Trade is About Win-Win, Sachs Says

you may see ten percent on imports of aluminum. The President out this morning swinging when a country is losing many billions of dollars on trade with virtually every country it does business with. Trade wars are good and easy to win. That's the message coming from the President of the United States of a twitter this morning to discuss Chad bound Peterson Institute for International Economics, a senior fellow there, and and the current I'm police to say staying up

late in Asia four US. So Bloomberg Chief Asia Economics correspondent, Chad, let's just begin with this and begin with a story that you've written on the Washington Post and pointing out quite rightly what the common Secretary Wilbert Ross has concluded, it's that imports of steel and aluminum threats in America's national security. How do they threaten America's national security? Chat Well, I think it's a really big argument that they do

actually pose a threat to American national security. Most of the steel in the aluminum that the United States imports are from key ally countries, Canada, Europe, Mexico. There's still considerable domestic steel production, especially in the United States. So this is very much looked upon as a as a

relatively bogus argument for implementing import protection. And you really only go down this half when you run out of all other potential explanations for why you would want to impose tariffs and the current what's the response in China so far? Actually the response has been a little bit more subdued in it would have thought, Jonathan, that's your speaker's previous point. There's a sense and age that it hurts the U S allies more than China. We've had

complained from South Korea, Japan, Australia. Japan in fact had to remind the US that they are not a threat to American national security. China's Foreign Ministry in Beijing did say they want America to play by the rules. But interestingly, our colleagues in Beijing have reported that Lou her who is the top Chinese economic emissary who's in Washington, has presented the US officials with a said of demands, and one of which includes, give me a list in terms

of what you want. So the Chinese are seeking clarity from the US in terms of what kind of trade concessions they want. I think that's why the response has been relatively muted so far. They're probably trying to see how these talks in Washington play out Chad, and that brings up a brilliant point. It's a point that a lot of people are making. If this is to address China, then it doesn't really do that in isolation at all, does it. It hurts allies probably more than it hurts China.

What would be the best way of really recalibrating this policy to direct this specifically at the problem, at least for what the administration sees as the problem. Well, it's exactly right. So the United States already has tremendous import restrictions already in place on steel and aluminium from China, and what that means is most of what we import comes from allies, and therefore, if we're going to impose Paris, the allies are the ones that are going to get hit.

To my mind, what you need to do to address the underlying problem of the story, which is over capacity in steel in aluminum coming out of China, you need to engage with the American allies that are suffering the same sorts of problems we've already seen. The Europeans announced that they're probably going to have to impose the same set of import restrictions the United States is, but under a conventional law, not this bogus national security argument, but

on a standard safeguard law. For imposing trade barriers, you need the kind of cooperation between these countries, and that's what the Trump administration is really under mining by choosing this sort of path. And I just wonder how this has been taken in Asia at the moment. You've said that the reaction from China is actually being quite subdued. I wonder how this is being seen because many people are asking whether this is the first shot at the beginning of a trade war. Well, is that how you

see things in Asia looking into the United States? At the moment, Jonathan, if you think about it, there's a bit of a trend emerging here. It appears that Mr Trump is hurting his allies more than China. We had the US exiting from TPP that bolster China's position in the region. We had the US slapping tariffs and washing machines that hurt allies such as South Korea. And now we have this move on steel which has people from Australia to Tokyo asking, hang on a second, this is

not about US. So there's a real sense of unpredictability, but unpredictability about where this is heading. And I think the real danger is who starts to retaliate when and how, And in particular, the next step is if Mr Trump goes after much broader merchandise goods out of China, like electronics, goods, textiles and shoes, footwear and the like, then we're starting to head down a very difficult road where you likely would see China retalia it retaliate hard. Chad I was

thunderstruck by the President's follow on tweet this morning. To be clear, folks, it's a zero sum America and Chad bound, I would say out of your studies at Wisconsin and your work at Bucknell and Peterson Institute. He wants a mercantil list America. Am I off the mark. No, you're You're exactly right, Tom. What President Trump still unfortunately does not understand is that international trade is not derosum. It's

a win win situation if you keep markets open. And but this path that he's heading us down, UH is really taking us away from what the American experience. American leadership in developing an international system of cooperation of open markets is now going to potentially result in US exporters in areas that have nothing to do with stealing aluminum

getting caught up in this and getting retaliated again. You and I staggered through Jacob Viner, who folks invented the courage to not be mercantil list coming out of World War Two, studies in the theory of international trade was something everybody had to read a gunpoint. Is trump mercantilism different than the mercantilism that Jacob Wiiner fought against in the nineteen thirties. I'm not sure how different it is.

It is equally worrisome. You know, he seems solely focused on bilateral trade deficits and and seeming that he can and seemingly thinking that he can use trade policy to tackle those. The administration has recognized that steel and aluminum over capacity is a problem. It's really just the approach

that they're choosing to tackle it. By inflaming tensions with all of our key allies and trading partners with which we need to have a partnership to engage with China on this issue, he's really undercutting his own effort trying to get something done. Chat. As you've mentioned, another's have touched on downstream. The Nited States of America, in terms of end usage of steel is a whole lot bigger

in this economy than upstream. The still produces the steel, uses the auder makers, the likes of the brewery companies as well. It's massive. Whether you save some jobs in steel, how much damage could be done downstream. That is another

really really big concern. There are so many more, uh, you know, consuming industry jobs, whether you're talking about automobiles or infrastructure construction, that are all going to be hurt by the fact that input costs are now gonna be so much higher with these steal and and aluminum tariffs. That's going to be lost jobs as well, and so you know to the extent that that's an additional source

of political concern for the president. You would hope that this would weigh in on on his decision making, but it doesn't seem to have resonated with him so far. Chad, thank you for the early morning conversation with the Peterson Institute. No doubt Adam Posing and company will be writing up

a storm on this. We continue now with our coverage of these momentous times of a mercantilis policy of Pennsylvania Avenue, and to give us perspective and a gentleman who understands the astronomy of our political economics, Mark Chandler, not only at Brown Brothers Harriman, where he puts out important notes on currency dynamics, but he also writes books that fill in our political economics and our economic history. Mark Chandler, can the President of the United States see the stars

of our greater political economy? Good question, I'm not so sure. But I'm not so sure that I would go with it. This is a necessarily a little break from the past. Remember we had a president Georgie bus who put a terrify and so I think that almost every US president that I could think of has put on some kind of protectionism, some kind of heariffs that can get challenged. And this is I think them pointing. But I don't think that we're really at the necessarily headed for a

trade war. How did countries respond to bushes paraf on steel? Right, Nope, they didn't. They didn't go for for tech strategy that is a current that is a trade war. What they did was they appealed. They took the U s to the w t O. The US lost the cases of w t O. It had to resend the tariffs. This is what I think countries are going to do that Okay for tech strategy, but support the multilateral trading system.

The distinction mark Chandlers starting last evening into the morning and met Paul Krugman Laureate mentioning it as well, but conservatives as well. Is this national security distinction that that as Secretary uh Maddest so upset as well. George Bush didn't make this anatural national security issue, did he? Now? I think that's a very important pot that's in a point distinction here. But what happens I think is that so we make we the U s makes his claim

we're gonn protect these industries for national security grounds. This has to be tested in the court of law, and that is in the w t O. And with a w t O, I think if I was going to be on the side of Canada and Europe and Japan and Korea, what I would say would be my first piece of evidence would be exactly what you say. That is, the Defense Department in the US says that they do

not want these tariffs. So they the Defense Department either being therelected their duties or it's not for national security. Here's a question for you. Does this administration respect the w C Well, I think that's an interesting question, and of course these Trump administrations has been come on they don't, right, No, But I'd say I'd say this though, that the present the US cannot President cannot unilaterally withdraw from the w t O. This is a commiss and this is the

next step that's going to happen. Just like Congress has limited the president's power to repeal sanctions on Russia and Iran, Congress is talk Commers can take some actions to reduce the president's unilateral power on trade. Are they going to do that? Well, I think it's I think it depends on what happens. But I think that give me, let me tell me the outcome of November's elections, and I think that let's just take a stand back. Secretary Matts

has made it pretty clear. I understand from within the White House, likewise for Secretary Tillison, likewise with Gary Cohan, they didn't want to see this. We're seeing it. So what's stopping is from seeing the next things play out? Well, I think yes, So what's the next step of playoff? Some people talking about some resignations coming, which would seem to me to surrender the leverage of power to exactly the protectionists that are also in the White House and

in the administrations. So I'm not sure how it's gonna play out. It could be some resignations, but also the shift of power with the administration. Uh. But again, my point is that this does not necessarily have to trigger a trade war. If it's not for Ted, it's not necessarily going to stand up at the w t O. And I'm not convinced that the inflationary nature of it. You know, people are talking about this, we're could be

boosting inflation. But I think what happened if we if we do get writing prices, which there's a quote from General Motors, a guy who is one of the buyers saying that GM at Ford Stores is stealing illumin in the US. Okay, but Mark, I think the literature in the last eighteen hours clearly agrees with Mark Chandler that inflation delta is not the big issue here. But within the model, our international Mondel Fleming blah blah blah model,

it goes over to economic growth. Can you suggest that if we don't see the impulse in inflation, we will see it over two in five years in diminished economic growth because of retaliation. Well, yeah, again, I'm not convinced it's gonna be retaliation like there wasn't for against George Bush. But I do agree with you that this isn't. To me, the biggest challenge that world trading system is not just

these tarraffs. The biggest challenge that the US has really have it to the global trading system is not is really blocking the appointment of judges to these conflict resolution mechanisms at the w t O. That to me is a much more serious case of that country. You know, the US the biggest trading partners in the world, and there's always little dispute ave frictions. This is part of trade,

but we wanted a strong conflict resolution mechanism. As long as that's strong, the global free traits that can be resilient, flows are going to slow down. Mark. I think that's the opinion of a lot of people. And and we can look beneath the service away from these headline things about tariffs, and just look at CERFIUS, the Committee on Foreign Investment in the United States. They are looking at

inbound investment coming from places like China. They may well change this and develop the role of Cyphius to actually look at outbound investments. So companies in the United States looking to invest in China may well have to get things approved by Cyphius as well. There are things happening in the background here beyond just tariffs that make this a more protectionist administration, oh for sure. And I don't

I don't like saying this. It's not I'm just thinking that the system of checks and balances and resiliency, other global system and of our own checks and balances within the US are more resilient than than what a president can do in the first eighteen months in office. Big question emerging Marcus effects when President Donald Trump was elected, got battered, then it ripped. Do we need to actually have another look at this? Is this an inflection point

or not marked for you for emerging market currencies? I don't think it is. I think they're more important for the for the emerging market currencies. It doesn't seem like FED policies the key. Feel like global growth is the key, and I think for me that's a concern. Latest data, and not only from the US, but from Europe, from Japan, is showing that maybe the strong core strong momentum we had and the synchronized global upturn might have peaked at the end of last year. Okay, Mark, this is all

a bunch of fancy eco babble. Should I initiate strong end trades this morning? I think it's a bit late to the party, but I'd be watching this one oh five level. I mean we've come down, right, we come down to almost one oh eight. I think we're one of seven seventy at Monday. We'll be missing the point. Mark, Tom and I sal bottoms. We buy tops. That's what we do Mark, You've got to understand, you know how you know, like John Farrell has a grand Big I've

got a grand Big sixteen. It's a dinghy and the name of the boat is called late to the party, my chandler. If it's not the haven fit that drives the Japanese the end story forward from here. How important were the comments from Governor Kuroda about an exit from stimulus next year? Yeah, I think I don't surprise me, right, So Corota says, we're not changing policy now, even though we've stopped, we've slowed down our acid purchases, and we're not even to talk about an exit until next April.

And the market was spotted almost like it was in this April. I think that the market is getting ahead of itself. And I think that the reason that the boj might talk about it next April but probably won't do anything, is because next October October, the Japanese gonna put in a high retail sales tax from eight and whenever Japan has played around with the retail saling given the economy down, I mean, that's a really important insight. What are the ramifications if even if you don't think

we'll get there. If we get to a nine point nine nine strong end print, I mean that's five figures away. Yeah, I think that. I mean, which isn't not completely like lost right, I mean it's not completely impossible to see that. And I think that they have people really adjust head issues. And another question happened is that the dollar is falling like this, We've got this protectionist sentiment growing where people still fund the US, growing current account deficit. Mark Chander,

stay with us, please, Mark Chander. Wilson, the Brown Brothers Harriman really important depth. I can't say enough about Mr Chandler's books, particularly on the template of the astronomy of our global political economy. We bring in now Francie mccoi, who is in Rome on a Roman holiday through the weekend, but then France seeing a very very important Sunday morning. How do they vote in Italy? Is it? Is it by paper ballot? Is it a modern digital system? What's

the process? It begins Sunday morning? Good morning Tom. It is definitely by paper ballot. It's actually very old school. You're you find yourself in a booth and this time you have between seven and eight parties that you have to choose. Now, remember John, this is also the electoral law, so you could argue that this is the first time that the Italian economy test its engine. So you don't really know how will plan out. Part of the electoral

laws a proportionate system, part of it is direct. So it actually makes think a little bit more complicated because it's very difficult to look at the polls, which, by the way, we can't talk about, but it's very kind of difficult at this point to see whether, you know, the coalisition could actually perform depending on how much the

parties get. Will weather play into the election. I'm watching a plane actually land in the heavy winds of Washington Air Force one as often the distance and really from Washington to Maine, we have extraordinary weather. You saw that in London. How is the weather across Italy? Um, it's a little bit better then we had very high winds today. And you're right. Weather always plays a part in the turnouts.

But even before the weather concerns and east from the Beast, which has touched it to about five six days ago, there was a lot of concern about very low voter turnouts and Tom, to put it very simply, there is a concern that basically, although the European economy bringing Italy with it, is getting better, Italians are just not benefiting

from this broadening recovery France in Lacroix in Rome. I don't know, Francine, if you're able to hear Prime Minister May's important comments at Mansion House, I would not Francine that she has garbed in black today. What is Prime Minister May morning? Is she gives us an update on Brexit theory. I mean, you know, she may be morning rebels on both sides, has a very tough task. On the one hand, she needs to deal with the Commissioner

Yunker and Commissioner Barney. At the other hand, she has to placate her rebels that are pro Brexit and the ones that are pro remain. So I think maybe, you know, all black all around makes sense for a top prime minister going to the multiple times. What have you heard in Italy about the discussion of the President the United States on mercantilist theory. I know it's to talk everywhere worldwide. The Prime Minister actually making comments two hours ago or so,

future is improving. Folks who are negative to seventy were now negative one better tape in the last twenty minutes. But Francine, what have you heard from your guests and off Mike in Italy on mercantilism and American trade. Well, tom ad is worried. A lot of Italian politicians are worried, a lot of Italian CEOs are worried. Remember, this is an economy that grew one point five percent last year, but it's mainly thanks to exports, and a lot of these exports go to the US. Now the most percentage

wise actually goes within the European Union. So a lot of the chief executives that I was speaking to you who are saying, look, it's not good for world trade because if it has an impact on GDP, it will also bring back to acting of it. They're concerned about exports to the US. But you know, as long as the European block stays together, it's the will you know whether the trade war storm for instance, quote thank you so much. Of course, safe travels have a great Roman

holiday in Rome for the elections. Uh, this is what gives us goose bumps here at Bloomberg Surveillance. Why don't we have guests of esteem and always of controversy. Who really make an effort to join us on historic days like today. Jeffrey Sachs is a Columbia University. He has been way out front on the dumbing down of America. He has been way out front on any debate of climate change, whether you agree or disagree with him. But

far more is his foundation of international economics. He is again at Columbia University and joins us from Bogata, Columbia UH this morning. Professor Sas, thank you so much for the effort to join us UM this morning. Twenty years ago you wrote two essays for Foreign Policy. One was a brief history of panic and the other was Unlocking the mysteries of globalization. Is President Trump's trade action his

effort and a good effort against the new globalization. This is one of the most reckless policies tom one can imagine, and he is going to have major at first reverberation as it is around the world. We've probably shed maybe it's a trillion dollars of the stock market capitalization in the last twenty four hours. That is a pretty good sign of UH market sentiment and the view of what Trump has done. He's smashing the global trade rules, and

it's very, very dangerous. We have done a little bit of the history, Professor Sachs, the history that you're expert in this morning, going back to the courage of Sir Robert Peel in the corn Laws of eighteen forty two, call it Nixon's effort in nineteen seventy one on a ten percent import text. Let's go to Nixon. What did Jeff Sax learn in studying the Nixon tariffs of the

early seventies. Well, when Nixon UH not only raised the terroffs but broke the Bretton Woods exchange rate system unilaterally, it led to a decade of the chaos UH. And I would go back to in fact, Tom uh and you know the history well of the Holly Smoked tariff of July. That was another unilateral US action, a smash in the face of the world trade and it had devastating consequences for pushing US UH deeper into what became depression,

prolonging the Great Depression, intensifying it. I'm not saying that that's the inevitable consequence of this dumb move of the of the Trump but this is a dumb, dangerous, reckless move and it's based on it's based on a level of economic illiteracy that is absolutely shopping, and that shown by his morning tweets, he really believes that if you are running a trade deficit, it means that you're being swindled by the surplus countries. It's a kind of it's

a kind of deliteracy. You can't even imagine that is now a view held by this confused man who happens to be President of the United States. And then he tweets this morning that the trade war is the simplest thing in the world to win, because we also use everything is winners and losers, whereas trade is about win win and closing trade is about lose loose. So I'm I'm astounded, Tom that we don't have uh any institutional

break right now. I would expect and I would well, we'll see, I would expect people like Gary Cohen to leave the White House because he really want to do

well that this kind of shocking behavior. On that note, let me bring in my colleague Pimphile Jeffrey Sax, Yeah, Professor Sax, just to play devil's advocate here, is it possible that this is uh part and parcel of a negotiating tactic, and that what the tariffs can be imposed, tariffs can be removed, and that there will be further negotiations that we don't know about, but that this is a new tactic in the way that the administration is indeed dealing with what it perceives to be unfair trade

practices against the United States. Well, I know what it perceives trade practices. Donald Trump thinks, as he even wrote this morning, says we're running a trade deficit against nearly everybody. We must be being cheated by nearly everybody. But it's the kind of stuff. Uh, why are we running a trade deficit against everybody? Well, that's because we don't save in our country. We have a saving investment deficits we

borrow from the rest of the world. And done his very way of posing the question exposes the silliness of it is that every country that we run a bilateral trade does that is somehow doing us wrong. He just doesn't get it. Uh, maybe it won't spiral out of control though, And China has been extremely mature in its response, which is just to say, we hope the US does

not undermine the international trade rules. European Union was far more direct, saying that there will of course have to be retaliation uh, and that this is how we just Many others have noted that it is a complete break of post World War two practice to invoke MA sational security to slam against GET. The national tradis so the answer, Kim is yes, maybe it won't be so bad in the end because some grown up someplace will turn this off.

But not because there's anything clever in this. It's just because this is an idiotic move that is very dangerous and and may get tamped down because most of his advisers are telling him that this is a dangerous the republic most that this is a dangerous move. Okay, Jeff Sex, thank you so much. We really appreciate it. From Vogata, Columbia this morning. 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 Winter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio