 3: the program. Linda lu Bloomberg China Cars Reporter, looking more 108 00:06:29,720 --> 00:06:34,200 Speaker 3: closely at the potential here of extra tariffs on importing 109 00:06:34,279 --> 00:06:35,000 Speaker 3: large cars. 110 00:06:41,839 --> 00:06:45,719 Speaker 2: The world's most sophisticated chip making machines in Taiwan can 111 00:06:45,800 --> 00:06:50,160 Speaker 2: be remotely disabled in the event China invades the island. 112 00:06:50,880 --> 00:06:53,560 Speaker 2: This is a Bloomberg exclusive. We are told the remote 113 00:06:53,600 --> 00:06:57,040 Speaker 2: shut off applies to a line of extreme ultraviolet machines 114 00:06:57,080 --> 00:07:01,039 Speaker 2: made by ASML, and those machines are used by Taiwan 115 00:07:01,160 --> 00:07:06,960 Speaker 2: Semiconductor Manufacturing Company or TSMC. Here's Bloomberg's Tom McKenzie from London. 116 00:07:07,480 --> 00:07:10,320 Speaker 4: Essentially, this is a kill switch that would be applied 117 00:07:10,600 --> 00:07:15,200 Speaker 4: to these ASML machines, these extreme ultraviolet lithography machines that 118 00:07:15,280 --> 00:07:17,800 Speaker 4: process and produce, and they are essential to production of 119 00:07:17,840 --> 00:07:21,640 Speaker 4: the most sophisticated chips that TSMC, that makes the biggest 120 00:07:21,640 --> 00:07:24,880 Speaker 4: foundries over in Taiwan is dependent on. And TSMC's the 121 00:07:24,880 --> 00:07:27,840 Speaker 4: biggest buyer of these euvs that are made and produced 122 00:07:27,840 --> 00:07:28,480 Speaker 4: by SML. 123 00:07:28,560 --> 00:07:31,000 Speaker 2: That is Bloomberg's Tom McKenzie. Now we are also told 124 00:07:31,040 --> 00:07:35,160 Speaker 2: that American officials have privately expressed concern to both companies 125 00:07:35,200 --> 00:07:39,560 Speaker 2: about what happens if Chinese aggression escalates into an attack 126 00:07:39,880 --> 00:07:44,840 Speaker 2: on Taiwan. TSMC is responsible for producing the vast majority 127 00:07:44,840 --> 00:07:48,280 Speaker 2: of the world's most advanced semiconductors ran well. 128 00:07:48,360 --> 00:07:51,080 Speaker 3: Joining us now for some discussion of this is Peter Elstrom, 129 00:07:51,120 --> 00:07:55,840 Speaker 3: Bloomberg Executive editor for Asia Technology. Peter, thank you for 130 00:07:55,960 --> 00:07:59,679 Speaker 3: joining us. The two companies say they can disable these machines, 131 00:07:59,680 --> 00:08:01,680 Speaker 3: and I suppose we have to take them at their 132 00:08:01,720 --> 00:08:05,080 Speaker 3: word on this, but it will make people nervous, and 133 00:08:05,120 --> 00:08:08,000 Speaker 3: it also raises the question of how much of this 134 00:08:08,160 --> 00:08:10,040 Speaker 3: is priced in, And we saw trading in a stock 135 00:08:10,320 --> 00:08:12,760 Speaker 3: didn't do all that much. But at least at the moment, 136 00:08:12,760 --> 00:08:16,080 Speaker 3: there are no signs of invasion, so presumably there would 137 00:08:16,080 --> 00:08:18,560 Speaker 3: be time. But are you hearing from people that they 138 00:08:18,600 --> 00:08:20,480 Speaker 3: see a need to discount this further? 139 00:08:22,040 --> 00:08:24,440 Speaker 5: Yeah, So this is to be clear that companies are 140 00:08:24,440 --> 00:08:29,520 Speaker 5: not talking publicly about these capabilities, and the relationship is 141 00:08:30,040 --> 00:08:36,240 Speaker 5: Taiwan Semiconductor makes the world's most advanced chips largely in Taiwan, 142 00:08:36,800 --> 00:08:41,319 Speaker 5: and ASML supplies the most advanced equipment for making those chips. 143 00:08:41,480 --> 00:08:44,320 Speaker 5: So what sources have been telling us is that there 144 00:08:44,360 --> 00:08:50,120 Speaker 5: have been concerns about what happens if China gets more 145 00:08:50,200 --> 00:08:53,679 Speaker 5: aggressive around Taiwan, if there's even an escalation into an 146 00:08:53,720 --> 00:08:57,760 Speaker 5: attack on the island. Again, the story does not go 147 00:08:57,840 --> 00:09:02,319 Speaker 5: into the prospects for that. We think that that obviously 148 00:09:02,360 --> 00:09:05,720 Speaker 5: that is something that the companies are not involved and 149 00:09:05,720 --> 00:09:11,080 Speaker 5: wouldn't know anything about. But ASML has been approached by 150 00:09:11,160 --> 00:09:15,360 Speaker 5: the Dutch government about the possibility of what would happen then, 151 00:09:15,480 --> 00:09:19,439 Speaker 5: and ASML has told those government officials that they are 152 00:09:19,640 --> 00:09:24,040 Speaker 5: able to disable these machines remotely if something like that happens. Essentially, 153 00:09:24,080 --> 00:09:26,960 Speaker 5: this is a remote kill switch so that they could 154 00:09:27,720 --> 00:09:31,960 Speaker 5: stop these machines from producing advanced chips if something happens 155 00:09:32,640 --> 00:09:36,160 Speaker 5: around Taiwan. More broadly, they'd be able to do that 156 00:09:36,200 --> 00:09:39,280 Speaker 5: sort of thing. Also in addition to that, so it's 157 00:09:39,320 --> 00:09:44,440 Speaker 5: an extra level of caution and security that I think 158 00:09:44,480 --> 00:09:47,480 Speaker 5: the government in the Netherlands in the US would see 159 00:09:47,520 --> 00:09:51,199 Speaker 5: as a sign of reassurance of these advanced chip making 160 00:09:51,240 --> 00:09:53,600 Speaker 5: machines won't fall into long Peter. 161 00:09:53,720 --> 00:09:55,959 Speaker 3: We stated that in our story. But what I was 162 00:09:56,000 --> 00:09:58,439 Speaker 3: getting at is this discounted. I mean, are you hearing 163 00:09:58,440 --> 00:10:01,920 Speaker 3: from people that that this is a serious concern or 164 00:10:01,920 --> 00:10:03,920 Speaker 3: that no, it's not so much a serious concern. 165 00:10:04,240 --> 00:10:07,040 Speaker 5: Well, that's sort of the question is sort of predicated 166 00:10:07,080 --> 00:10:09,959 Speaker 5: on how likely is it that China actually takes some 167 00:10:10,120 --> 00:10:15,040 Speaker 5: military action against Taiwan. I think the companies are not 168 00:10:15,440 --> 00:10:19,360 Speaker 5: privy to the discussions at the most advanced levels of 169 00:10:19,480 --> 00:10:23,480 Speaker 5: the US government or the Dutch government for that matter, 170 00:10:23,559 --> 00:10:26,600 Speaker 5: So the companies are preparing for these kinds of contingencies 171 00:10:26,960 --> 00:10:29,720 Speaker 5: not really knowing what the chances are that something like 172 00:10:29,800 --> 00:10:32,719 Speaker 5: this would happen. Obviously, the tensions between the US and 173 00:10:32,800 --> 00:10:36,120 Speaker 5: China have been escalating over the past few years, and 174 00:10:36,160 --> 00:10:40,120 Speaker 5: there have been concerns about this. China continues to claim 175 00:10:40,160 --> 00:10:43,560 Speaker 5: that Taiwan is a breakaway province and that eventually there 176 00:10:43,600 --> 00:10:48,240 Speaker 5: should be some reunification of the two locations, and the 177 00:10:48,320 --> 00:10:50,319 Speaker 5: US government has pushed back on that assertion. 178 00:10:50,559 --> 00:10:53,640 Speaker 2: Peter, I remember a while back our colleagues in Washington, 179 00:10:53,720 --> 00:10:56,520 Speaker 2: d C. At Bloomberg News reported that the Bide administration 180 00:10:57,280 --> 00:11:01,559 Speaker 2: was looking at ways to potentially destroy this equipment should 181 00:11:01,640 --> 00:11:04,840 Speaker 2: there be an invasion of Taiwan on the part of 182 00:11:04,920 --> 00:11:07,760 Speaker 2: mainland China. And I think it's important to point out 183 00:11:08,320 --> 00:11:13,520 Speaker 2: that under current export controls that China cannot access this 184 00:11:13,679 --> 00:11:16,600 Speaker 2: very advanced technology that is produced by TSMC. 185 00:11:16,960 --> 00:11:21,040 Speaker 5: Yeah, that's exactly right. Yeah, the US government's beginning with 186 00:11:21,440 --> 00:11:25,800 Speaker 5: Donald Trump's first administration and then the Biden administration, have 187 00:11:25,920 --> 00:11:29,760 Speaker 5: been tightening the restrictions on China's ability to get both 188 00:11:29,840 --> 00:11:33,040 Speaker 5: chips and then the machines that actually make those chips. 189 00:11:33,240 --> 00:11:37,240 Speaker 5: You're referring to a type of machine that ASML makes 190 00:11:37,280 --> 00:11:43,120 Speaker 5: called extreme ultraviolet machines or UV machines. Those machines are 191 00:11:43,320 --> 00:11:46,760 Speaker 5: used to make the most advanced semiconductors out there, including 192 00:11:46,760 --> 00:11:50,040 Speaker 5: the chips that go into iPhones, the chips that Nvidia 193 00:11:50,160 --> 00:11:53,480 Speaker 5: uses for AI training. China has never been able to 194 00:11:53,559 --> 00:11:57,079 Speaker 5: buy those kinds of machines. Those have been prohibited, but 195 00:11:57,120 --> 00:12:00,320 Speaker 5: more recently there have been tighter restrictions on others of 196 00:12:00,400 --> 00:12:04,280 Speaker 5: chips and other kinds of machines that China and Chinese 197 00:12:04,280 --> 00:12:06,880 Speaker 5: companies have been able to buy. So, yeah, that's an 198 00:12:06,920 --> 00:12:10,240 Speaker 5: increasingly tightened restrictions. What we've seen in reaction to that 199 00:12:10,400 --> 00:12:13,280 Speaker 5: is that China's investing a large amount of money into 200 00:12:13,400 --> 00:12:15,600 Speaker 5: its own chip industry. It's trying to build up some 201 00:12:15,640 --> 00:12:19,360 Speaker 5: of these domestic capabilities, and Smick, the leading maker in 202 00:12:19,520 --> 00:12:22,600 Speaker 5: China of semiconductors, has made quite a bit of progress, 203 00:12:22,920 --> 00:12:25,120 Speaker 5: as we saw last year with a chip that was 204 00:12:25,160 --> 00:12:28,120 Speaker 5: found in Huawei smartphone. They've been able to reach seven 205 00:12:28,200 --> 00:12:30,880 Speaker 5: nanimeter production, which is not at the cutting edge, but 206 00:12:30,960 --> 00:12:31,760 Speaker 5: it's quite close. 207 00:12:32,480 --> 00:12:34,560 Speaker 3: So one of the areas that we've covered here in 208 00:12:34,600 --> 00:12:37,520 Speaker 3: this discussion this morning is is whether or not China 209 00:12:37,559 --> 00:12:39,959 Speaker 3: could get its hands on this equipment. And we were 210 00:12:40,000 --> 00:12:41,959 Speaker 3: talking about how there's a kill switch to it, and 211 00:12:42,520 --> 00:12:47,000 Speaker 3: that's fine. What I think is even bigger really is 212 00:12:47,000 --> 00:12:51,199 Speaker 3: is how much does this then disrupt TSMC and all 213 00:12:51,240 --> 00:12:53,560 Speaker 3: the automated systems of the world and all the high 214 00:12:53,600 --> 00:12:56,280 Speaker 3: tech companies that use these chips. I mean, this is 215 00:12:56,320 --> 00:12:58,839 Speaker 3: what I was getting at by asking about how much 216 00:12:58,920 --> 00:13:02,840 Speaker 3: is priced in about the impact on the entire semiconductor sector. 217 00:13:03,280 --> 00:13:07,640 Speaker 5: Well, KSMC still is largely dependent on its base of 218 00:13:07,720 --> 00:13:11,560 Speaker 5: production in Taiwan. That's where it makes the vast majority 219 00:13:11,559 --> 00:13:14,080 Speaker 5: of its chips, and it certainly its most advanced chips. 220 00:13:14,360 --> 00:13:18,640 Speaker 5: But you have seen the company begin to diversify geographically 221 00:13:19,360 --> 00:13:22,480 Speaker 5: at the urging of governments around the world, including the 222 00:13:22,600 --> 00:13:27,400 Speaker 5: US government. It's building a chip fabrication plant here in Japan, 223 00:13:28,080 --> 00:13:31,280 Speaker 5: it's building another one in the United States. It may 224 00:13:31,320 --> 00:13:35,280 Speaker 5: also build something in Europe at some point, So that does, 225 00:13:35,640 --> 00:13:39,560 Speaker 5: I think to your point, that does create additional expenses 226 00:13:39,640 --> 00:13:43,800 Speaker 5: because they need more plants in more different areas to 227 00:13:43,880 --> 00:13:47,080 Speaker 5: kind of have the geographic diversity that would minimize the 228 00:13:47,160 --> 00:13:50,080 Speaker 5: risks of anything happen to their Taiwan production plants. But 229 00:13:50,200 --> 00:13:53,280 Speaker 5: make no mistake, what they have right now in Taiwan 230 00:13:53,640 --> 00:13:56,560 Speaker 5: has not been replaced yet and probably won't be replaced 231 00:13:56,559 --> 00:13:59,480 Speaker 5: for many, many years. The company's strategy for a long 232 00:13:59,520 --> 00:14:02,240 Speaker 5: time was to make everything in Taiwan because they have 233 00:14:02,440 --> 00:14:05,800 Speaker 5: their best equipment there, their most advanced equipment. They also 234 00:14:05,800 --> 00:14:10,120 Speaker 5: have their best engineers. They can share knowledge about how 235 00:14:10,160 --> 00:14:12,920 Speaker 5: to run the production lines, the whole production process that 236 00:14:13,040 --> 00:14:15,520 Speaker 5: allows them to reach high yield so that they get 237 00:14:16,320 --> 00:14:18,520 Speaker 5: a high percentage of their chips that are workable. At 238 00:14:18,520 --> 00:14:20,000 Speaker 5: the end of that, when you start to do that 239 00:14:20,080 --> 00:14:23,040 Speaker 5: in three different countries for four different countries, gets much 240 00:14:23,040 --> 00:14:25,920 Speaker 5: more complicated. That's one of the strategic challenges for TSMC 241 00:14:26,160 --> 00:14:26,560 Speaker 5: right now. 242 00:14:27,000 --> 00:14:30,640 Speaker 3: Absolutely the impact could be you know, it just could 243 00:14:30,640 --> 00:14:33,760 Speaker 3: be enormous. Peter, thanks so much for joining us. Peter Elstrom, 244 00:14:33,920 --> 00:14:45,760 Speaker 3: Bloomberg Executive editor for Asia Technology. Six FED officials spoke 245 00:14:45,800 --> 00:14:48,960 Speaker 3: in Unison today about keeping interest rates higher for longer. 246 00:14:49,120 --> 00:14:52,160 Speaker 3: Governor Christopher Waller wants to see three to five months 247 00:14:52,160 --> 00:14:56,480 Speaker 3: of good inflation data before considering cutting rates. In the meantime, 248 00:14:56,520 --> 00:14:59,880 Speaker 3: Atlanta as Rafae Albostik said, the FED is actively re 249 00:15:00,120 --> 00:15:04,040 Speaker 3: thinking it's view on the neutral rate. Here's Bloomberg's Michael McKee. 250 00:15:04,120 --> 00:15:06,840 Speaker 6: Fed officials are speaking with one voice now that they 251 00:15:06,880 --> 00:15:09,640 Speaker 6: don't think they're going to be cutting rates anytime soon. 252 00:15:09,840 --> 00:15:12,560 Speaker 6: There's a slight disagreement about how many they might get 253 00:15:12,600 --> 00:15:15,400 Speaker 6: in this year, if any at all, but they all 254 00:15:15,400 --> 00:15:17,200 Speaker 6: seem resigned to the fact that this is going to 255 00:15:17,240 --> 00:15:19,440 Speaker 6: be a long process and that the US is going 256 00:15:19,480 --> 00:15:22,080 Speaker 6: to be the outlier. The ECB can go ahead first, 257 00:15:22,120 --> 00:15:24,480 Speaker 6: maybe the Bank of England, but the FED is going 258 00:15:24,520 --> 00:15:26,080 Speaker 6: to sit tight for several. 259 00:15:25,760 --> 00:15:30,400 Speaker 3: Months Bloomberg's Michael McKee. In the meantime, ECB President Christine 260 00:15:30,440 --> 00:15:34,280 Speaker 3: Legard is forecasting June rate cut for Europe if the 261 00:15:34,320 --> 00:15:37,760 Speaker 3: price path holds. Joining us now. In our studios in 262 00:15:37,800 --> 00:15:41,400 Speaker 3: Hong Kong is Carl Tannenbaum, chief economist at Northern Trust. 263 00:15:42,080 --> 00:15:46,960 Speaker 3: Carl the implications of the economy and also the markets 264 00:15:46,960 --> 00:15:50,320 Speaker 3: holding up pretty well with interest rates steady here at 265 00:15:50,360 --> 00:15:53,240 Speaker 3: a pretty high level. Seems to be that the neutral 266 00:15:53,360 --> 00:15:56,200 Speaker 3: rate has moved higher. Your thoughts on that and where we're. 267 00:15:56,080 --> 00:15:58,880 Speaker 7: Heading, Well, first, good morning, Brian. It is not a 268 00:15:58,920 --> 00:16:02,120 Speaker 7: surprise to me that the Fed formed a bucket brigade 269 00:16:02,200 --> 00:16:05,480 Speaker 7: to pour cold water on the market's assumption that easing 270 00:16:05,520 --> 00:16:08,400 Speaker 7: would come more approximately. This is the second round that 271 00:16:08,400 --> 00:16:11,480 Speaker 7: we've had with over optimism from investors this year, and 272 00:16:11,520 --> 00:16:13,640 Speaker 7: I think they want to make sure that their intentions 273 00:16:13,720 --> 00:16:17,840 Speaker 7: are not misunderstood. In addition, the American economy has continued 274 00:16:17,920 --> 00:16:21,920 Speaker 7: to sustain momentum far beyond expectation, leading some to think 275 00:16:22,000 --> 00:16:24,800 Speaker 7: that the amount of restraint that is required to achieve 276 00:16:24,840 --> 00:16:27,840 Speaker 7: the inflation target is higher. That's the science behind the 277 00:16:27,880 --> 00:16:31,080 Speaker 7: neutral rate, And so again it looks to us as 278 00:16:31,120 --> 00:16:33,080 Speaker 7: well as the markets, like it will be late this 279 00:16:33,160 --> 00:16:35,720 Speaker 7: year at the earliest before we get that first easing 280 00:16:35,720 --> 00:16:36,480 Speaker 7: from the Fed. 281 00:16:36,360 --> 00:16:38,920 Speaker 2: And between now and then more dollar strength. And I 282 00:16:38,920 --> 00:16:41,560 Speaker 2: would imagine Carl and the conversations that you're having there 283 00:16:41,560 --> 00:16:44,080 Speaker 2: in the Apac region, there are some people that are 284 00:16:44,160 --> 00:16:46,000 Speaker 2: a little annoyed with that fact. 285 00:16:47,120 --> 00:16:49,280 Speaker 7: There's little doubt. While it's been good for me, I 286 00:16:49,320 --> 00:16:51,760 Speaker 7: was actually able to afford breakfast in Singapore for the 287 00:16:51,760 --> 00:16:54,640 Speaker 7: first time and a number of visits. The fact is 288 00:16:54,640 --> 00:16:57,920 Speaker 7: is that there are central banks in emerging markets who 289 00:16:57,960 --> 00:17:01,080 Speaker 7: have settled inflation, they have growth struggling, and who would 290 00:17:01,200 --> 00:17:04,480 Speaker 7: like to ease interest rates to help those conditions. But 291 00:17:04,560 --> 00:17:07,560 Speaker 7: to do so would risk appreciating the currency and making 292 00:17:07,560 --> 00:17:11,040 Speaker 7: the things they import more expensive. So there are central 293 00:17:11,040 --> 00:17:13,640 Speaker 7: banks around the world that are very much fed dependent. 294 00:17:14,560 --> 00:17:16,399 Speaker 3: So, Carl I was interested to hear you say that 295 00:17:16,520 --> 00:17:20,439 Speaker 3: you felt as though the markets were overextended to a 296 00:17:20,480 --> 00:17:23,000 Speaker 3: certain degree. And that's not what I want to ask 297 00:17:23,040 --> 00:17:25,600 Speaker 3: you about. I want to ask you about the economy, 298 00:17:25,680 --> 00:17:28,760 Speaker 3: because you get this feeling that some people still hold 299 00:17:28,800 --> 00:17:32,600 Speaker 3: out that a recession could happen sometime later this year 300 00:17:32,680 --> 00:17:34,800 Speaker 3: or early next year. In other words, there's a lot 301 00:17:34,840 --> 00:17:39,040 Speaker 3: of uncertainty. How strong is the economy and how durable 302 00:17:39,080 --> 00:17:40,600 Speaker 3: and sustainable is it in your view? 303 00:17:41,440 --> 00:17:45,680 Speaker 7: Well, looking backwards, American economic growth has exceeded expectation for 304 00:17:45,760 --> 00:17:48,280 Speaker 7: seven quarters in a row, and not by a little, 305 00:17:48,280 --> 00:17:50,480 Speaker 7: and the tracking here in the second quarter also looks 306 00:17:50,600 --> 00:17:55,119 Speaker 7: very positive. I think the common over the thing that 307 00:17:55,119 --> 00:17:58,480 Speaker 7: people have overlooked is the consumer strength. I know that 308 00:17:58,560 --> 00:18:01,160 Speaker 7: the markets got a little excited that our unemployment rate 309 00:18:01,200 --> 00:18:03,520 Speaker 7: has gone up to three point nine percent, but for 310 00:18:03,680 --> 00:18:06,080 Speaker 7: most of my career that would have been an amazing level. 311 00:18:06,440 --> 00:18:09,640 Speaker 7: And real wages are growing, giving the kind of spending 312 00:18:09,680 --> 00:18:14,400 Speaker 7: power that sustains economic activity. Consumers have turned out their debts, 313 00:18:14,400 --> 00:18:17,680 Speaker 7: so of corporations, and so monetary policy hasn't bitten as much, 314 00:18:18,040 --> 00:18:20,520 Speaker 7: hence the need to keep rates higher for longer. 315 00:18:20,640 --> 00:18:23,439 Speaker 2: Carl, I'm curious, how are you making sense of the 316 00:18:23,480 --> 00:18:26,520 Speaker 2: inversion of the yield curve as persistent as it has been. 317 00:18:28,200 --> 00:18:30,360 Speaker 7: One of the things I've pointed out to our clients 318 00:18:30,359 --> 00:18:32,919 Speaker 7: at Northern Trust is that an inverted yield curve is 319 00:18:33,119 --> 00:18:35,960 Speaker 7: consistent with a soft landing as well as a recession. 320 00:18:36,320 --> 00:18:38,000 Speaker 7: And if you take a look at the history of 321 00:18:38,000 --> 00:18:41,080 Speaker 7: the yield curve as a recession indicator, it's quite mixed. 322 00:18:41,320 --> 00:18:44,200 Speaker 7: There have been times we've had inversions without a recession, 323 00:18:44,520 --> 00:18:47,000 Speaker 7: and at times the curve has inverted and we haven't 324 00:18:47,000 --> 00:18:50,560 Speaker 7: seen a downturn for almost two years afterwards. So I 325 00:18:50,600 --> 00:18:52,919 Speaker 7: think it's important to look at other indicators as a 326 00:18:52,960 --> 00:18:55,160 Speaker 7: compliment to that one gauge. 327 00:18:55,400 --> 00:18:59,520 Speaker 3: There's also this fear, perhaps that the consumer is weakening 328 00:18:59,560 --> 00:19:03,520 Speaker 3: a little and particularly at the lower end. And you 329 00:19:03,640 --> 00:19:05,959 Speaker 3: need only look at a stock like Visa, which is 330 00:19:06,000 --> 00:19:08,360 Speaker 3: actually down over the past three months. It's not up. 331 00:19:08,400 --> 00:19:10,919 Speaker 3: I mean people think, oh, every stock is up in 332 00:19:10,960 --> 00:19:13,879 Speaker 3: the United States, this is the everything, Raley, It is 333 00:19:13,920 --> 00:19:18,000 Speaker 3: not really the case. Some consumer even Meta is actually 334 00:19:18,000 --> 00:19:21,720 Speaker 3: a little bit lower over the past three months. I'm 335 00:19:21,720 --> 00:19:24,440 Speaker 3: wondering how healthy is the consumer really. 336 00:19:24,840 --> 00:19:27,320 Speaker 7: Over And I think you've hit on something that's very important, 337 00:19:27,359 --> 00:19:29,280 Speaker 7: and that is you can look at things in aggregate, 338 00:19:29,320 --> 00:19:32,959 Speaker 7: but the details matter. The incomes. Let's say the lowest 339 00:19:32,960 --> 00:19:35,760 Speaker 7: forty percent of income groups in the United States, they've 340 00:19:35,800 --> 00:19:38,880 Speaker 7: exhausted their pandemic savings, and while they're still working, they're 341 00:19:38,920 --> 00:19:40,800 Speaker 7: spending a little bit faster than they should. And we've 342 00:19:40,800 --> 00:19:43,960 Speaker 7: seen an accumulation of consumer debt that's back to levels 343 00:19:43,960 --> 00:19:46,719 Speaker 7: that we saw prior to the pandemic. Associated with that, 344 00:19:46,760 --> 00:19:50,280 Speaker 7: we've seen some debt delinquencies, which also suggests that maybe 345 00:19:50,280 --> 00:19:52,720 Speaker 7: some belt tightening is on the horizon. One reason why 346 00:19:52,960 --> 00:19:56,680 Speaker 7: I would anticipate consumer spending in America to taper off 347 00:19:56,720 --> 00:19:58,520 Speaker 7: to a much lower rate of growth as we move 348 00:19:58,560 --> 00:19:59,520 Speaker 7: through twenty twenty four. 349 00:20:00,200 --> 00:20:02,560 Speaker 2: One of the things that we've been focusing on a 350 00:20:02,600 --> 00:20:05,960 Speaker 2: lot on this program. Is the divergence between kind of 351 00:20:05,960 --> 00:20:10,119 Speaker 2: what the markets may be signaling and the soft landing 352 00:20:10,160 --> 00:20:12,879 Speaker 2: that you've been kind of outlying there. Do you think 353 00:20:13,000 --> 00:20:16,480 Speaker 2: that there is a risk that markets need to recalibrate, 354 00:20:16,520 --> 00:20:18,560 Speaker 2: that maybe there is on the equity side, at least 355 00:20:18,600 --> 00:20:20,040 Speaker 2: a little too much enthusiasm. 356 00:20:21,520 --> 00:20:24,520 Speaker 7: I wouldn't think so. Again, the economic outlook is very solid. 357 00:20:24,680 --> 00:20:28,320 Speaker 7: The earnings outlook has been very, very good in certain 358 00:20:28,400 --> 00:20:30,840 Speaker 7: sectors that have been leading our markets as well as others. 359 00:20:31,200 --> 00:20:33,760 Speaker 7: There's a lot of optimism about what the next generation 360 00:20:34,040 --> 00:20:37,480 Speaker 7: of machine learning and artificial intelligence might bring. That's really 361 00:20:37,520 --> 00:20:39,360 Speaker 7: been the big driver. The other question that I get 362 00:20:39,400 --> 00:20:41,199 Speaker 7: a lot is we do have an election coming up, 363 00:20:41,240 --> 00:20:43,800 Speaker 7: and people are concerned about how that might affect markets, 364 00:20:43,800 --> 00:20:48,800 Speaker 7: but the history shows that that impact is relatively small. 365 00:20:49,359 --> 00:20:53,199 Speaker 3: Both gentlemen running seem to want to spend a lot. 366 00:20:54,040 --> 00:20:56,600 Speaker 3: Is that something like debts and deficits don't matter at 367 00:20:56,600 --> 00:20:59,720 Speaker 3: the moment, but does that come into the picture sometime soon. 368 00:21:00,480 --> 00:21:02,840 Speaker 7: Well, it's frightening. Neither one of them is serious about 369 00:21:02,880 --> 00:21:05,840 Speaker 7: fiscal policy. One would probably like to reduce taxes further 370 00:21:05,920 --> 00:21:08,000 Speaker 7: and claim that that pays for itself. The other would 371 00:21:08,040 --> 00:21:11,280 Speaker 7: like to continue spending but characterize it as an investment 372 00:21:11,320 --> 00:21:14,560 Speaker 7: whose returns would also leave the budget net neutral. And 373 00:21:14,600 --> 00:21:16,639 Speaker 7: I hear that said, and then I look at the 374 00:21:16,720 --> 00:21:19,640 Speaker 7: national debt of thirty four trillion that's likely to triple 375 00:21:19,720 --> 00:21:23,680 Speaker 7: over the next twenty years if policy isn't changed, And well, 376 00:21:23,720 --> 00:21:26,239 Speaker 7: I'm looking around for somewhere else to live, just in 377 00:21:26,240 --> 00:21:30,320 Speaker 7: case the worst happens in the USA may maybe here 378 00:21:30,359 --> 00:21:30,920 Speaker 7: in Hong Kong. 379 00:21:30,920 --> 00:21:33,720 Speaker 2: Who knows one of the candidates too, seems to be 380 00:21:33,960 --> 00:21:37,479 Speaker 2: implying that maybe the FED shouldn't be an independent body. 381 00:21:37,520 --> 00:21:38,520 Speaker 2: How do you feel about that? 382 00:21:39,680 --> 00:21:42,440 Speaker 7: Yeah, that story came out I think a few weeks ago. 383 00:21:42,600 --> 00:21:46,040 Speaker 7: Let me reassure our listeners. Structurally, from a legal perspective, 384 00:21:46,040 --> 00:21:49,680 Speaker 7: it would be very difficult for an administration to have 385 00:21:50,000 --> 00:21:53,879 Speaker 7: undue power over the FED absent a congressional change reopening 386 00:21:53,920 --> 00:21:57,120 Speaker 7: the Federal Reserve Act itself, which I find highly unlikely. 387 00:21:57,119 --> 00:21:58,840 Speaker 7: In the structure within the FED where I used to 388 00:21:58,840 --> 00:22:02,720 Speaker 7: work is one that feels it's independence is really critical 389 00:22:02,800 --> 00:22:06,280 Speaker 7: to economic and market performance, and they will safeguard that 390 00:22:07,359 --> 00:22:08,359 Speaker 7: to their last breath. 391 00:22:09,240 --> 00:22:12,040 Speaker 3: You know, I'm curious to get back at some of 392 00:22:12,040 --> 00:22:16,159 Speaker 3: these uncertainties that persist, and my ultimate question to you 393 00:22:16,240 --> 00:22:18,960 Speaker 3: will be what's an outlier? But let me just lay 394 00:22:19,000 --> 00:22:21,600 Speaker 3: some groundwork here. First, I was interested to hear Morgan 395 00:22:21,680 --> 00:22:24,639 Speaker 3: Stanley's Mike Wilson on Surveillance, excellent program. I always like 396 00:22:24,720 --> 00:22:26,880 Speaker 3: to catch that before I go to sleep at night. 397 00:22:27,359 --> 00:22:30,520 Speaker 3: And you know, he was a long standing bear. He's 398 00:22:30,680 --> 00:22:35,479 Speaker 3: raised his targets, but he still sounds pretty bearish, pretty 399 00:22:35,520 --> 00:22:39,679 Speaker 3: downbeat in many ways. So he says, look, we just 400 00:22:39,720 --> 00:22:42,280 Speaker 3: don't know, We can't know. And anybody who says they know, 401 00:22:42,920 --> 00:22:46,480 Speaker 3: you know, they're fooling themselves. Is it really that, Alista? 402 00:22:46,560 --> 00:22:49,359 Speaker 3: What really keeps you awake at night? What are you 403 00:22:49,440 --> 00:22:52,320 Speaker 3: most concerned about as a risk for the economy? 404 00:22:52,800 --> 00:22:55,080 Speaker 7: If I were to try and untangle that statement, that's 405 00:22:55,320 --> 00:22:57,640 Speaker 7: one that a lot of us have. First, the markets 406 00:22:57,640 --> 00:23:00,399 Speaker 7: have performed very well, multiples are at the up end 407 00:23:00,840 --> 00:23:03,600 Speaker 7: of their acceptable ranges, of volatility has been low, and 408 00:23:03,680 --> 00:23:06,760 Speaker 7: yet we're concerned. And I suppose the way you square 409 00:23:06,800 --> 00:23:09,240 Speaker 7: that circle, Brian, is that there are a lot of 410 00:23:09,280 --> 00:23:12,919 Speaker 7: potential tail risks. We have high levels of geopolitical uncertainty, 411 00:23:12,960 --> 00:23:16,640 Speaker 7: two wars going on, and other both economic and political 412 00:23:16,680 --> 00:23:20,040 Speaker 7: conflicts likely, and I think that that leads some to 413 00:23:20,200 --> 00:23:23,440 Speaker 7: suspect that the risk premium resident in markets right now 414 00:23:23,520 --> 00:23:26,440 Speaker 7: is not sufficient to cover if one of those tail 415 00:23:26,480 --> 00:23:27,640 Speaker 7: events becomes a reality. 416 00:23:27,720 --> 00:23:30,080 Speaker 2: Maybe a third war and let's call it a trade 417 00:23:30,080 --> 00:23:33,520 Speaker 2: war between the US and China. What type of impact 418 00:23:33,560 --> 00:23:35,880 Speaker 2: do you think that may have? And we've already seen 419 00:23:36,080 --> 00:23:38,639 Speaker 2: a lot in terms of export controls and the threats 420 00:23:38,680 --> 00:23:42,600 Speaker 2: of tariffs, new tariffs being imposed. Where is this going. 421 00:23:43,920 --> 00:23:46,719 Speaker 7: Well, war is probably an extreme term given the kinetic 422 00:23:46,800 --> 00:23:49,639 Speaker 7: activity that we have, but the trade frictions between China 423 00:23:49,640 --> 00:23:52,479 Speaker 7: and the United States continue to escalate. It actually as 424 00:23:52,560 --> 00:23:56,360 Speaker 7: one of the few policy areas where Republicans and Democrats 425 00:23:56,400 --> 00:23:58,879 Speaker 7: are in unison, so unlikely to see much of a 426 00:23:59,000 --> 00:24:01,840 Speaker 7: change there. The challenge there is that that could be 427 00:24:01,920 --> 00:24:05,280 Speaker 7: inflationary for everyone. It could narrow the path to development 428 00:24:05,320 --> 00:24:08,800 Speaker 7: for smaller economies and for entrepo economies like Hong Kong Singapore. 429 00:24:08,880 --> 00:24:11,960 Speaker 7: In this region, that friction is not helpful either to 430 00:24:12,080 --> 00:24:13,840 Speaker 7: financial or commercial activity. 431 00:24:14,520 --> 00:24:16,840 Speaker 3: Carl, thanks so much for joining us, for being here 432 00:24:16,880 --> 00:24:18,600 Speaker 3: in Hong Kong and taking out the time to come 433 00:24:18,640 --> 00:24:21,720 Speaker 3: into our studios. Later off, Mike, I can recommend some 434 00:24:21,760 --> 00:24:24,600 Speaker 3: areas in Hong Kong if you're really seriously thinking about 435 00:24:25,040 --> 00:24:27,320 Speaker 3: joining us here. I know you said that partially tongue 436 00:24:27,320 --> 00:24:29,800 Speaker 3: in cheek, but it's great to have you with us 437 00:24:29,960 --> 00:24:33,439 Speaker 3: on the program. Carl Tenenbaum, Chief Economist at Northern Trust. 438 00:24:35,720 --> 00:24:38,679 Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you 439 00:24:38,720 --> 00:24:41,840 Speaker 2: the stories making news and moving markets in the Asia Pacific. 440 00:24:42,320 --> 00:24:45,480 Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more 441 00:24:45,480 --> 00:24:49,080 Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to 442 00:24:49,119 --> 00:24:52,920 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 443 00:24:53,000 --> 00:24:56,119 Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the 444 00:24:56,119 --> 00:24:57,240 Speaker 2: Bloomberg Business app.