Surveillance: Trade Should Be Enhanced, Mann Says

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg The Interview of the Day on international economics and Trade and with China, John Farroll Without Question, Katherine Man long Ago of brand Ice and other points, and O. E. C. D and now Darkening the Door at Fortress Corbett two thousand four, Peterson Institute, Breaking Up is Hard to Do,

Global codependency, collective action and the challenges of global adjustment light years out in front of others. On the China US matter, Katherine Man, John a world class economist that really didn't need much for an introduction a sol at a greet global chief economists. Good morning to Catherine, Thank you great to see. Let's walk through that code dependency. Have we given enough thought to the full out of two of the launchest economies in the world, essentially going

on it with each other? I think the answer is no. UM. I think the stock market has gyrated a little bit, but but has not fully appreciated the potential for a divorce. Um, and that certainly is something that the administration would like to see. Is it is a divorce, I mean we

could get closer together. I mean the the objectives of market access, which was the original UH design of the Section three or one case, you know, protecting intellectual property, creating a level playing field for foreign firms in China in order to be able to access the market and serve the citizens and the firms there um. That would that would tighten the relationship. But that's not the direction that we currently appear to be going in. Divorce seems

to be the direction that we're going in. That might be the direction we're going again in your view, is that the objective though, Catherine, because that's a different that's a different scenario. Entighly, the objective, as you points out, was to get market access. To rebelief that the objective

now is to have a divorce. Well, I think that we've we've seen a number of different communications that suggest that if firms want to avoid having to pay the tariffs, that they should um move their production back to the United States. That that is a nice thing to say, it's probably unrealistic um and instead, uh, there will be some supply change that go to other countries, not not necessarily to the United States and probably not to the

United States. So it's it's kind of, uh, you divorce China and you take up with I don't know, Vietnam or something like that. Um and and that's the strategy two pages decades ago, Catherine Man is a trade deficit sustainable? Maybe some of it's dated. Chapter three is must read, including at the White House, has us comparative advantage changed? And on page thirty where does comparative advantage come from?

Lecture the president right now? A wise one. So comparative advantage comes from productivity growth, it comes from educated workers, it comes from how you use your resources, and and that is uh not none of that is enhanced with trade wars. It is an intellectual leap, going back to Ricardo Smith of tearing down the certitude of Thomas Munn and others hundreds of years ago. I mean John Farrell's

ancestors lived Thomas Munn England. Are we going back to that? No, I don't think we're going to go back to um. A tar key, that's our tarkey is the word that the trade economists use when you produce and consume everything at home, which is the what the tweets said this morning, John continue, um So, I mean you don't you don't know. I mean, if you're a producer, you want market access

to more markets to to sell your stuff. If you're a consumer, you want the variety that comes from you know, what you can buy that doesn't come from your own country. Um so. And of course producing you know, producing things abroad, it's cheaper, so that's good as well from a pocketbook standpoint. So there are a lot of reasons why you know, we think trade is good and uh it should be enhanced.

Um We know, of course that there are adjustment issues as well, and that's been kind of the centerpiece of a lot of concerns. But closing the door to to trade, closing the door to um uh created markets abroader to to buy things from abroad. That doesn't enhance your capacity of your economy to deliver on on what your citizen's talk about. Comparative advantage though, because it's not that clear cut. Let's take the chip industry for instance, the Chinese import

a load of semis from US companies. The Chinese would essentially like to end that. And the way they're looking to end that is the beef up these industries by subsidizing the This administration has a problem with that. That's not about comparative advantage. That's about skewing the results to your own advantage. It is not about a level playing field. The Chinese are ultimately doing the same thing on the

Catherine Well. So, uh, comparative advantage is not immutable. It doesn't just come from the weather or from you know, the whether you have you know, minerals in the ground. Comparative advantage is something that can be built um as I say, educated workers, that's something that you build. Um A you know, superior technologies, those are something that you build.

So so you know, subsidization is something that has is the you know, the Chinese are pretty obvious about that right now, but it's not like it's the only country that does that. Um going back to the to the day with was it you know what's what's may are important computer chips or potato chips. That goes back to the nineties um and and the US allowed um US chip producers back in the day to create a cartel

uh sem attack. If you're remember back then, um, and that was in order to promote U S semiconductor industry. So I mean we did it too. Uh, they're doing it and so it's it's not new under the sun. Chapter six is the trade deficit sustainable? Is the external deficit caused by unfair trade practices? What did you do write this chapter for young Trump? So, I mean, you know,

it's uh, people ask that question back then. I mean I think that we should remember that that the issues that are being displayed in the in the current environment with with the U. S And China, these are not new issues. These are absolutely not new issues. What is new is that the size of the two countries involved, and that it is it is taking place after a period of time when there's been so much integration between

the two countries. There's so much interesting simply chain relationships, and that that means taking Barrett taking that apart is much more costly than than in Mrs Farroll from Coventry emails in and she says, what's it going to do for the dollar? She doesn't care about all this mumbo jumbo. She just wants to know what's it going to do for the dollar? Well, in the short run, all this uncertainty associated with policy changes, trade wars and so forth,

people tend to um go to the dollar. Uh, it's the place that you go for safe haven. UM. But there are other kind of currencies that have started to be a little bit more attractive as well, which is which is the end? So by and large we're looking at short term improvements or a dollar appreciation. But then you know, then you the buyer's remorse sets in and the cost of disentangling your value chains looks bad. Um, and uh, there's and that, and there's a big trade deficit,

trade deficity. There's a big um fiscal budget deficit that the US currently has, larger than uh most countries would have at this point in their business cycle. And you will have to be issuing treasury securities and I think

there's some question marks about that. So cancery on a question for you, how you model to pass through from tariffs that could be on everything and they could be hired too, through to final prices and plug in those effects assumptions for me as well, because I think that's important.

Just do that for US briefly. Well. So a lot of people do focus on for the foreign currency translations, so a product, you know, in theory of product is priced in yen or in yuan R and B, and then you adjust the price to translate it into dollars. And so they say, oh, well, if the yuan depreciates by ten percent, it offsets ten That's actually way too simplistic, because in fact, all that is invoiced in dollars to start with, so there's much less of a dollar translation

effect than most people think. Catherine Man really really interesting, thoughtful stuff. Great to catch hell you this morning, Catherine Man, City Group Global Chief Economist Tom really thoughtful stuff and some great analysis of the last couple of days on this story. The big issue. The President certainly optimistic about the chances of a deal, saying it would become apparent in about three or four weeks whether trade talks with

China we're going to be successful. Planning to meet with this Chinese counterpart, the President said he has a feeling it's going to be very successful here in New York to discuss some please to say is YenS nord Exante data founder and CEO. Good morning to yents. Good morning. The concept of the Trump put market sensitive policy preferences, and we've seen that being activated just a little bit

in the last twenty four hours. Yeah. I think we saw obviously a very big market reaction starting last week and accelerating very much on Monday, and then the rhetoric from from Trump changed a little bit. I thought the Keys sentence really yesterday was this thing about the tariffs on the remain inning three hundred billion was not set in stone, like that was something that was still to

be decided. So I thought that was the opening. That was the most reason, the most important reason why we're starting to rally back a little bit in these risk asses that have been hammered. There's a belief that we have the series of automatic stabilizers that will kick in. These policy preferences will kick in the likes of China, the sheep put that have growth and the risks around

growth increased too much. They'll deliver stimulus that if the market backs off too much, the President will back away from market negative policy preferences, for instance, the FED put the power put. We've talked about that so much, all of these three things. Yes, do you believe that those three things could be activated? What do you think the

risks are, the constraints around the deployment of those initiatives. Yes, so I think the problem with that narrative is that a lot of them have already been deployed, and then there's places like the eurosoone where they don't really have much left. So I was in the Chinese have have stimulated already, The FED has already done their pivot. Doesn't mean they couldn't quite aggressively in surprise, but they've done

a fair bid. So I think really the most important part of what you're describing is some kind of softening of the stands in the trade negotiation itself. That's something that can be sort of pulled out of the hat if needed, if if the market started to tank, and that will be important to market certainly in the short term. So those are things I'm watching. Until then, We've got to think about how the efex market adjust as well. I hear a lot of analysis around the tariff impact,

which doesn't account for the FX market adjusting. Just how much will the redmen be adjusted and to what degree and how much tolerance do the Chinese have to allow a weaker Chinese currency. Yeah, so the Chinese authorities really have a challenge on your hands here, right, because if they wanted to fully adjust to the tariff that is now spiking up on a large proportion of their goods, we would need to see a big move of like

maybe more than ten percent. On the other hand, they've signaled from a psychological perspective that they don't really want to have it above seven. That was the signal they sent in the second half of last year, and I think that's a signal they're sending again. We are their fixings. Every day they come in the morning, they set essentially at a starting level, and that has been set low signal that they don't want it to be weaker than

it already is. So they're sort of stuck between, Okay, what will be good for their exporters and what do they need to keep the situation calm, both in relation to keeping the trade negotiation going, not to do as anything that looks offensive to Minuchin and Trump and so forth, but also to avoid capital flight. Um, and that's a really big, big balancing act. Yeah, and some money question here is not only ram n B to seven in the vector that we see well out over two standard deviations,

but dollar dynamics as well. If we assume now blended dollar is range bound. Should we look at a blended dollar Bloomberg Dollar Index or d x Y index or do we have to disaggreg gate Asia d x Y that bundled Pacific rim index or do we aggregate to the major pairs? What do we do in terms of judging scaling stronger dollar? Yeah? No, I always always look at it in a number of buckets. Right, So you want to look at this sort of low yield bucket, which is the yen and the euro and the Swiss

franc What is that bucket? Hero hasn't moved at all? No, And obviously end is strong and the Swiss francs has been getting strong as well. And then you have like a bucket that is the commodity bucket, which is very important with Australia and Canada and so forth. And then you have the surrounding countries adjacent bucket to China, which

witch buckets should Secretary Manu should look at. So I think from his perspective, clearly he wants to look at the Bilattal crosses for the people who is negotiating with, but he also needs to think about, Okay, what are the crosses that's going to really impact the I'm sure he's looking what do you think, what do you what crosses? What cross is the president at Well, he needs to look at dollar max, he needs to look at dollar can and look at dollar career. So there's probably a

handful that are really important. Yes, we know the administration has looked at the Euro before. It's been interesting over the last week that the euro has been so resilient. I remember a conversation you and I had a number of months ago, and we were talking about the prospect of going into another risk off scenario and how the efex market would respond and we'd have this very counterintuitive move whether euro just wouldn't sell off in that environment.

So walk me through what's been happening here and why the euro is starting to take on the character to some degree of the Japanese yen. Yeah. Yeah, the there's definitely an element of that. So it makes sense in the context of the rate environment that you have in the euro Zone. It's not that the yield curve is totally flat like you have in Japan, but there's very limited move for European interest rates to move further. So that means when global interest rates drop, actually the rate

differential moves in the Euro's favor. So that's sort of the simple explanation from what's going on from a float perspective. What's happening is that European investors are incredibly active in emerging market trades around the world, and when you have

some severe risk aversion, you get unwinding of those. And we saw it very clearly last week that the specific day when Ian was trading the worst with Thursday with some big moves and key emerging market currencies, and the euro actually had a pretty strong rally just as that happened.

The Mexican pigs have been one of them. So we're unwinding the carry traits to some degree ends and I'm just wondering how long it takes to flush that out and before the Euro takes on what we would expect, which is a Euro to be weaker in this kind

of environment. Yes, so I think it depends on whether you have like a short term hedging dynamics where there's some big real money guys that put some effects hedge in their portfolio, or whether it's really like a more wholesale getting out of every everything on a more structural basis. So I think we've seen the hedge elements take place, and now these e M portfolio managed have to decide, okay, do they sell the securities too. I don't think we're

quite there yet. We have enjoyed five even six tweets from the President this morning. These are Elizabethan tweets back to Mercantile England of another time in place in one of the great thrust here. Yen's is the idea from the President that quote, we can make a deal with China tomorrow before their companies start leaving so as not to lose US a business. Explain this trade war if it's with a totalitarian regime led by a communist party.

I mean, it's not even Elizabethan dynamics, is it. It's clearly a totally different situation than in a democracy where there's sort of different voices that can have their own opinions. One thing that I always thought was sort of tricky about the US China dynamic versus the US versus Mexico dynamic was that it there's in the US a reasonable amount of political backing for a tough stance versus China.

So that means that the US kind of has a fighting chance, but can they really measure up with a you can call it to terror the Tera regime, but a regime where it's it's certainly more government directed. That's a big question. So the pains, I think on the sort of political coherence versus the actual economic pain. This is wonderful, Jory, thank you so much, and he will continue with us here, uh this morning. This is a

really important conversation. Synthathizing off right now we're gonna jump to the equity markets, but also with a touch to technology. Mark Lehman that JMP Securities is encyclopedic on the heritage and history of his Gun Valley and also equity Marcus Mark, let me go to the general markets right now. With futures up twenty two, Can you acquire shares this morning or you on the sidelines? Well, I think you're going to have a necessary bounce back from a week of

down drafts in a week of bad news. I think this is just the beginning. Though. We're not going to have a lot of news as relates to tariffs through the next six weeks, and looking for a catalyst for the market between now and then, now that earnings are behind us, is going to be hard to find UM. So this is going to be a kind of a wishy washy period I think for some time, and I expected about I'm not sure this is about to be bought for the next light up for the market so far.

Went Bush out with a note saying that Apple iPhone production costs could rise to to three mark. How are you thinking about the prospect of higher costs, how it gets absorbed, whether it's in the margin or just a full path through to the consumer, Jonathan Johnathan, I think it's gonna be a little bit of both. I think you're going to see some companies able to absorb but and you're going to see some people probably pass it

on the consumer. But I think this is going to put a wet blanket on a lot of demand here UM And I think we've seen um bits of this over time and some markets where they've been able to absorb it. I just think we're running out of legs to do that. And I think that's the reason why you have more pessimism in the tech stocks and more pessimism in the international community. And I again expect this

to not go away quickly. We had some self inflicted um damaged by the President that he's been quickly able to reverse and this is not going to be one of those. Unfortunately, Well, what went through the demand in China because I didn't get convincing guidance from the big semis, the big chip makers in the last couple of weeks about China for the year ahead, even before this escalation marks. So what's your base case for demand? I think you're

going to see just a damp dampening right now. I think globally, I think there's just too much skittishness as it relates to pricing, and there's too much skittishness as it relates to what is going on politically. UM and I think probably has the most to lose, but I think politically they have the most um the ability probably to stay there the longest. And I think the president here UM has less to lose, but I think he has more to lose politically. It's kind of an interesting

juxtaposition between the two. I just think, Um, that's a bad situation for a resolution, and that will just dampen things. And that's a bad situation I think for the market. Marxist, are the time left that we've got with you? I have to ask why was Uber and Life missed priced by intelligence, well meaning bankers. It's a great it's dollar question. UM. I think the fee was bigger than that, but continue, Yes,

the optimism obviously was high. UM. I think there was enough demand both institutionally, which we will talk about and we will see very shortly by what institutions participated what did not. UM. I think the retail hype, if you will, was great. UM. But the reality is and I think the most important thing as some of the later investors, both publicly as well as the last private rounds are well underwater well underwater lift as approaching lower than the

first print. And it reminds people that individual investors are sometimes least likely UM, who should be participating in some of these deals. And that's unfortunate, really unfortunate. Mark Leman, thank you. We look to speak to you against soon. Mr Lehman is with j MP Securities with decades of experience on Left Coast equity and technology markets. Dana tells you where us Dana, to John's point, what portion of stores is from China? I mean like Big Box or

Bergdorf Goodman, what portions from China? High? Thank you for having me today. UM. We just did a big piece in terms of whether it's retail, whether it's apparel, what percentage of all goods comes from China, And frankly, it could be at least twenty five of all goods may come in some former way from China, So it's significant. And what we're seeing is companies are taking three different actions in order to alleviate some of the pressure. And

none of this happens overnight. It happens over time. So planning is key, and whether it's diversifying where your goods come from, whether it's negotiating with the manufacturers who you do business with in order for them to eat some of the costs, and last and mostly, what companies do not want to do is raise prices to the end consumer. So there is a lot of work going on behind the scenes in order to manage the exposure to China. And it's been going on for a while. But it

doesn't happen overnight. So Dinna, I'm really interested in the success right they might be having with negotiating with manufacturers in China. Do those manufacturers have any margin to absorb

those higher costs? I think sometimes yes they do. We've been hearing again and again from a lot of the branded vendors and from a lot of the retailers that factories over in China do not want to lose the business that they currently have, so they're willing to work with the terrorists and eat some of the cost and share some of those burdens with the vendors or with the retailers. What it all means in the numbers is first going to settle out, but this is certainly a

continuing work in progress of the highest magnetudes. Does it affect retail shares now or do you sort of have to wait to see the math, the Excel spreadsheets, what the cell side believes in such look at yesterday the screen was all read basically it's act now, think later, and yes, it is affecting retail stock prices now. It's affecting comer stock prices now. Because the endgame of when is it going to impact sales in the future. Let's just take Macy's as an iconic big brand in a

cupper coffee. Technically, folks, it's an ugly church. Danny Telsey, what is your target on Macy's. I mean, I think Macy's they're going to release their numbers tomorrow. Jeff Kinnett has a host of solid initiatives in place in order to reinvigorate sales and reinvent reinvent the business. I think that the first quarter was a tough quarter and you have a lot of solid assets. Can you drive top line growth remains the question. I think that's what everyone

will be focused on. So danna looking at the retail universe right now, you've gone through those three options for retailers on how they deal with the higher tariffs. Let's say there are some companies that won't have the success you're talking about with the manufacturers on the ground in China. Let's say the worst case happens. Let's just explore that that you have to pass it all through to the

final consumer. Which part of retail has the highest consumer price tolerance where they do have that kind of flexibility to have some passed through without damaging demand too much. It's high end. It's those consumers that are the wealthiest, and that's the high end. Keep in mind that most luxury goods are not made in China. You have the mid tier who has who has exposure and they can't afford it, and they will definitely be watching what they

spend those dollars on. But the high end has the greatest level of resistance to price increases, Dana, every listener coast to coast in worldwide is observing empty storefront space, and everybody's got their story on this. I don't want to board people with it. But how does it adjust? Does the real estate prices come down for retail? Is

the stuff permanently empty? What does Dana Telsey? I think the five year plan of the tenure plan is on all the empty square footage John and I see when we go home in the Bentley A couple of very nice A couple of things. I think Number one is the fact that when you have top quality locations, top quality space, there's always a value to it. And basically it's the value that is brought there by the complementary tenants.

What you and I both see, whether it's on in urban areas like that we're seeing here on Fifth Avenue. We're seeing new usages develop, We're seeing a focus on services. We're seeing restaurants, we're seeing spas, We're seeing activities where

services are definitely warranted. And that's where you're seeing consumers gather in this world today where everyone is looking down at their phone, and the first thing you wake up in the morning you see is your mobile phone, and the last thing before you go to bed is your mobile phone. How do you get people to network and communicate. That's why you're seeing more retail brands, whether it's incorporate restaurants, whether it's incorporate other categories. We're seeing a changing of

the guard. And I think that good space where there is large density of population always his value. Investing in that space is essential to taket new again. Dana Chelsea seconds. I need to spring refresh. I'm told by Bergdorff, what is the must thing I'm buying this summer for various and sunder boots? Nice? I mean you can. You can get some boots. You're gonna get some sandals, You're gonna get some denim jeans, a host of things these days.

Dana Telsey, go away, Dan Telsey, Oh you can see me, Jimmy. Yeah. Dana Telsey. Love love having Dana Telsey on. 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.