Latest / Trumponomics / 46: Brexit Is Really All About China

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46: Brexit Is Really All About China · Trumponomics

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  Speaker 1: Bloomberg Benchmark is brought to you by Stage Summit, the
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  Speaker 1: know you had the young I asked you how that
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  Speaker 1: the weather was in New York. Thanks, hello, and welcome
• 0:33
  Speaker 1: back to the Bloomberg Benchmark Podcast. I'm Daniel Moss, Executive
• 0:38
  Speaker 1: editor for Global Economics of Bloomberg News. You no doubt
• 0:41
  Speaker 1: feel bombarded with news and opinions about breggsit, Britain's vote
• 0:45
  Speaker 1: to leave the European Union and why it matters. But
• 0:49
  Speaker 1: have you heard that disgruntled electors in the UK might
• 0:52
  Speaker 1: really have been voting to leave China. More on that
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  Speaker 1: in a minute. First, some introductions to two new coho
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  Speaker 1: Kate Smith, who is with me here in New York,
• 1:03
  Speaker 1: and Scott Lammon in Washington. Kate, one thing I want
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  Speaker 1: to share with our listeners is that, prior to joining
• 1:08
  Speaker 1: Bloomberg News, you actually covered murders in Baltimore. Yes, which
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  Speaker 1: makes me, of course uniquely and absolutely qualified to talk
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  Speaker 1: about the global economy, don't you think I think we'll
• 1:19
  Speaker 1: have to do an episode on the economics of inner
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  Speaker 1: city crime and Scott. You're an economics editor in d
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  Speaker 1: C and you spent three years in Beijing closely observing
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  Speaker 1: what's become the world's second largest economy from our office there.
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  Speaker 1: Welcome Dan. You know you had the young I asked
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  Speaker 1: you how that the weather was in New York. Thanks
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  Speaker 1: back to the UK. Now to expand on precisely why
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  Speaker 1: this may have been a vote to leave Beijing rather
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  Speaker 1: than Brussels, our guest is Mark Champion. Mark's a writer
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  Speaker 1: in our London bureau. He's been covering government in Europe
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  Speaker 1: and the Middle East for the better part of three decades. Mark,
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  Speaker 1: Thanks for joining us, and not at all thank you Dan. Now,
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  Speaker 1: China wasn't formally on the ballot, but in many ways
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  Speaker 1: wasn't the contest a referendum on the enormous changes to
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  Speaker 1: the world economic system that's resulted from China's rise. Well,
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  Speaker 1: I think that has to be right, even though I
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  Speaker 1: think few Brexit voters would articulated that way. Um, you
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  Speaker 1: know a lot more wood point at globalization, you know,
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  Speaker 1: all that unsettling change that helped to turn developed economies,
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  Speaker 1: especially the UK from manufacturers into service providers, and that
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  Speaker 1: caused a lot of you know, churn and turmoil for
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  Speaker 1: workers in these countries. And you know, globalization, of course,
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  Speaker 1: relies on a free movement of capital and of people.
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  Speaker 1: It's the kind of the flat world that the journalist
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  Speaker 1: Tom Freeman likes to talk about. And it's great for
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  Speaker 1: people who have globally competitive skills, so you know, people
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  Speaker 1: who design stuff and the law as the financiers, and
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  Speaker 1: those people tended to vote to stay in the EU.
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  Speaker 1: But it is not so great for those who lacked
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  Speaker 1: the skills to compete. And you know, these people, they
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  Speaker 1: won't meet Chinese workers, but they do meet globalization. It
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  Speaker 1: just takes the form of for them of inequality immigration,
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  Speaker 1: and it causes a lot of resentment. And that's all
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  Speaker 1: now bubbling over. You know, they blame their governments, they
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  Speaker 1: blame the EU, they blame these people and these institutions
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  Speaker 1: for just failing to protect them. Now, if you look
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  Speaker 1: at the economic changes that have taken place in China
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  Speaker 1: and the breakneck pace of growth that's happened since the
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  Speaker 1: late seventies when Done opened the place up, China has
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  Speaker 1: become emblematic of precisely what these people are rebelling against. Yes,
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  Speaker 1: it has. And you know, the other kind of interesting
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  Speaker 1: thing is that China has buy in here. You know
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  Speaker 1: what was kind of interesting in the international response to
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  Speaker 1: the Brexit campaign be for the vote in particular, but
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  Speaker 1: since too it was how you know, the Russian and
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  Speaker 1: Chinese responses were different. You know, Russia was just unable
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  Speaker 1: to hide its glee at the idea of a Brexit vote,
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  Speaker 1: of the EU becoming weaker and the transatlantic lines being weaker,
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  Speaker 1: saw it very much in terms of a zero some
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  Speaker 1: political game. But for Chinese leaders, they would just be
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  Speaker 1: mused and troubled as to why the UK would want
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  Speaker 1: to do such a thing. I mean, they have a
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  Speaker 1: big steak in rich consumer economies of the West buying
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  Speaker 1: their goods. They like the European Single Market, they like
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  Speaker 1: these trading institutions, and they're they're big stakeholders. That's because
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  Speaker 1: they're big stakeholders in globalization. And of course, you know
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  Speaker 1: the UK, I'm sorry, China is the second largest importer
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  Speaker 1: of goods into the UK, behind Germany, of course. I
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  Speaker 1: mean it's eight point seven percent of all of the
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  Speaker 1: UK's imports. That's that's not a small number. But I
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  Speaker 1: do find it funny that the what we're taught king
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  Speaker 1: about is the the average leave voter doesn't see the
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  Speaker 1: Chinese immigrant as a threat. You know, physically, they don't
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  Speaker 1: see them, but actually they might start to. I was
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  Speaker 1: looking at some immigration stats and at the turn of
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  Speaker 1: the millennius in two thousand, China was the eleventh largest
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  Speaker 1: immigrator into the UK and I was about ninety six
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  Speaker 1: thousand people a year. Well last year they actually jumped
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  Speaker 1: to the eighth largest and this is behind, you know,
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  Speaker 1: not all countries in the EU, and that was a
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  Speaker 1: hundred and ninety six thousands. So Dan, you know, you
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  Speaker 1: started this podcast by saying, you know, the average leave
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  Speaker 1: voter might not see the Chinese as you know, the
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  Speaker 1: threat to you know, that factory job that they lost
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  Speaker 1: in northern England that they can never have again, but
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  Speaker 1: they actually might start to, They might start to realize that.
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  Speaker 1: And Scott is China the world's largest export of danny
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  Speaker 1: and everything. Indeed they are, They're far larger, I think
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  Speaker 1: than the US at number two. It just feels like
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  Speaker 1: one of the dominant narratives economic narratives of the last
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  Speaker 1: several Dick Aids has been China's ability to attract manufacturing
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  Speaker 1: plants from Western companies, assemble the stuff there, and then
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  Speaker 1: export it to wherever. Sometimes it's component parts that are
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  Speaker 1: being exported for reassembly somewhere else. Now China is moving
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  Speaker 1: up the value chain and it certainly is not as
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  Speaker 1: cheap as it once was. But you know, again, it
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  Speaker 1: just seems like it's got to be at the core
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  Speaker 1: of any discussion we have about globalization. But we also
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  Speaker 1: can't forget all the benefits that it has for the
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  Speaker 1: average Chinese worker as well. I mean again, in two thousand,
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  Speaker 1: you had about five million households who you would kind
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  Speaker 1: of classify in that middle income band, and now just
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  Speaker 1: last year it was two hundred and twenty five million households.
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  Speaker 1: That is such it's such a large jump. So as
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  Speaker 1: we're you know, thinking about those workers, are whoa is me?
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  Speaker 1: I don't have my factory job anymore. Like, let's not
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  Speaker 1: forget the massive positive impact we've had on a just
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  Speaker 1: a miss group of people. What's interesting is that China
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  Speaker 1: is actually being subject to the same kind of globalization
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  Speaker 1: forces that have affected the Western world, the advanced economies
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  Speaker 1: US and UK. In the last several decades, you have
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  Speaker 1: cheaper countries like Vietnam, Malaysia, Indonesia, Bangladesh and so on,
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  Speaker 1: where large Western companies are actually moving production and that's
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  Speaker 1: why China is indeed having to move up to higher
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  Speaker 1: value goods. Now that's not disappearing anytime soon, but it
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  Speaker 1: is happening, which just shows you it's not a you know,
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  Speaker 1: a one way street that this is happening. But I
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  Speaker 1: actually wanted to ask another question to Mark that we're
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  Speaker 1: in the middle of this presidential campaign right now where
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  Speaker 1: this does happen every four years, But again, China is
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  Speaker 1: being demonized really by both Republicans and Democrats. What are
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  Speaker 1: the attitudes towards China on the ground In the UK?
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  Speaker 1: You have a government under David Cameron that tried to
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  Speaker 1: bend over backwards to please China win in investment after
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  Speaker 1: they had anchored Chinese leaders a few years ago with
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  Speaker 1: a visit from the Dali Lama. Is that going to
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  Speaker 1: change at all under Theresa May? Is there any of
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  Speaker 1: the anger that we have in the US over working
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  Speaker 1: folks jobs being taken away by China. Well, again, it's
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  Speaker 1: articulated differently, so I think there's a consensus that the
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  Speaker 1: UK would like to export more to China, and ironically,
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  Speaker 1: given all the blame on the EU, they'd like to
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  Speaker 1: be as successful as the Germans are in exporting to China.
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  Speaker 1: So I think there's support for David Cameron when he
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  Speaker 1: goes over to China and trying to talk up big
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  Speaker 1: trade deals and investment deals. Their support for that. But
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  Speaker 1: then in terms of broader trade deals you have the
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  Speaker 1: same hostility there that has developed to the idea of
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  Speaker 1: a transatlantic trade deal deal with the European Union that
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  Speaker 1: has developed in the US towards the Trans Pacific Partnership.
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  Speaker 1: So there are a lot of people upset about that
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  Speaker 1: in the UK, which has been a big driver. The
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  Speaker 1: government has been a big driver for that deal um
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  Speaker 1: and yet it is increasingly unpopular. And I think that's
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  Speaker 1: where you see the kind of hidden resentment of what
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  Speaker 1: you know China represents in terms of globalization. But it
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  Speaker 1: doesn't necessarily take the form of being upset with doing
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  Speaker 1: trade with China. People assume they're going to be importing
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  Speaker 1: Chinese goods. They know that they can't make the toys anymore,
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  Speaker 1: but they want to have a bigger export market in
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  Speaker 1: China Um. What they get upset about is that these
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  Speaker 1: large trade deals. We're going to take a quick break
• 9:42
  Speaker 1: and hear from our sponsor. Hold that thought. Mark will
• 9:45
  Speaker 1: be right back, Limberg. Benchmark is brought to you by
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  Speaker 1: You've spent the last couple of weeks traveling around the
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  Speaker 1: United Kingdom talking to people about Brexit. So what would
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  Speaker 1: an average Brexit voter in a one time industrial stronghold
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  Speaker 1: in northern England, sort of place that gave us the
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  Speaker 1: Industrial Revolution? What would they say to the idea that
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  Speaker 1: the EU actually isn't responsible for what it is that's
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  Speaker 1: bothering them. They're railing against the wrong target. If they
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  Speaker 1: are voting for Brexit, they've been persuaded that the EU
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  Speaker 1: is the culprit um and they probably wouldn't be very
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  Speaker 1: receptive to, you know, the argument, simply because the Remain
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  Speaker 1: campaign has been trying to persuade the otherwise for for
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  Speaker 1: some time and they rejected that argument. But you know,
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  Speaker 1: I think it is difficult for them. I mean, if
• 11:02
  Speaker 1: you put it a bit differently, the EU is really
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  Speaker 1: a symptom of the problem that they are upset with.
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  Speaker 1: You know, people are upset about it for for all
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  Speaker 1: kinds of different reasons, you know, issues of sovereignty or identity,
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  Speaker 1: even imperial nostalgia for some, but overwhelmingly it's about inequality
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  Speaker 1: and immigration. And the EU at route didn't cause those things,
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  Speaker 1: but it is very much involved in people's minds, and
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  Speaker 1: it is involved. So you can read the EU in
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  Speaker 1: fact as an attempt by you know, European nations to
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  Speaker 1: kind of bulk themselves up with a bigger market, a
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  Speaker 1: bigger currency, so that they can have a kind of
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  Speaker 1: stronger collective defense against globalization. If you just think about
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  Speaker 1: trade deals, you know, how do you how do you
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  Speaker 1: have weight across the negotiating table with the Chinese? Well,
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  Speaker 1: the best way to do that is to have you know,
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  Speaker 1: a really big market. Um same goes for anti dumping
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  Speaker 1: disputes and things. You know, market sizes might but then
• 12:00
  Speaker 1: you have people like the German finance minister Volkan Schoebler,
• 12:05
  Speaker 1: and he was just incredulous that the idea of the
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  Speaker 1: choice that the UK was making because you know, as
• 12:11
  Speaker 1: he said, you know, choosing splendid isolization, isolation is simply
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  Speaker 1: not smart in today's global economy. And that's what he
• 12:20
  Speaker 1: know by rejecting the EU, that's what he thinks and
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  Speaker 1: what most of you leaders think the UK is doing.
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  Speaker 1: But the real problem for the EU and making that argument,
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  Speaker 1: and which I think is actually a pretty good argument,
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  Speaker 1: but the real problem for the U s is doing
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  Speaker 1: a very bad job. You know, it's a strong argument
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  Speaker 1: for the Leave campaign. Was the point that the euro
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  Speaker 1: crisis that Greece, you know, high unemployment, massive youth unemployment
• 12:43
  Speaker 1: in Spain and Italy, um and and just to ask
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  Speaker 1: who needs that kind of help. It's interesting the way
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  Speaker 1: some of the historical timelines aligned here. You know, when
• 12:53
  Speaker 1: Britain had its first referendum on EU membership in it
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  Speaker 1: was an O O awhelmingly popular thing, something like sixty
• 13:03
  Speaker 1: seven mark voted in favor of membership. And yet it's
• 13:08
  Speaker 1: around that time some momentous changes were beginning to build
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  Speaker 1: in China. Now in s Maw was still alive, but
• 13:16
  Speaker 1: he was ailing, and within a couple of years of
• 13:19
  Speaker 1: his passing the following year Done had consolidated power and
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  Speaker 1: the economic history of the globe was never the same. Again, Scott,
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  Speaker 1: we just shows that globalization is not a zero sum game.
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  Speaker 1: You know that just because China has become a winner
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  Speaker 1: and it's it's lifted a lot of boats in China,
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  Speaker 1: it hasn't lifted everyone else in the rest of the world.
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  Speaker 1: And that's the predicament that a lot of countries are
• 13:46
  Speaker 1: finding themselves in. Since uh, you knows, as we know,
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  Speaker 1: the phenomenon of protesting through votes or however against anti
• 13:54
  Speaker 1: globalization forces is not against globalization forces, excuse me, is
• 13:59
  Speaker 1: not limited to the Brexit vote. So, I mean it
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  Speaker 1: sounds like from what we're saying is that the voters
• 14:03
  Speaker 1: in the UK had the right idea, but they hit
• 14:06
  Speaker 1: the wrong target. You know, China has so much worse
• 14:08
  Speaker 1: way over economic forces that shapes the lives of British
• 14:11
  Speaker 1: voters than the EU. Mark. Yes, in the sense that
• 14:15
  Speaker 1: I think that's right. That the big slogan, the powerful
• 14:18
  Speaker 1: slogan that you know, arguably really swung the vote for
• 14:23
  Speaker 1: the Leave campaign was you know, we want to take
• 14:25
  Speaker 1: back control. And I think that is the ultimate sense
• 14:29
  Speaker 1: that people have that they have somehow they have lost control,
• 14:33
  Speaker 1: lost control of their borders, lost control of economic policy.
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  Speaker 1: The global capital markets are just so large that, you know,
• 14:41
  Speaker 1: governments don't really have the power anymore to make the
• 14:44
  Speaker 1: decisions that people would like them to be making in
• 14:47
  Speaker 1: order to protect them. And so this was a kind
• 14:49
  Speaker 1: of a cry of enough. And you know, whenever you
• 14:52
  Speaker 1: call a referendum, people intend to vote about anything but
• 14:57
  Speaker 1: the question on the ballot. And I think you could
• 15:00
  Speaker 1: argue that that has happened here again, that the EU
• 15:03
  Speaker 1: was just unfortunate enough to be on the ballot. But
• 15:06
  Speaker 1: if you had a call to referendum on anything that
• 15:09
  Speaker 1: asked people to answer the question are you happy with
• 15:13
  Speaker 1: the way that things are now? The answer would have
• 15:15
  Speaker 1: been known. So if you make the argument that China
• 15:19
  Speaker 1: has really been the driving force and changes in the
• 15:22
  Speaker 1: global economy in the past several decades, then by extension,
• 15:28
  Speaker 1: globalization will ultimately survive breggsit if the EU was a
• 15:33
  Speaker 1: symptom rather than a cause. So this would just be
• 15:36
  Speaker 1: a glancing blow in a long war. Actually, I think
• 15:40
  Speaker 1: that if you look at the on the ground in China,
• 15:44
  Speaker 1: the evidence of globalization is all around you, and there's
• 15:48
  Speaker 1: a fascination in China with British culture, for example, that
• 15:52
  Speaker 1: there's a housing development on the outskirts of Shanghai that
• 15:55
  Speaker 1: looks like an English town with red telephone booths. Downtonn
• 16:00
  Speaker 1: be is hugely popular. I lived down the street from
• 16:03
  Speaker 1: a Bentley dealership there. Marks and Spencer, the iconic British
• 16:08
  Speaker 1: department store, has locations in Shanghai and Beijing, as well
• 16:12
  Speaker 1: as three other second tier cities in China. There's tourism
• 16:16
  Speaker 1: ads in the subway for visiting the UK. Just those
• 16:20
  Speaker 1: kinds of ties signal to me at least that this
• 16:24
  Speaker 1: is not a passing fat and that Brexit, you know,
• 16:27
  Speaker 1: it might affect one area of relations, but it's not
• 16:31
  Speaker 1: going to undermine the global tide. Mark. What are your
• 16:35
  Speaker 1: thoughts on that? Well, I think that's generally right, and
• 16:38
  Speaker 1: you know, optimistically, I very much hope that that's right.
• 16:42
  Speaker 1: But I think that one lesson of Brexit that we
• 16:45
  Speaker 1: should all take to heart is that you ignore politics
• 16:49
  Speaker 1: and the politics of emotion at your peril. It surprises you. Nobody,
• 16:54
  Speaker 1: including the Leave campaign, expected for the Brexit vote to win,
• 16:59
  Speaker 1: and everyone was surprised because they assume that people would
• 17:04
  Speaker 1: vote in their own economic interests. Instead, they have conducted
• 17:07
  Speaker 1: a vote which in all probability is in it will
• 17:12
  Speaker 1: do them harm. Um And this isn't the first time
• 17:15
  Speaker 1: that we've been through this, you know, there have been
• 17:18
  Speaker 1: ages of globalization before, you know, the period before World
• 17:21
  Speaker 1: War One was a high high watermark of globalization too.
• 17:26
  Speaker 1: But politics can intervene and in you know, you you
• 17:30
  Speaker 1: could argue that we are kind of in the middle
• 17:33
  Speaker 1: of a sort of modern revolution, you know, where and
• 17:37
  Speaker 1: all the old order is being changed, and assumptions are
• 17:39
  Speaker 1: being over termed, regimes are being changed, are populist parties
• 17:44
  Speaker 1: arising all over Europe? Centrist parties that have had you
• 17:49
  Speaker 1: been around for a hundred years are you know, almost disappearing.
• 17:53
  Speaker 1: And nobody, like with all revolutions, you know, nobody really
• 17:56
  Speaker 1: has the slightest idea how it will turn out. You
• 17:59
  Speaker 1: can be pretty sure they won't turn out the way
• 18:02
  Speaker 1: that you know, the people making these votes I think
• 18:05
  Speaker 1: it will. The only good thing about it all is
• 18:08
  Speaker 1: that it's happening nowadays, you know, in referendums and and
• 18:11
  Speaker 1: elections and not not violence. Well Mark, we can't thank
• 18:16
  Speaker 1: you enough for adding this perspective for us. We'll follow
• 18:19
  Speaker 1: your reporting around the UK with great interest. They so, Kate,
• 18:25
  Speaker 1: have you heard enough to come back next week? Yeah?
• 18:27
  Speaker 1: I think I think I'll come back. I think I'll
• 18:29
  Speaker 1: come back. Do you think we should let Scott make definitely?
• 18:32
  Speaker 1: Wait wait wait, I heard that. I heard that Scot
• 18:35
  Speaker 1: on the line. You know I can I can speak
• 18:38
  Speaker 1: English too, not just changing. As for Benchmark, we'll be
• 18:42
  Speaker 1: back next week and until then, you can find us
• 18:44
  Speaker 1: on the Bloomberg terminal and Bloomberg dot com, as well
• 18:48
  Speaker 1: as on iTunes, pocket Cast, and Stitcher. While you're there,
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  Speaker 1: take a minute to rate and review the show so
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  Speaker 1: you thought of the show. You can talk to us
• 18:58
  Speaker 1: and follow us on Twitter. You can Scott at Scott Landman.
• 19:01
  Speaker 1: You can find me at by Kate Smith. You can
• 19:03
  Speaker 1: find Dan at Daniel Moss d C. It's like jan Bloomberg.
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