China is Broadening Out, Roach Says

we're seeing today? Um, yeah, there's another set off. The stalk has hit a new record low and intraday low. I mean it's it's reflective of concerns that investors continue to have about the potential for for a turnaround at the farm. And you also see potential concerns this week stemming from the qualitative part of the U S Truss tests that are due and tomorrow. Well, you bring up a really important point and it's not just Deutsche Bank

this morning. Tom twelve days of losses for financials on the SMP five DRED doesn't amount to a massive, massive move, but it's the longest daily ing street and I did what Liza would have done. I compared BMP Perry bout a Deutsche Bank, and to be fair to Deutsche Bank, BMP Perry bar is not doing much better. Yes, So so I just wonder what's going on with global financials

at the moment and what underpins the overall concerns. But I think in Europe in particular, there's concerns of that interest rate wise that was expected at some point is being seen as further out into the future. And of course that means that you know that the margins remain very,

very very thin in this region for for the seseeable future. Um. But you also have investors today saying that they think that even at these levels, these shares are overvalued, which you know is somewhat surprising given to those significantly below what they were a decade ago. ELSA in the institutional America there's something about ten dollars a share and then five dollars a share in terms of ownership. Does that seem constraint face Deuts your bank in Euros in Europe?

Is there a trip point where all this matters? No, I don't think so. We've seen the bank, you know, across the nine year a mark before and then bounced back. So I don't think that's the case, but clearly the sustained lack of confidence m is husting the bank and will see more of that potentially with second quarter, where you know, everybody's going to be focused on just how much of that revenue the bank can hang on to

as it shrinks in in certain selected areas. And alastin banking question that came up earlier this morning in a Lisa, you've lived this in Europe, which is negative interest rates in the Angels system is part of this banking angst. Just the chronic negative rates that Europe has enjoyed. Well, I think that's obviously playing playing a role here. I think you know the economic the you know the economic prospects here, aren't you know that they're not looking as

prosperous as they would have been? And I guess with the potential hits from trade wars, um cloud in the future, cloud in the outlook even further, of course, these banks need those economies to be growing, which raises the question why the ECB doesn't respond to what these banks ultimately would like to see net net is the ECB just made the decision at least that ultimately the negative rates are what's best for the consonant overall, even if it

does hurt the banks. I guess so. And I think one other that has come out recently, as you know, the regulators here are pushing for um, you know, greater consolidation, and it's not clear that they have as much um you know, as much direct influence on the banks through

you know, because such a thinly spread market. Just to get a final question to you on the stress test results later this week, looking for the results, try and to gauge the ability of some of these big banks, how much they can pay out, how big the dividends will be. Are these stress tests stressful for these lenders or have they worked their way around things? Well? I think, you know, the experience has shown that the qualitative qualitatives parts of these tasks, which is what we're going to

be hearing about tomorrow, do have an impact. And you know, for the European banks, the focus will very much be on Deutsche Bank. Lisa, thank you so much, greatly appreciate it, very valuable this morning. Lisa marn't Newsy for years just out front on the Italian banking crisis, and of course what we see across all of um European banking. One of our great joys our privileges in Bloomberg Surveillance is

to talk to people of different opinions. That we particularly enjoy talking to people that can holistically bring parts together, like finance, like politics, and like the geography and history that we all speak of. And one of those would be Stephen Roach. Of course some would consider the inventor of modern market economics. He single handedly did that in the digital space at Morgan Stanley years ago, author of The Next Asia, and of course at Yale University. Steven Roach,

Good morning, President. She has to respond if Liz Economy tells me this is a new leadership in Beijing, what

does President Trump underestimate or misjudge about President She? Well, Um, what what the Trump administration is looking for by all these pressures on China, whether it's on UH, tariffs, intellectual property, or investments, is for she to capitulate on his core strategy of innovation industrial policy uh and um PAN regional leadership uh and and she is not going to capitulate on those core principles, so uh, you know they're they're really at a at a standoff here, and I think

while while China certainly does not want a trade war, they are not about capitulation UM in any sense of the word tone. How do you judge the moderates of the Trump administration. I would assume the announcement this morning on investment restrictions was a victory for Secretary Minution, of victory for their former advisor Gary Cohene, of course for years with Golden Sachs. But is he getting an articulate moderate advice stream at the White House? Not even close.

I mean, you know, it's it's just a shading different degrees of of China bashing. Some are more extreme than others. Navarro and Lightheiser obviously at one end of the spectrum, but you know, not too far behind are the UH sort of the the ones that would have UM embraced this view as well, from from cut Low to um Um Manuchin. They just don't don't want to go quite to the extent that the extremists do. But they're certainly

not UM an effective counterweight in this. And by the way, you know, all the markets are sort of encouraged over the UH, the apparent UM backing off on extreme measures on Chinese investment. I think there's still a clear desire to use Zippi as far more aggressively in restricting Chinese investment into the US in anything even close to resembling their made in China in austrial policy. And Stephen, doesn't

that approach make a whole lot of sense. I don't think it makes any sense at all, because the first of all, China is very effective now in developing its own indigenous uh technology. Is the idea that they steal blatantly from Us than the Varro story is hopelessly um um out of date. And you know, and certainly there were some transgressions in the past, but I think since the sunny Land Summit of two thousand fifteen, in the reduction of Chinese state sponsored cyber hacking, which is um

there's clear evidence of that. I think the Chinese are now far more um uh temperate in their exercise of technology transfer. The whole concept of force technology transfer through joint ventures was ludicrous from the start. I mean, this is you know, light higher fiction to justify the three oh one tariffs. Joint ventures. I was a partner of a joint venture with the Chinese. You know, these are commercial uh efforts legally protected two partners collectively working together

to build a business. Of course, they share systems, they share people, UH, they share technologies. Never once in my fifteen years experience and a joint venture with China was I forced to turn over anything to my Chinese partners. But Stephen, I guess the argument is that if you want to operate in China, you are forced to go into a joint venture in many sectors and in many

goals of these foreign companies. And I guess you know, if you don't like, if you don't like, you know, the requirements of the joint venture, which by the way of being relaxed, then maybe you don't have to operate in China. I mean, you know, no one is forcing you. It isn't that the argument, Stephen from the U S side, that if that's the rules of the games in China, why shouldn't that be the rule of the game in

the United States. Well, that's not the rules that the United States is imposing on China in any way whatsoever. I mean, the the US is now going to um depending on how they they enforce this new strength and Cifius action. The US is simply gonna deny China the right to participate in any type of venture, joint or otherwise in the United States. And and what China says, come on in. We want you to as partners, but we want you to do it within our legal and

commercial structure. It's a very different concept. Well, Stephen, it's a very different approach. I struggled to understand whether the concept is different. The approach might be different. The United States making it a little bit more difficult to a little bit, wait, hold on, hold on a little bit is not the right way to describe an actual Well, let me finish my sent Just let me finish my sentence. Pushing it through Cyphius in a more stringent way makes

it somewhat more difficult. We can have an argument about the degree. I don't think that's an adequate use of our time this morning. But I just think that the United States is possibly doing the right thing. And some people might agree with that that if China wants to upgrade the way it is, then the United States is sending a message open up even more. Otherwise we'll make it more difficult for you to invest in our economy.

But here's the inconsistency of of what you're seeing. The the real hope for US China UH to resolve their differences is precisely the point you're making, and that's market access. The Chinese one access to our markets because we're the world's richest and deepest um markets, but we also need access to their markets because they're going to grow their consumer economy UH in a way that no nation has

ever done in modern history. I've estimated in a in a in a book I wrote a few years ago on balance that the tradeable portion of Chinese services is going to expand by four to six trillion dollars between now and we have the most competitive, strongest services sector in the world. There's a shame on us, and we don't get a piece of that. So the answer is not restriction. The answer is opening up market access through a bi lateral investment treaty, which the US and China

have failed to agree on for ten years. We're going exactly the opposite way to your recommendation. Makes absolutely no sense, Steve Roach. If you're just joining US folks, Steve Roushevale University, and the time we've got left, Dr Roach, I want to talk about the Chinese strategy here tip for tat is the media interpretation of this take us to Avanage Dixon in the art of strategy? What is the art of strategy? For President she? What does does he just

weigh us out? Is that his number one factor? I think I think the the the artist strategy is having a diversified portfolio of foreign interests. So UM, the US and China have been embraced in a very strong codependent relationship. I've talked to you about this for a long time time, and the Chinese have probably put too many eggs in the American basket and they don't have a lot of natural allies in in in the in the region, so they have UM really embraced a much broader external strategy.

So the Belt and Road initiative connecting China through UM foreign direct investment into sixty four other countries in the region. It is important building a new financial architecture through the

Asian Infrastructure Investment Bank, the New Bricks Development Bank. UM. China is broadening out uh it's management of geo strategic relationships, so that the strategy, so if the US UM continue is to try to contain China, which has been you know, an ongoing feature since the Great Asian pivot of the

Obama administration, then China's other options. Dr Roach, thank you so much, Stephen Roach at Yale University, is wonderful book of a few years ago, the next Asia for that question, whatever your politics is across this nation, this is the interview of the day. We will feature this on our podcast out of the Apple Podcasts and Spotify, and we do this with Noah Feldman of Harvard. His book of

eight years ago, Scorpions, is nothing but outstanding. It is the battles and triumphs of FDR's great Supreme Court justices. And we are thrilled that Professor Feldman writes for Bloomberg Opinion, Um, you brought FDR into the title, uh, Noah, of your essay, A decision that will live in infamy, and that goes right back to December seven, and we had to decide what to do with the Japanese. What do we get so wrong in incarcerating Japanese if we thought they were spies?

What we got wrong is that we got carried away in the very justifiable need to fight our enemy in the war, and then we projected that onto Japanese Americans who were in fact loyal to the United States and not to Japan. And then we in turned Japanese Americans and the Supreme Court to its shame upheld that decision really out of loyalty to President Roosevelt, and in the belief and the staken belief that because the interment was any way coming to an end, no one would really

remember it going forward. And instead we think of the Supreme Court's decision there is one of the worst decisions of the Court has ever made. Let's bring it forward then to the rationalization of Chief Justice Roberts and the deciding vote of Justice Kennedy. And what they did was say, yes, that was terrible in the forties, but this is different.

Noah Feldman and Justice Sodamayer disagree. Chief Justice Roberts went out of his way to say, oh, Karamatta was terrible, but the travel ban is different, he said, because here on the surface of the ban, there's no reference to people of Muslim origin, just to a bunch of Muslim countries and not where he said, I'm not going to

take very seriously. The background to the band in which the President and his advisors spoke about the goal of banning Muslims immigrants from the United States, and so as a result, he was able to avoid actually looking at

the evidence that the lower courts did consider. And Justice Kennedy, who has, what is unusual circumstances, an admirable history of looking very closely at what government officials mean to do to see whether they're motivated by by animous in this case, was willing to join that opinion and basically close his eyes to it. And I think that will be a real deviation from his record and a stain on his reputation. Just just Stephen Brier in descent went to that idea

of your phrase, professor of mean to do? Operationally? How will this affect the administration? And operationally can people push against the arching theme of Trump the Hawaii It really depends on whether the executive branch uses the system of exemptions that it has in place to make lots of case by case determination. Ordinary people are fine. And if they are and they do that, Justice Brier said, well,

then this may not look all that discriminatory. But if they don't, if the government just sort of said, look, if you're from one of these countries, you're excluded, then Justice Brier said, the whole thing looks a lot more like. And what happens if the Trump administration says anybody from

country ABC can't come in? What did you learn yesterday if that statement is made by the administration, Well, we learned yesterday that the court said that the administration can get away with it as long as they provide really a very minimal justification. That says, because we think their national security concerns, and even if the way they justified is pretty unconvincing to most reasonable observers, the government will be allowed to get away with that. And in that sense,

this is a win for the Trump administration. It's a validation for the for the Trump administration, and it's a defeat for anybody who thinks that the Constitution is supposed to stand up and block discrimination. So does this go on forever? I mean, I mean, as you said, Karamatsu was going to disappear after the war and all that. And does this get amended down the road if if the Democrats win three administrations in a row and all of a sudden it's a liberal court again, does it

get changed or is it a lot? Is it? Is it chiseling granted as of yesterday? Well, this scenario is probably pretty unlikely to repeat itself. And so what you get. And this is what happened after Cormato is the scenario wasn't repeated, but the President sat there as as Justice Jackson actually said in his descent in the Coromanto case, the principle sits about like a loaded weapon. It could always be used under circumstances of Christ. And that's exactly

what's going to happen here. This decision will sit there like a loaded gun, and it may not be used, but it's always possible that it will. And a liberal Supreme Court eventually would probably say exactly what today's court said about Cormato. Oh that was terrible, it was wrong. We were so confused, and now we should never We should never have done that. This isn't who we are. If you're just joining us from Harvard. Noah Felben, he took us a lot degree at a school that serves

good pizza in New Haven, Connecticut. But Noah Felman with us. And I can't say enough folks about his book Scorpions and Battles and Triumphs of FDR Court that the whole thing of the thirties forties was it was a stacked court, that FDR overtly stacked the court. Is that what we're seeing right now with this president. We're not quite at that point yet. You know, by the end Roosevelts had appointed eight justices and the Chief Justice because he was

president for so long. So far, Donald Trump has just gotten one justice. The question is will he add more? And I think it's entirely possible. If Justice Kennedy resigns this summer, and if the President is able to nominate somebody in the Senate confirmed them before the midterms, we may well see an extremely conservative court for at least

a generation. On the other hand, if that doesn't happen, or if the Democrat when the Senate, it seems entirely probably they will do just what the Republicans didn't block any of Donald Trump's nominees, and then all bets are off place Trump the Hawaii in the phrases that our audience knows, I think a Row view weight, sere, and Brown in the fifties. I mean, where does this case fit in in Noah Felban's history of the judiciary. Those are cases that were controversial when they were decided, and

in the case of Brown against Board, of education. Over time, everyone came to accept the outcome. In the case of Worldviewade, everyone didn't come to accept the outcome, and they became the basis for long term social controversy. This is the worst decision in a in a serious way, because it

sends a message that it's open season to discriminate. But it's also unlikely to cause the same kind of long term arguments because unlike segregation or abortion, which were long term social issues, this is a case that's really restricted to this unique restriction on immigrants from from five Muslim countries. One final question, if I could tell us about Justice Roberts. Chief Justice Roberts, he had an acclaimed decision where he went against the republic in our right side tide a

number of years ago. But but Chief Justice Roberts, he wrote the majority opinion. He went against the World War two ruling. But what did you learn about Chief Justice John Roberts yesterday? Justice Roberts. Chief Justice Roberts wants to follow the principle of judicial restraint. He wants to avoid judicial activism, but when it's convenient, he will also go

go the other way. What he did here is I think he was really trying to preserve the reputation of the Court and try to avoid the Court dirtying its hands by dealing with the travel ban. And I just think he miscalculated. I mean, I think his heart, I don't want to want to speak about his heart, but I think his intention is to keep the Court from getting caught up in very great controversies. But I think he made a mistake here and he did get in

I've got to ask one to find a question. Professor Feldman, you're truly one of the nation's experts on Islamic thought. You study in Europe as a Rhodes scholar, and you've taken many hours to study Muslim When you see the phrases in your essay anti Muslim bias, what does that part of America that feels that, what do they get

wrong in their legitimate fears of Islamic extremism. It's that there are absolutely some Muslims who have extreme views and who take extreme actions, but that's not the case with

a great overwhelming majority of Muslims. And as is the case with any form of discrimination, the mistake is to stereotype and think that everybody who belongs twit certain category is like the most extreme versions of that category, and that's just not the case for Muslims, and it's certainly not the case for Muslims you want emigrate to United States. Noah Felban, thank you. We adore that you're right for

Bloomberg Opinion. I'd also point out that not only is Professor Feldman written on Trump the Hawaii, but Kess Sunstein has written as well. I'll get both of those essays out in a busy morning here on social media. Exceptionally strong day for Bloomberg Opinion, and l move that out on Twitter as well. Noah Felban is with Harvard much. We are advantage of Bloomberg to have with us one of the jewels of the legal racket store store. He

is Bloomberg Supreme Court at reporter. Far more than that, he clerked for Judge Kaufman out of Baltimore, and it's spent time at Harvard Law School as well. Gregg, wonderful to have you with us this most historic day. I want to go right to what went zeitgeist across this nation yesterday, Professor Feldman's Bloomberg opinion column, which summed up

some of the emotion. We'll get the cast Sunsteen in a moment the worst decision since the infamous Corey Matsu case, when the Court upheld the interment of Japanese Americans during World War Two. These efforts are far too little to save the Court or Justice Kennedy from the judgment of history, which will be harsh. Chief Justice Roberts also takes the opportunity to announce that Corey Mantsu quote was gravely wrong the day O was decided and has been overruled in

the court of history. Greg, will this court decision stay? Will it stick? Or is there room to move here where it will be overruled? And we're looking at Noah Feldman's classic book on a tumultu was Court of another Time scorpions. What's gonna happen two years, Greg, five years down the road. Well, it looks like, at least with this court, it certainly has some staying power. Tom. The majority really didn't seem like it had that much trouble

with this case. It basically Chief Justice Roberts and the other Conservatives looked at the federal immigration laws. They said, they give the president a very broad discretion to limit who can come into the country. Uh, And they said, when we're talking about a claim that he's violated the Constitution, we're not going to deeply second guess his national security judgments. Here, they had a legitimate national security interest and that was

enough for them. Let's look at Cass Sunstein. Now, of course Out of Chicago is wonderful recent book on impeachment. Here's Cass Sunstein on the ninety two pages, the multiple diverse opinions extending to ninety two pages. Chief Justice Roberts repudiated Karamatsu. Special Fan Toldness Justice Kennedy's words are pathetic, and then I thought this was fascinating. Greg Justice Briar's quiet bit meant to reason giving and the rule of law.

It was has a claim to stand among the most distinguished descending opinions and the history of the Supreme Court. What did the quiet Briar? What did he say? Well, interestingly, so there were two descents. One was from Justice so somebody or who invoked invoked Kamatsu and said the opinion

was a lot like Kamatsu. And then there was Justice Brier who was focused on a lot of the practicalities of this, and he said the biggest problem he had or a big problem he had was that the system is supposed to have an ability to get case by case waivers for people who don't have any opposing the national security threat, who have an urgent need to get into the country for medical care or something like that.

And he said, it's not clear to me that system is working, that anybody has given guidance to consular officers on how to let people apply for case by case waivers. And so what he really wanted to do was to kick the case back to the lower court and say, let's make sure this is this the actually works. Will that happen to me? The essence of this transaction, this legal moment, do you know, go back to Roe v.

Wade seventy three or Brown decades before. That is what happens greg operationally tomorrow or in two thousand twenty two, off of Trump v. Hoi operationally, what happens well, the operationally, the administration has very very broad discretion. Um. You know, Justice Brier, who's often a bridge builder on the court. He and Justice Kagan, who joined his opinion, are two of the justices who try to look for ways to compromise and bring in some of their conservative colleagues. But

they didn't. The majority opinion, as I said, it says the president has very broad discretion, and they were willing to take that step. That Justice Brier said, they weren't willing to force the administration to come back and defend itself in terms of how it's allowing those individual waivers. Greg is, is there are we hearing that actually President Trump may add more countries to his band. So so it is within his power to do that. That's that's

part of and to take countries off. They've already taken chat off the list at an earlier phase, and that was part of the selling point for the president that, um, this is not a rigid band. It is, however, an indefinite band. It doesn't disappear unless the President takes an active step. Um, you know, this opinion certainly has the potential to emboldenly the White House and the President on

all sorts of immigration matters and border matters. And so if he looked at this opinion and said I have the power to add additional countries, uh, he would probably have some some legal justification. Greg Axios. Mike Allen just published his seconds ago at Axios, and he calls it polarization nation and notes in the primaries last night, the liberals did well. We just heard from Kevin sit really on that what is the significance in the Greg Store

world to a six three court Kennedy retires? Whatever President Trump does another course, It's fine, I get that. What's the what's for you the distinction of going from five four to a six three? Ish? Feel well, it certainly solidifies and extends the conservative majority. Um, there are issues that we didn't see them in this term. There are a significant number of issues where Justice Kennedy sides with the liberals. Abortion rights is certainly one of those. Gay

rights is certainly one of those. Those precedents would suddenly be in jeopardy. Roe v. Wade would certainly be in jeopardy if if uh President Trump got to nominate a successor to Justice Kennedy, And Um, you know this would be a conservative majority. That would you know, in all likelihood be here as far as the eye can see, there's not a whole lot of obvious potential for there to be a chance for liberals to shift the court back. Reg Store, thank you so much, greatly appreciate the early

morning activity. He was working all night of course, on this historic ruling, Trump the lie MM. Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio