August 11, 2025 • 30 mins
- Eric Rosengren, former President of the Federal Reserve Bank of Boston
- Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs
- Henrietta Treyz, co-founder at Veda Partners
- Ryan Petersen, Chairman and CEO of Flexport
Eric Rosengren, former President of the Federal Reserve Bank of Boston, joins to discuss recent eco data and outlook for the US labor market and potential for rate cuts. Henrietta Treyz, co-founder at Veda Partners, joins to discuss the Trump administration's trade policy and how it will impact its broader economic agenda. Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, joins to discuss global inflation and the equity outlook in the US and abroad. Ryan Petersen, Chairman and CEO of Flexport, talks tariffs and how the US' reshaped trade policy impacts businesses.
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Episode Transcript
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Speaker 1 (00:00):
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Speaker 2 (00:11):
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(00:34):
Terminal and the Bloomberg Business App. Peter Ropenheimer of Goldman
Sachs writing, it's possible the terriffs could hurt equity prices
even if the US agrees on deals with key training partners.
Peter joins us now for more. Peter, Welcome to the program, sir.
Before we talk about the risk, let's talk about the price.
The rally we've seen on both sides of the Atlantic,
on the S and P and the eurostocks fifty of
close to something like nine percent. Peter, when you break
(00:55):
things down, let's just talk about breath. Compare and contrast
the story in the States to the story you're witnessing
in Europe.
Speaker 3 (01:04):
Well, very different story. At one level, it looks very similar.
As you said, both markets are rising, but they're rising
in different ways. The contributions are quite different. In the US,
very much driven again by the power of the biggest
tech stocks, which are really leading the market. As you say,
smps are an all time high, the median stock is
around twelve percent below it's fifty two week high, so
(01:29):
very very concentrated, whereas in Europe, actually there's significant breadth,
unusual breadth actually in the market, and you're seeing much
much less concentration, although of course you are seeing and
have seen stocks that are disappointing being very heavily punished,
and that's happened on both sides of the Atlantic.
Speaker 2 (01:51):
So let's just pick up on the US TEK story
and the narrow breadth that I've heard so much of
that I'm sure you have as well. Whether it is
necessarily unhealthy. If I think about the dominant risks of
the moment, they're largely cyclical, they're related to trade, and
in many ways some people might look at the US
DOT market and say that's a source of stability, not
necessarily downside risk. How would you counter that look?
Speaker 3 (02:13):
I think it's right that, you know, if we step
back and think about economies which are still growing, albeit
at a slower pace, certainly in the US, but interest
rates coming down, that's broadly a supportive environment for risk assets.
And the fact that in the US the tech heavy
largest companies have been dominating the rally is a function
(02:35):
of their very very powerful, continued profit growth. It's not
been about speculation. It's really been about very very strong fundamentals,
and there's nothing wrong with that. The only problem, of course,
is that after you get an increasingly concentrated market, it
becomes harder to diversify risks, at least domestically, and that's
(02:55):
one of the reasons why we've been arguing that investors
should take a more open mind mind a view of
diversification geographically to improve risk adjusted returns.
Speaker 4 (03:06):
Well, Peter, where is the opportunities in Europe? Because I'm
looking at the Bank of America fund manager survey out
of Europe and they say European investors thirty five percent
expect stronger European growth over the coming twelve months. But
it was forty four percent last month. So isn't that
European story actually starting to dwindle a little bit.
Speaker 3 (03:25):
Yeah, and we've seen that to some extent in the
relative performance. Very much the first part of the year,
Europe outperforming both in terms of underlying assets but also
on a dollar adjusted basis. As the dollar weakened and
that differences moderated to some extent. But I think it
is right to say that from a very low base,
(03:45):
European growth is improving somewhat. An important driver of that
is the expansion of fiscal policy coming from Germany, and
we do also have a couple of other themes that
are encouraging intro particularly increased defense spending which is powering ahead,
more infrastructure spending across Europe, and also some of the
(04:08):
value areas of the market which are doing really very well,
banks being a perfect example. And I would say that
is another difference between Europe and the US. The US
is still being driven by growth dominated themes, particularly related
to technology, whereas in Europe and some other markets, value
is actually outperforming.
Speaker 4 (04:27):
The risk of tariffs, though still exist, and the team
at Goldman Sachs had a no doubt about how the
impact has yet to hit consumer prices. When it comes
to tariffs, that hit is just getting started, what can
this mean for Europe and some European corporate names.
Speaker 3 (04:43):
Well, I think that it does complicate the picture because
we haven't yet seen the full effect of tariffs on
either side of the Atlantic, and it is likely to
weigh on consumer confidence to some extent and the ability
for consumers to continue to drive economic growth, and we're
already seeing some evidence of that slowing, particularly in the US,
(05:04):
and alongside it some weakness in the labor market. The offset,
I think is that you will see lower rates, at
least in the US. We think for the ECB they're
done for now. They've already cut rates more aggressively, and
I think there's less room for that to continue given
that we're going to see some effect of tariff still
(05:25):
yet to come through.
Speaker 2 (05:26):
You mentioned the rally we've seen in US tag validated
by the earnings. The earnings have been really powerful. I
believe you said the same thing for the banks and
the run up we've seen in Europe. This rally of
more than forty percent for European banks so far year today,
has it been justified also by the earnings we've seen
so far and the outlook coming from the c suite.
Speaker 3 (05:45):
Yeah, very much so, and we have to emphasize that
this is a huge turnaround from the trend that we
saw really for a decade after the financial crisis, where
banks came under huge pressure, particularly in Europe. They had
to delever, raise capital, cut dividends, and although they were
cheap in terms of multiple they kept on underperforming. But
(06:06):
we've seen a dramatic change in circumstances. Now they have
strong balance sheets. You mentioned earlier that the credit cycle
is benign, and more confidence in the economy means less
risk of loan losses and credit losses and provisionings for
the banks. And we have steeper yield curves which are
very supportive of their profits. So in Europe, the very
(06:28):
powerful returns that we've been seeing in banks is justified
by very strong fundamentals, just as the technology companies have
been supported by fundamentals in the US.
Speaker 2 (06:39):
Can we just touch on the rates back drub for Europe?
For a long long time they complained about negative interest rates.
We got away from that. Now it feels like rates
are started to come back down again, Peter. And maybe
they don't stop at two, perhaps they don't stop at one.
How important is the rate outlook? For the long story
on bags.
Speaker 3 (06:56):
I think the most critical factor is going to be growth.
If we avoid recession, that would be our central view,
then the risk of a provisioning cycle that could be
damaging for earnings is moderated. Of course, what's been very
helpful for the banks, and this has been true in
many regions, particularly in Europe, is that yel coves have steepened.
(07:17):
We've seen already a lot of progress on short rate
cutting by the UCB, but long rates have been edging up,
partly driven by growing deficits and spending, particularly in Germany,
and that spread has been very helpful for banks. It
may moderate a little bit moving forwards, but I think
if we continue to get economic growth, the outlook is
(07:38):
still reasonably benign for the banking sector in Europe.
Speaker 2 (07:40):
Peter Rockenheimer of Goma SAX Peter, I appreciate your time
joining us Now is the former Boston Fed president Eric Rosengrant.
Welcome back to the program, Sir, some healthy debate at
the feder Reserve. Let's call it what it is. It
(08:01):
is healthy. Do you think September is too early to
settle the debate?
Speaker 5 (08:06):
I think it depends on how the data comes in
we have two CPI reports, one PCE report, and one
employment report. Data can be pretty noisy, so I think
we need to see what things look like as we
get into September. But I agree that if the CPI
and PCE are reasonably well restrained and the labor market
(08:27):
looks sweet, then it would be appropriate to ease rates. However,
it's also quite possible that we'll see a slowly increasing
inflation rate. I'm expecting the CPI will probably be the
core cpi'll be above three percent when it comes out tomorrow,
and if we start seeing numbers that look higher than
the market's expecting, sentiment can change pretty quickly. So I
(08:51):
think it's a little too soon to call September. I
think the Fed was acting appropriately when it wanted to
wait and see, because right now, while the payroll employment
was week, the unemployment rate was four point two percent,
and the labor market has had a labor supply shock,
So you probably want to focus a little bit more
on the unemployment rate than the payroll employment numbers.
Speaker 2 (09:14):
Eric, as you look at the dual mandate at the moment,
and this really speaks to the divide of the Federal Reserve,
there are some individuals who want to focus on the
employment side of the mandate, others who still want to
focus on the price stability side of the mandate. Can
you share with us your experience. Did you prioritize one
side over the other? Are they created equally.
Speaker 5 (09:32):
So everybody can vote? And way I mean it's you're
not given the waiting function, so each person can kind
of choose for themselves what they think is most important
at the time. But the framework document actually talks about
what you should do when both elements of the mandate
are not where you want it. And in that document
(09:53):
it argues that you should look at how far away
you are from where you want to be and how
long it'll take to get there. So on inflation, if
you look at the core PCE, we're at two point
eight percent, and most people think it's going to take
quite some time for us to get back to two percent.
If you look at the unemployment rate, we're right at
four point two percent. So despite the weak labor supply
(10:15):
that's been happening, the labor market doesn't look to be
in that much trouble. You don't see initial claims rising rapidly.
So while I know a number of participants at the
FMC are talking about concern about the employment mandate. It
actually is exactly where they forecast they want it to be,
which is at full employment.
Speaker 4 (10:37):
Basically, what you outline there says that the Fed shouldn't
be cutting just yet. So is there a bias to
a weakening labor market?
Speaker 5 (10:46):
So it depends on a forecast, and I would say
private sector economists do not see a rapidly rising unemployment
rate and do not see an elevated risk of seeing
a risk session. So I would think the rhetoric around
the labor market would be more consistent if the private
(11:07):
sector was seeing more evidence in the data that the
unemployment rate looked like it was going to rise, that
initial claims was going to rise. So I think at
this case, at this time, it's a little bit odd
to overweight the employment part of the dual mandate.
Speaker 2 (11:22):
Eric, Can we just sit on the data and I
want to avoid the politics. Don't worry about that not
going to include you in any of that whatsoever. We're
always dependent on the data, and there's been a question
for a long long time about how dependable the data
actually is, particularly the labor market data prone to very
large revisions. We saw that last year, We've seen it
many times in the past as well. Eric, how did
(11:43):
you manage that situation? Were you less sensitive to incoming
monthly reads and knowing that at some point in the
future they would be revised, How did you approach it?
Speaker 5 (11:52):
So if you focus on a forecast month to month,
doesn't matter nearly as much as where you expect things
to go over time. And as you point out, the
labor market data, particularly the payroll numbers, can be pretty jumpy.
And the reason for that is not because anybody's manipulating it.
It's because they do a survey and if people don't
fill out their survey forms on time, then in the
(12:15):
revision they pick up the additional surveys and so depending
on what the response rate is, and the response rate
has been going down on many US government surveys, it
becomes less accurate and the revisions can be larger as
they get additional data. So you never should put too
much weight on any one data point. You're really looking
(12:36):
for a trend you're not actually looking for. While Wall
Street focuses on beating expectations and having a number, comparing
the current number to what they expected, the central bankers
should really be worried more about long term trends. So
long term trends don't get affected as much by a
single data point, so you should smooth through most of
(12:58):
that data, and that's what most forecasts end up doing.
Speaker 4 (13:02):
Do you think there's concern though, that now the US
data is no longer considered the gold standard given the
fact that the President ousted the commissioner of the BLS.
Speaker 5 (13:12):
Well, it depends on who he gets who replaces at
the BLS, but it would be very disturbing if you
didn't have reliance on the data, and the US not
just the BLS data, but the GDP data, the inflation data.
All that data is critical to making good policy choices.
(13:35):
And if that data is manipulated in some way so
that you can't rely on it, it becomes very problematic
for policy. And while the initial changes are probably not
going to be that noticeable, over time it can create
havoc and I think you see examples of that or
the Wall Street Journal did an article on what happened
(13:56):
in Argentina when they started manipulating the data. China has
been famous for dropping series that didn't work in the
way they were hoping so. For example, youth unemployment is
not reported anymore on a consistent basis, but you see
young people coming to the United States because they can't
get jobs in China. So you can conceal to some
(14:18):
extent data and for months to month you can get
slightly better numbers, but over time, if you're manipulating, the
data becomes obvious to the public.
Speaker 4 (14:27):
Eric the President's nomination to fill Governor Coogler seat Stephen Myron,
is an individual that is already working with him as
one of his economists the head of the CEA. Less
than a year ago, Myron was against cuts at the FED.
Does he look purely political now, potentially to his new
colleagues at the FOMC.
Speaker 5 (14:48):
I think there is a consistency problem. He has traditionally
been somebody very concerned about the inflation part of the mandate,
and so his newfound interest in the labor market and
the ne to lower interest rates looks somewhat out of
character from what he was concerned about. Over time, he's
(15:09):
written about being concerned that there's too much politics of
the FED. He obviously has been a strong proponent of
this administration's policies and seems to be a proponent of
lowering interest rates, which has been advocated by the administration.
So if what you're looking for is an independent FED,
he probably is not the perfect choice to ratify an
(15:30):
independent FED.
Speaker 2 (15:32):
Eric I appreciate your opinion. Thank you, sir, the former
Poston FED president Eric Riisenkrant Henry to try to fight
a pound it joined us. Now for more, Henrietta, can
you think of another example of something like this plank
out in your lifetime?
Speaker 6 (15:55):
Certainly not at BIS.
Speaker 1 (15:56):
Wendy points it out exactly, there's not another example like this.
I think the most interesting way to look at this
is to see the President sort of expanding out beyond
something that was a very real concern for him on Friday,
if you followed his truth social posts, it was very
much about these court cases that are pending around the
AEPA tariffs. So if the President is going to be
stripped of his authority to impose taris via EPA, is
(16:19):
he giving himself some sort of additional leverage point with
export controls and selling them to effectively the basic way
of just getting trade flowing and having some sort of
card to play with China.
Speaker 6 (16:32):
I think that's an interesting angle to think about.
Speaker 1 (16:35):
I think the AIPA court case story is the most
critical here, and the President obviously was focused on that
on Friday, and then this announcement makes sense in that context.
Speaker 4 (16:44):
Henrieta, If you're in a C suite of a massive
American company and you see what's playing out right now
with Nvidia and AMD, is this a new risk that
you need to contend with that potentially if you want
to export your products to outside of the United States,
you might have to pay the US government.
Speaker 1 (17:00):
I think it's completely stands to reason, and every single
one of these trade deals has some sort of pay
mint component. And what happens is we get these original
announcements and then they get materially walked back. So this
one's pretty cut and dry fifteen percent in the event
that that's where it lands. But think about the Japan deal,
for example, the White House set that's five hundred and
fifty billion dollars worth of investment that's going to flow
(17:22):
to the United States.
Speaker 6 (17:23):
We get ninety percent of.
Speaker 1 (17:24):
The returns, But the reality is that only eleven billion
dollars of that five hundred billion that Japan committed to
is going to come from the Japan bank. Everything else
is going to come from private sector that you have
no control over. So there are these big numbers floated
and then they're almost always revised. Another example, to give
you another one down would be the gold tariffs that
(17:45):
are happening right now. This sort of rampant confusion before
there's an ultimate clarity is really the prevailing theme of
this administration.
Speaker 4 (17:53):
Okay, but when you're talking about pay components, when it
comes to other trade negotiators, it's about investing in the
United States. That means money and jobs, jobs for Americans
coming into the United States. This is purely about just
paying some of your profit streams for chips that at
one point you are already sending to China to the
US government. How is this in line what the Trump
(18:14):
administration and the campaign ran on.
Speaker 6 (18:18):
Well, it's definitely not consistent at all.
Speaker 1 (18:20):
Either there was a national security threat exposed to these
chip sales, which is something that we've been dealing with
for at least a decade, or you can just pay
your way around it and it's no longer a national
security threat. They are two mutually exclusive developments. And I
think again it goes back to the president needing more
chips in the China negotiations, because, for example, the export
(18:43):
of US soy and agriculture.
Speaker 6 (18:46):
Goods is down fifteen fifty percent.
Speaker 1 (18:49):
In just the last six months, dropped from like eleven
and a half billion dollars worth of sales to five
and a half. The president needs more ammunition, and if
he can somehow create a reliance, which is what we've
heard from the Nvidia CEO on US chip sales, then
that gives some additional leverage perhaps down the line, but
it's definitely mutually exclusive to the national security argument.
Speaker 2 (19:09):
How much leverage do they have right now Handwritter, I
think that's worth exploring. If you look at the Chinese
export numbers, they seem to be doing okay. The export
numbers are up, the exports to just go into other places.
Is this important to them in the same way it
was maybe six months ago, maybe several years ago, four
or five years ago.
Speaker 6 (19:27):
Yeah.
Speaker 1 (19:27):
Absolutely, And this is what you always have heard from
China very consistently.
Speaker 6 (19:30):
The United States is a bully, come do business with us.
Speaker 1 (19:33):
We're seeing it operate in Africa right now and the
EU and other nations in the Southeast Asian region.
Speaker 6 (19:39):
And one of the things to.
Speaker 1 (19:41):
Be mindful of as we get into this is that
the president has threatened one hundred and forty five percent
tires eighty percent would be the rate that goes into
effect on August twelfth, that they don't reach a detant.
But China plainly has the president in a corner around
magnets and rare earths that debilitate the automate and defense.
Speaker 6 (20:00):
Sectors win one fell swoop.
Speaker 1 (20:02):
So the reason that the ninety day pause is the
base case on the street is because the president threatened
too much and he's not going to get it.
Speaker 6 (20:09):
We don't have the capacity for that.
Speaker 1 (20:11):
Goldman's coming out with you sixty seven percent inflation hike
to the US consumer and prime prices being passed on.
Speaker 6 (20:17):
We do not have that ability right now.
Speaker 1 (20:18):
It's the same reason not to go to too many places,
the same reason you're not saying the Russia sanctions go
into effect. You cannot mess with oil and gas prices
when we have this risk of inflation coming.
Speaker 2 (20:27):
What would be helpful is if the Europeans another trade
pound has gone on side with the United States to
put the pressure on China's for the pressure on another
trade pond. And do you see those pieces coming together
anytime soon, I.
Speaker 6 (20:39):
Don't, And think about what we have pending.
Speaker 1 (20:41):
You've got Section two thirty two, pharmaceutical tires, automobiles, automobile parts,
semiconductor chips, all those outstanding components. And the EU is
not at all thrilled with the deal that was reached
a couple weeks back with the United States.
Speaker 6 (20:54):
So that block is fractured to.
Speaker 1 (20:56):
The point where we don't even have legally binding texts,
and we might not for months now. I don't see
that coming around. We don't have Canada even, you know,
so I think we're quite a ways away.
Speaker 4 (21:06):
What kind of way does the US have when it
goes to Brussels and say, really put the screws to China,
given the fact that now the United States is saying, well,
actually we'll send some chips that we thought were national
security concerned, but you just have to give us some
of the profit.
Speaker 1 (21:19):
You know, this is really the underlining issue that all
of our trading partners has had. Who is the ultimate decider?
Where is the line in the sand?
Speaker 6 (21:27):
What are we even negotiating?
Speaker 1 (21:29):
And that's been a consistent theme that we've seen from
Japan and Korea and the EU is what is it
that we can offer, What can we commit to and
write into legally binding text on our end that we
can then go and operate with around the world. And
that's not something that they have any ability to even
get in the room in a timely manner to have
that conversation. And there are so many outstanding issues, and
(21:51):
I would just say one more time here, the market
is not a the inflation is not a one and
done situation. We're still going to get lumber TIFFs on
Canada on top of the ones that the President put
into effect on Friday. We still have outstanding sectoral tire
risks with all of these major trading partners from Switzerland
to Ireland. There's no certainty here and I don't have
any reason to think that that would end in the
(22:12):
next three years.
Speaker 2 (22:13):
Just briefly, how much money is coming in in the meantime, Henritta,
Just how much we take it in month on month
of the moment.
Speaker 1 (22:19):
I think last I saw it was twenty seven billion
dollars a month. So ultimately, this is a two point
seven trillion dollar revenue raiser that the United States consumer
pays for, and the inflation numbers are going to get compounded,
because again this is not a one and done event.
Tariffs have increased at least a dozen times just in
the last six months, and there are at nine on
the horizon just in the sectoral tires, without even getting
(22:41):
into three oh ones on Brazil or the AEPA tariffs
and whether or not those can be maintained, and then
we're going to throw export control restrictions on top.
Speaker 6 (22:49):
There's a long way.
Speaker 2 (22:49):
To god Trice if I'd have found us, henretta thank
you and place to side. The man himself joins us.
Now for more, Ryan, welcome to the program sir. Just
describe if you can, the activity that you've seen over
(23:10):
the past few months, the rush to secure air freight,
all kinds of things. Ryan, what are you seeing?
Speaker 6 (23:16):
Yeah, thanks for having me on.
Speaker 7 (23:17):
Well, it's been crazy volatile ever since the Liberation Day
tariffs were announced. You had immediately after that, you had
a sixty percent decline in ocean freight bookings from China
to the US that lasted about five weeks, so just
a massive decline of freight coming out of China.
Speaker 6 (23:33):
You then had, once.
Speaker 7 (23:34):
The terrorists were relaxed, the surge to eighty percent above
the pre tariff level of volumes. That's what I was
describing in that tweet, And now now this I think
that was from a couple of weeks ago, because things
have been settling in and now we're seeing the real
effective terariffs, which is people shipping left stuff. Prices devotion
freight are coming way down back to you know, we're
(23:56):
probably over the next few weeks going to see prices
back to levels that we saw we haven't seen since
after the pandemic in like twenty twenty three, when prices
were quite low. So I don't know if you call
that normalizing or just like doing what you would predict,
which is tariff should lead to less freight, which should
lead to lower prices, and it's not great for companies
involved in the business.
Speaker 4 (24:16):
Geographically, Ryan, what ports are dealing with really soft demand.
Speaker 7 (24:23):
I assume that it's pretty evenly distributed across all the ports.
I don't think there's a trend by poor It's actually
one thing that has happened here is the airports because
when the tariffs are announced with such short deadlines, you
see this huge rush to ship air freight in and
that sort of ended last a couple of days ago.
At the end of last week when the new tariffs
(24:43):
took effect, but in the prior two or three weeks
to that, there was this huge switch between from ocean
freight to air freight. So because I met one customer
said they saved two million dollars by switching four containers
from ocean freight to air freight, just by beating the tariffs,
we seem.
Speaker 4 (24:59):
This administry should really try to go after transhipment. How
is that affecting the supply chains and what you're tracking.
Speaker 7 (25:08):
Yeah, this new transhipment rule is quite interesting. So like
basically what they've said is that if you have a
one duty rate, which is around twenty percent or goods
from for example, Vietnam, but if the goods are determined
to be transshipped from another country through Vietnam, then the
duty rate is much higher. This is a very strange
(25:28):
policy because historically an all precedent of country of origin rules,
then the Vietnam has nothing to do with the duty rate.
If they're tranship for Vietnam, the duty rate is still China.
China's duty rate is not Vietnam. So it's quite a
confusing rule from those in the industry. What we're basically saying, is, hey,
in addition to going to jail for committing customs fraud,
(25:51):
you're also going to have to pay a higher duty rates.
I mean, I guess it's effective, but it's very strange policy.
Speaker 4 (25:56):
But have you actually seen it work when you're tracking
all of this cargo?
Speaker 7 (26:02):
No, it's not, I mean, because it's a sort of
a nonsense. It's basically saying, hey, if you're committing fraud
and then you have to pay a higher duty rate, well,
I mean the fraud the penalties were already much worse
for committing fraud than a higher duty rates. So now
we haven't seen anything like change because of it.
Speaker 2 (26:16):
Right, How creative are people getting? What kind of mitigation strategies?
How are they introducing? What are you suggesting? What are
you advocating for?
Speaker 7 (26:23):
Yeah, I mean, first I'm advocating is don't do anything illegal.
And there's a lot of incentive to break the rules
now because you know and you do see people who
are who are breaking the rules now. For example, if
you import goods from China and the Chinese company serves
as the importer, and all you do is the American
company that used to import them, and now you're just saying, hey,
(26:45):
I buy them in America. The Chinese company imported them
and they happened to cheat on the customs duties. That's
not my fault. Well, guess what customs will hold you liable.
That's not a loophole that you can get out of
so easily as that's what's legal. And what we're vising
people to do is look very closely at three things.
One is the valuation of the goods, two is the
(27:05):
country of origin, and three is the classification. Now all
of these seem like black and white, but they're not.
This is the law, this is regulation, and therefore there's
a lot of room for expertise to come in and
identify what is the gray area and what is the
legal grayer. How do you say on the right side
of that legal area, And some of it's not grey,
it's just like sophisticated so on valuation. If you provided
(27:29):
capex assistance to your factory, or there's other rules that
you can say, how that lowered the value of the goods,
you would pay less triff. You got to do it legally, though,
make sure you have an expert on the country of origin.
Similar things, how do you classify this, How do you
qualify this as being the country of origin that has
the lower duty rate. There's a lot of sophistication in
(27:51):
that as well, saying hey, did you apply enough new
value added either materials or labor in that other country
to change the country of origin? Legal not committing fraud?
And the third ist classification. It's illegal to change the
classification of your goods in order to achieve a lower
duty rate. But if the correct classification of your goods
(28:12):
happens to have a lower duty rate, you win. So
there's again a lot of work that needs to be
done by sophisticated people who understand these rules that can
help you out. Plus Forard as a team that does this,
as too many other companies.
Speaker 2 (28:22):
Run, are you finding them more work just means more time?
Is this slimming things down?
Speaker 7 (28:28):
Yeah, it's definitely increasing costs for everybody in myriad ways.
I mean, even just if you want to bring goods
to another country, transform them change their country of origin
and lower their duty rate. I mean there's a lot
of extra work, a lot of extra shipping time, labor processing.
You've increased the cost plus the duties. So yeah, certainly
this is not making trade more seamless, that's for sure.
Speaker 4 (28:51):
Ryan, Based on what you're seeing, is there anyone that
thinks that the US and China won't extend this deadline
of their agreement their truths that's up tomorrow.
Speaker 7 (29:01):
Yeah, I mean, I'm sure lots of people think they
won't extend it, and some think they will. I haven't
looked at what the prediction markets are saying on this,
and this administration is sort of inscrutable from my perspective,
I don't really make a lot of predictions on that.
Speaker 4 (29:14):
So well, are people floading and rushing before tomorrow from
China or no?
Speaker 7 (29:20):
I mean at this point too late, so they were
people were moving stuff in, but no, I didn't see
a lot of frontloading on the China one. Yeah, fair enough.
From the behavior of the actual actors in the market,
it seems like they think you don't get extended run.
Speaker 2 (29:32):
I appreciate your time and you're insights super valuable. As always,
Thank you, Ryan Peterson. There the flex for CEO. This
is the Bloomberg Surveillance podcast, bringing you the best in markets, economics,
and geopolitics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify, or anywhere else
(29:54):
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Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
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from our global headquarters in New York City. We are
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(00:34):
Terminal and the Bloomberg Business App. Peter Ropenheimer of Goldman
Sachs writing, it's possible the terriffs could hurt equity prices
even if the US agrees on deals with key training partners.
Peter joins us now for more. Peter, Welcome to the program, sir.
Before we talk about the risk, let's talk about the price.
The rally we've seen on both sides of the Atlantic,
on the S and P and the eurostocks fifty of
close to something like nine percent. Peter, when you break
(00:55):
things down, let's just talk about breath. Compare and contrast
the story in the States to the story you're witnessing
in Europe.
Speaker 3 (01:04):
Well, very different story. At one level, it looks very similar.
As you said, both markets are rising, but they're rising
in different ways. The contributions are quite different. In the US,
very much driven again by the power of the biggest
tech stocks, which are really leading the market. As you say,
smps are an all time high, the median stock is
around twelve percent below it's fifty two week high, so
(01:29):
very very concentrated, whereas in Europe, actually there's significant breadth,
unusual breadth actually in the market, and you're seeing much
much less concentration, although of course you are seeing and
have seen stocks that are disappointing being very heavily punished,
and that's happened on both sides of the Atlantic.
Speaker 2 (01:51):
So let's just pick up on the US TEK story
and the narrow breadth that I've heard so much of
that I'm sure you have as well. Whether it is
necessarily unhealthy. If I think about the dominant risks of
the moment, they're largely cyclical, they're related to trade, and
in many ways some people might look at the US
DOT market and say that's a source of stability, not
necessarily downside risk. How would you counter that look?
Speaker 3 (02:13):
I think it's right that, you know, if we step
back and think about economies which are still growing, albeit
at a slower pace, certainly in the US, but interest
rates coming down, that's broadly a supportive environment for risk assets.
And the fact that in the US the tech heavy
largest companies have been dominating the rally is a function
(02:35):
of their very very powerful, continued profit growth. It's not
been about speculation. It's really been about very very strong fundamentals,
and there's nothing wrong with that. The only problem, of course,
is that after you get an increasingly concentrated market, it
becomes harder to diversify risks, at least domestically, and that's
(02:55):
one of the reasons why we've been arguing that investors
should take a more open mind mind a view of
diversification geographically to improve risk adjusted returns.
Speaker 4 (03:06):
Well, Peter, where is the opportunities in Europe? Because I'm
looking at the Bank of America fund manager survey out
of Europe and they say European investors thirty five percent
expect stronger European growth over the coming twelve months. But
it was forty four percent last month. So isn't that
European story actually starting to dwindle a little bit.
Speaker 3 (03:25):
Yeah, and we've seen that to some extent in the
relative performance. Very much the first part of the year,
Europe outperforming both in terms of underlying assets but also
on a dollar adjusted basis. As the dollar weakened and
that differences moderated to some extent. But I think it
is right to say that from a very low base,
(03:45):
European growth is improving somewhat. An important driver of that
is the expansion of fiscal policy coming from Germany, and
we do also have a couple of other themes that
are encouraging intro particularly increased defense spending which is powering ahead,
more infrastructure spending across Europe, and also some of the
(04:08):
value areas of the market which are doing really very well,
banks being a perfect example. And I would say that
is another difference between Europe and the US. The US
is still being driven by growth dominated themes, particularly related
to technology, whereas in Europe and some other markets, value
is actually outperforming.
Speaker 4 (04:27):
The risk of tariffs, though still exist, and the team
at Goldman Sachs had a no doubt about how the
impact has yet to hit consumer prices. When it comes
to tariffs, that hit is just getting started, what can
this mean for Europe and some European corporate names.
Speaker 3 (04:43):
Well, I think that it does complicate the picture because
we haven't yet seen the full effect of tariffs on
either side of the Atlantic, and it is likely to
weigh on consumer confidence to some extent and the ability
for consumers to continue to drive economic growth, and we're
already seeing some evidence of that slowing, particularly in the US,
(05:04):
and alongside it some weakness in the labor market. The offset,
I think is that you will see lower rates, at
least in the US. We think for the ECB they're
done for now. They've already cut rates more aggressively, and
I think there's less room for that to continue given
that we're going to see some effect of tariff still
(05:25):
yet to come through.
Speaker 2 (05:26):
You mentioned the rally we've seen in US tag validated
by the earnings. The earnings have been really powerful. I
believe you said the same thing for the banks and
the run up we've seen in Europe. This rally of
more than forty percent for European banks so far year today,
has it been justified also by the earnings we've seen
so far and the outlook coming from the c suite.
Speaker 3 (05:45):
Yeah, very much so, and we have to emphasize that
this is a huge turnaround from the trend that we
saw really for a decade after the financial crisis, where
banks came under huge pressure, particularly in Europe. They had
to delever, raise capital, cut dividends, and although they were
cheap in terms of multiple they kept on underperforming. But
(06:06):
we've seen a dramatic change in circumstances. Now they have
strong balance sheets. You mentioned earlier that the credit cycle
is benign, and more confidence in the economy means less
risk of loan losses and credit losses and provisionings for
the banks. And we have steeper yield curves which are
very supportive of their profits. So in Europe, the very
(06:28):
powerful returns that we've been seeing in banks is justified
by very strong fundamentals, just as the technology companies have
been supported by fundamentals in the US.
Speaker 2 (06:39):
Can we just touch on the rates back drub for Europe?
For a long long time they complained about negative interest rates.
We got away from that. Now it feels like rates
are started to come back down again, Peter. And maybe
they don't stop at two, perhaps they don't stop at one.
How important is the rate outlook? For the long story
on bags.
Speaker 3 (06:56):
I think the most critical factor is going to be growth.
If we avoid recession, that would be our central view,
then the risk of a provisioning cycle that could be
damaging for earnings is moderated. Of course, what's been very
helpful for the banks, and this has been true in
many regions, particularly in Europe, is that yel coves have steepened.
(07:17):
We've seen already a lot of progress on short rate
cutting by the UCB, but long rates have been edging up,
partly driven by growing deficits and spending, particularly in Germany,
and that spread has been very helpful for banks. It
may moderate a little bit moving forwards, but I think
if we continue to get economic growth, the outlook is
(07:38):
still reasonably benign for the banking sector in Europe.
Speaker 2 (07:40):
Peter Rockenheimer of Goma SAX Peter, I appreciate your time
joining us Now is the former Boston Fed president Eric Rosengrant.
Welcome back to the program, Sir, some healthy debate at
the feder Reserve. Let's call it what it is. It
(08:01):
is healthy. Do you think September is too early to
settle the debate?
Speaker 5 (08:06):
I think it depends on how the data comes in
we have two CPI reports, one PCE report, and one
employment report. Data can be pretty noisy, so I think
we need to see what things look like as we
get into September. But I agree that if the CPI
and PCE are reasonably well restrained and the labor market
(08:27):
looks sweet, then it would be appropriate to ease rates. However,
it's also quite possible that we'll see a slowly increasing
inflation rate. I'm expecting the CPI will probably be the
core cpi'll be above three percent when it comes out tomorrow,
and if we start seeing numbers that look higher than
the market's expecting, sentiment can change pretty quickly. So I
(08:51):
think it's a little too soon to call September. I
think the Fed was acting appropriately when it wanted to
wait and see, because right now, while the payroll employment
was week, the unemployment rate was four point two percent,
and the labor market has had a labor supply shock,
So you probably want to focus a little bit more
on the unemployment rate than the payroll employment numbers.
Speaker 2 (09:14):
Eric, as you look at the dual mandate at the moment,
and this really speaks to the divide of the Federal Reserve,
there are some individuals who want to focus on the
employment side of the mandate, others who still want to
focus on the price stability side of the mandate. Can
you share with us your experience. Did you prioritize one
side over the other? Are they created equally.
Speaker 5 (09:32):
So everybody can vote? And way I mean it's you're
not given the waiting function, so each person can kind
of choose for themselves what they think is most important
at the time. But the framework document actually talks about
what you should do when both elements of the mandate
are not where you want it. And in that document
(09:53):
it argues that you should look at how far away
you are from where you want to be and how
long it'll take to get there. So on inflation, if
you look at the core PCE, we're at two point
eight percent, and most people think it's going to take
quite some time for us to get back to two percent.
If you look at the unemployment rate, we're right at
four point two percent. So despite the weak labor supply
(10:15):
that's been happening, the labor market doesn't look to be
in that much trouble. You don't see initial claims rising rapidly.
So while I know a number of participants at the
FMC are talking about concern about the employment mandate. It
actually is exactly where they forecast they want it to be,
which is at full employment.
Speaker 4 (10:37):
Basically, what you outline there says that the Fed shouldn't
be cutting just yet. So is there a bias to
a weakening labor market?
Speaker 5 (10:46):
So it depends on a forecast, and I would say
private sector economists do not see a rapidly rising unemployment
rate and do not see an elevated risk of seeing
a risk session. So I would think the rhetoric around
the labor market would be more consistent if the private
(11:07):
sector was seeing more evidence in the data that the
unemployment rate looked like it was going to rise, that
initial claims was going to rise. So I think at
this case, at this time, it's a little bit odd
to overweight the employment part of the dual mandate.
Speaker 2 (11:22):
Eric, Can we just sit on the data and I
want to avoid the politics. Don't worry about that not
going to include you in any of that whatsoever. We're
always dependent on the data, and there's been a question
for a long long time about how dependable the data
actually is, particularly the labor market data prone to very
large revisions. We saw that last year, We've seen it
many times in the past as well. Eric, how did
(11:43):
you manage that situation? Were you less sensitive to incoming
monthly reads and knowing that at some point in the
future they would be revised, How did you approach it?
Speaker 5 (11:52):
So if you focus on a forecast month to month,
doesn't matter nearly as much as where you expect things
to go over time. And as you point out, the
labor market data, particularly the payroll numbers, can be pretty jumpy.
And the reason for that is not because anybody's manipulating it.
It's because they do a survey and if people don't
fill out their survey forms on time, then in the
(12:15):
revision they pick up the additional surveys and so depending
on what the response rate is, and the response rate
has been going down on many US government surveys, it
becomes less accurate and the revisions can be larger as
they get additional data. So you never should put too
much weight on any one data point. You're really looking
(12:36):
for a trend you're not actually looking for. While Wall
Street focuses on beating expectations and having a number, comparing
the current number to what they expected, the central bankers
should really be worried more about long term trends. So
long term trends don't get affected as much by a
single data point, so you should smooth through most of
(12:58):
that data, and that's what most forecasts end up doing.
Speaker 4 (13:02):
Do you think there's concern though, that now the US
data is no longer considered the gold standard given the
fact that the President ousted the commissioner of the BLS.
Speaker 5 (13:12):
Well, it depends on who he gets who replaces at
the BLS, but it would be very disturbing if you
didn't have reliance on the data, and the US not
just the BLS data, but the GDP data, the inflation data.
All that data is critical to making good policy choices.
(13:35):
And if that data is manipulated in some way so
that you can't rely on it, it becomes very problematic
for policy. And while the initial changes are probably not
going to be that noticeable, over time it can create
havoc and I think you see examples of that or
the Wall Street Journal did an article on what happened
(13:56):
in Argentina when they started manipulating the data. China has
been famous for dropping series that didn't work in the
way they were hoping so. For example, youth unemployment is
not reported anymore on a consistent basis, but you see
young people coming to the United States because they can't
get jobs in China. So you can conceal to some
(14:18):
extent data and for months to month you can get
slightly better numbers, but over time, if you're manipulating, the
data becomes obvious to the public.
Speaker 4 (14:27):
Eric the President's nomination to fill Governor Coogler seat Stephen Myron,
is an individual that is already working with him as
one of his economists the head of the CEA. Less
than a year ago, Myron was against cuts at the FED.
Does he look purely political now, potentially to his new
colleagues at the FOMC.
Speaker 5 (14:48):
I think there is a consistency problem. He has traditionally
been somebody very concerned about the inflation part of the mandate,
and so his newfound interest in the labor market and
the ne to lower interest rates looks somewhat out of
character from what he was concerned about. Over time, he's
(15:09):
written about being concerned that there's too much politics of
the FED. He obviously has been a strong proponent of
this administration's policies and seems to be a proponent of
lowering interest rates, which has been advocated by the administration.
So if what you're looking for is an independent FED,
he probably is not the perfect choice to ratify an
(15:30):
independent FED.
Speaker 2 (15:32):
Eric I appreciate your opinion. Thank you, sir, the former
Poston FED president Eric Riisenkrant Henry to try to fight
a pound it joined us. Now for more, Henrietta, can
you think of another example of something like this plank
out in your lifetime?
Speaker 6 (15:55):
Certainly not at BIS.
Speaker 1 (15:56):
Wendy points it out exactly, there's not another example like this.
I think the most interesting way to look at this
is to see the President sort of expanding out beyond
something that was a very real concern for him on Friday,
if you followed his truth social posts, it was very
much about these court cases that are pending around the
AEPA tariffs. So if the President is going to be
stripped of his authority to impose taris via EPA, is
(16:19):
he giving himself some sort of additional leverage point with
export controls and selling them to effectively the basic way
of just getting trade flowing and having some sort of
card to play with China.
Speaker 6 (16:32):
I think that's an interesting angle to think about.
Speaker 1 (16:35):
I think the AIPA court case story is the most
critical here, and the President obviously was focused on that
on Friday, and then this announcement makes sense in that context.
Speaker 4 (16:44):
Henrieta, If you're in a C suite of a massive
American company and you see what's playing out right now
with Nvidia and AMD, is this a new risk that
you need to contend with that potentially if you want
to export your products to outside of the United States,
you might have to pay the US government.
Speaker 1 (17:00):
I think it's completely stands to reason, and every single
one of these trade deals has some sort of pay
mint component. And what happens is we get these original
announcements and then they get materially walked back. So this
one's pretty cut and dry fifteen percent in the event
that that's where it lands. But think about the Japan deal,
for example, the White House set that's five hundred and
fifty billion dollars worth of investment that's going to flow
(17:22):
to the United States.
Speaker 6 (17:23):
We get ninety percent of.
Speaker 1 (17:24):
The returns, But the reality is that only eleven billion
dollars of that five hundred billion that Japan committed to
is going to come from the Japan bank. Everything else
is going to come from private sector that you have
no control over. So there are these big numbers floated
and then they're almost always revised. Another example, to give
you another one down would be the gold tariffs that
(17:45):
are happening right now. This sort of rampant confusion before
there's an ultimate clarity is really the prevailing theme of
this administration.
Speaker 4 (17:53):
Okay, but when you're talking about pay components, when it
comes to other trade negotiators, it's about investing in the
United States. That means money and jobs, jobs for Americans
coming into the United States. This is purely about just
paying some of your profit streams for chips that at
one point you are already sending to China to the
US government. How is this in line what the Trump
(18:14):
administration and the campaign ran on.
Speaker 6 (18:18):
Well, it's definitely not consistent at all.
Speaker 1 (18:20):
Either there was a national security threat exposed to these
chip sales, which is something that we've been dealing with
for at least a decade, or you can just pay
your way around it and it's no longer a national
security threat. They are two mutually exclusive developments. And I
think again it goes back to the president needing more
chips in the China negotiations, because, for example, the export
(18:43):
of US soy and agriculture.
Speaker 6 (18:46):
Goods is down fifteen fifty percent.
Speaker 1 (18:49):
In just the last six months, dropped from like eleven
and a half billion dollars worth of sales to five
and a half. The president needs more ammunition, and if
he can somehow create a reliance, which is what we've
heard from the Nvidia CEO on US chip sales, then
that gives some additional leverage perhaps down the line, but
it's definitely mutually exclusive to the national security argument.
Speaker 2 (19:09):
How much leverage do they have right now Handwritter, I
think that's worth exploring. If you look at the Chinese
export numbers, they seem to be doing okay. The export
numbers are up, the exports to just go into other places.
Is this important to them in the same way it
was maybe six months ago, maybe several years ago, four
or five years ago.
Speaker 6 (19:27):
Yeah.
Speaker 1 (19:27):
Absolutely, And this is what you always have heard from
China very consistently.
Speaker 6 (19:30):
The United States is a bully, come do business with us.
Speaker 1 (19:33):
We're seeing it operate in Africa right now and the
EU and other nations in the Southeast Asian region.
Speaker 6 (19:39):
And one of the things to.
Speaker 1 (19:41):
Be mindful of as we get into this is that
the president has threatened one hundred and forty five percent
tires eighty percent would be the rate that goes into
effect on August twelfth, that they don't reach a detant.
But China plainly has the president in a corner around
magnets and rare earths that debilitate the automate and defense.
Speaker 6 (20:00):
Sectors win one fell swoop.
Speaker 1 (20:02):
So the reason that the ninety day pause is the
base case on the street is because the president threatened
too much and he's not going to get it.
Speaker 6 (20:09):
We don't have the capacity for that.
Speaker 1 (20:11):
Goldman's coming out with you sixty seven percent inflation hike
to the US consumer and prime prices being passed on.
Speaker 6 (20:17):
We do not have that ability right now.
Speaker 1 (20:18):
It's the same reason not to go to too many places,
the same reason you're not saying the Russia sanctions go
into effect. You cannot mess with oil and gas prices
when we have this risk of inflation coming.
Speaker 2 (20:27):
What would be helpful is if the Europeans another trade
pound has gone on side with the United States to
put the pressure on China's for the pressure on another
trade pond. And do you see those pieces coming together
anytime soon, I.
Speaker 6 (20:39):
Don't, And think about what we have pending.
Speaker 1 (20:41):
You've got Section two thirty two, pharmaceutical tires, automobiles, automobile parts,
semiconductor chips, all those outstanding components. And the EU is
not at all thrilled with the deal that was reached
a couple weeks back with the United States.
Speaker 6 (20:54):
So that block is fractured to.
Speaker 1 (20:56):
The point where we don't even have legally binding texts,
and we might not for months now. I don't see
that coming around. We don't have Canada even, you know,
so I think we're quite a ways away.
Speaker 4 (21:06):
What kind of way does the US have when it
goes to Brussels and say, really put the screws to China,
given the fact that now the United States is saying, well,
actually we'll send some chips that we thought were national
security concerned, but you just have to give us some
of the profit.
Speaker 1 (21:19):
You know, this is really the underlining issue that all
of our trading partners has had. Who is the ultimate decider?
Where is the line in the sand?
Speaker 6 (21:27):
What are we even negotiating?
Speaker 1 (21:29):
And that's been a consistent theme that we've seen from
Japan and Korea and the EU is what is it
that we can offer, What can we commit to and
write into legally binding text on our end that we
can then go and operate with around the world. And
that's not something that they have any ability to even
get in the room in a timely manner to have
that conversation. And there are so many outstanding issues, and
(21:51):
I would just say one more time here, the market
is not a the inflation is not a one and
done situation. We're still going to get lumber TIFFs on
Canada on top of the ones that the President put
into effect on Friday. We still have outstanding sectoral tire
risks with all of these major trading partners from Switzerland
to Ireland. There's no certainty here and I don't have
any reason to think that that would end in the
(22:12):
next three years.
Speaker 2 (22:13):
Just briefly, how much money is coming in in the meantime, Henritta,
Just how much we take it in month on month
of the moment.
Speaker 1 (22:19):
I think last I saw it was twenty seven billion
dollars a month. So ultimately, this is a two point
seven trillion dollar revenue raiser that the United States consumer
pays for, and the inflation numbers are going to get compounded,
because again this is not a one and done event.
Tariffs have increased at least a dozen times just in
the last six months, and there are at nine on
the horizon just in the sectoral tires, without even getting
(22:41):
into three oh ones on Brazil or the AEPA tariffs
and whether or not those can be maintained, and then
we're going to throw export control restrictions on top.
Speaker 6 (22:49):
There's a long way.
Speaker 2 (22:49):
To god Trice if I'd have found us, henretta thank
you and place to side. The man himself joins us.
Now for more, Ryan, welcome to the program sir. Just
describe if you can, the activity that you've seen over
(23:10):
the past few months, the rush to secure air freight,
all kinds of things. Ryan, what are you seeing?
Speaker 6 (23:16):
Yeah, thanks for having me on.
Speaker 7 (23:17):
Well, it's been crazy volatile ever since the Liberation Day
tariffs were announced. You had immediately after that, you had
a sixty percent decline in ocean freight bookings from China
to the US that lasted about five weeks, so just
a massive decline of freight coming out of China.
Speaker 6 (23:33):
You then had, once.
Speaker 7 (23:34):
The terrorists were relaxed, the surge to eighty percent above
the pre tariff level of volumes. That's what I was
describing in that tweet, And now now this I think
that was from a couple of weeks ago, because things
have been settling in and now we're seeing the real
effective terariffs, which is people shipping left stuff. Prices devotion
freight are coming way down back to you know, we're
(23:56):
probably over the next few weeks going to see prices
back to levels that we saw we haven't seen since
after the pandemic in like twenty twenty three, when prices
were quite low. So I don't know if you call
that normalizing or just like doing what you would predict,
which is tariff should lead to less freight, which should
lead to lower prices, and it's not great for companies
involved in the business.
Speaker 4 (24:16):
Geographically, Ryan, what ports are dealing with really soft demand.
Speaker 7 (24:23):
I assume that it's pretty evenly distributed across all the ports.
I don't think there's a trend by poor It's actually
one thing that has happened here is the airports because
when the tariffs are announced with such short deadlines, you
see this huge rush to ship air freight in and
that sort of ended last a couple of days ago.
At the end of last week when the new tariffs
(24:43):
took effect, but in the prior two or three weeks
to that, there was this huge switch between from ocean
freight to air freight. So because I met one customer
said they saved two million dollars by switching four containers
from ocean freight to air freight, just by beating the tariffs,
we seem.
Speaker 4 (24:59):
This administry should really try to go after transhipment. How
is that affecting the supply chains and what you're tracking.
Speaker 7 (25:08):
Yeah, this new transhipment rule is quite interesting. So like
basically what they've said is that if you have a
one duty rate, which is around twenty percent or goods
from for example, Vietnam, but if the goods are determined
to be transshipped from another country through Vietnam, then the
duty rate is much higher. This is a very strange
(25:28):
policy because historically an all precedent of country of origin rules,
then the Vietnam has nothing to do with the duty rate.
If they're tranship for Vietnam, the duty rate is still China.
China's duty rate is not Vietnam. So it's quite a
confusing rule from those in the industry. What we're basically saying, is, hey,
in addition to going to jail for committing customs fraud,
(25:51):
you're also going to have to pay a higher duty rates.
I mean, I guess it's effective, but it's very strange policy.
Speaker 4 (25:56):
But have you actually seen it work when you're tracking
all of this cargo?
Speaker 7 (26:02):
No, it's not, I mean, because it's a sort of
a nonsense. It's basically saying, hey, if you're committing fraud
and then you have to pay a higher duty rate, well,
I mean the fraud the penalties were already much worse
for committing fraud than a higher duty rates. So now
we haven't seen anything like change because of it.
Speaker 2 (26:16):
Right, How creative are people getting? What kind of mitigation strategies?
How are they introducing? What are you suggesting? What are
you advocating for?
Speaker 7 (26:23):
Yeah, I mean, first I'm advocating is don't do anything illegal.
And there's a lot of incentive to break the rules
now because you know and you do see people who
are who are breaking the rules now. For example, if
you import goods from China and the Chinese company serves
as the importer, and all you do is the American
company that used to import them, and now you're just saying, hey,
(26:45):
I buy them in America. The Chinese company imported them
and they happened to cheat on the customs duties. That's
not my fault. Well, guess what customs will hold you liable.
That's not a loophole that you can get out of
so easily as that's what's legal. And what we're vising
people to do is look very closely at three things.
One is the valuation of the goods, two is the
(27:05):
country of origin, and three is the classification. Now all
of these seem like black and white, but they're not.
This is the law, this is regulation, and therefore there's
a lot of room for expertise to come in and
identify what is the gray area and what is the
legal grayer. How do you say on the right side
of that legal area, And some of it's not grey,
it's just like sophisticated so on valuation. If you provided
(27:29):
capex assistance to your factory, or there's other rules that
you can say, how that lowered the value of the goods,
you would pay less triff. You got to do it legally, though,
make sure you have an expert on the country of origin.
Similar things, how do you classify this, How do you
qualify this as being the country of origin that has
the lower duty rate. There's a lot of sophistication in
(27:51):
that as well, saying hey, did you apply enough new
value added either materials or labor in that other country
to change the country of origin? Legal not committing fraud?
And the third ist classification. It's illegal to change the
classification of your goods in order to achieve a lower
duty rate. But if the correct classification of your goods
(28:12):
happens to have a lower duty rate, you win. So
there's again a lot of work that needs to be
done by sophisticated people who understand these rules that can
help you out. Plus Forard as a team that does this,
as too many other companies.
Speaker 2 (28:22):
Run, are you finding them more work just means more time?
Is this slimming things down?
Speaker 7 (28:28):
Yeah, it's definitely increasing costs for everybody in myriad ways.
I mean, even just if you want to bring goods
to another country, transform them change their country of origin
and lower their duty rate. I mean there's a lot
of extra work, a lot of extra shipping time, labor processing.
You've increased the cost plus the duties. So yeah, certainly
this is not making trade more seamless, that's for sure.
Speaker 4 (28:51):
Ryan, Based on what you're seeing, is there anyone that
thinks that the US and China won't extend this deadline
of their agreement their truths that's up tomorrow.
Speaker 7 (29:01):
Yeah, I mean, I'm sure lots of people think they
won't extend it, and some think they will. I haven't
looked at what the prediction markets are saying on this,
and this administration is sort of inscrutable from my perspective,
I don't really make a lot of predictions on that.
Speaker 4 (29:14):
So well, are people floading and rushing before tomorrow from
China or no?
Speaker 7 (29:20):
I mean at this point too late, so they were
people were moving stuff in, but no, I didn't see
a lot of frontloading on the China one. Yeah, fair enough.
From the behavior of the actual actors in the market,
it seems like they think you don't get extended run.
Speaker 2 (29:32):
I appreciate your time and you're insights super valuable. As always,
Thank you, Ryan Peterson. There the flex for CEO. This
is the Bloomberg Surveillance podcast, bringing you the best in markets, economics,
and geopolitics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify, or anywhere else
(29:54):
you listen, and as always, on the Bloomberg Terminal and
the Bloomberg Business Amp.
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