Markets Retreat Ahead of Trump Tariff Deadline
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Anxiety is high as President Trump pushes ahead with these new tariffs on many Chinese goods. They will take effect at 12.01 a.m. New York time Wednesday morning, and this rate is 104%. These new tariffs, by the way, come after the Chinese government refused to back down, keeping its retaliatory tariffs in place again.

And saying it will fight to the end if the U.S. insists on new tariffs. In a moment, we'll be speaking with Stuart Thomas. He is the founding principal at Presidian Investments. But we begin this morning in the Lion City. And joining us, Bloomberg opinion columnist and friend of the program, Karishma Vaswamy. Karishma, thank you so much for being here.

Let's begin by this, the latest column that you penned, where you're indicating that Washington's tariffs are driving Asian nations to strengthen cooperation with each other. This is a stunning development, is it not?

Yes, I think it is a really remarkable development. And as I argue in my column, it's a bit of an own goal for the United States under Donald Trump's administration. Now, you know, in the short term, I think we have to acknowledge that what these tariffs have done or the or the

fear, the possibility that they will be placed, the burden of them will be placed on these Asian countries. You have seen a whole host of countries and governments line up to effectively kiss the ring and negotiate with Donald Trump and say, look, can we find a way out of this? You know, you've got Japan, South Korea, Vietnam, everybody saying, look, you know, we don't want the full brunt of these tariffs on our economy and on our people.

And so I think in the short term, you will see those sort of deals come to bear. But in the long term, what does this tell you, Doug? Right. Like you've basically got an administration and an unpredictable world leader who is negotiating or trying to do a deal with you with a gun pointed at your head.

That doesn't make for a great feeling or the sort of kind of business environment that you need to be able to really proceed well with the kind of goodwill and the gestures that you need in order to feel secure in these relationships. And I think in the longer term, there is a real sense that these countries will move closer towards Beijing. Yes, I think that's the next thing for us to unpack here, that drift back towards China.

You write about how the U.S. is alienating countries like Indonesia, Taiwan, Vietnam, Singapore and the Philippines. Now, in the past, they have been useful in helping Washington combat the rise of China. But now, if they were to forge, let's say, much stronger relationships with China, I'm wondering about the possibility to which the U.S. may get shut out a little. What do you think?

Well, I don't think it will get shut out entirely. I think, you know, we have to accept that for now the U.S. consumer is still the most powerful consumer in the world. And the spending that you see taking place from the American economy, the buying up of all of these goods in Southeast Asian nations, that is what has helped to lift incomes and livelihoods and living standards across the region for decades.

But I think what you will see is a recognition that the United States under Donald Trump is quite a different beast from the U.S. that was the architect of globalization, free trade rules, freedom of navigation, and all of the things that helped to make this part of the world, the region that I grew up in, you know, a really strong economic force. And I think there's a soft power point to be made here as well, right, Doug? Because, you know,

millions of people across this region look to the United States as a sort of emblem of democracy. There's a real sense of, you know, the America that provides innovation, the America that they want to send their kids to to go to university in and get a better life for themselves. And I think when they look at the states now under Donald Trump, it doesn't feel like that place anymore. And so you will start to see and this has been happening

happening for some time economically as well. China is the main trading partner for so many countries out in this region. And I think you will start to see a sort of, you know, an understanding that while Donald Trump is in charge, the United States is not that kind of place anymore. So a real damage to American credibility. That's what I'm hearing. And I would imagine if that's the case, it's going to take many, many, many years to repair.

Yeah, and again, this is such a wasted opportunity. And just to show or highlight this for our audiences, last year there was a very well-publicized survey that was conducted by the Singapore-based think tank, the ISEAS Yusuf Ishak Institute, where they asked a bunch of Southeast Asian, more than 2,000 at the time, I think, who would you choose if you were forced to between the United States and China in terms of sort of aligning yourselves to these countries?

if there was a choice to be made. Last year, more countries felt in favor of China. This year, and the important point to be made here is that this survey was conducted before the tariffs were announced. This year, they chose the United States by a small margin, and primarily because of Beijing's

aggressive actions in the South China Sea that are affecting countries like the Philippines, Malaysia, and Indonesia as well. And there has been a lot of disquiet, regional disquiet about the way that China is flexing its military might

in this part of the world. The US has a real moment of opportunity here to show itself as the global grown up and to say, look, you know, we are here for you, Asia. The US-Asia pivot is a serious one. We're going to be there for you militarily. We're going to be there for you economically. There's no reason to turn to Beijing. But instead, you have this deal making by hostage and massive tariffs that are being implemented

the possibility of them being implemented across the region. And that's really making the prospect of those tariffs is really making life onerous for governments and economies around the region. Some of the analysis that we have heard with regard to price action in markets is that the magnitude of these tariffs were a lot greater than what markets were expecting. But I'm wondering whether the same could be said for China or not.

It seems like Beijing, having had the experience of the first Trump administration and having listened to all of the campaign rhetoric that Trump spouted during the lead up to the election when he used the word tariff again and again and again, I'm only imagining that China was well prepared for this type of outcome.

Yes, I think they were well prepared, but I think a few things have changed. I think they understand that Donald Trump in his second term is a very different animal to the one that they encountered in Trump 1.0. And I think Xi Jinping himself has also recognized that the appetite for a trade war

you know, domestically, although it isn't going to be great for the Chinese economy. The Chinese economy is in a different place to what it was in 2018. It's a little bit more self-sufficient, even though it's in a sort of precarious economic position as well. And I think the other thing is that the way that the U.S. has sort of upped the ante with the Chinese when they have consistently said, you know,

that they want dialogue, they want to talk. That's not going down well across the country. I was speaking to a Chinese academic yesterday who said to me, all we want is respect. You know, we're a powerful country. We are the world's second largest economy.

and we have a situation now where there is no room for dialogue there's no room for discussion it's just you know trade policy by truth social and if the trump administration is really serious about talking about unfair trade and getting rid of some of these market access barriers then come to beijing and

you know, really sit down and have a discussion with us. But to be honest, the prospect for a dialogue at this point in time, given how much the Chinese are hardening their stance, and of course, we'll find out in the next few hours whether or not that position continues, my suspicion is it will.

that I don't see the prospect for dialogue taking place anytime soon. So, Karishma, to what extent do you believe this has the potential to mushroom well beyond the trade issue and to get into areas like military relationships, defense policy? Does that seem to you like it's a possibility?

I think there is a possibility. But, you know, for the time being, what you're seeing or the messaging that's coming out from Asian nations, and this was happening even before the trade war, I think countries recognize that Donald Trump has no appetite or limited appetite to keep funding defense budgets in other parts of the world. And so you're starting to see more countries take that

burden on themselves or take on the, you know, spending more on defense in order to find a way to negotiate with Donald Trump on other aspects. So I think that was the strategy, but obviously it hasn't worked.

Longer term, what that means is everybody arms up. And again, there is data to prove this. I've written about this in previous columns as well. We had a relative degree of peace and stability in the Indo-Pacific, notwithstanding some of these skirmishes between China and the Philippines, particularly over the South China Sea in recent months. But

you know, for the large part, the last 40 years or so have been relatively stable. I don't think we're going to see that in the near term and even in the longer term in the future anymore. I think what you are going to see is calculations about nuclear power, nuclear weapons coming as prominent discussions amongst governments, increasingly more so in the future. You're already starting to see that in South Korea and even possibly in Japan.

And I think that's really dangerous because I think you're getting to a point where Asian countries don't feel they have a security umbrella that they can count on with Donald Trump in power in the United States. And that removes a really stabilizing force for so many countries in this region. And I think that's a shame. Karishma, thank you so much. Karishma Vaswani, who is Bloomberg opinion columnist, joining us this morning from Singapore on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. This standoff between the U.S. and China has produced a lot more in the way of volatility for the equity market and at the end of the day, a lot more selling. In the process today, we had the S&P 500 narrowly missing a bear market.

The daily trading range for the S&P 500 today was greater than 7%, although at one point, the S&P was down 20% from that record high of mid-February. That's when buyers emerged. At the end of the day, the S&P was down about 1.6%. And if you're wondering, we did close below 5,000. Joining me now for a closer look is Stuart Thomas. He is founding principal at Presidium Investments.

Stuart, thank you for joining us. Anxiety, obviously, is high. I'm curious as to how you're navigating this terrain right now. Doug, lovely to be back with you. I know people are biting their nails. I think the last time we spoke, I said, hey, buckle up. It's going to be a bumpy ride. And that's certainly proven to be true. But look, I...

This is short term. First and foremost, everybody's talking about almost unprecedented movements over such a short period of time. But that, of course, as you and I both know, we've been doing this for a very long time. That's not even close to being the truth, right? This isn't an October 87 month where it's down 21.5%.

This market, we've had two back-to-back years, the S&P 500 returning in excess of 20%. Generally, about every 18 months, we can expect at least a 10% correction. We haven't seen any of that. So all the tariff talk, all the jitters in the market, I think, are the excuse du jour for a long overdue correction.

You know, we were talking earlier in the day with former Treasury Secretary Larry Summers, and he was saying this is the first time the U.S. is facing a recession caused by its own policy actions. Does he have a point? I would take some exception to Larry Summers' views on the matter.

These are all the same experts that got us into this mess in the first place. So I would say, I think it is way too early to start talking about recession. These tariff moves, and Doug, you and I have been doing this a long time. We've been taught our entire lives, tariffs are a really bad thing for an economy, right? It's going to create trade wars. It's going to lead to inflationary pressures, ultimately into recession.

Somebody answer me this question. Maybe this is for Larry Summers. If tariffs are so bad, if our policies are so bad, how is it that every other country on the planet that does business with the U.S. has effectively used punitive tariffs against the U.S. to great effect? And we're talking about decades.

So, I'm sorry I'm going to take exception with Larry Summers. I don't believe it. It's way too early to be calling a recession. Do we need to consider the role of the dollar in all of this, though? The fact that it is still the world's reserve currency, and when money is flowing offshore to buy goods from other markets in other economies, ultimately that money finds its way back to the U.S. Treasury market and helps keep interest rates at lower levels.

And I completely agree with you. And if you take a look at what's happened since the second, right, Liberation Day, as President Trump calls it, I'd almost have to say to you that this may be the greatest Robin Hood-like redistribution of wealth the U.S. has ever seen.

We have to remember that at least 50% of our population owns no stocks at all. Who's this affecting? People like you and me. We're the ones affected by it most.

These markets have been driven higher over the last four years by an abundance of loose capital that's driven asset prices higher. And this is from printed money that we could ill afford to print. So what's the real impact on our economy? It's actually benefiting the 50% of the population that need it most. You mentioned interest rates going down. That impacts people who don't own stocks but are awash in debt.

Energy prices are coming down. Oil is down. Food prices are down. These are the things that matter to the majority of our population. So overall, I think this is extremely beneficial. And I know it's ugly for people when they take a look at their stocks.

And they're 401ks. But again, buckle up. It's going to be a bumpy ride. But I still believe in the common sense policies that have been put forth by this administration. So the administration has been pretty transparent about the fact that it's not paying so much attention to the equity market, more so to the Treasury market, particularly the 10-year period.

I think at last check, Chinese government had about a trillion dollars worth of U.S. treasuries. Is there the risk in your mind that as the tension between Washington and Beijing continues to spike, that maybe China starts to lighten its load of U.S. treasuries and maybe that has an adverse impact in the market?

Well, there's always that possibility, but the benefit to lower rates, and I think this is a brilliant move on the part of the administration, is remember the last administration left them with almost $10 trillion worth of debt that's coming due this year and needs to be refinanced.

So for every 50 basis points in reduction in the interest rate, that saves the American taxpayer hundreds of billions of dollars a year in interest payments. And that's incredibly important and will benefit our economy. So is it possible that the Chinese sell treasuries? Always possible. The same way it's possible they continue to manipulate their currency to try to negate the impact of the tariffs.

on their exports. Just as a rule, in terms of the tariff story, are you looking at these tariffs being in place for the foreseeable future, or are you hopeful it will get down to the brass tacks of negotiation?

The negotiations are already happening. I mean, we're already seeing that. 50-plus countries have reached out. We're seeing a willingness to negotiate on behalf of some of our biggest trading allies like the EU and the UK. India has come forth. Israel has come forth. It's already happening.

Let's remember, these aren't punitive tariffs that are being arbitrarily placed on trading partners. These are simply tariffs being placed on trading partners who have had punitive tariffs in place against our exporters for decades.

Only thing the president has said is we are open for business, but we want to level playing field. And I am going to focus on U.S. businesses getting a fair shake in your markets. You want access to the largest, most resilient consumer market on the planet. We're open for business, but we will do it on the fair terms.

So given the volatility that we've been seeing in markets, I'm curious, Stuart, how are you playing this? What type of strategies are you employing right now? I have been a long-term investor. If there's one thing I have learned in 35 plus years in this business, trying to time the market, at least from my perspective, is a fool's game. Long-term investing, quality stocks,

Sometimes there's a shift, whether you go defensive or you take a look at the policies that are in place. I mean, to me, there's some clear sectors that I would be taking a look at. Drill, baby, drill, energy. His policies to bring businesses onshore, industrials, financials. You mentioned that M&A activity, we all expected to pick up faster, but I think that so many things are changing.

The only thing that's changing now is the timeline and, of course, utilities. Great defensive play and also an incredible play on AI. Okay, we'll leave it there. Stuart, thank you so much. Stuart Thomas, founding principal at Presidian Investments, joining us here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.