China Mostly Views Trump's Latest Salvo As Empty Rhetoric

Huahwei Technologies chips supply. This is part of what's been driving down semiconductors shares. But this just builds on a whole host of rhetoric coming out of Washington as well as Beijing back and forth, raising the question what's the end game? Here? Are we entering a new Cold War? Leland Miller joining US now chief executive officer of China beige Book International. Leland, what do you make of this

back and forth in the latest move against Huahwei. Well, I think the move itself is quite misunderstood, and for good reason. I mean, almost nobody can figure out what's happening. But I think the best way to look at it is the United States has extraordinary leverage over the Taiwan semi conductor because it provides inputs that are important for production, and it is the largest UH purchaser of of semi conductors,

and so it's extraordinarily important UH customer. And what the United States government has said it will do, starting supposedly today is require any UH any relationships with Huawei to get a license. So in order you can't just sell them to Huawei, if you're using US technology in your in your product, you have to actually apply for a license with the Department of Commerce. Now, if this is held to that standard and they don't grant the license,

then this is an enormously powerful mood. If they do grant the licenses, then this is an empty moot. So it's less about what this has done and how it's how they're going to treat this in the future. And I think that's why this has led to an extraordinary amount of confusion. So Leland, how does China view I guess we'll call them renewed trade tensions here? What's kind of their perspective? Do you think? I think that they're looking at them on several several different levels. Now you

have some things that are happening. Uh, you know, the Phase one trade deal is in real trouble. It's it'll be toast by this by September. I think I think we were were at the very end of the trade deal talk. On the other hand, you have some very big, very aggressive moves being talked about, like abrogating US debt obligations,

ripping away sovereign immunities from the Chinese. These aren't serious moves, but if they move, you know, if the White House moved in this direction, that there would be severe repercussions. And then there's certain things where they're just trying to digest these moves piece by piece. What's happening to Huawei, what's happening with the government pension fund cutting off flows

to China. So there's so much going on that I think that the Chinese government is forced to look at this as what's important, what can we live with and what is an absolute deal breaker in the relationship where we're gonna start having real serious retribution. What's the end goal? I mean, I'm just extrapolating forward. Is there a red line?

And then once we cross that, we move to Phase X, where why happens is there something like that that you're sort of foreseeing, not yet, because everybody understands it's so much of what's going on in the U. S side is about the election. So President Trump realizes that there are domestic difficulties with COVID and and the state of the economy right now, and the safest the platform is

it to go tough, tough, tough on China. So the Chinese understand that what they want to see is how much of this is going to be more than a couple of months, how much of this is actually a game changer in the relationship. If Phase one is suspended by September, which is our expectation, then that doesn't mean they can't pick it up in January. If if President Trump's reelected, that's not going to ruffle the waters too much.

Although you get some loud talk if you ever saw serious movement towards ripping sovereign immunity away from from from Beijing for for COVID related lawsuits, I mean that would that would that would create financial warfare on a scale we've never seen. So they're just taking their time to understand if they get most of this is empty rhetoric and they're just trying to make sure that they don't overreact as as this stuff just played out before the election.

How is President Trump's relationship with presidency of China. I mean President Trump has touted it as very strong and a you know, really strong relationship. But how how would you engage that right now? How important is it to have a good relationship? I mean they're best friend. Uh look, look, if if President Trump is being nice to China, I think they get along quite well. If he's not, then and you know, the relationships allergic. You know, for she

it's it's the same same for Trump. So you know, it's an extent that they can get on the phone and they do have a some semblance of a personal relationship to diffuse tensions if they want to pull that escape patch. I think there's something to that. But look,

this is just politics. It's domestic politics right now, where the party tries to uh, you know, confuse people about their initial reaction to to COVID and and claim that they've been doing a good job all around that the admitt austration in the United States has the same sort of issue. How can we distract from COVID and go tough on the Chinese. So a lot of this again politics empty writer, We still need to see what it's going to be durable past the election, regardless of whose president.

When you talk about Jim Ping, I wonder how much his power is being challenged, especially given the data that we got overnight. Yes, we got factory output surging more than people expected in China, but the services data real bleak, not coming back that quickly. What do you foresee economically for the China for the foreseeable future? Yeah, I mean that that doesn't surprise us at all that the Chinese want to turn these factories on and start cranking things out.

The problem is their order books are collapsing because there's not a lot of strength. And domestic economy it's recovering, but but at a slow pace. And you know, the external environments falling apart because of the slowdowns. Are the shutdowns in your US and Europe and elsewhere. So there's a lot of problems. You know, this is what we

saw on our April survey. We've got our we've got our new May flash YETA coming out and you know about a two weeks Uh, these are the dynamics that we've seen too, and it is putting she under severe pressure. It's one of the reasons why China sort of you turn from this, let's go out and be global leaders and and really just backtracked to convincing their domestic population that everyone's getting up on China and you have to defend the party. And this is why she's support and

the party's support is relatively high at home. But why everyone around the world right now is mad at China, uh for for very aggressive diplomatic behavior. Leland, thanks so much for joining us. We always appreciate your perspective and all things China. Leland Miller, chief executive Officer of China Beije Book International. At least it's uh, you know, it's

really interesting. I always appreciate Lenian's perspective here suggesting here that a lot of this is just rhetoric from I guess both sides that it certainly it relates to the U. S side as it relates to a presidential election coming up, and here's a topic that has proven to be very beneficial to President Trump and his base at a time when there's a lot of grim news out there relates to the economy and then the pandemic, the interesting thing

I think is that the Democrats and Democratic candidate Joe Biden is also taking a very hard line. I mean, it's bipartisan, this anger towards China. My question is, at what point does the rhetoric go to a place where it cannot return? Right? I mean, at what point do we cross some line where we do enter some sort of escalating spiral to both of Jim Ping and Donald Trump have a hard time backing down from Yeah, exactly right.

We will certainly be paying close attention to that. You know, we've seen just in a past couple of days, some really brutal data as it relates to the consumer, whether it's a jobless claims yesterday or retail sales today. And the question is what does that mean for the real estate market here? I mean, if consumers are out of jobs, if they're really word, they're not spending, what are they

doing in terms of real estate? That get some good answers, We welcome Jonathan Millard, President and chief executive officer of Miller Samuel based in New York City. Jonathan, thanks so much for winning is here interest rates you know at or near all time loads, that's generally really good for the real estate market give us a sense of how consumers are behaving here as it leads to real estate. Well, you know, so much about what happens in the real

estate market is pragmatic. In the context of real estate agents and brokers can't show properties yet, uh, and virtual is certainly uh you know out there, and you know, you know, people are doing zoo calls and and all that sort of thing. The problem is that most people aren't going to pull the trigger, so to speak, on

a home purchase if they can't physically see it. A lot of the contracts that we're seeing now have linkage to sort of pre COVID periods or somebody had looked at a property and then you know, lost interest and now they're coming back. Um. Alternatively, on the rental market, we're also seeing a sharp drop in new leasing activity as most of the transactions where rents are being negotiated lower occurring on the renewal side and not public facing.

So we're really in a moment where there's just not a lot of data, um, you know, at the moment. I think that will change pretty quickly as shelter and place rolls start to ease and we're starting to hear about areas outside of the major metropolitan areas and the coasts picking up traction quickly, even site unseen people trying to just buy houses that are outside of the most densely populated areas. Does that give you a hint about a possible exodus from New York City, San Francisco or

some of these other areas that have been harder hit. Well, you know, we're already seeing uh, you know, an outbound migration at least in inquiries, but the initial wave is more is predominantly rental inquiries, you know, as urban dwellers are sort of testing the waters for you know, suburban life. We've actually seen this before this right after not eleven and within two to three years that outbound migration reversed.

Um also too, I have a high competence level in the ability of human beings to forget the recent past and uh and so uh so I'm totally in agreement that we are going to and are already seeing this suburban or even second home uh search. But I'm not confident about being a permanent structural change in the way people view cities. Jonathan. There is a question, though, is this time different given the remote work type situation. The idea that working from home is gaining traction in a

way that it never has before. Does that change the equation? I think it helps expand the time frame of the suburban uh you know, the move to suburban but commute times. You know. I think it's a little premature to declare that people are going to be buying houses, uh, the mainstream, not on the margin because they don't have to go

into the office. I don't right now when you talk to Corporate America and they're talking about expanding, um, you know, they're thinking on going you know, we're having remote workers. You have to remember that many of these companies are hemorrhaging right now, and they're anxious and desperate for cost saving measures. And so I don't know if that mindset is going to remain in place two or three years from now, but it certainly helps expand the time frame

that you know this potentially can happen. So, Jonathan, Yes, we look to the other side of this pandemic, and let's assume there is a vaccine out there in some reasonable period of time. How do you expect and given where rates are and a lot of people expect rates to be lower for longer, even before the pandemic. How do you expect the US kind of real estate market

to play out? Well, what we're already seeing in markets that have UH allowed the showing of real estate by the brokerage community, we're already seeing a real uptick is still far below normal, but we're seeing a rapid UH increase in pending sales. Now, it's not clear whether this is a function of just a release of pent up demand over the last couple of months, or this is

just a market racing to get back to normal. Um. You know, we certainly have extensive job loss, and you know that weighs heavy on how this looks a post post crisis. But at least from what I'm seeing in other areas of the country, I'm encouraged by the sort of return to transactional type activity. UM, and I think that bodes well for New York as well. I just think it's we're going to be sort of late to the party on that, given the extent of the crisis

in our region. Jonathan Miller, thank you so much. It is full to have you on. It's really wonderful perspective from your decades of experience Jonathan Miller of Miller and Samuel, just really highlighting the nuance here as we look to a post pandemic world of real estate. It was possibly the most intriguing column that I read this week by Andrea's Cloth of Bloomberg opinion, Your kids may never return to normal schooling, And honestly, it was a fascinating column.

Andrea's Cloth he's a member of Bloomberg's editorial board. He also was previously editor in chief of Handel's Blood Global and a writer for The Economist. Andrea's this sucked me in. As the mother of two children who are homeschooling via computer at home, including a son who is learning coding from an eighteen year old in Singapore. I've learned who he had found because he enjoyed his codes. I'm just wondering what's the future here of education? Well, the future, hey,

that's that's your mouthful. But the future is, as I said in the column, it could be very dark or it could be rather brighter so and and unfortunately could be both at the same time for different of us. Because that the worst thing about these school closures or these partial openings, because for instance, I'm in Berlin I have three kids. They've started going back to school this here, but that just means staggered shifts. They're not you know,

it's not binary, and they're not totally open. We will probably have very little time in physical schools for a long time, maybe years. And so the downside is in this age of inequality, some kids, some families, digital divide,

and everything will get left behind. But in this column, I wanted to focus on what I think caught your attention, which was the positive side, provided that teachers and unions, teacher unions and school boards and so forth see this as an opportunity and say what can we do different? And lee And that brought me to concepts in my conversation that I had well was something called blended or flipped classrooms, you know, and we would we would have to go into that a little bit, all right, So

let's let's do go into that. What's kind of a flip classroom? I'm sensing it's a little bit of a mix of physical and virtual. Yes, And nobody, just to be clear, is is ever talking about getting rid of human connections. In fact, the goal here is to make human connections stronger and better, and both the physical even if we have less time in a physical classroom with the teacher, we want to make that better. And also the in person the classroom or one on one on

zoom for instance. So it's not about replacing anybody, it's just about making them better. So what we want to do is to use tools online tools. And I happen to talk to Salcan for this column because I myself when my kids used kind Academy. But there's a out of these edge tech tools. So for instance, something like or let me get tell you what for the past two hundred years since the industrial in the since the industrial Revolution, you had a teacher at the front and

a blackboard. And the innovation is that that's not a white board and he lectures to a passive class, sends the kids home their filt a worksheet. A lot of them have no clue what they're doing. They go back to class, they keep going anyway, even though some kids are left behind, and at the end they take a standardized test. Okay, so that's not ideal. So what we want to do now is why not flip this so

you watch the lectures at home. That's pretty active. You posit, you rewinded, you comment on it the way the kids do. And then you do some online exercises to drill it, and the teacher has already logged on and looking at who's stuck where, And then you go to class and now class is not the lecture, but now class is a one on one or small group social are active uh session where where the teacher cook post, where you where this student is, not where the class should be.

Where where this student is and the other helps him in with a problem or extends the knowledge if he's doing well. And that's the that's flipping it or blending the online and the offline. Andrea is just real quick here. I'm wondering how parental involvement kind of gets amplified here in terms of the divide between people who are involved versus those who aren't. I think hugely there's no way

around this um because it's a social problem. But I, my wife and I we have three kids, were incredibly involved. That's what led me to talk to Salcohn because I've been doing this for years and sadly many many other parents are not, not because necessarily they're bad parents, but because they're they're they're at working, or they don't have WiFi, and we have these problems. So the downside and I and this was the topic of my previous column, The

dark side is. This was the bright side before that I wrote the dark The dark side is, as a result of this pandemic and the school closures, we will have dramatically more inequality, not just now but for years to come. As these kids go to college or in fact don't college, will go less to college and then are more unemployed and make less. This will exacerbate inequality. There's no way around that. Andreas. Thank you so much

for joining us, and really appreciate your columns. Really thought provoking, particularly for those of us who do have some school age children and are kind of kind of weighing these issues. Here Andrea's Kluth, columnists for Bloomberg Opinion, joining us on the phone from Berlin. You know, I can't imagine, Lisa. I mean, you've got the two young ones kind of doing this for an extended period of time, even beyond

what we've done this year. Yeah. Well, I think that we're going to get used to that idea because I don't know when they're going back. I gotta say, after listening uh to Anthony Fauci. He said, you know, who knows September might be premature, exactly waiting for the vaccine. If you ask somebody what's the outlook for our municipal finances right now, they might say not great, Bob, not so great. Right now we are facing a huge deficit

in cities across the country. And joining us now with a comprehensive look is Kathleen McNamara, senior municipal bond strategist at US Wealth Management, which put out a report highlighting just how bleak the situation is. Kathleen, can you start with just an overview, a historical perspective of how bleak

this is relative to previous difficult times the U. S economy? Ah? Sure, Um, I mean in our report, you know, we we do talk about the fact that this, you know, COVID nineteen is really what we look at as an exogenous shock to the system. Um. You know, certainly we've been through crises before, the financial crisis just ten years ago, but that was really triggered by you know, um, a banking crisis, and in this scenario, the banks actually were in a

strong position going into this crisis. Um. So here we're dealing with something we haven't dealt with before. We're dealing with a health crisis M which has turned into a financial crisis, which in turn is weighing on almost every area of the municipal bond market. And we do go through, UM, all of the different sectors in the muni market and what we see going forward. So, Kathy, what are some of the sectors that are kind of most at risk here?

I know the pain is pretty broad based, pretty deep, but what are some of the sectors that kind of jumped out of you. Yeah, the sectors that we talked about in the report that jumped out to us as UM going to experience the most stress is the private higher ed sector UM, as well as the health care

sector UM. You know, by contrast, UM, you know, states, I know there's a lot of UM, you know, negative headlines with respect to states, UM, but we do think that UM, you know, states are going to benefit from this you know, municipal liquidity facility that the FED has established, and we also believe that you know, states have more flexibility, UM,

you know, to manage their finances through the crisis. UM. So it's really the you know, the higher education UM sector that we do have UM the most concern about, you know, in that in that sector. You know, we believe that we're going to see some you know, substantial NEIA term student enrollment pressures. Um, we're going to see some decline in investment portfolios, you know, as well as

you know the role of technology. I mean, what we're seeing now is that, um, some of these you know universities have shifted to online classes and that has meaningful implications for the sector. You know. Of course, you know, there's the institutions with large endowments and strong brands. We think those will be resilient and easily adapt to the changes and retain their market position. But by contrast, you know, some of the smaller liberal arts college is that already

faced demographic and financial challenges. We do think that, um, you know, the impact from COVID nineteen is going to be meaningful. We are expecting some sort of financial bailout or perhaps that's the wrong word, rescue financing from the

federal government to states municipalities. But they've made it very clear that they don't want to backstop governments that have been irresponsible with their finances heading into this, and that really speaks to pension under funding which has gotten dramatically worse. What's the consequence there for the situation that the pensions are in, given the fact that I can't really foresee how some of them are going to meet their upcoming

obligations without a traumatic shift in the market. Ah, yeah, I mean, pensions obviously, you know, are an issue, you know, for some of the states and local governments, not all. And actually in our report we do UM rank all fifty states UM in terms of their pension funding metrics.

So we always want everybody to know that. Yeah, I mean, the states that our experience the most stressed, you know, are in the headlines, but it's not every single state UM with that, you know, what, what can they do? I mean, you know, we are hopeful that there will be some more UM aid coming to state and local governments. I mean, the House is expected to pass a bill today that will include another trillion dollars in aid to

state and local governments. Of course, you know, I don't think that that full amount is going to gain approval in the Senate. UM. But on the bright side, it is a starting point for negotiations. And the other thing is, you know, the fact that the you know, the FED has established the municipal Liquidity facility. I mean, this is something different than what we saw during the financial crisis. So I think it's showing that the FEND is willing to do, you know, whatever it takes to hate to

help these state and local governments. UM, you know, move along. I mean on the flip side of what you mentioned is is you know there's no appetite to bail out certain states that UM have not been managing their pension issue through through the years. UM know that that's really the sticking point. It becomes becomes quite political. Kathleen, thanks so much for joining us. We appreciate your perspective on the municipal bond market. Kathleen mcnamar's senior municipal bond strategist

for UBS Global Wealth Management. And at least it's can be really interesting to see the political um kind of mechanations here over the next several days and maybe weeks between the Democrats and Republicans as it relates to this new fiscal stimulus plan. The prior fiscal stimulus plans were generally bipartisan passed fairly quickly. This one appears to be a little bit more contentious, and I think it does go in part, as Kathleen was suggesting to, you know,

funds for state and local municipalities. Yeah, this is the House Speaker Nancy Pelosi bill. It's a three trillion dollar bill. Mitch McConnell, the Senate leader, Majority leader, has said it's dead on arrival, so it's not going to pass the Senate in its full form. But he is going to take cues to some degree from j Powell and Steve Mnuch, who are testifying together in front of the Senate Banking Committee next week on Tuesday. Very curious to hear what

they have to say. Yeah, and when you think about some of the data points we've seen this weeklies in terms of the jobs claims and then the retail sales today, there's certainly enough economic data out there to prod both houses, both sides, to move forward with some fiscal steelers, because there is real pain out there in the US economy. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts

or whatever podcast platform you prefer. On Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abramloy it's I'm on Twitter at Lisa Abramoit's one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio