Surveillance: Both Parties See China As Rival, Eichengreen Says

the Midwest? I was not, but I lived in Farger, North Dakota out there, I mean maw folks. Farm Journal with Lisa Brown was seepid. All about the press we did. We did farm Journal every morning and you learned about it was when were kids? They sound science East those people upper east Side, upper west side, Manhattan. We don't understand that linkage. John, on this this phase one partial soybean uh item. I will give you this. U S farm bankruptcies searched twenty four to the highest since two

thousand and eleven. This according to one work News article yesterday. Just to give you a sense some of the strains is that the morning staff from Lisa Ravits. Do we get one every morning? It's Farm Journal. Francis Donald joining US now Manual Life Fasset Management, head of macroeconomic Strategy. Francis, your thoughts on the events of this morning so far? Well, this morning is just another example of the market having to digest long term themes and what the next two

to three years will look like. I was sitting here watching futures drop as much as half a percent, and I thought, really off of another trade headline, but it echoes exactly what the Fed told us yesterday, which is we shouldn't really be focused on what the next three months look like in the US global economy of the trade. Who should be thinking about the long run, And the long run is looking more were more discouraging. Well, let's look at the Chinese p M I s out overnight.

Really weren't impressive at all. They were disappointing, Francis. Over the last couple of weeks, the sentiment has shifted. Any reason to believe the data is set to follow anytime soon now? But worried there. You know, Chinese pms have been sub fifty for six months and we were hoping for a re acceleration or what I call a L shape recovery, and everyone says L shaped isn't a recovery at all. We'll call it a stabilization. But it looks

like they might be double dipping. And what's so critical here is that we are in the middle of what people have been calling our third mid cycle slowdown. But what different about this one versus sixteen is that we don't have the China lifeline this time in we're experiencing a global slowdown. China is using aggressively infrastructure through the roof. We don't have that component this time and that's what

makes so different. I don't mean to pick on your Francis, but you and I are so up about the Montreal Canadians. I can understand that I can bring you down what is mid cycle? What is what is mid cycle? Mid Cycle only means we haven't put gray bars across our

charts and called for a technical recession. But I spent a lot of time thinking exactly about that, Tom, because as someone who's managing money, we have to recognize, you know, are your asstalcation decision is going to be substantially different if your plus point one or minus point one on your g d P. They really shouldn't, so you know, I agree. I think it's a little bit of kind of a way to fluff up what's really just called us a substantial slowdown and growth. Do we blame the British? John?

What is mid cycle? I'm serious? Well, reflecting on the mid nineties, late nineties scenario, I just wonder, francis whether a better parallels the growth scare of fifteen sixteen. What is the better parallel right now to what we're experiencing at the moment. Well, we don't have a parallel because we have not experienced, at least since the nineteen thirties, a period of such heightened trade tensions before. That makes this environment really really different. Quote for policymakers like the

said to compare against. They've essentially told us yesterday that seventy five basis points is a mid cycle adjustment just because seventy five basis points. But there's no way for us to know that's a theoretical concept. My personal views, they have to go at least twenty five basis points more. But critically, the messaging that we're getting is it doesn't really matter whether we're mid cycle or not. Or recession or not. This set does not want to hike rate

for a very long time. So we can sit here and talk about whether the next three to six months looks like whatever in the bond market, but longer term, I mean, this is again a by bonds where diamonds type of situation, Francis, before we let you go, I'm really pleased to announce that Tom Kine and I do have an interview with the Vice Chairman of the FED, Richard Clarida, tomorrow morning Eastern Francis, if you have a question outstanding at the moment, what would that question be?

I don't want to know. Um, you know, when would you hike rate again? And exactly how much inflation will it take. That's the most important question for all of markets, and it has to do with this three to five year outlook that will entirely define what acid allocation decisions look like for the next years. What's the inflation? What's the inflation? Is the inflation you know Cleveland Fed higher

or is the inflation lower? It's a basket of all of the inflation metrics that that shows us that we're back up to a sustainable taper target. To me, this is the number one question. Johnny Chairman Paul brought it up yesterday Francis Donald's inflation. Thank you and thank you for writing that question for us. And because of that we can thank Francis and say Eric Clement, Francis husband, a fantastic artist. Check it out, very very cool stuff.

You didn't know that Radi coo stuff and should check it out. Bloomberg reports this morning that the Chinese uh decided the Chinese decidedly want tariff relief. If we're gonna move forward with the trade talks and that move the market, you get lucky sometimes. John farre and I did not know that Brendan Murray and our team would be reporting this important story, but we did decide to have on from the University of California, Berkeley, Barry Green, who joins

us now from our London studios. He is iconic on international economics and the globalization of capital. Barriot, want you to take us to Beijing. What is the thought process of the Chinese? Is they deal with a mercantile American president? Thought Chinese now that um Mr Trump is a tariff man. I think they were never under any illusions that um this administration was going to give up its aggressive trade policy as part of a far reaching deal. Neither are

they prepared to change their economic model under pressure. Bloomberg's news this morning is big, but it's not surprising. I think this UH Phase one deal was always about fifty billion dollars worth of soybeans. It wasn't about change in the Chinese intellectual property rights regime. Well, then that we've got to move on as well. What would be an appropriate approach of Mr Lightheizer to try to get his

president and the Chinese together. Everybody needs to understand that progress, if there is to be progress, it's going to have to be incremental. It will start with de escalating tensions with some narrowly focused trade deals, and that the bigger issues about force, technology, transfer, industrial policy in China and so forth will take years to work out. And the constraint there is that nobody knows whether Mr Trump is

going to be in office for years. Well, Barry beyond just that, professor, do you think will ever work these issues out with the Chinese? In the United States? We're going to have to work them out. I think if we're going to return to UH relatively robustly growing global economy. Uh, this backdrop of trade tensions and geo political tensions is unsettling for financial markets, but more broadly, it's a negative for business investment, and I can imagine it will become

a negative for consumer confidence as well. Going forward, the approach will be in the hands of the politicians, and the approach from the president is unlikely to change anytime soon, even if he gets a second term, even if he doesn't. Senator war And put out her trade position in July of this year, and arguably she's gonna put more pressure on the Chinese than perhaps this President of the United States is currently so professor with that, I will in mind.

I just wonder, in one shape or another, subsequent administrations are going to continue putting pressure on China, aren't they. You're right sho on that there really has been a seat change in Washington, d C. Where both parties now view China as a geo political rival, and they understand that geo political power flows in part from economic power and leverage. The question is what kind of tactics do you use in order to try to um deal with

the other side. Mr Trump's tactics, as everyone knows, are disruptive, unpredictable, and I think we're learning again today unproductive. Maybe a President Warren, a democratic president, more broadly, will have a better match between her tactics and her objectives. So I'm wondering, Professor using the market as a tool of persuasion, President Trump coming out and trying to get people optimistic about

a deal. I'm wondering if China is trying to get the market to go lower to give them some ammunition to show the consequences of not getting a deal. I don't believe that the Chinese are are are are looking at how the market reacts uh strategically From that point of view, I think they are simply trying to send a clear message that we are not going to buckle

under pressure. If we offer concessions, we will expect concessions, tariff rollbacks uh, no more threats uh that that that we in Beijing will have to forcewear any possibility of tariff retaliation in the future, And a recognition on the part of the United States that China has its own economic model, it's not going to abandon that under pressure. When they send that that message, the markets react, But I don't think it's the market's reaction that they have

foremost in mind. Barah, thank you so much. With Berkeley and of course the author of Golden Fetters and Globalizing Capital, among other words, a wonderful new book out of populism as well that was shockingly Prussian. Shannon Cross Cross research with this. Now on what we saw yesterday with Apple, Shannon, I was blown away by the rigor in the discreetness of the conference called Shannon Cross has been on four thousand, eight twelve conference calls, and I would suggest Shannon, this

one was different. There is a persistency and inertial force to growth at Apple. I think you just called me old. But yes, other than that, um, there clearly was strength and across the board, um, you know. And and they talked about in the growth of the installed basin, um, you know, the strength of of the iPhones and how they're they're you know, improving, and then when you look at what they're doing in services and a re excel ration growth and services across all geos, across all products.

It was a recurring theme within the call. We got a lot of ideas here, but just one I'll bring up is they mentioned installment sales are geometric in growth. Is that nothing more Shannon than taking expensive toys and putting them on a monthly plan. And do you have to do your Excel spreadsheets differently because they're moving literally

to being a monthly plan utility. Well, I mean the entire tech hardware industry is trying to move to as a service, So hardware as a service, service as a service. You know, everything going to a monthly recurring charge, whether it's for consumers or it's for UM corporate. So I think you know, that trend is something that Apple is working with. But Tim was very careful to say he didn't think this was a wholesale change in the model. I mean, they're they're clearly selling devices, you know, on

a onesday, two day basis as well. Shannon, there's a hope that we get a real change to the hardware next year with five G And I'm just wondering whether that business, the iPhone business, can return to the kind of growth we've seen in years gone by anytime soon. Well, I think I think it will be difficult. I mean, there's a lot of large numbers here right in terms of how big they're installed bases, and that there's there's

clearly going to be a refresh. I think the refresh is actually positioned across this year and next year if you look at the features that they added this year, and you know the demand they're seeing, which is clearly improved from last year. And then obviously with five G you'll probably suit mean more um promotions from the carriers to try to get subscribers. So, you know, I think it's more of a sort of a two year process. Will they get to significant growth, I don't know. I'm

not sure they know. It may be, you know, kind of lumpy, but I think the trajectory of a you know, increased installed base is what's key to them because if you look at it, services is about of the revenue, but already thirty percent of the gross profit, so the biases the upside on on gross profit dollars. Shannon, It's interesting to me that no one's talking about eight new product that's going to generate the kind of growth that we saw from the iPhone or even the Apple Watch.

There's no talk of that anymore. Now. It's just services and installs and the details that are not as exciting. Does that worry you at all? You know, again, because the margin differential is so much greater in services. I mean, I think some of the new products they're talking about are things like Apple Card, which you know that the CFO thinks could could be you know, meaningful over the next several years. So um, you know, it is changed, but it's hard to have big hits and product land.

And I would point to air pods. I mean, I don't know if you guys have noticed, but more and more and more people in AirPods. There's been a really good ones that they launched up, and it's the new lego. You walk around and you step on the damn things. Oh my gosh, I'm gonna start. I'm saying that people pick them up or you know they're gonna get tell Kane Household. It's very different to the other assholes across the country. You you'll leg out Shann gene Monster was

un earlier. He's got a three fifty view out there. It's not like a cell side target. But what's critical here is gene Monster moves Apple towards a Proctor and Gamble kind of valuation as a mature consumer entity. Can you go through that exercise? Or is Apple forever gonna be a product driven air pod company? To you. No. I mean we started talking to investors a couple of years ago about the concept that you know, this is

more and more recurring revenue the ecosystem. Um. Just you know, people tied to the brand it they you know, they've looked at it. They trying to figure out you know what point. You know, you're recurring revenue and your profit matters from a multiple perspective, and I think you will start to see multiple expansion over time because Apple has become so dominent and you know, they've they've expanded so much beyond just being a device company. Shannon. Great to

catch show with you this morning. Across that across research the co founder henrit To Trace joining a snap, Director of Economic Policy of Vada Partners, Henrietta. Great to have you with us on the program. Would love your thoughts on our latest reporting and the prospect of Phase one, even Phase one breaking down at some point in the future. Thanks so much for having me guys. Um Well per usual,

the reporting is amazing, UM, and I completely agree. I would say that I think that China is basically confirming what the administration has essentially led on a Phase one deal is, in my opinion, really just acknowledgement that US farmers and manufacturers are in a very real set of dire straights here and the administration being pressured extensively just to get us back to where we were in two thousand seventeen. Um. I don't care about optics. I can't

take it anymore. Um is the message from farmers we're desperate, and I give us twelve billion dollars, we don't need forty uh. And for the President to come out and say random numbers that China's never confirmed, like forty and fifty billion dollars over a two year window eventually is essentially just admitting in different words that we're not going to get a grand, robust deal exactly what you're reporting

and what China is indicating overnight. The most significant part to me, Henrietta Trees is the idea that to get to Phase one, they have to agree on the parameters for Phase two, even just the timeline, and that there isn't a meeting of the minds there. How significant is that, Um? Well, I would love to say that it's significant, except for that,

I think that's what the tariffs are for. I don't think anybody has high expectations that you know every other day they're going to be on the following working diligently on a phase two. Indeed, one of the things that was most telling is that they picked all the low hanging fruit and put it in basket one. And doing that creates a scenario where nobody, especially not China, would be incentivized to come back and continue negotiating with you.

And that's what USCR Lifehiser believes is the purpose of tariffs. The purpose tarifs have a play, and the point is to force those conversations, whether timeline exists or not, um and invite the usc R Lifehiser believe that they've been working futures at negative nine. I do want to point out the importance of this article. Both Maria over at Fox Business Squawk are talking up is Bloomberg story, Henriette. As you mentioned within, it is the idea of the

agricultural flattening of America. I've got you from Louisiana, I got Lisa Brando wants from Fargo. I mean the fact is, does a calendar play in here? Does winter play in here? Let me go to you, Henrietta, first, does winter play? Does the seasons? Do they play into this debate this season's in terms of planting, certainly do, although that was really a September time horizon for the latest um crop

that they were most concerned with. But when I think about phasing and timing, I think more about the politics, in my opinion, When you still have you know, twelve plus Democrats in the presidential campaign and they can't get a until he's a consistent message on trade, it's the best chance for President Trump to hit the pause button without expecting some unified national message from the Democratic Party

to challenge his decision to hit pause. I want to be clear here that we are hitting pause, Henrietta, that this Phase one trade deal is still very much in play. From the perspective of the markets. What matters here, And Henritta, you weren't surprised by our reporting. I don't know anyone on Wall Street that was surprised this morning by our reporting, and I think that goes some way to explain why the equity market is only down just a third of one.

The risk here is that the Chinese and their refusal to budge on the bigger issue, blows up the truce and the pause we have current. Do you see that

as a real risk in the coming months. I think that China holds all the cards here, so to that extent, absolutely, if China decides that they are better off blowing up the President Trump presidency and holding off until there's another Democrat in office and seeing what happens, or just stalling, which has historically been their main negotiating tactic, that is entirely up to them, and the US is pretty clearly illustrated that all they need right now are agriculture purchases.

So accepting poultry, accepting Boeing jets, accepting more ethanol would be nice, but really we just need to get back to seventeen and whatever the Chinese will throw at us. So they've seen that. I think this is mostly a political calculation on the part of China. Now do they want to throw President Trump and bone or not so um,

And it's entirely in their hands, not ours. When you talk about the political pressures from the agricultural region, and we talked about how bankruptcy search due to some of the trade war concerns and the recent bankruptcies concentrated in the thirteen state Midwestern region, which is the key battleground for President Trump's reelection, and I'm wondering is there any analysis of how much a trade deal will boost support in that region, or whether the support of President Trump

is independent frankly, and whether people are just happy that he's taking a hard line, because I've heard that from some analysts. Yeah, I would say the bulk of the population out there, and you can see from the President's internal approval numbers within the party is that he is very much doing the you know, God's work with China in in a lot of their opinions. Yes, it's sitting in their pocketbook. And yes, historically maybe if the economy was worse more broadly, that would be the only thing

that they cared about. But if you look at polling data and see what voters care about, the economy is still high up there, but not as high as it was during the recession. So ironically, when the economy is good, people care less about it. The farmers are a different story, obviously, because the small farmers are going out of business, going

into bankruptcy. Uh. One of the things we hear and I know that Republicans on the Agriculture committees here is I don't care about Lists four B tariffs because there's nothing China can do to make my life worse. It's already awful. And I think we've discussed that before. Um So, I think what President Trump is doing right here, right now is making sure that he can create an off ramp. You know, forget curbing semiconductor sales and uh, curbing AI

and visual and audio surveillance and all that stuff. Let's just get the farmers and soybean purchases and pork. And that's what this Phase one deal is doing. It's a complete capitulation on the part of the us UM in terms of our long term economy in exchange for just getting back to where we were two years ago. Andrietta, thank you so much. In the trace with Beta Partners, I've been an extraordinary set of conversations in the last for about two troubled companies in Europe Fiat Chrysler in

the very troubled French auto industry, Renault and Puggeaux. And I can only take it back to my ute, where the coolest thing in the neighborhood, John Farrell, was what we called a Renault Dauphine. We of course mispronounced Renault. It was a Renault Dauphine and there was a romance to these French cars. Lisa, did you ever have anyone cool in your neighborhood the rich guy who had the Citron. I grew up in Morningside Heights in Okay, so they

didn't have a Citron Morningside. My mom had a Renout five. Yeah, exactly. She was very, very happy with it. Then she came home one day and my dad had sold it, and I just remember just exactly the window shook. Let's talk to an expert on the cool. He's Damien Flower is really quite good on European autos, the financials, the cultural and the romance of it. Damian, let's start with that conversation as we ugly Americans see it. Is there any

romance left anymore to Renault or Pugeaux. Um. I'm not sure I've ever been called an expert of the call before, but I'm but I'm flattered. Um. I think they're trying to restore some of their romance into into Persia. I think some of the newer products is igniting some small bit of passion again in the in the consumer. The two O eight is one example. In the three O eight, they've been well received. But in the end, I think that what's driving the purge products story is his emissions.

Right in Europe, we've got to be compliant, So it's all about a little bit boring but cleaner. That's the necessity, and well a little boring is is I would say as a general statement, Peugeot's down. The income statement margin

is three basis points different than General motors. Are they affecting this merger because of revenue challenges or are they affecting this merger to actually try to make more profit um I think it is or the latter, right, I think for most carmakers now, regardless of where they operate, there's not much growth in this industry. There's not many untapped markets to go and explore. China was kind of the last one, and look it's moved into decline. So

what's left. You've got to try and make cars profitably, and that means taking costs out. That is really the key russianale behind this merger, and the key place you want to take costs out, to your point is Europe. Yeah, the US carmakers, they're doing okay. North America is a relatively profitable market that's huge money to be made in light trucks over there in Europe we don't have that. We've got these emissions regulations squeezing us. It's hard to

make money over there. Demian, what does it tell you this morning, this afternoon into its Milan into Paris, that we see Fiat Chrysler up eight percent in Italy and per Joe down more than in France. What's your takeaway? What's the signal from the price section? What it's not is it's not a judgment on from the market on on the sense of this deal, whether it makes sense,

what it is it is, it's the manifestation. Thus learning how the deal was structured, how the balance of power was allocated within the two parties at the point where they struck the steel, and clearly it was allocated more favorably in the direction of the at the shares tell you that UM this special dividend of five and a half billion that pays itself as very nice for the shareholders. UM Persia is having to contribute more than what we

previously thought. Now, how did that balance get broken? Well, ultimately the Persian guy is going to be the guy running the new operation. They maybe to a degree, there's a price to be paid for that I'm wondering paid

by the PERSO shareholders. So Tom was talking about Romance and about the Renault in his neighbor head, and I wonder if the Romance has shifted to electric even though it's not that profitable, and how important it is for these two companies to join forces, to have the capital to invest in the new Romance that is that that is absolutely the right observation in my view. Rome is a nice way of putting it too, because if you look at you know, pick up any car magazine, Yeah,

that's such a disproportionate focus on electric. Go to any auto show, a disproportionate focus on electric relative to the actual number of cars that are being sold of that type. Electric is, in a ways the new premium um It's proven. Maybe not there yet, but ultimately in order to sell a product at a premium, it needs to be differentiated. And I believe in the future electric is where the

differentiation will will lie. So yes, down the line, maybe don't have to be there today, it's my profit perspectives that they need to get there. And that's not cheap box foggers can get there because of scale. These guys have got to find their own way, the skill and the new skill. Damian Flower Emergers, Yes, exactly, Damian Flowers. Thank you so much for Commerce Bank. 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio