Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. The Common Secretary
Speaker 2: joins us now for more. Mister Secretary, thank you for
Speaker 2: making time for us on a busy morning for you
Speaker 2: and the team appreciate it. As always, let's talk about
Speaker 2: those deadlines, those dates. Baseline tariff start on April fifth,
Speaker 2: Higher tariff start on April ninth. What happens between now
Speaker 2: and then.
Speaker 3: Well it really We are talking to all the trade ministers,
Speaker 3: but nothing really happens between now and then. What CEOs
Speaker 3: are thinking about is, finally, let's think about building in America.
Speaker 3: You've got almost five trillion dollars of commitments coming to
Speaker 3: America to build their factories. That number is only going
Speaker 3: to grow as people realize it's time to bring manufacturing
Speaker 3: home to America, where the greatest economy and the greatest
Speaker 3: market in the world is. It's time for America to
Speaker 3: stop taking care of every other economy in the world
Speaker 3: and building them up. Let's build the American economy up.
Speaker 3: Let's build American GDP, and you're going to see great
Speaker 3: growth from America.
Speaker 2: Mister Secretary, as you know, capitals around the world watching
Speaker 2: this program right now wants to understand what they can
Speaker 2: do between now and then to avoid those tariffs. What
Speaker 2: do they need to do. Have you communicated any metrics
Speaker 2: to them, whatsoever.
Speaker 3: Well, we've been talking to the trade ministers of the
Speaker 3: major trading partners for more than a month, and we've
Speaker 3: been talking to them, and so you have to understand it.
Speaker 3: And this is what's difficult for your audience to understand.
Speaker 3: That tariffs are easy to understand. Right, we have a
Speaker 3: two and a half percent tariff on autos, and Europe
Speaker 3: has a ten percent tariff, and other people have twenty
Speaker 3: percent or fifteen percent tariff, and that's sort of easy,
Speaker 3: so they can all come down. But it's the non
Speaker 3: tariff trade barriers that are the difference. Some countries have
Speaker 3: that and they take that that tax of twenty percent
Speaker 3: and they use it to subsidize the production of their
Speaker 3: domestic industries. That's why we can't sell cars there because
Speaker 3: they give a rebate either they give it directly. One
Speaker 3: country told me yesterday that they give it directly to
Speaker 3: their car manufacturer to make their cars cheaper. That's why
Speaker 3: they sell successfully and we don't. Others take the money
Speaker 3: and use it and give cheap energy costs to this production.
Speaker 3: And that's why the steel industry. Why is everybody else
Speaker 3: so good at steel and we're not, It's because their
Speaker 3: governments subsidize it. We really need to change the way
Speaker 3: trade works around the world. It's tariffs, but don't get
Speaker 3: confused that these non tariff trade barriers, they are the
Speaker 3: monster that needs to be slaved.
Speaker 2: You've been consistent about this argument subsidized production, manipulated currencies,
Speaker 2: foreign trade barriers, something the President addressed just last night.
Speaker 4: Can we just sit on the numbers just for a moment.
Speaker 2: The EU twenty percent, twenty four percent on Japan, thirty
Speaker 2: four percent on China. Just what exactly was the methodology
Speaker 2: to go through all those different barriers to entry that
Speaker 2: you want to knock down.
Speaker 4: How did you come up with these numbers?
Speaker 3: Well, the Council of Economic Advisors, you know, the PhD
Speaker 3: economists of the administration, coupled with USTR, the United States
Speaker 3: Trade Representative, they publish a book called Trade Barriers about
Speaker 3: this thick right, and they've been analyzing for decades all
Speaker 3: of these different tools that these other economies use to
Speaker 3: hurt America.
Speaker 5: Right.
Speaker 3: They won't take our corn in India, they won't take
Speaker 3: our beef almost anywhere, it's unbelievable.
Speaker 5: They won't take our agricultural products.
Speaker 3: They just treat us badly because we've allowed them to
Speaker 3: treat us badly.
Speaker 5: And when you finally go back at them and say
Speaker 5: this has got to.
Speaker 3: End, it's going to be tough for them because they've
Speaker 3: built their whole social network, their whole economies on basically
Speaker 3: exploiting America. And Donald Trump has said it's time for
Speaker 3: America to change that.
Speaker 5: It's going to be difficult for them to change that.
Speaker 3: But eventually America is going to be treated fairly and
Speaker 3: the production of American factories is going to the incredibly
Speaker 3: strong growth and you're going to see that growth reverberate
Speaker 3: through GDP. Remember, people forget the d gross domestic production.
Speaker 3: If you buy a foreign made Toyota, that is not
Speaker 3: domestic production. Making a car in America that's domestics.
Speaker 2: It's a secondar We could just sit on the methodology
Speaker 2: just for a beat longer and address it directly. This
Speaker 2: is what we understand, what most people understand.
Speaker 4: You did that.
Speaker 2: Essentially, you divided the country's trade surplus with the United
Speaker 2: States by the total exports and then divided the number
Speaker 2: by two and produce this discounted rate. If you're a
Speaker 2: trade partner right now and you've just watched how America's
Speaker 2: put together that policy, how are you meant to negotiate
Speaker 2: with that?
Speaker 4: What are those countries meant to say? What are they
Speaker 4: meant to do?
Speaker 3: The country is understand that their trade policies were exploited,
Speaker 3: in exploitation of America.
Speaker 5: Everybody understands.
Speaker 3: One country actually said to me, I was amazed that
Speaker 3: we were able to get away with it for this long.
Speaker 5: I mean, imagine that.
Speaker 2: We share that country, Because they don't. They never say
Speaker 2: this on the record. You've got the potential, the option,
Speaker 2: the ability right now to share say it who's saying
Speaker 2: that to you?
Speaker 5: Come on, oh stop.
Speaker 3: I mean the country told us that they give the
Speaker 3: subsidy to the car companies.
Speaker 5: Another country he.
Speaker 3: Admitted that they give their subsidy to their steel companies.
Speaker 3: I mean, they're not going to repeat it on here.
Speaker 3: What's on here is that this is going to change.
Speaker 3: That it's time for these things to change, and they're
Speaker 3: going to be more fair and America is going to
Speaker 3: do well.
Speaker 5: And in the middle of that time, all the.
Speaker 3: Factories are going to come back to America. You're going
Speaker 3: to see an enormous number of factories come back to America,
Speaker 3: or you're going to see incredible change globally. It's going
Speaker 3: to take time, but the factories are going to be
Speaker 3: built in America.
Speaker 5: That's the most important thing.
Speaker 3: Donald Trump wants to see steel and aluminum made in
Speaker 3: America so we could defend ourselves. He's going to want
Speaker 3: to see pharmaceuticals made in America. Who on your audience
Speaker 3: doesn't want us to make the ingredients for pharmaceuticals todaybody
Speaker 3: ever ask themselves why the ingredients for our drugs should
Speaker 3: be made in China? Why is that that's not labor,
Speaker 3: that's factor, that's high tech factories in China. Why because
Speaker 3: their government helped create it. They created cheap goods there,
Speaker 3: they oversupply them, They drive the capitalist American who don't
Speaker 3: think like this out of business, and then they make
Speaker 3: it in China.
Speaker 5: And Donald Trump has said, I've had nothing.
Speaker 2: It was the secretary. Most people weren't totally agree with you.
Speaker 2: They would totally agree with you because China is an adversary.
Speaker 2: It is not a partner for the United States. Europe
Speaker 2: would make a very different argument. And Europe might be
Speaker 2: wondering this morning why they're being thrown into the same
Speaker 2: bunket as the Chinese. What explanation can you give them?
Speaker 3: Europe does not treat our products fairly. They do not
Speaker 3: treat our companies fairly. They treat themselves incredibly well, to
Speaker 3: the detriment of the United States of America.
Speaker 5: Right, it is time for them to treat us fairly.
Speaker 3: And that is the point, is not it's not free
Speaker 3: and fair trade there. Tariffs are higher, the non tariff
Speaker 3: trade barriers are incredible. Like I'd asked you, why don't
Speaker 3: they take our beef? Why don't they take our agricultural products?
Speaker 5: Why?
Speaker 3: Because they don't want them? Because they want to make
Speaker 3: the money themselves. Why is it okay for every other
Speaker 3: country to feel this way, and it's not okay for America.
Speaker 3: I tell you why, because we were the world's piggybank.
Speaker 3: And Donald Trump has said our thirty six trillion dollar deficit,
Speaker 3: our one point two trillion dollar trade deficit, one point
Speaker 3: two trillion dollars. We buy other people's things more than
Speaker 3: we sell them. Ours has got to be rebalanced. It's
Speaker 3: a national emergency. Let's fix America and we can.
Speaker 6: Mister Secretary, for you, it's beef for the president.
Speaker 4: I know it's Ford and Berlin's.
Speaker 6: But there are products that Europe takes, things like LNG,
Speaker 6: things like Microsoft services. Do you want to see balance
Speaker 6: trade product by product?
Speaker 5: No? No, no, it's not product by products. It's a
Speaker 5: big macro issue. Okay.
Speaker 3: Fairness comes when one decides that they can stop. They
Speaker 3: can't get away with it any longer. So let's make
Speaker 3: a great deal with the United States of America. Okay,
Speaker 3: They've got core issues. They have a that tax of
Speaker 3: twenty percent or twenty Europe has twenty one percent. I mean,
Speaker 3: so when our goods are sold there, we pay twenty
Speaker 3: one percent.
Speaker 5: They say, everybody pays that, and then they.
Speaker 3: Use that money to beat us down in other ways.
Speaker 5: I mean, come on, we need to.
Speaker 3: Have fair trade macro, not product by product. But I
Speaker 3: think the way Donald Trump looks at it is country
Speaker 3: by country.
Speaker 5: And what's going to happen is you're going to see
Speaker 5: domestic production grow.
Speaker 3: You're going to see interest rates come down in America.
Speaker 3: You're going to see growth in America, great jobs in America.
Speaker 5: Robotics is going to come to America.
Speaker 3: It's going to replace cheap labor overseas. Robots can make things,
Speaker 3: you know what, the job there's going to be mechanics
Speaker 3: who fix robots, kind of like a high end BMW.
Speaker 3: Robots are going to need to be fixed, and those
Speaker 3: jobs are going to be high paying jobs, and they're
Speaker 3: going to be here.
Speaker 5: We're tired of them being overseas.
Speaker 6: For some countries, there's the ten percent base. That's the
Speaker 6: only levee that they were hit with yesterday. I'm think,
Speaker 6: give you United Kingdom. I think of Australia. But those
Speaker 6: countries have a trade surplus with the United States.
Speaker 4: So why put the terrify on.
Speaker 3: Well, I think the President understands that all of these
Speaker 3: countries even if they have a trade surplus, if you
Speaker 3: dig into it, like for instance, the UK, there are
Speaker 3: trade surplus counts that they have this London Medals exchange.
Speaker 5: And so gold and silver bullion going in counts. I mean,
Speaker 5: come on, that doesn't really count.
Speaker 3: So and Australia, which is one wonderful partner of ours,
Speaker 3: they buy a lot of our planes, right, and if
Speaker 3: you buy our commodity gas, I mean, that's really what
Speaker 3: you need, not really what we need to sell you.
Speaker 5: It's not the same.
Speaker 3: So the President decided, why don't we have a baseline
Speaker 3: of ten percent? Okay, to really understand that everybody needs
Speaker 3: our economy. Our economy is the magnet of the world.
Speaker 5: Everybody needs our economy.
Speaker 3: Let's them pay coming in and let's change that deficit
Speaker 3: of one point two trillion dollars, and let's make America's
Speaker 3: economy grow and let's balance that out. Let's fix that first,
Speaker 3: and then we'll go and readdress the rest of the world.
Speaker 3: But we need to fix our trade deficit one point
Speaker 3: two trillion dollars. It's unbelievable. Why we don't have those
Speaker 3: jobs and the rest of the world does.
Speaker 6: Treasury Secretary Scott Besson told me last night, this is
Speaker 6: a ceiling. Potentially we can see a different floor. Are
Speaker 6: you prepared to negotiate all of these rates?
Speaker 7: Is that?
Speaker 6: Is this truly the start of the negotiation.
Speaker 3: Well, it's the start of a rebalancing of the way
Speaker 3: the world works. I agree with the Secretary that our
Speaker 3: view is that the only way these rates are going
Speaker 3: up is if countries decide to retaliate. But why would
Speaker 3: you retaliate against your biggest client, your biggest clients?
Speaker 5: Is I want to reorder things.
Speaker 3: I mean, the United States of America is the largest
Speaker 3: client in the world. And yes, of course the countries
Speaker 3: are going to talk to us, but they talk too casually.
Speaker 3: They always talk about their tariff rates. I mean it's
Speaker 3: like they say, oh, I'm going to cut my tariff.
Speaker 8: Right.
Speaker 3: You think the reason we don't sell a car is
Speaker 3: because Europe charges a ten percent tariff and we were
Speaker 3: only charging two and a half.
Speaker 5: That was outrageous. But the key is they.
Speaker 3: Have all these rules, rules and rules and rules. Like
Speaker 3: one of my favorites is the Koreans. When we made
Speaker 3: a deal with them in twenty twelve, we took their
Speaker 3: cars right, Kia and Hundai, and we were going to
Speaker 3: sell agricultural products to them, right, And when McDonald's went to.
Speaker 5: Send in French fries, they wouldn't.
Speaker 3: Let them go in because we couldn't prove the origin
Speaker 3: of the potato.
Speaker 5: I mean, you don't understand the scale and.
Speaker 3: Depth of how they keep our products out.
Speaker 5: And Donald Trump has said I've had enough. We are
Speaker 5: going to be treated better.
Speaker 3: America is going to be treated better, and that starts today.
Speaker 2: Missus Sancrigy, Why exactly wasn't Russia on that list yesterday?
Speaker 3: Because we have sanctions against Russia, North Korea, Belarus, and Cuba,
Speaker 3: and so we're not supposed to be trading with them.
Speaker 4: Thanks for clearing that out.
Speaker 2: The additional question that other people had too about Mexico
Speaker 2: and Canada, they were also noticeably absent.
Speaker 4: Why would they absent?
Speaker 3: Well, they are operating under a rule that was set
Speaker 3: on for fentanyl, right that they needed to close the
Speaker 3: border and stop fentanyl. And what that rule is that
Speaker 3: USMCA major trading is exempt, right, and the other products
Speaker 3: that they do have a twenty five percent tariff when
Speaker 3: that is resolved, So we're not going to double count it.
Speaker 5: That's just not the way it works.
Speaker 3: When that's resolved, they will fall into a model like this.
Speaker 3: But I think USMCA in the order, USMCA continues to
Speaker 3: be exempted. So car parts, for instance, don't come with
Speaker 3: a tariff if they end.
Speaker 5: Up being finished in American car.
Speaker 3: So if you're building your car in America and you're
Speaker 3: getting parts from Canada and Mexico, that's fine.
Speaker 5: The American cars still come with no terror.
Speaker 2: Okay, that's how full The additional question we had on
Speaker 2: just a few numbers because we're all trying to make
Speaker 2: sense of this in real time, and you've got the numbers.
Speaker 2: What's the tariff on China? Now, the complete tariff including everything?
Speaker 2: What is that number?
Speaker 3: Now, Well, there was a twenty percent tariff because they
Speaker 3: continue to make the ingredients for fentanel and send them
Speaker 3: out right, and those ingredients have the highest subsidy rate
Speaker 3: in China, meaning the Chinese government is paying these factories
Speaker 3: to make these goods that the ingredients for fentanyl, which
Speaker 3: is killing Americans. Right, So Donald Trump put a twenty
Speaker 3: percent taff on that, and now the regular trade deficit number.
Speaker 5: Right.
Speaker 3: The analysis by the Council of Economic Advisors and the
Speaker 3: United States Trade representative, we have a thirty four percent TAFT,
Speaker 3: so it's fifty four percent. But when they stop making
Speaker 3: the ingredients for fentanyl. And I want to point out,
Speaker 3: in twenty nineteen, President Chi told President Trump that he
Speaker 3: would put the death penalty on anyone who made fentanyl,
Speaker 3: and now he's actually subsidizing them.
Speaker 5: And that's just it's just so so so.
Speaker 3: Wrong that Donald Trump is just he's not going to
Speaker 3: stand for it, and he's got to hit them with
Speaker 3: the only thing you get, which is economic.
Speaker 6: China as well, on China as well. What about the
Speaker 6: three oh one terrifs that we're put in place under
Speaker 6: Trump one point zero and then carried on to the
Speaker 6: Biden administration, it's about twenty five percent. Are those still
Speaker 6: in place? Do they get added to this cumulative number?
Speaker 5: They do?
Speaker 3: Indeed, but those are on specific product segments and those
Speaker 3: still are as well.
Speaker 5: Autos are not.
Speaker 6: So we're talking about seventy nine. So we're talking about
Speaker 6: seventy nine percent for some imports cumulative, we're talking about
Speaker 6: a seventy nine percent tariff from China.
Speaker 8: Is that accurate.
Speaker 5: On certain products? That could be true?
Speaker 3: Sure, but they've got to stop the UA All they
Speaker 3: have to have is a phone call. All they have
Speaker 3: to have is a phone call from President She to
Speaker 3: President Trump saying I'm going to in fentnyl production that's
Speaker 3: killing Americans and it drops twenty percent. I mean, that's
Speaker 3: a pretty inexpensive phone call. But you have to make
Speaker 3: the decision. You got to stop killing Americans, and so
Speaker 3: far they haven't.
Speaker 5: Made that decision.
Speaker 3: Shocking that they haven't made that decision, And you really
Speaker 3: got to.
Speaker 5: Think about that for a minute. Think about that for
Speaker 5: a minute.
Speaker 3: A phone call would save them twenty percent on all
Speaker 3: their products, but they'd have to stop making the ingredients
Speaker 3: of fentanyl, and they refuse outrageous.
Speaker 6: Has your counterpart reached out to set up that phone
Speaker 6: call between President Trump and Shojipeing?
Speaker 5: You know, President Trump and President.
Speaker 3: She, they have away, they're not going to be when
Speaker 3: their phone call gets made. I don't think they're asking
Speaker 3: me to set it up. I think that's above.
Speaker 4: Me and missus Secretary.
Speaker 2: Does that tell you something about maybe the lenforce you
Speaker 2: think you have, perhaps you don't have over the Chinese.
Speaker 2: The fact that they aren't reaching down, they aren't doing
Speaker 2: those things, despite the fact you've put taras up as
Speaker 2: much as you have.
Speaker 5: Well, we'll see.
Speaker 3: Remember these tariffs are just going into place, and you know,
Speaker 3: I think they will have that phone call and they
Speaker 3: will have lots of conversation together. I think for me,
Speaker 3: the greatest thing for me is that Donald Trump is
Speaker 3: sitting behind the resolute desk and the Oval office and
Speaker 3: he is the greatest dealmaker and he will decide how
Speaker 3: he wants to play his hand. But the way he's
Speaker 3: played his hand now is he's been talking about this for.
Speaker 5: Thirty five years.
Speaker 3: He wants to reorder trade, to have the world stop
Speaker 3: exploiting us, to bring the factories back, to bring employment back.
Speaker 3: You know, no one thought about when NAFTA, which he
Speaker 3: called yesterday the worst trade deal ever. When NAFTA did
Speaker 3: it gave Canada and Mexico sort of the economic right
Speaker 3: to be a state of the United States without paying
Speaker 3: federal tax and without respecting the Constitution. But you could
Speaker 3: build in Mexico and drive to Texas and build in Canada,
Speaker 3: just drive across the border. Was all fine, and no,
Speaker 3: you know, economically equal to being Alabama and Georgia. Yeah,
Speaker 3: And so what happened is our manufacturing left America and
Speaker 3: put those Americans out of jobs, and Donald Trump wants
Speaker 3: to bring back factories, bring back those jobs, and they
Speaker 3: can come back. Five trillion dollars worth of commitments to
Speaker 3: bring back those jobs is pretty unbelievably impressive, and that's
Speaker 3: what Donald Trump's capable.
Speaker 2: Also impressive is the sound of demonic and a big
Speaker 2: question the markets, asking how much pain you're willing to tolerate.
Speaker 2: The SMP's down by three point seven percent, the dollar
Speaker 2: is being sold quite aggressively against the euro. Was saying
Speaker 2: one of the biggest moves we've seen in the last decade,
Speaker 2: mister secretary, how much pain are you willing to tolerate?
Speaker 2: How much market pain are you willing to tolerate?
Speaker 3: Donald Trump has focused on the economic pain that the
Speaker 3: United States of America has suffered over decades since NAFTA,
Speaker 3: ninety thousand factories, not jobs, factories, five million high paying
Speaker 3: jobs gone overseas. He's focused on the US worker and
Speaker 3: the US economy. And what's going to happen is people
Speaker 3: are going to realize it is the great American economy
Speaker 3: that is the winner here, and anyone who doubts it,
Speaker 3: and anybody who shorts Donald Trump or anybody who doubts
Speaker 3: the strength and the power of the American economy is
Speaker 3: making a foolish bet.
Speaker 5: Sure, importers are going to have a tough time figuring.
Speaker 3: Out what to do because they went and found the
Speaker 3: cheapest production in the world. It's time to bring that
Speaker 3: production home, to have the smart, amazing people who run
Speaker 3: American companies figure it out.
Speaker 5: Bring robotics back to America.
Speaker 3: And I would say that United States domestic growth is
Speaker 3: going to have the greatest resurgence ever under Donald Trump,
Speaker 3: and that's what he has set in motion yesterday.
Speaker 2: You'll accept it takes time to engineer a supply side response, though, sir,
Speaker 2: and in the mad time you can see bad things happen.
Speaker 4: Do you accept that?
Speaker 5: Well, what I can accept.
Speaker 3: Of course, takes time to build factories, but companies understand
Speaker 3: how to do it, they will do it. The United
Speaker 3: States of America is the greatest economy in the world.
Speaker 5: People have to do business with it.
Speaker 3: The rest of the world will bring down their trade
Speaker 3: barriers and you'll see a great resurgence in our ability
Speaker 3: to sell agriculture overseas. You'll see factories being built here
Speaker 3: and that factory production will be faster. So sure, there
Speaker 3: will be a rebalancing of those who make things in
Speaker 3: cheap labor markets figuring.
Speaker 5: Out how to make them here.
Speaker 3: But ultimately speaking, and I think in much less time
Speaker 3: than you think, the world will reorder itself, will figure
Speaker 3: it out, and the United States growth rate will turbocharge
Speaker 3: compared to the rest of the world. We've been too
Speaker 3: close to them because we've been Our presidents have been
Speaker 3: presidents of the world.
Speaker 5: And Donald Trump ran on the policy that.
Speaker 3: He was going to be the president of the United
Speaker 3: States of the workers of the United States, and he
Speaker 3: was going to place American workers first. And that's what
Speaker 3: he did yesterday. And that's what everybody's feeling. Those workers
Speaker 3: have been disrespected and now they're going to be respected.
Speaker 2: To miss the secretary, just the final question, if we
Speaker 2: might any course schedule for today with the Europeans to
Speaker 2: those negotiations start this morning immediately. Can you give us
Speaker 2: a sense of things?
Speaker 3: Absolutely, we are our teams are talking to all the
Speaker 3: great trading partners today and we are available for our great.
Speaker 5: Trading partners every day.
Speaker 3: It is time for them to do deep soul searching
Speaker 3: of how they treat us poorly and how.
Speaker 5: To make it right. It is time for them to
Speaker 5: do that.
Speaker 3: That is going to be difficult for them because they've
Speaker 3: taken advantage of US for so long.
Speaker 5: They should just.
Speaker 3: Be disappointed that the free ride is over. It's time
Speaker 3: for them to be realistic and to change the way
Speaker 3: they look at the United States of America. And I
Speaker 3: think that's going to happen starting today.
Speaker 2: I think it's changing in real time, so in many ways,
Speaker 2: Miss the Secretary, appreciate your time. The US COMMAS Secretary
Speaker 2: Hammut Latinik on the trade tariffs announced overnight from the
Speaker 2: United States of America. Joining US now for the next
Speaker 2: thirty minutes or so, the perfect guest. Jim's out, the
Speaker 2: president of Apollo Global Management. Jim, it's good to see you.
Speaker 8: Good morning, good morning as always.
Speaker 2: Congratulations on the new title, because how mu's focus to
Speaker 2: you for a number of months.
Speaker 5: Thank you.
Speaker 8: It's been a long journey and I appreciate the note.
Speaker 2: Well, let's get straight into it. You've called it macro paralysis.
Speaker 4: What is it now?
Speaker 5: Well it is.
Speaker 8: I mean, I sit here this morning and this really
Speaker 8: can't be a surprise. The reality of the surprise is
Speaker 8: a little bit more painful for everybody to digest. But
Speaker 8: this administration was very clear during the campaign what their
Speaker 8: objective was. They really wanted to revitalize American industry. They
Speaker 8: wanted to bring back manufacturing, focus on energy, focus on
Speaker 8: industrial renaissance, and tariffs. As Amrita said, tariffs, taxes, and
Speaker 8: deregulation were a three legged stool, and right now the
Speaker 8: focus is on tariffs. They have been probably signaling I
Speaker 8: know you're having Secretary Lutnik on later on this morning,
Speaker 8: but they've been signaling this was the dialogue. This is
Speaker 8: obviously a long negotiation, but again, this was part of
Speaker 8: the administration's agenda. This is what they wanted to accomplish.
Speaker 8: They've been very clear in the communication. So the pain
Speaker 8: of the announcement is being felt this morning in the market.
Speaker 5: But again I'm not.
Speaker 8: Saying preaching patients and perspective, but certainly this should not
Speaker 8: be a surprise. And I think now as we think
Speaker 8: about the big trends in the last twenty thirty years,
Speaker 8: the first of which is globalization. Globalization is not going
Speaker 8: to be like we have seen it in the past.
Speaker 8: It's a new global world order. How the US manufacturing
Speaker 8: and financial base fits into that as a TBD, but
Speaker 8: certainly it's going to be one that plays out over
Speaker 8: the next several months.
Speaker 2: I can't think of many people outside of you and
Speaker 2: the team more doubt into the C suite and corporate America.
Speaker 2: How are they planning for the changes in the global
Speaker 2: economy that you and the team are anticipating A plans
Speaker 2: going ahead?
Speaker 4: Do they on hold? Are they totally derailed?
Speaker 5: Yeah? Listen.
Speaker 8: I've used the term macro paralysis because I think we
Speaker 8: came into the year the busiest folks on Wall Street
Speaker 8: were supposed to be the M and A bankers and
Speaker 8: the ECM folks, and that has not taken place, and
Speaker 8: so the pace of broad activity in the public markets
Speaker 8: has certainly been muted. And I think this really plays
Speaker 8: into and I've been on the show before talking about
Speaker 8: the role of public markets and the role of private markets,
Speaker 8: and not just private credit, but overall private markets, and
Speaker 8: you're going to see this will be a turning point
Speaker 8: where private markets play a larger role for a lot
Speaker 8: of these corporates that are still they have long term plans,
Speaker 8: whether it's what's going on in technology, energy mining, a
Speaker 8: lot of US domestics, who's going to finance this reshoring
Speaker 8: that's part of the master plan.
Speaker 5: So no doubt. I think in c suites and.
Speaker 8: In boardrooms there's vision, there's a desire, but the practical
Speaker 8: reality is things have come to a stop. And I
Speaker 8: know you're going to have Torston on later on today.
Speaker 8: The soft data, when you see what's going on with consumers,
Speaker 8: consumer concern, corporate concern, it's really certainly it's amazing what
Speaker 8: the President has been able to do in seventy five days,
Speaker 8: what four hundred basis points didn't do over two or
Speaker 8: three years. As I said here, a couple of years ago,
Speaker 8: we talked about the tightening of financial conditions.
Speaker 5: It didn't happen.
Speaker 8: The US consumer led in a massive rally and a
Speaker 8: strength in the US economy in seventy five days. Talk
Speaker 8: of today has really slowed down the economy. So the
Speaker 8: soft data and anecdotes would tell you that we have
Speaker 8: the recession went from a one to five to one
Speaker 8: in three that now, depending on who you talk to,
Speaker 8: it's north of fifty percent. It's probably fifty percent going
Speaker 8: higher depending on what happens on the ninth.
Speaker 5: There's a lot to unpack there.
Speaker 9: I want to go back to something that you said
Speaker 9: that this shouldn't have been a surprise.
Speaker 1: To anyone, and maybe the objective shouldn't have been a surprise,
Speaker 1: but the execution is raising some questions for people about
Speaker 1: how it is going to be past through.
Speaker 9: Is there anything about what you have seen over the
Speaker 9: past week that makes you materially change some of your
Speaker 9: strategy about how you go forward, how you advise the
Speaker 9: c suite.
Speaker 8: Sure, well, let's just go through two or three things
Speaker 8: about investing today. And a lot depends on the portfolio
Speaker 8: or the liabilities you manage. If you run a domestic
Speaker 8: US long short fund, this is obviously much more fundamental.
Speaker 8: We're a long term, long duration investor with a lot
Speaker 8: of investment great assets. So when you look around the
Speaker 8: globe right now, is anything cheap?
Speaker 5: Not really.
Speaker 8: Our rates probably going to be notwithstanding the rate move
Speaker 8: in the last twenty four hours, Our rates going to
Speaker 8: be materially higher over the next few years, and they
Speaker 8: have been because of deglobalization probably, And then you have
Speaker 8: to weigh the geopolitics. So certainly your risk parameters and
Speaker 8: how you want to calibrate risk has certainly gone up
Speaker 8: the last several months. And the idea of the hurdle
Speaker 8: of an equity return has certainly gone up the last
Speaker 8: several months, and with base rates high and getting a coupon,
Speaker 8: it's all about your calibration of risks. So certainly this
Speaker 8: has taken a situation where in terms of what you
Speaker 8: can get in base rates, in terms of bonds, in
Speaker 8: terms of fixed income, in terms of fixed income replacement,
Speaker 8: it certainly made the equity risk premium a lot higher.
Speaker 8: And certainly for us we are in the private equity business,
Speaker 8: where we are in the equity business, and for us
Speaker 8: as risk premiums arisen, it's a really high heartle for
Speaker 8: equity these days, which.
Speaker 9: Raises a question, especially if Apollo has really seen the
Speaker 9: debt portion. If your business grow and exceed what you
Speaker 9: see in the equity, is that only set to expand,
Speaker 9: especially if rates are going to remain structurally higher in
Speaker 9: this new regime.
Speaker 8: There's a reason why we positioned our business the way
Speaker 8: we have over the last five to seven years, not
Speaker 8: suspecting a day like this would occur. But the reality
Speaker 8: is around the globe you have millions and millions of
Speaker 8: folks that are ill prepared, unfortunately for their retirement their pension.
Speaker 8: I was in Asia and Australia last week. Even as
Speaker 8: well as the superannuation funds have done for Australia, they
Speaker 8: do not really have a system on post accumulation and
Speaker 8: post retirements and so around the globe, and even in
Speaker 8: this country, eleven thousand people a day are becoming sixty
Speaker 8: or turning sixty five. We're ill prepared for the pension
Speaker 8: system of tomorrow in terms of the needs. And that's
Speaker 8: why listen what's being written recently about public about private markets.
Speaker 8: Certainly in Larry Fink's letter, it's a tune that we've
Speaker 8: been talking about the last several years about changing market structure,
Speaker 8: the role of private markets with retirement systems financing. What
Speaker 8: this administration is putting forth. We think we're primed to
Speaker 8: be a position of First and Maine in what's going
Speaker 8: on right now, but certainly a wake up call for
Speaker 8: retirees around the globe.
Speaker 2: Jim, let's talk about Europe. There's been a major sentiment
Speaker 2: shift towards the European side of financial markets and a
Speaker 2: pullback from the United States. For a long time we
Speaker 2: talked about so called US exceptionalism, and one big feature
Speaker 2: of that maybe even the secret source I think Jeff
Speaker 2: Bezos and self set.
Speaker 4: It is risk.
Speaker 2: Seeking capital, abundant markets, really really deep markets, tons of liquidity.
Speaker 4: Is any of that under threat?
Speaker 8: Well, I think that what you're seeing is maybe not
Speaker 8: the US going down, but also parts of our globe
Speaker 8: coming up. I mean the Drogy letter that was put
Speaker 8: out last September that everybody had in the file. They've
Speaker 8: quickly pulled it out the last three or four weeks
Speaker 8: because certainly this administration has woken woken Europe up. And
Speaker 8: as they wake up, they're saying, how do we create
Speaker 8: an economic environment where capital can grow? Capital being created
Speaker 8: for growth companies. Think about a securitization market. You've got
Speaker 8: a twenty three trillion economy with a nascent securitization market.
Speaker 8: And I think this administration has woken up Europe in
Speaker 8: terms of thinking about how they actually fund finance and
Speaker 8: grow in this industrial renaissance that's going around the globe
Speaker 8: right now. So it's certainly been a massive wake up call,
Speaker 8: and I think again, you're going to see private market
Speaker 8: solutions for me any of these countries, companies and industries,
Speaker 8: not only in the US but in Western Europe as
Speaker 8: they rise to the challenge.
Speaker 9: One discussion point has been that US exceptionalism was predicated
Speaker 9: both on the AI trade as well as fiscal stimulus
Speaker 9: that's going into reverse a bit, maybe at the same
Speaker 9: time that the fiscal expansion is going on in places
Speaker 9: like Europe, in places like China. How much do you
Speaker 9: see that continuing in terms of market performance and something
Speaker 9: that you're willing to follow.
Speaker 8: Well, what you're really addressing is mostly on the equity performance,
Speaker 8: in the public equity performance where public equity dollars go.
Speaker 8: Certainly there's been a massive amount of global investment in
Speaker 8: the US equity markets in the S and P, and
Speaker 8: that's going to be muted as there's a global pullback
Speaker 8: as investors think about other parts of the globe right now.
Speaker 8: But the bigger question, which you're really getting at, is
Speaker 8: if a recession coming into If I was here six
Speaker 8: months ago, we would have said a recession in twenty
Speaker 8: five twenty six was one in five, and now that's
Speaker 8: certainly one in two, if not higher, with what's going
Speaker 8: on over the next several weeks. The other scenario is
Speaker 8: a stagflation scenario that went from a one in six
Speaker 8: one and seven to probably one in five right now,
Speaker 8: one in four and that's the concern. That's got to
Speaker 8: be the concern of policy makers in the US but
Speaker 8: also around the globe.
Speaker 9: Just building on that, before it sounded like you didn't
Speaker 9: think the FED could cut rates. You said that this
Speaker 9: is going to be a permanently higher rate environment, and
Speaker 9: that happens with both the US as well as Europe.
Speaker 9: Why you think that they're destined to allow that kind
Speaker 9: of scenario.
Speaker 8: No, but I think they have a When you look
Speaker 8: at the balance of the dual mandate right now, it's
Speaker 8: certainly much more challenging. Certainly the White House is going
Speaker 8: to want to see them cut rates, but and certainly
Speaker 8: some of the economic data in terms of slower growth,
Speaker 8: would portray that to be the next move. I think
Speaker 8: the FED is going to have to practice much more
Speaker 8: patience in here.
Speaker 2: Lisa, this is the number one question in financial markets
Speaker 2: right now. Is that Fed put constraint because of higher
Speaker 2: inflation further down the road?
Speaker 1: Right now, the market is betting that.
Speaker 9: No, it is not, because what you are seeing is
Speaker 9: more than three rate cuts, almost four rate cuts being
Speaker 9: priced into the market by year end, with some like
Speaker 9: City saying that they're going to accelerate them, and others
Speaker 9: like Morgan Stanley taking away their call key question at
Speaker 9: a time we're coming off a real inflationary bomp.
Speaker 5: Jim.
Speaker 2: We caught up with the Treasury Secretary yesterday in the
Speaker 2: immediate aftermath of the announcement from the President, and he
Speaker 2: was asked by a Marie about the equity market sell
Speaker 2: off since February, the highst of the year, and he
Speaker 2: pointed to the nastack and said, it seems like a
Speaker 2: Max seven problem and not a MAGA problem. Now you
Speaker 2: can push back against that, pour some cold water over it,
Speaker 2: but he has kind of got a point. There's something
Speaker 2: else going on here outside of just trite.
Speaker 8: Well that goes back to my point earlier, like you know,
Speaker 8: when you look around, like what is an investor right now?
Speaker 5: Are things cheap?
Speaker 8: No, they've gone down in price, But don't confuse a
Speaker 8: price move with something being cheap. And it was a
Speaker 8: marketplace that the mag seven took the market up, and
Speaker 8: now the mag seven has taken the market down. But again,
Speaker 8: this is a very very complex economy. And again this
Speaker 8: is the big theme that we've been talking about years
Speaker 8: and I know we're talking about financial markets in the
Speaker 8: equity market, but these public markets only reflect a very
Speaker 8: very small portion of the US economy. Yes, these are
Speaker 8: great growth companies or global companies, but so much of
Speaker 8: the US economy, so much of the European economy, is
Speaker 8: private companies, and how do they navigate this? And that's
Speaker 8: what gives us a great deal of enthusiasm because what's
Speaker 8: going on for investors in private markets but also for
Speaker 8: companies needing capital. There's a lot more tools in the toolbox,
Speaker 8: and there was.
Speaker 5: A decade ago.
Speaker 2: Can we just finish that on data centers which has
Speaker 2: been a major thing, sure, not just in public markets.
Speaker 2: There have been some warnings about over capacity in the
Speaker 2: last few weeks.
Speaker 4: How are you even the team navigates in that.
Speaker 8: We've certainly taken on much more as a debt provider
Speaker 8: to date. Certainly, those who have been around for a
Speaker 8: few decades, you feel like you're seeing a bit of
Speaker 8: the conversation about dark fiber from ninety eight to ninety
Speaker 8: nine and two.
Speaker 5: Thousand and one, two thousand and two. Build it and
Speaker 5: they will come.
Speaker 8: Certainly, there are economics that still need to be developed
Speaker 8: in terms of the economic model of the data center business.
Speaker 8: A lot of capital has been created upfront to purchase
Speaker 8: the land, secure the power, create the facility. But who's
Speaker 8: the long term off take of that, who's the long
Speaker 8: term capital? And again this goes back to the conversation
Speaker 8: I had earlier about the pension deficit issue. There's a
Speaker 8: tremendous amount of long term capital that wants to be
Speaker 8: matched up with that opportunity set. But to date we've
Speaker 8: been much more of a debt provider. But I certainly
Speaker 8: think that questions that were raised last week by Joe
Speaker 8: Sai pretty legitimate questions about the long term economics and
Speaker 8: the short term supply demand mismatch about how these things
Speaker 8: come online and what the economics are.
Speaker 2: Jim, we could talk you all monic, and I've got
Speaker 2: a job to do, though we appreciate your time always
Speaker 2: with job.
Speaker 4: Thank you, Jim.
Speaker 2: Jim's out to that the president of a public global management.
Speaker 6: As for that conversation, I'm pleased to be dry by
Speaker 6: a front of the show. Terry Haynes of PENJEA Policy. Terry,
Speaker 6: you put ot a note last night, you said Liberation
Speaker 6: Day tariffs, now watch for many quote path dependent negotiations.
Speaker 6: Do you think all of these rates that the President
Speaker 6: outlined yesterday can come down.
Speaker 7: I think a lot of them can, sure. And the
Speaker 7: one reason I would say that is that Secretary of
Speaker 7: Commerce Lutnik has been kind of pre loading everything over
Speaker 7: the past days and weeks with a lot of different countries, saying,
Speaker 7: you know, here's what we'd like on tariffs, here's what
Speaker 7: we'd like on tariff barriers. You know, here's the realm
Speaker 7: of things we want to talk about. They've already been
Speaker 7: those other countries have already been discussing that internally, and
Speaker 7: they'll have internal politics as well as external politics. Things
Speaker 7: they can do, things they can't.
Speaker 6: Commerce Secretor Harold Lounik has been in touch with his
Speaker 6: counterparts a few times. He's been on our program. He've
Speaker 6: been saying he was going to talk to say's European
Speaker 6: counterpart that day when Trump came out with a two
Speaker 6: hundred percent tariff on wine, champagne and cheese. Why not
Speaker 6: then just do the deal? Why have the destructive what
Speaker 6: some would call in the market moment right now? To
Speaker 6: get to that point.
Speaker 7: I think the administration wagers that trade negotiations of those
Speaker 7: kind never end and they get bogged down and not
Speaker 7: being able to finish them. I think they think that
Speaker 7: there's more value in kind of a shotgun awe approach
Speaker 7: that brings people to the table and in sens them
Speaker 7: to do things and actually get something done.
Speaker 6: April fifth is when the ten percent baseline goes into effect,
Speaker 6: and an April ninth, for if you're one of those
Speaker 6: countries that has a higher level, like the European Union
Speaker 6: at twenty percent. Do you think we get a deal
Speaker 6: before April ninth?
Speaker 7: I doubt that some places will probably have that happen, yeah,
Speaker 7: but I think the big places won't. There's too much
Speaker 7: complexity internally in a very large country to be able
Speaker 7: to check off with stakeholders, figure out how you want
Speaker 7: to change things go through the legislative or regulatory process.
Speaker 7: I think that's all very unlikely.
Speaker 6: Trump's entire agenda is a three legged stool, deregulation, tariffs,
Speaker 6: and tax cuts. If one of these stools collapses, the
Speaker 6: entire agenda might collapse. How quickly do they need to
Speaker 6: get the tax cuts to make sure they keep this
Speaker 6: economy afloat?
Speaker 7: I have it at eighty percent by the end of
Speaker 7: this calendar year, because that's the way the congressional process
Speaker 7: will work. Third quarter is largely screwed up because of
Speaker 7: the need to deal with spending bills. But at the
Speaker 7: same time, can they do it fast? Sure? And that's
Speaker 7: exactly what Besson told you yesterday.
Speaker 6: Is that why they're including the debt ceiling into this record?
Speaker 7: Well, exactly. But he's going to now turn He's told
Speaker 7: you he's now going to turn his attention to dealing
Speaker 7: with the tax cuts. I joked on your radio side
Speaker 7: this morning that Beson's going to be the Gary Cone
Speaker 7: of twenty twenty five. And that's largely the way I
Speaker 7: think markets should look at it. But Lutnik's going to
Speaker 7: be the guy who deals with the terariff issuing.
Speaker 6: Okay, But when it comes to those tax cuts and
Speaker 6: how quickly they need to get it done, we're just
Speaker 6: talking about an extension of current policy, the sweeten theer's
Speaker 6: no tax on tips and tax on Social Security. Does
Speaker 6: that actually get done? Trevie Secretary seems to think so.
Speaker 6: I'm not so sure when I speak to sources on Congress.
Speaker 7: Do I think it gets done? Yeah? I do, certainly
Speaker 7: by the end of the yetras, yeah, I think so.
Speaker 6: You think all of them, this economy, the budget hawks,
Speaker 6: the deficit hawks, are willing to sign.
Speaker 7: Up for that they eventually will be. Yeah, because one
Speaker 7: of the many reasons why there's Trump urgency is because
Speaker 7: Trump understands that his biggest leverage points politically with members,
Speaker 7: particularly deficit hawks, come up in the midterms, all right,
Speaker 7: and I think that's where you'll see a lot of that.
Speaker 6: Terry, thank you so much for your time this morning, Jonathan,
Speaker 6: of course. Terry Haynes of Panji a Policy, a friend
Speaker 6: of the show. He thinks it's a shock and off
Speaker 6: a moment to get negotiators to the table, but doesn't
Speaker 6: sound like we'll get deals before April nine.
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