New China Tariffs Would Quickly Hurt Economy: Hufbauer

dealing with demands from the United States. Here to tell us more is Gary Clyde Huffbauer, non Resident Senior Fellow for the Peterson Institute for International Economics. Joining us from Washington. Gary Huffbauer, What exactly are the sticking points between the United States and Canada UH? There are three. First of all, the United States President Trump wants Canada to dramatically increase access for the US dairy farmers, and Canada has a

rather protected so called supply management system. Secondly, President Trump wants to get rid of UH, an arbitration system for handling or for reviewing anti dumping and countervating duty cases, and that UH. Canadians have described that as a red line and Thirdly, Uh, the agreement with Mexico provides for a review in six years and possible termination in sixteen years, and the Canadians strongly prefer an indefinite life of the

new agreement. So those are the three big sticking points. Dairy, as a senior fellow at the Peterson Institute, you often Peterson Institute is is often thought of as putting forward a pro trade, pro free trade type of agenda, and I'm curious on your perspective coming from that, given your experience as a Deputy Assistant Secretary for International Trade and

Investment Policy at the U s. Trejury in the nineteen seventies. Uh, I'm just wondering, is there a corollary to the time that we're living in in terms of the anti free trade sentiment in your in your experience. Oh, oh yes, this is a very strong anti free trade mood after about sixty years of progressive pre er trade by both by the United States and other countries. But this particular agreement is reading a backward step and a big backward step in terms of of preer trade in three important

sectors autos. Firstly, um textiles to some extent, and then steal and Alma because a side agreement here will put quotas on imports of steel and aluminum from Mexico and possibly from Canada as well. So those are those are steps backwards. Guard do you believe the technology and innovation will and I I guess it is a pun trump the the the the sort of conflict that you just

described having to do with free trade. That the fact that you can move money as well as material all around the world with a click of a button, is that going to make it much more difficult to kind of enforce trade restrictions. It does, It does, And you can also add the digital revolution note we're in, which is really a big pathway to freer trade. But the comp administration just to its best to plug, you know,

loopholes that might be created by technology. And in the auto industry they've they've really put all out to well to restrict and we haven't seen the end of it, because after this agreement is reached, they will try to reach agreements with Europe and Japan restricting US auto imports

from those two areas as well. So you know, you're right, technology is liberalizing and then the uh, the administration is trying to catch up with some more thumbs in the in the dyke, Gary, do you think that this wave of protection ism, an anti free trade sentiment stems from a failure in free trade to accomplish certain things that people were hoping for. Uh, well that's what they say,

but that's not in fact what's happening. What's happening, going back to the technology point, is that technology is is replacing labor and a lot of different sectors, a lot of different labor activities, not only blue collar, but but white collar as well. And uh, that's having an effect on average weight grow. Politicians need something to blame that on.

So hey, blame it on the foreigner. That's the simple politics. Um, so it's not free trade, its technology, which is with its uh you know, rough spots, which is causing having most of his angst speak if you can about the US Mexico agreement as you know it, what are some of the good and what are some of the bad points. The good points are lifted from the Transpacific Partnership Agreement, which, as you know, President Trump rejected right on his first

day in office. So digital trade. Actually, they are very pro liberalization and digital trade, and that's important to the United States, which is a digital superpower. Intellectual property protections, uh, and there are some good features there searting from the standpoint of US companies. Biologic data gets protected for ten years, uh, copyrights for life of creative plus seventy five years, and a lot of strong stuff on enforcement. There will be

a chapter on state on enterprises. That's that's a modest issue with Mexico. Obviously it's a big issue with China. And this chapter meant to be a template. There will be something on currency again, more a template for China talks going forward in for Mexico today. So those are all you know, those are all good things and uh, the administration needs to be congratulated who are modernizing in

those respects. Gary, you were quoted in a recent article in Axis saying that if Trump President Trump imposes fresh TIFFs and two billion dollars in Chinese goods, uh, that will trigger a trade war with huge financial repercussions because China will not back down. One key question as we look at markets, how long will it take for those financial repercussions? How long will it take for those to be felt in the United States once this trade work

gets going. Oh, the finance markets move ahead of the real markets, and then it will happen, I think, very quickly. And China is not Mexico. I mean, Mexico is is in very difficult situation. It's a weak country compared to the United States. China is not going to back down. China is going to go with kit for tax. So if Trump does two undred billion, will's another billion. They'll start restricting US companies doing business in China. Caterpillar, uh mowing,

you name it, They'll restrict them. So I think the financial repercussions from that will happen within you know, within a week or two or even quicker and in a few days. And it's because of those financial repercussions that I remain skeptical. Even though Trump keeps saying it's gonna go after the Chinese, that he will do it riar to the November election, I just can't see this as being good politics for the Republicans come November. Gary, thank you so much for being with us today. Hey, thanks

a lot. Take care, Take care. Gary. Clyde Huffbauer is nonresident Senior Fellow at the Peterson Institute for International Economics in Washington, d C. He has a pretty deep knowledge of all things having to do with trade. I mean, I just want to give you some sense of what this background is. He was the Deputy Assist and Secretary of International Trade and Investment Policy at the US Treasury and Director of the International Tax Staff at the U

S Treasury during the nineteen seventies. Talking of Ford, It's created credit rating was lowered yesterday by Moody's Investors Service, And I want to bring in Tad Ravelle, chief investment officer for fixed income at TCW Group. Tad, You're the perfect person to have on given the fact that Ford was just downgraded one notch above the junk rating, the highest junk rating, and Ford has a ton of debt. Is this a buying opportunity for you since prices on the debt are falling, are falling or is it a

selling a sort of need to sell kind of moment. Well, in our view, the market I think is beginning to maybe more properly priced the risk associated with Ford. As

you point out, they have a lot of debt. I believe Ford the company has about ninety billion in long term debt and as you also pointed out, Moody's dropped the rating to the lowest level of investment grade, the b A A three, and they also indicated a negative outlook, which means that officially, or according to the usual way people look at these things, for it is a perspective fallen angel it makes any additional missteps, that runs the risk of being junked in terms of its rating by

by Moodies. There's about a hundred twenty basis points um of spread currently in that Forward trades wider to General Motors. UH. Given our inclination and our our belief about the relative merits of the two businesses, we would rather express a view in the autos in the General Motors name rather than the Ford name. Hold on a second, have you are you actively selling Forward in order to buy General Motors or you just aren't buying any Ford and are

adding General Motors. We actually have we we have repositioned ourselves to emphasize General Motors at the expense of Ford in the portfolios. We we haven't done it so much reactively, I think we we have held to the view that General Motors has made some more difficult choices. It's made it the tougher decisions, and as a result, it's in a better position visa v. Ford. But of course it should be pointed out that there tends to be a significant amount of correlation in the way General Motors and

Ford trade with one another. That correlation has broken down recently with the widening out in the Ford spreads, and as I indicated, I think that that's that's that is a fair market reaction. It is not, in our in our view, a proper time to be adding for it exposure, given its prospective risk profile and the potentiality of it becoming a fallen angel. It would become a rather large fallen angel. By the way, Ted Ravell speak about the sales by corporate holders of bonds, and I'm thinking of

companies such as Apple and Oracle. They were big bond buyers. Now they seem to be big bond sellers. What happens when they sell well, we saw some of that happen in the first quarter of this year. As you quite rightly pointed out, the large cash piles that some of these large tech franchises held, many of which were being held in effect in overseas. Types of accounts were um were largely or significant amounts of them were liquidated in

the first quarter this year. So what had been a long accumulation process mostly of short term corporate debt, turned into a buying opportunity actually in the first quarter of this year as those positions that came into the marketplace. I don't think that we've seen much activity over the course of the last couple of quarters. However, as I said, that was a really early two thou eighteen type of event.

But I think if we look at the more general question about, uh, what is the direction the next direction of the corporate bond market, in our view, it's a it's going to a bad place that you're in a late cycle type of environment. Yeah, you're in a late cycle type of environment. There's a very high level of

leverage that exists in the corporate bond market. Generally. There are other forms of market internals, if that's the word for it, that are probably bear watching, and they have been um they have been mentioned by a number of folk. But UH Moody's for instance, called out the percent of issue ince in the the loan market that has now

become covenant light. This is obviously a new phenomenon or a phenomenon that is representative only of this cycle, and it means that the types of bank loans that are widely syndicated and trading in the capital markets are particularly risky the hold on but leverage loans are different than fixing come debt. And I'm just wondering, I mean, have you gotten rid of your leverage loan exposure almost entirely? I would you see the same risk in the high

old bond market? Well? Um, right, So, technically speaking, what you say is correct that leverage loans are not strictly speaking bonds. Um. However, they are an alternative form of financing that exists for leveraged companies. So leverage companies generally speaking have a choice as to whether or not they prefer to access the high old bond market or the leverage loan market. In that sense, they are actually close

siblings of one another. Um. So, I guess what I would put forward is that many of the dynamics as underwriting standards have softened loosened in the leverage loan market. Something comparable has also occurred in the high yield market.

The fact that credit is is so accessible and on such poor terms from the point of view of a lender, in our opinion, is a very significant red flag in the context, as they mentioned, a moment ago of a late cycle environment where leverage is already high and the potentiality for a growth recession or a generalized slow down definitionally is rising. Okay, so just twenty seconds, are you buying emerging markets in the sell off? Not yet? Uh?

The If you look at the longer term spreads of the emerging market asset class, while the spreads are wider, it is still based upon the historical spread levels, still fairly tight. And um, I think the dynamics that we've seen over the course of the last several weeks should give one quite a bit of pause in an environment of quantitative tightening. What is seems to be occurring as a the weaker borrowers are being revealed in the market. So what we've seen so far, of course is Turkey,

Argentina and more recently Indonesia. There may be others. Thanks very much for being whether US tad revels the Chief Investment Officer for Fixed Income for TCW, helping to manage more than a hundred and eighty billion dollars. How satisfied are you with your job? Gad Levanon is the Conference Board's Chief US economist, and he's here to discuss their new survey just in time for Labor Day. It is called the Labor Day Survey of US employees overall are

satisfied with their job. Gad, thanks very much for coming into the studio. What are some of the big takeaways from this report? Well, I think the main takeaway it's seven years in a road that we're seeing an improvement in jobs, in job satisfaction, and I think a lot

of it is related to the improving labor market. We're seeing improvement in satisfaction, especially in components related to the labor market like job security and wages, and so as long as the labor market continues to improve, I think we'll see stronger job satisfaction. It's interesting to me that there's job satisfaction with wages when we look at the real wages that haven't gone up at all in the

past year. In fact, by some measures have gone down if you counter and inflation, So can you square these two Well, there are a lot of wage measures, and some of them tell different stories from others. But I think it is true that the overall wages are not accelerating as one would expect given how tied the labor market. But if you look at wages for blue color versus

white color workers, you do see an interesting gap. Dere's In blue color and low paid services occupations you see already a significant acceleration in wages, but in white color the hiring hyping professionals and management positions there you don't see as much wage growth. Yet this is fascinating to me because a lot of people think of it as being the other way around, right, that the wealth gap

between rich and poor has been widening. That you can see this with respect to what's been going on with those who can invest in stocks who who can't um But what you're saying is from a wage perspective, that is not the case in the last two or three years. That's not the case. And I know it is contrary to to what a lot of people you know and and what was the case for many decades. But now there are several factors that are really tightened in labor

markets for blue color and low paid services occupations. One of them is the fact that the US labor force is becoming more and more educated, and fewer people are willing to take those blue color low paying services jobs. Yet they're sharing. Employment is continuing to go up or continuing to remain the same, so fewer people are interested in those jobs even though they're growing rapidly. That's one thing. The second is the disability and developments in the United States.

There have been a huge increase in the share of people who are saying that they are not in the labor force because of disability, and almost all of them are concentrated in the less educated population, so people with no high school degree. But even with high school degree and some college it's almost no none of that is happening in the population with a college degree. God. There are twenty three survey components what people say about their

commute to and from their place of work. So as a New Yorker, you will probably be surprised that this is one of the top ranking elements. So most people are more satisfied with their commute than other parts of their job. It's probably not people in the New York area, but in other parts of the country people are pretty satisfied with their commute. How do you get to work? How do you get to work? I walk mostly and take one stop subway or a tramp from Roosevelt Island

so for me, I can't complain about my compunity. He's one of those three. I would never complain. I want to know about job disappointment. What's the greatest disappointment that people are expressing in the survey? People don't like their bones. They don't like a promotion policy because you know, I think part of it is that more than fifty percent of people think that they are above average, so they

think they can do better. But you can only promote so many people, and so that's something that people are unhappy about. They're unhappy with their training opportunity, is with the performance review process. Those are some of the things that people are unhappy. But when we talk about training programs, because there's been a lot of focus on that recently, how to retrain employees who might have outdated skills to make them more compatible with what's needed today. What types

of training are we talking about? I mean, is it with computer software? Is it with understanding the assembly of new components? I mean, what what? What training are we talking here? I mean the question is just general training. But I suspect there aren't a good statistics about training. But kind of common knowledge is that companies are over time spending less on training because they don't want to commit resources to workers who may live in a year

or two. So that's um. I think it's across the board. Are there any spots that are less bright than with the seems which is a unabashedly positive rosy report. Well, I think if you compare the results now too when we began doing the survey in the mid eighties, and you see that it's a level difference in the last decade or even more. Job satisfaction is much lower than it used to be in the eighties, for example, and I think that that's probably not We're not going to

go back to the eighties. I think that the kind of fundamental relationship between employees and employers changed significantly during that time. And for example, if in the past you didn't lay off people unless there was a crisis in the company, now layoffs are part of the regular toolbox of companies, so there is much less loyalty from the employer side and from the employee side, and that I

think reduces job satisfaction. God love and and thank you so much for being with us chief Economist for North America for the conference Board in New York. Him. I am really interested in the idea that blue collar workers are seeing much faster wage gains than white color workers. I feel like that is not something we hear a lot, and I feel like it is an important thing to recognize fry finding an electrician or a slumber. Well, this

is what it goes to. Very interesting. Well, yesterday Bloomberg got a chance to sit down with the President Donald Trump in the Oval Office, our own Margaret Tulla, Jennifer Jacobs, and John Michael Thwaite interviewing President Donald Trump. Here to tell us more about that and the president's Labor Day weekend perhaps is to Larudipa. He is our Bloomberg White House correspondent. To lou what do you think the biggest takeaway from the interview was? Wow? That It's a hard question.

This was a great interview by my colleagues Jennifer Jacobs, Margaret Talive and our editor in chief John Michele the and they covered so much ground in about an hour. It's hard to know what the biggest takeaway might be. I think his remarks on the w t O, the President basically saying that if the w t O, the World Trade Organization does not shape up that he would be willing to move the U s out of the w t O. If you were actually to follow up on that, that would be a pretty major bombshell in

US trade policy and US foreign policy. He also commented about Europe and the European Union, saying that the Europeans are just as bad as China on trade and that he is willing to potentially put car tariffs on the Europeans if they do not accede to his various requests. So uh, there were so much groundcovered, but the trade comments were pretty remarkable, and it shows that the President

is moving full speed ahead in this trade war. Just to sort of give some context to that, auto stocks in Europe are down one and a half percent today following those comments. There was a little bit of optimism yesterday sort of baked into these share that perhaps there would be some kind of agreement between the US and Europe after Europe offered to drop all tariffs of the US did the same, President Trump rebuffing that in our interview.

So definitely moving markets to this morning. One thing that I'm wondering is about the capital gains aspect of the interview. The idea that President Trump is entertaining allowing people to pay taxes on inflation adjusted returns for their equity portfolios. Basically, this would amount to what would most likely be a tax cut for the wealthier individuals in the country. What kind of attraction is that getting today as you speak

to other representatives and other people around the White House. Yeah, it's still very much in a holding pattern as the research is done by the administration. They're looking at whether or not they can do this unilaterally and not go through Congress. President Trump and the interview said that he is looking at this very strongly and he views it as a stimulus for the economy. So he talked about it in the very positive terms. But he did say

that he's gonna wait. He's gonna see if his administration can look into it and do some research and report back to him about both whether he can do it

unilaterally and secondly, whether it would be a good idea. Obviously, there's a budget crunch with tax cuts that went into place last year, so this would reduce the amount of revenue coming into the US treasury, but it is another tax cut that he could offer to his supporters and say, you know, I continued cutting taxes even without Congress after passing a major tax cut last year. So it's something that he's looking at. Uh, the administration is looking at

whether or not he can do this. Congress hasn't really weighed in very much. They are in support of tax cuts generally, but generally they like them to be done through the legislative branch and not through the executive branch. And there's could be some a little bit of a battle over the power of the purse, which Congress believes

that it it has. This has never been done through regulation before, so there might be some consternation in Congress about if the President were to do this through executive order, it could be un on through regulations by the next president. So, Lou, we're currently monitoring comments by Canada's Foreign Minister, Christopher Freeland. She's speaking with reporters in Washington currently saying that Canada is looking for a good trade deal, not just any

trade deal. Have you heard anything from any of your sources about the tone of those meetings which are continuing. Yeah, it's very much touch and go. I mean, one hour you might hear that they're getting close to a deal. Like the President said in the interview yesterday, he thinks they're close, and then the next hour you hear that the negotiations have been very tense. We actually have heard that the negotiations in the last twelve the twenty four

hours have been pretty tense. They're getting down to the nitty gritty, and it really could go either way. The Canadians are not going to accept what they would say might be a bad deal, even though the President believes that that he has all the cards and he has the upper hand in this negotiates, and the Canadians they are saying they're going to drive a hard bargain and they are not just going to walk away with any deal. Even though the President believes that today is the deadline.

They are going to continue negotiating as as long as they can to get as many concessions as they can. But there are some pretty pretty hard sticking points that will be difficult for the US and the Canadians to to agree on in such a short period of time, and how they can spin it for their constituents saying that they got the best deal possible. To Lou Alaronapa, thank you so much for being with us. To Lou Alaronopos, White House Correspondent, for Bloomberg News, which had an exclusive

interview yesterday with President Trump, a wide ranging interview. There are a number of stories on the Bloomberg terminal and on Bloomberg dot com. Check them out. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Blueberg Radio.