Bloomberg Surveillance TV: June 3, 2025 (Podcast)
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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 is someone with tons of context, both when it comes to strategy as well as when it comes to the economy in China, Leland Miller of the China Beige Book. Leland, great to see you. Thank you for being here. I want to start with this question of what is at stake in order to even get a phone call between Xi Jinping and Donald Trump, something that we've heard a couple times before but that, from what we understand, hasn't yet happened.

A phone call should be very easy, but I think the reality is that the Chinese side is very skeptical that the U.S. side will keep whatever commitments that it asks for and that it will convey exactly what it wants and that it will have a point person that will be able to have the authority to be able to make a deal for whatever the U.S. side wants. So a call is

call is easy. A meeting is easy. There's nothing that you really have to give away in order to do that. But I think that in Beijing right now, there's a worry that if they come to the table and President Xi looks bad, then this will be a net negative for the relationship and for China's leverage. So they're holding off on that until they think that they have a better hand. We'll see if it happens this week.

Leland, the renminbi is up 1.5% this year versus the dollar, yet it's fallen in each of the last three years. I had a number of friends in attendance at the JPMorgan Global China Summit last week, and they all came away with this bias toward a weaker dollar. Does that mean a weaker dollar relative to the yuan?

Well, the dollar and the yuan are tied very closely together. I mean, you know, we pretend like the yuan is a free-floating currency. It's not. It's pegged to the dollar. So if you have a weaker dollar, you're going to have pressure on the yuan to fall. But I think that China will want to keep it a little bit up.

relative to that because their bias is for a little bit of upside appreciation in a falling dollar world. So yeah, if you have reciprocal tariffs and the US-China relationship and all these other things weighing on the dollar and the dollar's falling, then the yuan will be pulled down a little bit, but they'll want to have a little bit of upward bias from it. So yeah, you should expect some mild, modest upward appreciation in a falling dollar world.

Leland, it was only a few years ago when multinationals claimed that they couldn't afford to pull out of China given the economy's size, its overall influence. What are your thoughts on China as an investment destination? From the perspective of a U.S. institutional investor, is China investable now?

Well, I think you made a nice distinction between institutional investors and those companies that are in there with hard assets and a presence throughout China. Very difficult to extricate themselves at that point. If you're an institutional investor and you're looking at China, then you have to be asking yourself, what edge do I have here? Am I just waiting for this ridiculous thesis of things have been down for 11 years, but

but now they're gonna bounce back in the stock market. Do you have an edge in a technology sector, but that's gonna be closed off by export controls or by tariffs in the near future? It's not impossible to trade in China, but it's getting very dangerous. And most of the people who have traditionally done this

have done this very lackadaisically. They look at Chinese data, they've got a DC consultant that tells them a little bit about China, and then they buy a bunch of Chinese tech companies. You can't do that anymore. So if you're still in China, then you better have a tremendous edge in terms of investing there. - Li Lin, the Chinese tenure rate is a mere 1.7%, near multi-decade lows. Is there any signal to take from that about underlying Chinese economic health, mostly as we consider the rest of the world where long-end yields are screaming higher?

Yeah, absolutely. There is a signal. If you look at our credit data, China Beige Book credit data, it's remarkable what's happening on the monetary easing side. We've seen rates continue to go down, down, down, down, down. And this is a time in which there's elevated inflation elsewhere. So what they're trying to do is, on the fiscal front, they're arming the cannons.

On the monetary side, they continue to cut rates. There's a downside to doing that because you're hitting the profitability of banks and you're hurting savers. But right now, they're just trying to keep the economy going during the early onset of these trade tensions, you know, trade war 2.0. So they're cutting rates, but it has a lot of detrimental effect downstream of the economy. How much fiscal firepower do you think that China has? There seems to be an assumption that China has a lot more room than

other countries around the world. Is that the case?

It is the case. What's interesting is that for several years, while every headline we'd see every day was China stimulus, promising stimulus, pledging stimulus, it was never happening in 2022, 23, 24. We got to the very end of 2024 and early 2025. We have a fiscal activity index that showed significant things were happening and a significant borrowing and bond issuance by transportation construction firms. So they were really getting ready for what might be a real downside scenario.

we've seen that ebb off a little bit. So we have not seen the blast of any type of cannon, but they are preparing in a way very differently than they did the last three years. This should have been expected. China does not want to do big stimulus, but at the end of the day, they're going to have to batten down the hatches of their economy if they get a larger trade tiff with the United States. Which is the reason why, Leland, and I think that all of us are trying to get at the ultimate question, which is who has the most leverage? Who's in the better position economically right now as the U.S. and China go head-to-head?

We got this data overnight that China's private factory gauge plunged the weakest going back to 2022. It went against some of the official data. Some people are saying it's messier, it's a smaller sample size. Do you think that China is hurting more or the U.S. is hurting more? Is it possible to even make that equation?

Well, look, first on the Caixin survey, I mean, we agree with the official data here. We're much, much bigger. We survey a lot more companies than Caixin does. And we actually saw an improvement in manufacturing activity. Not great. It's down from a year ago, but it's up from the lows that we've seen the last couple of months. So there's something there. There's a lot more resilience both in the consumption side, which is surprising, and the manufacturing side, which is not, in China right now. So I would take that away from the economic data.

So I think at this point, you know, look, we have to be watching the data closely, but also keeping in mind that China is looking a little bit more resilient than we thought going into the Geneva talks and beyond. Leland Miller of China Beige Book, thank you so much for your insights. Really helpful.

If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support. ♪

Meta signing a 20-year contract with Constellation Energy to buy power from an Illinois nuclear plant. More evidence of technology companies' appetite for energy to run data centers and AI as the promise of that technology potentially transforms the world we live in. PWC out with its 2025 AI Jobs Barometer, which shows a link between AI adoption and productivity growth. Matt Wood of PWC joins us now. And Matt, you're answering the questions that a lot of people have been asking.

Which is basically how many of us are going to lose our jobs and become irrelevant because of some of this new technology? Well, it's looking like right now, none of us. In fact, counterintuitively, the number of jobs and the wages associated to them are actually going up, not going down. So we looked at over a billion job postings globally from 24 different countries, and we found that for organizations, whether they were advanced in their AI use or early in their AI use, they had more job postings than they had before.

We found that the productivity of people working inside those organizations was up. We found that the revenue generation for those workers was 3x higher than it's ever been before. And that the wages associated with those workers were also going up.

And so it's a little counterintuitive to what maybe some other folks are seeing, but our barometer shows a very, very different picture. A really optimistic look for people who have the tools, have the capability of using artificial intelligence and machine learning to actually become more efficient, become more relevant at a time where Microsoft is cutting hundreds of jobs because a number of people currently in their roles can be replaced by artificial intelligence.

How messy could this transition be? Because even though there are some people who get paid more, be more productive and be more in demand if they have those skills, there are going to be even more people potentially who lag behind that and can't catch up quickly enough. Well, for sure, the way that we are going to work is going to change.

For those organizations that are furthest ahead on the AI journey, the skills are changing the fastest. This is a very humane problem. This is not a technical problem. This is a problem that we have to work through with all of our workers, with all of our staff.

And as leaders, we need to make really sure that we're investing to make sure that all of our workers in every industry have the access to the skills and the education and upskilling to be able to take advantage of this dramatic productivity gain. Matt, the courts, they just gave Donald Trump approval to take away half a million visas here in the U.S. What impact is that going to have on the AI sector?

Well, education is a remarkably vibrant place for AI to not just be used, but also to be created. AI is very, very, very early. And a lot of the research that we need to do to advance the state of the art is going to come out of those sorts of organizations, those sort of institutions. Super important that they remain funded and remain active.

Well, Matt, let's talk data centers for a second because we've got this big news in the market with Meta. I've seen some statistics that last year, for the full year 2024 here in the U.S., data center build-out accounted for roughly or more than 80% of the entire U.S. economy's capital expenditures for the full year. First, we had Microsoft scaling back its plans following DeepSeek. Now we have Meta buying or leasing a nuclear plant. Who are today's investors? Who are like

Who's going to provide the long-term takeout capital for these data centers after all is said and done here? Well, data centers are super interesting because they're not just data centers. It's actually more of a full vertically integrated stack of investment that covers just an entirely new ecosystem that is being built out across industries because of AI.

If you think of just the real estate that those data centers have to sit on, the energy infrastructure that has to surround those data centers, the data centers themselves with all of their disks and their GPUs and all of the infrastructure required to house and cool them, then you've got the large language models that sit inside that infrastructure. You've got the applications that sit on top of those large language models. There's a full ecosystem that bleeds from

real estate to energy to computer science to big tech, which just didn't exist before. And this blurring of industries into new ecosystems is happening around data centers because of AI. And I think we expect to see it across multiple different industries going forward. Given the massive investment we've seen from all these companies into AI infrastructure, how are you thinking about monetization? Mostly as you've seen competition pick up, what will the returns look like for all of this investment?

I think it's an interesting question. I don't personally see it as an investment that most organizations should be seeking a return from today.

AI is more like intellectual infrastructure for your organization. We don't look at internet access inside an organization and say, "Hey, what's the return on investment of my bandwidth?" Instead, you say, "Well, all of my work is done in a completely different way and in a much more efficient way and a much more productive way, three times more productive in the case of AI. What is the impact of not doing that?"

And so you see very, very few organizations today that don't enable broad, fast internet access to their organizations and to their teams. We'll see the same thing with AI.

most organizations will want for upskilling and retention and for hiring the very best people and keeping productive the people they've already got, they're going to want the most robust AI intellectual infrastructure inside their organization, similar to networking. How advanced have companies been in the U.S. at adapting to some of these new tools, given the fact that it is quickly evolving? The bigger have an advantage with respect to data, with respect to resources. How much is this really bifurcated?

the sphere from big to small companies? It's not so much big to small. It's actually, again, a little counterintuitive. So those organizations that we see moving the quickest are actually the regulated industries. So financial services, insurance, healthcare, manufacturing, those sorts of domains where the compliance with the regulations around that they've had to, uh,

live with for the past 20 years and maybe have felt like a bit of a headwind, particularly around data governance and data quality, those are all the things that you need to get right to be successful in artificial intelligence. And so whilst that headwind has been there, it's actually driven all the right investments for those organizations to be successful with artificial intelligence. And as a result, the AI piece is just a small incremental lift on top of that. And they're able to move much more quickly. Matt Wood of PwC, thank you so much for being with us. You're welcome.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support.

Republican Congressman Andy Barr of Kentucky voted in favor of the president's bill last month, and he joins us now. Congressman, thank you so much for being with us today. Good morning, Lisa. Good morning. So I want to start with asking about the deficit. And I'm watching that 30-year bond yield, as everyone in Washington, D.C., is.

Do you believe what President Trump said on his Truth Social post last night, that this doesn't add to the deficit, even though you have a whole host of different estimates saying that it will add $3 trillion to the deficit over the next 10 years? Well, Republicans are also watching the 30-year. We're watching the 10-year. We're watching instability in the bond market. We're looking at weakness in demand for treasuries.

But blaming the big beautiful bill for weakness in the treasury market or instability in the treasury market is like blaming the firefighter, the arsonist blaming the firefighter for the inferno.

We just went through four years of a drunken sailor spending spree by the Democrats that put us way behind the eight ball. Also COVID, and there was some bipartisan spending associated with COVID. But it's very rich for Democrats to accuse Republicans of fiscal irresponsibility when we just went through this spending binge that produced 40-year high inflation, 20% increase in prices.

Look, the bottom line is we know we have to achieve greater fiscal discipline. And frankly, we need some bipartisan work on mandatory spending reform. What we also need is economic growth. We will never balance the budget. We will never get our fiscal house in order without robust economic growth. I believe, as Kevin Hassett has argued,

that this legislation, this one big beautiful bill, could produce, along with the deregulatory project, along with more energy production in the United States, that we could achieve that 3 to 4% GDP growth.

That's the kind of dynamism that is not accounted for by the Congressional Budget Office and some of these static scores. So let's talk about that, why it's not being accounted for that in places like the Committee for a Responsible Federal Budget that expects us to increase the deficit and says it only cuts spending by 0.8% of GDP. Where are people not including growth that you see as being part of this bill?

Well, I mean, the CBO just doesn't. They were off a trillion dollars underestimating revenue reflow that came as a result of growth from the Tax Cuts and Jobs Act in 2017. The CBO has a terrible track record of not including the dynamic impacts of these tax cuts. And in this bill, not only does it make key features permanent...

providing that certainty and stability for private sector investors. But the business tax cuts are really the rocket fuel that are included in the bill. So a bonus depreciation for five years, pulling forward all that CapEx. There's a reason why the Atlanta Fed is projecting 4% GDP in the second quarter, because businesses and business optimism is increasing because of anticipation of R&D expectations.

interest deductibility, increasing the small business pass-through deduction from 20% to 23%, making that permanent. So these business tax cuts are really increasing business sentiment. And I think, again, pulling forward that investment that can really...

uh, allow this economy to take off. Congressman, you sit on the House Select Committee on the strategic competition between the U.S. and Chinese Communist Party. What is going on between President Xi and President Trump? Where are we with that relationship right now? I think President Trump is the first president, Republican or Democrat, in our lifetimes who has taken the threat from China seriously. Uh, under this president, no more unfair trade deals, no more Chinese fentanyl poisoning our people through the southern border.

and no more spy balloons coming across the continental United States. Deterrence, peace through strength, that is the idea. The big beautiful bill, to the extent we increase spending in there, there's more military modernization dedicated for the Western Pacific theater.

That's what we need. We need to win this competition. We need to be the best version of ourselves. We need to enhance, of course, our investment in defense, but we also have to be strong economically, and we have to grow. China has its problems. We have a debt problem, but we can produce growth by being free market capitalists. There is a question, though, in your quest to be free market capitalists of both getting revenue from rare

tariffs that have to do with continued trade, albeit with something of a tax, versus decoupling in its entirety. And what you see from a lot of the data right now is that trade is going down quite considerably, and exports from the U.S. are going down quite considerably. So how do you account for some of the revenue and the growth from some of these tariffs if you're also talking about potentially decoupling in certain key industries?

between some of the biggest economies out there. - Well, you know, I liked what Jamie Dimon said at the Reagan Economic Forum in California. - I'm being so stupid. - When he talked about strategic de-risking from China.

those national security sensitive industries, not complete decoupling on things like tennis shoes or basketball shoes or apparel or things that do not implicate national security. What I would say about in general, as a free trader, why I support President Trump's agenda,

is because of the enormous potential that this has to actually open up markets for American exporters. If we can open up India, for example, and reduce their protectionism and their trade barriers against our exporters, that is massive.

And if you think about it, from where we were on Liberation Day to now, we're back in basically a bull market with a correction embedded. Every trade deal that is inked from here on out is, again, jet fuel for the economy. We get the certainty of trade deals in place with more market access for American exporters, plus deregulation, plus the tax cuts. I do see 4% GDP. What do you think the Senate is going to do to change the bill that you would be okay with in terms of cutting salt tax deductions?

potentially adding back and potentially even increasing some of the CBO score for the deficits with respect to Medicaid. What are you going to be okay with? Well, look, we've got to get this done. I think we have to have an ability to compromise on some of these details, whether it's SALT, whether it's Medicaid.

I welcome fiscal hawks in the Senate saying, "Hey, we need to do more on the spending restraint side." So Ron Johnson, my colleague, Rand Paul from Kentucky, good for them for asking for a reduced size and scope of the federal bureaucracy. I like that. Let's codify some of the DOGE savings.

But at the end of the day, we have to get this done and deliver this. 77 million Americans voted for this pro-growth agenda. I think at the end of the day, we'll come together, we'll get it done. Congressman, thank you so much for being here. Great to be with you. Congressman Andy Barr here in New York.

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 6am to 9am 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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