Surveillance: Not Optimistic For Trade Deal, Alden Says

Bloomberg dot Com, and of course on the Bloomberg. Joining us away in on the situation in Europe at the moment, I pleased to say, Jacob kurfect Art joins us now Petterson Institute for International Economics, Senior Fellow, Jacob, I want to begin with Italy just briefly, if we may the government, Just how sustainable do you think that new government is? Well? I think it all depends on the internal coherence of

the new two coalition partners. It's very clear from there, with the gift shop of a governing program, that they want to run an extension eyotiscal policy and that this is going to run into trouble with the European Commission and the rest of the EU. So the question is can they among themselves agree to structural reform and thereby gets acquiescence from the rest of the EU for an

expansionary budget. If they can do that, I suspect they will actually be able to muddle through, and then the question is how does their big rival, Matteo Salvini fair in opposition. I think that is a really big question. He's got financial scandals for the Russia. We will see what happens on the immigration front um and the economy. Might you know, they may be a positive surprise, you

never know. One thing that I find interesting, Jacob, is that if I look at, for example, the Italian ten year bond yields have reached a record low of less than one percent, although up a little bit at zero point eight nine percent, uh, and it seems like an ideal time for Italy to borrow money to try to bolster its economy. Do you expect them to do that? I mean, given the fact that that probably would rank of the European Union. No, I certainly explained them to try.

I mean, I think they are going to, uh, you know, come up with some sort of expansionary budget. I think you're going to be looking at a physical stimure, certainly not of one percent of gdp UM. But as you said, I think it's not it's not clear that you can claim that this is despite Italy's existing high levels of debt.

Is really a huge issue for sustainability, even where youths are although we would also have to say that the recent decline in bonds is sort of pricing in expected more ECB TWI so if that doesn't materialize, maybe sentimental shift and also Jacob to some degree as well with pricing in the fact that Massa Salvenia is not getting the election he desires. So I think that's the key question. We go back to the one we asked at the start,

just how sustainable is this government? What does Mattaw Salveni have to do to achieve in opposition? If he can Jacob to bring this government down? How does he go about doing that? But I think there are two There are two strategies for him. Either, he said a fit back and wait for the government's internal inconsistencies and friction to boil over UH and they basically have another divorce in the new comership. UH. That would basically UH sort of allow him to run a campaign and saying see,

I'm the safe pair of hands, etcetera, etcetera. But I think that that's a risky strategy for him because uh, this government may actually last potentially several years UM. And then the joker for me is also uh, this big financial scandal that the League Party has with potential Russian funding. We I think it's there is it's taste to say that the new government is going to push this very aggressively. Uh, and who knows what is what is buried there and

may come into fourth alternative. Salvini can go flat out euroskeptic, run as a pure populist against uh, you know, the European Union, the euro and everything like that. But again that's a very big risk for him because he needs, uh the support of more centrist orders if he's going to get anywhere near the thirty five the vote that he pulled before he pulled out of the government. So things look more positive in Italy maybe in in the

United Kingdom. And I am pointing to the idea that perhaps the idea of a hard Brexit is less on the table because Boris Johnson has had his hands tied. As john Well put it well earlier today, I'm just wondering, how likely do you think it is that the United Kingdom is actually better poised right now to avoid not only a hard Brexit but come to some sort of resolution uh that keeps it at least somewhat aligned with the European Union. I already think the very short one.

The chances of a no deal Brexit on October thirty first have declined very dramatically. Uh. What we are looking at, however, in my opinion in the UK, is another general election, either shortly before October thirty one or sometimes more likely sometime in November, being after a likely expansion of Articles fifty and postponement of Brexit. The key problem, however, in my opinion, is that that general election is entirely it is entirely possible, at least for someone in my pay

grade to predict that election. You could have Boris Johnson winning that election. If he does, then there's no doubt that he will claim a mandate for a no deal Brexit, and this will happen probably in early twenty Alternatively, you could see the Labor Party with some coalition partners win, in which case you're almost certainly looking at a second

referendum on Brexit and the potentially canceling on Brexit. Or you could have another Home Parliament like the one we have today with no clear a governing majority, and then the question is what will happen then at that point, I think a second referendum on Brexit is probably also likely, only the prot that is going to get messier. But what I will say is the bottom line is that the acute uncertainty concerning the UK has just been postponed

by maybe a month or two. And Jacob, it guess even harder to protect the election because of course Brexit remained leave is not divided by party lines. On top of that, if the experience of twenty seventeen is anything to go by, the last time we had an election in the UK, Jeremy Corbyn didn't exactly run on a

Brexit platform, did he remain or leave? He made it about other issues And I just wonder is that what we're in store forth we get another election, Jacob, Will it be a situation where it's not about Brexit, it's about almost everything else. I mean, that's certainly what Jeremy Corbyn were like. I think he's That's why he, I think, is likely to push for an election date after October thirty one, because one that undermines Boris Johnson sort of pledged to you know, leave the EU, do or die.

But secondly it allows uh Corban, as you say, to run on other reversal of austerity, etcetera, etcetera. So he's gonna try to frame it that way. Alternatively, of both, Boris Johnson is gonna try to frame this election as somewhere, you know, you can choose between no deal of Brexit with him or perhaps the bigger evil, which would be Prime Minister Jeremy Corbyn. Um. So there's going to be

a big fight over the narratives of this election. But the reality is that the to the traditional two party system in the U K. Is breaking down, and now you have this new emerging almost political identities that people vote on whether they are leavers or remainders, and that Trump's pretty much everything else, giving you an entirely unpredictable electoral situation. In my opinion, Jacob is great to catch Oboy to get your thoughts on range of topics, including

Italy and Brexit. Jacob Okay count that Peterson Institute for International Economics, the senior fellow dollar strength the story up until yesterday. Let's bring in as the rykout, shall we, comments bank FX strategist. That's to walk me through your base case for the US dollar. Please, Well, the focus right now is of course, now that there is a better sentiment with respect to trade talks, focus will be um on the ECB meeting next week and the FAT

meeting the week afterwards. So right now it's central banks back in to the forefront um, which means that we could see some further downside at least in the short term, as we expect quite as substantially than picketed by the ECB, while the raid cuts by the FAT should be priced in. And as already said, we had a suppositive surprised by the ADP employment um report, so UM there is no reason right now for the market to bet on substantially

a weak careers dollar. So as soon as the sentiment um with respect to the trade conflict of price and um, I think it's back to back to the central bank. So if you if it's back to the central banks, we've got to talk about some of the hawk ish comments we've gotten out of ECB officials basically pushing back against the idea of a bazuka or more bond purchases or even cutting interest rates, are cutting the deposit rate. Do you think that they are the majority or do

you think that they are just a very vocal minority. UM. Yeah, well that's little be actually the game changer with respect to the decision UM next Thursday, because interest rate cuts are largely priced in, so what's going to drive your dollar is the unconventional monetary policy measures. And it is interesting that we have such a vocal outcome of the hawks ahead of the meeting. UM. We still think that the chances higher for them to be actually a vocal minority,

because that's not that that's surprising. We've heard that before, but in the end it was always UM my drug basically or my drugs a view that basically UM set the stage at the decision UM. So yes, it's surprising that they come out this number, but we've had that

before and it didn't change anything. And in the end we already had also comments about that we need something substantial now that exceeds markets expectation UM to have a bigger market impact, and UM, I think that's also something they easy to be UH Council will consider next Thursday. I guess the question is when you say it's all about the central banks, Interestingly, it hasn't been so clear cut when it comes to f X trading that it

has been all about the central banks recently. What makes you think going forward that's going to be the main driver rather than just economic strength. Well, it's the only going to be the big biggest driver or the bigger driver, I guess in the next two weeks UM, mainly because some attention has been taking off the trade talks. Everybody now expects basically calm with respect to this topic um ahead of the October talks UM. So now the focus

has shifted a little bit. It will definitely go back to trade, to the trade conflict and hence the economic consequence and economic strength after the central banks. But I think that's not you know, like, what's the main focus in the in the very short term at least because this topic has been set aside at least overnight as the racle Thank you so much for being with us as your racle of a commerce bank a G the

effect strategist. They're looking at the dollar today. Let's get some opinion on what's going on with the United Kingdom. We're looking right now at the pound having its best to day rally since November of last year. What has changed though? Really? Let's bring in John Author's Bloomberg Opinion calumnist and uh an executive editor as a senior writer at Bloomberg Market. So, John, we were talking yesterday about this, but what really has changed to make the outlook so

much better for the United Kingdom right now? Well, nothing is great, but as far as the market is concerned, there is one catastrophic outcome that is much less likely, which is leaving the EU without a deal. All kinds of other horror stories that still remain very possible, but the possibilities of logistical delays, medicines not being people even suggesting Heathrow would close down, the kind of horrors that people talk about with no deal now do appear very

much less likely. We've now established that Boris Johnson can't you and force of election, Okay, So the the idea here is that if Boris Johnson can't get either a new election, he can't get his own party to get on board with him. Uh And And basically Parliament is fighting back and saying we're going to take measures to not allow a hard Brexit. That that all is enough to make the chances of a no deal Brexit incredibly low.

Is that the idea here, that is the market assumption, and I think on balance it's correct, it's certainly not out of the question. You Nigel Forage hasn't gone away. He could yet make great gains in an an election. The chances of no deal on October thirty one are now very slim. So I guess that the question is, what then, actually does happen? You know? If no deal Brexit doesn't happen, you know what, how do we How

do we resolve this thing? Uh? My own personal opinion is that it requires Britain and Island to have very direct discussions with the other because the sticking points yet another example of Britain's past history coming back to haunt it. The sticking point is the is the Irish border issue, and as far as I can see, Brexit is unresolvable without coming to some resolution between those two countries and the communities in Northern Ireland over how to fix fix

that very intractable problem that probably isn't going to happen. Well, but that that's that's, in my opinion, is the only way we solve it. All right. So here's here's a sort of a logistic question. Let's say Ireland gets together with the UK to talk about this. Who gets together from the UK with Ireland, who represents the UK's view Again, I don't see, and we've heard this from the negotiators earlier today. Boris at this point is unable to negotiate

for the UK. We can't realistically have a further negotiation until to an election when somebody has some kind of a mandate. So, as far as I can see, the ampass cannot be lifted for quite a while yet. Well, okay, so let's say, um, there is no negotiation with Ireland. What we know so far is that the UK has also voted to push back to delay the hard brecks for the brexit. Excuse me, the actual UK and acting of the UK leaving the European Union in October one.

They've pushed it back I believe three months, is that right? Yes? Okay, so there's past parliament, Parliament that it will do it will okay, So they'll have three more extra months. What do they do in those three extra months? And will Boris Johnson still be leading the discussions? I think we have to get together to have an election early in

those three months. Probably. Sometimes the opposition parties are saying that once no deals over the thirty verse has been called out, which can't happen before Monday, but should happen, then then they would go for an election. I think it would be politically necessary for them to do so, so you would then have a new focus on on on negotiations starting on Halloween, and presumably the Irish issue has to come up. It's always possible that Nigel Farage

becomes Prime Minister of the United Kingdom. I'm not sure I would buy too many UK assets if that happens. If it does, then we're we're leaving without a deal. It's always faintly possible that the Liberal Democrats somehow or other get into governments and they would regard a vote for them as a mandate to cancel Brexit all together, so that the panoply of possibilities is still very, very wide, but it starts after an election. Let's talk about the election.

Could Boris Johnson win? I mean, who who would potentially beat him? Boris Johnson could very easily win. The first question is whether the people who wants Brexit will go with Boris or with Nigel Farage, who has the rival Brexit Party. Certainly a big part of Boris's strategy of going so aggressively forcing through her um h the notion of a of an ordeal was to neutralize Nigel Farage

as a threat. It's unclear yet and it will depend on how good a politician he is, whether he gets those passionate Brexiteers out in the country and they're not quite half the population, but they're a large changel of population, to believe that Boris is the good guy, or to believe that Boris has messed this whole thing up, and then they ought to go with Forage. That's the first question. Then Jeremy Corbyn has to decide what he actually wants

to do. He has always himself personally been an anti European all his most wild, most strong horse as young Left Britain tends to be very pro European. If he decides he's actually going to say actually we're staying, that will make a very big difference. And then and then we need to see how coherently that the Liberal Democrats at the moment to the you know, the traditional centrist party taking in MPs from both the two major parties

because they are the ambiguously um anti Brexit party. We have a first past the post system in the UK, just like in the states whoever gets the most votes in anyone constituency gets to send People's Parliament. Very weird things can happen. Tony Blair won in an overall majority with thirty five a view of all votes. Clement actually lost to Winston Churchill even though he won forty eight per cent of the votes and Churchill and got forty

four very very strange things can happen. And given given that you know that there there are at least four I haven't even mentioned the Nationalists in Scotland and Wales. Given given that there are at least four parties with a viable shots in every constituency, literally anything could happen. John Authors, thank you so much for being with us.

John Author's Bloomberg Opinion columnists. You can find all his columns, as well as all the columns written by the columnists at O P I N GO on the Bloomberg or Bloomberg dot com slash Opinion. We are hearing a little bit more of a positive tone from China and the US in terms of possibly coming together to talk about

talking about talking about talks. But there is a question of just how much damage the tariffs have already implemented and frankly, how much closer the United States has gotten to solving the problem that President Trump identified, which is that there are vast tracks of the population that have been left behind by globalization. So joining us down to discuss Ted Alden, who is a senior Fellow at cf

R Council on Foreign Relations. It is also the author of a new book that's Failure to Adjust how Americans got left behind in the global economy. So Ted, I want to start there. I mean, we're talking about how there seems to be a little bit of an easy and the tensions. But the US did put more tariffs on China over the weekend. I'm wondering, have the tariffs that have been implemented so far gotten closer to bringing parts of the US population back into the folds that

might have gotten left behind by globalization. Um, thanks for a question, Lisa, No, I mean, unfortunately, I think the evidence is pretty clear that they have not. I mean, the segments of the country that we're hit particularly hard in the two thousands and after, we're manufacturing dependent states Ohio, Michigan, Wisconsin, Pennsylvania, and we've seen no real recovery of manufacturing as a result of the tariffs on China. In fact, most recently

what we're seeing is a slump in manufacturing. So so that generally strong economy has been good in these places. Low unemployment is great even in places that have have struggled. But the trade war I think has harmed these places rather than helping them. So just in terms of you know, the inequality, uh, income inequality in the US and the divide and you know, uh sections of the economy that have been left behind. What do you what do you

think is a solution there? You know, we've seen again the shift from manufacturing to services and so on been clearly certain segments of the population have done much better at the expense of certain other segments. Yeah, I mean this is a huge challenge. I think in some ways

it's the biggest challenge facing the United States right now. Geographically, Uh, the places that have done very well in a world of globalization and technology are the big cities, particularly the big coastal cities, and the manufacturing heartland, which had done very well in the sixties, seventies, even into the eighties, has has really suffered. I think there's a lot of things that can be done in terms of trying to

attract business. I think infrastructure development these places, broadband across the country is way way overdue. I think there's a lot that can be done in terms of education and retraining. If you actually, if you look at the platforms of of a number of the Democratic Canada that this issue is very high on the agenda. There are some serious efforts out there, but it's a big problem and one

we have not addressed seriously as a country. And blaming it on China, even though China is part of the problem, is not going to get you very far. This is largely a domestic problem that we've got to start out

here in the United States. So you coordinated a task force that worked with the US Trade and Investment Policy Department, And I'm wondering, given your experience with government officials and sort of how trade policy gets created, do you can you give us any insight into how much we could glean from these talks about talks about talks about maybe talking between the US and China maybe the first week

of October. I think you're putting that very well. By the way, I I am certainly not as optimistic as the markets are. I mean, what's happened here is that you did have a strategy that was being run largely out of the U. S. Trade Representatives Office by Bob Leightheiser, who's an experienced negotiator. But since the talks fell apart in May, President Trump has really taken over and and and his Twitter feed is running a lot of the policy,

and that that leaves it very unpredictable. I mean, we simply don't know from day to day in the markets, don't know whether he might ease things off because he wants a deal that would help reinforce the strong economy going into or whether he's going to escalate because he's upset with the Chinese and and he wants to try

to raise the pressure. So so it's gone from being a reasonably understandable strategy put pressure on China through tariffs to try to achieve a specific set of ends having to with technology transfer and intellectual property production and subsidies, to really a kind of open end to tit for TAD.

I think we're in a much more dangerous phase of the trade war right now, so Ted you which you know, it seems like the US, in terms of its trade negotiations, has gone from more of a multilateral global discussion to more of a unilateral you know, U versus China, US versus maybe the UK in terms of trade negotiations, and it's really been a change in strategy. Give us your sense of kind of the pluses and minuses of kind of our current unilateral strategy. Yeah, that that's a great question,

and it is an enormous change. If you go back to the seventies and eighties, I would say we had kind of a combination. So you were you were seeing the the GAT trade and what was then called the GAT trading system move forward. But there was also a lot of unilateral pressure from the United States, particularly on Japan, which was running very large trade surpluses with the US in those years. In the mid ninety nineties, with the creation of the World Trade Organization, we moved mostly to

the multilateral system. You know, did regional deals like NAFTA on others, but largely the strategy was pursue trade liberalization globally and use the w t O to resolve disputes. Now we have gone hard back really to this unilateral approach. And the theory is, while the US is the largest market in the world, and so if we restrict access that can force other countries to make concessions. It kind of worked with Canada and Mexico in the new NAFTA talks.

It kind of worked with Korea, might work a little bit with Japan. We're negotiating with Japan right now. But with China, which is such a big, powerful economy, it hasn't worked at all. In fact, it's made things much worse. So let's talk about the tariffs that wanted to effect over the weekend. Will this have a more material effect on what consumers end up feeling as some people have speculated. Oh yeah, no, I think it's very clear. If you look at the items on the on the list, they

are almost all consumer items. So this is directly the stuff that we're buying in the Target and walm are. The first two lists were largely target either capital goods or intermediate goods, which actually have hurt as part of why US manufacturers are hurting because components from China have fairly high tariffs on them already. But now what we're seeing is the consumer market. You know, Apple watches and clothing and shoes and you know, kids baseball equipment, all

that stuff is on this next list. And then We've got another one coming out in December unless the President changes course, which will cover the rest of of China's consumer products being sold in the United States. So so really this fall, I think consumers are going to feel the impact of this trade war much more directly than they have up to this point, unless the two sides call it off, which I don't think it's likely in

in October. But obviously it's better to how them talking than not talking, So ted, I mean, give us a sense of timing here is this? You know, any potential resolution between the US and China, is that something that can actually get done in the relatively near term, or is it in maybe something that's gets ticked down the road until after the election. I think that's the most likely. I think it's just very hard to see how the

two sides come to a deal at this point. There's so much scrutiny, This is under such a big spotlight that the only way a deal happens is if either the Chinese back down and make big concessions or President Trump backs down and make big makes big concessions. Neither

of those is very likely. So I think we're likely to see you know, at least the status quo, possibly continued small escalations right through the election, and then the president will campaign on saying, well, the Chinese want to see a Democrat elected because the Democrat will go soft on China. So I didn't He'll use this as part of his election strategy. The wild card here is the economic hit here in the United States. So the economy is still, as you know, very well reasonably strong, though

there are signs of weakness. I think if the economy takes an obvious dip over the next several months, then it's possible the White House will recalculate, but I'm not optimistic they were going to get a deal anytime soon. I just to sort of wrap things up, you were talking about some of the potential solutions to the gap that we're seeing in people who have been left behind

by globalization. Do you think that the Democrats have opposed anything that could actually solve that or is basically nobody really talking about viable solutions. Well, I actually think there are a whole bunch of viable solutions. I think there are are are dozens of things that can be done, and it's really not just Democrats, you know. I mean, this is actually an issue that the Trump White House

cares about. You know, they've talked about infrastructure. They've done a bunch of things to try to strengthen apprenticeship programs in retraining. They haven't gotten very far because they're not a well organized government and they haven't been able to work with the Democrats on the Hill to try to put much money into this. But there's there's a lot of consensus out there. I worked on a big report for CFR with with Obama's Commerce Secretary Penny Pritzker and

former Michigan Governor John Angler. Came out last year. Have a whole series of recommendations in there. There's work from Aston, there's work from Carnegie, the American Enterprise Institute. Brookings is doing fabulous for There's a whole series of great ideas out here. It's just going to require the leadership Ted Alton, thank you so much. We'll have to look up those ideas and uh and debate them the next time you come on, because I think that it's an important conversation

to continue to have. Ted Alden is a CFR Senior Fellow and he's the author of a book, Failure to Adjust How Americans Got Left Behind? In the global economy, talking about some solutions beyond the tariffs that we have seen so far. 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.

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