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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. Joining us now, very pleased to say pin and Navarro, the Director of the Office of Trade and Manufacturing Policy at the White House Dot Navarro, it's been too long, sir.
It's good to see you. Thanks for being here.
Been a long time. Joan, it is good to see you too, sir.
Thank you, sir.
First class digs here, my friend.
Well, I'm pleased we're looking after you. Let's kick it off with these talks this weekend. We just heard from the President just moments ago, and he mentioned an eighty percent tariff might be about right. Some to the Treasury secretary. We understand you won't want to get ahead of those negotiations.
But I just wonder could you offer some clarity on what about right means when the President says eighty percent TAF on China seems right, seems right for the talks this weekend, or seems right for the foreseeable future.
Yeah, it was one of three people that was with the White House the first term, for all four years. One of the big reasons is I never got ahead of the president. Let me tell you about Geneva, which is kind of I've got a very warm memories. It was my finest hour as a negotiator. I went there to lead the negotiations for the United Postal Union reforms that essentially got China rates fear to We save billions on that. But I mentioned this because Geneva has symbolic
value in this negotiation. It is the headquarters of the World Trade Organization. And the scariest thing I ever saw in Geneva was the size of the China delegation at the World Trade Organization. And they've played the WTO like a fiddle. So let's see what happens tomorrow. I'd be happy to come back on Monday do the debrief, but I don't want to get ahead of the boss or Scott Besting. And don't forget Scott's going with Jamison Greer,
the United States Trade representative. He's the guy who learned that the knee of bob bliteheis for the first time around, was there for all the China stuff. And he's the guy who was the architect, along with Howard Lutnik of the UK deal. So let's see what happens.
It's in the very best.
We'll sell the pensylin the weekend for the markets. Well, pencil in appearance with you for Monday. No worries about that. I'm looking forward to that conversation. Just got into the weekend and reflected on your experience dealing with the Chinese then on the UK. This is not the same relationship. The trade relationship is tremendously unbalanced and has been for
a long long time. Can you frame for us how difficult it has been previously for you to negotiate with the Chinese and how much long it could take with a Chinese relative to set the UK and other tripatas well.
I could tell you. I think I sat face to face with the China team maybe seven times during the first term and twice Shi Jinping was there. It was G seven. Just give me the G twenty both. I think it was Tokyo and h and our Buenos Aires. What's interesting, So what's so interesting to me, Jonathan about China is that they have continuity. The same people are going to be in Geneva or the same people back then. And you know, our our regimes change, we we have
different governments and things like that. But they have the advantage of that kind of continuity. But look, it'll be interesting again. I don't I don't want to get ahead of Scott and Jamison or the president. I think let's see what happens. You know, my role, and we've got fifteen countries we run enormous trade deficits. With that, we've got to renegotiate the whole structure of those deals. And there's another one hundred countries that cheat us in some
ways but smaller ways. My role in the administration on all of this is to do the background analytics to see how each country's cheating us, which basically sets up the terms of the negotiation. And every country like fingerprints, like India's the Maharajia tariffs, they have the highest tariffs. Of any of our major trading partners, Japan is the most clever at protecting its own markets with a combination
of domestic protectionism non tariff barriers. You know Germany they have auto tariffs at ten percent, We have them at two and a half percent, but they also have the VAT tax which acts as another twenty nine to what is it nineteen percent tariff and in exports subject. So what I do is do the background and look at kind of how these countries are doing what to us, and we get great deals from there. People. I think
the UK deal is very interesting. I think the significance is not just that it's a deal, but that's a template for the future deals. What we do done is there's like four or five verticals we look at. It's the tariffs, the non tariff barriers, the digital taxes, and then the various kinds of cheating, the dumping, the currency manipulation and things like that. And then from there we assess what the asks are, what we need and go forward from there to see you get to see a
steady wave of deals. The USTR building is right across the street from the White House. It's got the most staff negotiating these deals, and it's like you go to the Delhi and you have to take a number and get in line. Every day there's delegations from around the world lining up to meet with Jamison Greer and Howard Ludnick and I've seen I looked yesterday at the schedule. Was kind of fun out the July and it's just you know, one after the others.
Well, Peter looking at the countries lining up. One key aspect of the UK deal was of course bringing down the auto tariff to ten percent. So right now you have a tariff rate that's lower for Bentley's, which is a car that most American families can't afford made in the UK, where Chevys have a higher rate if they're made in Canada or Mexico. Is there an expectation that the next trade deals auto tariffs will be coming down those rates.
It's going to be country by country. I mean, the beauty about the UK is that very small amount of exports they send us and we have a hard cap I think it's one hundred thousand units where it goes right back up to twenty five percent. And again we're trying to do something that's mutually beneficial to both countries to get to a better place. Well at the same time changing the level of the playing field so that it is more level. I think for me, the beauty
of the UK deal. Besides that was all of the good stuff we had for AG. I mean, one of the problems we have is this non tariff barriers like FIDO, sanitary standards, what's that that's like these things they do to keep our pork out, our chicken out, our beef. Right now we're going to be able to sell a lot more beef, poultry, dairy, and ethanol. I mean, they had a really high tariff, almost a lockout tariff on ethanol and that's made from corn. So folks in Iowa
are very happy about that. So this is the way we're going to go forward on net The United States is going to be far better off, and all we're doing is trying to level the playing fielding. I saw the EU kind of rattling sabers I think it was yesterday about some kind of retaliation, and I would just say to anybody who's who's in the European Union, I mean, how can you look a US in the face and
threaten us when your tariffs are higher. You have lost cases repeatedly at the wt O on US selling you things like beef and poultry, and you won't even honor that.
So yesterday the President called Ursula Vonderline fantastic, and he said he hopes to meet her. But are you saying that the European Union is not as high on the priority list and say other trading partners like Oria Japan not at all?
I mean the EU to be clear here, we have the second highest trade deficit with the EU, behind China, so they're very high on the list. All I'm saying here is that I I thought I found it unfortunate that the EU kind of fired I think some term was fired shots across our bow. It's like retaliation will not work against the United States. We shouldn't have that. Let's talk, Let's figure this out, and it would be
nice here. Let's give peace a chance here. All we're asking for here in the United States of America is fairness. I mean, hold on, would you agree? Is there any disagreement on this set or on your set that the tariffs of the EU are higher, and that the non tariff bearers are higher, and that the wt O in Geneva is basically sanctioning that through tuesdays one is the But would you agree with that?
I think there's a bigger question FactCheck there. There's a bigger question here. There's a bigger question here. And this is something that the German Finance Minister has come out and talked about, which is they'd be willing to drop all tariffs to zero if the US were willing to drop all tariffs to zero, there is a willingness to negotiate aground the board to a lower tariff regime. Would that be acceptable to you?
Or is ten percent?
So stay with that. See that's such a misdirection. Okay, it's the non tariff barrier. Stupid to kind of paraphrase Bill Clinton. It's like, it's the non tariff barriers. So when countries like Vietnam or entities like the EU say to US, oh, let's all go to zero tariffs and everything will be okay, that's not the problem. It's part of the problem. But the bigger problem is the non
tariff barriers in Europe. It's the vat tax. I mean, I don't know if you know this, but the United States has tried going back to the nineteen seventies to get equity treatment for the that tax which most countries of the world use versus the income tax which we use. We haven't been able to get it because the WTO has a majority of people who benefit from sticking it to the United States, so they do so. The zero road tariff thing, that's that's misdirection and on your set,
you should call it on that. Let's lower the bad terror barriers and let's let's let's give you relief on the VAT tax. Now we're talking the VAT.
Tax is a slightly different mechanism. This is all going to take a long time, and there are a lot of competing factors here in terms of who can possibly pull these levers. And I'm just wondering, we've got two months left in this ninety day negotiating period that is paused for the retaliatory tariffs. Does that just get extended out another ninety days as you have to deal with different legislative bodies to possibly remedy what you.
See, Well, we don't have to deal with legislative body. Well, okay, in the EU perhaps, but you know, like coin a term in Trump time, which is to say do it as fast as possible without screwing it up. And that's all we're trying to do. I go back to the observation that the United States trade representative and that building, which is historic building, by the way, beautiful to see if you ever get there. The lines, you know, they're
they're coming in and out. We're talking, and we're talking, and you know, let's as the Boss says, let's see what happens. I mean, it's in everybody's interests around the world to level the playing field with the United States in a way which allows us to restructure this international trade environment which is fundamentally skewed against the United States. I mean, we're losing because of this system. The United States is losing our manufacturing base, We're losing our defense
industrial base. And when push comes to shev and folks around the world are looking for the United States to help defend them. I mean, we get to a point where we can't do that, what good is that? So trade? Trade economic security is national security is one of the guiding principles of President Trump in this administration. So we're we're just trying to get fairness here, give give fairness a chance here, and work with.
Us looking forward to an update on Mondays.
It's going to see it once again, sir, Thank you, Director of the Office of Trade a Manufacturing Policy at the White House. Heading into the weekend, we can extend the conversation with Sarah Pianke of eviCore. Sarah, we've had positioning now for weeks ahead of these talks. Here they are, who's got the leverage?
Well, look at this point, look, I think China has a bit more leverage. But the reality is both sides would like these tariffs to come down from these levels that, as they all say, are basically an embargo. So I think both sides will be delighted to you know, just use even good mood music out of these talks to
take things down to the escalator. So I do expect at some point next week we'll see these tariffs come down to the sixty percent ranging on the US side, and I think I do think China will we'll matchine in some way.
Sarah, how are you thinking about this weekend? Is it talks about talks or do you really think that they are going to hash out some trade issues.
I think they are going to hash out minimal trade issues. As you know, the one thing we've been saying in all these countries is trade. Actual trade talks is hard and long, but this is not hard. This is trying
to get down to something just manageable. While they begin talk, so I think they'll they will talk about rare earths, they will talk about some of these other issues, perhaps if you purchase agreements, but in general, everybody wants this to come down from these unsustainable levels and then which by the way, sixty to fifty percent still really really high, then that can at least, do you know, put us on a path for an actual discussion, an actual outline of what they're trying.
To achieve to drop that rate.
Does the US need to see a concession from Beijing.
I don't think so. I think, look, they have to make sure it doesn't appear that it's just a purely unilateral a walk away. But I I think they can use the cover of a good conversation, a commitment on a small commitment on fetanol. I think it can be largely symbolic or policies that perhaps are already in place. Pretty much. I don't think there's a lot here, because again I think Beijing has a lot more patience and
pain tolerance in the United States. But nobody's really happy with where we're at right now.
Sarah.
We're hearing from the President right now saying China should open up its market to the USA. It would be good for them. Closed markets don't work anymore.
Sarah.
You lift some of these negotiations with the Chinese before as the deputy US trained representative in a previous administration. How difficult is it to get China to move to where the US would like it to be. What is it that they're refusing to open up that we'd like to see them open up?
Well, I'm not sure that opening up is really kind of what honestly, what where the tensions really are? To be honest, last time the President got trying to agree to a bunch of purchase agreements, a particularly around ag I had the honor of trying to see if those were enforceable. There was not a lot. There was pretty clear that China wasn't going to do that, And so one of the challenges is not just what the agreement is,
but does anybody actually ever listen to it? The truth is, what China really wants from the US is more access to some of our technology and chips, and that's why we always think this quote grand bargain is very very difficult. We think the best you can do is sort of a package of trades and exchanges and maybe a little bit more market opening, but that's really not the core of the issue.
Sarah, I appreciate your time, as always, so Yankee out of the call with this around of table relationship of being my wilth alisiha good moniic in warning you were following that conversation he said he didn't want to get ahead of negotiations this week, and what's the best case Monday morning?
What do we waking up to?
So you know, at six am the best case was a fifty or sixty percent tariff rate and ten percent universal, and then an hour later it was eighty percent tariffs on China. The news changes quickly. Interestingly, the markets have been hanging in there. I mean, the futures actually have not reacted to that, And I think the message that the markets have learned is that this is one grand negotiating strategy and there's good cop bad cop in the administration.
And it's very clear with what the direction of travel is, and the direction of travel is lowering of the tariffs and getting to deals. I think it's also no accident that doctor Navarro was on today before the negotiations in Switzerland this weekend, since he has seen to be the most hawkish when it comes to tariffs and particularly on China. So if this is part of a negotiating strategy, I think the markets have learned it's a negotiating strategy.
So what do you make.
Of that idea that there's been sort of I don't want to say benumbing of markets, but the response to headlines has been coming in again and again. Does that give you actually a sense of comfort?
Oh?
Yes, I mean, look what really happened, you know somehow April ninth was the ninety day pause. Was the message to markets that were moving the whole probability curve over to the right and the worst tailed scenario, that highest risk tail scenario is actually off the table. That's why the markets were able to rally and bounced off the lows. That continues to be the case. And if you think about it just in terms of numbers, because this business
is all about numbers. The original tariffs of April seconds were about six hundred billion worth of tariffs six hundred billion dollars, which was basically attacks of two percent on the US economy. US economy is about thirty trillion dollars of GDP, so six hundred billion in tariffs was about two percent hit, which is why you had the odds of recession go straight up, because if you think growth rates are about two percent, you put it too percent tax on it, you get to zero. Now, with all
the walkbacks, worried about four hundred billion in tarras. Okay, so we've walked back about one third of that, and I think ultimately we get to somewhere of about two hundred billion in Tariff's still very high, but it's not a two percent hit to the economy. And that's what
the market's been pricing in the whole time. Earnings are probably higher for next year than that immediate base case in April second, and at some point the markets are going to look to twenty twenty six, and by the summer we're looking at twenty six and not twenty five anymore. And I think that's what's happening in the market.
Weekend, and a weekend this weekend doesn't feel like it doesn't not in this business.
I mean, I mean, look, we've all glued to our screens for a long time. So there's now weekend, there's the Sunday nights checking the futures.
We're going to do that again.
But I think the intensity of it, as I said, the markets have learned, this is negotiating. This is a negotiation with doctor Navarro on to set the stake in the ground, to commit the US on unnegotiating.
Saturday, Denis went bust ranking. We're saying China tech waking up to the revolution with the US Chinese trite sensions abound down John's staff for more. Alongside of Leasha to NY Town, it's going to say a sink we kind of tried tos Why does tech fits in?
It's all of this.
Look, I think Tech news that they're walking back from the cliff in terms of what they're going to need to do right because the reality is that that's the hearts.
And lungs of the supply chain.
And I think what you've seen the Nvidia moment really essentially giving Huawei the China market. I think that was really that was the start of this. I think it was the start of the administration recognized they're gonna have to pull back, pull back, and look, you can't you can't argue with the data.
How self sufficient is Chinese tech without US tech?
Look, they need US tech. But which is be someone that spends so much time in China. I mean if you put them in a room with a Selser bottle, toothpick and you know, in a straw, they come out with an AI chip. So the problem is is that you don't want to put China in the situation that they're going to have to ultimately innovate, because it's my view, for the first time in thirty years, the US has been ahead of China when it comes to tech. So the last thing you want to do is cut US
tech off at the knees. And I think now the administration is part what we're seeing in the market. They've taken steps back and I think now at least getting to some sort of balance. But still look, a lot of you know, definitely allow more wood to chop ahead.
They're resenting the diffusion rule onto the Biden administration. So some of these geopolitical swing states are going to get.
More access to US chips.
How does China take advantage of that?
I mean, look, China definitely is gonna, you know, from a market share perspective, go after. I think we've already seen in terms of Quai and others what they're going after. But the reality is really the H twenty right like ones you restrict the age twenty in terms of Nvidia, that sort of started this sort of game of Thrones
battle that we're seeing in China. Definitely edging in terms of what I've used the AI revolution Boba, you know, I think front and center, but US continues to own the AI revolution, and I think the one thing as we go into Switzerland, you go into talks, the last thing you want to see here is administration just double down because if you do that and you don't lower the tension, you don't de escalate, it's US tech that
gets hurt. And right now, I think that's sort of the tenuous situation we're in, although much more positive than called three four weeks ago.
And Alisha really points to what we've seen in the markets recently, which is as the tone has softened, we have seen a huge ripporring rally in tech and everyone's been piling in. It's the hey, AI stories back on, Let's go? Is that going to be the leadership again or is this a tenuous rally in face of some of the uncertainties of how far some of these negotiats tactics can work.
So the one the thing that uncertainty is that it creates a two way market, and I think many investors see this as a great entry point. The multiples are much lower, the stocks have been crushed, and you know, ultimately, I think the narrative that US exceptionalism is over has been has been very strong, and we saw this rush into global markets, and the question is today I'm just going to point out that the S and P has outperformed developed international month to day, and there's a reason
for that, and that's partly because the tech earnings. With the multiples and the cash flow, you can't get around it. And ultimately, as an investor, you're investing in future cash flows. And what we saw from these companies is that there's nobody else that can touch these companies.
And to your point, it was a jail in Bruns and movement for the taxpase, let's say the nixtent.
And it was a jail and Brune and six bucks.
You've seen ultimately what happened here in terms of the AI.
Right, the AI race flash points allow me to sort of date town a compo Deep sixx one. Okay, big upset be on Tride. Let's forget right, Deep six one the second one. I think this week Apple coming out and saying so is paked on Google.
What was your reaction to that headline? That was a shot.
Across the bow, right.
I mean, just given what we're seeing, even on the regulatory fronts, the last thing Alphabet needed to see. Look, I think barxworts and a bite there, and it's like it's our search queries like where AI is not ending Alphabet's hearts and lungs in terms of, you know, their core, their core money train. But it shows Apple when it comes to AI and building it out, they're gonna have to do their own path and they're gonna have to build some of that out.
And you talk about deep seek to almost kind of put it in a bow.
Look this every big tech firm wants to be. They want to be the seed at the table. No one's gonna say, okay, hey, Apple, Google, you could be our our AI or open AI. And I think that's the reality that we're seeing here.
At least it just quickly. Has the tech trait changed? Is it different now? Do you have to play it differently?
I think you do.
You have to differently. I mean it's no longer close your eyes and just throw the dart at the magnificent seven. I mean, there's clearly different growth rates here. But the power of the size of the companies, we think is still going to actually drive the SMP here. So we think the American exceptionalism trade lives on and maybe in different ways. But look at industrials have been rallying, you know, aerospace, defense has been rallying, Tech has been rallying. This is
the base of the US economy and the SMP. It does suggest also just say that some of the conversation coming from the White House is finding its way back into the market in a positive way and not just putting a lid on things. Like we said weeks ago, the forty eight hundred low is in. It's a regardless of recession.
Eliza Levine Dan ives from New York and this is Bloomberg. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am 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 Out
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