Bank of Korea Cuts Key Rate as Trump Tariffs Loom
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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. On today's episode, we'll be looking at today's rate cut from the Bank of Korea, plus those persistent threats of planned tariffs and the potential for end of war in Ukraine. Coming up, we'll hear from Rebecca Walzer. She is president at Walzer Wealth Management. But we begin in Hong Kong.

Joining me now is Katya Dmitrieva. She is Asia economy reporter for Bloomberg News, joining us from our bureau in Hong Kong. It's always a pleasure to chat with you. I want to get your reaction to this Bank of Korea rate cut, 25 basis points. That was pretty much expected, was it not?

Yeah, it was. You know, all economists surveyed, well, almost all, all but one surveyed saw that the central bank would cut by a quarter point today. And it's really all about the economy. So activity has been weak. The outlook is looking increasingly uncertain.

They also, I should note, revised down their growth forecast for this year to 1.5. That's after already revising it down late last year. And there's kind of a number of reasons. You can kind of call it this perfect storm internally. So domestically, they're having political instability. Of course, we currently have the president, who's also the finance minister, that's sort of coming to a close in the coming months with the

pending trial, but it's not really helping investors or consumers or businesses when they're thinking about purchasing things or investing. So business confidence is down. Consumer confidence, that's down to levels previously seen during the pandemic. And of course, hanging over everything is President Donald Trump and the

trade policies and tariffs that are soon to be coming in. So when we're looking at tariffs for South Korea, are there specific industries that we need to be really alert to being most impacted? I mean, I'm thinking of semiconductors. I'm also thinking of steel. Yeah, semiconductors, steel autos is another one that Trump specifically mentioned, pharmaceuticals. And the thing is, it's not just about roads.

what the country makes itself. It's also all of the supply chains that cut through South Korea. So they could be made elsewhere, but things get added and finished in South Korea or vice versa. They're made in South Korea. Things get added elsewhere before they're shipped out.

And so this is a main sort of the major threat for the economy. And I'm still looking through the report. I think central bankers and revising down their growth outlook, at least at the end of last year, said that this was exactly one of the factors they pointed to sort of geopolitical forces, which is.

code for Trump and Trump, China and sort of the ongoing risks there, as well as, you know, some other geopolitical conflicts. So trade is trade is a big one. What is the inflation story right now in South Korea?

Inflation has been broadly contained. And in fact, it's probably going to drift down a bit in the coming months as activity cools down. Now, the one thing that I should point out that central bankers have been keen to point out is the currency and sort of the risk that if you cut

too quickly because you would look at the central bank and you'd say, okay, if activity is this slow, why don't you just cut more? But the risk is, of course, the currency. It was one of the worst performers last year. It's strengthened somewhat in the first couple of weeks of this year through today. But of course, they're going to be very, central bank officials are going to be very cautious on that because if you cut rates, if the currency weakens too much,

your prices are going to go to or the cost of imports are quite inflationary because the demand for Korean goods goes up and so

that creates this inflationary pressure that central bankers are very worried about. And so that's why the outlook, I think, so far, at least, you know, the average among economists is three cuts total for this year. So can we pivot now and talk a little bit about trade policy from the U.S. and how this may impact China so we can leave South Korea and talk about what's happening in Beijing? Because it was over the weekend that President Trump, through an executive order,

directed the Committee on Foreign Investment in the U.S. to limit Chinese spending on technology and some other strategic U.S. sectors. And I'm going to imagine that this didn't go over very well in Beijing. Are we at risk of a lot more tension in terms of what is happening from Washington and how it may impact Beijing?

Yeah, and I think that's to be expected and also the impact more broadly in the region. So we had emerging stocks, emerging market stocks plunging today or plunging to start the week as these latest executive orders came in. There's also a growing sense that

This is much more serious this time. You know, we thought about the 2018-2019 trade war that was pretty much targeted at China. This time, there are a lot of different tariffs flying around that could hit China both directly and indirectly. We also know that Trump is focused on things like

like transshipments or goods that might be made by Chinese companies in other countries or goods that are made in other countries that are stamped as from that country as opposed to from China. In other words, it's sort of a broader, he wants to contain China in a more broad way. So I think we should expect

these tensions only to continue. Do you think the story on DeepSeek is a part of this narrative at all? Has it certainly shown a very bright light on what China is capable of doing in areas of artificial intelligence?

Well, it's certainly something that Trump would be focused on. You know, one of his measures of success is the stock market. And when we had the news on DeepSeek, this relatively new technology that was much cheaper, that didn't require as many resources, you saw the U.S. stock market, particularly tech stocks, reacting immediately immediately.

And so that you have to imagine that that has Trump very concerned and hence his plans to curb Chinese spending on tech, energy and these other these other strategic sectors. What are things like on the mainland right now? How is the economy performing?

Yeah, things are pretty much where we left off at the end of last year. And by that, I mean, there's this sort of dual economic growth happening, right? So you have an over-reliance on exports and industrial production. And then you have the consumer side and spending that's quite a bit low. And we've seen that reflected in data so far this year with

investment from China elsewhere falling with investment into China falling. So things aren't looking like they're improving too much, but officials do think that they can make the same pace of growth

as in 2024, in 2025. So they've set this target about 5% growth. They're likely to try to meet that in all ways possible. You're just talking about deep seek and the technology sector is certainly one where they might be kind of where officials might be pivoting to, you know, of course, we saw President Xi meeting with a lot of tech executives

soon after that news came out. So it's sort of this showing, officials might be showing or indicating that they're going to be pivoting towards more support of this sector and perhaps pulling back a little bit

from over-reliance on exports because it'll just be that much harder this year with Trump. Katya, we'll leave it there. Thank you so much for joining us. Katya Dmitrieva, she is Asia Economy Reporter for Bloomberg News, joining us from our bureau in Hong Kong here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. The U.S. equity market faltered a bit today. That was after President Trump said he is expecting tariffs planned for Canada and Mexico to go ahead in early March. Now, these levies, you may recall, were initially delayed by one month. That is a way of giving Canada and Mexico some more time to address the president's concerns about

over border security. Joining me now is Rebecca Walzer. She is president at Walzer Wealth Management, joining us from Florida. Good of you to make time to chat with us. It seemed like the market was holding up reasonably well until the news on the tariffs broke. What is your sense of the risk right now for equities if, in fact, the U.S. were to impose new tariffs on Canada and Mexico?

Well, certainly, Doug, it's more volatility, right? Uncertainty breeds volatility. The markets don't like uncertainty. And this is something that I think maybe wasn't quite being expected. If you look at a statement out of Melanie Jolly, who is a Canadian finance minister, she basically said that the U.S. This is a very interesting sentiment. She said the U.S. is a net importer. Like, we basically are importing more guns, more fentanyl, and more migrants to Canada than they are to us.

And so she said that that would be something that would need to be looked at quite extensively if these tariffs do in fact go in force. I think that there was a general sentiment, Doug, that since Trump was so willing to delay it just by a month,

to get control of the border and sort of get control of this fentanyl slash migrant issue, that there might be some ability to continue to work through that. And the fact that today when he was with Macron from France, it was so very clear that they were on track to continue to go into effect next month, that it was it was quite a reverberation through the markets. Yeah. Next week, more like it, right?

I'm wondering whether or not you're hopeful that maybe we can get some type of negotiation working here to avoid the worst case scenario. I mean, the thing is, is there's negotiations on so many fronts, right? We have not only the Mexico-Canadian situation, but then we also have him talking about a lot of things in March. March 12th, we've got the steel and aluminum one that's supposed to go into effect 25%. We already have the 10% Chinese one. And then he's obviously talking about a lot of

of the media refers to as retaliatory. But of course, Trump talks about reciprocal and that if there is a country and this would be countrywide, specifically looking at Brazil and India directly, but countries that are putting tariffs on their imports into us that we don't like. Likewise, I like me or tariff goods that we're exporting to them, that we would reciprocate tariffs so that in his world it would be a more balanced country to country situation.

uh... trading environment so there's actually a lot that is happening quite quickly and it's it's going to create a lot of volatility dot that is what it's going to be in the short term a lot of volatility we talk a little bit about artificial intelligence we had this report today from an analyst at t_d_ cowan saying that microsoft is canceled some leases

for its U.S. data center capacity, and I think that raised a lot of worry over whether or not Microsoft is securing more AI computing capacity than it needs in the longer term. And obviously, Wednesday, after the bell, we have the numbers from NVIDIA. How are you feeling about the AI trade overall?

Yeah, this is a different space right now than where we were the last, I would say, 36 months. And that is obviously related to the DeepSeek situation. Because you had NVIDIA come out, the CEO come out and say that that functionality that DeepSeek obtained was through legal chips. In other words, it wasn't these advanced, super expensive chips that are banned and are not allowed to be exported.

But they were with some lower level chips that were legal and they were able to. Not everyone believes that the obviously the IP was was stolen as is China's M.O. But does it matter if what the end result doesn't matter if the end result is that we can get much cheaper AI development on lower level chips, much reduced costing chip?

then that does have a huge implication for the research and development that is happening by all of our Mag7 into AI and into the AI frontier. And so what we really need to do is really figure out what is this technology that they have reduced these lower-grade chips to, because if, in fact, that is true,

come to fruition, Doug, then why would we have as big of an R&D spend? It's really, I don't want to say it this way, but it's a CTJ moment for the AI space of what does it really take? How much money does it really take? And it will impact the Mag7 R&D investment accordingly.

And today we had news that Apple is going to produce some AI servers here in the U.S., spending about $500 billion domestically over the next four years. And I was just dumbfounded by the fact that Apple is going to hire 20,000 new workers to this end. Is Apple one of the ways that you want to maybe play the AI trade here?

Yeah, I think that this is in part, obviously not totally, but this is definitely in part with Trump's very strong stance against China and really talking about going after. I know right now he's focused on tariffs, but he has been a very, very staunch defender of the dominancy of the U.S. dollar. And

very much wants to go after China for IP problems. And I think Apple is already so embedded with their phone production in the Chinese world that maybe they're seeing a different light for the development of the AI space and data centers outside of and apart from China, especially if we do see Trump really go after

um the ip intellectual property theft that we know that exists on an ongoing basis and the production you know in in intellectual property as well as tech um actual hardware out of china so let's talk about another aspect of geopolitics today marks three years since russia invaded ukraine

And Ukraine today saying it's in the final stages of talks with the U.S. over a deal to give Washington a cut of Ukraine's natural resources. Does that surprise you at all?

I think what's more surprising is how this administration has already been able to convince the U.N. to sort of change its policy or its directive on the fact that Russia instigated the war. I mean, this is phenomenal movement here that we've seen, Doug. I mean, obviously, you know, the invasion happening,

I call it the invasion, but going back to March of 2022 and that being the world's understanding of how that started and Trump being in office less than not even five weeks and already getting the UN to change that stance and even going against some of our Western allies who don't agree with that.

So there is definitely something afoot, which is a weird way to say it, but there's definitely something going on between the semantics between the Ukraine-Russia-U.S. relationship. And I do believe that Zelensky feels that he doesn't have nearly the ally in Trump that he had in Biden and that he's going to have to play a little bit of a different role than

He really is starting to get a little bit out of, you know, steam, out of blocks to play, if you will. So, Rebecca, how are you feeling, generally speaking, about U.S. economic growth these days?

I mean, I think that it's really kind of a tale of two worlds in two ways. The first thing is, is that when the Trump election happened, you saw the global world really think, OK, this is great. We and all of the, you know, M&A activity, hedge funds, everyone excited, investment banks excited. We're going to see a lot more M&A activity, a lot of more deals globally and all of these things. And there's a lot of

enthusiasm both the CEO and the CFO survey show that yes that 60 percent plus were very positive to the upside under the new incoming Trump administration when you look now at what's happening and looking kinda beneath the sheets you're seeing in America alone you know less than just over 10 percent of our economy

me is spending just under all 50 percent of all consumption so we really are now seeing truly a truly bifurcated economy we have retail sales dropping in January we consumer sentiment dropping from December to January we have CPI and PPI ticking back up and being sticky again showing that inflation once again is going to rear its ugly head and be a problem not only for Trump but for Powell to navigate so you have all of those things happening and then

On top of that, you have the protectionist tariff policies, which I'm not saying I'm for or against. I'm just letting the markets know they are disruptive. And anytime you have disruption, you get volatility. Anytime you get volatility, you're going to have to time the market just right or you're going to have to go for the long value plays.

and not try to get the price action that you might have otherwise tried to get on the upside. So all around, it's disruptive, it's volatile, and we need to give this probably a good three months out to really have an understanding of where we're going to be with this administration over these next 12 months. It's always a pleasure to talk with you. Thank you, Rebecca. Rebecca Walzer there, president of Walzer Wealth Management, joining from 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. ♪

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