August 1, 2023 • 28 mins
In what’s being hailed as a ‘Great Reset,' how the world does business looks very different now than it did before Covid. Bloomberg Markets magazine sent reporters all around the globe to see what the new order of global trade looks like on the ground. Bloomberg’s Brendan Murray, Malcolm Scott and Jenny Leonard join guest host Rosalind Mathieson to discuss what they found.
Read more: War, AI and Climate Change Shake Up $32 Trillion in Global Trade
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:16):
The second half of the last decade was a lot
terrorist attacks across Europe. Braxt the global impact of Donald
Trump's election in the US so many of us looking
forward to reliving the Roaring twenties.
Speaker 2 (00:33):
But well that didn't quite go as planned.
Speaker 3 (00:36):
Iran says it will take revenge for the US killing
of its most powerful military commanding, rowing concern as the
tool from that deadly coronavirus now grows breaking.
Speaker 2 (00:45):
You stay at home, that is the order.
Speaker 4 (00:47):
Tonight.
Speaker 5 (00:48):
Russia has launched a military assault on Ukraine.
Speaker 6 (00:50):
The war in Ukraine has begun.
Speaker 1 (00:54):
Shifts in everything from geopolitics to trade and public health
also meant changes to the political order in several countries.
Speaker 6 (01:02):
Joseph R. Biden Junior is elected the forty sixth President
of the United States.
Speaker 7 (01:07):
British Prime Minister Boris Johnson resigning today.
Speaker 3 (01:10):
It Lee is said to elect a far right leader.
Speaker 6 (01:13):
President Raja Taya Bertawan has claimed victory. Luis Naso Lula
Silva has been voted in as Brazil's next president.
Speaker 1 (01:20):
As well as changes to the global economy and the
boom underway in artificial intelligence. All this has happened as
companies in the US and around the world realize just
how reliant they've become on strong but narrow trade routes.
Bloomberg dispatch reporters around the world to see how the
situation is changing on the ground and what conclusions can
be drawn. Malcolm Scott, Jenny Leonard and Brendan Murray are
(01:44):
here to make sense of it all. I'm Roslin Matheson
in for Wes Kasova today on The Big Takeo's changed
a lot over the past three years. So could a
shift in global trade be the start of a great reset? Brendan,
(02:11):
your Big Take print stories all about the great reset
as companies change up their supply chains. But what made
you and your colleagues want to write about this?
Speaker 5 (02:20):
Well, there were two reasons, really, and the first had
to do with the lack of available data. Trade data
are notoriously backward looking. Most of the numbers we get
from the government come out with a month or two legs,
so they don't really do us much good. They're good
at telling us what happened in the rearview mirror, but
not good at watching what's changing in real time. The
second catalyst has to do with the pandemic lockdowns when
(02:42):
reporters and editors got really good at doing what they
do from the confines of their own home. But what
we wanted to do was send a dozen Bloomberg reporters
out in the field to see what was really going
on on the ground.
Speaker 1 (02:54):
And we've got a really interesting array of examples that
we'll talk about in greater detail. But Mal, can we
talk a bit more about the Great Reset itself? What
we mean by that were basically talking about events mostly
since twenty twenty.
Speaker 7 (03:08):
The economic drivers of this great reset, or the sort
of slow rewiring of the global economy, they have been
around for a while. You know, China's been on this
industrialization path for a couple of generations. Now it's really
a political catalyst that's made us really come to this
point now where we are talking about this as a reset.
You know, Donald Trump's presidency brought his protectionist policies to
(03:30):
the fore China bashing became a sport in the US.
Speaker 8 (03:33):
Not only has China declined to adopt Promise reforms, it
has embraced an economic model dependent on massive market barriers,
heavy stage subsidies, currency manipulation, product dumping, force, technology transfers,
and the theft of intellectual property. And also trade secrets
(03:58):
on a grand scale.
Speaker 7 (04:00):
And then President Biden has really sustained much of that,
if dialing back on some of the rhetoric, but those
punitive tariffs they're still in place, they haven't gone anywhere.
And then he's lay it on even doubled down on
this reshuring narrative that's really driving not only the US
but others to rethink their supply chains. And at the
same time, China's perceived economic coercion of trade partners that
(04:23):
it's tried to slap on the wrists such as Australia
when countries don't do it as it would please. That
seems to have really backfired, and that's really accelerating rather
than detracting from this push to reshure, revisit supply chains,
diversify from China.
Speaker 1 (04:40):
What's interesting mail to hear you talk about the political
imperatives here, and I want to bring in, Jenny, do
you see this as purely just down to the trajectory
of the relationship between US and China or what else
might be at play?
Speaker 4 (04:53):
Well, it has a lot to deal with the trajectory
of the US China ties. Obviously, it's started in the
Trump administration we have seen sort of the through line
to the Biden years. But you know, populism in US
politics means now in both parties that politicians want things
to be made in America again.
Speaker 9 (05:12):
Tonight, I'm announcing new standards require all construction materials using
federalist infrastructure projects to be made in America.
Speaker 4 (05:22):
And so that, apart from the US China relationship, is
what we will see going into the twenty twenty four
election and presumably also going forward.
Speaker 1 (05:34):
We were always going to be at this point or
was it just expedited by those sort of events of
the past few years.
Speaker 5 (05:40):
In particular, global trade had basically plateaued about five or
ten years before Donald Trump came into office, and companies
were already starting to kind of back away from China
seeing that they were overly concentrated there. So it was
already in motion before put the trade war, the terif
that Donald Trump launched again in China. President Trump tonight
(06:01):
escalating his trade war with China, threatening new tariffs that
they're coming soon and they are sweeping. And then the
pandemic and then you layer on Russia's war in Ukraine
and all of those things accelerated the risk calculation that
companies were going through. If you're a company now and
you're looking at eighty percent of your production is in China,
you better be thinking about cutting that, say, in half,
(06:23):
or at least by a third if the political situation
deterior tanny further.
Speaker 1 (06:28):
It's interesting to hear you talk a bit about Ukraine
as well, because when we talk about this, it's really
the entire world that's affected. I was trying to think
of any country that may not be affected by this
that I sort of came up with North Korea and
not much else. Brenda, Let's talk about Western nations first.
In that in some of the research and the work
that we did for this story, is there an example
(06:49):
where you could highlight the particular impact that we're seeing
on what you think is the West.
Speaker 5 (06:53):
So Italy is a really good example, stemming from the
Russian War in Ukraine, not necessarily the China situation. So
in southern Italy, we dispatched a reporter to an Adriatic
seaport called Brindisey. This is an ancient Roman city with
ruins from the thirteenth century. Today it's become a busy
(07:14):
gateway for natural gas imports from suppliers all over the Mediterranean.
That's a big change from just a few years ago
when natural gas used to flow north to south through Italy,
originally from Russia. That gas pipeline has literally been reversed
and it's now handling imports in a northward direction from
(07:34):
countries in North Africa and elsewhere that are trying to
replace those Russian supplies.
Speaker 1 (07:40):
And Jenny, do you see much of an impact in
the US itself. I mean, the US has been obviously
a champion of trying to get companies to redesign their
supply chains. For all the work so far that's gone
on under the Biden administration in particular, has anything worked.
Speaker 4 (07:56):
Obviously, the Biden administration has really zeroed in on semiconduct
clean energy technology, raw materials. They've passed multiple laws over
the last two years that include billions and subsidies for
these sectors to incentivize coming to the US, which is
a much more expensive place to build a fab and
then in the end make semiconductors. Those laws will take
(08:18):
years to bear fruit, and we've seen TSMC, the big
Taiwanese semiconductor company that was sort of the big hope
to build a fab in Arizona said that it's going
to push back its production timeline until twenty twenty five, which,
of course politically is not so convenient for the Biden
administration because they would love to send the President or
(08:40):
the Commerce secretary to a ribbon cutting ceremony before the
election in November and say, hey, look, we've said we
will make trips in America, and here's the first trip
made in America. And that really seems like that's really
not in the offing anymore.
Speaker 1 (08:54):
And now there are impacts also in emerging markets. We
have looked across the breadth of emerging markets and some
interesting examples in the story also about that.
Speaker 7 (09:03):
The unifying theme that we've sort of come across, and
of course we're hearing from the bottom up in this story,
but also the top down in academia land, is that
the emerging markets they don't want to get caught in
the middle of this. They want to benefit from it.
They're coalescing around this concept of the global South. They're
taking a transactional view. They don't want to pick sides
any confrontation, be it the US and Russia, be it
(09:25):
the economic confrontation of the US and China, so some
winners are being created. Our story looks at a couple
of examples where specific locations seem to be doing pretty
well out of this rewiring of the global economy. So
in Morocco, just about a half an hour's drive inland
from Tangier, there's a port that's really doing well, the
(09:45):
Tangier Tech City that's being developed with Chinese and Moroccan
government support. South of the US border with Mexico, truckers
there are struggling to keep up with demand as the
rerouting of demand from the US means that they're buying
more from Mexico. Our Bloomberg Economics economist estimates that the
(10:06):
tariff goods are down about one hundred and fifty billion
dollars relative to their pre trade war trend from China.
Mexico's filled about ninety billion of that gap. So there
are winners, But the real overwhelming danger longer term is
that these sort of protectionist policies, the reassuring policies, in
(10:27):
the ends, they may make it harder for the next
batch of economies to get onto that first couple of
rungs of the development ladder, and that shuts off an
avenue of growth. And development for countries with vast and
rapidly growing populations. Now, that's not going to be good
for the emerging world.
Speaker 5 (10:42):
I think one of the caveats there that we should
address is that this is not easy. Vietnam Thailand do
not have the infrastructure to flip a switch and start
producing goods like China does. So this is going to
be a costly and time consuming process, and it's going
to mean a lot of dislocation for workers. It's going
to mean a lot of risk in the investment that
(11:04):
goes into these countries. But ultimately, I think what we're
seeing are the very early signs, the very early days
of a process that we'll see play out for a
long time.
Speaker 1 (11:15):
And Jenny, just to Male's point about these countries saying
they don't want to have to pick aside and also
concern that their own development will be affected as a
result of this. It's not like a narrative that China
and other countries seem to seize on because it can
get some good traction. But does the US administration see
that and how are they're going to be able to
(11:36):
counter it?
Speaker 4 (11:37):
I think the Biden administration does see that, but it's
very hard to counter that narrative because when I talked
about the US populism, you know, anti trade sentiment that
sort of feeds into politics here. That is going to continue,
and that is what I'm hearing from some people who
are advising the administration on how to counter that narrative.
(11:59):
They would love to have a positive trade agenda. They
would love to have something like a TPP.
Speaker 1 (12:05):
A major victory for President Obama and his economic agenda
as the US, Japan, and ten other countries have approved
the Trans Pacific Partnership.
Speaker 4 (12:15):
That President Trump withdrew from his first week in office,
and nobody really in the US seems to be wanting
to go back to that agreement. So the Biden administration
came up with a different approach, which is called the
ipav US.
Speaker 3 (12:31):
President Joe Biden has signed up a dozen countries to
help challenge Chinese dominance in Asia. During a tour of
the continent, he announced the Indo Pacific Economic Framework, saying.
Speaker 4 (12:42):
That has lots of pillars, but is not supposed to
be a trade agreement because it's not. It's also not
going to get the benefits on the market opening and
tariff reduction that the TPP countries we're looking for. You
see a lot of sticks from this administration, as we
have from the Trump administrations, saying more tariffs, more restrictions,
(13:03):
subsidies in the US, incentivize you or penalize you if
you're not doing this. So what is the carrot? Where's
the carrot coming from? For Vietnam, for Japan, for other
countries that are part of the now loosely agreed to
IPF agreement, Because that's missing. I think they have a
harder time convincing these other countries. We're not trying to
(13:26):
have you choose, but you know this is the right way,
and I think that's going to play out over the
next couple.
Speaker 2 (13:32):
Of years after the break.
Speaker 1 (13:35):
How have the US China tensions affected international trade? Let's
talk a bit specifically about China and this question now
of decoupling or diversification. Now, let's go back a little
(13:55):
bit and talk about how we even got to this
point where so many companies and countries found their supply
chain so dependent on China.
Speaker 2 (14:04):
How did that happen?
Speaker 7 (14:05):
China opened in the late seventies, there was those reforms
led by Dengshaupin. At that stage, China's share of global
trade was less than one percent. Zoom through the eighties
and nineties, rapid growth in China's manufacturing sector along with
its overall economy. But this all got super turbocharged by
the entry into the WTO in two thousand and one.
That entry coincided with the revolution in communications technology that
(14:29):
allowed mega companies, big global companies to track their diversified
supply chains, you know, with stuff like the Internet, and
we could communicate with suppliers through things like email for
the first time. And the labor force in China was
in that sweet spot. The education system had created, you know,
a skilled labor force by that stage, so there was
(14:50):
just a secret source. Come into the mid twenty tens,
and all of a sudden, the world started to wake
up to the fact that, wow, China's really eating everyone's
lunch here, and in the process, manufacturing sectors elsewhere around
the world were being hollowed out. Then in twenty fifteen,
China sort of stuck its head above the parapet a
(15:10):
little bit with the China twenty twenty five Industrial Plan
that identified these ten industries in which it wanted to
become globally competitive over the next decade. So now just
two years from where we are today. That sort of
was the economic backdrop to what then happened on the
political front.
Speaker 1 (15:27):
Brendan, I'm curious your perspective here on this. I mean,
we've talked about the Great Reset and that beginning, but
for many companies it's just not easy just to say
that's it, We're going to change our supply chains. But
are there also a lot of companies that simply don't
want to.
Speaker 5 (15:43):
Well, the companies that are having the most difficulty are
the ones that want to sell into the Chinese market.
You can produce lots of goods and expensively there and
export them. But China has you know, upwards of a
billion or more people now that are increasingly in the
middle class, even affluent. They've got a lot of money
to spend on Tesla's and Swiss watches and other things
(16:05):
that we report on weekend and week out at Bloomberg.
So there's definitely a reluctance. You see it in the
big the Wall Street banks that want to finance a
lot of the infrastructure and economic development that China still
has to do. It's a you know, you can't live
with it, you can't live without it kind of arrangement
with China. Now, a lot of companies are finding out
(16:25):
that if you do leave China or speak in a
way that isn't pleasing to the Chinese government, then you know,
there will be repercussions for that. So they're trying to
walk a fine line. Very few of them are just
pulling up their tent stakes and leaving.
Speaker 4 (16:39):
You know, what's interesting is that I think some of
the firms are more impacted maybe by choosing Ping's policies
than by what the Biden administration is putting forward as
policies to sort of lure them back home. They're spooked by,
you know, a crackdown on the US due diligence sector.
Micron we've seen the Chinese go after well.
Speaker 5 (17:01):
Chinese regulators vowed to ban some domestic purchases of chips
made by US firm Micron Technology.
Speaker 4 (17:07):
The Chinese sort of promising this is just the first
step in a way. Having this uncertainty in the Chinese
market is something that they're also trying to grapple with
more so than actually heeding the Biden administration policies. But
of course we're also seeing policies that the White House
has been working on for two years now, trying to
(17:30):
limit the investment in certain sectors in China.
Speaker 6 (17:33):
The US is now planning to place a limit on
exports of American chip making equipment to China. The latest
move is aimed at halting China's advances in the realm
of semiconductor production and protecting American.
Speaker 4 (17:47):
Firms, possibly creating a chilling effect for these companies thinking
do we really want to put our money there? Do
we really want to put our NoHo there? The US
does not believe that there's a private sector in China
that all the know how, all the money, everything you
do there goes to the military, and that of course
(18:07):
could be used against the US military if there is
a conflict. So those are also underlying factors that some
of the firms are grappling with.
Speaker 1 (18:15):
It's really interesting, Jenny, with seeing of course, lots of
comments from officials in China of late sort of reassuring
on the private sector. Not a lot of specifics in
any of that so far, but certainly trying to send
a message again and meeting of course with sort of
executives from US companies.
Speaker 9 (18:33):
As tensions between the US and China remain at an
all time high.
Speaker 6 (18:37):
Microsoft co founder Bill Gates has met President Jijing Ping.
Speaker 4 (18:42):
And that's happening all the while. They're cracking down on
some of these sectors. In the White House, which is
usually pretty quiet on the China front, has actually been
seizing on that, saying they're seeing a concerning pattern and
sort of sending the message to the business community. Maybe
the Chinese are trying to play at both sides here.
It's up to you what you do, but you know,
(19:04):
you see the risks here. So that's sort of an
interesting new development that we've seen over the last three months,
i would say, coming from the White House.
Speaker 1 (19:12):
And of course none of this is happening in a vacuum.
We've been talking about some of the policies that we've
seen from China. But Mal, I'm curious, how does China
see all of this? What is the impact that you've
seen so far for any on the economy of China.
Speaker 7 (19:27):
China isn't sitting back, abashed and tail between its legs.
It continues to press ahead with plans to develop these
industries such as AI evs, where companies such as BYD
and making great strides effectively doing that via skirting the
US they're not trying to sell evs in America. That's
just too tough. But let's sell them to the rest
of the world instead.
Speaker 1 (19:47):
China's waging a war not in the Pacific, but non
Australian roads. Its manufacturers are locked in a heated race
to bring the cheapest electric vehicle to our market.
Speaker 7 (19:57):
They're plowing ahead on that front. But by the same
they're also aware that just as the rest of the
world is maybe a little bit too reliant on China,
China's economy was perhaps a little bit too reliant on
the rest of the world. So since around mid twenty twenty,
we've heard more from Chijinping and others about this duel
circulation growth model. The duel being let's stick with the
(20:20):
global engagement, let's continue to do that, but let's back
it with additional domestic demand. And also let's assemble more
of those components, or produce rather more of those components ourselves.
So there were assembling products that are made from components
that are also made in China, so that value added,
that all important valu added stays at home. And then
(20:42):
the third thing they're doing is just as the US
and other Western like minded countries are trying to diversify
away from China a little bit. So China is trying
to back away from its reliance on those markets, and
it's having some success. It's diversifying its customer base and
selling more sense to its Southeast Asian neighbors.
Speaker 2 (21:03):
Coming up, what follows the Great Reset.
Speaker 1 (21:15):
We've talked a lot in this conversation about the Great Reset,
but I want to just come into something a bit
more specifically, and this is something Jenny, you've touched on
so far in the conversation, which is the US election,
which is coming up late next year. And you could
argue that Joe Biden has been a more protectionist president
than his predecessor, Donald Trump. But equally, is the US
(21:36):
political climate at this point where no one can afford
to not be seen to be protectionist sort.
Speaker 4 (21:42):
Of yes, I think when it comes to the US
China relationship, there's multiple layers of concerns, from national security
to human rights, which we've seen a lot in the
apparel sector. You know, Shinjug, the Western Chinese region, there's
a whole lot that was passed that sort of now
bans Catton coming in and other products coming in from
(22:05):
that region. So if you look to twenty twenty four,
former President Trump, who's running for reelection, is promising a
full decoupling from China. Now he sort of thinks that
he hasn't done everything he could have done in his
four years in the White House, so now he is
really going at it in part two, promising a full decoupling.
(22:25):
And so everyone sort of on the Republican side is
measuring their stance based on what Trump has already done,
what Trump is promising. You don't really hear anyone who
is pro business, pro engaging with China on the Republican side.
And of course President Biden, who's running for reelection, has
similar views and has continued some of the policies that
(22:48):
we've seen from the Trump administration. So on China, I
think we will see the protectionism going forward.
Speaker 5 (22:55):
I think another thing to keep a close eye on
as we go through the campaign season and rhetoric kind
of flies around, is any pushback that this decoupling that
we would get from the Republican candidates gets from the
business community. Because tariffs were not a popular strategy. Donald
Trump got a lot of political mileage out of them
from his base, but tariffs were not popular, and if
(23:19):
the pandemic didn't come along, we might have been looking
at more tariffs and phase of inflation that might have
been caused by tariffs. Decoupling from the Chinese economy sounds
like a really good hawkish approach, But I bet if
you asked the big corporate donors if they would like that,
you'd get a different answer.
Speaker 1 (23:38):
And Jenny, you were talking of course about how other
allies have supported the US in this better sense of
Aneya's also at the pace of it and perhaps being
driven avertly by US foreign policy. And you know, going
back to what Mao was talking about the global South
countries are feeling caught in the middle, and India is
a really interesting case.
Speaker 2 (23:56):
Brenda, can you talk a bit more about India.
Speaker 5 (23:58):
Yeah, So, India, like you said, is one of these
really interesting examples. It wants to be the beneficiary of
the de risking that companies are doing from China. It
wants to make iPhones and other high tech equipment, and
it wants to benefit from this shift away from China economically.
But on the geopolitical side, it's portraying itself as a
(24:19):
neutral in the sort of China Russia axis against the West.
It will see how long it can kind of stay
in the middle there. For the story that we're talking about,
we had a reporter go to a factory outside of
New Delhi that's getting the financial support from the Modi government.
It's this facility where we learned that even the CFO
who we talked to said, we're doing very well. We're
(24:40):
making mobile phones, but it's going to take years and
years and so this process it's complicated. The infrastructure, even
in a place like India is not up to par
with China. So all this talk about racing to catch
up to China or replace China is a really difficult process.
Speaker 7 (24:58):
Even as India does see to be the next China. Ironically,
that's boosting, not reducing its reliance on shipments from China,
because as they seek to boost the manufacturing sector, they
need to be buying those components or the machines that
make the components from China.
Speaker 1 (25:17):
Do you smail any other unintended consequences of this great
reset when you look around the world.
Speaker 7 (25:24):
I mean from an economics perspective, they abound. We're trying
to tackle this big inflation shock, and many of these
measures are only going to make the goods that we
buy more expensive, so that's going to get tougher. There's
the misallocation of resources as governments try to pick winners. Historically,
that's not proved to be a good idea. You know,
(25:46):
if we're all pushing to reshore and manufacture these certain
so called strategic products, it probably won't be too long
until there's a glood of those things and we're all
talking about the misallocation of resources that happened.
Speaker 5 (26:00):
I think one of the most basic unintended consequences that
we could see play out is there's all this talk
about reshoring, near shoring, bringing production back home to create
manufacturing jobs, when a lot of those jobs are just
going to be automated. The technology is such now that
you don't need one thousand people in a factory to
(26:21):
make a car anymore. You need some robots and a
few hundred. We visited a company in County Kerry, Ireland
that's making products for Ikea. By the way of three
D printing, there's no need for Chinese production or production
anywhere else. It just happens without any sort of supply
chain at all. So those are the kinds of advances
(26:42):
that we're seeing that could make the next several decades
really interesting.
Speaker 2 (26:48):
Where do you see the great reset going?
Speaker 1 (26:50):
If you think about what the world might look like
in five years from now or ten years from now,
do you see a radically different global economy.
Speaker 5 (26:58):
I think the length and the degree of the transformation
is going to depend on whether the US China conflict
goes from a cold war situation to a hot one.
It will transform very quickly if we're in some sort
of military conflict with China, and the decoupling will happen
almost over night. The short answer is it's going to
be a slow, costly process, but we're going to see
(27:20):
the world change before our own eyes over the next
decade or two.
Speaker 4 (27:24):
You know, Brendan mentioned the China situation, which of course
has to do with Taiwan, which is the center of
the global semiconductor industry. I think it's going to be
really interesting to watch their Taiwan is also having a
presidential election in early twenty twenty four. They really want
the semiconductor industry to remain centered on Taiwan because that
(27:50):
gives them a little bit of what they call the
silicon shield. So I'm watching that election very closely.
Speaker 2 (27:57):
Brendan, Malcolm, Jenny, thank you for joining me today.
Speaker 1 (28:01):
Thanks for ros Thank you Ross, thank you, thanks for
listening to us here at The Big Take. It's a
daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio,
visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and.
Speaker 2 (28:16):
We'd love to hear from you.
Speaker 1 (28:18):
Email us with questions or comments to Big Take at
Bloomberg dot net. The supervising producer of the Big Take
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Romanello is our producer. Our associate producer is Zena ab Zidiki.
Raphael am Silly is our engineer. Original music by Leo Sidrin.
(28:40):
I'm Roslin Matheson in for Wes Kosova. We'll be back
tomorrow with another Big Take.
The second half of the last decade was a lot
terrorist attacks across Europe. Braxt the global impact of Donald
Trump's election in the US so many of us looking
forward to reliving the Roaring twenties.
Speaker 2 (00:33):
But well that didn't quite go as planned.
Speaker 3 (00:36):
Iran says it will take revenge for the US killing
of its most powerful military commanding, rowing concern as the
tool from that deadly coronavirus now grows breaking.
Speaker 2 (00:45):
You stay at home, that is the order.
Speaker 4 (00:47):
Tonight.
Speaker 5 (00:48):
Russia has launched a military assault on Ukraine.
Speaker 6 (00:50):
The war in Ukraine has begun.
Speaker 1 (00:54):
Shifts in everything from geopolitics to trade and public health
also meant changes to the political order in several countries.
Speaker 6 (01:02):
Joseph R. Biden Junior is elected the forty sixth President
of the United States.
Speaker 7 (01:07):
British Prime Minister Boris Johnson resigning today.
Speaker 3 (01:10):
It Lee is said to elect a far right leader.
Speaker 6 (01:13):
President Raja Taya Bertawan has claimed victory. Luis Naso Lula
Silva has been voted in as Brazil's next president.
Speaker 1 (01:20):
As well as changes to the global economy and the
boom underway in artificial intelligence. All this has happened as
companies in the US and around the world realize just
how reliant they've become on strong but narrow trade routes.
Bloomberg dispatch reporters around the world to see how the
situation is changing on the ground and what conclusions can
be drawn. Malcolm Scott, Jenny Leonard and Brendan Murray are
(01:44):
here to make sense of it all. I'm Roslin Matheson
in for Wes Kasova today on The Big Takeo's changed
a lot over the past three years. So could a
shift in global trade be the start of a great reset? Brendan,
(02:11):
your Big Take print stories all about the great reset
as companies change up their supply chains. But what made
you and your colleagues want to write about this?
Speaker 5 (02:20):
Well, there were two reasons, really, and the first had
to do with the lack of available data. Trade data
are notoriously backward looking. Most of the numbers we get
from the government come out with a month or two legs,
so they don't really do us much good. They're good
at telling us what happened in the rearview mirror, but
not good at watching what's changing in real time. The
second catalyst has to do with the pandemic lockdowns when
(02:42):
reporters and editors got really good at doing what they
do from the confines of their own home. But what
we wanted to do was send a dozen Bloomberg reporters
out in the field to see what was really going
on on the ground.
Speaker 1 (02:54):
And we've got a really interesting array of examples that
we'll talk about in greater detail. But Mal, can we
talk a bit more about the Great Reset itself? What
we mean by that were basically talking about events mostly
since twenty twenty.
Speaker 7 (03:08):
The economic drivers of this great reset, or the sort
of slow rewiring of the global economy, they have been
around for a while. You know, China's been on this
industrialization path for a couple of generations. Now it's really
a political catalyst that's made us really come to this
point now where we are talking about this as a reset.
You know, Donald Trump's presidency brought his protectionist policies to
(03:30):
the fore China bashing became a sport in the US.
Speaker 8 (03:33):
Not only has China declined to adopt Promise reforms, it
has embraced an economic model dependent on massive market barriers,
heavy stage subsidies, currency manipulation, product dumping, force, technology transfers,
and the theft of intellectual property. And also trade secrets
(03:58):
on a grand scale.
Speaker 7 (04:00):
And then President Biden has really sustained much of that,
if dialing back on some of the rhetoric, but those
punitive tariffs they're still in place, they haven't gone anywhere.
And then he's lay it on even doubled down on
this reshuring narrative that's really driving not only the US
but others to rethink their supply chains. And at the
same time, China's perceived economic coercion of trade partners that
(04:23):
it's tried to slap on the wrists such as Australia
when countries don't do it as it would please. That
seems to have really backfired, and that's really accelerating rather
than detracting from this push to reshure, revisit supply chains,
diversify from China.
Speaker 1 (04:40):
What's interesting mail to hear you talk about the political
imperatives here, and I want to bring in, Jenny, do
you see this as purely just down to the trajectory
of the relationship between US and China or what else
might be at play?
Speaker 4 (04:53):
Well, it has a lot to deal with the trajectory
of the US China ties. Obviously, it's started in the
Trump administration we have seen sort of the through line
to the Biden years. But you know, populism in US
politics means now in both parties that politicians want things
to be made in America again.
Speaker 9 (05:12):
Tonight, I'm announcing new standards require all construction materials using
federalist infrastructure projects to be made in America.
Speaker 4 (05:22):
And so that, apart from the US China relationship, is
what we will see going into the twenty twenty four
election and presumably also going forward.
Speaker 1 (05:34):
We were always going to be at this point or
was it just expedited by those sort of events of
the past few years.
Speaker 5 (05:40):
In particular, global trade had basically plateaued about five or
ten years before Donald Trump came into office, and companies
were already starting to kind of back away from China
seeing that they were overly concentrated there. So it was
already in motion before put the trade war, the terif
that Donald Trump launched again in China. President Trump tonight
(06:01):
escalating his trade war with China, threatening new tariffs that
they're coming soon and they are sweeping. And then the
pandemic and then you layer on Russia's war in Ukraine
and all of those things accelerated the risk calculation that
companies were going through. If you're a company now and
you're looking at eighty percent of your production is in China,
you better be thinking about cutting that, say, in half,
(06:23):
or at least by a third if the political situation
deterior tanny further.
Speaker 1 (06:28):
It's interesting to hear you talk a bit about Ukraine
as well, because when we talk about this, it's really
the entire world that's affected. I was trying to think
of any country that may not be affected by this
that I sort of came up with North Korea and
not much else. Brenda, Let's talk about Western nations first.
In that in some of the research and the work
that we did for this story, is there an example
(06:49):
where you could highlight the particular impact that we're seeing
on what you think is the West.
Speaker 5 (06:53):
So Italy is a really good example, stemming from the
Russian War in Ukraine, not necessarily the China situation. So
in southern Italy, we dispatched a reporter to an Adriatic
seaport called Brindisey. This is an ancient Roman city with
ruins from the thirteenth century. Today it's become a busy
(07:14):
gateway for natural gas imports from suppliers all over the Mediterranean.
That's a big change from just a few years ago
when natural gas used to flow north to south through Italy,
originally from Russia. That gas pipeline has literally been reversed
and it's now handling imports in a northward direction from
(07:34):
countries in North Africa and elsewhere that are trying to
replace those Russian supplies.
Speaker 1 (07:40):
And Jenny, do you see much of an impact in
the US itself. I mean, the US has been obviously
a champion of trying to get companies to redesign their
supply chains. For all the work so far that's gone
on under the Biden administration in particular, has anything worked.
Speaker 4 (07:56):
Obviously, the Biden administration has really zeroed in on semiconduct
clean energy technology, raw materials. They've passed multiple laws over
the last two years that include billions and subsidies for
these sectors to incentivize coming to the US, which is
a much more expensive place to build a fab and
then in the end make semiconductors. Those laws will take
(08:18):
years to bear fruit, and we've seen TSMC, the big
Taiwanese semiconductor company that was sort of the big hope
to build a fab in Arizona said that it's going
to push back its production timeline until twenty twenty five, which,
of course politically is not so convenient for the Biden
administration because they would love to send the President or
(08:40):
the Commerce secretary to a ribbon cutting ceremony before the
election in November and say, hey, look, we've said we
will make trips in America, and here's the first trip
made in America. And that really seems like that's really
not in the offing anymore.
Speaker 1 (08:54):
And now there are impacts also in emerging markets. We
have looked across the breadth of emerging markets and some
interesting examples in the story also about that.
Speaker 7 (09:03):
The unifying theme that we've sort of come across, and
of course we're hearing from the bottom up in this story,
but also the top down in academia land, is that
the emerging markets they don't want to get caught in
the middle of this. They want to benefit from it.
They're coalescing around this concept of the global South. They're
taking a transactional view. They don't want to pick sides
any confrontation, be it the US and Russia, be it
(09:25):
the economic confrontation of the US and China, so some
winners are being created. Our story looks at a couple
of examples where specific locations seem to be doing pretty
well out of this rewiring of the global economy. So
in Morocco, just about a half an hour's drive inland
from Tangier, there's a port that's really doing well, the
(09:45):
Tangier Tech City that's being developed with Chinese and Moroccan
government support. South of the US border with Mexico, truckers
there are struggling to keep up with demand as the
rerouting of demand from the US means that they're buying
more from Mexico. Our Bloomberg Economics economist estimates that the
(10:06):
tariff goods are down about one hundred and fifty billion
dollars relative to their pre trade war trend from China.
Mexico's filled about ninety billion of that gap. So there
are winners, But the real overwhelming danger longer term is
that these sort of protectionist policies, the reassuring policies, in
(10:27):
the ends, they may make it harder for the next
batch of economies to get onto that first couple of
rungs of the development ladder, and that shuts off an
avenue of growth. And development for countries with vast and
rapidly growing populations. Now, that's not going to be good
for the emerging world.
Speaker 5 (10:42):
I think one of the caveats there that we should
address is that this is not easy. Vietnam Thailand do
not have the infrastructure to flip a switch and start
producing goods like China does. So this is going to
be a costly and time consuming process, and it's going
to mean a lot of dislocation for workers. It's going
to mean a lot of risk in the investment that
(11:04):
goes into these countries. But ultimately, I think what we're
seeing are the very early signs, the very early days
of a process that we'll see play out for a
long time.
Speaker 1 (11:15):
And Jenny, just to Male's point about these countries saying
they don't want to have to pick aside and also
concern that their own development will be affected as a
result of this. It's not like a narrative that China
and other countries seem to seize on because it can
get some good traction. But does the US administration see
that and how are they're going to be able to
(11:36):
counter it?
Speaker 4 (11:37):
I think the Biden administration does see that, but it's
very hard to counter that narrative because when I talked
about the US populism, you know, anti trade sentiment that
sort of feeds into politics here. That is going to continue,
and that is what I'm hearing from some people who
are advising the administration on how to counter that narrative.
(11:59):
They would love to have a positive trade agenda. They
would love to have something like a TPP.
Speaker 1 (12:05):
A major victory for President Obama and his economic agenda
as the US, Japan, and ten other countries have approved
the Trans Pacific Partnership.
Speaker 4 (12:15):
That President Trump withdrew from his first week in office,
and nobody really in the US seems to be wanting
to go back to that agreement. So the Biden administration
came up with a different approach, which is called the
ipav US.
Speaker 3 (12:31):
President Joe Biden has signed up a dozen countries to
help challenge Chinese dominance in Asia. During a tour of
the continent, he announced the Indo Pacific Economic Framework, saying.
Speaker 4 (12:42):
That has lots of pillars, but is not supposed to
be a trade agreement because it's not. It's also not
going to get the benefits on the market opening and
tariff reduction that the TPP countries we're looking for. You
see a lot of sticks from this administration, as we
have from the Trump administrations, saying more tariffs, more restrictions,
(13:03):
subsidies in the US, incentivize you or penalize you if
you're not doing this. So what is the carrot? Where's
the carrot coming from? For Vietnam, for Japan, for other
countries that are part of the now loosely agreed to
IPF agreement, Because that's missing. I think they have a
harder time convincing these other countries. We're not trying to
(13:26):
have you choose, but you know this is the right way,
and I think that's going to play out over the
next couple.
Speaker 2 (13:32):
Of years after the break.
Speaker 1 (13:35):
How have the US China tensions affected international trade? Let's
talk a bit specifically about China and this question now
of decoupling or diversification. Now, let's go back a little
(13:55):
bit and talk about how we even got to this
point where so many companies and countries found their supply
chain so dependent on China.
Speaker 2 (14:04):
How did that happen?
Speaker 7 (14:05):
China opened in the late seventies, there was those reforms
led by Dengshaupin. At that stage, China's share of global
trade was less than one percent. Zoom through the eighties
and nineties, rapid growth in China's manufacturing sector along with
its overall economy. But this all got super turbocharged by
the entry into the WTO in two thousand and one.
That entry coincided with the revolution in communications technology that
(14:29):
allowed mega companies, big global companies to track their diversified
supply chains, you know, with stuff like the Internet, and
we could communicate with suppliers through things like email for
the first time. And the labor force in China was
in that sweet spot. The education system had created, you know,
a skilled labor force by that stage, so there was
(14:50):
just a secret source. Come into the mid twenty tens,
and all of a sudden, the world started to wake
up to the fact that, wow, China's really eating everyone's
lunch here, and in the process, manufacturing sectors elsewhere around
the world were being hollowed out. Then in twenty fifteen,
China sort of stuck its head above the parapet a
(15:10):
little bit with the China twenty twenty five Industrial Plan
that identified these ten industries in which it wanted to
become globally competitive over the next decade. So now just
two years from where we are today. That sort of
was the economic backdrop to what then happened on the
political front.
Speaker 1 (15:27):
Brendan, I'm curious your perspective here on this. I mean,
we've talked about the Great Reset and that beginning, but
for many companies it's just not easy just to say
that's it, We're going to change our supply chains. But
are there also a lot of companies that simply don't
want to.
Speaker 5 (15:43):
Well, the companies that are having the most difficulty are
the ones that want to sell into the Chinese market.
You can produce lots of goods and expensively there and
export them. But China has you know, upwards of a
billion or more people now that are increasingly in the
middle class, even affluent. They've got a lot of money
to spend on Tesla's and Swiss watches and other things
(16:05):
that we report on weekend and week out at Bloomberg.
So there's definitely a reluctance. You see it in the
big the Wall Street banks that want to finance a
lot of the infrastructure and economic development that China still
has to do. It's a you know, you can't live
with it, you can't live without it kind of arrangement
with China. Now, a lot of companies are finding out
(16:25):
that if you do leave China or speak in a
way that isn't pleasing to the Chinese government, then you know,
there will be repercussions for that. So they're trying to
walk a fine line. Very few of them are just
pulling up their tent stakes and leaving.
Speaker 4 (16:39):
You know, what's interesting is that I think some of
the firms are more impacted maybe by choosing Ping's policies
than by what the Biden administration is putting forward as
policies to sort of lure them back home. They're spooked by,
you know, a crackdown on the US due diligence sector.
Micron we've seen the Chinese go after well.
Speaker 5 (17:01):
Chinese regulators vowed to ban some domestic purchases of chips
made by US firm Micron Technology.
Speaker 4 (17:07):
The Chinese sort of promising this is just the first
step in a way. Having this uncertainty in the Chinese
market is something that they're also trying to grapple with
more so than actually heeding the Biden administration policies. But
of course we're also seeing policies that the White House
has been working on for two years now, trying to
(17:30):
limit the investment in certain sectors in China.
Speaker 6 (17:33):
The US is now planning to place a limit on
exports of American chip making equipment to China. The latest
move is aimed at halting China's advances in the realm
of semiconductor production and protecting American.
Speaker 4 (17:47):
Firms, possibly creating a chilling effect for these companies thinking
do we really want to put our money there? Do
we really want to put our NoHo there? The US
does not believe that there's a private sector in China
that all the know how, all the money, everything you
do there goes to the military, and that of course
(18:07):
could be used against the US military if there is
a conflict. So those are also underlying factors that some
of the firms are grappling with.
Speaker 1 (18:15):
It's really interesting, Jenny, with seeing of course, lots of
comments from officials in China of late sort of reassuring
on the private sector. Not a lot of specifics in
any of that so far, but certainly trying to send
a message again and meeting of course with sort of
executives from US companies.
Speaker 9 (18:33):
As tensions between the US and China remain at an
all time high.
Speaker 6 (18:37):
Microsoft co founder Bill Gates has met President Jijing Ping.
Speaker 4 (18:42):
And that's happening all the while. They're cracking down on
some of these sectors. In the White House, which is
usually pretty quiet on the China front, has actually been
seizing on that, saying they're seeing a concerning pattern and
sort of sending the message to the business community. Maybe
the Chinese are trying to play at both sides here.
It's up to you what you do, but you know,
(19:04):
you see the risks here. So that's sort of an
interesting new development that we've seen over the last three months,
i would say, coming from the White House.
Speaker 1 (19:12):
And of course none of this is happening in a vacuum.
We've been talking about some of the policies that we've
seen from China. But Mal, I'm curious, how does China
see all of this? What is the impact that you've
seen so far for any on the economy of China.
Speaker 7 (19:27):
China isn't sitting back, abashed and tail between its legs.
It continues to press ahead with plans to develop these
industries such as AI evs, where companies such as BYD
and making great strides effectively doing that via skirting the
US they're not trying to sell evs in America. That's
just too tough. But let's sell them to the rest
of the world instead.
Speaker 1 (19:47):
China's waging a war not in the Pacific, but non
Australian roads. Its manufacturers are locked in a heated race
to bring the cheapest electric vehicle to our market.
Speaker 7 (19:57):
They're plowing ahead on that front. But by the same
they're also aware that just as the rest of the
world is maybe a little bit too reliant on China,
China's economy was perhaps a little bit too reliant on
the rest of the world. So since around mid twenty twenty,
we've heard more from Chijinping and others about this duel
circulation growth model. The duel being let's stick with the
(20:20):
global engagement, let's continue to do that, but let's back
it with additional domestic demand. And also let's assemble more
of those components, or produce rather more of those components ourselves.
So there were assembling products that are made from components
that are also made in China, so that value added,
that all important valu added stays at home. And then
(20:42):
the third thing they're doing is just as the US
and other Western like minded countries are trying to diversify
away from China a little bit. So China is trying
to back away from its reliance on those markets, and
it's having some success. It's diversifying its customer base and
selling more sense to its Southeast Asian neighbors.
Speaker 2 (21:03):
Coming up, what follows the Great Reset.
Speaker 1 (21:15):
We've talked a lot in this conversation about the Great Reset,
but I want to just come into something a bit
more specifically, and this is something Jenny, you've touched on
so far in the conversation, which is the US election,
which is coming up late next year. And you could
argue that Joe Biden has been a more protectionist president
than his predecessor, Donald Trump. But equally, is the US
(21:36):
political climate at this point where no one can afford
to not be seen to be protectionist sort.
Speaker 4 (21:42):
Of yes, I think when it comes to the US
China relationship, there's multiple layers of concerns, from national security
to human rights, which we've seen a lot in the
apparel sector. You know, Shinjug, the Western Chinese region, there's
a whole lot that was passed that sort of now
bans Catton coming in and other products coming in from
(22:05):
that region. So if you look to twenty twenty four,
former President Trump, who's running for reelection, is promising a
full decoupling from China. Now he sort of thinks that
he hasn't done everything he could have done in his
four years in the White House, so now he is
really going at it in part two, promising a full decoupling.
(22:25):
And so everyone sort of on the Republican side is
measuring their stance based on what Trump has already done,
what Trump is promising. You don't really hear anyone who
is pro business, pro engaging with China on the Republican side.
And of course President Biden, who's running for reelection, has
similar views and has continued some of the policies that
(22:48):
we've seen from the Trump administration. So on China, I
think we will see the protectionism going forward.
Speaker 5 (22:55):
I think another thing to keep a close eye on
as we go through the campaign season and rhetoric kind
of flies around, is any pushback that this decoupling that
we would get from the Republican candidates gets from the
business community. Because tariffs were not a popular strategy. Donald
Trump got a lot of political mileage out of them
from his base, but tariffs were not popular, and if
(23:19):
the pandemic didn't come along, we might have been looking
at more tariffs and phase of inflation that might have
been caused by tariffs. Decoupling from the Chinese economy sounds
like a really good hawkish approach, But I bet if
you asked the big corporate donors if they would like that,
you'd get a different answer.
Speaker 1 (23:38):
And Jenny, you were talking of course about how other
allies have supported the US in this better sense of
Aneya's also at the pace of it and perhaps being
driven avertly by US foreign policy. And you know, going
back to what Mao was talking about the global South
countries are feeling caught in the middle, and India is
a really interesting case.
Speaker 2 (23:56):
Brenda, can you talk a bit more about India.
Speaker 5 (23:58):
Yeah, So, India, like you said, is one of these
really interesting examples. It wants to be the beneficiary of
the de risking that companies are doing from China. It
wants to make iPhones and other high tech equipment, and
it wants to benefit from this shift away from China economically.
But on the geopolitical side, it's portraying itself as a
(24:19):
neutral in the sort of China Russia axis against the West.
It will see how long it can kind of stay
in the middle there. For the story that we're talking about,
we had a reporter go to a factory outside of
New Delhi that's getting the financial support from the Modi government.
It's this facility where we learned that even the CFO
who we talked to said, we're doing very well. We're
(24:40):
making mobile phones, but it's going to take years and
years and so this process it's complicated. The infrastructure, even
in a place like India is not up to par
with China. So all this talk about racing to catch
up to China or replace China is a really difficult process.
Speaker 7 (24:58):
Even as India does see to be the next China. Ironically,
that's boosting, not reducing its reliance on shipments from China,
because as they seek to boost the manufacturing sector, they
need to be buying those components or the machines that
make the components from China.
Speaker 1 (25:17):
Do you smail any other unintended consequences of this great
reset when you look around the world.
Speaker 7 (25:24):
I mean from an economics perspective, they abound. We're trying
to tackle this big inflation shock, and many of these
measures are only going to make the goods that we
buy more expensive, so that's going to get tougher. There's
the misallocation of resources as governments try to pick winners. Historically,
that's not proved to be a good idea. You know,
(25:46):
if we're all pushing to reshore and manufacture these certain
so called strategic products, it probably won't be too long
until there's a glood of those things and we're all
talking about the misallocation of resources that happened.
Speaker 5 (26:00):
I think one of the most basic unintended consequences that
we could see play out is there's all this talk
about reshoring, near shoring, bringing production back home to create
manufacturing jobs, when a lot of those jobs are just
going to be automated. The technology is such now that
you don't need one thousand people in a factory to
(26:21):
make a car anymore. You need some robots and a
few hundred. We visited a company in County Kerry, Ireland
that's making products for Ikea. By the way of three
D printing, there's no need for Chinese production or production
anywhere else. It just happens without any sort of supply
chain at all. So those are the kinds of advances
(26:42):
that we're seeing that could make the next several decades
really interesting.
Speaker 2 (26:48):
Where do you see the great reset going?
Speaker 1 (26:50):
If you think about what the world might look like
in five years from now or ten years from now,
do you see a radically different global economy.
Speaker 5 (26:58):
I think the length and the degree of the transformation
is going to depend on whether the US China conflict
goes from a cold war situation to a hot one.
It will transform very quickly if we're in some sort
of military conflict with China, and the decoupling will happen
almost over night. The short answer is it's going to
be a slow, costly process, but we're going to see
(27:20):
the world change before our own eyes over the next
decade or two.
Speaker 4 (27:24):
You know, Brendan mentioned the China situation, which of course
has to do with Taiwan, which is the center of
the global semiconductor industry. I think it's going to be
really interesting to watch their Taiwan is also having a
presidential election in early twenty twenty four. They really want
the semiconductor industry to remain centered on Taiwan because that
(27:50):
gives them a little bit of what they call the
silicon shield. So I'm watching that election very closely.
Speaker 2 (27:57):
Brendan, Malcolm, Jenny, thank you for joining me today.
Speaker 1 (28:01):
Thanks for ros Thank you Ross, thank you, thanks for
listening to us here at The Big Take. It's a
daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio,
visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and.
Speaker 2 (28:16):
We'd love to hear from you.
Speaker 1 (28:18):
Email us with questions or comments to Big Take at
Bloomberg dot net. The supervising producer of the Big Take
is Vicky Virgolina. Our senior producer is Katherine Fink Fderica
Romanello is our producer. Our associate producer is Zena ab Zidiki.
Raphael am Silly is our engineer. Original music by Leo Sidrin.
(28:40):
I'm Roslin Matheson in for Wes Kosova. We'll be back
tomorrow with another Big Take.
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Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.