Welcome to the Daybreak Asia podcast. I'm Doug Prisner. On Monday, in the US, Donald Trump was sworn in as the forty seventh President of the United States, and after his inauguration, headlines from the White House created volatility in markets. President Trump is planning to impose tariffs on America's neighbors.
We're thinking in terms of twenty five percent on Mexico and Canada, because they're allowing vast numbers of people. Canada is very bad abuseral, so vast numbers of people to come in and fentanyl to come in.
President Trump speaking earlier from the Oval Office, and in a moment we'll hear more on the tariff story from Professor Daniel Dresner of Tufts University. But first market reaction to today's news. I'm joined now by Bloomberg m Live strategist Mary Nicola, who joins us from Singapore. It's always a pleasure to have the chance to benefit from your insight, particularly given the fact that I know your eyes are glued to your Bloomberg terminal and your seeing the ructions
in markets, more so in the foreign exchange. There's been a dramatic reversal here in the dollar hasn't.
There absolutely, and we came in I remember waking up this morning and the markets were really happy because, you know, we saw that there was more measured approach to tariff. So President Trump didn't sign anything or focus on tariffs on day one. A lot of the focus was just
on domestic issues. So markets were really excited, and we saw the dollar declines and there was a huge sigh of relief and we were coming in thinking that it will be a risk positive day, and then we get headlines about imposing tariffs on Mexico and Canada and that you know, there's potential for tariffs on China. So one thing is clear is that yet sure, we don't know which the direction of the dollar, and it can change
at a moment's notice. But one thing we know that it's very clear is that we should expect volatility, especially in the next four years, and headline risk is going to dominate.
No doubt about that. I'm seeing the Canadian dollar right now weaken against the greenback by about one percent. One of the interesting things though, if you look at the treasury market, where yields are actually lower across the curve, and I know it was a market holiday in the US,
we observed Mlkday, so no trading in cash markets. There was some global trading in futures, and if you look at what was going on, it seemed to be a little curious because most people are of the view that a lot of the economic policies from the incoming Trump administration, particularly as they relate to tariffs, are viewed as inflationary
that would argue for higher yields. So to your point, early in the day, no mention of tariffs, sigh of relief, yields come in, but they're remaining at lower levels right now, unlike what's happening with the dollar, where you're getting the knee jerk in the opposite direction. Do you have a sense of why that's happening.
I think the currency markets just in general is going to bear the brunt of this volatility. There is still a lot lack of clarity in terms of you know, especially there's so many components that are really coming in in terms of yields. So for example, we still have you know, FED policy is one aspect of it, and then of course you have fiscal policy, so you don't know what exactly the trend is going to be in terms of tax cuts, and then of course the tariffs.
The delay in tariffs will suggest that you would get you wouldn't get a spike up in inflation anytime soon. So it placates the markets in terms of thinking that inflation's on a good trajectory lower and that can continue. And that extends, especially if tariffs are delayed. So even the tariffs that he's imposing on Canada and Mexico won't
be till the first of February. Remember, a lot of market participants had thought that we would get stuff on day one, and the delay just playcates the Marcus just a little bit. But of course you can't get too complacent in this environment.
Here's where it gets interesting. We've got a BOJ meeting on Friday. What does the conversation that President Trump is having right now, how does that impact the boj's thinking. I think that most people were saying, hey, okay, they can go maybe twenty five basis points they can tighten, which is I think the conventional wisdom here now. But the caveat is unless there's something maybe like a curveball
that may come from President Trump. And I'm wondering if we got a little bit of a curve ball tonight.
Yeah, that was the thing. It was almost seen as a done deal from the BOJ that they would hike on Friday, barring any surprises from the Trump administration. But now that Trump has said tariffs on Mexico and Japan, it still softens the blow because I think the real concern for Asia is what happens with China and the
broader implications on the region. If we recall what happened during the last trade war in twenty eighteen and twenty nineteen, this region suffered quite tremendously, and especially because a lot of this region not only are they heavily reliant on China for trade, but also they are looking for the currencies are very much tied to the C and Y, So there's a combination of the two in terms of not only are they dependent on them economically, but also
a from a market standpoint. So that brings us back to what does a BOJ do. And I think they're still on course for a rate hike, especially with China not in the picture yet, and that might be their only window as of now is to take it to hike by twenty five basis points or else risk not doing anything at all because of what is yet to come from the Trump administration.
Mary, it's always a pleasure. Thank you so much for starting your day with us. Mary Nicola Bloomberg m Live strategist, joining us here on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner. Now let's take a closer look at the US tariff story. So we know now that goods from Canada and Mexico could potentially be the subject of tariffs, although President Trump really
did not address a plan for potential tariffs targeting Chinese goods. Instead, he ordered his administration to address unfair trade practices globally and to investigate whether Beijing has complied with a deal signed during the first Trump term. For more, we heard from Professor Daniel Dresner of Tufts University. He spoke with Bloomberg's Nmel Jewelers and David Inglase.
Professor, thank you so much for joining us on the show and quite a eventful lots to unpack. Is I think an understate meant today? We were thinking originally we'd be talking a lot about China, but now it's Canada and Mexico. Do you think that gives us a good sense of where you think the conversation will be front loaded these next few weeks at least.
Well, given the Trump gave a deadline I believe of February first for the tariffs on Canada and Mexico, that obviously is going to be front of mine. But in comments today he also talked about the idea of imposing tariffs across the board, as well as more tariffs on China. With Trump, you always have to wait and see if there's actually anything implemented as opposed to what he is
threatening to do. Because with Trump, he's obviously trying to hope that he can successfully coerce other countries into making concessions and thereby doesn't actually have to impose any of the tariffs, which I'm sure his advisors might actually tell him are going to be expensive to the United States and are going to be problematic in terms of trying to keep prices down in the United States, which is one of the things that presumably got him elected last November.
So that strategy of coercion. Talk to us about how the mad man theory plays into that.
Sure, the logic Trump always has and his one sort of truly unique gift in politics is that he is willing to ignore and indeed transgress foreign policy norms that previous presidents might have adhered to. So the idea of sanctioning allies, which is relatively rare for the United States, Trump is eager to do because he believes that the United States has an asymmetric advantage over more dependent countries
like Canada and Mexico. And I believe Trump also thinks that if he can successfully coerce the likes of Canada and Mexico, that that will send a message to the Chinas of the world that he will be an extremely resolute bargainer. Now, Trump might actually succeed in getting a few concessions from Canada and Mexico, It's always worth remembering that during his first term, Trump tried to do this with South Korea, for example, and with Mexico Canada in
terms of renegotiating trade deals. He got a few token concessions, but frankly not much. Trump's category error, though, is always his belief that if he can successfully coerce allies, that'll translate into successful bargaining pressure against the likes of China.
There's no evidence that's true in terms of international relations, and there was no evidence that that was true during Trump's first term, And unfortunately, it seems we're going to see a replay of that bargaining dynamic in his second term.
Your outlook just to pivot to China. What are your expectations between relations there?
This sort of depends upon who is running US foreign policy. Is it Donald Trump's advisors or is it Donald Trump. The one thing that most of Trump's advisors, with the exception of Elon Musk, have in common is that they are all extremely hawkish towards China. They believe that China is the most paramount threat to the United States. It's the only country that's a potential peer competitor for the United States, and by all of that logic, you would
expect to see a heightened pressure put on China. That said, again, it's worth remembering that during Trump's first term he was willing to sacrifice just about every other pillar of American foreign policy, whether it was protesting human rights abuses in Hinjong or the crackdown in Hong Kong, or China's throwing its weight around in the South China Sea or in the East China Sea so long as he could negotiate
some sort of economic deal with China. And this is in the end what led to the Phase one trade deal in twenty twenty, which proved to be decidedly underwhelming. If Trump believes that he can cut any kind of grand bargain with Shi Jinping, that is the route he will take. If, on the other hand, China doesn't act this way, then he's going to have no choice but to listen to his advisors, and you're likely to see
a ratcheting up of tensions. I think the thing that I would predict would be you'll see an initial, you know, display, or an attempt to demonstrate tough bargaining. And then the question is is that if China offers any kind of concession, will Trump take the first offer that he gets or will he hold out? If I had to bet frankly, I think he'll take the first offer he gets.
Right, and you know, the we we don't have the benefit of hindsight because the pandemic happened, and the you know the what would have been the result of the first trade war and if China did push over to buy and we would never know what I guess my follow up here is we've heard recently since Donald Trump got elected again, he's not as tied down to ideology
as you know former other presidents are concerned. So I guess my question there is do you think he is as concerned about China's economic rise as a threat to the US as most of the people around him.
I think he is concerned about China's economic rise, and since that, Donald Trump, he as an ideology, It's just an ideology that is not one that previous presidents have had. His The ideology is actually, in terms of economics, very zero sum in terms of thinking, which is, if the United States is running a trade deficit with a country, that means the United States is losing and that other
country is willing or winning. And just as he was fearful of Japan's rise in the nineteen eighties, he has been concerned about China's rise for the last decade or so. But that said, this goes against Trump's other impulses, which is that he is very much attracted to authoritarians. He you know, admires authoritarians who can actually exercise power in a relatively unconstrained manner. And so I think he also believes that he can sit down with Shijinping and negotiate
some kind of deal. The question is whether the deal provides anything of actual value to the United States or not. And this is where I think in the end, you always have to remember that as much as Trump listens to his various advisors, he was president for four years. He is far more confident now that he can do the job in a way that he was not in twenty seventeen. So I strongly suspect that he will in the end follow his own counsel and not necessarily listen to that of his advisors.
The challenge, though, as well, is that world leaders, autocrats or not from democratic countries as well, they're familiar with how Trump operates. Do you think we get Trump one point zero or do you think that this version is so radically different that it actually does actually become sort of destabilizing force that actually acts effectively. Again, going back to the mad Man theory, right.
The problem, as you say, is that the mad Man theory only works historically. It doesn't have a great track record. But to the extent that it does work, the only way it does work is if other leaders really believe that Trump is going to follow through on his threats. Now, there's a degree to which the idea that Trump will sanction as allies that's entirely believable, and so it is likely that that, you know, Trump's efforts at coercion might
yield some modest successes with allies. The problem is is that the countries that he really wants the big concessions from are the Chinas of the world. And as you say, they've seen this playbook before, and we've already seen it as sort of escalating, you know, tit for tat in terms of US export controls and now Chinese export controls as a way to sort of, you know, engage in what I think the New York Times referred to as supply chain warfare. So I think they've taken Donald Trump's measure.
And this is where things get dangerous, because, as you say, if other people don't believe that you're making you're going to act as crazy as you're claiming, you then have one of two choices, and they're both unpalatable. One is is that you back down, in which case you lose all credibility. The other is you actually have to follow through on some of these crazy threats. Which can lead to a dangerous escalation of tensions. And my concern is
is that that's the choice. That's the unappetizing choice that Donald Trump might face three or six months from now.
Daniel final final questions for you, do you think he'll be able to end the war in Ukraine and what does it mean for his relations with Europe?
Well, what he said he was going to do this on day one, and you know it's close to midnight in the States, so I suspect not. I think the problem with ending the war in Ukraine is that while I have no doubt that the Trump administration could pressure Ukraine into making concessions, the question is whether they could get Vladimir Putin and Russia to make similar concessions, And there Russia's demonstrated absolutely zero inclination to make any kind
of compromise. I think the best they could hope for would be some sort of frozen conflict, but Russia's not really displayed much of an interest until now in doing that. And it's worth remembering that, you know, the Russian Duma annexed the four provinces that Russia has troops in, and
so by Russia's framing they've legally annexed these territories. Any kind of ceasefire would have to recognize that Ukraine controls some of you know, Russian sovereign territory, at least by Russia's own laws, and I suspect they're going to be unwilling to do that.
I was Daniel Dresner, the Distinguished Professor of International Politics at TUFs University. Thanks so much for joining us.
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 Prisoner and this is Bloomberg