April 7, 2025 • 19 mins
It's been a volatile few days across global markets.
As the equity sell-off has deepened, a growing number of market strategists have revised down their targets for where the S&P 500 will be at the end of the year, and economists at several big banks have updated their forecasts. Today on the Big Take podcast, unpacking the seismic effect US President Trump’s tariffs announcement is having on markets. Bloomberg Opinion’s John Authers joins host David Gura to contextualize the market moves — and explain what’s likely to happen next.
Read more from John Authers here.
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
It was another volatile day in global markets. Stocks continued
to sell off in Asia, Europe, and the United States.
President Trump threatened even more tariffs on China. Since Trump
announced a raft of new tariffs on April second, more
than nine trillion dollars has been wiped off of msci's
index of global stocks. But Trump has not blinked. He
(00:30):
and his advisors continue to say the economy is in
what the President calls an adjustment period. Here he is
talking to reporters on Air Force one on Sunday Runion Place.
Speaker 1 (00:40):
Now, what's gonna happen with the market? I can't tell you,
but I can tell you how our country has gotten
a lot stronger, and eventually it'll be a country like
no other. It'll be the most dominant country economically in
the world.
Speaker 2 (00:55):
The White House says more than fifty trading partners have
reached out to try to negotiate trade. Pop among them
is Japan, which faces a twenty four percent tariff. President
Trump spoke with Japan's Prime minister, and he also talked
trade with Benjamin Nett and Yahoo. When the Prime Minister
of Israel visited the White House on Monday.
Speaker 3 (01:14):
We have many, many countries that are coming to negotiate
deals with US, and they're going to be fair deals.
In certain cases, they're going to be paying substantial tariffs.
Speaker 2 (01:25):
Meanwhile, as the selloff has deepened, a growing number of
market strategists have revised down their targets for where the
S and P five hundred will be at the end
of the year, and economists that several big banks have
updated their forecasts. Some of them now expect to see
a recession in the months ahead. Libby Cantrill is the
head of public policy at PIMCO, and she told Blomberg
(01:46):
there's going to be stickiness to these tariffs, and even if.
Speaker 4 (01:48):
There are some negotiations and some concessions along the way,
I think the direction of travel here is very clear.
I don't mean to be sort of a statement of
the obvious here, but the tariffs are are going to
be high, and I think they're going to be high
for a while.
Speaker 2 (02:08):
I'm David Gerra, and this is the big take from
Bloomberg News today. On the show, the seismic effect President
Trump's tariffs announcement is having John Arthuris joins US a
senior market editor for Bloomberg and a columnist for Bloomberg Opinion.
To help us better understand what's happening and the impact
President Trump's trade policy is going to have on global
markets in the future, John, could you just describe the
(02:32):
market reaction that we've seen so far. It hasn't even
been a week, But how would you characterize what's been
happening in global marketing?
Speaker 5 (02:38):
Okay, I would characterize it as a horrified response to
what is almost universally regarded as an egregious, terrible, damaging
policy era. In terms of the what makes this unusual
compared to some other sell offs, it's that there hasn't
been much of a bounce at any point other than
(03:00):
in response to inaccurate news reports. There has been a
straightforward downward line when it comes to share prices. The
other point that I think needs to be taken on
board is that when you have negative news development for risk,
(03:22):
the Pavlovian responsive markets is to buy the dollar to
get into US assets, even if the source of the
problem is the US. That's what happened after the subprime crisis.
That's what happened after S and P downgraded US Treasury
debt in twenty eleven, people actually bought the dollar. They
sold the dollar in the twenty four hours after the
(03:43):
tariff announcement. That is very concerning as it suggests that
people could be losing their confidence in the US as
a jurisdiction. That said, as we're recording this, the dollar
has been regained somewhat since early Friday, So I would
(04:04):
call that something to monitor.
Speaker 2 (04:06):
You and I sitting near each other, we were here
late into the night on April second, and there was
a moment when you and I walked over to the
televisions and sort of saw the Asian market's response in
real time. What did you get a sense of how
broad based and widespread the reaction was going to be as.
Speaker 5 (04:22):
The tariffs announced are as widespread as they could be,
like ten percent on everybody, which even without the frankly
ridiculous reciprocal tariffs, which are just economically indefensible, even without
those ten percent blanket tariffs, would have been the biggest
change to the global trading order in many decades. This
(04:45):
is going to bite out of companies profits, This is
going to bite out of economic growth. That means any
assets connected to profits or growth are going to have
to be cheaper. We don't know exactly how much cheaper yet,
because of all these concerns about exactly whether this policy happens,
because of doubts about exactly how other countries will respond.
(05:05):
But this is one of the interesting things. Until Friday,
volatility as it's normally measured wasn't that high. This was
an orderly, let's get out of here response, rather than
my hair is on fire or the sky is falling.
Speaker 2 (05:23):
A basic question what is driving this sell off? Is
it uncertainty about what these tariffs are going to be
eventually and is President Trump going to blink or not?
Or is it the certainty that this is going to
be something that really upends the world as we know
it in terms of markets and the economy.
Speaker 5 (05:39):
I mean, we've had the uncertainty for a while, and
actually markets were fairly calm about it. A big part
of this sell off is that evidently very many people
had assumed this wasn't going to happen. There is no
other explanation for how extreme the market reaction was other
than that we really didn't think you were going to
(06:00):
do this, mister president.
Speaker 2 (06:02):
And why was that? I mean, as you say, he's
been talking about it for so long. Why did it
seem if you look at Valatilly, for instance, why did
it seem to get to Wall Street off.
Speaker 5 (06:09):
I mean, he had been talking about tariffs for just
as long minus eight years when he took over the
first time, and that time around. You can disagree about
protectionism versus free trade, but he went around those tariffs
in a fundamentally sensible way. He gave dew warning and
(06:29):
then he did targeted tariffs on the countries where there
was a real argument to be made that they were
behaving unfairly, i China, but he didn't go any further
than that. The other critical point from Trump one point
zero is that he does care about the stock market.
He really didn't like the stock market going down. He
set great store by saying how great he was because
(06:51):
the stock market was doing well. This is very hard
to explain here, but this is a complete inverse.
Speaker 2 (06:57):
We got commentary from the headch of manager, Bill Lackman.
We got this letter from Jamie Diamond to JP Morgan shareholders.
Every year he writes this many dozens of pages long letter. Yes,
and in this year, as he said, terrorists will increase
inflation and quote the quicker this issue is resolved, the
better because some of the negative facts increase cumulatively over
time and would be hard to reverse. Yes, how important
(07:17):
is the last part.
Speaker 5 (07:17):
Of that very if you can find a way to
resolve this which suggests to the rest of the will
that they can trust the States, and frankly to American
businesses that they can trust US government still not to
do something this stupid and arbitrary. This isn't just about
(07:38):
protectionism versus free trade. This is about how dumbly this
was done. If you can't resolve this in a way
that suggests the system still basically works, that we can
follow the will of the people, but do it in
a way that doesn't ultimately hurt those people produce results
that nobody ever wanted. If we can get to such
(08:02):
a situation, then this is that much less damaging. If
you're in a position, however, where you have the sense
that if what they've done already and the fact that
it's been allowed to happen means we have to forget
about trusting Uncle Sam from now on. That's very dangerous.
Speaker 2 (08:21):
After the break, we turned to the rest of the
world and whether we're heading toward a quick resolution or
a drawn out trade war. Trade was on the agenda
when Israel's Prime Minister Benjamin NETANYAHUO met with President Trump
at the White House on Monday. The White House imposed
(08:43):
a seventeen percent tariff on Israel. The President wrote in
a post on truth Social that quote, countries from all
over the world are talking to us, including Japan. John.
In the run up to April second, many investors thought
that these tariffs were going to be a negotiating gambit.
From what we're seeing from these meetings phone calls, do
you think that they are that.
Speaker 5 (09:04):
On balance? No, No, I do think he had in
mind that there would be negotiations. He's a transactional guy.
The reasons I think otherwise, however, First of all, a
number of the big investment banks did huge research on
what reciprocal tariffs meant. So this is where you break
down product line by product line, work out what tariff's
(09:24):
a chance to whom.
Speaker 2 (09:25):
If you do it for real, it's a lot of work.
Speaker 5 (09:27):
If you do it for real, it needs a lot
of computing. Parents like mining of a bitcoin, there are
tens of thousands of pairs and ubs, which I wrote
up about a month ago, came up with this great
report which from memory said that if the US moved
to reciprocal tariffs with everything on their fifty biggest trading partners,
(09:48):
that would increase the overall tariff level by about one
and a half percentage points. This is actually not that
big a deal. It also found out that there were
a number of countries, including most of the countries in
the EU and Japan, that would need to increase their
tariff slightly more than the US would do. The US
is actually not as hard done by as some other
(10:09):
developed markets. So this is the problem that you can
have a big negotiation, but the other countries don't have
much to offer because they're not tariffing the US very
much in the first place. We've had decades of moving
towards a broadly free trade system. But the idea that
(10:31):
has been in circulation is that you could get a
bunch of other countries agreeing to revalue their currency higher
against the dollar in return for Trump making these tariffs
go away. That isn't a stupid idea that there is
plain common sense in it. You need China to be
(10:53):
a part of it. That is going to be very
difficult if you don't have China as a part of it.
There's not much point, and you probably want to start
from a basis where people's electorates are going to be
okay with you doing this.
Speaker 2 (11:11):
There is this old sar that China has the capacity
to weather events over a longer time horizon than say
the US does. How do you see them responding to
the incredibly sizable tariffs that the president has put in place,
others that he's threatened. What is that government that economy
able to do in the phase of that.
Speaker 5 (11:30):
Yes, China is prone to long term thinking. That said, actually,
the Chinese Communist Party in recent years has actually been
pretty opportunistic and reactionary. If things go wrong, it will,
it will weave, it will change. What has happened so
far is they can spend a lot of money. They've
(11:52):
been doing that and it hasn't necessarily helped, but they
can try doing it again. Thanks to the lack of
confidence in the Chinese economy to grow, you can borrow
very cheaply. If you're the Chinese government, one and a
half percent two percent yields, which is extraordinary. They do
have control over their currency. There are some limits on
(12:13):
that control. It does have some of the attributes of
a normal traded currency, but not all of them. They
have they've decided they're not allowing capital to flow fully and.
Speaker 2 (12:23):
They're not wringing their hands over central bank independence.
Speaker 5 (12:26):
Oh and so you have seen I think you can
call it a warning, a shot across the bows. The
yuan is still not at its weakest. It's like there's
a ceiling that it has come and approach two or
three times and bounced from. It's approaching it again. We've
(12:46):
just had the sharpest devaluation in the in the yuan
in some months. I think that's a warning sign with guys,
we can weaken the yuan if we want to. We
haven't been doing that because for we've been kind of
agreeing that we left we took things too far in
the early years after China joined the WTA, which is
(13:06):
plainly true. By the way, if they want to, they
can make their currency much weaker again, and that will
be a problem for the States. Less of a problem
than it was when China was substantially all of the
global growth fifteen to twenty years ago, but a problem.
The question that has to reside over China is just
(13:30):
that their economy isn't the perpetual growth machine that it was.
They are not able to weather this as easily as
they did in the past. This will hurt. At the moment,
it appears that their response is going to be we
will spend more money here, we will really attack them back,
and we'll see if we can muddle through.
Speaker 2 (13:51):
The message that we seem to be hearing from European
policy makers is there is a keenness to negotiate here,
but they're not going to wait forever. What does their
strategy tell you about their approach.
Speaker 5 (14:03):
It's a very difficult situation for Europe because the European
economy is not in a good place. The problem they
have is that they don't, in fact have all that
much to offer, because despite what you might have heard,
European Union does not put particularly big restraints barriers on
(14:25):
trade from the US. They don't have much to offer
that way. There has been and this is a very
intriguing and sensible possibility, the notion that this becomes a
big transaction in which they say, Okay, we're going to
buy x amount of liquefied natural gas from the US,
or we are going to rearm as you ask to,
(14:47):
and we're going to buy it all from Lockheed. Those
are variance of those things are possible, but I would
caution that the way that the administration has gone about
things in the last three months makes it really hard
for European leaders to do those things. The last time
(15:08):
I was in Britain and when I was in Germany,
Donald Trump and JD. Vance have made themselves very, very unpopular.
This is not normal. There is a degree of anti
Americanism in Britain and Europe. Yes, this is not like that.
This is something qualitatively different that does make it harder,
(15:29):
not easier, to make a deal.
Speaker 2 (15:31):
Let's wrap up here by returning to Wall Street, and
I wonder, as you see strategists rethinking there s and
p forecasts, and economists uttering the word recession more than
they were a few weeks or months ago, what that
makes you think about the path forward or how Wall
Street sees the path forward.
Speaker 5 (15:52):
I think Wall Street still sees the path forward as
being that these towers don't last somehow or other, and
that we return to a path that is inferior, from
their point of view, weaker for growth than it would
have been that it was likely to be twelve months ago.
The reason we haven't seen even more of a sell
(16:13):
off than we have. Is a belief that this will
make tax cuts or at least continuation of the first
Trump term tax cuts, even more important. It will make
deregulation even more important. It will light a fire under
Republicans in Congress to make sure those things happen. But
(16:34):
ultimately there is a belief that this cannot hold and
that there will be some kind of a climb down.
They don't know how it's going to happen. There's a
degree there is enough uncertainty about how exactly the climb
down will happen and where it will end that you
don't have calm in the markets, that you're not going
to get stability in the markets. But there is still
an ultimate belief that that's going to happen. If you
(16:57):
look at the Fed Fund's futures market, there is confidence
that the Fed is going to be cutting by a
full percentage point this year, even though j. Powell just
said inflation looks worse than it did and I'm in
no hurry to cut, but you would have thought would
have been a pretty good reason not to be betting
on a percentage points worth of cuts. But there is
(17:18):
a belief that this is going to do economic damage
and the Fed is going to have no choice but
to cut. And there is also a belief but it
doesn't appear to be about the stock market. It will
ultimately about polls and Republicans in Congress asserting themselves. But
there is also a belief that politically there is a
level that will force Trump to change his mind to all.
Speaker 2 (17:42):
To course, let me take advantage of the fact that
you are a columnist and you have the lattitude to
opine and play clairvoyant. How long does this last? How
long does the sell off gone?
Speaker 5 (17:52):
It lasts until there is some clear sign that the
tariffs has announced last week won't happen as announced. That
could be because a few big countries say they're going
to make deals or prepare to talk in a way
that could allow a backtrack why without losing face for
(18:15):
the administration. It could be because some of the moves
we've seen in Congress actually have an effect. Or it
could be I think this is highly unlikely because the
White House comes out and says we're not doing this,
or we are announcing a delay, but we need some
clear sign that this isn't necessarily going to happen. The
(18:41):
reason we got continued to sell off some Monday morning
was because the administration dug in on Sunday when they
could have put up suggestions that they were that they
were ready to talk. But in terms of a stabilized bottom,
a return to some kind of normality in marketing, it's
where you could feel comfortable investing. You need something to
(19:04):
happen to change the policy, Essey, It's been announced, John,
Thank you very much. Thank you.
Speaker 2 (19:13):
This is the Big Take from Bloomberg News. I'm David Gura.
This episode is produced by Rachel Lewis Chrisky and Alex Tie.
It was edited by Patty Hirsch and Sid Verma. It
was fact checked by Adrian A. Tapia and mixed and
sound designed by Alex Sagura. Our senior producer is Naomi Shaven,
Our senior editor is Elizabeth Ponso, Our deputy executive producer
is Julia Weaver, and our executive producer is Nicole beemster Borg.
(19:37):
Sage Bauman is Bloomberg's head of Podcasts. If you liked
this episode, make sure to subscribe and review The Big
Take wherever you listen to podcasts. It helps people find
the show, thanks for listening. We'll be back tomorrow.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
It was another volatile day in global markets. Stocks continued
to sell off in Asia, Europe, and the United States.
President Trump threatened even more tariffs on China. Since Trump
announced a raft of new tariffs on April second, more
than nine trillion dollars has been wiped off of msci's
index of global stocks. But Trump has not blinked. He
(00:30):
and his advisors continue to say the economy is in
what the President calls an adjustment period. Here he is
talking to reporters on Air Force one on Sunday Runion Place.
Speaker 1 (00:40):
Now, what's gonna happen with the market? I can't tell you,
but I can tell you how our country has gotten
a lot stronger, and eventually it'll be a country like
no other. It'll be the most dominant country economically in
the world.
Speaker 2 (00:55):
The White House says more than fifty trading partners have
reached out to try to negotiate trade. Pop among them
is Japan, which faces a twenty four percent tariff. President
Trump spoke with Japan's Prime minister, and he also talked
trade with Benjamin Nett and Yahoo. When the Prime Minister
of Israel visited the White House on Monday.
Speaker 3 (01:14):
We have many, many countries that are coming to negotiate
deals with US, and they're going to be fair deals.
In certain cases, they're going to be paying substantial tariffs.
Speaker 2 (01:25):
Meanwhile, as the selloff has deepened, a growing number of
market strategists have revised down their targets for where the
S and P five hundred will be at the end
of the year, and economists that several big banks have
updated their forecasts. Some of them now expect to see
a recession in the months ahead. Libby Cantrill is the
head of public policy at PIMCO, and she told Blomberg
(01:46):
there's going to be stickiness to these tariffs, and even if.
Speaker 4 (01:48):
There are some negotiations and some concessions along the way,
I think the direction of travel here is very clear.
I don't mean to be sort of a statement of
the obvious here, but the tariffs are are going to
be high, and I think they're going to be high
for a while.
Speaker 2 (02:08):
I'm David Gerra, and this is the big take from
Bloomberg News today. On the show, the seismic effect President
Trump's tariffs announcement is having John Arthuris joins US a
senior market editor for Bloomberg and a columnist for Bloomberg Opinion.
To help us better understand what's happening and the impact
President Trump's trade policy is going to have on global
markets in the future, John, could you just describe the
(02:32):
market reaction that we've seen so far. It hasn't even
been a week, But how would you characterize what's been
happening in global marketing?
Speaker 5 (02:38):
Okay, I would characterize it as a horrified response to
what is almost universally regarded as an egregious, terrible, damaging
policy era. In terms of the what makes this unusual
compared to some other sell offs, it's that there hasn't
been much of a bounce at any point other than
(03:00):
in response to inaccurate news reports. There has been a
straightforward downward line when it comes to share prices. The
other point that I think needs to be taken on
board is that when you have negative news development for risk,
(03:22):
the Pavlovian responsive markets is to buy the dollar to
get into US assets, even if the source of the
problem is the US. That's what happened after the subprime crisis.
That's what happened after S and P downgraded US Treasury
debt in twenty eleven, people actually bought the dollar. They
sold the dollar in the twenty four hours after the
(03:43):
tariff announcement. That is very concerning as it suggests that
people could be losing their confidence in the US as
a jurisdiction. That said, as we're recording this, the dollar
has been regained somewhat since early Friday, So I would
(04:04):
call that something to monitor.
Speaker 2 (04:06):
You and I sitting near each other, we were here
late into the night on April second, and there was
a moment when you and I walked over to the
televisions and sort of saw the Asian market's response in
real time. What did you get a sense of how
broad based and widespread the reaction was going to be as.
Speaker 5 (04:22):
The tariffs announced are as widespread as they could be,
like ten percent on everybody, which even without the frankly
ridiculous reciprocal tariffs, which are just economically indefensible, even without
those ten percent blanket tariffs, would have been the biggest
change to the global trading order in many decades. This
(04:45):
is going to bite out of companies profits, This is
going to bite out of economic growth. That means any
assets connected to profits or growth are going to have
to be cheaper. We don't know exactly how much cheaper yet,
because of all these concerns about exactly whether this policy happens,
because of doubts about exactly how other countries will respond.
(05:05):
But this is one of the interesting things. Until Friday,
volatility as it's normally measured wasn't that high. This was
an orderly, let's get out of here response, rather than
my hair is on fire or the sky is falling.
Speaker 2 (05:23):
A basic question what is driving this sell off? Is
it uncertainty about what these tariffs are going to be
eventually and is President Trump going to blink or not?
Or is it the certainty that this is going to
be something that really upends the world as we know
it in terms of markets and the economy.
Speaker 5 (05:39):
I mean, we've had the uncertainty for a while, and
actually markets were fairly calm about it. A big part
of this sell off is that evidently very many people
had assumed this wasn't going to happen. There is no
other explanation for how extreme the market reaction was other
than that we really didn't think you were going to
(06:00):
do this, mister president.
Speaker 2 (06:02):
And why was that? I mean, as you say, he's
been talking about it for so long. Why did it
seem if you look at Valatilly, for instance, why did
it seem to get to Wall Street off.
Speaker 5 (06:09):
I mean, he had been talking about tariffs for just
as long minus eight years when he took over the
first time, and that time around. You can disagree about
protectionism versus free trade, but he went around those tariffs
in a fundamentally sensible way. He gave dew warning and
(06:29):
then he did targeted tariffs on the countries where there
was a real argument to be made that they were
behaving unfairly, i China, but he didn't go any further
than that. The other critical point from Trump one point
zero is that he does care about the stock market.
He really didn't like the stock market going down. He
set great store by saying how great he was because
(06:51):
the stock market was doing well. This is very hard
to explain here, but this is a complete inverse.
Speaker 2 (06:57):
We got commentary from the headch of manager, Bill Lackman.
We got this letter from Jamie Diamond to JP Morgan shareholders.
Every year he writes this many dozens of pages long letter. Yes,
and in this year, as he said, terrorists will increase
inflation and quote the quicker this issue is resolved, the
better because some of the negative facts increase cumulatively over
time and would be hard to reverse. Yes, how important
(07:17):
is the last part.
Speaker 5 (07:17):
Of that very if you can find a way to
resolve this which suggests to the rest of the will
that they can trust the States, and frankly to American
businesses that they can trust US government still not to
do something this stupid and arbitrary. This isn't just about
(07:38):
protectionism versus free trade. This is about how dumbly this
was done. If you can't resolve this in a way
that suggests the system still basically works, that we can
follow the will of the people, but do it in
a way that doesn't ultimately hurt those people produce results
that nobody ever wanted. If we can get to such
(08:02):
a situation, then this is that much less damaging. If
you're in a position, however, where you have the sense
that if what they've done already and the fact that
it's been allowed to happen means we have to forget
about trusting Uncle Sam from now on. That's very dangerous.
Speaker 2 (08:21):
After the break, we turned to the rest of the
world and whether we're heading toward a quick resolution or
a drawn out trade war. Trade was on the agenda
when Israel's Prime Minister Benjamin NETANYAHUO met with President Trump
at the White House on Monday. The White House imposed
(08:43):
a seventeen percent tariff on Israel. The President wrote in
a post on truth Social that quote, countries from all
over the world are talking to us, including Japan. John.
In the run up to April second, many investors thought
that these tariffs were going to be a negotiating gambit.
From what we're seeing from these meetings phone calls, do
you think that they are that.
Speaker 5 (09:04):
On balance? No, No, I do think he had in
mind that there would be negotiations. He's a transactional guy.
The reasons I think otherwise, however, First of all, a
number of the big investment banks did huge research on
what reciprocal tariffs meant. So this is where you break
down product line by product line, work out what tariff's
(09:24):
a chance to whom.
Speaker 2 (09:25):
If you do it for real, it's a lot of work.
Speaker 5 (09:27):
If you do it for real, it needs a lot
of computing. Parents like mining of a bitcoin, there are
tens of thousands of pairs and ubs, which I wrote
up about a month ago, came up with this great
report which from memory said that if the US moved
to reciprocal tariffs with everything on their fifty biggest trading partners,
(09:48):
that would increase the overall tariff level by about one
and a half percentage points. This is actually not that
big a deal. It also found out that there were
a number of countries, including most of the countries in
the EU and Japan, that would need to increase their
tariff slightly more than the US would do. The US
is actually not as hard done by as some other
(10:09):
developed markets. So this is the problem that you can
have a big negotiation, but the other countries don't have
much to offer because they're not tariffing the US very
much in the first place. We've had decades of moving
towards a broadly free trade system. But the idea that
(10:31):
has been in circulation is that you could get a
bunch of other countries agreeing to revalue their currency higher
against the dollar in return for Trump making these tariffs
go away. That isn't a stupid idea that there is
plain common sense in it. You need China to be
(10:53):
a part of it. That is going to be very
difficult if you don't have China as a part of it.
There's not much point, and you probably want to start
from a basis where people's electorates are going to be
okay with you doing this.
Speaker 2 (11:11):
There is this old sar that China has the capacity
to weather events over a longer time horizon than say
the US does. How do you see them responding to
the incredibly sizable tariffs that the president has put in place,
others that he's threatened. What is that government that economy
able to do in the phase of that.
Speaker 5 (11:30):
Yes, China is prone to long term thinking. That said, actually,
the Chinese Communist Party in recent years has actually been
pretty opportunistic and reactionary. If things go wrong, it will,
it will weave, it will change. What has happened so
far is they can spend a lot of money. They've
(11:52):
been doing that and it hasn't necessarily helped, but they
can try doing it again. Thanks to the lack of
confidence in the Chinese economy to grow, you can borrow
very cheaply. If you're the Chinese government, one and a
half percent two percent yields, which is extraordinary. They do
have control over their currency. There are some limits on
(12:13):
that control. It does have some of the attributes of
a normal traded currency, but not all of them. They
have they've decided they're not allowing capital to flow fully and.
Speaker 2 (12:23):
They're not wringing their hands over central bank independence.
Speaker 5 (12:26):
Oh and so you have seen I think you can
call it a warning, a shot across the bows. The
yuan is still not at its weakest. It's like there's
a ceiling that it has come and approach two or
three times and bounced from. It's approaching it again. We've
(12:46):
just had the sharpest devaluation in the in the yuan
in some months. I think that's a warning sign with guys,
we can weaken the yuan if we want to. We
haven't been doing that because for we've been kind of
agreeing that we left we took things too far in
the early years after China joined the WTA, which is
(13:06):
plainly true. By the way, if they want to, they
can make their currency much weaker again, and that will
be a problem for the States. Less of a problem
than it was when China was substantially all of the
global growth fifteen to twenty years ago, but a problem.
The question that has to reside over China is just
(13:30):
that their economy isn't the perpetual growth machine that it was.
They are not able to weather this as easily as
they did in the past. This will hurt. At the moment,
it appears that their response is going to be we
will spend more money here, we will really attack them back,
and we'll see if we can muddle through.
Speaker 2 (13:51):
The message that we seem to be hearing from European
policy makers is there is a keenness to negotiate here,
but they're not going to wait forever. What does their
strategy tell you about their approach.
Speaker 5 (14:03):
It's a very difficult situation for Europe because the European
economy is not in a good place. The problem they
have is that they don't, in fact have all that
much to offer, because despite what you might have heard,
European Union does not put particularly big restraints barriers on
(14:25):
trade from the US. They don't have much to offer
that way. There has been and this is a very
intriguing and sensible possibility, the notion that this becomes a
big transaction in which they say, Okay, we're going to
buy x amount of liquefied natural gas from the US,
or we are going to rearm as you ask to,
(14:47):
and we're going to buy it all from Lockheed. Those
are variance of those things are possible, but I would
caution that the way that the administration has gone about
things in the last three months makes it really hard
for European leaders to do those things. The last time
(15:08):
I was in Britain and when I was in Germany,
Donald Trump and JD. Vance have made themselves very, very unpopular.
This is not normal. There is a degree of anti
Americanism in Britain and Europe. Yes, this is not like that.
This is something qualitatively different that does make it harder,
(15:29):
not easier, to make a deal.
Speaker 2 (15:31):
Let's wrap up here by returning to Wall Street, and
I wonder, as you see strategists rethinking there s and
p forecasts, and economists uttering the word recession more than
they were a few weeks or months ago, what that
makes you think about the path forward or how Wall
Street sees the path forward.
Speaker 5 (15:52):
I think Wall Street still sees the path forward as
being that these towers don't last somehow or other, and
that we return to a path that is inferior, from
their point of view, weaker for growth than it would
have been that it was likely to be twelve months ago.
The reason we haven't seen even more of a sell
(16:13):
off than we have. Is a belief that this will
make tax cuts or at least continuation of the first
Trump term tax cuts, even more important. It will make
deregulation even more important. It will light a fire under
Republicans in Congress to make sure those things happen. But
(16:34):
ultimately there is a belief that this cannot hold and
that there will be some kind of a climb down.
They don't know how it's going to happen. There's a
degree there is enough uncertainty about how exactly the climb
down will happen and where it will end that you
don't have calm in the markets, that you're not going
to get stability in the markets. But there is still
an ultimate belief that that's going to happen. If you
(16:57):
look at the Fed Fund's futures market, there is confidence
that the Fed is going to be cutting by a
full percentage point this year, even though j. Powell just
said inflation looks worse than it did and I'm in
no hurry to cut, but you would have thought would
have been a pretty good reason not to be betting
on a percentage points worth of cuts. But there is
(17:18):
a belief that this is going to do economic damage
and the Fed is going to have no choice but
to cut. And there is also a belief but it
doesn't appear to be about the stock market. It will
ultimately about polls and Republicans in Congress asserting themselves. But
there is also a belief that politically there is a
level that will force Trump to change his mind to all.
Speaker 2 (17:42):
To course, let me take advantage of the fact that
you are a columnist and you have the lattitude to
opine and play clairvoyant. How long does this last? How
long does the sell off gone?
Speaker 5 (17:52):
It lasts until there is some clear sign that the
tariffs has announced last week won't happen as announced. That
could be because a few big countries say they're going
to make deals or prepare to talk in a way
that could allow a backtrack why without losing face for
(18:15):
the administration. It could be because some of the moves
we've seen in Congress actually have an effect. Or it
could be I think this is highly unlikely because the
White House comes out and says we're not doing this,
or we are announcing a delay, but we need some
clear sign that this isn't necessarily going to happen. The
(18:41):
reason we got continued to sell off some Monday morning
was because the administration dug in on Sunday when they
could have put up suggestions that they were that they
were ready to talk. But in terms of a stabilized bottom,
a return to some kind of normality in marketing, it's
where you could feel comfortable investing. You need something to
(19:04):
happen to change the policy, Essey, It's been announced, John,
Thank you very much. Thank you.
Speaker 2 (19:13):
This is the Big Take from Bloomberg News. I'm David Gura.
This episode is produced by Rachel Lewis Chrisky and Alex Tie.
It was edited by Patty Hirsch and Sid Verma. It
was fact checked by Adrian A. Tapia and mixed and
sound designed by Alex Sagura. Our senior producer is Naomi Shaven,
Our senior editor is Elizabeth Ponso, Our deputy executive producer
is Julia Weaver, and our executive producer is Nicole beemster Borg.
(19:37):
Sage Bauman is Bloomberg's head of Podcasts. If you liked
this episode, make sure to subscribe and review The Big
Take wherever you listen to podcasts. It helps people find
the show, thanks for listening. We'll be back tomorrow.
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