Covid Forced the World to Change in Ways We May Keep

bit of a breather. Carbon emissions are expected to fall in twenty for the first time since the Great Financial Crisis, and marine biologists tell us that whales and other aquatic life are getting to hear themselves think for a change in those respects, at least, we don't really want to go back to the way things were about how to do it? Bloomberg's own Michell jam risco as a story this week explaining how some of Southeast Asia's tourist hotspots

are trying to answer that question. We also have senior UK economist Dan Hansen on Brexit and Dave Rank, America's former top diplomat in China, on high relations between the world's two biggest powers might look under a Biden administration. But first of all, here's Michelle with a view from Thailand's tourist authority. These feelings are waiting for you to come back from the north. That's the appeal from the Tourism Authority of Thailand, a country that typically owes one

fifth of its economy to tourism. Thailand has seen its growth protects fall apart this year with travel shut down amid the global pandemic. Yet even as Southeast Asia's second biggest economy is doing what it can to bring visitors back, it's also doubling down on a rare victor in the pandemic. The environment. The country has seen normally packed beaches get a reprieve, elephants roam freely, and endangered species pepper lonely shorelines.

That's prompted Thailand's Environmental Minister, Barrow Silva Archa to dust off a decades old dream. Now, by government decree, Thailand's national parks will be required to close for at least a couple of months every year. That gives mother nature the chance to regularly get the sort of virus era rehabilitation that's been a silver lining for an otherwise disastrous cod COVID nineteen is a big knock on the door. That is time for you to adjust your way of life.

If you don't adjust, mother nature will do it for you. The disease is the result of humans upsetting balance in nature. Everything has repercussions. We have to find balance and should use this pandemic as a lesson that we have to protect nature before it's too late. We have to realize it's a very see of the damage we've cost. The coronavirus pandemic has been a wake up call too many.

Amid the horrors of sickness, the terrible death toll, and the devastation of economies, it's prompted people, businesses, and governments across the globe to rethink the way they live and operate. Now, as countries try to take their first steps back toward normality, many are reassessing and wondering what elements of the COVID world they might actually want to keep even after the

crisis has passed. On the Thai Island destination of cocamt which forms part of a marine national park, businesses are weighing the government's message on sustainable tourism against their simple desperation to have visitors backs. I've lived here for modern tas, I've never seen the that Skalawan Kumnum also known as Petch. He's a fire dance performer who also owns a bar. It is the rule that looks good on paper, but in reality, especially for small business populate does who have

rent to pay would be devastating. Before the pandemic struck, cosimt was well known for its nightlife and party scene, which profited from the hordes of visitors to the island's idyllic, white sand beaches. One afternoon earlier this month, only a few visitors walked on the shoreline of the newly pristine main beach, talking to locals from the beach front papayas

salad vendors to bar workers like Wichion Jong. Everyone worries how they will survive if there are more months without tourists, which who tends the Naga bar on the island thinks he might even have to leave the country to find employment and pay the bills during the closure. It's one, there are two se Some agree with the closures because he's during the low season, but some said the closure

will mean no income for them. Saren tip To Monks, president of the Islands Tourism Association, says there was already a tangle with government officials on the duration of the annual closures, which the ministry first wanted to be four months long. Businesses are calling for a waiver from the closures altogether. They argue that an annual shutdown would inflict yet more pain on the islands residents after the pandemic already decimated trade Hawaii will affect us for sure. Don't

forget that this archipelago isn't just some uninhabited islands. There are people living on God Summit, so if they close, there will be an impact. At first, they wanted to close the park for four months. We've asked them to cut it back to two months, but really we don't want them to close at all. Who will be responsible for our jobs, income and livelihoods For tourism businesses. If there's no clients at all for just two or three weeks,

we'll feel the pain already because there are expenses. People here on the island are already taking care of the environment. Otherwise we wouldn't be here today. Nobody is here to destroy the island. They need to rethink this. Coosamt was once a modest fishing village, then it exploded into a

magnet for European visitors and backpackers. It's only getting tourists by the handfuls these days, though, and even then it's usually locals visiting on the weekends with borders still largely closed in a special tourism visa only just being offered now. Thailand's efforts to revive the industry have relied on getting

that domestic travel churning again. They've even tried offering high roller packages to push wealthier travelers to depleted resorts, but these have been met with limited success and are no match for Thai tourism's ban or year of when it took in more than sixty billion dollars in revenue from about forty million foreign visitors. There's a heated debate in the business world about how hard to push sustainability tourism

right now. If you don't prioritize it, you risk overstressing popular destinations and ruining what visitors came to enjoy in the first place. But push too hard and only the very wealthiest will be able to frequent these beautiful corners of the earth, crushing local mom and pop firms that

rely on mass tourism. McKinsey and Company partner Steve Saxon has spent the past decade and a half watching the fast evolving tourism landscape and Asia, including a long building debate on how many visitors might mean too much of a good thing. What we called over tourism before was

never actually any good for anybody. The toys themselves didn't enjoy going to crowded places where they couldn't enjoy the natural beauty or see the sites because there were just too many other tourists, and in some cases this even started to frustrate the local residents. Higher end or more affluent tourism does support a bit more in terms of jobs and in terms of GDP. However, in terms of flights coming in hotel rooms you need, that's dependent on

the number of guests. The focus needs to be on how do we bring back the quantity and improve the quality at the same time. Thailand isn't alone in its dilemma, especially in Southeast Asia, whose travel and tourism industries account for over one tenth of the region's GDP and its employment. The boom already had policymakers thinking about how to make sure these gains were sustainable. As in Thailand, the Philippines is now making the environment a bigger part of that conversation.

It's become a sort of grassroots movement. Take Alamino's home of the Hundred Islands National Park as an example. Twenty four year old Mayor Brian Celeste is sketching plans for longer term restrictions to foot traffic. Local scuba sureros divers who collect garbage have been retrieving only a few kilograms a month recently, compared with hundreds before the virus hit. So Lestie wants to preserve those games long after COVID nineteen has eased, and he's commissioned to study to help

local officials moderate the inflow of visitors. For me, because under dions it's a it's a pressure, do I know, it's a pressure to our city. So we cannot afford to loose under dias And if we continue to over commercialize our our and all we may stand in the honorand so we try our best to limit, not severely limit the man very at least to balance everything, balancing commercialization and preservation between if you overcommercialize preserved, if you

overpreserve the kind of man An incong cities. So it does we have to strike the balance between. We heard a lot about balance and the course of reporting this story. In reality, government officials are all quick to celebrate environmental gains, the far more at odds about how to sustain them. That's especially true during a highly fraught economic recovery, as other problems pop up like a game of whack mole

competing for attention. Even just across Asia, there are plenty of countries that are implementing their own environmental studies, but prioritizing the prittying up of local attractions in preparation for mobs of tourists to return Sri Lanka's enjoying a bit of a boom and domestic tourism and New Zealand's authorities are pushing the same. At Cambodia's world famous anchor Wad Temple complex, flower beds and thousands of trees are being

planted and anticipation of the crowd's return. Mother Nature certainly has more adoring fans these days. It'll be tough to keep up her winning street because everyone recalibrates their lives yet again after the pandemic. But environmental activists Billy doom Leeing in this Philippines is upbeat. She sees businesses adapting because they'll have to because Touristan has been closed for

so long. Um businessmen are tourists and enterprises. I detempted, do you know, get as many people back as possible. But I think the circumstances surrounding the pandemic will naturally UM help crypt that because now people are forced to see it to innovate, what other experiences, what other models they can use to become sustainable financially and ecologically. As travel lanes reopen and fits and starts, some of the world's hattes destinations will have a new look, and they'll

expect everyone to help keep it that way. For Bloomberg News, this is Michelle jam Risco. Thanks Michelle for that report. Good to hear that the pandemic is having at these some positive impacts, even if the main beneficiaries so far a Thailand's elephant population. Now let's go from a part of the world where the COVID pandemic is providing some

respite to a partner. It definitely is not U. S. China relations Already in we've had a war of words between Washington, d C. And Beijing over the origins of the COVID crisis, US sanctions on Chinese technology firms, escalating concern about events in Shinjang in Hong Kong, the US closing a Chinese consulate, and China retaliating in kind. All of this, of course, is bad news for the global economy.

At Bloomberg Economics, we've estimated the decoupling between China and the US could deal a significant blow to China's growth, and if the US persuaded its allies to join up on a containment strategy, China's annual expansion could slow all the way down towards one percent. Now, not a lot of people know more about U. S. China relations than Dave Rank. Dave served as the Deputy Chief of Mission

in the US Embassy in Beijing. That means he was the most senior career diplomat charged with making the relationship work on the ground. He quit in two thousand and seventeen after a difference of opinion with the Trump administration whole climate change. He believed in it and they didn't, and is now teaching at Yale and providing advice to business leaders from a perch at the Cohen Group. I'm

very glad he's able to join us today. It's really been a remarkable deterioration in US in your relationships over the course of the last four years, but with the election coming up in November, there's a chance for reset. How should we think about this? How much is how much of the deterioration in the relationship is an idiosyncrasy of the Trump administration and how much of it is structural something we shouldn't expect to change no matter who's

in power. Sure, I mean that's a great question to start with. Tom And as you know, I left government

about three years ago. But I'll say even at the end of the Obama administration, there was a strong sense that the U. S. China relationship was coming to a really fundamental change, that that the paradigm the way we had looked at the relationship essentially since since UH the U. S. And China started, UH recognized each other that the rules of the game had changed, and that whether it was Donald Trump or Hillary Clinton, UH, you were going to

see a change in the U. S. China relationship. I think though that you know, Donald Trump took the relationship that no American government, at least since the end of the Second World War has gone, which is much more unilateral, much less interested in the global structures and partnerships and alliances that really had been our hallmark since And so you know, I think there's an aberration in the sense that Donald Trump is not the internationalists, not interested in

international partnerships, but the concern about China and what it means for for the US that competition. I think that was coming no matter who was there. And I think you'll see if if Biden is elected, that there will be a tension in the relationship, even if we get back to a more normal way of working within the US government. Dave, you worked with a number of officials under the Obama administration who we might well see coming

back if we see a Biden win in November. What's your sense of how the Biden team views the U S. China relationship. What do you think their priorities would be if we saw them coming in at the end of November. Sure, well,

I think some of you you'd see some consistency. There's real concern, not just in the at the political level, in other words, in the Democratic and Republican Party, but also within the bureaucracy about particularly in the area of technology, the rivalry between the United States and China and the relevance of a lot of those technologies to really core national security concerns. And I think that will be, at least from what I can see and read, that will be a concern of a would be a concern of

a Biden administration if there is one. But you know, I think you'd also see, which is I think very different from the Trump administration, an effort because the the you know, the people around Biden, and as I understand Vice President Biden himself, see a lot of areas where, you know, whether we want to or not, we're gonna

have to cooperate with the Chinese. We're gonna have to work together areas like climate change, the Iran nuclear deal, and of course the pandemic and dealing with the global public health issues. Is there a world where things keep getting worse? I wonder whether the Chinese side have been pulling their punches because they're thinking, we need to maintain optionality for when a Biden administration comes in. We don't

want to burn our bridges. If a Biden team comes in and they maintain the same kind of broad strategic orientation regarding China as a kind of strategic threat, but they're more effective at building alliances. Is there a world where the gloves come off and China's restraint is removed and we see relations deteriorating even further and faster than

they have under the Trump administration. So I left town because anyone who has lived through will tell you that it can always get worse, right, But I'm I'm relatively optimistic that I mean, for for however much the Chinese are concerned about, you know, a rivalry with the United States, fundamentally, they've got a lot of interest in stability, not just in the in the U. S. China relationship, but overall that they they have a big vested stake in the

success of global systems, in the global trading system, and in not uh sort of dediating that from that and heading down the path to a really hot competition. I think they understand that that's not in their interests, it's not in our interests, and there is a middle ground where we can It's kind of cliche, but we can compete without being without confrontation that that you know, we can walk that fine line at less drill dine on

a couple of live issues, um. First of all, Um, I'd be really interested to get your view on financial decoupling. There's been a couple of great Bloomberg news scoops recently suggesting that at a senior level in the US administration there's been real consideration of imposing sanctions on a big Chinese bank, possibly imposing sanctions on some big Chinese financial startups and financial Um, the kind of the the child of the Ali Baba group is one that's been mentioned

from yours insiders experience. Could you tell us a little bit about how that kind of decision would be made? Well, I guess I can talk about how that kind of decision used to you know, would have used to be made under the Trump administrations a little different. And that's why, first of all, I've heard the same reports and and of course Bloomberg has done a great job and in

uh flushing some of those out. But it's really hard to tell what's going on in the in the Trump administration because so many decisions seem to be not just made at the highest levels, but started and finished at the highest levels. And so in the Obama administration or previous administrations, you'd have people who know the issues intimately

understand the ups and downs. Why, you know, taking action against one of the big big four Chinese banks or against and financial you know, the impacts that could have on real life issues here, whether they're financial or legal or technical in the United States. In the Trump administration, you look at the TikTok and the wee chat bands

and all of the legal trouble they run into. That's what I think is different about this administration, and where if something like that were to be rolled out, the odds that it would run into something that sort of working level folks would have flagged as, hey, this is gonna be a problem. It's not legal, it's going to have huge blowback for the U. S economy that the Trump administration I think is liable to miss. Let's say

they do it anyway. Let's say the Trump administration has a swing at and financial If you were sitting if you were still sitting in the embassy in Beijing, what would you be worried about? What would you see as the sort of the range of possible Chinese reactions to a to a U S move like that. Yeah, I mean, I think the the at least traditionally, I would worry about, Okay, what American companies are on the outs the Chinese anyway, that have a toe hold here, but but are are vulnerable?

Are they liable to come under Chinese pressure? That's probably where I would look first. You know that I won't name names, but there I'm sure companies that have had problems and and just look for additional problems in that area, you know, something like the Unreliable Entities List. I could see the mof COM, the Commerce Ministry floating out a name for some critical American company that may end up

on that list. And you know, that's that's hard to do business if you're that kind of rumors circulating for you around you selling their treasury holdings. That's the kind of the big sort of stick which many believe that China holds over the US. Is that a real possibility? Isn't there an old joke? You know, if you owe the bank fifty you're in trouble. If you owe the bank five million dollars, they're in trouble. I guess the numbers have gone up since the joke was first issued.

But but you know, this is kind of I mean, it's an ill stration of the the difficulty of taking actions, whether it's the US against and financial or the Chinese selling T bills, because you know that the act of selling those would have enormous negative consequences for the Chinese, and so it would be a tough decision to make, and that technocrats in China would be I'm sure making that case mutually assured destruction. I think Larry Summers once

called it. Let's talk about a risk which is kind of increasingly sort of mentioned in the markets, um popping up a little bit in commentary about the relationship. Let's talk about the risk that something radical and destabilizing happens with Taiwan. UM. Now, you've not only worked in the US Embassy in Beijing, you've also worked in the US

mission in Taiwan. What probability would you put on a Chinese invasion of Taiwan in between the US election on November three and a new president coming into office on January twentie So I should start off by saying I am concerned. You listen to some of the rhetor coming out of China. You saw that warning. I think it was in people's daily that to the Taiwanese. Don't say you haven't been warned, you know, a very stern tone that you haven't. You know, the Chinese rarely roll out

unless they're contemplating something serious. I'm not a military person, but my understanding from from talking to people who do it for a living, say, it's not you know, an invasion of Taiwan would not be an easy thing, and the kind of preparations it would require to do that we'd see between now and January twenties. So that's kind of cold comfort that to me. I'm I'm I'm fairly sanguine about the risk of an invasion before January twenty, but I think the long term issue is one that

we ought to be concerned about. That. You know that that the status quo that kept peace in the Taiwan Strait is really starting to break down, and that wouldn't be good for us, and I think it'll be good for Beijing, it would be bad for Taiwan. So so I worry about that. Dave, great pleasure having you on the show. Thanks so much for sharing your insights. Thank you, Tom Great to be here, So from a country that's rising up in the global economic rankings to one that

is not. Every so often on Stephanomics, we like to check in on progress with Britain's century long process of industrial decline and with Brexit talks again in the news now seems like a good moment. So I'm very glad to be joined by one of the most astute observers of the economics of Brexit, Bloomberg's UK economist Dan handsOn. So we're in the middle of negotiations, or we're in

the middle of the commencement of some new negotiations. What's the latest So over the past week or say, there's been a bit of a stalemate, surprise surprise in the in the Brexit negotiations. So we've had the UK saying that it doesn't want to continue for more negotiations with the EU until the SHOW signs that it's willing to

make concessions. And the UK also wants the EU to recognize the UK is a sovereign equal and also the final the final request from the UK side is to start work on the legal text of the treaty that will underpin the free trade agreement and of course we've got on the U side, you still looking for the UK to make compromises as well. There's been a bit of a change in the tone in the past twenty

four hours between the two sides. We've heard positive sounds coming from the US chief negotiator Michelle Barnier, and Bloomberg has reported that both sides could return to the negotiation table and coming days. The aim of getting a deal done in the next month or so. And the reason that the deal needs to be done over that time period is because laments need to ratify national partiments. I should say, I need to ratify the deal in time for the end of the Brexit transition period on December

thirty one. So as things down, it looks like we're in for a dash to the finish line. And as I say that, that deadline is December thirty one, when the UK finally leaves the European Union. So some some very modest good news, but even as we hope for the recommencement of negotiations. You've written that the difference between deal and no deal is pretty small. Why is that so? I think the answer to that relates to the nature of the deal the UK is seeking to negotiate with.

The EU is looking to sign a free trade agreement with the Block, which, if we look on the spectrum of possible trading relationships it could have chosen to pursue. A free trade agreement is close to the bottom in terms of the level of integration it demands or requires. With the European Union and with an FDA. The UK and EU would avoid tariffs and quotas that would come alongside a no deal outcome, but there will still be

a significant increase in non tariff barriers. Now those range from customs checks at the border, documentation around rules of origin, but they're also behind the border costs such as regulatory barriers, and those apply to both goods and services. So the key point is that trade frictions are likely to ride sharply at the start of next year, whether there's a

deal or not. And that's why the gap between a deal and no deal is smaller than if, say you compared to no deal outcome to the UK staying in the Single Market or even staying in the Customers Union. Still, no deal is not zero cost. You've put a number on it and around one point five of GDP. How did you get to that number. Well, we've we've looked at it through three key channels that we think will

impact the economy in the short term. So the first of those, and I mentioned it in the answer before, there will be increase in tariffs and quotas if there is no deal outcome between at the UK and the added to that, it seems pretty certain that sterling would appreciate. And you add those two things together and you get a rise in import costs and what that does is it squeezed how household real incomes through a rise in

inflation um. Taken those assumptions together, so we think tarrists could rise by about five cent on imports coming from the EU, and we've assumed a five percent fall in sterling um at those together and we think it could knock about half a percent of GDP next year. The second channel that we've looked at is uncertainty. And we know uncertainty has affected the UK economy since it voted to leave the European Union in twix and it's most

obviously seen in the business investment numbers. But if we see uncertainty rise back up again, that could not a further zero points six percent of GDP next year. We think in the final channel that we've looked at is the extent to which lower trade flows predominantly as a result of the tariffs and the quotas, could feed through to the supply capacity of the economy, and that could add We think the story could not go further zero

point two percent off GDP next year. So you add those three numbers up, you get close to one and a half cent off GDP. So our baseline forecast where there's a deal is for growth of five point four percent next year. If there is no deal, we'd lower that forecast to around four percent growth. So even that one point five percent drag assumes a bit of goodwill on both sides to prevent a complete snarl up in the trade relationship. What happens if we don't even get that?

Could you outline a doomsday scenario for us? So you're right that ar scenario assumes that even if both sides decide that a trade deal is a stretch too far. Are we've assumed that talks do continue to in an effort to mitigate some of the most disrupted parts of a no deal breakup. But clearly, as you say, there is room for an acrimonious enter the talks and things could get could get messy. So there are two two

channels that we've you can think about this through. First is the disruption of the border, and it would clearly be far more significant if there were big cues down in over and over in Calais and goods couldn't move across the border, and that would significantly way on the supply capacity of the economy. Now, given this is unprecedented, there isn't any clear way to calibrate the size of the shock, but I don't think it's unreasonable to say that in the near term the fall in trade, so

that's exports and imports, could easily be in double figures. Then, on the demand side, you you would expect a few things to happen, so you'd expect a bigger fall in Sterling than we've assumed. You would expect tightening of financial conditions as well. Um and you'll also see a bigger lift in the uncertainty that's facing the economy, and all of those factors together would contribute to an even bigger

fall in GDP. Now, bringing it all together, it's very difficult to put a precise number on it, but I think you could easily double the one and a half percent that we've assumed in our scenario, and I go so far to say that the risks to that view would be still tilted to the downsides. The risk would be to an even larger near term hit to the economy. New Deal Brexit potentially good news to companies renting portable toilets to lorry drivers trapped in the Kent countryside, but

probably bad news to a much larger constituency. Dad Hanson, thanks very much for sharing your insights. Well, unfortunately that's about all we have time for, so let me thank our guests and reporters Michelle jan Risco, Grandy fanthol Knight, Secret Alligado, Dave Rank, and Dan Hanson. Voice overs by Chai Channock, Ran now Kel, Doc Noi and krim Gee we Ruch. This week's episode of Stephanomics was brought to you by executive producer Lucy Meekin, signed engineer Magnus Hendrickson,

and me Tom Wallack. You can get your regular fix of economics on the Bloomberg Terminal website and app, and please tune in again next week when your host, the eponymous Stephanie Flanders will be back in the hot seat and normal standards of economic insight and interviewing dexterity will be restored.