Trump's Tariff Pause Sparks Global Relief Rally
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. We had a bout of euphoria gripping the U.S. equity market in the last session. That came after President Trump paused new reciprocal tariffs for dozens of trading partners for 90 days. Now, these reciprocal duties for most nations will be taxed at a baseline rate of 10%.

With the exception of China, Trump did raise duties on Chinese goods all the way to 125%. In a moment, we'll be speaking with Rebecca Walzer. She is president of Walzer Wealth Management. But we begin in Hong Kong. Joining me now is Chi Lo, senior market strategist at BNP Paribas Asset Management. Chi is on the line from Hong Kong. It's always a pleasure. Thank you for making time.

Can I begin by getting your reaction to the price action that we have seen in the last 12 hours or so? My summary is, in one word, volatility, which is what we've been seeing for quite some weeks now. The reaction last night, of course, is obviously due to President Trump's pausing of the reciprocal tariffs on almost all other countries except China.

That's understandable. The other reason for the big reaction last night was because of the sell-off a week ago, which to some extent was an overreaction. And now this is another overreaction, but to the upside.

So on a net basis, we are still seeing the US stocks overall indices are down a little bit compared with a week ago. Going forward, nobody knows how long this rebound could last because Mr. Trump said the pause is about three months, but you never know what he will say tomorrow, next week, and

So volatility is still the key thing and risk management is a key thing to do in terms of investment.

So it would seem as though the 56 nations plus the European Union that are going to be kind of facing these baseline tariffs of 10 percent, they are in the process of negotiating. China is not negotiating right now. And perhaps it was the view of the Trump administration that because China retaliated that the new tariff of 125 percent was put in place.

Do you think this is a dangerous exercise? Are we looking at a full-blown trade war? Forget the other trading partners for a moment. Let's just talk about Washington and Beijing. Are we dealing with the possibility that we're going to see a long, protracted trade war between the U.S. and China?

Well, that possibility actually is always there. And this time when we see China's very stern reaction to the reciprocal tariffs by Mr. Trump is another evidence that the two nations will continue to compete in the long term, long term, meaning the next 10 years, 15 years, 20 years in the form of trade wars, tech wars and all these things. It is a dangerous game, a dangerous chicken's game.

As far as this game is concerned, this time is concerned, I think it depends on who flinches first. On the US side, they think that China will succinct significant losses and economic pains and they will blink first. But from the Chinese side, they think similarly that the US would be hurt

at least as much as China, if not more. So in a trade war situation like this, nobody wins. And it really depends on who gets hurt more. Now, when you look at the trade numbers, of course, it seems that China would be hurt more because China exports much more to the U.S. than U.S. exports to China, which means that the negative tariff impact on Chinese exports will be much bigger.

than the Chinese tariff impact on US exports. But that's only half of the equation. The other half of the equation is about foreign investment in each other's country. The US foreign direct investment in China is significantly more than the Chinese foreign direct investment in the US, which means that Beijing can hit the American companies operating in China with significantly more negative impact

then the US could hit Chinese companies or Chinese investment in the US. So when you put that into the equation, it really, it is going to be very messy that we could see both sides, MNCs, Chinese side, US side, trade side all get hurt.

So I'm wondering about the response that Beijing may have domestically right now. Put stimulus aside for the moment. We can talk about that in a sec. But I'm getting indications that Beijing has launched a coordinated government effort to support the stock market. That's one thing that can happen in the near term here. The other is that the currency can be allowed to weaken a little bit more. So could those two options provide a little bit of support, at least in the near term?

The two options through currency depreciation and also stock market support will provide some short-term support to the Chinese stock market. The policy signal is more important that China is sending the world a policy signal that,

Yeah, you may argue that the Chinese goes in with national team buying up Chinese stocks and supporting the market. But the point here is that among all of these volatility and geopolitical tensions, the Chinese are telling the world that they have this mechanism to protect investors' investment.

So I think that's important for those people who are assessing volatility risk in markets like China that will get government support and in markets like the others who will not get government support. But these are only short-term measures.

Longer term, we still need to see aggressive and assertive Chinese easing to push the domestic sector to fight the tariff war. What about more stimulus, Chi? How much more can Beijing afford to unleash at this moment before it becomes problematic, before we talk about an even larger debt bubble in China?

At this point, I think the risk threshold probably is another 2 percentage points of GDP on the downside, which means that if the tariff impact saves of between 2 and 3 percentage points of GDP in China, Beijing will have to increase fiscal stimulus by a similar amount

to offset that impact. And I believe China still has the room to do it because government borrowing is still at reasonably low level and the reception to Chinese borrowing internationally and locally in China are still very high. So assuming there is no disaster, earthquake,

heating the Chinese economy. I think the tariff impact is

It's going to be painful, but it's still manageable at this point by the Chinese with more aggressive fiscal stimulus. Chi, we've talked about the macro. I'm interested now in a practical investment strategy, and I'm curious as to whether that would include what has been, up until this point, a bright spot for the Chinese equity market, which is high technology. What is going to work in the next cycle?

six to nine, let's say even 12 months right now, if I had to put money to work in China? - For the next six months, probably it's too early to really go all in into China. Beyond six months, assuming the tariff does get settled one way or the other, the Chinese tech sector, Chinese stocks actually are reasonably positioned to recover.

assuming that Beijing comes up with more aggressive easing. That's the key point. If we don't see aggressive easing by Beijing, then you can forget about Chinese assets for a while longer. But if we do see that, which I think there's a reasonable chance that Beijing will be more aggressive in easing, beyond six months, once when the dust has stippled,

we could see a reasonable recovery in Chinese asset prices and also the economy for the simple fact that exports or net exports to be more precise is not a key driver for Chinese growth and earnings growth.

You know, there's going to be pains with net exports down, but they are not the key driver for Chinese growth since GFC more than 10 years ago. The domestic sector is the primary driver for growth. So that's why it's so important that Beijing will have to push the domestic sector with more aggressive easing in order to turn things around. Chi, what about the high tech sector? We've seen the enthusiasm post deep seek. I'm wondering whether or not that still has legs. What do you think?

It has legs, but it's in the longer term. The short term, forget about it, because the near-term factors are still the macro, volatility, geopolitical risk, tariff war, and so on. But beyond this short term, as I said, after

it doesn't settle. The Chinese tech sector, especially companies and industries that serve domestic market, still has a positive future because it is a national policy that China has to develop itself into a high-tech economy to compete with the US. And this is not a short-term policy direction. This is a long-term policy direction. So domestic-oriented

tech companies, industries, sectors are going to be positive in the long term, while those rely more on the external market for revenues and stuff will not be as positive as the domestic-oriented companies. Chi, we'll leave it there. Thank you so much for joining us. It's always a pleasure to chat with you. Chi Lo there, Senior Market Strategist at BNP Paribas Asset Management, on the line from Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. So President Trump ignited an explosive rally in the equity market today when he paused new reciprocal tariffs for dozens of trading partners for 90 days.

And we saw the biggest burst of buying for U.S. stocks since 2008. The S&P 500 surged 9.5%, while the Nasdaq Composite rallied more than 12% today. Joining me now for a closer look is Rebecca Walzer. She is the president of Walzer Wealth Management. She is on the line from Tampa, Florida. Rebecca, it's always a pleasure to visit with you. What did you make of today's price action?

Wow. What can I say, Doug? I mean, this is a day for the record books. You know, we this is this is unprecedented. I mean, you know, we haven't seen the gains on the Dow since like, you know, before dot com basically. Now, as that 24 year record here that we're talking about, obviously, the S&P was more affected with the global financial crisis.

crisis 2008 but literally it's for the record books Doug and it just shows you that You know an administration can really come in

and leverage their might economically and have reverberations geopolitically, globally, across the world. So it's unbelievable. Wow. When you look at the tariff story, we know that President Trump paused those new reciprocal tariffs on a dozen trading partners for 90 days. That was only 13 hours after they went into effect. But I'm wondering whether the markets guided him. Was this a little bit of a capitulation on the part of the president? You know, I

I think that there's going to be a lot of dissection of exactly that question, Doug. You're hitting the nail on the head there because the question is, does he all along realize that what he's doing is so evasive and will have such a deep and important impact to every corner of trade in the globe that he expects it to be met with total indifference?

you know, consternation and immediate, like, let's fix this. I mean, he did say in the press release on True Social that 75 countries had called to basically negotiate what they could do to have a more equal in his learning. I'm summarizing now. But, you know, to negotiate a more balanced tariff arrangement between trade and, you know, to sacrifice

Treasury Secretary Besant's point, his point is we need 90 days to actually work through these trade deals. And there's going to be a lot of negotiation that happens over the next 90 days. I think the biggest issue that the market is sort of ignoring and discounting right now is what you said earlier in the open, which is

Trade war with China is squarely the peg that is in front of us now. What has happened is all of these superfluous noise of all of the other countries has now dissipated and fallen away really exponentially immediately today with this pause. And now we're literally looking at a tit for tat with China.

China directly. And so obviously the policy that he had put in place, China counteracted and raised their 34% average tariffs across U.S. imports to 84%, which then obviously prompted Trump to respond again and raise again from over 100% tariff to 125%. So Doug, this is a

SETUP, COMPLETE SETUP TO ONE FOR ONE HAVE A DIRECT TRADE WAR WITH CHINA. AND ALTHOUGH THAT IS A VERY UNCOMFORTABLE THING FOR ME TO SAY, IT IS ABOUT TIME. BECAUSE, YOU KNOW, ONE THING THAT I CAN JUST SAY UNIVERSALLY THAT I THINK MOST ECONOMISTS WOULD AGREE ON IS THAT

China is the number two largest economy in the world, in some cases larger than America in certain instances. And from that perspective, they shouldn't have what we call most favored nation status at the World Trade Organization as if they were a disadvantaged country. And them having that status, as you know, Doug, allows them to do and to circumvent a lot of protections that other countries like America, industrialized countries, have.

to live within so i think that there's at least a fairness conversation that this is going to make happen now and it's going to alert the the players of the world to the unfairness potentially of some of our interactions with china so about 20 hours ago we had a bit of a meltdown in the treasury market and yield spiked particularly on the 10-year that may have been a catalyst

for a bit of rethink on the part of the administration. We don't know exactly, but clearly China holds a trillion dollars worth of U.S. Treasuries. This has to be considered as part of the story too, right?

I mean, there is a rumor and we won't discuss rumors, but there's a you know, there's a title of it and everything. It's Operation Sandman, where we could literally see, you know, a coordinated effort of multiple nations across the globe dumping, selling U.S. Treasuries simultaneously, which would be a disaster for the U.S. dollar.

And so I can't say that I have direct confirmation, but I think that it's very obvious, Doug, that there is no doubt that the pressure on the 10-year is absolutely problematic. It was problematic for the auctions that are happening this week. And I also will recognize that we have $9 trillion of U.S. federal debt that has to be refinanced in 2025.

of the $36 trillion that we have. And we can't afford to finance that in the 4% range. We just can't, because that's debt that was written from the 2008 to the 2022 timeframe when our costs

You know, our Fed funds rate was 25 basis points, Doug. So we just are in a much different place. And that debt has to be refinanced. And of course, we need our auctions to continue to be seen throughout the world as stable and ongoing. So the president raised duties today on Chinese goods all the way to 125 percent. And he did say later in the day that he can't imagine increasing them further.

But he did say that sectoral tariffs are still coming and pharmaceutical companies will be facing tariffs as well. So the dust, I think we can agree, has not completely settled. So when you look at the potential here for more volatility in the equity market, would you expect there to be maybe not the level that we saw over the last three trading days, but a lot more volatility nonetheless?

Absolutely, Doug. And I think that is the best message that if anyone walks away from this conversation and has one takeaway, it has to be that. This has just begun. And I don't think that one of the best trading days that we've had to the upside today should give anybody super confident footing because the ground is still moving beneath us.

And it is uncomfortable when the ground is shifting and you don't feel like you have your footing. But that is what this president basically ran on, changing the global dynamic with the world on the economic side. And he is determined to do that. And if you have read The Art of the Deal, you know that he leverages the power that he has to negotiate things.

the absolute best deal. And some of his negotiations sometimes is very uncomfortable. So he's doing this on a very public scale that we have to live through, through our 401ks and our IRAs, which makes it very uncomfortable for a lot of people. But the point of Trump and the art of the deal is to be the last one standing with the negotiation. So the pharmaceutical industry being as it's become, and even

China into China, Doug. Interestingly enough, if you look at the percentage, somewhere 80 plus percent of our pharmaceutical ingredients come from China directly. And that is a huge problem. If you look at the global pandemic of 2020, coronavirus, if we have another thing like that and we're in some kind of trade war with China and they decide to just cut off our ingredients, we could literally have a situation where we can't even take care of our health in our own country autonomously. So I don't

I just think that the pharmaceuticals being so intertwined into China is not a coincidence. It's tied together to his almost, to me, and I'm not suggesting that he's anti-China or he's against China, but I do see that his policies are antagonistic because he thinks that China is so unfair. We know their IP stealing is unfair, we know they do a lot of unfair trade practices, but

He's drilling directly head on with the fact that we are so beholden to them as a country. We are not autonomous in a lot of ways. So after the tweak to tariff policy today, Goldman Sachs, the economist at the firm, withdrew their forecast for a U.S. recession. Although if you listen to what some corporate leaders are saying, whether they're at Delta Airlines or Walmart, they're warning of a wave of pessimism. Are you confident that we can avoid recession here?

No, not at all, Doug. As you know, I've been more on the bearish side for a while. And the reason is it's a macro economic reason. The reason is we simply globally printed way too much fiat currency after coronavirus, after 2020, between the years of 2020 to 2023. The world has to absorb that currency. It's certainly inflated pockets. We can in America export a lot of our...

because we are the world's reserve currency, but we still felt it and we still do feel it. And there is, the market has been priced, I would say for the last at least 20, 30 months, I'll say the last 30 months, we've been almost priced for perfection so that anything that went wrong is going to cause a problem. If the job market's

comes in during the Biden administration, it looks like the Fed might ease rates again after raising rates, then the market's positive with bad jobs number because the Fed's going to intervene. So we've had a lot of monetary policy, modern monetary theory, print, print, print, print, print. And that has got to be dealt with. And the fact that we are refinancing and we are dealing with a trade war with China, this is going to be disruptive.

And we already had weak global demand and global growth forecast for 2025, separate and apart from all of this tariff situation. So the weakness of the growth of the 2025 year for the globe was already felt. It's felt in the United States. So with the trade war continuing and not being fully resolved, and for us to have to go through some pain before it gets resolved, I do think that a recession is very much in the cards because there's just not a lot of

positive to bring us away from problems. I'm so glad you brought up the Fed because we had the minutes of the last Fed meeting released today, and they seem to challenge this notion of aggressive easing. They clearly show that officials view the risk to inflation as being tilted to the upside and at the same time, the risk to employment tilted to the downside. Last question to kind of put a bow on everything we're talking about. Where does this leave the Fed?

It's really difficult because Powell really wants to be independent and Trump is already obviously publicly calling for him to lower rates because obviously the tariff policy, you know, his, I believe I'm speaking, I'm summarizing what my opinion is for Trump. I believe that he is going to try to offset any kind of tariff impact two ways. One, he wants the Fed to lower rates so that the cost of capital is less so that the credit card debt is lower and you feel like you're paying less.

for your car and your credit card. He also wants to make energy more abundant so that the cost of energy goes down so that it feels like it's cheaper at the gas station and we can all go on our summer holidays. So I feel like he's attacking these things two ways, but he absolutely does need the Fed to be accommodative.

And, you know, I'm of a different mindset than that. I think that modern monetary theory and us printing, printing, printing, the printing press of the Fed will only cause us more problems at this stage, Doug. And it's really a matter of the fact that we are accumulating debt now too fast. Every hundred days is another trillion dollars. Rebecca, thank you so much for taking the time to chat with us. Rebecca Walzer there. She is president at Walzer Wealth Management on the line from Tampa, Florida, 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.