Inflation Data amid Equity Push Higher | Bloomberg Surveillance

Ajouté : 2026-05-30

[00:00:00][music] >> Bloomberg Audio Studios. Podcasts, radio, news.

[00:00:10]>> [music] >> This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7:00 a.m. Eastern on [music] Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. [music] >> We start strong here with special coverage and this is Ira Jersey joins us with Morgan Stanley. I mean you got a nominal GDP Andrew, but you got a new mix of lower GDP and persistent inflation. How does that change the application of new money into the bond market?

[00:00:47]>> Look, I I think that when you look at what the bond market's pricing in for for Fed and and Central Bank policy, you see the bond market's actually doing some of the work for the Fed. They're tightening financial conditions a little bit. At the same time obviously the stock market's rallying and spreads are tightening in credit. Um but those two things are kind of offsetting each other. I I think one of the reasons the Fed doesn't have to be too concerned with inflation is you talked about that personal income number which was 0% month-over-month. at something like Atlanta Fed wage tracker, it's wages are tracking 3.6% uh wage growth year-over-year. We have 3.8% uh personal PCE price price inflation.

[00:01:26]So that those are negative real wages.

[00:01:28]This is something that price increases aren't sustainable on a real basis if either the consumer's going to have to tap their savings or they're going to cut back on spending. And I think that's why the the one thing the Fed has going for it right now.

[00:01:40]>> It beautifully frames it folks. I can't say enough about that analysis of the Atlanta wage tracker. Ira Jersey, thank you uh for joining us here with this key economic data with uh Morgan Stanley.

[00:01:51]Paul, on the data screen, what do you see? I'm I'm just like >> I'm I'm at the I'm looking at the bond market.

[00:01:56]>> for Knicks tickets.

[00:01:57]>> Yeah, exactly. You're right. Pricing those out. Uh Uh two-year Treasury up a couple of basis points, 4.05% and then 10-year up only about one basis point, 4.49%.

[00:02:06]>> This is a treat, folks. Ira Jersey definitive with Dominic Constan and Credit Suisse years ago trying to guess out the interest rate tendency. He now holds court driving all of credit at Bloomberg Intelligence. Ira, if you're in the chair with Dominic like this morning, and you had to guess out those inflate those estimates, those forecast tails of what yield would be, is it a higher yield?

[00:02:33]>> Well, it's a higher yield because basically this is old data and old news.

[00:02:37]Uh you know, the market this morning at least is really concentrating on where is oil today, right? And oil's up a couple of bucks uh at the moment because of the strikes overnight by the US. So, people are looking through this data and obviously there's also so much data to digest here that you you know, we're all like quite full right now. So, we're we're trying to parse out what's the most important bits of this. And And you noted, Tom, that uh the spending being flat a month on month um is actually uh excuse me, the income being flat month-on-month actually is is not very good because when now we have negative income um in large part maybe uh it could drive the economy um uh a little bit weaker. And you know, along with the weaker-than-expected uh GDP number for the first quarter, um you know, that's not necessarily a particularly good sign even though the inflation data was a little bit better than expected.

[00:03:29]>> So, just the the the headline I'm a headline kind of person, Ira. You're the one that digs 27 layers deep. But the headline annualized 3.8% PCE price index, I mean, that's got to get the attention of folks not just at the Fed, but I don't know, around Washington and policymakers and things like that. How do you What's the 3.8% number mean to you?

[00:03:49]>> Yeah, well, it it means for one thing that it's going to be really difficult for Kevin Warsh to increase uh to lower interest rates, right? Like how can you lower interest rates when, you know, not only are you running above target in terms of your favored your favored inflation measure. So even if you trim out some of the the details of this, and we haven't been able to do that yet because that's obviously the number just came out, but even if you trim it out, you're still going to be above the 2% target that the Fed set. So it's going to be hard for Kevin Warsh to convince other members of the Fed to even think about cutting interest rates.

[00:04:21]So so so I think for now when it comes to at least interest rate policy, you're more likely to see the Fed on hold until and unless one the war ends, and then two if there's major changes to the employment situation, which, you know, obviously we'll get more of that next week.

[00:04:37]>> This wall of data, and in as I said before, folks, I mean there's a dynamic here to nominal GDP, and it's new territory. For Chairman Warsh, I would Jersey, do you have an historic analog he can plug in, or is he in new territory?

[00:04:54]>> I think in many respects he's in new territory cuz even though like you could argue, and some people have argued that we're we're moving toward a stagflationary type environment because real growth should slow given that you might have a lot more of people's spending having to go to to fuels and gasoline, but then people then talk about electrification, and then, you know, we're not talking about, you know, 10% inflation rates like we had back in the 1970s and early '80s.

[00:05:21]We're talking more about, you know, 3 or 4% inflation, right? Which historically speaking, when you go back even to, you know, earlier in my career, go back 30 years when I started in this business, we we were talking about, you know, 2.8%, 3% in PCE deflator. That was fine, and that was normal, right? So so that is more sustainable, right?

[00:05:41]Inflation like we have today is somewhat more sustainable than inflation at 9 or 10% like we had a few years ago, just because you know, at least over the last few years, you've seen wages growing at 4%, so that means you still have real wages going up, which is the reason why that personal income number I I think is a little bit disturbing to me and I want to dig into that a little bit more because if we do have negative real wages, that's when you wind up seeing pretty aggressive slowing in the economy on a forward basis and so so we want to see is this the start of a trend or is this just like a one-off measure because you know, social security payments were delayed or something like that. So So we have to dig into the details of some of this. So unfortunately, Paul, I do have to dig into those details [laughter] to be able to get you more information.

[00:06:25]>> Again, I'm not a details guy. I'm right on right on the surface, but I see personal income flat. I see my GDP number come in below expectations.

[00:06:33]Um, that feels like stagflation.

[00:06:35]>> This is brilliant, Paul. I run All of us think like Paul.

[00:06:40]It's ugly out there. Does the bond market signal that?

[00:06:45]>> So well, the the bond market's signaling that it's really worried about inflation, right? So when you look at like that two-year yield, which we you know, we talk about being very sensitive to policy rates and of course it is. But when you look at what's sold off and and why it sold off so much, it's also because inflation expectations in the short term have really gone up pretty significantly. They've gone up 40-ish basis points in in terms of the the two-year tips break even. So So if we wind up getting a situation where oil gets back down sustainably to $80 a barrel, you can wind up seeing two-year yields get back to kind of where the Fed funds rate is right now.

[00:07:21]Will we get down below that? I doubt it because the the market's still going to price for the Fed to be on hold probably for for a pretty long period of time.

[00:07:30]But you can easily get a 30 basis point rally on just on inflation expectations going down. Now, the long end of the curve is not only worried about inflation and in fact, inflation expectations longer term have barely moved. It's that what's going on with the fiscal situation, will budgets globally wind up getting even worse because of either defense spending or social spending to kind of combat people's people having to spend more on energy.

[00:07:59]And and that's one of the reasons why you've seen this global bond sell-off.

[00:08:01]So, you know, we talk about US 30-year being over 5%. Sure it is, but this really is a global phenomenon. You look at Japan with you know, interest rates that haven't been this high in decades.

[00:08:11]The UK is still having some of its own fiscal problems.

[00:08:15]So, so you wind up seeing all government bond yields go up and and one of the triggers for that obviously was the war in Iran.

[00:08:22]But but I don't see what makes what makes yields go down quickly over the next couple of couple of months in the long end of the curve in particular.

[00:08:30]>> Paul, was that too much detail?

[00:08:32]>> That was good. He's That's what we pay him for.

[00:08:34]>> killing me. He's got He's got a staff of 25 people down there. But Ira Jersey with us, folks, and of course all of his expertise in fixed income is at noted, particularly on unreadable documents on the short space like the trust market, commercial paper and LIBOR OIS or SOFR.

[00:08:54]We're pleased to announce that after negotiation with Mr. Jersey's representatives that Ira Jersey will join us in a new capacity. He will be the surveillance World Cup reporter.

[00:09:07]>> This is good. We got to stagger to June 11th, Mexico City, South Africa as well.

[00:09:13]Ira, first before we get to the World Cup, PSG Arsenal this weekend. Describe how big a game that is to the world except Americans who don't care.

[00:09:26]>> Well, in many ways it is the pinnacle of of global soccer football if you want to call it that, which I do.

[00:09:33]The because the club game is much better in terms of quality actually than the international game is. Even though you wind up having the biggest stars on these teams that go to the World Cup, they're only together for 1 month.

[00:09:47]You know, they literally everyone just reported to camp except for the guys who are in PSG and Arsenal this week. So, it's it's not like they have a lot of time together. Whereas, you know, PSG and Arsenal they've been training since last August for this very game. So, so it is going to be some of the best football. Now, it is a final so they that tends to be a little cagey. But, PSG in particular they just know how to attack.

[00:10:09]Arsenal can be a little bit more tactical, I think. And and I do suspect that Arsenal probably has the edge in this game, but it's it is going to be one to watch for sure.

[00:10:17]>> Was that a good good first bout with our World Cup correspondent? [clears throat] Irish Jersey, thank you so much driving all of fixed income. Can't say enough about his commitment to New Jersey youth soccer. His team is rocking it this year. Irish Jersey and again going to key out to June 11th, Mexico City Stadium, Mexico and South uh South Africa, I should say here. Matt Windmer's been more than patient, portfolio manager at Osprey, and he joins us for too short a visit this morning. Matt, is the American economy sluggish? That 1.6% GDP, is that the new standard?

[00:10:55]>> Yeah, it's a it's a great question. I mean, as bottom-up portfolio managers I think we're really focused on what those fundamentals are doing right now. And I think that really helps kind of separate the noise from the signal. And if you if you look at what's happening within the the earning cycle right now, we've seen some really strong growth projected even for you know, for this year and for next year. And so, we we really have a strong belief that that that true long-term value of a company is their future stream of cash flows. And they still look really strong right now.

[00:11:26]>> So, Matt, we've seen you know, the economic data today suggests maybe uh economy is entering some form of stagflation here, but boy, we don't see that in the earnings, do we? What do What do you make of that?

[00:11:38]>> Yeah, look, I think that's I think that's important. There's We just came out of uh COVID with a strong monetary and fiscal response, and now you're throwing on top of that this this AI kind of CapEx boom. And I think that's really kind of elevating things right now, and I think that's why the fundamentals continue to be strong right now.

[00:11:56]>> Matt, I know you guys and we talked to Anne Meledandri as well. You guys are bottoms-up folks. You You really roll up the sleeves and do the the the the work here. What sectors or what factors are screening well for you guys these days?

[00:12:09]>> Yeah, good question. I think a big part of what we're doing right now is just focusing on diversification. I think that's going to be important going forward. I think concentration risk is real at this point.

[00:12:20]It's It's important to take a holistic approach, especially with the AI ecosystem. CapEx dollars are going to start spreading across the value chain.

[00:12:28]Look, it's It's important to stay, you know, involved in those big cap tech names like the Mag 7. They're going to continue to play an important part of the build-out of AI. But it's start It's important to start allocating some of those investment dollars to other areas of of the market. So, we're kind of thinking about that AI AI ecosystem as having five layers. You know, that's something that Jensen introduced back at Davos earlier this year. We're incorporating that into our investment kind of exposure across the AI chain, and it's important to have exposure to all five layers.

[00:12:58]>> Matt, one final question. Is a tendency here, are you owning fewer items in an equity portfolio? Are you concentrating or you going out to a more traditional 100, 200, even 300 holdings?

[00:13:14]>> Well, typically for for our strategy, we tend to be a little bit more concentrated. It's usually in that 45 to 50 names. We think that's enough exposure and diversification to to allocate across to make sure that you don't get whipsawed, but it also gives you an opportunity to to be intentful in your exposure and in your bets across across the portfolio.

[00:13:36]>> thank you so much. Matt Whitmer with us with Allspring this morning on the equity market. Stay with us. More [music] from Bloomberg Surveillance coming up after this.

[00:13:49]>> [music] >> You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from 7:00 to 10:00 a.m. Eastern.

[00:13:59]>> Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[00:14:05]>> Nelson you with us now head of equities Alliance Bernstein. What are you publishing or what are you planning a tone into the weekend publishing? What are you thinking about?

[00:14:15]>> I'm thinking about actually some of the things that you just talked about. So you've talked about these NYX prices.

[00:14:21]Why are they so high? It's because of scarcity.

[00:14:24]But if you think about this economy, it really is a scarcity economy. And so not only oil and the drivers of inflation there, but AI and this CapEx build out that we've seen could really be a driver for inflation going forward. And there's real scarcity there.

[00:14:41]>> Anna Wong I believe is with us in this hour would say the same thing. I mean you when you were at Pennsylvania and you take that econ course the first chapter is scarcity. So if price is up and there's scarcity new product comes in. Do you anticipate that?

[00:14:58]>> I think there is there is a very strong demand right now and I do see that as we've seen over the last few years we've seen is layer upon layer of this AI supply chain getting bid up as we need to do this build out. I think there are more layers to go. This supply chain is quite long.

[00:15:21]>> This supply that supply chain is that include international and emerging markets?

[00:15:24]>> It does. And uh obviously Korea and Taiwan have participated in that uh by quite a bit.

[00:15:29]>> Yep.

[00:15:29]>> Um but I think uh look, you you also have um producers of like say uh PC uh printed circuit boards.

[00:15:37]And those are places that just have been in the doldrums for decades uh because they were such commoditized products, but now they're very specialized because there's only so few of them left.

[00:15:47]>> Can emerging and international markets, particularly emerging markets, work with this energy, I'm not sure if it's a crisis, but challenge that we're seeing globally here with energy?

[00:15:57]>> Um uh it it certainly is going to uh put challenges on emerging markets and definitely some of these economies that are uh dependent on energy. But there I think there are also a lot of other catalysts across emerging markets um that are beyond just the energy story.

[00:16:12]So uh if you think about emerging markets uh in Korea, in China, um we've got a lot of governance reform and you've got regulatory reforms that are focused on improving corporate profitability. So it's not just the technology companies and the semiconductors, the memory makers in Korea, but it's also the banks that are returning more capital to shareholders.

[00:16:31]>> You were at Penn in in their hugely important engineering sequence. I remember walking in the classroom in aerospace going systems analysis, what a joke. And you're like 2 weeks into it and you're going, oh, this is really hard. Logic theory and all. Take your engineering classic systems analysis and put it into the process that's coming down the pike.

[00:16:55]>> Yeah, um you know, it's funny that you say uh you know, you thought about the gut course that was systems engineering.

[00:17:01]It actually has turned out to be some of the most important education.

[00:17:04]>> Exactly. It's the the most important course I took.

[00:17:07]>> That's right.

[00:17:08]>> Got a quality C, trust me. Continue.

[00:17:10]>> The uh uh I do think actually today's day and age, when information is so readily available, that information edge that portfolio managers used to have has just been compressed. I think the next edge that we have to have as active managers is the process edge.

[00:17:27]And I think of it as you have to have a very robust process for being able to create that durable and distinctive performance patterns that clients look for.

[00:17:36]That starts with a clear definition of research excellence. What is the differentiated research that we're doing? Tom, I'm going to use one of your favorite words. We're going to use Bayesian updating to do our podcast.

[00:17:47]>> Really? We're going to a Bayesian theory?

[00:17:49]>> The >> Okay, this is such a nerd patrol that half people [laughter] just drove off the Garden State Parkway.

[00:17:55]>> But then we have to guardrail it with systematic processes. Make sure that we can repeat that process over and over again. And then we have to reinforce it with continuous learning.

[00:18:04]>> Yeah.

[00:18:04]>> Just tracking our data, keeping catalogs of what decisions that we've made and what can we learn from that?

[00:18:11]>> Paul, when you hear the word guardrail, hold on to your wallet. Okay.

[00:18:15]>> Exactly.

[00:18:15]>> Save us. So how how has the AI investment theme changed for you guys?

[00:18:20]It used to be we'll just throw money at Nvidia and the other chip companies. Now it seems like the market's trying to look at the different areas cuz it just feels like AI, if it hasn't already, it's going to touch every part of our lives.

[00:18:32]>> That's right. There's a real broadening going on. And I'd say the broadening happens in two ways. The first one is just the CapEx spend that's happening.

[00:18:39]So you think about the trillion dollars of CapEx that's coming on.

[00:18:42]>> Yep.

[00:18:43]>> The that's going to affect so many different industries. So that's in industrials, that's in real estate, that's in utilities, that's in the energy grid. But then you also think about your beneficiaries. And that's in media, that's in health care.

[00:18:59]So really we're looking at a broad set of impacts for AI.

[00:19:04]>> Have we we had 26, 27% earnings growth this past cycle?

[00:19:09]Was that AI? I mean, where did that come from? This is an economy that's it's good, but it's not that good, is it?

[00:19:15]>> Um the that that extra capex spend has a multiplier effect and it is hitting many many parts of the economy. And there were there was a lot of good that was already going on in the economy. We had the tax reforms. So uh so I think we came in with a lot of strength this year.

[00:19:31]>> Do you still handle earning season the same way you used to? Or with your Bayesian process, is there a new or is there a new way to say, "Nelson, you aligned Spurs to great quarter."

[00:19:42]>> [laughter] >> You see, uh I what we're looking for is um really what are the most important parts of our thesis and how are we affirming and reaffirming or updating our thesis based off what's being released. Uh not just looking at the top line or bottom line numbers.

[00:19:59]>> Nelson, brilliant. Thank you so much.

[00:20:00]You got to come back. Bring some Bayesian dip with you when you can. Stay with us. More from [music] Bloomberg Surveillance coming up after this.

[00:20:16]>> You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from 7:00 to 10:00 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[00:20:28]>> There's all sorts of good conversations forward today, but this is the one if you want to listen to someone who had the courage to be in the market when it was difficult. Now, Paul, right now it's so easy to be in the market. Every day it's like you know, every mutual fund up 10 cents, up 15 cents and that.

[00:20:45]>> I know. It's crazy.

[00:20:46]>> Emily Roland with us, co-chief investment strategist at Manulife in Boston. So old John Hancock 1946, new John Hancock 1967 1976. Which tower are you in in Boston?

[00:21:01]>> Uh well, me personally, neither one.

[00:21:04]>> [laughter] >> I don't go there very often. I'm usually on the road, but um, we are in the new tower, the shorter one, like Berkeley's 200 Berkeley.

[00:21:12]>> 200 Berkeley's the old John Hancock.

[00:21:14]>> Yeah.

[00:21:14]>> Okay, that's very cool. I you know, it it's like this huge institution that's just said be in the market back to World War II. How do you stay in the market now? Like the stress of staying in the market, the Nifty 50 in the 60s. [clears throat] >> It's all about earnings, earnings, earnings. So, the number one input to our work has always been about following the profits. Stock prices follow profits over time, and it's a key reason that we've been overweight US versus international equities for the last 10 years, because that's where the earnings engine has been on, and it continues to be today.

[00:21:51]>> We did have a rotation, you know, when the tariffs began last year out of the US, and has that reversed itself? Are is money coming back into the US versus other markets?

[00:22:02]>> It has started to this year, and there was this idea that permeated the narrative last year, like the US is no longer exceptional. And we saw those capital flows leave, whether it was stocks, whether it was dollars, um, you saw that fall onto the shores over in Europe, and it was really a sentiment thing. Yes, there was a modest improvement in economic growth and in earnings growth, but Eurozone GDP, guess what it is right now? It just came in at 0.1%.

[00:22:28]Uh, and so clearly we're seeing the US in a better place from an economic perspective and from an earnings perspective, and you're starting to see that reflected in the relative performance here as well.

[00:22:38]>> How are you guys I guess one of the things we've seen just extraordinary earnings growth as you mentioned earlier here in the US?

[00:22:46]What's driving that? I mean, we don't see those kinds of 20%, 25% plus earnings growth numbers in the S&P 500.

[00:22:52]Is it AI? I What's driving it?

[00:22:54]>> It's AI, AI, AI, and some fiscal support as well. So, one thing that's been talked about a lot it AI, And it's not just this idea that semiconductors are just seeing this massive explosion in demand. It's almost like they're acting sold out right now. And we're seeing that reflected. We're also seeing companies do more with less with AI. And that's actually helping margins expand.

[00:23:17]It wasn't that long ago that we were talking about margin compression. That's going the other way as well. And then all the wealth impact, the wealth effect has helped the financial sector because companies are doing great with their wealth management businesses.

[00:23:30]>> So it's really Right.

[00:23:31]>> expanding around all sectors.

[00:23:33]>> You're on the road. How do you respond to someone who raises a hand and says, "That's great, except [clears throat] it's not like uh John Kerry's Pioneer Fund of a million years ago with 300 holdings. My top 10 stocks are 45% of my fund. Discuss."

[00:23:50]>> Concentration risk is a major issue, and it's not just in the United States. If you think about the emerging market equities, it's three stocks.

[00:23:58]>> So is it the normal that we don't understand? It's the normal and the 300 stock diversification is an academic construct.

[00:24:06]>> It's it's wild. But I would say to your point earlier, um the entire stock market's becoming an AI market. Like you look down in market cap, it's more AI coming into those indices. You look at Tom, value this year is handily outperforming growth. Guess what's in value? Semiconductor stocks because their earnings are so good. Uh the global semiconductor index is up over 100% over the past year. Guess what?

[00:24:33]Their earnings are up over 100% over the past year. So the valuations have actually cheapened up a little bit. So AI is really driving markets globally.

[00:24:42]We have to be careful about diversification, and we're looking for other areas to play the AI power demand story, whether it's around utilities, whether it's around industrial companies, the picks and shovels around AI. I think that trade has some legs.

[00:24:56]>> We're going to get some inflation data today. I know the Fed's going to be paying attention. I assume you will as well. Are you surprised how well the equity market's performing in the face of rising inflation?

[00:25:04]>> I mean, nothing seems to be able to stop this equity market. The The dip buying is absolutely relentless. The things that the market cares about are currency, so the dollar, um higher and higher yields, and higher oil prices.

[00:25:18]Those are your three things. So, if that inflation number comes in hot, definitely the bond market's bracing for it this morning. If that does result in a [clears throat] back up in yields, we could have an issue.

[00:25:27]>> Well, like your first lunch at Johnny Hancock, did you go to Locke-Ober's?

[00:25:31]>> Of course, I remember that place.

[00:25:33]>> What what Is it Yvone's now?

[00:25:35]>> Oh, the lobster bisque was amazing.

[00:25:37]>> It was amazing.

[00:25:38]>> Amazing.

[00:25:39]>> But like, you know, I miss Lock-Ober's.

[00:25:42]I mean, Yvone's is wonderful, but it's not Lock-Ober's, you know, it's like way too mojito.

[00:25:48]They don't have mojitos at Lock-Ober's, but >> No.

[00:25:50]>> No, no, it's old school. Grandma used to take me there.

[00:25:54]>> Smart TV.

[00:25:55]>> It's a major Johnny major Johnny Hancock hang out.

[00:25:59]>> Back in the day.

[00:26:00]>> a nodding acquaintance. But this is wonderful. Uh Emily, thank you for coming to our studios. Wonderful have you I It's one of the great calls. It's like Ben Laidler when he was at HSBC, >> [clears throat] >> now at Bradesco. It's easy to be in the market right now. Where were you in 2018? Emily Roland said, "Please, uh investors." [music] Stay with us. More from Bloomberg Surveillance coming up after this.

[00:26:30]>> You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from 7:00 to 10:00 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube.

[00:26:43]>> It is the most talked about book right now across the transatlantic. So, May Khahn's is uh wonderful at the Financial Times, and she's teamed up with Adam Posen's crew at the Peterson Institute. Chad Bown joins us. Chad has thought harder about American trade over the last two, three decades than anyone I know. The book is how to win a trade war. And because, you know, Chad wanted to do 800 pages. And so my said, "Are you kidding me?" It's readable. It's approachable. It's airplane ready. How to win a trade war.

[00:27:15]This isn't the trade economics Chad when you were a youngster at Bucknell. Isn't it? What does the new trade war look like?

[00:27:24]>> Well, the new trade First things it's great that great to see you, Tom. Um the new world is all about trade wars.

[00:27:30]And the world has fundamentally changed, right? We used to say I as an economist used to say, "Nobody wins from a trade war. So you shouldn't even fight it."

[00:27:38]Well, unfortunately, that's not the world that we are living in right now.

[00:27:42]We have to fight the trade war.

[00:27:44]Uh President Trump likes to use tariffs in in the trade war. So that's one thing that you have to use.

[00:27:50]But I think what we try to do in this book, and you're right, it is an airplane read, but it's not even a transatlantic airplane read. You can you can get it, you know, much couple of hours, right? Figure out what's going on here. It's It's about much more than tariffs. It's about stockpiling. It's about using [clears throat] subsidies.

[00:28:06]It's about export restrictions. All these stuff now making the headlines.

[00:28:10]>> When William Cline and the team, the oldsters at Peterson Institute, were thinking about this, we were giving textiles away from the Carolinas to China. The distrust in America about the labor component is tangible. How do we get the trust of American labor back to do trade?

[00:28:31]>> Well, I think the the first thing you have to do is you have to be honest with them about what the underlying problems are, right?

[00:28:39]And yes, some of the problems was the speed of the shock that the United States faced with all these imports from China. But that's sort of the old trade war. That was the thing that we could have, maybe should have dealt with 20 years ago. But, that's not the trade war that we need to be fighting today. And so, the first lesson of the book is fight the right trade war. The right trade war today is recognizing that China's playing a fundamentally different game than the United States and every other major Western economy out there. China wants a world where the world outside of China is dependent on China for its supply chains, but China doesn't want to be dependent on the rest of the world for its supply chains. So, that lack of interdependence, right?

[00:29:19]China wanting the rest of the world to be dependent on it so that it can weaponize it sometimes. As we saw last year with rare earths, permanent magnets, that Nexperia semiconductor story. I think we have to be honest with the American people that this is a trade war that actually we do have to fight.

[00:29:37]It may be different from what they thought, um but it's the it's the important sort of level set to to getting the stakes right.

[00:29:44]>> Chad, I think I'm probably like most of our listeners and viewers, I didn't even think about logistics and trade and all that kind of stuff. Stuff just kind of showed up on the shelves and then the pandemic happened and then we're like, oh yeah, now I get it. Uh we need to pay attention to this stuff. Did we need tariffs and that tariff policy to achieve maybe some of our strategic goals of onshoring or nearshoring?

[00:30:08]>> So, what we argue in the book is that tariffs are an a part of a part of the story, but really I think where the United States has not quite gotten it right so far is the breadth of the tariffs. You certainly don't need to have them on all products. So, strategically use them and the countries with which you apply the tariffs. So, if you're thinking about what's the problem, right? Well, we've got excessive concentration of production of certain goods, essential products that American manufacturing needs, American consumers need, and it's all in China.

[00:30:39]Well, then it might make sense to use tariffs as part of some other policies against China. But you don't simultaneously need to impose those tariffs on Europe and Japan, especially if you want those other friends and partners to be working with you.

[00:30:53]>> Because then you've got them fighting a trade war, a two-front trade war, dealing with China, but then also having to deal with you, the United States, at the same time.

[00:31:00]>> Chet Bowen with us, the hottest book in economics right now, How to Win a Trade War. Can't say enough about it. We're going to continue here in Optimistic Guide to an Anxious uh Global Economy.

[00:31:11]Chet, I got two ways to go here. On your back blurb, you got my book of the summer 2-3 years ago, Chip Wars uh by Chris Miller of Tufts. And the basic idea of technology, semiconductors, and such. How do we prosecute a trade war wrapped around the technology of Taiwan and Korea?

[00:31:31]>> Yeah, well, that's that I think an important part of the of the trade war story here. And I think there's at least two different pieces of that that we have to confront. One is uh and you're right, Chris's book is amazing. Um the first is dealing with the challenge of Taiwan, right? So it is a little bit worrying that 90 plus percent of global production of leading-edge chips takes place in one location, right? It's not China China. So it's not the same sort of problem as you know, are they going to weaponize it against us? But having it all there in a world that suffers from floods, earthquakes, [clears throat] not good. We've got to diversify. How do you do that?

[00:32:06]Industrial policy a little bit, but it's got to be smarter than the way we've done industrial policy in the past.

[00:32:10]You've got to think about demand, what the United States did with the CHIPS Act, but you also sorry, supply, but you also have to worry about demand, what we didn't do necessarily with the CHIPS Act. All these fabs in the United States, great, we've got the production capacity now, but why isn't it that Nvidia and you know, AMD and all the chip design companies want to use them yet? We've got to create some other incentives there, too. But then the second part is the AI challenge with China and this race, right? And the use of export restrictions and balancing those in the appropriate way to make sure that the American side of this story does end up in the lead.

[00:32:47]>> to squeeze this in cuz this is important, folks. I mean, he's doing this tour with Sumi Kanes, Paul. She shows up with a ukulele.

[00:32:56]I mean, she's playing ukulele at their book shows. It's too much. Champ's like, you know, wallpaper. He's like hanging out. Champ, nobody knows that you're the heritage of Fred Bergsten, who was hugely supportive to my act, to Peter Peterson, who was hugely supportive of my act, and to Adam Posen, who's a bigger Red Sox fan than I am. Does your shop, the Peterson Institute, after your book The Trade War, think we nudge back to the Washington Consensus?

[00:33:26]>> The beauty of the Peterson Institute, where I work, is there is no institutional line. Everybody has their own views, that does their own analysis, comes up with their own perspective. Um, so I will leave it to my boss, Adam Posen, to to give his own views, but I agree, you know, we're going to have these debates about what's the right way to tackle these sorts of problems, and it's it's great that we're doing so. And I'm just super glad to be able to bring not a ukulele, but a copy of the book and to show it here on your show. Thanks for having me, Tom.

[00:33:54]>> John Tucker's going to have the ukulele next time. The book is How to Win a Trade War, airplane reading, even not transatlantic to Richmond, New York to Richmond, pretty good, to say, uh, the least. I can't say enough about this. A lot of other people are on board what Kanes and Bone have done, uh, to really bring us up to date on a lot, uh, going on in, uh, trade.

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