October 1, 2025 • 28 mins
- Jon Lieber, Managing Director: US, Eurasia Group
- Greg Daco, Chief Economist at EY
- Tiffany Wilding, Economist at PIMCO
- Kate Kalutkiewicz, Lead for Trade at McLarty Associates
Jon Lieber, Managing Director: US, at the Eurasia Group, joins to discuss the potential economic and political impact of the federal government shutdown. Greg Daco, Chief Economist at EY, and Tiffany Wilding, Economist at PIMCO, react to Wednesday's ADP private payrolls data. Kate Kalutkiewicz, Lead for Trade at McLarty Associates and a former US trade official, discusses the latest round of tariffs imposed by the Trump administration.
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Episode Transcript
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Speaker 1 (00:00):
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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(00:34):
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Speaker 3 (00:37):
So here's the latest.
Speaker 2 (00:37):
This this morning, the Senate failing to reach a deal
to extend funding, plunging the US government into a shutdown,
putting a slew of economic data in jeopardy. John Lieber
of your Asia Group right in the following even a
macro economically significant shutdown could have knock on effects that
delayed data releases for the next several months. As federal
workers get up to speed, John joins us now for more. John,
(00:58):
Welcome to the program. I want to pick the language
of the president there that last line. We can get
rid of a lot of things we didn't want. Is
this going to be a different kind of shutdown.
Speaker 4 (01:07):
Yeah, absolutely, I mean, I think the fact is that
Trump is playing a different game, by a different set
of rules than I think the Democrats on Capitol Hill
are playing right now. And he's been playing that all year,
and he's playing that for his entire political career. And
I think that there's a lot of unpredictable effects that
are going to come out of this shutdown that we
haven't seen before. If you look at the pattern this year,
(01:28):
it's that Congress's authority has been usurped or even eliminated
in many cases when it comes to decisions about what
the federal government's doing, who they're funding, whether or not
they're laying off workers, or even closing entire divisions, and
Congress has been helpless to stop it. So part of
the reason the Democrats are behind this shutdown, are rallying
(01:49):
behind the shutdown, is because they want to force the
power of the purse back over to Congress. I don't
think Trump cares. And again, he's playing a different game.
He now has the power to choose who's essential who
is and he's going to take that opportunity in a
way I don't think we've ever seen in the United
States before and deem the functions that he prioritizes as
essential and then cut off the ones that he doesn't.
(02:11):
So this is a very different type of shutdown than
we've seen before, even the one that Trump oversaw in
twenty eighteen and twenty nineteen. The government was partially funded then,
so you had the core defense functions and other security
functions had an authorization from Congress to keep spending money.
Right now, nobody does. So Trump's in charge, and he
will be in charge until the Congress agrees to reopen
(02:34):
the government.
Speaker 1 (02:34):
Does this administration try to make furloughs actually permanent.
Speaker 4 (02:39):
It could try, I mean, I think that's the decision
that's up to the courts. I mean, one of the
interesting phenomenon so far this year is that the courts
are offully slow, and the Trump administration could be pretty quick,
so they could use this as an excuse to try
to furlough more workers. You know, there's been some resistance
to those furloughs, even within the cabinet agencies that are
run by Trump appoint because they want the people to
(03:01):
do the work they're supposed to do. But now they
suddenly have an excuse and the Clearly the White House
sees a political advantage in forcing more of these layoffs
in order to bring Democrats back to the table, and
I expect that.
Speaker 1 (03:15):
They're going to use it well, John, three Democrats already
back at the table last night in the sense that
they voted for the Republican clean cr They only need
to get five more Democrats to then reopen the government
and keep it funding to the end of November. Do
you think that Schumer is losing the moderate wing and
potentially this is going to be a short shutdown.
Speaker 4 (03:35):
It could be. I mean, you know your base rate here.
Your expectation should be that this is a relatively short shutdown,
you know, because of these political pressures on members of
Congress who don't want to see this happen. And the
only thing you need is exactly what you said, You
need seven Democrats to say we've had enough. We already
know the universe. Of those seven Democrats, they're the ones
(03:55):
that voted to end to open keep the government open
this spring. And you mentioned Schumer. He's the one who's
under the most pressure because he took just withering criticism
for his decision to keep the government opened. But the
fact and He's under a lot of pressure from the
Democratic base to regain leverage over President Trump, leverage that
simply doesn't exist through Congress right now. And so I
(04:16):
think that he's in a really tough spot. Those other Democrats.
I think this is an easier calculation. People like John
Fetterman from Pennsylvania see that this is a tough thing
for the Democrats to win, and over the next week
or so, I expect those numbers are going to grow,
and you know that will help to end this shutdown,
probably sooner rather than later.
Speaker 5 (04:34):
That actually is exactly where I wanted to go John,
this idea of in March what happened to Chuck Schumer
when he what a lot of people, Democrats in particular, said,
a cave to the Republican demands to keep the to
keep the government open. Is this just performative to avoid that,
to placate a certain side of the Democratic base. Is
that how it's being read, at least in polls.
Speaker 4 (04:56):
Yeah, I mean, I think he's in a tough spot,
and you know, I feel bad for the guy. There's
no way to win this thing. Like he's got to
keep his eye on the Democratic members who elected him
to be leader. He's got to keep his eye on
the Democratic voters who elected him to his Senate seat,
and they problem, the fundamental problem for the Democrats right
now is they don't have a strategy to push back
on Trump. That they've been unable to land any punches,
(05:17):
and they've been unable to draw any blood. His popularity
is reasonably high for President Trump. He's hovering around the
mid to low forties, which is much better than he
was doing and is the entirety of his first term.
And he's doing all kinds of controversial stuff that the
Democrats hate, and they can't articulate the case against him.
And until they figure out how to do that, Schumer
(05:37):
and the other leadership are going to be looking for
things like this that allow them to kind of shore
up their base on the left and placate them a
little bit and try to land these punches that so
far they've been unable to do. I think this is
a prime example of that.
Speaker 3 (05:51):
John. The markets flags they don't care, Do voters care.
Speaker 5 (05:54):
Has there been anything in the voting or the polling
that shows that this is swaying the needle in any capacity?
Speaker 4 (06:00):
I suspect at some point the chaos will be enough
and people will say, you know what, we don't like
either of these jerks that are causing all these big problems.
That's kind of where I think this ends up in
the polling. I don't think it necessarily falls in the
Republicans or Donald Trump. I don't think it necessarily falls
in the Democrats. Maybe the president takes more responsibility because
he's the executive executive. But you know, if you look
(06:22):
at the elections, there's no evidence of these shutdowns, as
we talked about last week, there's no evidence that these
shutdowns make any difference in the elections whatsoever. In twenty thirteen,
the Republicans were solely responsible for at the time a
very long shutdown over Obamacare, and in twenty fourteen they
won back a majority in the Senate. So there's just
no evidence that this has lasting political effects. I think
(06:44):
it could be a drag on the overall approval rating
of lawmakers Washington. But I don't think either side is
going to win or stands a lot to lose here, John,
do you think it.
Speaker 2 (06:53):
Is time for new dataship in the Democratic body?
Speaker 4 (06:57):
Probably? I mean, I don't think there's anything. You know,
I think that being a leader a tough tough job.
I think it's a hard thing to do. They have
a new leader in the House, and he's doing his best.
I think in the Senate. You know, I wouldn't cast
this persions on these guys. I used to work for
the minority leader in the Senate and for the Republicans,
and it's a tough job. It's a tough job keeping
everybody happy. But you know, there again, the Democrats are
(07:18):
not articulating the case against Trump, and their leadership is
not helping them do that. So I think looking to
Congress for your leadership right now is a mistake. And
if I were the Democrats thinking about the next leader
of the party who's going to be running for president,
I'd be looking out to the states, to the governors,
to people that aren't currently playing on the national stage.
And the way Schumer is now, Schumer's got to do
(07:39):
his own tough job managing his own caucus and playing
the inside Washington game. And then these governors that are
out in the states are the ones who I think
will be the more effective messengers against Trump.
Speaker 2 (07:49):
Eventually stay with US Multpleinberg surveillance coming up after this,
And if you were concerned about the step down in
payrolls growth. I think that's more feel for concern off
the back of that report.
Speaker 5 (08:07):
Yeah, at this point, we're looking at a ninety five
percent chance that the FED is going to cut rates
at the October twenty ninth meeting in at Washington, DC
on the backs of this report. You also just saw
the lowest reading on this ADP print going back to
March of twenty twenty three, so definitely signaling some weakness.
And essentially this gives ammunition to those you are saying
(08:30):
the risk management tool here is catering to the labor market,
not necessarily trying to tackle inflation.
Speaker 2 (08:36):
Greg Daka of VY is with a surround a table
corrected morning, Good morning, this is all we've got. How
useful is this number and what are the limitations around it?
Speaker 6 (08:44):
Well, I think it's useful in the sense that we
don't have anything else. I would push back a little
bit on the notion that the ADP is necessarily the
best gauge of BLS reports when it comes to employment
because it's just focused on the private sector.
Speaker 3 (08:57):
It also does not.
Speaker 6 (08:58):
Include all the details that we get out of the
employment report, so it is a good reading in terms
of having a perspective on the labor market, but it
excludes some important parts of the labor market, including the
public sector, where we're anticipating some further losses both at
the federal level but also at the state and local
level as we start the new year with less funding
for many state and local governments. So I think the
(09:20):
weakness is apparent in terms of labor demand in the
labor market more broadly, whether you look at continuing claims
for unemployment, whether you look at yesterday's data on job flows,
the JOLT report showing the hiring rate and the quits
rate at a ten year low, not just a few
months low, but a ten year low, showing there's very
little flow in the labor market. There is underlying softness
(09:41):
in the labor demand components, and the labor supply, of
course has been tremendously affected by the reduction and immigration.
Speaker 3 (09:48):
So it's a combo.
Speaker 6 (09:49):
But I think labor demand is weaker than labor supply
at this juncture.
Speaker 5 (09:53):
Are you saying that we've been sort of in this
stasis slow higher low fire range for a while and
now we're actually seeing the labor ma market break to
the downside.
Speaker 6 (10:02):
I think there are certainly risks to that the low
higher low fire environment is not sustainable.
Speaker 3 (10:07):
It's an uncomfortable balance.
Speaker 6 (10:08):
You rarely stay in that balance for a prolonged period
of time because either one of two things happens. Either
you see employers starting to hire more that's the good story,
that's positive story, or you see more layoffs because essentially
there's a desire to manage costs. And let's not forget
we are still in the midst of an environment where
there are a number of supply shocks affecting the economy.
Speaker 3 (10:29):
Too.
Speaker 6 (10:29):
Many people are still reading the economy as if if
we're guided by demand shocks. This is not the case.
Supply shocks are increasingly important. Whether it's tariffs and trade disruptions,
immigration disruptions, energy disruptions, capital disruptions, all of those factors
are affecting economic trends in a way that we haven't
seen before. Think of technological shifts as well, ai a big,
(10:52):
big shock to the economy. We're not reading the economy
in the proper way, and that's why many people are
confused about the economic signals. The mixed signals are the
reflection of an economy that is impacted by a significant
number of supply shocks.
Speaker 5 (11:06):
Yeah, and essentially this is an economy and dramatic transformation.
I just wonder how you square the idea of profits
growing across Wall Street, across a lot of corporate America
at the same time that we see this low higher
low fire dynamic potentially breaking to the downside.
Speaker 6 (11:20):
Because everybody's taking about the consumer, about the market, about
the business environment. It's not like that there is a
tremendous degree of polarization across businesses, across consumers, across the
economy when it comes to how these shocks are affecting
different actors in the economy. Take tariffs. Tariffs are not
affecting everyone in the same way. Those that are very
price sensitive are seeing the prices a grocery stores rising,
(11:44):
and they're pulling back on demand. They're seeing retail costs
also rising. They're pulling back. Those that are at the
higher end of the income spectrum, they're less concerned about
an increase for a price ticket to go somewhere, to
fly somewhere on vacation, but they're also gradually being more
And the same applies to businesses, not all businesses, not
all sectors are created.
Speaker 3 (12:04):
Equal in the face of this supply shock.
Speaker 6 (12:06):
If you're more heavily leaning towards the tech sector, then
you're going to be benefiting from this AI boost. If
you're a big corporation that is investing in AI, you're
also going to be investing more in capex. We're seeing
that in the GDP data. So it really depends on
where you law on the spectrum of the economy and
how exposed you are to these shocks.
Speaker 1 (12:24):
Rag what if we get a prolonged government shutdown and
this is all the FED has to go off of.
Speaker 6 (12:29):
Unfortunately, this is not the best time to have a
government shutdown. Of course, there is the immediate effect of
essentially eight hundred thousand federal workers not being paid and
being put on furlough that can have a notable impact
on the economy. We estimate a drag of about a
tenth of GDP growth for every week of government shutdown.
But importantly, for business leaders, policy makers, and economists, this
(12:51):
means we're flying blind in a highly foggy environment, and
this is very risky.
Speaker 1 (12:56):
Can we get a shutdown induced recession in some pockets
of the US economy?
Speaker 6 (13:02):
Perhaps in some pockets of the economy, but not necessarily.
Broadly speaking, this is not significant enough to really bring
the economy to its nees when it comes to a
potential recession. But we are seeing some sectors that are
seeing outsized declines in terms of economic activity. You look
at the housing sector, for instance, a sector that is
also hit by insufficient supply, but increasingly by the drag
(13:25):
of demand from a low affordability environment. If you start
to see more segments of the economy affected negatively by
government shutdown, think about the area around DC, think about
contractors that depend on federal funding. Then that could put
further downward pressure on a housing market that is already struggling.
So regionally and sectorally you could have these pressures that
(13:45):
are outsized and that way on economic activity, not a
broad based recession, but a more pronounced slowdown and potentially
a contraction in some sectors some regions of the country.
Speaker 2 (13:54):
If you actually John, I guess, welcome to the program.
Just mymusica of the ADEPA report, of course, tanking on
additional importance this way, because we might not get The
payrolls report this Friday came in at negative thirty two K.
Negative thirty two k We were looking for fifty one
thousand in our survey.
Speaker 3 (14:08):
That was the media estimate.
Speaker 2 (14:10):
A revision to the previous month as well, that was
fifty four. It's now negative three. Greg just got this
question from a Bloomberg subscriber. They said, the cyclists always
stop spending, stop hiring, then stop firing. And the question
they've got is the natural progression always the same in
a slowdown.
Speaker 3 (14:27):
Is it any different this time?
Speaker 6 (14:29):
I think it's very different this time around because we're
affected by supply sharks. Supply side dynamics are very different
this time around than they've been any time over the
past few decades, and I think that's why you're seeing
these unusual evolutions when it comes to the different sectors
of the economy. We have rarely seen a loaf higher,
low fire, or even no higher no fire type of environment.
Speaker 3 (14:51):
That is not a comfortable balance.
Speaker 6 (14:52):
Again, I think we are likely to see further weakness
on the labor demand side that's going to weigh on
economic momentum.
Speaker 3 (14:59):
One key in the that I watch.
Speaker 6 (15:01):
I know it's a lagging indicator, but it's income growth.
If you look at real disposable income growth, it's only
been growing at a two percent pace, consumer spending is
still growing close to three percent at one point. The
dip into savings is not going to be sufficient to
sustain spending, and the majority or sorry, the minority of
people that are still doing most of the spending cannot
(15:23):
do so forever. The higher income individuals are also gradually
being impacted by higher prices and importantly by higher interest rates.
If there starts to be some volatility in the equity
market because of a government shutdown or because of other developments,
then that could weigh on these individuals' desires and potentially
means to spend.
Speaker 2 (15:43):
Stay with us, mulplinbeg, Savanna's coming up off to this, Tiffany,
want to get PIMCO join NAPA. Mall, Tiffany, welcome to
the prim Let's say this is all we've got, and
there's a lot still to play for in October. It's
(16:03):
only just started. I've got no idea how long the
shutdown goes on for. But let's say this is all
we've got. Is there anything that would stop this fet
A reserve from just kind of interest rights again at
the end of the month.
Speaker 7 (16:15):
No, I mean so, I think clearly this ADP report
was weak and I think digging through the details of it,
you know, I think there's an interesting bifurcation in large
versus small and medium business sizes. This has been something
we've been very focused on because we think that this
economy is basically creating winners and losers.
Speaker 3 (16:35):
The tariffs, the.
Speaker 7 (16:36):
Technology improvements that we're seeing, the various tax cuts, all
of that we think is benefiting somewhat more larger companies
and it's a really really challenging environment for those small
and midsized businesses. And that's where you saw the you know,
some more of the weakness. I think that in terms
of the ADP report, can you know the fact that
(16:56):
it contracted If you adjust the payroll survey, the government
survey for the overestimation and that survey over recent years,
you know, you can get to numbers that look like
they were contractionary of the last three months as well.
So I think these surveys are given a consistent signal
that we are seeing some some more concerning weakness in
the labor market.
Speaker 5 (17:16):
And so right now you're seeing priced into the market
one hundred and one percent chance of a twenty five
basis point rate cut at the October twenty ninth press
conference and meeting, and then in December again almost one
hundred percent chance eighty eight percent chance of another cut.
I just wonder, Tiffany, is that the solution to what
essentially is the K shaped economy that's getting to be
(17:37):
an even bigger K.
Speaker 7 (17:41):
Yeah, I mean so I think that's right there, there is.
You know, I think interest rate cuts as a result
of the fact that the shock that we're going through
right now is both a demand and supply side shock.
Tariffs and both immigration will have supply side effects as well.
You know, of course central bank policy is not well
suit did to deal with supply shocks, but nevertheless, policy
(18:03):
is in restrictive territory, and you know, I think when
you're in an economy that is going through this type
of transition, given the policy U turns, arguing that it's
closer to neutral is certainly very reasonable. And I think
the interesting thing that we're seeing, you know, since the
implementation of tariffs, is that the adjustment that the economy
is making to tariffs is not primarily through price adjustments,
(18:26):
but it actually looks like it's happening through the labor
market as well as companies are trying to cut labor
and other costs. So that just means, you know, we
think that means the funeral reserve has room to cut
interest rates. Here are they still have rates that are
above neutral getting back to that is very reasonable in
our minds, given the weakness of the labor market we're seeing.
Speaker 5 (18:46):
This is really a strange moment where you're seeing companies
adapt and adjust to the teriffs by potentially cutting workers.
That's what you're saying, not just raising prices and yet
continuing to report really good earnings, continuing to really deliver
and highlight the strength of the consumer. Can you square
that circle? I mean, how does that make sense? The
fact that the consumer are strong, layoffs are happening because
(19:08):
that's the way the companies are dealing with this. Uh,
and so that companies are profiting. At some point, does
that flywheel stop going?
Speaker 3 (19:16):
Yeah?
Speaker 7 (19:16):
Well, I mean, I think it gets back to your
point on the K shaped economy. So we see it
on the business side as well. I think the largest
businesses you know that you know that primarily make up
the S and P index for example. You know, I
think they're the relative beneficiaries of these various policies. So
you have pretty large tax cuts that was that were
also passed, and the one big beautiful bill that you
(19:38):
know that will benefit companies that are relatively capital intensive.
They do a lot of cabecs. They'll get upfront expensing
for all of that, you know. And if those companies,
you know, can offset those tax cuts, offset the tariff
tariffs that they now have to pay, they're in a
pretty good position.
Speaker 3 (19:54):
You know.
Speaker 7 (19:54):
The smaller and mid sized companies that maybe have less
capex will be in a worse off position. So, you know,
I think those are the companies right now that are
facing the most pressure. You know, the broader indices of
smaller companies like the Russell for example, it's not done
as well. Those equities have not done as well this year.
I think very reflective of that theme, you know, and
(20:15):
I think the real question for the broader economy is,
you know, is how you know, I would actually argue
we're not seeing a huge amount of layoffs yet. What
we've seen instead is that the gross hiring rates have declined,
you know, very tremendously. So the question in our minds is,
you know, how how how are these struggling businesses, how
how much will they lay off labor over the coming months,
(20:39):
you know, and will that cool off the broader economy.
Speaker 1 (20:42):
So today, can you see Fed officials arguing that instead
of tariff induced inflation, we can have labor market weakness
that's tiff induced. And shouldn't those that are concerned about
the tariffs actually be on board with now wanting to
cut rates.
Speaker 7 (20:58):
Yeah, I mean, I certainly think that is that's the
argument that we're making, and I think that as you
get more data that you will see more and more
Federal Reserve officials coming around to that argument as well.
I think Mary Daily in recent public comments, has made
that data. Of course, Christopher Waller, Governor Waller has also
come out with some pretty big concerns about the labor market.
(21:19):
So I think that, Yeah, certainly, as we get more
information and you have more certainty within the FOMC, you know,
we think they cut interest rates, you know, a couple
of more times this year as a result of that. Now,
of course, the government shutdown, the fact that we aren't
going to get potentially aren't going to get data releases
or the data quality could be poorer over the next
(21:40):
couple of months before we go into the November meeting
could be problematic, you know, but again, of course the
ADP data that we've gotten, some of the other private
sources of data will be more important, and that's what
they'll be using.
Speaker 1 (21:52):
Besides the fact that we're not going to get economic releases.
How concerned are you about the government shutdown?
Speaker 7 (21:59):
Well, I mean, traditionally government shutdowns have just a temporary
effect on the economy. The you know, the workers that
are furloughed or that aren't paid Ultimately when the government
opens will get back pay. So this is usually just
a temporary effect, you know. Now it's possible that we
(22:19):
could have a longer shutdown. We would argue that the
effects start to get nonlinear after you get workers, contract
workers and government workers that start to miss a couple
of paychecks. I think one paycheck probably okay, but as
you get more that are missed than that's when you
start to see a bigger impact on consumption. The other
thing is is that there could be permitting delays. You know,
(22:39):
the government you know, does you know, does does give
out permits for investment, and the longer that those kinds
of services are shut down, you know, you could see
some delays in investment as well, so you know, ultimately
this this can get larger as time goes on. I
think the largest government shut down historically has been, you know.
Speaker 3 (22:57):
Maybe a couple of weeks.
Speaker 7 (22:59):
We hope that the case again, but as of now,
we think this is a temporary issue, but certainly we're
monitoring the situation.
Speaker 3 (23:07):
Stay with us.
Speaker 2 (23:08):
More Bloomberg surveillance coming up after this. Let's stay on
the trade story. The President Steve Tarris on pharmaceuticals, heavy trucks,
and furniture going into effect today. Joining us now the
former White House trade official ca Calukuwitz Kate, welcome back
(23:29):
to the program. Let's think about this meeting, series of
meetings that take place in Asia over the next month
or so. How are you thinking about what can be
achieved on that trip.
Speaker 8 (23:38):
Well, when I listen to the predictions of Ambassador Greer,
the US trade representative, I think I have to go
on the side of these are deals with other Asian economies,
probably not China, and I think if you remember back
to Liberation Day, some of the highest heriffs were handed
out to economies in Asia, and I think those countries,
particularly the ones that have not gotten framework agreements yet,
(24:01):
are still very anxious to hammer out some sort of deal.
Speaker 5 (24:05):
Kate, does the US need to present some sort of
larger framework for its relationship with China as part of
these trade deals with in particular Southeast Asia.
Speaker 3 (24:15):
Well, it's an interesting question.
Speaker 8 (24:16):
I mean, I think what we've seen, of course, is
the agreements that Trump administration has struck so far have
included provisions directed at China. So some sort of framework,
a global framework, if you will, around shared objectives toward China,
higher tariffs, provisions that try to cut down on transhipment,
economic security. This is the language they use when encouraging
(24:40):
trading partners to adopt similar measures to China. Now, what
that means for the bilateral with China remains a bit unseen.
Speaker 5 (24:49):
At this point, though, Kate, do you get some sort
of cohesive sense of the relationship that the US wants
both with China as well as with Southeast Asia, which
makes a lot of goods for the United States and
is frankly the basis of a lot of the fast
fashion and other retail brands in particular.
Speaker 8 (25:07):
Well, the reality for most of those economies, of course,
is that the United States wants us to buy less
from those economies, so Fast fashion, you know, furniture. We
saw some moves this week on furniture. This is very
impactful for that region. The President has been very clear
about what he wants, and that is more production in
the United States. So I think these agreements around the
(25:30):
edges will be on items we can't make here. Critical
minerals will be a focus, of course, with Taiwan trying
to incentivize more moves on semiconductors. The question about what
he wants with China, I think remains really questionable. We
don't know he wants a deal with China, of course,
but another comment that Ambassador Career made yesterday seemed to
(25:52):
signal a bit of a heightened posture, a threat that
tariffs could go back up after November tenth if we
don't continue to make progress. So I don't know that
we're getting closer to a bilateral deal with China.
Speaker 1 (26:04):
So what's going to come out of this meeting between
President Trump and Shijipeg Because Trump says their meeting, yeah.
Speaker 8 (26:10):
Well, look a meeting is not They're not going to
want to have that meeting result in heightened postures that
take us away from a deal in the future. President
Trump has been very clear he wants a deal with China,
so I think that both sides will find a way
to maintain the status quo. Both sides, though frankly, have
(26:30):
been increasing pressure. The Chinese themselves this week added new
provisions that will impact goods going to America. The United
States added lists that impact the way we sanction and
address foreign companies buying from China. So they're adding this
is what we've seen. I think they add leverage and
then they potentially negotiate that leverage away to keep the
(26:54):
status quo.
Speaker 1 (26:55):
It's a great point. With all the tariffs coming out,
a lot was missed in terms of the US expanding
the export blacklist the entity list when it comes to China.
So do you expect more moves things like that before
Trump sits down with.
Speaker 8 (27:09):
Shi Well, I think this is this repeat that we
have found ourselves in in this relationship. Until and unless
we can articulate a grand vision for the trade relationship
between the United States and China, I think we are
going to create these false pieces of leverage that can
then be negotiated back. So these are important moves that
(27:30):
are being made. The United States as well, in a
few weeks, will implement new tariffees on ships from China.
This will be very dramatic.
Speaker 3 (27:39):
So these are all new.
Speaker 8 (27:40):
Things that can be negotiated in advance of a November
tenth deal, while we retain everything else that's on the table.
Speaker 1 (27:47):
Kate, just to give us more context, is that what
you think the H twenty chip reversal was about getting
leveraged to then just unwind it.
Speaker 8 (27:54):
Well, I have to imagine that was part of it,
because the Chinese made, you know, a seemingly big deal
about getting access to that chip. The got access to
the chip, and then they turned around and said we
don't want it, and by the way, we're going to
take action against Ynvidia. It all seemed sort of a
false construct to me, so perhaps that was their intentional along.
Speaker 2 (28:16):
This is the Bloomberg Surveillance Podcast, bringing you the best
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on Bloomberg TV weekday mornings from six am to nine
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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
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
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(00:34):
Terminal and the Bloomberg Business app.
Speaker 3 (00:37):
So here's the latest.
Speaker 2 (00:37):
This this morning, the Senate failing to reach a deal
to extend funding, plunging the US government into a shutdown,
putting a slew of economic data in jeopardy. John Lieber
of your Asia Group right in the following even a
macro economically significant shutdown could have knock on effects that
delayed data releases for the next several months. As federal
workers get up to speed, John joins us now for more. John,
(00:58):
Welcome to the program. I want to pick the language
of the president there that last line. We can get
rid of a lot of things we didn't want. Is
this going to be a different kind of shutdown.
Speaker 4 (01:07):
Yeah, absolutely, I mean, I think the fact is that
Trump is playing a different game, by a different set
of rules than I think the Democrats on Capitol Hill
are playing right now. And he's been playing that all year,
and he's playing that for his entire political career. And
I think that there's a lot of unpredictable effects that
are going to come out of this shutdown that we
haven't seen before. If you look at the pattern this year,
(01:28):
it's that Congress's authority has been usurped or even eliminated
in many cases when it comes to decisions about what
the federal government's doing, who they're funding, whether or not
they're laying off workers, or even closing entire divisions, and
Congress has been helpless to stop it. So part of
the reason the Democrats are behind this shutdown, are rallying
(01:49):
behind the shutdown, is because they want to force the
power of the purse back over to Congress. I don't
think Trump cares. And again, he's playing a different game.
He now has the power to choose who's essential who
is and he's going to take that opportunity in a
way I don't think we've ever seen in the United
States before and deem the functions that he prioritizes as
essential and then cut off the ones that he doesn't.
(02:11):
So this is a very different type of shutdown than
we've seen before, even the one that Trump oversaw in
twenty eighteen and twenty nineteen. The government was partially funded then,
so you had the core defense functions and other security
functions had an authorization from Congress to keep spending money.
Right now, nobody does. So Trump's in charge, and he
will be in charge until the Congress agrees to reopen
(02:34):
the government.
Speaker 1 (02:34):
Does this administration try to make furloughs actually permanent.
Speaker 4 (02:39):
It could try, I mean, I think that's the decision
that's up to the courts. I mean, one of the
interesting phenomenon so far this year is that the courts
are offully slow, and the Trump administration could be pretty quick,
so they could use this as an excuse to try
to furlough more workers. You know, there's been some resistance
to those furloughs, even within the cabinet agencies that are
run by Trump appoint because they want the people to
(03:01):
do the work they're supposed to do. But now they
suddenly have an excuse and the Clearly the White House
sees a political advantage in forcing more of these layoffs
in order to bring Democrats back to the table, and
I expect that.
Speaker 1 (03:15):
They're going to use it well, John, three Democrats already
back at the table last night in the sense that
they voted for the Republican clean cr They only need
to get five more Democrats to then reopen the government
and keep it funding to the end of November. Do
you think that Schumer is losing the moderate wing and
potentially this is going to be a short shutdown.
Speaker 4 (03:35):
It could be. I mean, you know your base rate here.
Your expectation should be that this is a relatively short shutdown,
you know, because of these political pressures on members of
Congress who don't want to see this happen. And the
only thing you need is exactly what you said, You
need seven Democrats to say we've had enough. We already
know the universe. Of those seven Democrats, they're the ones
(03:55):
that voted to end to open keep the government open
this spring. And you mentioned Schumer. He's the one who's
under the most pressure because he took just withering criticism
for his decision to keep the government opened. But the
fact and He's under a lot of pressure from the
Democratic base to regain leverage over President Trump, leverage that
simply doesn't exist through Congress right now. And so I
(04:16):
think that he's in a really tough spot. Those other Democrats.
I think this is an easier calculation. People like John
Fetterman from Pennsylvania see that this is a tough thing
for the Democrats to win, and over the next week
or so, I expect those numbers are going to grow,
and you know that will help to end this shutdown,
probably sooner rather than later.
Speaker 5 (04:34):
That actually is exactly where I wanted to go John,
this idea of in March what happened to Chuck Schumer
when he what a lot of people, Democrats in particular, said,
a cave to the Republican demands to keep the to
keep the government open. Is this just performative to avoid that,
to placate a certain side of the Democratic base. Is
that how it's being read, at least in polls.
Speaker 4 (04:56):
Yeah, I mean, I think he's in a tough spot,
and you know, I feel bad for the guy. There's
no way to win this thing. Like he's got to
keep his eye on the Democratic members who elected him
to be leader. He's got to keep his eye on
the Democratic voters who elected him to his Senate seat,
and they problem, the fundamental problem for the Democrats right
now is they don't have a strategy to push back
on Trump. That they've been unable to land any punches,
(05:17):
and they've been unable to draw any blood. His popularity
is reasonably high for President Trump. He's hovering around the
mid to low forties, which is much better than he
was doing and is the entirety of his first term.
And he's doing all kinds of controversial stuff that the
Democrats hate, and they can't articulate the case against him.
And until they figure out how to do that, Schumer
(05:37):
and the other leadership are going to be looking for
things like this that allow them to kind of shore
up their base on the left and placate them a
little bit and try to land these punches that so
far they've been unable to do. I think this is
a prime example of that.
Speaker 3 (05:51):
John. The markets flags they don't care, Do voters care.
Speaker 5 (05:54):
Has there been anything in the voting or the polling
that shows that this is swaying the needle in any capacity?
Speaker 4 (06:00):
I suspect at some point the chaos will be enough
and people will say, you know what, we don't like
either of these jerks that are causing all these big problems.
That's kind of where I think this ends up in
the polling. I don't think it necessarily falls in the
Republicans or Donald Trump. I don't think it necessarily falls
in the Democrats. Maybe the president takes more responsibility because
he's the executive executive. But you know, if you look
(06:22):
at the elections, there's no evidence of these shutdowns, as
we talked about last week, there's no evidence that these
shutdowns make any difference in the elections whatsoever. In twenty thirteen,
the Republicans were solely responsible for at the time a
very long shutdown over Obamacare, and in twenty fourteen they
won back a majority in the Senate. So there's just
no evidence that this has lasting political effects. I think
(06:44):
it could be a drag on the overall approval rating
of lawmakers Washington. But I don't think either side is
going to win or stands a lot to lose here, John,
do you think it.
Speaker 2 (06:53):
Is time for new dataship in the Democratic body?
Speaker 4 (06:57):
Probably? I mean, I don't think there's anything. You know,
I think that being a leader a tough tough job.
I think it's a hard thing to do. They have
a new leader in the House, and he's doing his best.
I think in the Senate. You know, I wouldn't cast
this persions on these guys. I used to work for
the minority leader in the Senate and for the Republicans,
and it's a tough job. It's a tough job keeping
everybody happy. But you know, there again, the Democrats are
(07:18):
not articulating the case against Trump, and their leadership is
not helping them do that. So I think looking to
Congress for your leadership right now is a mistake. And
if I were the Democrats thinking about the next leader
of the party who's going to be running for president,
I'd be looking out to the states, to the governors,
to people that aren't currently playing on the national stage.
And the way Schumer is now, Schumer's got to do
(07:39):
his own tough job managing his own caucus and playing
the inside Washington game. And then these governors that are
out in the states are the ones who I think
will be the more effective messengers against Trump.
Speaker 2 (07:49):
Eventually stay with US Multpleinberg surveillance coming up after this,
And if you were concerned about the step down in
payrolls growth. I think that's more feel for concern off
the back of that report.
Speaker 5 (08:07):
Yeah, at this point, we're looking at a ninety five
percent chance that the FED is going to cut rates
at the October twenty ninth meeting in at Washington, DC
on the backs of this report. You also just saw
the lowest reading on this ADP print going back to
March of twenty twenty three, so definitely signaling some weakness.
And essentially this gives ammunition to those you are saying
(08:30):
the risk management tool here is catering to the labor market,
not necessarily trying to tackle inflation.
Speaker 2 (08:36):
Greg Daka of VY is with a surround a table
corrected morning, Good morning, this is all we've got. How
useful is this number and what are the limitations around it?
Speaker 6 (08:44):
Well, I think it's useful in the sense that we
don't have anything else. I would push back a little
bit on the notion that the ADP is necessarily the
best gauge of BLS reports when it comes to employment
because it's just focused on the private sector.
Speaker 3 (08:57):
It also does not.
Speaker 6 (08:58):
Include all the details that we get out of the
employment report, so it is a good reading in terms
of having a perspective on the labor market, but it
excludes some important parts of the labor market, including the
public sector, where we're anticipating some further losses both at
the federal level but also at the state and local
level as we start the new year with less funding
for many state and local governments. So I think the
(09:20):
weakness is apparent in terms of labor demand in the
labor market more broadly, whether you look at continuing claims
for unemployment, whether you look at yesterday's data on job flows,
the JOLT report showing the hiring rate and the quits
rate at a ten year low, not just a few
months low, but a ten year low, showing there's very
little flow in the labor market. There is underlying softness
(09:41):
in the labor demand components, and the labor supply, of
course has been tremendously affected by the reduction and immigration.
Speaker 3 (09:48):
So it's a combo.
Speaker 6 (09:49):
But I think labor demand is weaker than labor supply
at this juncture.
Speaker 5 (09:53):
Are you saying that we've been sort of in this
stasis slow higher low fire range for a while and
now we're actually seeing the labor ma market break to
the downside.
Speaker 6 (10:02):
I think there are certainly risks to that the low
higher low fire environment is not sustainable.
Speaker 3 (10:07):
It's an uncomfortable balance.
Speaker 6 (10:08):
You rarely stay in that balance for a prolonged period
of time because either one of two things happens. Either
you see employers starting to hire more that's the good story,
that's positive story, or you see more layoffs because essentially
there's a desire to manage costs. And let's not forget
we are still in the midst of an environment where
there are a number of supply shocks affecting the economy.
Speaker 3 (10:29):
Too.
Speaker 6 (10:29):
Many people are still reading the economy as if if
we're guided by demand shocks. This is not the case.
Supply shocks are increasingly important. Whether it's tariffs and trade disruptions,
immigration disruptions, energy disruptions, capital disruptions, all of those factors
are affecting economic trends in a way that we haven't
seen before. Think of technological shifts as well, ai a big,
(10:52):
big shock to the economy. We're not reading the economy
in the proper way, and that's why many people are
confused about the economic signals. The mixed signals are the
reflection of an economy that is impacted by a significant
number of supply shocks.
Speaker 5 (11:06):
Yeah, and essentially this is an economy and dramatic transformation.
I just wonder how you square the idea of profits
growing across Wall Street, across a lot of corporate America
at the same time that we see this low higher
low fire dynamic potentially breaking to the downside.
Speaker 6 (11:20):
Because everybody's taking about the consumer, about the market, about
the business environment. It's not like that there is a
tremendous degree of polarization across businesses, across consumers, across the
economy when it comes to how these shocks are affecting
different actors in the economy. Take tariffs. Tariffs are not
affecting everyone in the same way. Those that are very
price sensitive are seeing the prices a grocery stores rising,
(11:44):
and they're pulling back on demand. They're seeing retail costs
also rising. They're pulling back. Those that are at the
higher end of the income spectrum, they're less concerned about
an increase for a price ticket to go somewhere, to
fly somewhere on vacation, but they're also gradually being more
And the same applies to businesses, not all businesses, not
all sectors are created.
Speaker 3 (12:04):
Equal in the face of this supply shock.
Speaker 6 (12:06):
If you're more heavily leaning towards the tech sector, then
you're going to be benefiting from this AI boost. If
you're a big corporation that is investing in AI, you're
also going to be investing more in capex. We're seeing
that in the GDP data. So it really depends on
where you law on the spectrum of the economy and
how exposed you are to these shocks.
Speaker 1 (12:24):
Rag what if we get a prolonged government shutdown and
this is all the FED has to go off of.
Speaker 6 (12:29):
Unfortunately, this is not the best time to have a
government shutdown. Of course, there is the immediate effect of
essentially eight hundred thousand federal workers not being paid and
being put on furlough that can have a notable impact
on the economy. We estimate a drag of about a
tenth of GDP growth for every week of government shutdown.
But importantly, for business leaders, policy makers, and economists, this
(12:51):
means we're flying blind in a highly foggy environment, and
this is very risky.
Speaker 1 (12:56):
Can we get a shutdown induced recession in some pockets
of the US economy?
Speaker 6 (13:02):
Perhaps in some pockets of the economy, but not necessarily.
Broadly speaking, this is not significant enough to really bring
the economy to its nees when it comes to a
potential recession. But we are seeing some sectors that are
seeing outsized declines in terms of economic activity. You look
at the housing sector, for instance, a sector that is
also hit by insufficient supply, but increasingly by the drag
(13:25):
of demand from a low affordability environment. If you start
to see more segments of the economy affected negatively by
government shutdown, think about the area around DC, think about
contractors that depend on federal funding. Then that could put
further downward pressure on a housing market that is already struggling.
So regionally and sectorally you could have these pressures that
(13:45):
are outsized and that way on economic activity, not a
broad based recession, but a more pronounced slowdown and potentially
a contraction in some sectors some regions of the country.
Speaker 2 (13:54):
If you actually John, I guess, welcome to the program.
Just mymusica of the ADEPA report, of course, tanking on
additional importance this way, because we might not get The
payrolls report this Friday came in at negative thirty two K.
Negative thirty two k We were looking for fifty one
thousand in our survey.
Speaker 3 (14:08):
That was the media estimate.
Speaker 2 (14:10):
A revision to the previous month as well, that was
fifty four. It's now negative three. Greg just got this
question from a Bloomberg subscriber. They said, the cyclists always
stop spending, stop hiring, then stop firing. And the question
they've got is the natural progression always the same in
a slowdown.
Speaker 3 (14:27):
Is it any different this time?
Speaker 6 (14:29):
I think it's very different this time around because we're
affected by supply sharks. Supply side dynamics are very different
this time around than they've been any time over the
past few decades, and I think that's why you're seeing
these unusual evolutions when it comes to the different sectors
of the economy. We have rarely seen a loaf higher,
low fire, or even no higher no fire type of environment.
Speaker 3 (14:51):
That is not a comfortable balance.
Speaker 6 (14:52):
Again, I think we are likely to see further weakness
on the labor demand side that's going to weigh on
economic momentum.
Speaker 3 (14:59):
One key in the that I watch.
Speaker 6 (15:01):
I know it's a lagging indicator, but it's income growth.
If you look at real disposable income growth, it's only
been growing at a two percent pace, consumer spending is
still growing close to three percent at one point. The
dip into savings is not going to be sufficient to
sustain spending, and the majority or sorry, the minority of
people that are still doing most of the spending cannot
(15:23):
do so forever. The higher income individuals are also gradually
being impacted by higher prices and importantly by higher interest rates.
If there starts to be some volatility in the equity
market because of a government shutdown or because of other developments,
then that could weigh on these individuals' desires and potentially
means to spend.
Speaker 2 (15:43):
Stay with us, mulplinbeg, Savanna's coming up off to this, Tiffany,
want to get PIMCO join NAPA. Mall, Tiffany, welcome to
the prim Let's say this is all we've got, and
there's a lot still to play for in October. It's
(16:03):
only just started. I've got no idea how long the
shutdown goes on for. But let's say this is all
we've got. Is there anything that would stop this fet
A reserve from just kind of interest rights again at
the end of the month.
Speaker 7 (16:15):
No, I mean so, I think clearly this ADP report
was weak and I think digging through the details of it,
you know, I think there's an interesting bifurcation in large
versus small and medium business sizes. This has been something
we've been very focused on because we think that this
economy is basically creating winners and losers.
Speaker 3 (16:35):
The tariffs, the.
Speaker 7 (16:36):
Technology improvements that we're seeing, the various tax cuts, all
of that we think is benefiting somewhat more larger companies
and it's a really really challenging environment for those small
and midsized businesses. And that's where you saw the you know,
some more of the weakness. I think that in terms
of the ADP report, can you know the fact that
(16:56):
it contracted If you adjust the payroll survey, the government
survey for the overestimation and that survey over recent years,
you know, you can get to numbers that look like
they were contractionary of the last three months as well.
So I think these surveys are given a consistent signal
that we are seeing some some more concerning weakness in
the labor market.
Speaker 5 (17:16):
And so right now you're seeing priced into the market
one hundred and one percent chance of a twenty five
basis point rate cut at the October twenty ninth press
conference and meeting, and then in December again almost one
hundred percent chance eighty eight percent chance of another cut.
I just wonder, Tiffany, is that the solution to what
essentially is the K shaped economy that's getting to be
(17:37):
an even bigger K.
Speaker 7 (17:41):
Yeah, I mean so I think that's right there, there is.
You know, I think interest rate cuts as a result
of the fact that the shock that we're going through
right now is both a demand and supply side shock.
Tariffs and both immigration will have supply side effects as well.
You know, of course central bank policy is not well
suit did to deal with supply shocks, but nevertheless, policy
(18:03):
is in restrictive territory, and you know, I think when
you're in an economy that is going through this type
of transition, given the policy U turns, arguing that it's
closer to neutral is certainly very reasonable. And I think
the interesting thing that we're seeing, you know, since the
implementation of tariffs, is that the adjustment that the economy
is making to tariffs is not primarily through price adjustments,
(18:26):
but it actually looks like it's happening through the labor
market as well as companies are trying to cut labor
and other costs. So that just means, you know, we
think that means the funeral reserve has room to cut
interest rates. Here are they still have rates that are
above neutral getting back to that is very reasonable in
our minds, given the weakness of the labor market we're seeing.
Speaker 5 (18:46):
This is really a strange moment where you're seeing companies
adapt and adjust to the teriffs by potentially cutting workers.
That's what you're saying, not just raising prices and yet
continuing to report really good earnings, continuing to really deliver
and highlight the strength of the consumer. Can you square
that circle? I mean, how does that make sense? The
fact that the consumer are strong, layoffs are happening because
(19:08):
that's the way the companies are dealing with this. Uh,
and so that companies are profiting. At some point, does
that flywheel stop going?
Speaker 3 (19:16):
Yeah?
Speaker 7 (19:16):
Well, I mean, I think it gets back to your
point on the K shaped economy. So we see it
on the business side as well. I think the largest
businesses you know that you know that primarily make up
the S and P index for example. You know, I
think they're the relative beneficiaries of these various policies. So
you have pretty large tax cuts that was that were
also passed, and the one big beautiful bill that you
(19:38):
know that will benefit companies that are relatively capital intensive.
They do a lot of cabecs. They'll get upfront expensing
for all of that, you know. And if those companies,
you know, can offset those tax cuts, offset the tariff
tariffs that they now have to pay, they're in a
pretty good position.
Speaker 3 (19:54):
You know.
Speaker 7 (19:54):
The smaller and mid sized companies that maybe have less
capex will be in a worse off position. So, you know,
I think those are the companies right now that are
facing the most pressure. You know, the broader indices of
smaller companies like the Russell for example, it's not done
as well. Those equities have not done as well this year.
I think very reflective of that theme, you know, and
(20:15):
I think the real question for the broader economy is,
you know, is how you know, I would actually argue
we're not seeing a huge amount of layoffs yet. What
we've seen instead is that the gross hiring rates have declined,
you know, very tremendously. So the question in our minds is,
you know, how how how are these struggling businesses, how
how much will they lay off labor over the coming months,
(20:39):
you know, and will that cool off the broader economy.
Speaker 1 (20:42):
So today, can you see Fed officials arguing that instead
of tariff induced inflation, we can have labor market weakness
that's tiff induced. And shouldn't those that are concerned about
the tariffs actually be on board with now wanting to
cut rates.
Speaker 7 (20:58):
Yeah, I mean, I certainly think that is that's the
argument that we're making, and I think that as you
get more data that you will see more and more
Federal Reserve officials coming around to that argument as well.
I think Mary Daily in recent public comments, has made
that data. Of course, Christopher Waller, Governor Waller has also
come out with some pretty big concerns about the labor market.
(21:19):
So I think that, Yeah, certainly, as we get more
information and you have more certainty within the FOMC, you know,
we think they cut interest rates, you know, a couple
of more times this year as a result of that. Now,
of course, the government shutdown, the fact that we aren't
going to get potentially aren't going to get data releases
or the data quality could be poorer over the next
(21:40):
couple of months before we go into the November meeting
could be problematic, you know, but again, of course the
ADP data that we've gotten, some of the other private
sources of data will be more important, and that's what
they'll be using.
Speaker 1 (21:52):
Besides the fact that we're not going to get economic releases.
How concerned are you about the government shutdown?
Speaker 7 (21:59):
Well, I mean, traditionally government shutdowns have just a temporary
effect on the economy. The you know, the workers that
are furloughed or that aren't paid Ultimately when the government
opens will get back pay. So this is usually just
a temporary effect, you know. Now it's possible that we
(22:19):
could have a longer shutdown. We would argue that the
effects start to get nonlinear after you get workers, contract
workers and government workers that start to miss a couple
of paychecks. I think one paycheck probably okay, but as
you get more that are missed than that's when you
start to see a bigger impact on consumption. The other
thing is is that there could be permitting delays. You know,
(22:39):
the government you know, does you know, does does give
out permits for investment, and the longer that those kinds
of services are shut down, you know, you could see
some delays in investment as well, so you know, ultimately
this this can get larger as time goes on. I
think the largest government shut down historically has been, you know.
Speaker 3 (22:57):
Maybe a couple of weeks.
Speaker 7 (22:59):
We hope that the case again, but as of now,
we think this is a temporary issue, but certainly we're
monitoring the situation.
Speaker 3 (23:07):
Stay with us.
Speaker 2 (23:08):
More Bloomberg surveillance coming up after this. Let's stay on
the trade story. The President Steve Tarris on pharmaceuticals, heavy trucks,
and furniture going into effect today. Joining us now the
former White House trade official ca Calukuwitz Kate, welcome back
(23:29):
to the program. Let's think about this meeting, series of
meetings that take place in Asia over the next month
or so. How are you thinking about what can be
achieved on that trip.
Speaker 8 (23:38):
Well, when I listen to the predictions of Ambassador Greer,
the US trade representative, I think I have to go
on the side of these are deals with other Asian economies,
probably not China, and I think if you remember back
to Liberation Day, some of the highest heriffs were handed
out to economies in Asia, and I think those countries,
particularly the ones that have not gotten framework agreements yet,
(24:01):
are still very anxious to hammer out some sort of deal.
Speaker 5 (24:05):
Kate, does the US need to present some sort of
larger framework for its relationship with China as part of
these trade deals with in particular Southeast Asia.
Speaker 3 (24:15):
Well, it's an interesting question.
Speaker 8 (24:16):
I mean, I think what we've seen, of course, is
the agreements that Trump administration has struck so far have
included provisions directed at China. So some sort of framework,
a global framework, if you will, around shared objectives toward China,
higher tariffs, provisions that try to cut down on transhipment,
economic security. This is the language they use when encouraging
(24:40):
trading partners to adopt similar measures to China. Now, what
that means for the bilateral with China remains a bit unseen.
Speaker 5 (24:49):
At this point, though, Kate, do you get some sort
of cohesive sense of the relationship that the US wants
both with China as well as with Southeast Asia, which
makes a lot of goods for the United States and
is frankly the basis of a lot of the fast
fashion and other retail brands in particular.
Speaker 8 (25:07):
Well, the reality for most of those economies, of course,
is that the United States wants us to buy less
from those economies, so Fast fashion, you know, furniture. We
saw some moves this week on furniture. This is very
impactful for that region. The President has been very clear
about what he wants, and that is more production in
the United States. So I think these agreements around the
(25:30):
edges will be on items we can't make here. Critical
minerals will be a focus, of course, with Taiwan trying
to incentivize more moves on semiconductors. The question about what
he wants with China, I think remains really questionable. We
don't know he wants a deal with China, of course,
but another comment that Ambassador Career made yesterday seemed to
(25:52):
signal a bit of a heightened posture, a threat that
tariffs could go back up after November tenth if we
don't continue to make progress. So I don't know that
we're getting closer to a bilateral deal with China.
Speaker 1 (26:04):
So what's going to come out of this meeting between
President Trump and Shijipeg Because Trump says their meeting, yeah.
Speaker 8 (26:10):
Well, look a meeting is not They're not going to
want to have that meeting result in heightened postures that
take us away from a deal in the future. President
Trump has been very clear he wants a deal with China,
so I think that both sides will find a way
to maintain the status quo. Both sides, though frankly, have
(26:30):
been increasing pressure. The Chinese themselves this week added new
provisions that will impact goods going to America. The United
States added lists that impact the way we sanction and
address foreign companies buying from China. So they're adding this
is what we've seen. I think they add leverage and
then they potentially negotiate that leverage away to keep the
(26:54):
status quo.
Speaker 1 (26:55):
It's a great point. With all the tariffs coming out,
a lot was missed in terms of the US expanding
the export blacklist the entity list when it comes to China.
So do you expect more moves things like that before
Trump sits down with.
Speaker 8 (27:09):
Shi Well, I think this is this repeat that we
have found ourselves in in this relationship. Until and unless
we can articulate a grand vision for the trade relationship
between the United States and China, I think we are
going to create these false pieces of leverage that can
then be negotiated back. So these are important moves that
(27:30):
are being made. The United States as well, in a
few weeks, will implement new tariffees on ships from China.
This will be very dramatic.
Speaker 3 (27:39):
So these are all new.
Speaker 8 (27:40):
Things that can be negotiated in advance of a November
tenth deal, while we retain everything else that's on the table.
Speaker 1 (27:47):
Kate, just to give us more context, is that what
you think the H twenty chip reversal was about getting
leveraged to then just unwind it.
Speaker 8 (27:54):
Well, I have to imagine that was part of it,
because the Chinese made, you know, a seemingly big deal
about getting access to that chip. The got access to
the chip, and then they turned around and said we
don't want it, and by the way, we're going to
take action against Ynvidia. It all seemed sort of a
false construct to me, so perhaps that was their intentional along.
Speaker 2 (28:16):
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