November 13, 2024 • 19 mins
President-elect Donald Trump's sweeping election victory and cabinet appointments point to more protectionist policies and market volatility, with broad implications for Asia. China is firmly in the crosshairs, but previous US efforts to contain its advance -- particularly in technology -- have largely faltered, according to Bloomberg Economics and Bloomberg Intelligence.
Tom Orlik, chief economist at Bloomberg Economics in Washington, D.C., joins John Lee and Katia Dmitrieva to outline what the next four years may bring for the global economy and US-China relations -- and the potential risks.
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Speaker 1 (00:02):
You're listening to Asia Centric, the podcast that explores the
big ideas and trends moving money across the region. I'm
Kajadmitriyeva in Hong Kong and.
Speaker 2 (00:12):
I'm John Lee. It seems the number one thing on investors'
minds this year was the US election. Who would win?
Would US policy become even more protectionist? And what would
be the implications for economic growth and central bank policy?
Speaker 1 (00:26):
Yeah, and now following the victory of President elect Donald Trump,
it seems like everyone is still thinking about the implications.
Trump has vowed steep tariffs of sixty percent on Chinese imports,
universal levees, and all of these would have obviously sweeping
consequences in the world. Some analysts have already revised down
(00:49):
their economic growth expectations in China, and they've lowered the
outlook for fad cuts.
Speaker 2 (00:55):
And Trump has already started picking his cabinet, which does
provide some in site into his approach to the world.
Speaker 1 (01:02):
There's a lot to discuss and to help us navigate
all these moving pieces is Bloomberg Economics chief economist Tom Orlick.
He's also the author of China, The Bubble That Never
Pops and previously, he lived in Beijing for about a decade.
He joins us from DC. Hi, Tom, thanks for being here.
Speaker 3 (01:22):
Great to be a Katya and I see we're doing
our special podcast voices. I'll try our best to maintain
the standard.
Speaker 1 (01:30):
Thank you. I really appreciate that.
Speaker 2 (01:32):
Listen.
Speaker 1 (01:33):
It's a big topic on everyone's minds. Trump won in
a pretty big way. The biggest concern, I think is
safe to say, is tariffs. So how are you thinking
of that in terms of timing, in terms of size,
and whether they even end up coming into place.
Speaker 3 (01:50):
I mean, that's a really huge question. I'm sure we
can spend quite some time talking about it. Trump on
the campaign trail talked about sixty percent triffs on China. Now,
in his first term, he did twenty five percent tariffs
on hundreds of billions of dollars of goods. And if
you looked at the macro data in the US, if
(02:11):
you looked at the growth data, if you look at
the inflation data, it's actually pretty hard to see the consequences.
So there's an argument out there and a sentiment that
you hear from the Trump campaign, which is, well, what
are all of these economists complaining about? I did twenty
five percent tariffs last time, it was all good. Sixty
(02:33):
percent will be fine as well. Our view, though, is
that sixty percent is quite a bit more tariffs than
twenty five percent. If you think about profit margins for
China's small manufacturers, they're really in the single digits. So
they could just about live with twenty five percent tariffs
as long as they got some government subsidies and some
(02:55):
yuan appreciation to get them through it. But they certainly
couldn't live with sixty percent tariffs. Even if we think
about the big electronics giants, companies like Apple, which has
a supply chain spanning the United States and China and
other parts of Asia, well they'd have a lot of
difficulty with sixty percent tariffs as well. So was that
(03:17):
sixty percent number kind of campaign trail red meat or
was it a genuine commitment that we're going to see
implemented in office. I think we're going to find out,
but I think sixty percent would be quite damaging for
China and the United States. My guess is it's more
of an initial bargaining gambit rather than a firm commitment.
Speaker 1 (03:39):
Is there an assumption that you have going into twenty
twenty five of what size tariffs we might be able
to see here, And you said, it's really hard to
say whether it'll even come in, if it's bluster, if
it's reality. But is there sort of a going assumption
or a hunch that you have as an economist of
what we might see next year.
Speaker 3 (03:59):
So it is complicated, Kattia. We've got to see who
Trump gets into the top jobs. Who is the trade representative,
who's the Commerce secretary, who's the Treasury secretary? They all
lined up behind tariffs, or do we see some tariff
advocates like Robert Leinthheiser, who was the main architect of
(04:23):
Trump's first term tariffs, once again facing off against some
voices from Wall Street who are more pragmatic, more pro market.
Tariff lists need to be designed. We know from Trump's
first term that the Council of Economic Advisors was pouring
over the data for different imports in different sectors and
(04:44):
seeing where they could impose tariffs in a way which
imposed maximum pain on China and minimum pain on the
US consumer and US retailers. There needs to be a
decision about what procedure to use to implement tariffs. Can
the president do it more or less under his own discretion.
Does there need to be a consultative process. And all
(05:08):
of this suggests that this is not going to be
a kind of a one shot game. Right. We don't
expect Trump to get into office on day one and
say I'm posing tariffs at this level on these countries
and on these goods. I think it's going to be
an iterative process. Where there's a threat from the United States,
(05:28):
there's a negotiation both with the Chinese and with big
US companies like Apple that have a big dog in
the fight. Now you asked if I've got an intuition
or a hunt as to where this is going to
come out, I'd be surprised if we went to sixty
universally across all US imports from China. I wouldn't be
(05:50):
that surprised if we went to sixty percent on basically
the same set of goods that phase twenty five percent
tariffs in Trump's first term, and we had carve outs
as we did in Trump's first term for some of
those goods which are manufactured in China by the big
US electronics giants.
Speaker 2 (06:11):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market indices, currencies, commodities, and industries, as well
as over two thousand equities and credits. If you like
(06:31):
what you hear, don't forget to subscribe and chair Tom,
can we just pull back? Can you give us a
rundown of what Bloomberg Economics forecast for the US is
for next year and possibly for China with the potential
threat of tariffs.
Speaker 1 (06:48):
Yeah, I think I've seen more forecasts in the past
week than I have.
Speaker 2 (06:53):
Yep. There's a lot of scenario analysis as well on
the tariffs as well. Yeah.
Speaker 1 (06:58):
Yeah, the scenario analysis is the way to go. That's
what all the cool kids are doing.
Speaker 3 (07:02):
I do like to brag out here, but the Bloomberg
Economics we were doing scenario analysis before it was cool.
Now to your question on China, we're anticipating growth next
year of around four point six percent, so that's not
too far from the government's five percent target. Why do
(07:23):
we think there's going to be fairly robust growth for
China next year? Well, basically it's because the government is
now pumping a lot of stimulus into the economy. Could
tariffs take a chunk out of that? Well, yes, but
it depends how high the tariffs are, what goods they're
imposed on, and when they come during the year. So
(07:44):
if we look at an extreme scenario where Trump gets
into office, Robert Leithheiser gets reappointed as USTR on day one,
day two, we get sixty percent tariffs on everything. So
that's a really extreme scenario. Well, that would be a
pretty significant shock to China, and we would be moving
and I think everyone else will be moving to downgrade
(08:06):
their forecasts. But that's not what we think is going
to happen. We think Trump's going to get into office,
it's going to take time to get his team into place.
Once his team is in place, it's going to take
time to design that initial tariff package. Once that's been designed,
there's going to be a negotiation with the Chinese. Can
the US extract some concessions or not. So we would
(08:29):
expect tariffs to kick in not at the start of
the year, but probably closer to the middle of the year,
on the second half, and we'd expect them to be
imposed not on all goods, but on some portion of
Chinese manufacturing and to be imposed in a way which
didn't hurt the big US companies that are manufacturing in China.
(08:51):
So what's that going to do to China's growth? Well,
it could shade down China's growth in the second half
of the year, but I don't think it's going to
be a kind of cataclysmic shock to the Chinese economy
in twenty twenty five. Now if we flip that round
and think about the United States, well, our expectation for
US growth next year is so we think the US
(09:15):
economy is going to grow a shade less than two
percent next year. Would tariffs have a significant negative impact
on that, Well, once again, if they come midway through
the year, if they're designed in a way which minimizes
the impact on the US corporate champions, probably not.
Speaker 1 (09:36):
What about central banks, because you know, having tariffs of
sixty percent or even half that would probably have some
effects on inflation in the US, and by extension, how
much the FED can actually cut in twenty twenty five,
twenty six, and the timing of that, what are your
expectations for that side of things to sort of monetary policy.
Speaker 3 (10:00):
So there's been a rush after the election to dangrade
expectations for rid cuts in the US next year, and
that's partly because of concern that Trump's policies tax cuts
tariff increases are going to be inflationary, and that's just
going to mean the FED has less room to reduce rates.
(10:21):
So I think that's certainly a possibility. At the same time,
I think it's important to keep in mind that there
is a dizzying array of dynamics which the Trump administration
is going to be setting loose for the FED, and
many of them point in different directions. So the first
thing that's happened is the Trump trade has driven US
(10:42):
rates up and the US dollars stronger, and that means
financial conditions in the US and now tighter than before
Trump won the election, and that means more pressure for
the FED to cut more. The second thing, well, it's
those policies, right. Trump is promising tax cuts, which would
reduce growth in the United States. He's promising tariff increases,
(11:03):
which would make imports more expensive, and both of those
things are inflationary, and so they should need pressure for
the FED to cut less. But there's huge uncertainty about
what those policies are going to be actually look like
and when they're going to be implemented. And the FED
is not really in the business of responding to policy hypotheticals, right,
(11:26):
so they want to see what these policies look like
and when they're kicking in before they start taking account
of them in their rates decisions. And then, lastly, stretching
back to Clinton, there's been a tradition for US presidents
to respect FED independence, right, Clinton, Bush, Obama, Biden. They
all respected FED independence and left rate decisions for the FED.
(11:49):
Now you'll immediately notice one US president who I left
out of that list. That was Donald Trump. Donald Trump,
in his first term had absolutely no filter in talking
about the FED. In fact, he once tweeted the question
who's the greater enemy of the United States? Jerome Powell
was sheet in ping of China because he was angry
(12:11):
that Powell wasn't cutting interest rates fast enough for his liking.
In his second term, will he discover a kind of
inhibition or a filter and sharing of your monetary policy?
I doubt it. And what that means is there's going
to be pressure for the FED to demonstrate that it's
retaining its independence. And at the margin, that's going to
(12:31):
mean pressure for the FED to keep rates a little
bit higher. So you've got tighter monetary conditions already, pressure
to cut more. You've got the promise, but not yet
the reality of lower taxes and higher tariffs which are inflationary,
pressure to cut less, and threats to FED independence pressure
(12:52):
to cut less. Where's that going to net out? I
think all we can say now is it nets out
in quite a lot of uncertainty on the FED forecast.
Speaker 1 (13:01):
Yeah, and we've had Powell saying already that he wouldn't
step down if Trump asked him, So it's already on
people's minds.
Speaker 3 (13:08):
Yeah. It was pretty punchy, wasn't it.
Speaker 1 (13:11):
Surprisingly?
Speaker 2 (13:13):
Tom? I know you spent quite a lot of time
in China. I'd love to talk more about your views
on China now. The department that you're heading up, Bloomberg Economics,
in collaboration with Bloomberg Intelligence, wrote a detailed report analyzing
the effectiveness of the Made in China twenty twenty five
plan or goals, and it largely came up with the
(13:36):
conclusion that the US has largely failed in containing China's
rise in terms of technologies. What does this tell us
about the effectiveness of these protectist policies.
Speaker 3 (13:50):
It's a great question. John. So when Trump was campaigning
in twenty sixteen, a big part of the campaign was
the promise to be China right, restore American greatness, restore
American primacy, consign China to a kind of permanent second place.
And since Trump's election win in twenty sixteen, if you
look at the headline data, things have been moving pretty
(14:13):
firmly in America's direction. China is no longer closing the
GDP gap with the United States, It's falling further behind
China's markets. If we leave aside the excitement around the
latest stimulus have been slumping, America's market have been soaring.
So if you look at some of those headline numbers,
(14:34):
you can make a pretty compelling case that America's winning again.
Now the question is is that because of America's protectionist
policies and export controls aimed at blocking China from acquiring
advanced semiconductors and other technologies. I would make the case,
(14:54):
and I think those folks of Bloomberg Intelligence who did
that great analysis on China's set to bisector tech ambitions,
would make the case that actually China's problems are much
more homegrown. China has been wrestling with a huge problem
of overbuilding in the real estate sector. As they wrestle
with that, there's been a huge drop in real estate construction,
(15:18):
and that's just a really significant blow to growth. But
if we look at what's taking place more quietly in
the tech sector, in the manufacturing sector, if we look
at the progress which China's making on things like electric vehicles,
the batteries that power those vehicles, sustainable energy, actually there's
(15:39):
some pretty remarkable progress being made. And what that suggests
to me is that the great US China economic race, well,
America has certainly got the edge right now, but that
race is far from over.
Speaker 1 (15:53):
Yeah, and despite that tech boom, as you mentioned, China's
economy is not doing too well these days, and the
property sector has still yet to find bottom. Consumers aren't
spending like they used to, and you add tariffs to
the mix and it's not a great picture. But one
thing we've heard from Goldman Sachs and investors like Wage
(16:16):
and Sean from pag who was on our show recently,
is that tariffs, in a weird way, might actually be
good for China's economy long term. In other words, it's
going to potentially force policymakers to start in China to
really start focusing on the consumer and more consumer led growth.
And I wonder what you make of that.
Speaker 3 (16:38):
Yeah, I don't think that's going to happen, Katsia. I
think that China's leaders have a pretty firm view that
consumption is not the path to prosperity. Production is the
path to prosperity. So back when Phojinang was in charge,
if you really read a lot of China's economic policy documents,
(16:58):
and I'm don't have much of social life, so I
count myself as someone who's read quite a lot of
China's economic policy documents.
Speaker 1 (17:05):
That's perct That's why you're here, That's why.
Speaker 3 (17:08):
I'm sitting in my study at nine o'clock talking to
you on the Asia Central podcast. So so, if you
go back to the Hujentali era, it wasn't front and center,
but at least there was like lip service to this
Washington Wall Street idea that China needed to rebalance its
economy towards more consumption. Right now, if you read the
(17:30):
economic policy documents today, if you listen to what Hijinping's
saying today, really that idea isn't part of the mix
at all. Right, It's all about building a more productive
supply side of the economy, acquiring strategic technologies, developing advanced manufacturing.
China's leadership have decided that that's what worked for Japan,
(17:54):
that's what worked for Korea, that's what worked for Germany,
and that's what's going to work for them as well.
Speaker 2 (18:00):
Tom, What are you looking for next? What are the
catalysts going forward in terms of this US China relationship.
Speaker 3 (18:07):
So I'm going to be looking at three things, John. Firstly,
I'm going to be looking at who gets the big
jobs in Washington, DC. Specifically, I'll be looking to see
whether Robert Leitthheiser, the architect of tariffs in Trump's first term,
is getting a prominent role in his second administration. The
second thing, a little bit further down the road, is well,
(18:29):
the US is going to make a threat to try
and get some concessions from China. I'm going to be
looking at how China responds. I think it's actually entirely
possible that Beijing calls Washington, DC's bluff on this, and
that Trump says we're going to hit you with sixty
percent tariffs, and instead of coming forward with some concessions,
(18:51):
we'll buy some more soybeans, we'll buy some more liquefied
natural gas. We'll give some more trademarks to your immediate
family members. China says, you know what, We've played this
game before in your first term. We're not playing it again.
Tariff us if you like, but we're not having this
negotiation a second time. And then the third thing that
(19:13):
I'm going to be looking for to guide me through
all this complexity is the Agia Centric podcast, which I
understand has all the information everyone needs to understand the
complexities of Asia's politics, economy, and financial markets.
Speaker 1 (19:29):
Really truly the best guest to have on the show.
We can't wait to have you on next tom Thank
you so much for joining us on the Asia Centric podcast.
Speaker 3 (19:39):
It's been great to be here. Thanks Katy, thanks job.
Speaker 1 (19:42):
You've been listening to Asia Centric from Bloomberg Intelligence. This
podcast is produced by Claire Chen
You're listening to Asia Centric, the podcast that explores the
big ideas and trends moving money across the region. I'm
Kajadmitriyeva in Hong Kong and.
Speaker 2 (00:12):
I'm John Lee. It seems the number one thing on investors'
minds this year was the US election. Who would win?
Would US policy become even more protectionist? And what would
be the implications for economic growth and central bank policy?
Speaker 1 (00:26):
Yeah, and now following the victory of President elect Donald Trump,
it seems like everyone is still thinking about the implications.
Trump has vowed steep tariffs of sixty percent on Chinese imports,
universal levees, and all of these would have obviously sweeping
consequences in the world. Some analysts have already revised down
(00:49):
their economic growth expectations in China, and they've lowered the
outlook for fad cuts.
Speaker 2 (00:55):
And Trump has already started picking his cabinet, which does
provide some in site into his approach to the world.
Speaker 1 (01:02):
There's a lot to discuss and to help us navigate
all these moving pieces is Bloomberg Economics chief economist Tom Orlick.
He's also the author of China, The Bubble That Never
Pops and previously, he lived in Beijing for about a decade.
He joins us from DC. Hi, Tom, thanks for being here.
Speaker 3 (01:22):
Great to be a Katya and I see we're doing
our special podcast voices. I'll try our best to maintain
the standard.
Speaker 1 (01:30):
Thank you. I really appreciate that.
Speaker 2 (01:32):
Listen.
Speaker 1 (01:33):
It's a big topic on everyone's minds. Trump won in
a pretty big way. The biggest concern, I think is
safe to say, is tariffs. So how are you thinking
of that in terms of timing, in terms of size,
and whether they even end up coming into place.
Speaker 3 (01:50):
I mean, that's a really huge question. I'm sure we
can spend quite some time talking about it. Trump on
the campaign trail talked about sixty percent triffs on China. Now,
in his first term, he did twenty five percent tariffs
on hundreds of billions of dollars of goods. And if
you looked at the macro data in the US, if
(02:11):
you looked at the growth data, if you look at
the inflation data, it's actually pretty hard to see the consequences.
So there's an argument out there and a sentiment that
you hear from the Trump campaign, which is, well, what
are all of these economists complaining about? I did twenty
five percent tariffs last time, it was all good. Sixty
(02:33):
percent will be fine as well. Our view, though, is
that sixty percent is quite a bit more tariffs than
twenty five percent. If you think about profit margins for
China's small manufacturers, they're really in the single digits. So
they could just about live with twenty five percent tariffs
as long as they got some government subsidies and some
(02:55):
yuan appreciation to get them through it. But they certainly
couldn't live with sixty percent tariffs. Even if we think
about the big electronics giants, companies like Apple, which has
a supply chain spanning the United States and China and
other parts of Asia, well they'd have a lot of
difficulty with sixty percent tariffs as well. So was that
(03:17):
sixty percent number kind of campaign trail red meat or
was it a genuine commitment that we're going to see
implemented in office. I think we're going to find out,
but I think sixty percent would be quite damaging for
China and the United States. My guess is it's more
of an initial bargaining gambit rather than a firm commitment.
Speaker 1 (03:39):
Is there an assumption that you have going into twenty
twenty five of what size tariffs we might be able
to see here, And you said, it's really hard to
say whether it'll even come in, if it's bluster, if
it's reality. But is there sort of a going assumption
or a hunch that you have as an economist of
what we might see next year.
Speaker 3 (03:59):
So it is complicated, Kattia. We've got to see who
Trump gets into the top jobs. Who is the trade representative,
who's the Commerce secretary, who's the Treasury secretary? They all
lined up behind tariffs, or do we see some tariff
advocates like Robert Leinthheiser, who was the main architect of
(04:23):
Trump's first term tariffs, once again facing off against some
voices from Wall Street who are more pragmatic, more pro market.
Tariff lists need to be designed. We know from Trump's
first term that the Council of Economic Advisors was pouring
over the data for different imports in different sectors and
(04:44):
seeing where they could impose tariffs in a way which
imposed maximum pain on China and minimum pain on the
US consumer and US retailers. There needs to be a
decision about what procedure to use to implement tariffs. Can
the president do it more or less under his own discretion.
Does there need to be a consultative process. And all
(05:08):
of this suggests that this is not going to be
a kind of a one shot game. Right. We don't
expect Trump to get into office on day one and
say I'm posing tariffs at this level on these countries
and on these goods. I think it's going to be
an iterative process. Where there's a threat from the United States,
(05:28):
there's a negotiation both with the Chinese and with big
US companies like Apple that have a big dog in
the fight. Now you asked if I've got an intuition
or a hunt as to where this is going to
come out, I'd be surprised if we went to sixty
universally across all US imports from China. I wouldn't be
(05:50):
that surprised if we went to sixty percent on basically
the same set of goods that phase twenty five percent
tariffs in Trump's first term, and we had carve outs
as we did in Trump's first term for some of
those goods which are manufactured in China by the big
US electronics giants.
Speaker 2 (06:11):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market indices, currencies, commodities, and industries, as well
as over two thousand equities and credits. If you like
(06:31):
what you hear, don't forget to subscribe and chair Tom,
can we just pull back? Can you give us a
rundown of what Bloomberg Economics forecast for the US is
for next year and possibly for China with the potential
threat of tariffs.
Speaker 1 (06:48):
Yeah, I think I've seen more forecasts in the past
week than I have.
Speaker 2 (06:53):
Yep. There's a lot of scenario analysis as well on
the tariffs as well. Yeah.
Speaker 1 (06:58):
Yeah, the scenario analysis is the way to go. That's
what all the cool kids are doing.
Speaker 3 (07:02):
I do like to brag out here, but the Bloomberg
Economics we were doing scenario analysis before it was cool.
Now to your question on China, we're anticipating growth next
year of around four point six percent, so that's not
too far from the government's five percent target. Why do
(07:23):
we think there's going to be fairly robust growth for
China next year? Well, basically it's because the government is
now pumping a lot of stimulus into the economy. Could
tariffs take a chunk out of that? Well, yes, but
it depends how high the tariffs are, what goods they're
imposed on, and when they come during the year. So
(07:44):
if we look at an extreme scenario where Trump gets
into office, Robert Leithheiser gets reappointed as USTR on day one,
day two, we get sixty percent tariffs on everything. So
that's a really extreme scenario. Well, that would be a
pretty significant shock to China, and we would be moving
and I think everyone else will be moving to downgrade
(08:06):
their forecasts. But that's not what we think is going
to happen. We think Trump's going to get into office,
it's going to take time to get his team into place.
Once his team is in place, it's going to take
time to design that initial tariff package. Once that's been designed,
there's going to be a negotiation with the Chinese. Can
the US extract some concessions or not. So we would
(08:29):
expect tariffs to kick in not at the start of
the year, but probably closer to the middle of the year,
on the second half, and we'd expect them to be
imposed not on all goods, but on some portion of
Chinese manufacturing and to be imposed in a way which
didn't hurt the big US companies that are manufacturing in China.
(08:51):
So what's that going to do to China's growth? Well,
it could shade down China's growth in the second half
of the year, but I don't think it's going to
be a kind of cataclysmic shock to the Chinese economy
in twenty twenty five. Now if we flip that round
and think about the United States, well, our expectation for
US growth next year is so we think the US
(09:15):
economy is going to grow a shade less than two
percent next year. Would tariffs have a significant negative impact
on that, Well, once again, if they come midway through
the year, if they're designed in a way which minimizes
the impact on the US corporate champions, probably not.
Speaker 1 (09:36):
What about central banks, because you know, having tariffs of
sixty percent or even half that would probably have some
effects on inflation in the US, and by extension, how
much the FED can actually cut in twenty twenty five,
twenty six, and the timing of that, what are your
expectations for that side of things to sort of monetary policy.
Speaker 3 (10:00):
So there's been a rush after the election to dangrade
expectations for rid cuts in the US next year, and
that's partly because of concern that Trump's policies tax cuts
tariff increases are going to be inflationary, and that's just
going to mean the FED has less room to reduce rates.
(10:21):
So I think that's certainly a possibility. At the same time,
I think it's important to keep in mind that there
is a dizzying array of dynamics which the Trump administration
is going to be setting loose for the FED, and
many of them point in different directions. So the first
thing that's happened is the Trump trade has driven US
(10:42):
rates up and the US dollars stronger, and that means
financial conditions in the US and now tighter than before
Trump won the election, and that means more pressure for
the FED to cut more. The second thing, well, it's
those policies, right. Trump is promising tax cuts, which would
reduce growth in the United States. He's promising tariff increases,
(11:03):
which would make imports more expensive, and both of those
things are inflationary, and so they should need pressure for
the FED to cut less. But there's huge uncertainty about
what those policies are going to be actually look like
and when they're going to be implemented. And the FED
is not really in the business of responding to policy hypotheticals, right,
(11:26):
so they want to see what these policies look like
and when they're kicking in before they start taking account
of them in their rates decisions. And then, lastly, stretching
back to Clinton, there's been a tradition for US presidents
to respect FED independence, right, Clinton, Bush, Obama, Biden. They
all respected FED independence and left rate decisions for the FED.
(11:49):
Now you'll immediately notice one US president who I left
out of that list. That was Donald Trump. Donald Trump,
in his first term had absolutely no filter in talking
about the FED. In fact, he once tweeted the question
who's the greater enemy of the United States? Jerome Powell
was sheet in ping of China because he was angry
(12:11):
that Powell wasn't cutting interest rates fast enough for his liking.
In his second term, will he discover a kind of
inhibition or a filter and sharing of your monetary policy?
I doubt it. And what that means is there's going
to be pressure for the FED to demonstrate that it's
retaining its independence. And at the margin, that's going to
(12:31):
mean pressure for the FED to keep rates a little
bit higher. So you've got tighter monetary conditions already, pressure
to cut more. You've got the promise, but not yet
the reality of lower taxes and higher tariffs which are inflationary,
pressure to cut less, and threats to FED independence pressure
(12:52):
to cut less. Where's that going to net out? I
think all we can say now is it nets out
in quite a lot of uncertainty on the FED forecast.
Speaker 1 (13:01):
Yeah, and we've had Powell saying already that he wouldn't
step down if Trump asked him, So it's already on
people's minds.
Speaker 3 (13:08):
Yeah. It was pretty punchy, wasn't it.
Speaker 1 (13:11):
Surprisingly?
Speaker 2 (13:13):
Tom? I know you spent quite a lot of time
in China. I'd love to talk more about your views
on China now. The department that you're heading up, Bloomberg Economics,
in collaboration with Bloomberg Intelligence, wrote a detailed report analyzing
the effectiveness of the Made in China twenty twenty five
plan or goals, and it largely came up with the
(13:36):
conclusion that the US has largely failed in containing China's
rise in terms of technologies. What does this tell us
about the effectiveness of these protectist policies.
Speaker 3 (13:50):
It's a great question. John. So when Trump was campaigning
in twenty sixteen, a big part of the campaign was
the promise to be China right, restore American greatness, restore
American primacy, consign China to a kind of permanent second place.
And since Trump's election win in twenty sixteen, if you
look at the headline data, things have been moving pretty
(14:13):
firmly in America's direction. China is no longer closing the
GDP gap with the United States, It's falling further behind
China's markets. If we leave aside the excitement around the
latest stimulus have been slumping, America's market have been soaring.
So if you look at some of those headline numbers,
(14:34):
you can make a pretty compelling case that America's winning again.
Now the question is is that because of America's protectionist
policies and export controls aimed at blocking China from acquiring
advanced semiconductors and other technologies. I would make the case,
(14:54):
and I think those folks of Bloomberg Intelligence who did
that great analysis on China's set to bisector tech ambitions,
would make the case that actually China's problems are much
more homegrown. China has been wrestling with a huge problem
of overbuilding in the real estate sector. As they wrestle
with that, there's been a huge drop in real estate construction,
(15:18):
and that's just a really significant blow to growth. But
if we look at what's taking place more quietly in
the tech sector, in the manufacturing sector, if we look
at the progress which China's making on things like electric vehicles,
the batteries that power those vehicles, sustainable energy, actually there's
(15:39):
some pretty remarkable progress being made. And what that suggests
to me is that the great US China economic race, well,
America has certainly got the edge right now, but that
race is far from over.
Speaker 1 (15:53):
Yeah, and despite that tech boom, as you mentioned, China's
economy is not doing too well these days, and the
property sector has still yet to find bottom. Consumers aren't
spending like they used to, and you add tariffs to
the mix and it's not a great picture. But one
thing we've heard from Goldman Sachs and investors like Wage
(16:16):
and Sean from pag who was on our show recently,
is that tariffs, in a weird way, might actually be
good for China's economy long term. In other words, it's
going to potentially force policymakers to start in China to
really start focusing on the consumer and more consumer led growth.
And I wonder what you make of that.
Speaker 3 (16:38):
Yeah, I don't think that's going to happen, Katsia. I
think that China's leaders have a pretty firm view that
consumption is not the path to prosperity. Production is the
path to prosperity. So back when Phojinang was in charge,
if you really read a lot of China's economic policy documents,
(16:58):
and I'm don't have much of social life, so I
count myself as someone who's read quite a lot of
China's economic policy documents.
Speaker 1 (17:05):
That's perct That's why you're here, That's why.
Speaker 3 (17:08):
I'm sitting in my study at nine o'clock talking to
you on the Asia Central podcast. So so, if you
go back to the Hujentali era, it wasn't front and center,
but at least there was like lip service to this
Washington Wall Street idea that China needed to rebalance its
economy towards more consumption. Right now, if you read the
(17:30):
economic policy documents today, if you listen to what Hijinping's
saying today, really that idea isn't part of the mix
at all. Right, It's all about building a more productive
supply side of the economy, acquiring strategic technologies, developing advanced manufacturing.
China's leadership have decided that that's what worked for Japan,
(17:54):
that's what worked for Korea, that's what worked for Germany,
and that's what's going to work for them as well.
Speaker 2 (18:00):
Tom, What are you looking for next? What are the
catalysts going forward in terms of this US China relationship.
Speaker 3 (18:07):
So I'm going to be looking at three things, John. Firstly,
I'm going to be looking at who gets the big
jobs in Washington, DC. Specifically, I'll be looking to see
whether Robert Leitthheiser, the architect of tariffs in Trump's first term,
is getting a prominent role in his second administration. The
second thing, a little bit further down the road, is well,
(18:29):
the US is going to make a threat to try
and get some concessions from China. I'm going to be
looking at how China responds. I think it's actually entirely
possible that Beijing calls Washington, DC's bluff on this, and
that Trump says we're going to hit you with sixty
percent tariffs, and instead of coming forward with some concessions,
(18:51):
we'll buy some more soybeans, we'll buy some more liquefied
natural gas. We'll give some more trademarks to your immediate
family members. China says, you know what, We've played this
game before in your first term. We're not playing it again.
Tariff us if you like, but we're not having this
negotiation a second time. And then the third thing that
(19:13):
I'm going to be looking for to guide me through
all this complexity is the Agia Centric podcast, which I
understand has all the information everyone needs to understand the
complexities of Asia's politics, economy, and financial markets.
Speaker 1 (19:29):
Really truly the best guest to have on the show.
We can't wait to have you on next tom Thank
you so much for joining us on the Asia Centric podcast.
Speaker 3 (19:39):
It's been great to be here. Thanks Katy, thanks job.
Speaker 1 (19:42):
You've been listening to Asia Centric from Bloomberg Intelligence. This
podcast is produced by Claire Chen
Hosts And Creators
John Lee
Tom Corbett
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