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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.
Joining us now, I'm very pleased to say Peter Navarro, the director of the Office of Trade and Manufacturing Policy at the White House. Dr. Navarro, it's been too long, sir. It's good to see you. Thanks for being here. It's been a long time, John, and it is good to see you too, sir. Thank you, sir.
Diggs here, my friend. Well, I'm pleased we're looking after you. Let's kick it off with these talks this weekend. We just heard from the president just moments ago, and he mentioned an 80% tariff might be about right. It's up to the Treasury Secretary. We understand you won't want to get ahead of those negotiations, but I just wonder, could you offer some clarity on what about right means? When the president says 80% tariff on China seems right, seems right for the talks this weekend or seems right for the foreseeable future?
Yeah, I was one of three people that was with the White House the first term for all four years. One of the big reasons is I never got ahead of the president. But let me tell you about Geneva, which is kind of—I've got very warm memories. It was my finest hour as a negotiator. I went there to lead the negotiations.
for the United Postal Union reforms that essentially got China rates fair to, we say billions on that, but I mention this because Geneva has symbolic value in this negotiation. It is the headquarters
of the World Trade Organization. And the scariest thing I ever saw in Geneva was the size of the China delegation at the World Trade Organization. And they played the WTO like a fiddle. So let's see what happens tomorrow. I'd be happy to come back on Monday and do the debrief, but I don't want to get ahead of the boss.
or Scott Besson. And don't forget, Scott's going with Jameson Greer, the United States trade representative. He's the guy who learned at the knee of Bob Lighthizer the first time around, was there for all the China stuff. And he's the guy who was the architect, along with Howard Lutnick, of the UK deal. So...
let's see what happens is it's in the very best set was so the pencil in the weekend for the markets will pencil in an appearance with you for monday no worries about that i'm looking forward to that conversation just going to the weekend reflected on your experience dealing with the chinese they're not the u_k_ this is not the same relationship
the trade relationship is tremendously unbalanced and has been for a long, long time. Can you frame for us how difficult it has been previously for you to negotiate with the Chinese and how much longer it could take with the Chinese relative to, say, the UK and other trade partners? Well, I can tell you, I think I sat face-to-face with the China team
maybe seven times during the first term, and twice Xi Jinping was there. It was G7, excuse me, the G20, both, I think it was Tokyo and Buenos Aires. What's interesting, so what's so interesting to me, Jonathan, about China is that they have continuity. The same people are going to be in Geneva were the same people back then, and our country
change. We have different governments and things like that, but they have the advantage of that kind of continuity. But look, it'll be interesting. Again, I don't want to get ahead of Scott and Jameson or the president. I think let's see what happens. My role...
And we've got 15 countries we run enormous trade deficits with that we've got to renegotiate the whole structure of those deals. And there's another 100 countries that cheat us in some ways, but smaller ways.
My role in the administration on all of this is to do the background analytics to see how each country's cheating us, which basically sets up the terms of the negotiation. And every country's like fingerprints. Like India is the Maharaja tariffs. They have the highest tariffs of any of our major trading partners. Japan is the most clever at protecting its own markets with a combination of domestic protection
protectionism, non-tariff barriers. You know, Germany, they have auto tariffs at 10%. We have them at 2.5%, but they also have the VAT tax, which acts as another 19% tariff and an export subsidy. So what I do is do the background and look at kind of how these countries are doing what to us
And we get great deals from the American people. I think the UK deal is very interesting. I think the significance is not just that it's a deal, but that it's a template for the future deals. What we do, Jonathan, is there's like four or five verticals we look at. It's the tariffs, the non-tariff barriers, the digital taxes, and then the various kinds of cheating, the dumping, the currency manipulation, things like that.
And then from there, we assess what the asks are, what we need, and go forward from there. You're going to see a steady wave of deals. The USTR building is right across the street from the White House. It's got the most staff negotiating these deals.
And it's like you go to the deli and you have to take a number and get in line. Every day there's delegations from around the world lining up to meet with Jameson Greer and Howard Lutnick.
And I've seen, I looked yesterday at the schedule, it was kind of fun, out to July, and it's just, you know, one after the other. Well, Peter, looking at the countries lining up, one key aspect of the U.K. deal was, of course, bringing down the auto tariff to 10%. So right now you have a tariff rate that's lower for Bentleys, which is a car that most American families can't afford, made in the U.K., where Chevys have a higher rate if they're made in Canada or Mexico. Is there an expectation?
expectation that the next trade deals, auto tariffs will be coming down those rates?
It's going to be country by country. I mean, the beauty about the UK is that it's a very small amount of exports they send us, and we have a hard cap. I think it's 100,000 units where it goes right back up to 25%. And, again, we're trying to do something that's mutually beneficial to both countries to get to a better place while at the same time
changing the level of the playing field so that it is more level. I think, for me, the beauty of the UK deal besides that was all of the good stuff we had for ag. I mean, one of the problems we have is this...
Non-tariff barriers like phytosanitary standards. What's that? That's like these things they do to keep our pork out, our chicken out, our beef. Right now, we're going to be able to sell a lot more beef, poultry, dairy. And ethanol?
I mean, they had a really high tariff, like almost a lockout tariff on ethanol, and that's made from corn, so the folks in Iowa are very happy about that. So this is the way we're going to go forward on net. The United States is going to be far better off
And all we're doing is trying to level the playing field. I saw the EU kind of rattling sabers, I think it was yesterday, about some kind of retaliation. And I would just say to anybody who's in the European Union, I mean, how can you look us in the face and threaten us
when your tariffs are higher, you have lost cases repeatedly at the WTO on us selling you things like beef and poultry, and you won't even honor that. - Peter, yesterday the president called Ursula von der Leyen fantastic and he said he hopes to meet her, but are you saying that the European Union is not as high on the priority list than say other trading partners like South Korea and Japan?
Not at all. I mean, the EU, to be clear here, we have the second highest trade deficit with the EU behind China. So they're very high on the list. All I'm saying here is that I found it unfortunate that the EU kind of fired, I think some term was fired, shots across our bow. It's like,
Retaliation will not work against the United States. We shouldn't have that. Let's talk. Let's figure this out. And it would be nice... Here, let's give peace a chance here. All we're asking for here in the United States of America is fairness. I mean, would you agree? Is there any disagreement on this set or on your set that the tariffs of the EU are higher and that the non-tariff barriers are higher?
And that the WTO in Geneva is basically sanctioning that through two things. One is the... But would you agree with that? If I said anything that you would like to fact-check there. There's a bigger question here. There's a bigger question here. And this is something that the German finance minister has come out and talked about.
which is they'd be willing to drop all tariffs to zero if the U.S. were willing to drop all tariffs to zero. There is a willingness to negotiate, ground the board to a lower tariff regime. Would that be acceptable to you, or is 10% the new floor? So stay with that. See, that's such a misdirection, okay? It's the non-tariff barrier, stupid, to kind of paraphrase Trump.
Bill Clinton. It's like, it's the non-tariff barriers. So when countries like Vietnam or entities like the EU say to us, oh, let's all go to zero tariffs and everything will be okay. That's not the problem. It's part of the problem.
But the bigger problem is the non-tariff barriers. In Europe, it's the VAT tax. I mean, I don't know if you know this, but the United States has tried going back to the 1970s to get equity treatment for the VAT tax, which most countries in the world use, versus the income tax, which we use. We haven't been able to get it because the WTO has a majority of people who benefit from sticking it to the United States.
So they do. So the zero tariff thing, that's misdirection. And on your set, you should call it on that. When they say, let's lower the non-tariff barriers and let's give you relief on the VAT tax, now we're talking. The VAT tax is a slightly different mechanism. This is all going to take a long time. And there are a lot of competing factors here in terms of who can possibly pull these levers. And I'm just wondering, we've got two months left.
in this ninety-day negotiating period that is paused for retaliatory tariffs. Does that just get extended out another ninety days as you have to deal with different legislative bodies to possibly remedy what you see? Well, we don't have to deal with legislative body, well, okay, in the EU perhaps, but I coined a term "in Trump time," which is to say do it as fast as possible without screwing it up. And that's all we're trying to do. I go back to the observation
that the United States Trade Representative and that building, which is a historic building, by the way, beautiful to see if you ever get there, the lines, you know, they're coming in and out, and we're talking and we're talking. And, you know, as the boss says, let's see what happens. I mean, it's in everybody's interest around the world to level the playing field with the United States in a way which allows us to restructure this international trade environment, which is fundamentally...
skewed against the United States. I mean, we're losing...
Because of this system, the United States is losing our manufacturing base, we're losing our defense industrial base, and when push comes to shove and folks around the world are looking for the United States to help defend them, I mean, if we get to a point where we can't do that, what good is that? So trade, economic security is national security. It's one of the guiding principles of President Trump and his administration. So we're just trying to get fairness here. Give fairness a chance here and work with us.
Looking forward to an update on Monday, sir. It's good to see you once again. Yes, sir. Thank you, Dr. Navarro, Director of the Office of Trade and Manufacturing Policy at the White House.
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Heading into the weekend, we can extend the conversation with Sarah Bianchi of Evercore ISI. Sarah, we've had positioning now for weeks ahead of these talks. Here they are. Who's got the leverage?
Well, look, at this point, look, I think China has a bit more leverage, but the reality is both sides would like these tariffs to come down from these levels that, as they all say, are basically an embargo. So I think both sides will be delighted to, you know,
just use even good mood music out of these talks to take things down to the escalate. So I do expect at some point next week we'll see these tariffs come down to the 60 percent range on the U.S. side. And I think I do think China will match in some way. Sarah, how are you thinking about this weekend? Is it talks about talks or do you really think that they are going to hash out some trade issues?
I think they're going to hash out minimal trade issues. As you know, the one thing we've been saying in all these countries is actual trade talks is hard and long. But this is not hard. This is trying to get down to something just manageable while they begin talks. So I think they will talk about rare earths. They will talk about some of these other issues, perhaps a few purchase agreements. But in general, everybody wants this to come down from these unsustainable levels and then
which, by the way, 60, 50 percent, still really, really high, then that can at least do a, you know, put us on a path for an actual discussion, an actual outline of what they're trying to achieve. To drop that rate, does the U.S. need to see a concession from Beijing? I don't
I don't think so. I think, look, they have to make sure it doesn't appear that it's just a purely unilateral walk away. But I think they can use the cover of a good conversation, a commitment on, you know, a small commitment on fentanyl. I think it can be largely symbolic.
or policies that perhaps are already in place pretty much. I don't think there's a lot here because, again, I think Beijing has a lot more patience and pain tolerance than the United States, but nobody's really happy with where we're at right now. Sarah, we're hearing from the president right now saying China should open up its market to the USA. It would be good for them. Closed markets don't work anymore. Sarah, you lived some of these negotiations with the Chinese before.
as the Deputy US Trade Representative in a previous administration. How difficult is it to get China to move to where the US would like it to be? What is it that they're refusing to open up, that we'd like to see them open up?
Well, I'm not sure that opening up is really kind of what, honestly, where the tensions really are, to be honest. Last time the president got China to agree to a bunch of purchase agreements, particularly around ag, I had the honor of trying to see if those were enforceable. There was not a lot. It was pretty clear that China wasn't going to do that. And so one of the challenges is not just what the agreement is, but does anybody actually ever agree?
listen to it. The truth is what China really wants from the U.S. is more access to some of our technology and chips. And that's why we always think this, quote, grand bargain is very, very difficult. We think the best you can do is sort of a package of trades and exchanges and maybe a little bit more market opening. But that's really not the core of the issue. Sarah, appreciate your time as always. Sarah Bianchi there at The Core.
With us around the table, Alicia Levine of BNY Wealth. Alicia, good morning. Good morning. You were following that conversation. You certainly didn't want to get ahead of negotiations this weekend. What's the best case? Monday morning, what are we waking up to? So, you know, at 6 a.m., the best case was a 50% or 60% tariff rate and 10% universal.
And then an hour later, it was 80% tariffs on China. The news changes quickly. Interestingly, the markets have been hanging in there. I mean, the futures actually have not reacted to that. And I think the message that the markets have learned
is that this is one grand negotiating strategy and there's good cop, bad cop in the administration. And it's very clear what the direction of travel is. And the direction of travel is lowering of the tariffs and getting to deals. I think it's also no accident that Dr. Navarro
was on today before the negotiations in Switzerland this weekend since he is seen to be the most hawkish when it comes to tariffs and particularly on China. So if this is part of a negotiating strategy, I think the markets have learned it's a negotiating strategy. So what do you
make of that? The idea that there's been sort of, I don't want to say benumbing of markets, but the response to headlines has been coming in again and again. Does that give you actually a sense of comfort? Oh, yes. I mean, look, what really happened, you know, so now April 9th was the 90-day pause, was the message to markets that we're moving the whole probability curve over to the right. And the worst-tailed scenario, that highest-risk-tailed scenario, is actually off the table. That's why the markets were able to rally and bounced off the lows.
That continues to be the case. And if you think about it just in terms of numbers, 'cause this business is all about numbers, the original tariffs of April 2nd were about 600 billion worth of tariffs, $600 billion.
which was basically a tax of 2% on the US economy. US economy is about $30 trillion of GDP. So 600 billion in tariffs was about 2% hit, which is why you had the odds of recession go straight up. Because if you think growth rates are about 2% and you put a 2% tax on it, you get to zero. Now with all the walkbacks, we're at about 400 billion in tariffs.
Okay, so we've walked back about one third of that. And I think ultimately we get to somewhere of about 200 billion in tariffs. Still very high, but it's not a 2% hit to the economy. And that's what the market's been pricing in the whole time. Earnings are probably higher for next year than that immediate base case in April 2nd. And at some point the markets are going to look to 2026. And by the summer, we're looking at 26 and not 25 anymore. And I think that's what's happening in the markets. Are we getting a weekend this weekend?
It doesn't feel like it, does it? Not in this business. I mean, look, we've all glued to our screens for a long time. So there's no weekend. There's the Sunday nights checking the futures. We're going to do that again. But I think the intensity of it, as I said, the markets have learned this is a negotiating. This is a negotiation with Dr. Navarro on to set the stake in the ground to commit the U.S. on negotiating strategy.
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Go to Talkspace.com slash military to get started today. That's Talkspace.com slash military. Dan Ives of Wedbush writing, we're seeing China tech waking up to the AI revolution with the U.S. China trade tensions abound. Dan joins us now for more alongside Alicia Levine of BNY. Dan, it's good to see you, sir. Great to be here. Big weekend of trade talks. Where does tech fit in to all of this?
Look, I think tech knows that they're walking back from the cliff in terms of what they're going to need to do, right? Because the reality is that that's the hearts and lungs of the supply chain. And I think what you've seen, the NVIDIA moment really essentially giving Huawei the China market, I think that was really, that was the start of this. I think it was the start of the administration recognizing they're going to have to pull back, pull back. And look, you can't argue with the data. How self-sufficient is Chinese tech?
Without us tech look they need us tech, but which is be as someone that spends so much time in China I mean if you if you put them in a room with a seltzer bottle Toothpick and you know in a straw they come out with an AI chip so the problem is is that You you don't want to put China in the situation that they're gonna have to ultimately innovate Because it's my view for the first time in 30 years us has been ahead of
when it comes to tech. So the last thing you want to do is cut US tech off at the knees. And I think now the administration is part of why we're seeing in the market, they've taken steps back and I think now we're at least getting to some sort of balance, but still look a lot of, you know, definitely a lot more wood to chop ahead. - They're rescinding the diffusion role under the Biden administration. So some of these geopolitical swing states are going to get more access to US chips. How does China take advantage of that?
I mean, look, China definitely is going to, from a market share perspective, go after. I think we've already seen in terms of Huawei and others what they're going after. But the reality is it's really the H20, right? Like once you restrict the H20 in terms of Nvidia, that sort of started this sort of Game of Thrones battle that we're seeing in China, definitely edging in terms of what I view as the AI revolution by...
I think front and center. But US continues to own the AI revolution. And I think the one thing as we go into Switzerland, you go into talks, the last thing you want to see here is administration just double down
Because if you do that and you don't lower the tension, you don't deescalate, it's U.S. tech that gets hurt. And right now, I think that's sort of the tenuous situation we're in, although much more positive than, call it, three, four weeks ago. And Alicia, it really points to what we've seen in the markets recently, which is as the tone has softened, we have seen a huge rip-roaring rally in tech. And everyone's been piling in. It's the AI stories back on. Let's go.
Is that going to be the leadership again? Or is this a tenuous rally in face of some of the uncertainties of how far some of these negotiating tactics can work? So the one good thing about uncertainty is that it creates a two-way market. And I think many investors see this as a great entry point. The multiples are much lower. The stocks have been crushed.
And ultimately, I think the narrative that US exceptionalism is over has been very strong and we saw this rush into global markets. And the question is today, I'm just going to point out that the S&P has outperformed developed international month to date. And there's a reason for that. And that's partly because the tech earnings
with the multiples and the cash flow, you can't get around it. And ultimately, as an investor, you're investing in future cash flows. And what we saw from these companies is that there's nobody else that can touch these companies. Yeah, and to your point, it was a Jalen Brunson moment for the tax space. Let's get the Knicks in.
And it was a jail in Brunswick. He's got 600 bucks. You've seen ultimately what happened here in terms of the AI revolution. Two flashpoints. Allow me to sort of detail a couple. Deep Seek's won. Okay, big upset. Beyond trade. Let's forget trade. Deep Seek's won.
The second one, I think this week, Apple coming out and saying search has peaked on Google. What was your reaction to that headline? That was a shot across the bow, right? I mean, just given what we're seeing even on the regulatory front, it's the last thing Alphabet needed to see. Look, I think Barksworth's in the bite there, and it's our view, like search queries, like where AI is not ending Alphabet's hearts and lungs in terms of their core money train. But it
It shows Apple when it comes to AI and building it out, they're going to have to do their own path and they're going to have to build some of that out. And you talk about deep seek to almost kind of put in a bow. Look, every big tech firm wants to be, they want to be at the seat of the table. No one's going to say, okay, hey, Apple, Google, you could be our AI or open AI. And I think that's the reality that we're seeing here. Alicia, just quickly, has the tech trade changed?
Is it different now? Do you have to play it differently? I think you do have to play it differently. I mean, it's no longer close your eyes and just throw the dart at the Magnificent Seven. I mean, there's clearly different growth rates here. But the power of the size of the companies, we think, is still going to actually drive the S&P here. So we think the American exceptionalism trade lives on.
And maybe in different ways, but look at industrials have been rallying. You know, aerospace defense has been rallying. Tech has been rallying. This is the base of the U.S. economy and the S&P. It does suggest also, I'll just say, that some of the conversation coming from the White House is finding its way back into the market in a positive way and not just putting a lid on things. Like we said weeks ago, the 4,800 low is in regardless of recession. It's a major change. Alicia Levine.
Dan Ives from New York. This is Bloomberg. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m. to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.
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