A Sneak Preview of Janet Yellen’s Treasury

of the global economy. Overbooked from Singapore to Rotterdam, ships are queuing to get into port and exporters are struggling to book space for their freight. Satellite photos show there are currently around three dozen container ships anchored outside the twin ports near l A, the busiest gateway for US

goods trade, still waiting for births. A major car manufact was like Volkswagen and Honda are cutting production in the US and Europe because of a struggle to get part We thought it was a short term mismatch between demand and supply caused by the pandemic, but there are fears that these supply chain issues could now stop the global recovery in its tracks. Our senior Asia Economy correspondent and the Current gives us his take down at the docks in Hong Kong in a few minutes. But first, some

breaking news from the US. We have a new president sitting in the Oval Office, Joe Biden. Almost as important for at least some listeners to this podcast. We have a new Treasury Secretary to sitting across the road at fift hundred Pennsylvania Avenue, Janet Yellen. Now she's not exactly a new face. She was head of the US Central Bank until Trump decided to replace her with j Powe.

She was on the Stephanomics talking to me at the New Economy Forum a few months ago, and we've got a sneak preview of what her reign at the Treasury Department might be like. Earlier this week in her confirmation hearing before the Senate Finance Committee, and Bloomberg reported Chris Condon listened to every word of it. Chris, thanks for joining you. You know, Janet Yellen evolved from covering the

Federal Reserve. You're now moving from being a Fed reporter to being a Treasury We're going to send you there to cover Janet Yellen and tell us about the hearings. I mean, I guess you didn't get as much from them as you would a normal hearing because a lot of it was remote. Hi, there's definitely yeah, you're you're absolutely right. Like much of these things these days, it

was largely a virtual hearing. Some of the lawmakers were there in the room in the hearing room, some of the lawmakers were doing it remotely from their officers, and Janet Yellen did it remotely from her home. So that's the first reason why it wasn't really your normal can't from mean hearing. The second, interestingly, I think, is that there's no question that Jenne Yellen is going to be confirmed by the U. S. Senate. She has very broad

support on both sides of the political aisland. In fact, many of the Republicans who had a lot of critical things to say about the Biden administration welcomed her and said they look forward to working with her when she

was at the Treasure So there's no question. Uh So, without that sort of vetting process to to go on in the hearing, it turned largely into a discussion and debate over the merits of Biden's stimulus package, and Yellen began doing her first job, which is to sell that two lawmakers, both to the Republicans and to some of the somewhat more conservative Democrats in the Senate whose support is going to be needed. So and she seemed to get off on a pretty good start there. She's she's

no strangers to these types of things. She's very well prepared and very well spoken, and uh, I think she had a pretty good first day. Yeah, so we're going to hear actually a couple of things that she said

on the on those topics. I mean, she has to obviously, there's a there's a balance that someone who has to make sure that US carries on paying back all this debt has to strike between sounding suitably concerned about this mountain of federal debt that's been run up just in the last twelve months, but also talking about the need

for stimulus. And actually, when she did talk for the Bloomberg New Economy for him a few months ago, when she was just being talked about as a Treasury secretary, she talked about the FED pleading for fiscal relief, wanting to get more stimulus for the economy. So so let's hear what she said first about worrying about the debt, but also on the need for stimulus. It's essential that we put the UM federal budget on a path that's sustainable.

But the most important thing, in my view, that we can do today to put us on a path of fiscal sustainability is to defeat the pandemic, to provide relief to American people, and then to make long term investments that will help the economy grow and benefit future generations. UM. To avoid doing what we need to do now to address the pandemic and the economic damage that it's causing UM would likely leave us on in a worse place fiscally and with respect to long our our debt situation.

UH then taking the steps that are necessary and doing that through deficit finance. So so we heard that the quiet a full throated call for more stimulus, even as she was concerned about the long term path of the debt. But I gathered the Republicans did score some points in pointing out some of the weaknesses in Joe Biden's plan. I mean, how does she do that? A bit mixed? I would say, first of all, she tries to present herself as you heard as someone who will still be

a voice of reason inside the Biden administration. She is very conscious of the long term need too, as she said, keep the budget on a sustainable path, but now is not the time to worry about that too much. In fact, if you don't do the things you need, if you don't spend aggressively now to contain the virus to help Americans who are suffering because of it, you're going to be in a worse place in the longer run. And

and there she's got a lot of backing. Um, A lot of economists would agree with her, Um that that is a very good case to make now where I think the Biden plan has greater weakness and yelling in her heart of hearts really must recognize this is when we talk about these additional checks that will go out to so many American households. Um. An economist just yesterday told me that he estimated about eight of those households

don't have any employment issues. So you're gonna be sending a lot of money to a lot of Americans who really aren't being directly damaged by the by the pandemic. Is that really the wisest thing to do? So this idea of how well targeted are some of these measures was the strongest point that some Republicans made, and they made it very strongly and repeatedly. She did not have a great answer for that. Of course, she's not, you know, a nonpartisan economist anymore. She can't say, well, you have

a point here, you have a point there. No, no, she has to be a good soldier and stick with what the boss is proposing. So she kind of had to dodge that a bit um. It didn't come across very badly for her, but clearly she did not have a fully prepared comeback for that question of how well

targeted the aid is in some cases. So one area where the economics and the politics maybe go together, at least in terms of the merits, is the increase in the minimum wage, which arguably also would be a bit better target to the people who have suffered most in this pandemic. The Democrats, many of the Democrats and Joe Biden focused on increasing the minimum wage significantly, up to fifteen dollars an hour. Let's see what she said about that.

Right now, we have millions of American workers who are putting our lives on the line. Uh to keep their communities functioning, and sometimes even working multiple jobs aren't turning enough to put food on the table, and raising the minimum wage would really help many of those workers. That's the reason for doing it now. In terms of potential job laws, there's now a large economics literature on this, and the findings are that the job lass is very minimal,

if if anything. So, what do you think, Chris is is there a chance we're going to double the federal minimum wage to fifteen dollars an hour under the Biden administration? I think there certainly is a chance. UM. A couple of things to note about this, About almost thirty states plus the District of Columbia already have minimum wage levels that are well above the federal minimum UM. And there are big employers like Amazon and Walmart that has set

minimum pay above the federal minimum. So it's not like the entire country is going to see this sweeping doubling of the minimum level of pay available. It's not quite that dramatic, um, And there is quite a bit of evidence, as Yelling pointed out, supporting the idea that there won't be a lot of job destruction because of it. Now, can it pass the Senate. Uh. One interesting thing to note is how many votes do you need to get

it through? If they can go through the budget reconciliation process, you just need fifty plus one, but it has to

pass the test of affecting spending or revenue raising. And now you can make the argument that by raising the minimum wage, you're going to raise tax revenue because people at that end are going to be paid more and thus be their employment taxes are going to be more um But the last time a legislator piece of legislation tried to do this in two thousand nineteen, the Congressional Budget Office scored it as neutral on the budget and

did not allow it to go through the budget reconciliation process. So they have a test there. If they need to get sixty votes to to the outside the reconciliation process to stop, you know, to to to bring a debate to an end, that will be a much more serious test, and they may seriously struggle to get ten Republican senators on board. We're going to hear about this again and again. It sounds like an arcane point, this point about the reconciliation process, but it is. It's if you've got at

It is absolutely fundamental that you can that. Really the administration is only going to be confident of being able to get through things that can go in that process. And as you say, there are rules that limit what kind of thing can be in there. Well, bit of wages before or against is definitely a main Street issue. I guess what you might call more of an interest to Wall Street is what she said about the dollar. And I think here we we did have a big

contrast with with Donald Trump. Let's let's hear what she said and then unpack the differences between her and her predecessor. I believe in market determined exchange rates. The value of the US dollar and other currencies should be determined by markets markets ad just to reflect variations in economic performance and generally facilitate adjustments in the global economy. The United States does not seek a weaker currency to gain competitive advantage,

and we should oppose attempts by other countries to do so. So, Chris, what was the big difference in what she said about the dollar? Well, the Trump administration really kind of flipped all around on this issue, didn't they. Trump loved the idea of a strong dollar. It sounded good to him. But then, of course he realized that a weaker dollar would help American exporters, and I think they tried to jaw bone the dollar in some instances. Um, you're not

going to get that from Janet Yell. And she knows that the market in the long term sets exchange rates anyways, And I think she fell into the classic Treasury secretary speak on this. Uh. American officials, when they, you know, when they know what they're talking about, always accept a stronger dollar as a consequence of good, positive things that

are happening. It means that the economy is probably growing faster than the economies of other major trading part partners, and it's acting investment, it's attracting purchases of your goods. But you don't seek it um as a policy that can backfire on you, of course, and nor she knows as well that seeking a weaker dollar to help exporters can really backfire if they're looking to keep an eye on other countries and prevent them from from weakening their

own currencies. And not to mention that it can backfire in the sense that other countries may accuse the Federal Reserve of seeking to weaken the US dollar through massive quantitative easing. So best in all worlds is to step back and say, look, the market determines these things, will be quite happy. If the economy does well, the currency will probably strengthen as a natural result. But we'll let the market do its thing. It's back to the old It's back to my old days at the U. S.

Treasury under Robert Reuben. I don't know how many times I heard him say a strong dollars in the national interest, and then the key thing was that that was all he would say. But I suspect Yellen will be moving in that direction as well well. Finally, I guess we should talk about the one area where perhaps there was least change from Treasury sectary minution and the Trump administration, and that was on China. Quite tough talk from Janet

Yellen on that subject. Let's see what she said. We need to take on China's abusive, unfair and illegal practices. China's undercutting American companies by dumping products, erecting trade barriers,

and giving illegal subsidies to corporations. It's been stealing intellectual property and engaging in practices that give it an unfair technological advantage, including force technology transfers, and these practices, including China's low labor and environmental standards, are practices that we're prepared to use the polar ray of tools to address. Very of course, it is important OVID time to work

with our autifies. So Chris, obviously there's going to be other members of the administration whose main job it is to think about US China relations, not least the Secretary of State Tony B. Lincoln. But but what did you take from that quite harsh language from Janet Yellen. I think that's an area where she is taking direction directly from the President elect and his close advisors. That's what they want, That's is the policy they want to implement.

It's politically driven. I think it's practically speaking, there are also some obviously very serious issues to address with China, but the politics wrapped up into it are are really pressing. So there's no room for Jenney Yellen to do anything.

But even if she wanted to tow the line and give a very strong message about all of the different fronts in which the Biden administration wants to confront China, I think underneath, of course, the manner in which they do it, and the tone of the language they use will be quite different from the Trump administration, But as a a signpost that they want to put out on day one, they are just as you say, We're putting up very strong language to signal how they want to

stand on this and if anything on the national security issues actually a bit tougher than Donald Trump was, well we'll have We'll have plenty more to say about Jenneyellen and others in the new administration over the next few weeks and months. But in the meantime, Chris Condin, thank

you very much, very happy to be here, Thanks very much. Now, it hasn't been a good start of the year for people in the business of transporting goods from country A to country B. In our first episode of one we heard about the trouble at the UK port of Dover,

even before Britain fully departed the European Union. Brexit related red tape has caused a lot more trouble since January one, with Scottish fishermen being forced to throw away millions of pounds worth of fish and new barriers to trade, causing shortages in supermarkets in Northern Ireland. But it isn't just Brexit, the global shipping industry is struggling to deliver what the world wants to buy, and exporters and importers everywhere are

feeling the pain. Are Hong Kong based Senior Asia Economy of correspondent and the current went down to the docks to see for himself. That's the sound of ships being loaded and unloaded here at Hong Kong Port, as huge crane stack twenty foot containers like lego bricks onto vessels

that will deliver goods around the world. While it appears to be business as usual here, a shortage of shipping containers around the world is choking an exports boom that has helped to drag the global economy from its pandemic into slump. Manufacturers complained they're unable to ship goods or take new orders. That's because of surging prices for containers, as global restrictions to stem the coronavirus tie knots and supply chains. The crunch around the world has been building

for months. It's now being compounded by a race by Chinese factories to get goods shipped ahead of the nation's annual New Year's holidays. So when this UH issue starts to kicks in it. We really starts to panic quite a bit. Kenway. Lamb runs a firm that makes packaging machinery used for everything from cookies to granola. He depends on ocean freight to the liver his bulky equipment to clients around the world. Last month, he was all set to load the shipment banned for a customer who had

agreed the deal and the shipping costs months earlier. What should have been a home drew routine of farying goods from factory to port became a logistical nightmare. When Lamb was told there were no containers available, we are like, what really, what's happening? If we're already freaking out. Lamb, who is managing director of Hong Kong based Kazoo Packaging Machinery, whose manufacturing is completed in Guangdong and Taiwan, has had to watch as prices for containers surge on a weekly basis.

It's like getting a concert ticket, but you cannot book it, you cannot purchase it online. What happens is they have you have no idea when when it is going to be on sale, so once it's available, there suddenly be a price and either you take it or the container will be gone. Um. It's creating a lot of pressure for US. Factory owners say containers that once would have cost two thousand dollars to send are now being quoted

at anything up to ten thousand dollars or more. The shortage is ricocheting through supply chains as manufacturers are left holding goods they haven't been paid for. Inventory is piling up and cash flows are taking a hit. Some factories complain they can't consider new orders. Sydney News firm Prime Success Enterprises Limited makes educational and recreational products such as

tents for children and tps and bats for pets. After booking two containers from Europe for a ship in the last month from the antientins then he was later told he could only get one. When we go to the container terminal to collect the container, they said, sorry, there's not nothing available either for you, so you have to wait for the nix nix wipment or until for a test. That's a big, big progress. In another instance, you had secured a container for shipping, only to be told there

was no room left on the ship. When we arrive at the terminal, they said Oh sorry, there's nothing available for you, you know. So we try our our trying to accompany. Try the next day. Still sorry, no more, you know so so so you have to wait for the next next week vessel and see what we can do. So it's been a terrible situation. The pandemic put a

rocket on their exports. From Asia's manufacturing powerhouses, China, South Korea and Taiwan also urgent demand for work from home technology and healthcare kit the boom health China wind market share of world trade and to become the world's only major economy to grow last year, while Taiwan and South Korea's experts are also gaining. Jackie Im runs Life in Motion, a hunk On based lighting company. It makes portable ultraviolet

lights that kind of eliminate bacteria and viruses. This year, we're still seeing a quite huge demand for our products and of a lot of people send us a request for distribution of our products around the world. Like other manufacturers, Jim is doing what he can to keep costs down

and to look for workaround solutions. So that's why we have to negotiate and see how we can share the increase of the cost right now, So there are lots of we have to be constantly talking to getting get in touch based with our customers in overseas as well. So um, well, hopefully you know, after the Chinese New Year, uh, we will see the that the situation will hopefully east

down a little bit. There's a lot of riding on manufacturing to continue powering the global economic recovery, as services sector industries such as tourism and will remain in the Belgiums. The World Bank this month warned that their rebound from the deepest recession since World War Two would be slightly slower than previously expected as virus cases surge across advanced economies.

The Washington based Lander also trimmed its global trade volume growth forecast to five percent this year, following a nine point five percent contraction last year. As Jackie And mentioned, the big hope for exporters is that the bottleneck eases once the annual Chinese New York Holiday is over, the biggest annual holiday in the world's second largest economy, and as vaccines stained the virus roll out on a larger scale. Bloomberg Economics Chief Asia economist Chiang Chu expects conditions to

improve after the first quarter. I expect the impact is relatively limited. They might not be a huge impatch on the production side and on the good price site. I think the disruption will be relatively temporary and over time well ease as vaccines allow countries to open up the economy. Not that you would notice any of these issues here at the Hong Kong Port, one of the world's busiest shipping hubs that can handle around twenty million containers a

year onliners that are heading to over four destinations. For exporters, a return to normality can't come soon enough. I've been in this business for sixteen around sixteen years. This is something that I have never since in my career running export for all these years. M thanks for listening to Stephanomics. We'll be back next week with more on all things economic, and remember you can always find us on the Bloomberg Terminal, website,

app or wherever you get your podcasts. And for more news and analysis from Bloomberg Economics, you just have to follow at Economics on Twitter. This episode was produced by Magnus Hendrickson, with special thanks to Christopher Condon Ender Current and Yang Yang. Lucy Meekin is the executive producer of Stephonomics and the head of Bloomberg Podcast is Francesca Levy.