U.S. is Now Openly Protectionist, Alden Says

on another two hundred billion dollars in Chinese imports. Is it an escalation or is it a war of proposals? Joining us to discuss this. Torsten Slock, Deutsche Banks Chief International Economists tossing. Always great to catch up with you. So, sir, your view and what we're seeing this morning, Well, this is basically a game of chicken, and it actually looks a little bit difficult at the moment to see who's

going to deviate. What's pretty clear is that up to this point, at least before the latest retaliation announcement, there's the latest round, if you will, it has looked like this was relatively small peanuts in terms of the awall scheme of things. But the risk now with two billions, that is, in particular going to be hitting Cochumer products.

Both opens up risks for equity markets. Equity investors we're talking to, of course asking the question which companies will get hit, which product groups will beget hit, and that uncertainty is just not helpful at all at the moment. And on top of that, of course, there's also racist the reverse question, well, okay, but what is the Chinese retaliation going to look like, which also, of course and means and they said they will not only be on trade,

it could also be other types of retaliation. So the game is on and and again the game of chicken is the full force ahead towards each other here, and it looks very uncertain at the moment, so toast and given the price action we're saying this Tuesday morning, I think it's always easy for narratives just to sprint away with themselves. I want to try and drain some of the emotion away from this the story in the United States.

Does any of this derail the US economic story of growth and really strong growth, and does any of that any of those concerns make the FED sit there and say, you know what, we need to slow down well, the important thing here is that the US has still a significant tail when from the tax cuts for the corporate sector. The Trump tax cuts are going to lift GDP growth

to about three percent. If you say, e c FC, going on your Googberg screen, you look at the quarter of the profile, you could see that the consensuous expect GDP to essentially be three percent for the rest of this year. And with that backdrop, you're absolutely right to day John that this is indeed a very very strong picture. So for now, this is uncertain stuff where we just don't know how it escalates. But the problem is that

there's no holding back. It didn't take many minutes before the Chinese started announcing that they we're going to do the exact same amount in return. So what really is the becoming more uncertain areas Not so much the GDP profile and touch here and now. It's really much more

the immediate financial marketing impact. And that is indeed the risk that if consumer companies in the US, if we have a broader impact on equities in the US, then of course that would certainly lead the sad eventity to look at maybe revising some of their forecasts, including of course for what race will do, but it's still very early, but so far it looks for a difficult who's going to stand down in this standoff that we're having at

the toasting. It would be disingenuous of me to say we don't see signs of fragility, and we certainly don't see many here in the United States, but we do see a lot abroad in the global equity market and perhaps more specifically in emerging markets an emerging market foreign exchange. Do you see a feedback loop into the United States anytime soon? Toasting? Or is everything okay for now? This is not helpful at all for the e M story. The e M is always not only in this situation.

The e M is all always challenged when the raises rates, even if it's slow and gradual and coastious. So adding on top of that, at trade war, which with China is directly related to e M, but also from a U S perspective, has been hitting indiscriminately emerging markets and also its D countries, is indeed not particularly helpful for the e M outlook. So that's also why the e M f X going down has been a team for a while. It probably will continue as a result of this,

is it near a trip point? I mean, are we at a point? I mean on a large chart, it's got convexity, which means a curve, which means acceleration. We are accelerating in our EM depreciation. That can't go on forever, Cannon, you know. And the problem for E M is that they also have their own problems, I mean, forgetting the trade war on minute. EM already has some mediosyncratic stories

with Argentina, Turkey, Indudesia elsewhere. I mean, stories are beginning to pop up that do look as slagly more worries, and even at a longer term perspective. So you're right to say that the tripping point here is probably closer in the sense that the risks are higher than what they've been for a while. The good news, if you will, is that at some point we'll run out of stuff to put terriffs on. In other words, there's a a finite limit to the size of the U S trade episode.

So that's then then it will from a political perspective, both of the US and abroad, then policy makers need to come up with whether they want to take this to outside only the trade area or is this just gonna stay only inside the trade realm of things? But tourist done. This is important and Peter Hooper and your work at Deutsche Bank has been frankly with Domini Constant and Ellen Ruskin has been legendary on this. All these institutional troops are saying, we're in control, we know what

we're doing. You know, maintain calm, Remain calm, remain, calm, remain, calm, blowny, these are big moves that we're beginning to see. Is it the same remain calm is six which was before. Well, it's clear that the tide is going out, if you will, in many emerging markets that have been helped a lot by commodity prices being high. Now commodity prices are, thankfully for emerging markets because of course slowly moving high again.

But it's pretty clear that a number of emerging markets have significant im balances on top of their political problems. So the risks are beginning to appear most significant than they have been for a while, which also speaks to being all worried as a globally in the time that we've got left with you, Torsten Slock, Really nothing matters here there's like important trade dates like I think July tenth,

John Ferrell is an important day. None of that matters compared to ten am June, which is next Tuesday, which Torsten is Denmark France. Does Denmark have have the chance Towardston? Does Denmark you have half a chance against mighty friends? I will be sitting with my head and my stamp line and cheering them on. I think they did do very well against the rule last element. But we'll see. It's a very exciting. But even in the World Cup, you know it's been games have been surprising both and

were still surprised to the DW side. So we'll see. You see where we're going that front. I literally had no idea where you were going with that date. There. He was wondering. I was wondering what happens when you were also playing John? Oh really, that's true. You did see the last few minutes were pretty good. Yeah, well against Tunisia, Torsten, you'd hope that England beats Tunisia. I think it's gonna be a completely different game against Belgium.

Does tunis you play Peru? Tunisi is not playing Tom Torsten. Honestly, don't get into it with Tom Kane. Otherwise you're going to be here ages Torsten's look. It's great to catch up with you, sir, Thank you very much. The Tigers Banks chief international economist Vincent Reinhardt is a good person to speak to. He's with Standish. Part of B and Y Melon was Standish as their chief economists and investment

strategist Vince. The dollar on a blended basis, just one quick look, d x Y is now out to standard deviations strong, which is a measured move which clearly elicits measured conversation from central bankers. And there'll be a point where it's not how close are we to where strong dollar dynamics begin to affect the model, the forecast, the factors that major central bankers look at at this point, they always turned to the syllogism, and the syllogism is

monetary policy has to be forward looking. You make an outlook for the ecounomy economy. If you don't like those outcomes, you change policy. Any variable that matters for your outlook. There for influences policy, exchange rate, equity prices, interest rates, they're all things that matter for your outlook for really economic activity and inflation and so they have to pay attention. At the bottom line is when bull financial conditions actually

moved from accommodated, there are to tightening. Yeah, but syllogism, I mean Miriam Webster's got it as a deductive logical scheme. You know, Vince more than I mean. You saw this as your as you worked at the FED for years. All of a sudden, the deductive logical scheme doesn't work. How close are we to wear drag? Your Powell's deductive logical scheme doesn't work. So you want to separate management of a macroeconomy and management of financial crises. I was

talking about the management of the macroeconomy. They think about their outlook, they think about where they're sitting right now, and then they go forward. In terms of management of the crisis crisis. The first UH talking point in your playbook is try to keep a low profile if you possibly can. J Pal has been pretty quiet over his tenure in terms of UH intervening verbally to big swings

in markets. And indeed, you listen to him in his press conference, you listened to him in in his congressional appearances. He's got a higher hurdle UH for a financial upset than I think his immediate predecessors. I think you've picked up on something quite important, finns Um. I certainly witnessed last week the most bullish, optimistic Fedshan news conference I've seen post crisis. Um, do you think that was justified? Fins?

I think the you know, the plain fact is Jay pal is uh overseeing an economy and it's doing better than its advanced economy peers. He's looking at a lot of domestic momentum. He remember, we have we have considerable uh fiscal stimulus uh and uh so there and an unemployment rate that is arguably well below its natural rate and head and lower with an employment gaining on average something close to two hundred thousand, how long can it go if the global economy is not doing well? As

a very open issue, how long can it know? If financial conditions tightened considerably, that's an open issue. I think the Fed has got a problem, perhaps not for this year, unless obviously we go from macro management to crisis management. But they got a problem two thousand nineteen about knowing when to stop. And how do you think they tackle that problem? Vince? I think that you you you nailed it. When describing j Palet at the press conference, Well, what

are what are his favorite phrases? I stick to my own lane. And let's not overthink this. Uh, he is going, you know, three yards in a cloud of dust. Right, He's just got to keep raising rates until uh it seems like it's time to stop. And then they're hoping that they'll get a sense of what the neutral rate is when they're close to it. And and and Vince is a chief economist and also an investment strategist and asked

you to put the investment strategist hand on. Now. Do you think therefore there is more juice to squeeze in that flat of yield curve that we've just seen throughout this year so far? It's there's a lot of reason to be short duration. Why because the market hasn't yet priced in enough of said tightening. I think they'll go four times this year. Jpal T is pretty confident about it. I think he owns a December move. He was he

was the shifting dot between March and in June. Uh, And so I think short rates will rise some more and more rates rise as much can we sustain that you can grows when you look vince right hard at the mix of economic growth right now? Is it more sustainable than consensus beliefs? Uh So? The first thing to remember is as you know come is is expansions don't

die of old age. The second thing to remember is the advantage of having gone through a severe financial crisis and the wrenching recession is it takes a long time to build up excesses, and we don't really have a lot of evident excesses in the domestic economy. So in that environment we could go for a while. But again we need a stable global backdrop and that and that's what's at risk. What's at risk is is how economy

is intersect the intersect in the foreign exchange market. And if we're growing fast and our trading partners, aren't the dollars going to appreciate? And I think the lesson the two thousands, sixteen and seventeen for both the US and Europe is foreign exchange. It really matters. It was bigger drag on our activity last year. Who was a bigger boost to the euro area last year and we're just

seeing that swing. Yeah, But I mean, just staying an intra vandem at a great article in the Washington Post this weekend on the ex percent of Americans who just to seeing wages flat. I mean, I get it's to make America great again economy, But from where you sit, Vince, with your decades of of of of nitty gritty research,

is the dispersion of those benefits touching Americans. Well, the first order problem is we're not generating in a heck of a lot of productivity, and productivity allows firms to share some of the games with workers. And an environment in which output power isn't increase in there no games to share. The second part is activity is more concentrated, and that that's associated with declining labor share of an

come that's associated with strong earnings growth. Uh. It is kind of striking how much better corporate America is doing than than than workers. Uh. That that does suggest we have some some medium and longer term problems. Vince, Thank you so much, Vince Rhin, I greatly appreciate it. With standards today on television and radio where this as well. Uh, my interview of the day, without question was the Finance Minister of Indonesia. It was important to speak with Mr Rody. Uh,

given what's going on in China and with trade. This is the next one. This is Edward Alden quickly today his wonderful book Failure to Adjust on Trade and is definitive. And ed Alden just very simply here, what is the difference in the scope of four factor I'm planned terrorists from fifty to two d How does a guy like you synthesize that? Well, I think you know. The key thing here is a obviously it's a very big number and it's going to force a Chinese response. But you

have to look at the size of the tariff. T What this tells me is the administration very much intends to put these tariffs in place and keep them in place for a while. If you go back to the fights with Japan in the eighties, the threat was always a dcent tariffs prohibitive tariff would have blocked exports of you know, Japanese machine tools or semi conductors or whatever you have you in the United States, and the point

was to force a negotiated deal. This really appears the ten really appears here to be to put that tariff and keep it in place in Trump's theory, and somehow that will help rebalance the trade relationship with China's a different strategy. Chapter one of your book, The End of the World's Greatest Autarchy, and the basic idea here is America goes it alone. That seems to be a foundational belief of the president. Can we go it alone? I

don't think there's any way we can. But if you look at his particular form of nostalgia for a time when the United States dominated the world economy and really didn't particularly need cooperation from his allies, that's what he wants to get back to. It's just the world is a very different place than it was fifty sixty years ago, were much smaller percentage of the world economy, and our ability to tackle these issues depends on working with like

minded partners. President has decided to go it alone. And and and we are, you know, now on the verge really of of a trade war with all of our major trading partners, not just the Chinese. Edward Alden, How does the United States stack up in terms of economic competitiveness,

You know very well. And some things you look at, innovation and particular venture capital sector technology, we still have some important advantages where we tend to fall down our things that require sensible government of one sort or another. You look at infrastructure, UM, you know, we're lagging behind a lot of different countries. Our educational system has enormous challenges.

We're starving, you know, public univer cities increasingly UM places where some sort of intelligent kind of government business cooperation is needed. We really do lag other countries, and and that's a challenge for variety of political reasons we do not seem able as a country to address effectively. At the moment, you've written about US trade and investment policy.

Give us an update if you can. Well, the update is, you know, we're moving in a very different direction here, so obviously much more kind of openly protectionist on trade. We haven't really seen the shoes drop yet on investment. But the forgotten part of this response to China is going to be restrictions on Chinese investments, either through congressional

action or directly through administration actions. So you know, we've kind of moved from a position of pushing for greater openness two goods overseas, pushing for greater investment opportunities overseas, to restricting access here in the US market. That's a big change in direction for the United States sed one final question today, how should China respond? I mean, they've got a cultural template that they will use to respond. But if you were advising President she what would be

his best practice now? I would advise them to work with other countries that fell agreed by the United States. Go to Geneva, offered to restart serious talks in the w T O say, look, there's got to be a multilateral solution to this problem. China's benefited enormously from the multilateral system, but so of other countries. We the Chinese are prepared to address some of these challenges, but not

bilaterally with the United States. The problem for my conversations with the Chinese is they want to deal with this bilaterally with the United States, and I don't think that's gonna work out well because I think Trump is going to push harder and the Chinese are gonna feel like they have to push back just as hard. That does not end well. Ted Alden, thank you so much with the Console and Foreign Relations. Can't say enough about his book Failure to Adjust how Americans got left behind in

the global economy. It was prescient a year ago, maybe it was four teen months ago, And now him it's just lights out. It's one of those three or four. It's gotta be my next book to read. I mentioned earlier our interview of the day was the Finance Minister of Indonesia that with all the tariff discussion and that.

But for our listeners Coast to Coast, Susan Tager is probably our interview of the day because she is with Baine and Company, like the management consultant crew, not the private equity shop, and she is knee deep in the Amazon effect. She is senior director Retail and Consumer Product Practices. And I want to go to real estate first, Coast to Coast. I get tons of mail about all the empty real estate. And my econ one oh one, like you took a duke years ago, is price adjusts and

rental prices come down because there's so many vacancies. Why isn't that happening? Well, first of all, thank you for having me. It's great to be here. And I think you're right, and you've asked a great question. I do want to step back slightly just to acknowledge that consumer spending, consumer sentiment, people are shopping, all of that is strong. The stores are vacant New York every every place this

radio show is the stores are empty. So what I was gonna say is the retail and consumer spaces are seeing a massive amount of turbulence. Underneath that fairly buoyant perspective, there's a lot going on. You mentioned Amazon. We're looking at Amazon growing to be about fift of all online

sales in the US. Uh No, when you look at their gross merchandise value, which is the value of the products that they're selling, not just the portion that they're taking it on, they're probably now in the of online sharing. So you've got a model at forty that's amazing. It's

going to go up to about fifty. We believe they're continuing to outgrow other retailers in the online space, and as you know very well, they're moving into brick and mortar with their acquisition of Amazon, acquisition of Whole Foods, they're opening of bookstores, which is rather ironic. But the key here is in in Bain's belief is Frankly, stores are not dead. The vast majority of retail sales still takes place in stores, but the role of stores have

massively changed. What you're seeing is in retail is not Amazon killing retail what you're seeing is lack of innovation killing retail. And when you go to many stores today, they're the same as when you and I were kids. They look the same as many many decades ago. Yet the retailers that are ng are thinking about the end to end consumer journey shopper journey, which is both online and offline, and using both physical and digital assets to

make that a great experience. Well, you know when Tom used to shop, Mr John Wannamaker used to welcome around the store, and you know one of the things he did was he actually spent time with the customer. And now, of course you have the introduction of electronic devices such as Alexa with Amazon, and I'm wondering if you see that as an opportunity for smaller retailers to now be able to have a bigger relationship with the consumer in

a way that they could never have before. Exactly. There is a tremendous amount that we talked about at Banting Company in terms of the entitled consumer or the empowered consumer, and a lot of that is fueled by technology. On the flip side, you also see massive innovation and opportunity for retailers to transform how they deliver could get an example that because most of the retail cells side we talked to it doesn't agree with that. In terms of innovation,

they retails getting crushed. They've tried this, tried this, tried this, try this, and Amazon's cleaning their clock. But products CAI come on these niche products. But what's an example of a major department store innovation which is allowing them to compete? Sure well, let me actually step back a little bit, because there are lots of stores that are doing well by combining what we could describe as omni channel or the best of both worlds in terms of taking what's

great about digital. Earlier you were describing your experience of eight clicks, I found what I wanted, It saved me time. That's terrific with the best of physical, which, to to your point, is sometimes that personalized service, that experiential opportunity, that community environment. And so you do see a lot of stores thinking about how do I use my space differently, how do I create that relationship with a customer. We're

early days. Is anybody doing everything right? Absolutely not, but we're working with lots of retailers that are taking small bites at the Apple and truly transforming lots of different things. Okay, I wanted to focus and I have no relationship with the company. I don't even own their shoes. But All Birds, I'm sure you're familiar with All Birds, and if people are not familiar with All Birds, they should check it out because if you go anywhere in Silicon Valley, this

is the shoe of choice. Correct, lots of people are wearing. Okay. The reason I bring this up is because every sale that they make is a sale that a major department store didn't make with their own generic brand. It's a different brand. You know that this All Birds is an example. We recently did some research more in the consumer products side, but the same is happening in apparel and footwear into what we call insurgent brands. And insurgent brands are in

the consumer products world. They're only about two percent of sales, yet they're capturing of that growth and when you project that forward, we think that that's only going to increase and capture about of growth. And part of what's happened is some of the traditional barriers to entry or traditional scale advantages that companies had, particularly in the consumer products space, have changed. You no longer need scale advertising budgets to

reach consumers. You no longer need the the uh you know, massive budgets to get the secure shelf space. To secure you give them an email newsletter and you offer teen percent off for the first purchase, and then you know, you say, Tom, all right, you like these issues, will sell you, will sell you some more. The trick here, though, is, you know, all is not lost. There are new advantages of scale that are emerging, and there are new opportunities

for some of the bigger brands to survive. So, for example, data, you know, some of the larger companies have more access to consumer data than you could ever imagine, and the ability to use that technology to customize the experience is unprecedented. So retail in particular has always been a blend of art and science. That has always been the case. But what we're seeing today is the science has elevated and become more accessible and that's what's really going to make

a winning retailer. On an income statement of a major retailer, where's their biggest headache right now? It's a great question, I think, um I'd say it's actually perhaps on their balance sheet in terms of capital interests that they need to think they too much capital, They've got to go more to invest in technology versus the more traditional Amazon out spends most traditional retailers in terms of technology by a factor of five or six to one, and that

is creating a competitive advantage that retailers. I'm just gonna ask one quick question that if you were reading a due diligence report on any retailer, whether it's an established retailer or someone that's brand new, if they don't have a page that is specific to how they respond to Amazon or deal with an Amazon world, do you kind of give it back to them and say, go go do your homework. I would do that homework for them,

to be honest. You know, Amazon is a big threat, but let's face that they're not winning everywhere, and there is a very proven understanding of where they are a threat versus where they're not. You mentioned earlier, so of of the market, and you're extrapolating out. We did that on Google Search a million years ago and Google just kept on going, granted incrementally, what's the ability to Amazon to go? You know, it's a great question, and I

think the two things are happening. Um, in their early days, they did not have the wrath of many other players, and many of the big companies are are making bold moves order to catch up, so there is more competition. The second thing is they're moving into categories that are traditionally more difficult. Susan Tager think please come back again. She does a retail uh as the Salvation of retail. She's vice President's Salvation of retail for Bain and Company.

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 two.