Trump Extends Deadline for Tariffs on the European Union
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Daybreak Asia podcast. I'm Doug Krisner. So we begin with a story on trade. At the end of last week, you may recall President Trump threatened a 50% tariff on imports from the European Union effective June 1st. Now, he said this was in response to what he called unsatisfactory trade negotiations with Brussels.

However, now the president says he has agreed to extend that 50% tariff for the EU until July 9th. Trump made the change after a phone call with European Commission President Ursula von der Leyen. We had a very nice call and I agreed to move it. I believe June 9th would be July 9th would be the date.

That was the date she requested. Could we move it from June 1st to July 9th? And I agreed to do that. And that she said, we will rapidly get together and see if we can work something out. Now, in a post on X, von der Leyen said the European Union is ready to advance talks swiftly and decisively. By the way, the date of July 9th is the same day Trump's 90-day pause on those so-called reciprocal tariffs had been set to end.

For a closer look at some of the market action, I am joined now by Stephanie Leung. She is the CIO at Stashaway, joining from our studios in Hong Kong. Stephanie, thank you so much for making time to chat with me. Can we start with a trade story and what I think may be a little bit of whiplash for markets? How do you understand the situation right now, not just where the European Union is concerned, but more broadly, how the Trump administration is dealing with these various trade negotiations?

Yeah, I think indeed, if you look at kind of a broad set of things going on, it's quite a lot. I mean, they're trying to negotiate with 18 key kind of trading partners, but also, I mean, there are a lot of other things lined up for them to sort of try to make a deal as well. And I think if we kind of roll back in history, 2018 was actually a very, very good playbook.

for understanding or putting a framework as to what's happening. If you remember 2018, we also had a short-term trade war between the U.S. and China in the last quarter of 2018. The market actually fell slow on December 24th of that year.

And similar to kind of what's happening right now, I think initially, I mean, Trump tries to put out a very, very forceful kind of ask.

and they try to negotiate down from there. And of course, during the negotiation, it was also very, very messy. There was a lot of back and forth. And I mean, one of Trump's tactics that he likes to use when he's trying to make deals is he walks out of the room at the last minute. So I mean, I wouldn't be surprised if Trump is kind of deploying some of the similar tactics. But I think we have to remember that Trump is not

a person without constraints. He being the President of the United States, of course, have a lot of power. But at the end of the day, he needs to answer to the median voter. And also, he needs to realize that there are economic constraints, as we've seen just very, very recently with bond yields. So, you mentioned the backup that we had in U.S. Treasury yields last week.

There has been a debate, as you well know, in the bond market about the extent to which these tariffs may be inflationary. But for the moment, what seems to be driving a lot of the price action in the bond market is the concern over the government's ability to continue to cover these massive budget deficits.

Are we going to be in a world now, until this tax bill has been signed into law, where there's going to be a lot more volatility in the bond market? So, at the beginning of the year, we put out our 2025 outlook. And the title I used was "Fat is the New Normal" -- F-A-T. And the reason why I used F-A-T -- F stands for fiscal dominance, A stands for AI, T stands for Trump --

And it's basically, I think, these are three forces that would drive markets for quite some time and not just this year, but perhaps, I mean, for the rest of the decade to come.

And in terms of fiscal dominance, we're seeing a lot of that happening. And I think if you look at the US Treasury yields, of course, it's been spiking. There's a lot of kind of, I think, US-centric concerns, but also it's not just a US story. Even if you look at the Japanese long rates, I mean, these are at historical highs.

So, I do think that there is a reflection of the market's concern on the fiscal deficits for governments all across the world and sort of the, I guess, the return they demand from holding a lot of these sovereign debt is increasing because of the long-term concern on the sustainability of these debt levels.

So, I think, again, if you look at kind of across asset classes during this past few months of trade war concerns, you can see that actually bond is the weakest link. And I think if you kind of ask around of asset allocators a few months ago, I think very, very few people would have predicted that.

Actually, I mean, bond is even weaker. It's even kind of more concerning than equities. So we've talked about the F, fiscal. We've talked about the T, Trump. Let's talk about the A now, artificial intelligence. We get the NVIDIA earnings after the closing bell on Wednesday here in the U.S.,

Bloomberg data show that revenue from that core chip business is forecast to rise over the next four quarters. But a number of analysts are now beginning to talk about how the trade pressures could put Nvidia's guidance at risk. Do you think that's a fair criticism or at least a fair warning?

Yeah, I think that if you look at NVIDIA's revenue mix, a significant part of that does come from China. And of course, I think over the years, they have tried to kind of, I guess, more of their business in order to get around some of these regulations. I think indeed, I mean, this morning we're seeing that they are going to adopt a lower kind of power version of the GPUs to be able to sell to China.

And I think that, I mean, of course, for the past two and a half years, I mean, NVIDIA was sort of the only story in town, right? If you look at the phases of AI development, I mean, the first kind of obvious phase or the first obvious traits are buying chips and training of the large language models.

I do think that apart from the regulations, I mean, there are some of the more structural movements or moves away from this phase one. I mean, we're now kind of entering phase two. So, I mean, what is phase two, right? If you look at the LLMs, I mean, a lot of them are already quite commoditized. They are very, very powerful already. So with kind of the LLMs more stabilizing in their developments, I mean, that actually enables people

application developers to be able to make use of these LLMs to develop a lot of different use cases. And indeed, if you look within the equity markets, I mean, what's leading in this round of rebounds

is a lot of the so-called AI-first software companies, right? Companies like Appalantia, companies like Spotify, even like Duolingo. A lot of these companies that are actually realizing the benefit of AI in their business, either from the revenue side or the cost side. I mean, these are sort of the leading pack in this round of rebound.

I'm curious to get your take on how you expect AI in China to advance, at least over the near term. Reuters was reporting that NVIDIA is planning to launch a new AI chip, especially for the Chinese market. Do you think that is going to accelerate the change in AI in China, that they would have perhaps a little bit more advanced technology? The key development in China, I think, has been

Of course, we had the deep-seek moment and it shows us that Chinese technology companies can do quite a bit of things with limited resources. But I think what's, I guess, more importantly is that because of the restrictions that Trump has put on to exporting technology to China,

It forces China to really think about and invest into its own technology stack. And if you look at companies like Huawei, they already possess quite a bit of good technology. And I think the Chinese government or Chinese companies is going to double down on that.

just because of security reasons, right? You don't know when the US is going to restrict exports of chips or various other kind of important technologies. And I think what the deep-seek moment shows us is that China is not too far behind.

And I think Nvidia is announcing this kind of new chip because they realized that Fresno, their threat, perhaps is not so much AMD or other chip companies, but really Chinese companies like Huawei. OK, we'll leave it there. Stephanie, it's always a pleasure. Thank you so much. Stephanie Leung, she is the CIO at Stashaway, joining from Hong Kong here on the Daybreak Asia podcast.

Thank you.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. We go to Japan next, where shares in Nippon Steel are trading higher in the Tokyo session. This comes after President Trump said he will back a partnership between the Japanese company and U.S. Steel. We got reaction from Kurt Tong. He is managing partner at the Asia Group. Mr. Tong spoke with Bloomberg's Paul Allen and Heidi Stroud-Watts.

US steel, Nippon steel deal. Look, details are scant, a little bit confusing here, but at least can we say that this is a good omen ahead of US-Japan talks? It certainly establishes positive momentum going into this next month of negotiations. It's also a very interesting signal that the Japan side is thinking of trying to finish earlier rather than later. As you know, there's an election coming up later in July.

And the Japanese government really needs to have a positive outcome in this negotiation to set up for that election or punt the entire negotiation until after the election. So I actually think this is very, very positive news for the atmosphere of the negotiations, for the level of trust between the two sides.

But it still comes down to a game of chicken over the automobiles tariffs. And perhaps currency as well plays a factor here as well. We heard from the finance minister and Scott Besant last week saying, look, let's let the market handle the currency.

Is the yen just always there in the background? I think it's in the background. And the Japan side, interestingly, has waved that flag a bit as well to remind the United States that it's a mutually beneficial and potentially mutually destructive relationship in the financial markets. At the negotiating table, I believe the two sides have, as they've indicated, pretty much decided to set that aside as a negotiation item. Negotiations for the TPP feels like, you know,

millennials ago, right? But that was so much concentrated on the minutiae of trade clauses. What kind of deal do you think do we end up getting? Is it sort of more on the vibe as we've seen with some of the other trade deals that have been tentatively agreed between the US and its trading partners? Do you expect a fair degree of actual substantive detail? I think there will be some substance on trade barrier reduction and agriculture has been mentioned as a clear point of contention.

There are some non-tariff barriers around automobiles, which could be eased. The main thrust of it, however, is how much is Japan going to jump in and help Donald Trump reindustrialize the United States? And he has specific asks on shipbuilding and on the energy infrastructure, particularly Alaska gas, that Japan is considering. But these are big, risky projects, very high ticket.

extraordinarily risky and so how they could participate in these sort of things I think is another really important topic of discussion. Some of those sectors are also quite domestically sensitive right?

We've seen the success story for Xi Jinping, for example, in holding that strong line. Does Japan and the government there need to do that to a certain extent or risk further diminishing popularity? I think that's right. They're going to make clear to the US side, we can do this, we can't do that.

and then hope to use the timeline to their advantage in convincing the United States, "Well, okay, that's good enough. We do want to reach a deal. We do want to move on. We don't want to have to raise retaliatory tariffs again." So the deadline is, in a sense, starting to work in Japan's favor. But again, I want to emphasize the crucial importance of the automobiles tariff. This 25 percent tariff could have a devastating impact

on some Japanese companies if it's allowed to drag on for a long time. Let's talk more broadly about some of these other trade deals that are going on because the US is trying to negotiate dozens within a 90-day period. I mean, normally free trade agreements take years to reach agreement on. Does this suggest to you that some of what's being achieved here is cosmetic for domestic political purposes? And can some of these wins endure beyond the Trump presidency?

This process has been excruciating for all of the partners working with the United States. That said, there will be some substantive outcomes which are mutually beneficial, some which are just complete concessions to the United States in order to get the deal done, and a lot of cosmetics. A lot of cosmetics will also go into this because the U.S. side has now discovered that the tariffs

can be a problem for the United States as much as for the counterpart. And that leverage reduction that is implicit when the president walked back a week after Liberation Day does really change the dynamic of the situation. If you were advising some of these other countries in their negotiations with the U.S., what would you be saying? Choose a few really interesting things, sell them to Donald Trump,

dress them up a little bit if necessary, but they do need to be substantive at the same time and then be consistent and sell them over and over again until you get across the finish line. The big focus is still on whether the detente with China can be sustained, right? How do you feel about that?

So, detente is a great word for it. They have agreed to talk. There's no agenda. There's no timeline. And both sides have reserved the right and are already exercising the right to continue to take action against one another on other issues: technology controls, export controls, the Section 232 tariff investigations. So, what I expect is that this truce on the big tariffs will hold.

The negotiations will take a long time and it'll be a very bumpy ride with lots of ups and downs, action, counteraction, angry words stretching all the way

to and past the first meeting of the leaders, which I would anticipate taking place in the fall. I see two real milestones on this. One is the meeting of President Trump and Mr. Xi. The other is the midterm election, where I think by the midterm election, President Trump needs to demonstrate that all of this effort that he's put into leveraging the size of the U.S. economy

has paid off because the American public is starting to get skeptical about how this tariff strategy is working for them. We've talked a lot about the stickiness of tariffs and whether there are views that obviously the previous Trump administration policies, some which are still in place, but

Do you also look at the stickiness of what, say, Beijing is trying to do with its outreach in terms of building those economic and soft and harder power alliances? Do you think that's going to be something that extends beyond this administration? Absolutely. I mean, this is a long term strategy for China now. The Belt and Road was a piece of it.

That's now been refined, made less transactional, if you will, less focused on China's needs. And there's more discussion about trade agreements, about softer forms of investment and economic interaction, more digital, less infrastructure. And I would expect China to really continue to push that. And they have a bit of a tailwind right now because of the distrust that's been engendered by the U.S. tariff approach.

That may be temporary, may last a little while, but I expect China to continue this effort to make friends and try to rally them against the United States for years to come. That latter part is harder because they don't want to burn bridges with the United States either. Can you see a scenario in which China joins the CPTPP?

I think that it's not inconceivable. A couple years ago it was close to inconceivable. I think Australia has a major vote in this. Japan has a very strong opinion about it, holding the content of the TPP and keeping it high level, penetrating liberalization. China is not yet ready to make the compromises necessary to meet those standards.

But it's not inconceivable, especially as the Chinese economy grows slower in future years, that they'll be more willing to revisit economic reforms that would qualify them for TPP. As an American citizen, I hope that the U.S. gets its act together first and makes it in before that happens.

Trump has a very unconventional approach when it comes to trade, right? He's not interested in looking at revisiting FDAs and multilateral, bilateral agreements. Does that make the structure of these agreements less relevant in today's political atmosphere? It makes their outcomes less lasting.

I think that in the short term they're highly relevant. For example, the Nippon Steel deal that you mentioned at the outset, very significant, very positive realignment of the rhetoric around U.S.-Japan economic relations. But that's one episode.

It'll be good for the relationship for a couple months, but the structures are really important over time. And that unwillingness to commit the United States to lasting structures in the economic realm is a problem for the U.S. On the defense side, I think the U.S. is still very much there. But the economic policy side, it's been absent from the table for over eight years now. Really great to have you with us and great to see you here in Sydney. Kurt Tong, who's a managing partner at the Asia Group.

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.

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