Xi Sees Tariffs As Aggravation He Doesn't Need: Magnus (Podcast)

for Bloomberg Intelligence. A lot of focus on China because even though there is this trade tension between the US and China, perhaps the real story is the slowing Chinese economy. And joining us now to really talk about that is George Magnus, associate that China Center at Oxford University, former chief economist of U B a US. George, I want

to start with that. With the retail sales and the other data that we got overnight out of China, not great came coming in below estimates and showing a cool down even with additional stimulus from the government. Yeah, it's um it's a conundrum that's been playing out really for pretty much all year to be honestly. So, um, you know, some of the regular monthly numbers, like the ones we had today that show retail sales really I mean not I would say kind of falling off the edge of

the cliff, but certainly quite weak. And car sales in China have been dropping year over year for the last five or six months, which is quite unusual. M The monthly data which released which came out today for investment spending for November is at its lowest levels really in terms of growth since two thousand and three. The property market is showing kind of mixed signals, but a lot of the indicators that will watch about how much floor space is being started and how much construction is going

on are starting to roll over. So yeah, I mean this is um, it's becoming quite serious actually because the official rhetoric is changing as well about stimulus, and I think that's something we're going to watch quite closely over the next few weeks. Switching gearge George, a little bit to trade. Aside from the immediate political fallout from the Huawei arrest for US and China, how material is this incident do you believe to us China trade relationship as

tenures as it may be. How you mean the arrest, Yes, yeah, well so far. I think from the Chinese perspective, I think they are trying to kind of twin track this, which is uh, you know, just to to certainly tell the Canadians in no uncertain terms what they think about what's just happened. I mean, I think it's interesting at their anger has been focused on Canada rather than the United States, but they're not very happy about it, as

you know. And they've also kind of detained two Canadian citizens, which looks like a kind of tip for tat kind of measure. But at the same time, um, it's interesting that they don't really want this trade truce to blow up. They have certainly been taking a lot of care to try to keep it on track. So their imports of American sawyer beans and liquefied natural gas have already kind

of risen. They've made kind of this offer, which I think you've covered in your news package about cutting the punitive tariff on American automobile imports back to where it

was before. And there are other things going on very very importantly actually with their industrial strategy called made in China, which we may hear a lot more out over the next few days and weeks, which which may have substance, it may just be optics, but they certainly want to try to twin track this, and I don't think the arrest of the Huawei kind of CFO is going to do well that trade talks for the moment at least, you know, Georgia, I kind of want to pair these

two ideas of the slowing Chinese economy and some of the trade tensions. Do you think that all of the headlines about trade negotiations between US and China are masking the bigger story of China's economy and the failure of stimulus to increase growth more well, I think it's um.

I just think it's in a way, it's a bit of an accident, because I think if, if, let's say, you know, the the tension between the United States and China had broken out last year rather than this year, then you know, we wouldn't really at that point, we wouldn't really have been talking about the Chinese economy very much, because it was it was still kind of responding to the kind of stimulus that had previously still been in the system, but it has all come together in a

very untimely way from Beijing's perspective. So the trade the impact of the trade tariffs up until now has not really been that significant in terms of kind of economic growth, and what it has done has been offset really by some of the incremental changes which have taken place in

Chinese monetary policy. But this is why the truth is really so valuable to them, because had the tariffs gone up from ten to twenty five on the first of January, and if President Trump had extended, as he had threatened to do, the punitive tariffs to the other half of the goods which America imports from China, then by the end of two thousand nineteen and certainly in two thousand and twenty, we would certainly have seen a much more

marked impact on what is already a slowing economy. So for China it's an aggravation which they don't really need and which I think this is why Seeging being probably would like to reach some kind of accord if he can, so.

George just to follow up on that, so I guess you you talked about a twin track approach to the Huawei incident and others, And so how incentivized do you believe China is to negotiate meaningful trade agreements in this environment where you know, President Trump has really ratcheted up the rhetoric are pretty significantly. Yeah, well, I mean this is a moving fast him. I think we're not quite

sure actually which way this is a game. Because the latest kind of thing that I think China watches are kind of focused on is really the suggestion, that's all it is at this point, but the suggestion that the Made in China Industrial Policy, which has been the long running store for American businesses in China and European for matter, but also for the White House, that there may be some flexibility in the China's approach to branding and well

implementing the policy. Having said that, if it's just a question of changing the branding and kind of reformulating the strategy that makes it look less threatening, I don't think that what will be fooled for one minute. Um, But if there is some substance in it, and President Seizing things certainly has been minded to respond to criticism at home rather than abroad for his approach here to industrial policy,

then there may be some meat on this. You know, there may be reasons to expect this trade, these trade talks to actually end up at least partially successful, but it's early days. I wouldn't I certainly wouldn't want to be drawn on this myself. I mean, I remain rather skeptical that that president seizing thing as a closet reformer and to kind of change China's technological ambitions. But anyway,

we shall see before long how this evolves. George Magnus, and we will have you back on to discuss it. George Magnus, economist and associate at the China Center at Oxford University, formerly chief economist at UBS. Talking of China and the data that we got out overnight that showed

a weakening economy as well as trade. In order to get some more insight on what Michael Cohen's allegations as well as some of President Trump's responses mean for the president, I want to bring a Noah Feldman, Professor of law at Harvard University, also a Bloomberg Opinion columnist. Noah, thank you so much for being with us. You wrote a really interesting column analyzing some of President Trump's recent responses. To this interview. Can you just lay out what your

main point was there. Sure, President Trump often tweets stream of consciousness, but yesterday was not one of those days. His tweet, which sounds a lot like he was written with a lawyer at his shoulder, laid out three defenses that he has to offer to the charge that he is guilty of the felony because he directed Michael Cohen

to commit a felony of campaign finance violations. No. Uh. First of all, thank you so much for writing this column, because I find myself I often need help parsing the President's tweets and and this column was a big help in parsing this morning's um tweets from the president. Can you summarize kind of what his defense you think, the defense that he is laying out in these tweets, and how they, um, you know, kind of really relate to

what Michael Cohen is saying. Sure, basically what the President saying is first of all, Michael Cohen was my lawyer, and I told my lawyer to pay off Stormy Daniels, and that was legal. It was okay to tell him to do that. It's the way he did at the was illegal. And what did I know about that he was my lawyer and I expected him to do it legally, So I may have directed him to pay her off,

but that shouldn't consider the crime on my side. His second defense is if it was a crime, if it was a violation of camping and finance violation, it wasn't a severe one. And if it wasn't a severe one, it should be treated as a civil violation. That is to say, you pay a fine, but you don't go

to prison, not as a criminal one. And his third and final, and admittedly a little bit desperate claim is that even though Michael Cohen fled guilty to it being a crime, Cohen only did that as part of a deal with prosecutors and he didn't get any extra jail time for that, according to Trump, and therefore that shouldn't be weighed as significant in deciding with the president when he leads office should be charged facility. Now, what do you think President Trump is worried about? I mean, is

he worried about impeachment? Is he worried about prosecution? What is this? What is this responding? I really don't think he's worried right now about impeachment in connection with this stormy Daniels pay out. I think he believes, and there seems to be evidence for this, that his base is continuing to support him and the unlikely to be removed by the Senate or even impeached by the House for this.

What he is worried about, and what he should be worried about, and what his lawyers must be worried about, is it once he's out of office, you know whether in twenty five that he's vulnerable to a criminal prosecution not brought by Bob Mueller, but bought by the Southern District of New York. Because the usual practice is if they get so much aslee guilty to a felony and that person says I did that the behest of the higher up, they then go after the higher up, and

he's the higher up according to Michael Cohen. Now you know, I couldn't find it. I found it. You know, not coincidental that the day that Michael Cohen um pled guilty that the National Enquirer and his parent company, American Media, acknowledged paying off playboy model U Karen McDougall. How significant is that piece of news as it relates to the President and his legal exposure? Here I think it's actually pretty important because what it does is it provides independent

verification of what Cohen said. In the past. It was possible for Trump to say, well, Michael Cohen's a liar, this this never happened. But here you have independent sources, the directors of the parent company of the National Enquirer, who were saying, we also engaged in a parallel, illegal campaign finance violation arrangement to pay off McDougal. And so

that means that it's not all about coming now. It's also about another set of witnesses who can testify that the president was directly involved in the campaign fence fience violation. That counts as a selony. Professor Elman, I gotta be honest. When I talked to a lot of market participants, they say, we're growing numb to the president Trump news and or to everything that's coming out. It comes fast and furious and more sensational, and we just don't care because the

economy is doing just fine. So I'm just wondering, is this different or is this just more pile on that's not going to really essentially amount to anything with respect to his presidency or anything else. Well, it depends on whether you think that a president who seriously realizes that he may face criminal indict is going to govern differently.

And my own view is that, although it's not the easiest thing to quantify, a president who's walking around thinking that prosecutors are going to charge in the day you leaves office is going to be effected in how he does things. He's going to have to be more cautious on a range of things. He's gonna have to be more focused on protecting himself. He may be tempted to use the part in power in ways that create backlash.

So you know, I understand the sense of, oh, my goodness, not another story, and that's an understandable sensation, But from the standpoint of the future of the Republican in the next two or two and a half years, I think this is actually pretty significant. Real quickly, professor, what do you think prosecutors will do here at this defense that you kind of summarized here um is incredible, and what

do you think prosecutors ultimately do well? I think as a legal defense, what the president suggests me is not especially credible. I don't think he would save him from being convicted. What's interesting is whether it would lead prosecutors to say, well, you know what, we're not going to go after him criminally. We'll just try to hit him with a civil ye lation. And I think a lot of that would depend on who was the president and who was running the Department of Justice after his presence

he was over. You can easily imagine a Democrat saying, you know, let's who's become president thing, let's put this to bed. Let's see if there's any reasonable way we can avoid charging a president with a crime. And in those circumstances, they would probably get away with it. Noah Feldman, thank you so much for being with us. Noah Feldman, Professor of Law at Harvard University, also a Bloomberg Opinion calumnist, speaking to myself and Paul Sweeney filling in for Pim Fox.

Paul Sweeney, head of North American Research for Bloomberg Intelligence. Joined by Paul Sweeney filling in for Pim Fox. Paul Sweeney, of course, is the head of North American Research at Bloomberg Intelligence. And we were just speaking with a futurist for the car industry. Let's now speak to a futurist

for the fixed income industry. Kathleen Gaffney, who I'm sure it is so excited to look into her crystal ball for us CO, director of Diversified Fixed Income at Eaton Vans, overseeing helping to oversee four billion dollars of assets and based in Boston. She joins US here in eleven three studios. So, Kathleen, for next year, we saw a pretty rough year this year for investment grade, credit, great year for cash. Next year, what will be the best performer and what will be

the worst performer? And credit? We'll pull out that crystal ball. Come on, you can do it. It's getting it's getting a lot trickier right now. But I do think that the most important lever in fixed income for next year is going to be, uh, the dollar a week dollar and the currencies that perform better relative will be what saves performance for the year. So as you think about let's let's bring the FED into this, I mean, what

is your outlook for rates? And maybe you know give us your out look for if you want to go that far, how about I did say futurist um. There you go. I think obviously rates are going to go higher. But what's getting tricky right now is the amount of uncertainty that's weighing on the market makes that a very difficult call. Uh, they should move up a little bit, but given the amount of uncertainty, I'm less certain that

there's going to be a big move. Um. A weaker dollar is going to be a big part of keeping growth going. I think that's what the FED has really been focused on. So in week dollar that means emerging markets out before. I mean, that's sort of the implication here, and I'm just wondering how does that play into the global economic slowdown that we're seeing, Because usually e M gets the flu when developed markets get a cold, and it seems like develop markets are getting a little bit

of a cold. They definitely are, but I think there's much too much pessimism out there. It feels a little bit like once again, um really yeah really, but like this time around is a little bit different because central banks are actually withdrawing stimulus, they are making it less accommodative. It's still a very low interest rate environment, and if they're not going to move up quickly, there's just enough

to go around. China UH is definitely slowing and that's impacting the trade tensions in probably a positive way, at least in the short term. That's what I mean about tricky. Everything in the short term is different for the long term. Uh. And there are enough things that are causing a slow down,

but enough things that will keep everything just right. But you still don't have enough value in the fixed income markets in the developed world, rates, the rate markets and credit are still not cheap enough, and they may not cheapen up and up enough. But if the economy is going to keep going, and if the central banks are more dovish right now, that's what will weaken the dollar and that will get things going again. So you mentioned

the markets being tricky. Does that mean volatile because the volatility this market, I know has been unnerving for many What is your expectation for the level of volatility in this market as we look into next year. It's going to continue to be high. I I believe that the hardest part of transitioning from a secular decline to a secular rise is this near term getting back to normal off the zero bound. Once we get through a full cycle and we're back to normal, then it becomes normal cycles.

But this is going to be challenging, and a lot of that is due to We're transitioning from monetary policy to fiscal policy, and it's very difficult to read the politicians from the developed markets to the emerging markets. It has been so almost almost easy to listen to the central bankers, and it's either a risk off day or a risk on day, and then you know what to do. Do we take more risk or reduce risk? This is far trickier. Lots of different things going on all right,

leverage loans. We've heard a lot about the souring of leverage loans. How this is armageddon. This is the epicenter of everything going south. Are you seeing opportunities at this point has been oversold or do you think that this is an area of more pain to come. I'm not a big believer in chasing yield spread for spread sake. It's all relative. I believe you want to look for good total return. Loans have cheapened a bit with the concerns,

but not enough. As a total return investor, I think they're going to be incredibly important in the years ahead because there will be a much uh more integrated market in high yield, between loans and high yield. I'm gonna put you on the spot here, do you think the banks are going to suffer big losses due to hung Bridge loans are basically loans that they've extended to private equity firms for buyouts that they now have to sell into a market that's deteriorating. It is deteriorating, but not

enough at this point. Um the supply demand is in balance. When that shifts, the prices that are attractive for a total return investor will come back. We're not there yet. I think we had a yeah, Earli in the show. We had the CEO of a home builder, Taylor Marson, on the show, just talking about the home market here in the US. How do you guys think about that sector? You know, giving that interest rates rising a little bit? Are do you have any exposure there? What are you

looking to do? We do have some small exposure. It's been uh challenging to find uh homebuilder credits that are cheap enough. Most of them are below investment grade but still higher quality high yield double b um. But there are a few on on the edge of investment grade that do look attractive because they cheapened up. Was everyone worried about rates moving higher now that they're taking a more gradual path uh. And I believe with wages rising and that pent up demand from millennials um my own

children is going to foster that demand. So we're comfortable with home builders next year, which which as a class will perform high yield or investment grade. It's a tough call between those two. I'm gonna say potentially high yield if rates don't if rates just move up gradually because we're not gonna get that default cycle yet, right. And the pressures in investment grade with triple bees uh, create enough idiosyncratic risk throughout the year, which will be good

pickings for just the right names. Kathleen Gaffney. Always a pleasure having you. We love having you here. Kathleen Gaffney is co director of Diversified Fixed Income four Eaton Vance. Paul, our next guest has the most amazing job title. Yeah, very cool. To be a futurist, Yeah, and to be a future setting card company, pretty amazing. Cheryl Connolly, futurist

at Ford Motor Company. Cheryl, what is a futurist? So, the futurist is somebody who helps an organization to long term planning thinking strategy so that they can get ahead of the marketplace, and in the auto industry that's particularly important because it takes about three years to come up with a concept and actually have it hit the road. Cheryl,

you know, it's it's interesting. I've been going to the Consumer Electronics Show in Las Vegas, uh, you know, where they highlight all the cool new technologies and gadgets for about thirty years, and I've noticed over the last five to seven years that the electronics show has really become an auto show where the auto companies take up about half of the floor space. It's just amazing to see how tech is really front and center in the car business.

So you know, at Ford, what are the top tech priorities or opportunities for you guys, And you know where's forward putting its money as it thinks, uh, several years out. Well, it's interesting that you mentioned see yes, because Ford actually was the first automaker to uh show there, and it was in recognition that a car isn't just a car anymore.

It is a complex collection of computers. I mean back in the day, my dad, your grandfather, like a tinker under the hood, and how you need a computer science degree to do so. Um, And so that's going to continue in. My job is really to look at tech to the lens the consumer. And right now, people have concerned about tech. I mean they readily recognize technologies made their lives better, that it's been a force for good, but there are lingering concerns about the unforeseen consequences that

tech might bring. So we did some research in fourteen different countries and we spoke specifically to people of all ages. But in one part of the study, we found that eighteen to twenty four year olds close to them worry that technology is trying to get inside their head. Well, I mean they can give up that worry because I'll

just give you the answer it is. I guess the one question I have as a car company, how do you make sure that the interface is user friendly, that people can actually use all of the technology currently available. Because people are talking about this high tech stuff. But when I talk about people who go to car shows, they say their main job as representatives of the car companies are simply to explain to people how to use

their cars. Well, that is something that we really have to take take a lot of measure and care in terms of delivering. So we have teams that work on human machine interface, and we want to make everything seamless. So when we introduced our our platform that connected Bluetooth technology with the entertainment system called stink Uh, we've made sure that it was voice activated and hands free so

that it would be seamless. And we're increasingly using platforms that mirror the ones that were most comfortable with, So we do UM, the Apple Car Play UM, and so the interface that you used to seeing on your digital device often mirrors what's on your dashboard. But as we go forward and when we bring more advanced technology, it's really about making sure customers are comfortable with it. So a number of people are very concerned about artificial intelligence.

For instance, of men say they're afraid of it. Women agree with that statement, and if you were to ask a little bit more, almost to the exact same percentage, men and women say they don't understand artificial intelligence. And so for twenty nine we have the Ford Edge, which uses AI to look at the vehicle's powertrain. But if you break it down and explain to the driver, basically all that means is that we have sensors around the

vehicle that are evaluating the driving road conditions. We have software and algorithms that work together to make a decision about whether the vehicle should be in two wheel drive or all wheel drive. And that's all it is. So you have to demystify what artificial intelligence is so that you make sure people are comfortable using the technology, Cheryl, self driving cars? What is Ford saying about the self driving car? Are we going to see it? When are we going to go? When are we going to see it?

Is that? Is that something that's going to be in the near term? Yes, yes, yes, and yes, Ford will have self driving vehicles on the road. But to be very clear about that, uh, self driving vehicles will be available and limited capacity, probably for commercial application like package

delivery or some right highling services. And we actually have pilots running today in cities like Miami as well as Washington, d C. And for the most part, believe people believe that in the countries, about half the people we spoke to say they actually believe a self driving car will be um safer on the road than humans driving cars, particularly with all the digital distractions that we have, Cheryl

ten seconds. Do you think a child born today will learn how to actually physically drive a car when they're an adult yes, with caveat that it depends on where they live, because a ton of vehicles will be a norm when they grow up. But it's very context driven, and so there are still people who love to drive their cars, and we'll have to work in partnerships with

cities that want to bring it to the marketplace. But the thing I would leave you with is that seventies six of the adults that we spoke to said that they would rather their child ride in a self driving vehicle than ride with a stranger. As a parent of two boys who I hope are not listening, I agree, Cheryl Connolly, Pay you so much. Sheryl Connolly is a futurist for Ford Motorco. 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 wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.