July 24, 2025 • 19 mins
The US and Japan this week reached what President Donald Trump called the largest trade deal in history after Tokyo pledged to set up a $550 billion fund for investment into the US, details of which remain obscure. The lack of clarity about how the fund will work adds to questions about the viability of the agreement, which imposes 15% tariffs on Japanese cars and other goods. While the start date and other basic elements are still unknown, Treasury Secretary Scott Bessent warned this week that the US would monitor implementation and bump the rate up to 25% if Trump isn't satisfied. In his latest column, Bloomberg Opinion's Gearoid Reidy writes that after three months, Prime Minister Shigeru Ishiba finally has his trade deal. Gearoid joins us to explain why it may be Ishiba's final act.
Plus - the S&P 500 inched to a new record Thursday - its 10th in 19 days - driven by tech gains that papered over a broader weakness as most stocks in the benchmark dropped. The S&P 500 has surged 28% from its April lows as investors grew optimistic that President Donald Trump's tariff war won't hurt the economy and corporate earnings as initially feared. Meantime, South Korea's trade ministry said Friday that Industry Minister Kim Jung-kwan and US Commerce Secretary Howard Lutnick reaffirmed their will to reach a mutually beneficial trade agreement before August 1st deadline. For more on the economic impact of ongoing negotiations, we heard from Janet Henry, Global Chief Economist at HSBC. She speaks with Bloomberg's Shery Ahn and Haidi Stroud-Watts on The Asia Trade.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Wall
Street closed at record highs on Thursday. We had the
s and p eking out a small gain and in
the process notching its tenth record in the last nineteen
trading days. The Nasdaq Composite also closed at an all
time high. Global markets appear to be finding encouragement from
President Trump signing a number of trade deals, and in
(00:32):
a moment, we'll get the market perspective of Janet Henry.
She is the Global Chief economist at HSBC. You know,
we're a week away from the Trump administration's August first
deadline for those trade agreements. Now, officials from the US
and South Korea are set to meet this week. Now,
Trump has hailed the deal with Japan as a potential
model for other countries. That deal, by the way, sets
(00:54):
tariffs at fifteen percent across the board, including on autos. Now,
Tokyo also agreed to a whopping five hundred and fifty
billion dollars in investments in American industries. Bloomberg Opinion colonist
Garod Redi says this deal maybe Prime Minister Shiguri Ishiba's
final act. And I'm pleased to say that Garod joins
us now from the Japanese capital. Thank you so much
(01:16):
for making time to chat with me on this. Make
the case that this, in fact, this trade agreement is
Ishiba's final act, that this is basically the last thing
that he will be known for.
Speaker 3 (01:28):
Well, in terms of Ishiba, We've just had an extraordinary
couple of days here in Tokyo where pretty much as
soon as this deal was agreed, almost all of the
mainstream Japanese media outlets were reporting that Ishiba was soon
to announce his resignation. Of course, this follows the elections
(01:51):
on Sunday where Mishiva's Liberal Democratic Party lost their majority
in the Upper House. They already lost majority in the
lowerhouse and election last year, and this is the third
successive election with Ishiba as head where voters have essentially
rejected him. Normally you would see a prime minister step
(02:16):
down after such results. And the suspicion was, and the
case that I was making, was that the threat of
the tariffs from Trump had essentially given his premiership artificial life.
Already he had christened this tariff threat as a national
(02:36):
crisis in a sense that gave him breathing room where
he could say, look, things are too tense right now.
This is too important to worry and bicker about internal
politics now. By agreeing to this deal with Trump, he
has essentially given away his last piece of leverage. And
(02:58):
he has a lot of rivals and a lot of
people were not happy with his performance as leader, and
they're going to be coming for him.
Speaker 2 (03:04):
So if it is some sort of capitulation, I'm wondering
about what the feeling within the diet, the Japanese parliament
may be about what Ishiba agreed to in this trade deal.
Speaker 3 (03:16):
I do think there is a sense of relief, certainly
within the markets. You've seen, you know, the market reaction
to this deal has been you know, one of sort
of the uncertainty has lifted around, certainly Japanese stocks, and
we saw the topics yesterday reach a new record high
(03:36):
within the country. I think there is a bit of
a sense that this is about as good of a
deal as they were likely to get. I think the
question is the question I have is why did we
spend three months with Ishiba Isshba had this this red
line essentially that he said he was never going to
accept tariff's on auto's and he has a you know, basically,
(04:00):
as soon as the election was over on Sunday, he
crossed that red line. And now he's saying fifteen percent
tariff on everything, including autos is fine. However, that still
is better than what they had already, which was twenty
five percent on autos, with an additional twenty five percent
to come on all of the exports that are not
(04:20):
autos at the start of next week if they hadn't
agreed this deal.
Speaker 2 (04:24):
So give me a sense of what you think is
at work, because it's not just the fifteen percent levey
across the board on exports from Japan into the United States.
There's a five hundred and fifty billion dollar investment that
is being pledged to the US. Makes sense of that
for me?
Speaker 3 (04:41):
I wish I could, but I can't, and I'm not
sure anyone can make sense of the five hundred and
fifty billion dollar investment. The short answer is, we really
don't know what form that's going to take. It would
seem quite unusual to be investing that much in projects that,
(05:02):
you know, according to President Trumpet, the US is going
to retain ninety percent of any of the profits from
these projects. I guess what it's looking like is that
it's going to look something like, you know, I guess
sort of like financing agreements for projects within the US
that would be strategically important to Japan, So semiconductors, possibly,
(05:27):
you know, the energy projects, got the LNG project that's
going in Alaska. Possibly, you know, rare earths that that
kind of thing. To a certain extent, that makes sense.
What form this takes? Is it? You know, is it
low is it debt? Is it loans? Is it equity investment?
(05:47):
We don't really know who's giving that money. Does it
need to be paid back? All of this we don't know, essentially,
And the figure of the five hundred and fifty billion
dollars itself seems quite unusual, and I don't think anyone
knows really where it's coming from. Presumably it includes a
(06:08):
lot of spending that maybe is already happening or was
already planned. We just don't know.
Speaker 2 (06:13):
I think I'm reminded of Trump agreeing to allow the
Nippon Steel acquisition of US Steel to go forward, and
there was some investment that was a part of that deal.
Maybe that could have been a bit of a leading
indicator that something in this order would be a part
of any trade agreement.
Speaker 3 (06:29):
That's right, I mean the Nipon Steel agreement was I
think a positive step forward for both countries. I have
other issues with the deal as a deal for Nippon Steel,
but it was good I think that and certainly good
for US Japan relations. The President Trump essentially backtracked on
his opposition to that in return for more promises of investment.
(06:53):
That was I think fourteen billion dollars of additional investment
that they promised to kind of get that over the line.
Soft Bank is also promising to invest, you know, one
hundred billion in the US, and presumably that includes you know,
their various Vision Fund investments and semiconductor investments than AI
(07:16):
investments that they're making.
Speaker 4 (07:17):
Now.
Speaker 3 (07:18):
Are all these figures in the five hundred and fifty
billion possibly we saw there was there was a leaked
a leaked photo from the last round of negotiations where
Japan seemed to be presenting a figure of four hundred billion,
and by the time that meeting was over it had
increased to five hundred and fifty billion in the space
(07:40):
of I think that meeting went on for seventy five minutes,
so I think the exact figure probably has a lot
a lot in it. And you know, the fact that
we haven't really seen any clarification from either side of
what this figure actually is, I think shows that that
maybe neither side really knows well.
Speaker 2 (08:00):
So let's remember that the US and Japan have been
allies for decades. I'd like to get your view as
to whether or not this trade deal does anything to
alter that relationship in the slightest I.
Speaker 3 (08:12):
Think Japan at the start of this obviously, you know,
Japan was quite taken aback that, you know, not just
an ally, but probably their most important ally in Asia,
and certainly their most important ally to at least the
China Hawks within the Trump administration. If they wish to
contain China, they need Japan on board. So the fact
(08:37):
that you know, Japan was not given any sort of
exemption or preferential treatment when the taris were first announced
in April did come as a shock. However, I think
Japan has been pretty pragmatic, and they said very early
on that they wanted to separate out, you know, the
economic negotiations, the tariff negotiations and any defense negotiations, they
(08:58):
put them on to depletely different tracks, and I think
that probably was a smart move, and I think both
sides recognized that there are, you know, fundamental ties within
the security alliance that short term there's just no way
of getting around them. You know, Japan needs Japan needs
(09:19):
the US from a security perspective, and the US needs Japan,
and I think they were able to separate out that
part of the relationship from the trade negotiations.
Speaker 2 (09:30):
Goroth, thank you so much for your perspective. Goode Reedy
Bloomberg opinion columnists joining us here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
Earlier today in South Korea, Yon Happ reported the country's
(09:51):
top trade negotiators have held a joint meeting with Commerce
Secretary Howard Lutnik and Washington. The two sides reportedly reaffirmed
their commitment to reach a teriff agreement before that August
first deadline. Let's take a closer look now at the
ongoing economic impact of these negotiations. We heard earlier from
Janet Henry. She is the Global Chief Economist at HSBC.
(10:14):
Janet spoke with Bloomberg TV host Cherry On and Heidi
Stroud Watts on the Asia trade.
Speaker 5 (10:20):
Jannet, really great to have you with us at time
of enormous uncertainty, but also i'd imagine quite a bit
of fun for economists trying to model around all of
the different scenarios. Are you feeling as sanguine as financial
markets seem to be that things are only going to
progress when it comes to trade and at the very
least we're not going to go back to sort of
so called liberation day rates.
Speaker 4 (10:39):
Good morning, and it's a pleasure to be here. As
you say, it's fun time for economists. It's certainly keeping
us busy, giving us plenty to talk about. But the
key point is one of uncertainty. And it's interesting you
mentioned financial markets. Equity markets. The US equity market, at
least for dollar investors, and global equity markets are taking
a pretty sang Win view because the fact is the
(11:01):
global economy has been relatively resilient relative to expectations just
a couple of months ago, and they do seem to
be taking the view that the worst case scenarios regarding
tariffs and trade now have a much lower probability also
they've priced in some expectation of quite a lot of
rate cuts. You know, the market's still expecting about five
(11:23):
feder rate cuts by the end of twenty twenty six.
So if one of those factors change, if we do
get worst case scenarios on tariffs, we do get some
higher tariffs, or if the US economy slows down more
materially but perhaps with higher inflation, so you don't get
the rate cuts, then obviously even equity markets would have
to question the outlook and actually maybe the dollar. Maybe
(11:44):
bond markets aren't quite a sanguine as equity markets seem to.
Speaker 5 (11:48):
Got at the longer end of bond markets at the moment.
But when it comes to not quite seeing the economic impact,
get is that just to pass through situation? Do you
think the risk is that in the coming months and
data will start to show, both in terms of confidence
and inflation, that there is an impact.
Speaker 4 (12:03):
What to some extent we saw it in the June
inflation data. The headline number, if anything, was lower than expected,
because actually, what you're finally seeing in the US is
the housing component of inflation is starting to moderate. But
when you look in the weeds of the consumer goods
data finished goods, particularly those from China. You saw it
in household appliances, you saw it in audio equipment. And
(12:25):
these are prices that have been persistently falling for the
last few years. Suddenly they rose on the month by
about ten percent. So you are seeing some signs of
certain items where there is a pass through, particularly or
finished goods. But some of the uncertainty regarding towerists relates
to intermediate goods components. The tariffs on aluminium and steel,
(12:47):
potentially on copper, maybe on certain areas of pharmaceuticals that
could be quite hefty, and they tend to pass through
over time. So you've seen it in the data already,
the front loading anticipation of tariffs, you buy a lot
more consumers have been front loading. And now the question
obviously is whether the labor market slows down or indeed
(13:09):
you see more of the inflation numbers actually squeezing, squeezing
spending power but also pushing up inflation expectations, putting the
fad in that very difficult position. But I think we
will see it. Calling the exact timing both in the
US and what it means globally is the really difficult call.
We think you'll see it before the end of the year.
(13:29):
You probably will see it in the coming months.
Speaker 1 (13:31):
Do you have any indications of where the Bank of
Japan might go given what the Federal Reserve is doing,
and now that we have a trade deal with fifteen
percent tariffs on Japanese goods too, it's interesting.
Speaker 4 (13:43):
To say, now we have a trade deal with fifteen
percent tariffs some on goods, tariffs are a lot higher.
Speaker 6 (13:47):
Than they were.
Speaker 4 (13:48):
They're just not as bad as have been feared back
on April the second. So we find, you know, everyone
celebrating the fact that we've only got fifteen percent tariffs
on Japan. But I think you know, what you've seen
in Japan is higher inflation, a lot of it driven
by the doubling of rice prices, and people hate those
(14:10):
kind of inflation releases, those everyday items that they tend
to buy. It feeds through to their inflation expectations, So
it's kind of the wrong kind of inflation.
Speaker 6 (14:19):
Obviously.
Speaker 4 (14:19):
What we've been hoping for, and there are some signs
of it coming through, are a more self sustained improvement
in inflation, particularly on wages, and there are signs of
that coming through. So the Bank of Japan can normalize policy.
So yes, we do expect the Bank of Japan obviously
not imminently, but before the end of the year, most
likely in October, we'll be able to.
Speaker 6 (14:41):
Raise rates once more this year.
Speaker 4 (14:43):
So you know, it's still getting there gradually, but it
will be helpful obviously if rice price inflation continues to
moderate and you get more of the sustainable inflation rather
than a cost shock.
Speaker 1 (14:55):
Jen And when you talk about, of course the tier
of rate here in Japan being fifty percent, which yes,
to your point is higher than it was. But do
you also consider perhaps a relative impact, say as opposed
to South Korea. The Koreans are trying to lower their
tariffs to the rate of Japan because they compete in
similar goods, right, so if they have a competitive disadvantage
(15:17):
in automaker auto sales to the US, for example, that
would be comparatively not as great. Is that something that
as an economist you keep an eye on these relative
tariffs as opposed to just the net impact of what
the levees do to one economy.
Speaker 4 (15:35):
Yes, absolutely, that's a really important point. I mean, the
fact is different countries compete with each other, but there
are other factors of them in tariffs that relate to
that currency moves. The level of the exchange rate can
matter as well. Also the position of different countries relative
performance even before the tariffs take effect, and Korea's exports
(15:55):
certainly haven't been quite a strong on a number of
items than for instance, Taiwan areas of Japan's exports, So
all of these factors come into play.
Speaker 6 (16:05):
But you're absolutely right.
Speaker 4 (16:06):
Fifteen percent is the new aspiration, rather than getting back
to just a couple of percentage points.
Speaker 6 (16:13):
But when you look at the.
Speaker 4 (16:14):
Data, it's still going to be very, very hard to read,
and it's still going to be very difficult for companies
to plan in advance if they don't know what tariffs
are going to be tomorrow next week.
Speaker 6 (16:26):
And don't forget on the tariffs.
Speaker 4 (16:28):
We've still got this court challenge that's underway in the
world regarding the use of emergency powers to impose these
reciprocal tariffs altogether, and that could go all the way
to the Supreme Court. And it seems like we're constantly
waiting for the next deadline. Now it's August first, there
are other deadlines that are later in August. There are
(16:48):
others that might extend in the course of the year.
So all of that does play into the uncertainty angle
and the difficulty for companies trying to navigate the course
shipping things that they don't know what the tariff will
be when by the time it actually arrives in the
United States. But you're right, relative performance between economies in
similar goods can make quite a big different, and we've.
Speaker 5 (17:11):
Seen from the first Trump administration that taras tend to
compound and endure. Right, Have we sort of taken a
look at what the longer term impact is going to be,
even perhaps with the changing government.
Speaker 4 (17:23):
Well, it's a good question regarding the longer term impact
because you know what you saw for you know, a
couple of decades or more. Certainly up until twenty eighteen,
with the first Trump administration, there was quite a big
relative price change because you were reducing frictions in world trade.
The US saw persistent declines in goods prices of one, two,
(17:47):
sometimes three percent per year, and that was a boost
to real incomes.
Speaker 6 (17:51):
They were spending so much less on goods prices.
Speaker 4 (17:54):
They had strong growth and in many ways that supported
their spending on domestically produced most services in what is
largely a service sector.
Speaker 6 (18:03):
Economy the United States.
Speaker 4 (18:05):
The industrial sector is less than ten percent of GDP
in the US, So the longer term implications would be
that people perhaps will buy less on goods. Goods are
more expensive because the US.
Speaker 6 (18:18):
Can't produce all of these goods.
Speaker 4 (18:19):
Themselves immediately, and so actually it can dampen the ability
to spend on other areas of the economy service sector
spending in particular, and also the more macro sense, it
means lower growth, higher inflation, and interest rates being higher
than they would have otherwise been.
Speaker 5 (18:37):
Janet Henry, here's a Globe wal Chief economist at HSBC.
Speaker 6 (18:40):
Here with us.
Speaker 2 (18:43):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
(19:05):
and Australia. I'm Doug Prisoner and this is Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. Wall
Street closed at record highs on Thursday. We had the
s and p eking out a small gain and in
the process notching its tenth record in the last nineteen
trading days. The Nasdaq Composite also closed at an all
time high. Global markets appear to be finding encouragement from
President Trump signing a number of trade deals, and in
(00:32):
a moment, we'll get the market perspective of Janet Henry.
She is the Global Chief economist at HSBC. You know,
we're a week away from the Trump administration's August first
deadline for those trade agreements. Now, officials from the US
and South Korea are set to meet this week. Now,
Trump has hailed the deal with Japan as a potential
model for other countries. That deal, by the way, sets
(00:54):
tariffs at fifteen percent across the board, including on autos. Now,
Tokyo also agreed to a whopping five hundred and fifty
billion dollars in investments in American industries. Bloomberg Opinion colonist
Garod Redi says this deal maybe Prime Minister Shiguri Ishiba's
final act. And I'm pleased to say that Garod joins
us now from the Japanese capital. Thank you so much
(01:16):
for making time to chat with me on this. Make
the case that this, in fact, this trade agreement is
Ishiba's final act, that this is basically the last thing
that he will be known for.
Speaker 3 (01:28):
Well, in terms of Ishiba, We've just had an extraordinary
couple of days here in Tokyo where pretty much as
soon as this deal was agreed, almost all of the
mainstream Japanese media outlets were reporting that Ishiba was soon
to announce his resignation. Of course, this follows the elections
(01:51):
on Sunday where Mishiva's Liberal Democratic Party lost their majority
in the Upper House. They already lost majority in the
lowerhouse and election last year, and this is the third
successive election with Ishiba as head where voters have essentially
rejected him. Normally you would see a prime minister step
(02:16):
down after such results. And the suspicion was, and the
case that I was making, was that the threat of
the tariffs from Trump had essentially given his premiership artificial life.
Already he had christened this tariff threat as a national
(02:36):
crisis in a sense that gave him breathing room where
he could say, look, things are too tense right now.
This is too important to worry and bicker about internal
politics now. By agreeing to this deal with Trump, he
has essentially given away his last piece of leverage. And
(02:58):
he has a lot of rivals and a lot of
people were not happy with his performance as leader, and
they're going to be coming for him.
Speaker 2 (03:04):
So if it is some sort of capitulation, I'm wondering
about what the feeling within the diet, the Japanese parliament
may be about what Ishiba agreed to in this trade deal.
Speaker 3 (03:16):
I do think there is a sense of relief, certainly
within the markets. You've seen, you know, the market reaction
to this deal has been you know, one of sort
of the uncertainty has lifted around, certainly Japanese stocks, and
we saw the topics yesterday reach a new record high
(03:36):
within the country. I think there is a bit of
a sense that this is about as good of a
deal as they were likely to get. I think the
question is the question I have is why did we
spend three months with Ishiba Isshba had this this red
line essentially that he said he was never going to
accept tariff's on auto's and he has a you know, basically,
(04:00):
as soon as the election was over on Sunday, he
crossed that red line. And now he's saying fifteen percent
tariff on everything, including autos is fine. However, that still
is better than what they had already, which was twenty
five percent on autos, with an additional twenty five percent
to come on all of the exports that are not
(04:20):
autos at the start of next week if they hadn't
agreed this deal.
Speaker 2 (04:24):
So give me a sense of what you think is
at work, because it's not just the fifteen percent levey
across the board on exports from Japan into the United States.
There's a five hundred and fifty billion dollar investment that
is being pledged to the US. Makes sense of that
for me?
Speaker 3 (04:41):
I wish I could, but I can't, and I'm not
sure anyone can make sense of the five hundred and
fifty billion dollar investment. The short answer is, we really
don't know what form that's going to take. It would
seem quite unusual to be investing that much in projects that,
(05:02):
you know, according to President Trumpet, the US is going
to retain ninety percent of any of the profits from
these projects. I guess what it's looking like is that
it's going to look something like, you know, I guess
sort of like financing agreements for projects within the US
that would be strategically important to Japan, So semiconductors, possibly,
(05:27):
you know, the energy projects, got the LNG project that's
going in Alaska. Possibly, you know, rare earths that that
kind of thing. To a certain extent, that makes sense.
What form this takes? Is it? You know, is it
low is it debt? Is it loans? Is it equity investment?
(05:47):
We don't really know who's giving that money. Does it
need to be paid back? All of this we don't know, essentially,
And the figure of the five hundred and fifty billion
dollars itself seems quite unusual, and I don't think anyone
knows really where it's coming from. Presumably it includes a
(06:08):
lot of spending that maybe is already happening or was
already planned. We just don't know.
Speaker 2 (06:13):
I think I'm reminded of Trump agreeing to allow the
Nippon Steel acquisition of US Steel to go forward, and
there was some investment that was a part of that deal.
Maybe that could have been a bit of a leading
indicator that something in this order would be a part
of any trade agreement.
Speaker 3 (06:29):
That's right, I mean the Nipon Steel agreement was I
think a positive step forward for both countries. I have
other issues with the deal as a deal for Nippon Steel,
but it was good I think that and certainly good
for US Japan relations. The President Trump essentially backtracked on
his opposition to that in return for more promises of investment.
(06:53):
That was I think fourteen billion dollars of additional investment
that they promised to kind of get that over the line.
Soft Bank is also promising to invest, you know, one
hundred billion in the US, and presumably that includes you know,
their various Vision Fund investments and semiconductor investments than AI
(07:16):
investments that they're making.
Speaker 4 (07:17):
Now.
Speaker 3 (07:18):
Are all these figures in the five hundred and fifty
billion possibly we saw there was there was a leaked
a leaked photo from the last round of negotiations where
Japan seemed to be presenting a figure of four hundred billion,
and by the time that meeting was over it had
increased to five hundred and fifty billion in the space
(07:40):
of I think that meeting went on for seventy five minutes,
so I think the exact figure probably has a lot
a lot in it. And you know, the fact that
we haven't really seen any clarification from either side of
what this figure actually is, I think shows that that
maybe neither side really knows well.
Speaker 2 (08:00):
So let's remember that the US and Japan have been
allies for decades. I'd like to get your view as
to whether or not this trade deal does anything to
alter that relationship in the slightest I.
Speaker 3 (08:12):
Think Japan at the start of this obviously, you know,
Japan was quite taken aback that, you know, not just
an ally, but probably their most important ally in Asia,
and certainly their most important ally to at least the
China Hawks within the Trump administration. If they wish to
contain China, they need Japan on board. So the fact
(08:37):
that you know, Japan was not given any sort of
exemption or preferential treatment when the taris were first announced
in April did come as a shock. However, I think
Japan has been pretty pragmatic, and they said very early
on that they wanted to separate out, you know, the
economic negotiations, the tariff negotiations and any defense negotiations, they
(08:58):
put them on to depletely different tracks, and I think
that probably was a smart move, and I think both
sides recognized that there are, you know, fundamental ties within
the security alliance that short term there's just no way
of getting around them. You know, Japan needs Japan needs
(09:19):
the US from a security perspective, and the US needs Japan,
and I think they were able to separate out that
part of the relationship from the trade negotiations.
Speaker 2 (09:30):
Goroth, thank you so much for your perspective. Goode Reedy
Bloomberg opinion columnists joining us here on the Daybreak Asia podcast.
Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
Earlier today in South Korea, Yon Happ reported the country's
(09:51):
top trade negotiators have held a joint meeting with Commerce
Secretary Howard Lutnik and Washington. The two sides reportedly reaffirmed
their commitment to reach a teriff agreement before that August
first deadline. Let's take a closer look now at the
ongoing economic impact of these negotiations. We heard earlier from
Janet Henry. She is the Global Chief Economist at HSBC.
(10:14):
Janet spoke with Bloomberg TV host Cherry On and Heidi
Stroud Watts on the Asia trade.
Speaker 5 (10:20):
Jannet, really great to have you with us at time
of enormous uncertainty, but also i'd imagine quite a bit
of fun for economists trying to model around all of
the different scenarios. Are you feeling as sanguine as financial
markets seem to be that things are only going to
progress when it comes to trade and at the very
least we're not going to go back to sort of
so called liberation day rates.
Speaker 4 (10:39):
Good morning, and it's a pleasure to be here. As
you say, it's fun time for economists. It's certainly keeping
us busy, giving us plenty to talk about. But the
key point is one of uncertainty. And it's interesting you
mentioned financial markets. Equity markets. The US equity market, at
least for dollar investors, and global equity markets are taking
a pretty sang Win view because the fact is the
(11:01):
global economy has been relatively resilient relative to expectations just
a couple of months ago, and they do seem to
be taking the view that the worst case scenarios regarding
tariffs and trade now have a much lower probability also
they've priced in some expectation of quite a lot of
rate cuts. You know, the market's still expecting about five
(11:23):
feder rate cuts by the end of twenty twenty six.
So if one of those factors change, if we do
get worst case scenarios on tariffs, we do get some
higher tariffs, or if the US economy slows down more
materially but perhaps with higher inflation, so you don't get
the rate cuts, then obviously even equity markets would have
to question the outlook and actually maybe the dollar. Maybe
(11:44):
bond markets aren't quite a sanguine as equity markets seem to.
Speaker 5 (11:48):
Got at the longer end of bond markets at the moment.
But when it comes to not quite seeing the economic impact,
get is that just to pass through situation? Do you
think the risk is that in the coming months and
data will start to show, both in terms of confidence
and inflation, that there is an impact.
Speaker 4 (12:03):
What to some extent we saw it in the June
inflation data. The headline number, if anything, was lower than expected,
because actually, what you're finally seeing in the US is
the housing component of inflation is starting to moderate. But
when you look in the weeds of the consumer goods
data finished goods, particularly those from China. You saw it
in household appliances, you saw it in audio equipment. And
(12:25):
these are prices that have been persistently falling for the
last few years. Suddenly they rose on the month by
about ten percent. So you are seeing some signs of
certain items where there is a pass through, particularly or
finished goods. But some of the uncertainty regarding towerists relates
to intermediate goods components. The tariffs on aluminium and steel,
(12:47):
potentially on copper, maybe on certain areas of pharmaceuticals that
could be quite hefty, and they tend to pass through
over time. So you've seen it in the data already,
the front loading anticipation of tariffs, you buy a lot
more consumers have been front loading. And now the question
obviously is whether the labor market slows down or indeed
(13:09):
you see more of the inflation numbers actually squeezing, squeezing
spending power but also pushing up inflation expectations, putting the
fad in that very difficult position. But I think we
will see it. Calling the exact timing both in the
US and what it means globally is the really difficult call.
We think you'll see it before the end of the year.
(13:29):
You probably will see it in the coming months.
Speaker 1 (13:31):
Do you have any indications of where the Bank of
Japan might go given what the Federal Reserve is doing,
and now that we have a trade deal with fifteen
percent tariffs on Japanese goods too, it's interesting.
Speaker 4 (13:43):
To say, now we have a trade deal with fifteen
percent tariffs some on goods, tariffs are a lot higher.
Speaker 6 (13:47):
Than they were.
Speaker 4 (13:48):
They're just not as bad as have been feared back
on April the second. So we find, you know, everyone
celebrating the fact that we've only got fifteen percent tariffs
on Japan. But I think you know, what you've seen
in Japan is higher inflation, a lot of it driven
by the doubling of rice prices, and people hate those
(14:10):
kind of inflation releases, those everyday items that they tend
to buy. It feeds through to their inflation expectations, So
it's kind of the wrong kind of inflation.
Speaker 6 (14:19):
Obviously.
Speaker 4 (14:19):
What we've been hoping for, and there are some signs
of it coming through, are a more self sustained improvement
in inflation, particularly on wages, and there are signs of
that coming through. So the Bank of Japan can normalize policy.
So yes, we do expect the Bank of Japan obviously
not imminently, but before the end of the year, most
likely in October, we'll be able to.
Speaker 6 (14:41):
Raise rates once more this year.
Speaker 4 (14:43):
So you know, it's still getting there gradually, but it
will be helpful obviously if rice price inflation continues to
moderate and you get more of the sustainable inflation rather
than a cost shock.
Speaker 1 (14:55):
Jen And when you talk about, of course the tier
of rate here in Japan being fifty percent, which yes,
to your point is higher than it was. But do
you also consider perhaps a relative impact, say as opposed
to South Korea. The Koreans are trying to lower their
tariffs to the rate of Japan because they compete in
similar goods, right, so if they have a competitive disadvantage
(15:17):
in automaker auto sales to the US, for example, that
would be comparatively not as great. Is that something that
as an economist you keep an eye on these relative
tariffs as opposed to just the net impact of what
the levees do to one economy.
Speaker 4 (15:35):
Yes, absolutely, that's a really important point. I mean, the
fact is different countries compete with each other, but there
are other factors of them in tariffs that relate to
that currency moves. The level of the exchange rate can
matter as well. Also the position of different countries relative
performance even before the tariffs take effect, and Korea's exports
(15:55):
certainly haven't been quite a strong on a number of
items than for instance, Taiwan areas of Japan's exports, So
all of these factors come into play.
Speaker 6 (16:05):
But you're absolutely right.
Speaker 4 (16:06):
Fifteen percent is the new aspiration, rather than getting back
to just a couple of percentage points.
Speaker 6 (16:13):
But when you look at the.
Speaker 4 (16:14):
Data, it's still going to be very, very hard to read,
and it's still going to be very difficult for companies
to plan in advance if they don't know what tariffs
are going to be tomorrow next week.
Speaker 6 (16:26):
And don't forget on the tariffs.
Speaker 4 (16:28):
We've still got this court challenge that's underway in the
world regarding the use of emergency powers to impose these
reciprocal tariffs altogether, and that could go all the way
to the Supreme Court. And it seems like we're constantly
waiting for the next deadline. Now it's August first, there
are other deadlines that are later in August. There are
(16:48):
others that might extend in the course of the year.
So all of that does play into the uncertainty angle
and the difficulty for companies trying to navigate the course
shipping things that they don't know what the tariff will
be when by the time it actually arrives in the
United States. But you're right, relative performance between economies in
similar goods can make quite a big different, and we've.
Speaker 5 (17:11):
Seen from the first Trump administration that taras tend to
compound and endure. Right, Have we sort of taken a
look at what the longer term impact is going to be,
even perhaps with the changing government.
Speaker 4 (17:23):
Well, it's a good question regarding the longer term impact
because you know what you saw for you know, a
couple of decades or more. Certainly up until twenty eighteen,
with the first Trump administration, there was quite a big
relative price change because you were reducing frictions in world trade.
The US saw persistent declines in goods prices of one, two,
(17:47):
sometimes three percent per year, and that was a boost
to real incomes.
Speaker 6 (17:51):
They were spending so much less on goods prices.
Speaker 4 (17:54):
They had strong growth and in many ways that supported
their spending on domestically produced most services in what is
largely a service sector.
Speaker 6 (18:03):
Economy the United States.
Speaker 4 (18:05):
The industrial sector is less than ten percent of GDP
in the US, So the longer term implications would be
that people perhaps will buy less on goods. Goods are
more expensive because the US.
Speaker 6 (18:18):
Can't produce all of these goods.
Speaker 4 (18:19):
Themselves immediately, and so actually it can dampen the ability
to spend on other areas of the economy service sector
spending in particular, and also the more macro sense, it
means lower growth, higher inflation, and interest rates being higher
than they would have otherwise been.
Speaker 5 (18:37):
Janet Henry, here's a Globe wal Chief economist at HSBC.
Speaker 6 (18:40):
Here with us.
Speaker 2 (18:43):
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen. Join us again tomorrow for
insight on the market moves from Hong Kong to Singapore
(19:05):
and Australia. I'm Doug Prisoner and this is Bloomberg
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