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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. Ambassador Catherine Tie, us
trade representative, joins us now from New York. Ambassador, wonderful to have you with us on the program. We've some called us done a role reversal. You're in New York and we're down in Washington. We'll make this work properly next time, Ambassador. This is a topic we've been talking about for a long long time, Chinese overcapacity.
We all know about the China shark.
We all studied it an obliterated manufacturing basis in places like the United States of America. Can I just give you a few minutes just to sort of lay the ground for us what's changed and what's new about what's developing right now.
Well, i'd be delighted too. It's wonderful to be here with all of you. You're absolutely right about the China Shock, and it's become an established set of facts as we look back on the last several decades of China's emergence as an economic powerhouse.
In the world.
As you've seen the growth of the Chinese economy, what you've also seen is the negative impacts on other economies like that of the United States, and of course the.
Industrial erosion that you've seen here.
The manufacturing capacity loss isn't just limited to the United States. You see it in other advanced economies. You also see it in developing countries as well. But to your point, a lot of what we're seeing right now is not new. The China Shock continues. We've seen it in the sectors steel and aluminum. We've seen it in solar panels. Twenty years ago, the United States several other countries had growing economies and industries around solar panels. The Chinese double down
on their what we call non market practices. There a state investment in a strategic emerging sector. And what you've seen is something we've seen over and over again, a creation of excess capacity over production that brings down prices. It's a kind of predatory pricing practice worldwide that has driven out producers in other economies, leaving the Chinese economy having cornered the market in production. Right now, we're still eighty five percent reliant on Chinese production and supply in
solar panels. We've also seen it in batteries. We're seeing it now in evs and critical minerals is another example.
So what you see is doing with respect to.
Steel is actually responding to a set of pressures that have been building over a couple decades. On the steel point in particular, I wanted to really enforce that. What you heard President Biden talk about earlier this week was to call on me as the US Trade representative, to consider increasing the existing tariffs on Chinese steel imports. But we know that the challenge with Chinese over capacity and
excess production is a world economy challenge. The scale of the Chinese economy and its ability to manufacture and produce.
Will depress prices worldwide.
It infects the global economy and global prices, and so what you've.
Seen is as well the maintenance of.
The global steel tariffs and aluminum terraffs. But you also see us as the Biden administration evolving out of that particular framework. You see us in particular taking leadership role with the European Union. Over the last two years, we have been engaged in intensive negotiations for a new framework, a.
Global Sustainable Steel and.
Aluminum Agreement that we are working on to address not just the excess capacity pressures, but also to try to create incentives for cleaner production and cleaner trade in steel and aluminum.
So, Ambassador, if I can jump in, if we can focus just on steel, because we've got so much to unpack there. Let's take steel, and we both know how complex this is, and I can share some numbers with our audience, certainly not for your benefit direct Chinese imports. As you know, the estimate is something like zero point six percent of total steel demand in the United States. The problem is a lot of this is going through Mexico. So, Ambassador, a question I heard someone ask recently is how do
we make them eat it? So how can you address what is happening in Mexico? How do we stop the steel coming through the back do.
So I'm going to impact this back at you in a couple of ways. One is to reinforce the point that when you have a producer, a major, major, dominant producer like China, producing at below market rates, it affects the entire supply chain starting upstream, all the way downstream. The Mexico challenge is a piece of this, and again.
The challenge is worldwide.
So I think with respect to Mexico, there are a couple pieces. One is to the extent that upstream steel is coming into Mexico and being worked on and then coming into the United States, You've got to figure out how to level the playing field there. Secondly, there's a much more blunt challenge with respect to steel coming into Mexico and improperly coming into view United States as Mexican steel.
So there is a challenge with.
Respect to the evasion of trade programs and trade frameworks where steel that's not properly Mexican is coming in as Mexican steel and enjoying the preferences that we provide to the Mexican economy and Mexican producers. So again, with respect to steel production, in order for the United States to continue to be able to produce, to continue to grow our steel industry, to continue to grow cleaner steel industries.
What you see is a number of programs that we are putting in place to ensure the integrity of trade systems. The challenge right now is and steal is an excellent, excellent example that there is no such thing as free trade in steel. The market in steel globally is significantly distorted by what we are calling the non market policies
and practices coming out of China. Supply that's being created, production plans that are not linked to demand, and so what happens is you have a significant depression of prices, and it requires economies like the United States to work with other economies that want to be opened, that want to openly trade, to take more significant defensive measures against the unfair practices that have infected this sector.
Ambassador Tide, do you see the similar dynamics and what you're describing in steel happening right now with the ev market one percent?
It's the same pattern that we see repeated over and over in different sectors. And the challenge for us is is this has not been our practice largely. We have really adhered to this notion that if you just keep taking down barriers, if you just keep trying to trade more, if you just keep chasing efficiency, that everything will work
out great. The challenge is that in every one of these sectors, we see that Chinese practices allow for Beijing to capture larger and larger shares of the global market, so that you end up with a dominant producer in this entire economy, and what happens is the rest of us become extremely vulnerable and reliant on that supply.
What we are trying to do is.
To find opportunities for us to descend, to stand up so that we can restore more freedom to trade, more freedom to economy, more freedom for other economies to stand up to the coercion that results when you have these types of vulnerabilities that can be used to create political pressures on economies.
Well, the Biden administrations made very clear that tariffs on Chinese evs, bigger tariffs are coming down the pipeline, but Secretary Yellen also said the US quote won't take anything off the table when it comes to this over capacity coming out of China. We though, have not seen one single wto complaint from the United States is that potentially a tool that you can use.
I wonder if you get your TV say you're talking points from my Republican senator counterparts from my hearing earlier this week. Look, the World Trade Organization is incredibly is an incredibly important, valuable institution in the world. As part of the post World War two Bretton Woods Framework, the World Trade Organization is critical to the functioning of a modern world economy. That said, we also are very clear in our commitment to the WTO lies our commitment to
reforming the WTO. I know this conversation is actually not unique to the WTO. All the Bretton Woods institutions, the IMF, the World Bank, this is their week. In all of the conversations today, what.
You hear in all of those.
Conversations is the question of how these institutions evolve to meet the challenges that we're facing today.
With respect to the WTO.
That is also true, and in terms of WTO dispute settlement, we as the United States, are very very proud of our record with respect.
To challenging Chinese practices at the WTO.
What we have found over time, however, is that each one of those cases that we bring. Each victory that we score ends up being a quite limited victory. It ends up in quite limited change. What we are dealing with in terms of the challenge of the Chinese economic system is structural, it's systemic, and so that's why we
are bringing more strategy. We are bringing more creativity to look for more effective ways to level the playing field, working with other like minded economies, and also working to raise these concerns inside of the.
Wto ambassad it's funny you bring up Republicans and their talking points because broad strokes wise, what we see is that whether or not we get another Biden administration or Trump back into the White House, trade policies look almost the same when it comes to China. Do you see a divergence in what we potentially could see from Trump or Biden given the fact that we still have Trump erraor tariffs right now under this administration.
So I think what.
I will say is this that whether it's Republicans or Democrats, going back to the earlier comments around the China shock, we are together. And I think that this also applies outside of the United States as well. We are coming to a realization and raising in our consciousness a common assessment with respect to diagnosing what the problem is, what the source of today's world economic and trade challenges is, then you have to move on to what are you going to do about it? And with respect to the
Biden administration, we are very proud of our record. First of all, the tariffs are an important tool in the trade toolbox, and that it is important to use them effectively and strategically and to know what the leverage is with respect to the tariffs. So yes, we continue to retain tariffs for strategic purposes. Second, the Widen administration hasn't rested on just trade or just teriffs to address the challenges that we face with respect to competing fairly with China.
We have also, as you've seen, activated significant investments into the United States economy for the US workers and for American infrastructure. It's the bipart is an infrastructure law, chips and science, the Inflation Reduction Act, the investments into the
Clean energy revolution. In addition to that, you also see that we have initiated an investigation into China's unfair non market practices that have been alleged by five of our labor unions with respect to their maritime logistics and shipbuilding sectors. When you take these three segments together, what you have is the articulation of the Biden administration's China trade.
Response and by SID, I just want to ask you a question very quickly about Chinese evs. If you had a decision on that, can we expect a conclusion anytime soon?
So I'm not quite sure there's not a specific question before us. I think with respect to maritime logistics and shipbuilding, for instance, there is a petition that was presented to us. Think to your point, it's what are we going to do about this trend that we see repeating itself in
the EV sector. Again, we have an entire set of tools before us, many of them are with the US Trade Representative, whether it's with respect to investigations that we can begin, whether it's looking at the set of tariffs that are and trined in our tariff review which has
been ongoing for the last eighteen months. With respect to that tariff review, I am confident that as a whole of government exercise that we have been in an undertaking with deliberation, seriousness, especially with respect to looking at more strategic, more effective deployment of the tariffs that we have to address the inequities.
In our trade relationship with China.
I am confident that conclusion will be coming soon.
And Besida, I can't just conclude with the following question, and it's probably difficult to answer directly, but the issues that you and I have discussed, that we've discussed over the last ten minutes or so as we started this conversation, they're not new. They've been at the forefront of many
economist minds for a long long time. What strikes me is somewhat amusing is that it took someone like Donald Trump in twenty sixteen to put the forefront of American politics to shake the establishment to almost make this consensus.
When I was listening to Secretary.
Yellen over the last few weeks, I just thought, this feels like a Secretary Yellen discovery tour, something personal to her and nothing really new for policy. And Bassador, can I ask you what took long for the establishment in America to figure out this was the road they needed to go down?
Well, it's an excellent question, because you know what I would do is I would actually have leaders in trade policy take ownership of the call. The earliest calls for the need for attention to the challenges that we are all focused on now. These are issues that we have been raising at the wto bilaterally with.
China, very directly for a very long time.
We had direct dialogues with China where we would raise these issues over and over. We would raise them with our partners. I think part of what you see is the increasing pressure that is being placed on economic dynamics. One last point I wanted to make with respect to inflation.
Inflation conversation gets attached to tariffs a lot. The more we are talking about inflation and examining our worldwide experience with this phenomenon over the last couple years, the more we are realizing that the inflationary pressures are linked to the supply challenges that we have. Those supply challenges go to our vulnerabilities over concentration, the domination that we see
by certain producers in the world economy. I think that is the next area where we need to drive coalescence around our analysis so that we can work together, whether it's Democrats and Republicans, whether it's the United States and other countries on solutions.
I'm Bassaldor looking forward to having this conversation in person.
Next time in join New York. Adam's with us here in Washington. Adam, good morning to you, Welcome to Washington. Thank you very much for having a set.
Can we talk about the lack of cooperation and maybe even the complaints that you've heard this week about the strength of the US dollar.
How loud are those complaints?
Well, after a long time of silence, even though the dollar kept we saw yesterday Janet Yellen and her counterparts from Japan and Korea do an open mouth operation. Open mouth. Sometimes stuff comes out, sometimes stuff doesn't. You know, there's very big fundamentals here. The Japanese economy is doing very well by its standards, but and potentially could be raising rates, but it's not.
The US.
Korea has a lot of positive fundamentals. But the point is, if even Japan and Korea are losing ground against the dollar, this is a wave and my fear is it just goes up from here and that problems get bigger, political problems and economic problems more political than economic.
But yeah, can we talk about the political and the economic problems?
First? The political?
What would be the political problems that come about off the back of this move so.
It's probably not gonna affect the election directly, but it sets things up for bigger trade deficits, which again is not necessarily a bad thing. But if Trump is stated and Lightheiser view that as a real problem, or if over the course of the campaign the Biden administration starts talking about and decides it's a real problem, then you have a need to deal with it.
And tariffs, whatever.
Their lack of virtues on their own merits, they don't fix trade deficits. That was demonstrated amply over the last seven years. So you end up back in if you care about the trade officer, you care about the dollar, and most importantly, you care about what that does to credit conditions. So Lisa's rightly talking about monetary policy isn't as tight as the Fed thought. If you have a very strong dollar and money flowing into the dollar, that further loosens credit conditions.
You mentioned the fiscal deficit. The IMF pretty much put out a warning to the United States almost it's too loose. We've prepared to be looser this year because it's an election year and there's no path forward for fiscal discipline. How much is the US the biggest problem when you're talking to officials from around the.
World, I mean, the US is the problem memory, mostly because of our unreliability in international commitments and the potential for unwinding even further those commitments, and a lot of self dealing. So a lot of it's on the trade front, the security front, unreliability like with Ukraine funding, unreliability with
trade deals with the USMCA. But in terms of the dollar in the fiscal I was glad to see the IMF getting loud because sometimes they are scared to do real surveillance on China, US, the big economies, and you know, we got open ended fiscal problems. We've got this threat that by end of twenty twenty five, the twenty seventeen tax cuts expire. So whoever's in Congress, whoever's in the White House, has to make some deal. There's no historical precedent for letting tax cuts expire, as you well know,
and then having them jump seven percent. But the nature of that deal is almost certainly not going to include much tax increase. And without tax increase, I don't know how you get the budget deficit down.
You mentioned something, let's go there, monetary policy. You wrote, it's not that tight at all. Are you saying that it needs to be significantly higher in terms of the benchmark rate in order to get inflation back down even close to two percent?
I think it does have to be higher if you want to go to two percent. I'm actually calm with the Fed letting it stay roughly where it is and say it's a two sided risk. Because John Williams started to say, I'd be okay with that, but I do
believe that the monetary conditions are not tight. Let me take you back, Lisa a year ago February February March people like us, which is a funny category be anyway, as for yourself Fed nerds, we're talking about the fact that FED it tightened, you know, x hundred bases points and it really wasn't affecting the economy that much. And
then KME SVB and everybody got distracted. But if you go back to the first quarter of twenty twenty three, that was the talk, and I kept saying a few other people kept saying, Look, credit conditions are what matter, not what the FED fund's rate. So John Williams, Lori Logan from FED Dallas, we're coming out about six months ago, five months ago talking about oh my god, there might be a recession because the interest rate goes up as inflation comes down, and I and a few other people
kept saying, don't obsess with the FED funds. Rate credit spreads are incredibly narrow, so anyway.
It's less about the Fed has to.
Do something different because the numbers are okay unless you really care about getting into two percent. But the extent to which it's tight I think is way over estimated.
And you've been talking for a long time about how they need to have a higher target, even around three percent, So this coheres.
With that idea.
We keep going back to the pivot, and we can talk about the pivot of pivot and you turn and all that, but let's not I think there is a key question here of whether it was a policy error for Fedshair Powell to enunciate the possibility and the likelihood of rate cuts this year back at the end of.
Last I think it was.
I think it was.
I mean, it's a communications error, and it goes with I think two things that have generally been suboptimal. As we say, first, they're too busy trying to guide the markets in a decision to decision way. And second, they're too reactive to data, so if they had a bit more structured they just say we've gotten it to hear. You can say I'm data dependent, but you can say what why you're data dependent instead of just saying I'm data dependent.
But I think I'm going to do this. Did the politics matter? Does the election matter?
Could you give us some kind of on that, your impression of what people are saying in Washington, because you know what the story is in woll Streight. On woll Streight, there is a belief that there is this window in July, right, and if they don't go through it, that door slam shut and it doesn't reopen until the end of the year.
Window for essentially all constructed for the recut. Yeah, I think that's fair. I've been saying for a while, if they can avoid it. Even when I thought they were going to cut in June or March, I never thought March.
I was said June.
I thought they would try to avoid cutting again so close to the election. So but I don't think that's big picture really.
What matters.
What matters is us is essentially sidelined itself for the next year. We don't know what the fiscal policy is going to be. The monetary policy is on hold, which is reasonable but therefore not reacting to things. And you know foreign policy, which you all also covers, of course dominating matters.
But if there's so many unknowns then to twenty twenty five, how can if I do anything, If we get sixty percent blank in tariffs on Chinese imports and a ten percent tariff wall for every single good coming into the United States, inflation may potentially skyrocket, which is what every economist is saying. How do you, as the Federal Reserve then cut rates going into potentially that?
I completely agree with you, and I'm glad I Marie you're saying that out there because it is a true statement. Tariffs mean inflation no matter how you cut it. And if you do broad across the board terrace even more than the anti China tariffs, you're talking one to two percent jump in inflation almost immediately in another percent probably it's over three and a half in one percent the next year before you even get some pass on effects.
So what does the FED do now?
Of course, the Fed doesn't want to be seen as judging trade policy. So if this is a one off. They can say, well, it's just one off, but they certainly should be saying that there's a risk of an upward spiral if you're putting that on top of inflation that's already above target, if you haven't changed your target and it's already low unemployment. I agree, I mean, I think they should be warning about that.
So will you just take a step back and put all this together. There's a real question of how vulnerable the financial system is to some of the shocks that come from higher inflation higher rates. We did speak yesterday with Jonathan Pingle of UBS, who talked about the potential for the Federal Reserve to raise rates to six and
a half percent next year. If inflation stays above three percent in a persistent way throughout the rest of this year, what's the rate at which you start to see things break both on the yield space side as well as on the dollar.
Here's where I'm I'm probably more optimistically. I think what we've seen over the last year two years is how much bank capital, household balance sheets risk aversion matter, and the households having a lot of savings, so you know, we had much less breakage from these rate increases than
we've had in the past. So I think talking to the financial and monetary officials who were in Washington this week, I think they're rightly even though it's boring because they never do anything talking about non financial non bank financial intermediary is what we used to call shadow banks, because we don't have transparency into what part of the credit system is in there and how risky is it and how they reprice it. And so if I'm worried about
something breaking, that's where I worry about it breaking. I think what we're talking about is potentially a further hike in the dollar, and that going back to where we started, that is not sustainable long term. And then if you're busy having been annoying to all your allies and putting tariffs on them, it's a little hard to then say, oh, please do something cooperatively to bring down the dollar.
Ye, can we finish on trite?
But the thing of the program over the last couple of days for us, who in this city is left fighting for free trade?
Who's leading that fight anymore?
So anyway, I wouldn't say we're leading it, but the Peterson the only ones who are trying. We're trying to feed people to fake facts about what happens to American households, what happens to inflation, what happens to growth with the tariffs, the facts about on the macro side, you're getting a stronger and stroller dollar, which is distortionary and which is
going to overshoot. But if it's like eighty five, when you're putting tariffs on people, and also when you're not letting them invest in the US, you can't unwind this. Remember in the mid eighties when everyone was so concerned about Japan and the dollar shot up hugely because you had loose fiscal type money, so a lot of echoes of today. Part of the way we got out of it was we got the Plaza Cord. But part of the way we got the Plaza cord was also politically.
Japanese and other foreign countries had their multinationals invest a lot in the US. So there's hundreds of thousands of toyoda and hunter workers now in the US. We're not letting the Chinese do that, So you're making it even more complicated to unwind this. If we get into this mess.
It's a complicated mess already some people might say, Adam, thank you so much for your time today.
We appreciate it.
Thanks for having Adam post Un at the Peterson Institute for International Economics on a whole range of EXAs in the United States, FED officials are warning cuts may not come at all this year, and about saying it's looking to navigate these challenges and more. As share of Bank of Santander and theif ANDA joins us in Washington this morning, and a good morning to you, Good morning, thank you so much for being with us today. We had a
guest with us about five minutes ago. It was pretty depressing, very downbeayond cooperation in Washington, the future for growth outside of the United States, How down be you and your team about the same things.
Well, you know, first of all, we are at war. We have two wars, which is a human tragedy, and our thoughts of with all the people that are suffering. But aside from those very important issues which obviously we must deal with first, the economy does not look bad. So you know, we have managed to bring down inflation. Remember we were around nine ten percent, were around three to four in most countries. Really important. That's the one thing we cannot allow to get out of control. We
have growth, yes, lower growth, but growth overall. And third, we have very high employment levels. If I think about sometimes there's Europe and America's footprint. Every single one of our countries is at historically high levels of employment. So you know this is not bad. A year ago you had asked many people where are we going to be? Anybody that said soft landing, you would say, oh, you're being too optimistic. We have a super soft landing. So far, so far, so good.
The growth profile is certainly much better than we thought it would be, not just twelve months ago, but maybe even three months ago. Though we still have two wards. We also have increased protectionism. It's but a key feature of the meetings this week, as you well know, a backslide towards industrial policy in places like the United States. Can I ask you, as someone who leads a bank, does that make it more difficult to be an international bank against that backdrop?
The key thing we're all looking to, and this is not different from what everybody is saying, is that the most difficult and you know the key risks now are geopolitical. As I said, the macro looks much better at least
for now. So as we think about what is happening and what these geopolitics mean for supply chains for our business, understanding that this is going to mean more structural inflation because you know you're going to have higher cost Understanding that you need to prioritize the defense or national security or in the case of companies, you know, diversification, which again is a key asset at least for us, and this is really very valuable. So these are the things
you need to think about. How do I protect my business at the time when the world is increasingly volatile where you're having a big shift in terms of we want secure supply chain. Yes, we want it to be affordable, good prices, but security is paramount. And of course we also want to ensure that we can manage the green and the climate transition.
If geopolitical rests are in number one concern and that can potentially meet a spike in inflation, do you expect the EASYB to then what it's been pretty much forecasted by everyone, go ahead of the FAED and have this rate cut in June.
So you know, what we're thinking about is what is the terminal rate? Where does this end up. That is the key question and of you and as an institution, is that that terminal rate is not going to be the same in Europe as in the US. It's probably be around if your top the most economy is four percent in the US, around three percent in Europe. What it means is that let's say rates will end up around those levels, around three percent four percent, And that
is really what we That is what allows us to plan. Again, that is not a bad thing for commercial banks for the sector. Negative rates were unsustainable, risky for the system. Very high rates kill the economy. You know, low rates, maybe we are going to have too low growth. And that is the one thing we need to focus on.
How do we manage an economy where terminal rates are a bit higher because all the structural factors not just defence, demographics, the carbonization, So you have structural trends that are more inflation than before, slow growth.
What do we do about it?
So I know that you're in acquired period, so you can't talk directly about the financials, but can you help me understand how do you plan for things like net interesting income when you're across so many different regions, with so many different policies and so many different so called terminal rates. How do you plan for that kind of thing? What does that look like?
Look sometimes that is a global bank, but basically it's Europe and the Americas and we have one hundred and sixty six million customers. First thing is diversification is key, not just for us, for anybody. And we have diversification by businesses five global businesses, and by regions and countries. So that means that if something doesn't go well in one country usually gets compensated by another. And so what you try is to really have a context for risk appetite.
Do we take more risk less risk? We don't manage interest rates right? As I said, the context is really good for financial institutions, especially commercial banks like ours. Why because negative rates meant that with a big retail base, you're not charged, but you were being charged by the central banks for twenty percent of other posits and we couldn't charge so positive rates. Low growth, high and employment is another bad scenario for commercial banks.
Some other banks have told bank from the United States, international banks I'm thinking specifically of HSBC being preparable are still there. They still have a presence. You've been leaning in a little bit more. Could you develop that for us this morning? What are you planning in the United States? How big is your presence going to be going forward from here.
We're very excited about the opportunities in the United States. We're very confident we'll reach the fifteen percent return on tangible equity, and we're keeping it simple. Play to our strengths. Where do we have global scale that helps us in this market. Make sure that we're leveraging our network. And so in the biggest business, which is the consumer, we have something none of the other foreign banks have or had, which is at scale auto business. We're number five in
the US, we're number one in Europe. We bring our OEMs here, and second, we have scale to invest in our own technology. So we're going to deploy our own technology to launch a digital bank to make sure we can fund the auto business competitively.
Simple and this was brilliant.
I know you've got a super busy morning, so we appreciate you carving out some time for us here at Bloomberg. Thank you so much. Great to be here in the Libanco Santander Chairman. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from
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