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Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. So we begin with a story on trade. At the end of last week, you may recall President Trump threatened a fifty percent tariff on imports from the European Union effective June first. Now, he said this was in response to what he called unsatisfactory trade negotiations with Brussels. However, now the President says he has agreed to extend that fifty
percent tariff for the EU until July ninth. Trump made the change after a phone call with European Commissioned President Ursula Vanderleyan.
We had a very nice call and I agreed to movement. I believe June ninth would be July ninth would be the day.
That was the date.
She requested, Could we move it from June first to July ninth? And I agreed to do that, and that she said, we will rapidly get together and see if we could work something out.
Now in a post on x, vonder Layan said the European Union is ready to advance talk swiftly and decisively. By the way, the date of July ninth is the same day, Trump's ninety day pause on those so called reciprocal tariffs had been set to end. For a closer look at some of the market action, I am joined now by Stephanie Lunghi is the CIO at Stashaway, joining from our studios in Hong Kong. Stephanie, thank you so
much for making time to chat with me. Can we start with a trade story and what I think may be a little bit of whiplash for markets? How do you understand the situation right now, not just where the European Union is concerned, but more broadly how the Trump administration is dealing with these various trade negotiations.
Yeah. I think indeed, if you look at kind of a broad set of things going on, it's it's quite a lot. I mean, they try to negotiate with eighteen key kind of trading partners, but also I mean there are a lot of other things line up for them to sort of try to make a deal as well.
And I think if we kind of roll back in history, twenty eighteen was actually a very very good playbook for kind of understanding or sort of I guess, of putting a framework as to what's happening so if you kind of remember twenty eighteen, we also had a sort of a trade short, short term trade war between US and China in the last quarter of twenty eighteen, and the market actually found it slow on December twenty fourth of that year, And similar to kind of what's happening right now,
I think initially, I mean, Trump tries to put out a very very forceful kind of ask and they try to negotiate down from there, and of course during the negotiation it.
Was also very very messy.
There was a lot of back and forth, and I mean one of Trump's tactics that he likes to use when he's trying to make deals is he walks out of the room at the last minute. So I mean, I wouldn't be surprised that if Trump is kind of
deployed some of the similar tactics. But I think we have to remember that, I mean, Trump is not a person without constraints, right He being the President of the United States, of course have a lot of power, but at the end of the day, he needs to answer to the median vota, and also he needs to kind of realize that there are economic constraints as we've seen just very very recently with bond yields.
So you mentioned the backup that we had in US treasury yields last week. There has been a debate, as you well know, in the bond market about the extent to which these tariffs may be inflationary. But for the moment, what seems to be driving a lot of the price section in the bond market is the concern over the government's ability to continue to cover these massive budget deficits.
Are we going to be in a world now until this tax bill has been signed in the law where there's going to be a lot more volatility in the bond market.
So at the beginning of the year, we put out our twenty and twenty five outlook and the title I use was FAT as the New Normal FAT And the reason why I use FAT. F stands for Fiscal dominance, A stands for AI, T stands for Trump, and it's basically I think these are three forces that would drive markets for quite some time, and not just this year, but perhaps I mean for the rest of the decade
to come. And in terms of physical dominance, when we're seeing a lot of that happening, and I think if you look at that the US treasury yield.
Of course it's in spiking.
I mean there's a lot of kind of I think US centric concerns, but also it's not just a US story, right if even if you look at the Japanese long rates, I mean, these are at historical highs. So I do think that there is a reflection of the market's concern on the fiscal deficits for governments or across the world, and sort of the I guess the return they demand from holding a lot of these sovereign debt is increasing because of the long time concern on the sustainability of these debt levels.
So I think again, if you look at.
Kind of a as a classes during this past a few months of trade war concerns, you can see that actually bond is the weakest link. And I think if you kind of ask around of as allocatus a few months ago, I think very very few people would have predicted that. I mean, actually, I mean bond is even weaker. It's even kind of more concerning than that equities.
So we've talked about the f fiscal We've talked about the t Trump, let's talk about the A now artificial intelligence. We get the Nvidia earnings after the closing bell on Wednesday here in the US, Bloomberg data showed that revenue from that core chip business is forecast to rise over the next four quarters. But a number of analysts are now beginning to talk about how the trade pressures could put in Vidia's guidance at risk. Do you think that's a fair criticism or at least a fair warning.
Yeah, I think that's if you look at invidious revenue mix, I mean, the significant part of that does come from China, and of course, I think over the years, I mean, they have tried to kind of I guess more of their business in order to get rounds of these regulations. I think indeed, I mean this morning, we're seeing that they are gonna adopt a lower kind of power version of the GPUs to be able to sell to China.
And I think that.
I mean, of course, for the past two and a half years, I mean, a video was sort of the only story in te right. If you look at the phases of AI development, I mean, the first kind of obvious phase or the first obvious traits are buying chips and training of the large language models. I think I do think that apart from the regulations. I mean there are some of the more structural movements or moves away from this phase one that I mean we're now kind of entering phase two.
So I mean what is phase two?
Right?
If you look at the l ms, I mean a lot of them are already quite commoditized. They are very very powerful already with kind of the lms more stabilized, like stabilizing in the developments. I mean that actually enables application developers to be able to make use of these
lms to develop a lot of different use cases. And indeed, if you look at the within the equity markets, I mean what's leading in this round of rebounds is a lot of the so called AI first software companies, right, companies like appalenteer companies like Spotify, even like do Lingo, and a lot of these companies that are actually realizing the benefit of AI in the business, either from the revenue.
Side or the cost site.
I mean, these are sort of the leading pack in this round of rebound.
I'm curious to get your take on how you expect AI in China to advance, at least over the near term. Reuters was reporting that in videos planning to launch a new AI chip especially for the Chinese market. Do you think that is going to accelerate the chain in Ai in China that they would have perhaps a little bit more advanced technology.
The key devolvement in China, I think has been that the of course, we had the deep Seek moment, and it shows us that, I mean, the Chinese technology companies can can do quite a bit of things with limited resources. But I think what I guess more importantly is that the because of the I guess, the restrictions that Trump has put onto exporting technology to China, it forces China to really I mean think about and invest into his
own technology stack. And if you look at companies like Huawei, right they I mean they already possessed quite a bit of good technology, and I think the Chinese government or kind of Chinese companies is going to double down that just because of security reasons. Right you don't know when I mean the US is going.
To restrict.
Exports of chips or various other kind of important technologies. And I think what the Deep Seat moment shows us is that, I mean, China is not too far behind.
And I think Nvidia.
Is announcing this kind of news chip because they realize that fress all right there for it perhaps is not so much AMV or other chip companies, but really like Chinese companies like Huawei.
Okay, we'll leave it there, Stephanie. It's always a pleasure. Thank you so much. Stephanie Lyung. She is the CIO at Stashuay. Joining from Hong Kong here on the Daybreak Asia Podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. We go to Japan next, where shares and Nippon Steele are trading higher in the Tokyo session. This comes after President Trump said he will back up partnership between the Japanese company and US Steel. We've got reaction
from Kurt Tong. He is managing partner at the Asia Group. Mister Tong spoke with Bloomberg's Paul Allen and Heidi Stroud Watts.
US Steel Knipon Steel deal details are scant, a little bit confusing here, but at least can we say that this is a good i'mon ahead of US Japan talks.
It certainly establishes positive momentum going into this next month of negotiations. It's also a very interesting signal that the Japan side is thinking of trying to finish earlier rather than later. As you know, there's an election coming up later in July, and the Japanese government really needs to have a positive outcome in this negotiation to set up for that election or punt the entire negotiation until after
the election. So I actually think this is very very positive news for the atmosphere of the negotiations, for the level of trust between the two sides. But it still comes down to a game of chicken over the automobiles.
Tariffs and perhaps currency as well applays a factor here as well. We heard from the Finance Minister of Scott Basin last week saying, look, let's let the market handle the currency. But is the end just always there in the background.
I think it's in the background, and the japan side interestingly has waived that flag a bit as well to remind the United States that it's a mutually beneficial and potentially mutually destructive relationship in the financial markets. At the negotiating table, I believe the two sides, just as they've indicated, pretty much decided to set that aside as a negotiation item.
Negotiations with the TPP feels like, you know, millennials ago, right, But that was so much concentrated on the monutier of trade clauses. What kind of deal do you think do we end up getting? Is it sort of more on the vibe as we've seen with some of the other trade deals that have been tentatively agreed between the US and its trading partners. Do you expect a fair degree of actual substantive detail.
I think there will be some substance on trade barrier reduction, and agriculture has been mentioned, and as a clear point of contention, there are some non tariff barriers around automobiles which could be eased. The main thrust of it, however, is how much is Japan going to jump in and help Donald Trump reindustrialize the United States? And he has specific asks on shipbuilding and on the energy infrastructure, particularly
Alaska gas that Japan is considering. But these are big, risky projects, very high ticket, extraordinarily risky, and so how they could participate in these sort of things I think is another really important topic of discussion.
Some of those sectors are also quite domestically sensitive, right, how much you know we've seen kind of the success story for cgmping, for example, in holding that strong line. Does Japan and the government they need to do that to a certain extent or risk domestic further diminishing popularity.
I think that's right.
Well, they're going to make clear to the US side we can do this, we can't do that, and then help to use the timeline to their advantage edge in convincing the United States. Well, okay, that's good enough. We do want to reach a deal, we do want to move on. We don't want to have to raise retaliatory tariffs again. So the deadline's in a sense starting to work in Japan's favor. But again, I want to emphasize
the crucial importance of the automobile's tariff. It's twenty five percent tariff could have a devastating impact on some Japanese companies if it's allowed to drag on for a long time.
Let's talk more broadly about some of these other trade deals that are going on, because the US is trying to negotiate dozens within a ninety day period. I mean, normally free trade agreements take years to reach agreement on. Does this suggest to you that some of what's being achieved here is cosmetic for domestic political purposes and can some of these wins in due beyond the Trump p residency.
This process has been excruciating for all of the partners working with the United States. That said, there will be some substantive outcomes which are mutually beneficial, some which are just complete concessions to the United States in order to
get the deal done, and a lot of cosmetics. A lot of cosmetics will also go into this because the US side has now discovered that the tariffs can be a problem for the United States as much as for the counterpart, and that leverage reduction that is implicit when the President walked back a week after Liberation Day does really change the dynamic of the situation.
If you're advising some of these other countries in their negotiations with the US, what would you be saying.
Choose a few really interesting things, sell them to Donald Trump, dress them up a little bit if necessary, but they do need to be substantive at the same time, and then be consistent and sell them over and over again until you get across the finish line.
The big focus is still on whether the daytone with China can be sustained. How do you feel about that?
So Dayton's a great word for it.
They have I agreed to talk, there's no agenda, there's no timeline.
And both sides have reserved the right and.
Are already exercising the right to continue to take action against one another on other issues technology controls, export controls, the Section two three to two tariff investigations. So what I expect is that this truce on the big tariffs will hold.
The negotiations will take.
A long time, and it'll be a very bumpy ride, with lots of ups and downs, action, counteraction, angry words, stretching all the way to and past the first meeting of the leaders, which I would anticipate taking place in
the fall. I see two real milestones on this. One is the meeting of President Trump and mister she The other is the midterm election, where I think by the midterm election, President Trump needs to demonstrate that all of this effort that he's put into leveraging the size of the US economy has paid off, because the American public is starting to get skeptical about how this tariff strategy is working for them.
We've talked a lot about the stickiness of tariffs and whether you know there are views that you know obviously the previous Trump administration policies, some which are still in place. But do you also look at the stickiness of what, say, Beijingia is trying to do with its outreach in terms of building those economics and soft and you know, harder power alliances. Do you think that's going to be something that extends beyond this administration?
Absolutely?
I mean this is a long term strategy for China. Now, the Belton Road was a piece of it that's now been refined, made less transactional, if you will, less focused on China's needs, and there's more discussion about trade agreements, about softer forms of investment and economic interaction, more digital, less infrastructure, and I would expect China to really continue to push that. And they have a bit of a tear win right now because of the distrust that's been
engendered by the US tariff approach. That may be temporary, may last a little while, but I expect China to continue this effort to make friends and try to rally them against the United States for years to come. That latter part is harder because they don't want to burn bridges with the United States either.
Can you see a scenario in which China joins the cp TPP.
I think that it's not inconceivable. A couple of years ago it was close to inconceivable. I think Australia has a major vote in this. Japan has a very strong opinion about it holding the content of the TPP and
keeping it high level penetrating liberalization. China is not yet ready to make the compromises necessary to meet those standards, but it's not inconceivable, especially as the Chinese onomy grows slower in future years, that they'll be more willing to revisit economic reforms that would qualify them for TPP.
As an American citizen, I.
Hope that the US gets its act together first and makes it in before that happens.
Trump has a very unconventional approach when it comes to trade, right, He's not interested in looking at you revisiting FDAs and multilateral bilateral agreements. Does that make the structure of these agreements less relevant in sort of today's political atmosphere?
It makes their outcomes less lasting? I think that in the short term they're highly relevant. For example, the Nippon Steel deal that you mentioned at the outset very significant, very positive realignment of the rhetoric around Uster Pan economic relations.
But that's one episode.
It'll be good for the relationship for a few couple months, but the structures are really important over time, and that unwillingness to commit the United States to lasting structures and the economic realm is a problem for the US. On the defense side, I think the US is still very much there, but the economic policy side, it's been absent from the table for over eight years now.
Really great to have you with us, and great to see here is Sydney Koktong, who's a managing partner of the Asia Group.
Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Chrisner, and this is Bloomberg