Latest / Bloomberg Intelligence / We’re Fighting the Trade Wars of the 70s & 80s: IIF’s Tim Adams

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We’re Fighting the Trade Wars of the 70s & 80s: IIF’s Tim Adams · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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• 0:33
  Speaker 1: Trade tariffs, China the United States, let's find out more
• 0:37
  Speaker 1: from Timothy tim Adams. He is the President chief Executive
• 0:41
  Speaker 1: of the Institute of International Finance based in Washington. Tim Adams,
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  Speaker 1: thank you very much for being here. Just to give
• 0:48
  Speaker 1: a little background, former Treasury official and do you have
• 0:52
  Speaker 1: served as the under Secretary Treasury for International Affairs, which
• 0:56
  Speaker 1: means you know everything about exchange rate policy, seven meetings,
• 1:01
  Speaker 1: the i m F, and the World Bank. So put
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  Speaker 1: it to work for us here and tell us about
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  Speaker 1: the rise of trade tensions between the United States and
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  Speaker 1: seemingly the rest of the world. Well, first of all,
• 1:13
  Speaker 1: thank you very much for having me on today, and
• 1:15
  Speaker 1: happy Friday to you. What these topics are a gift
• 1:17
  Speaker 1: that keeps giving, and especially with the President's tweet today. Look,
• 1:21
  Speaker 1: I've been spending the last three or four months traveling
• 1:24
  Speaker 1: the globe. I've lost track of the number of countries
• 1:26
  Speaker 1: I've visited. And the overall macro conditions are actually really
• 1:29
  Speaker 1: quite good. The order books are filling up and demand
• 1:32
  Speaker 1: is strong, and labor markets are tight. But everywhere I
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  Speaker 1: have traveled, there is this sense of unease with respect
• 1:38
  Speaker 1: to trading regimes and trade policy and administration's perspective on trade.
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  Speaker 1: So there's a lot of caution out there, and I think,
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  Speaker 1: unfortunately it can begin to seep into corporate board rooms
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  Speaker 1: and potentially damage market confidence. We're not there yet, but
• 1:51
  Speaker 1: potentially down the road we could get there. So Tim,
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  Speaker 1: I just want to take a step back because one
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  Speaker 1: thing that I'm struck by, as we talk about President
• 1:59
  Speaker 1: Trump's threats of putting tariffs on goods coming into the
• 2:03
  Speaker 1: country from from elsewhere, I'm struck by the fact we
• 2:06
  Speaker 1: don't talk a lot about the existing tariffs that are
• 2:09
  Speaker 1: currently in place. Can you put into perspective US tariffs
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  Speaker 1: versus the rest of the world, given President Trump's rhetoric
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  Speaker 1: saying that we really have been subject to unfair trade
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  Speaker 1: practices for a long time, Well, it really varies by
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  Speaker 1: sector and it's a patchwork quilt of tariff structure. By
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  Speaker 1: and large, the U S has at incredibly low levels,
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  Speaker 1: about two and a half percentage points on average of
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  Speaker 1: tariffs on imports, whereas other countries a little bit higher.
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  Speaker 1: But it really very sector by sector. As you know,
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  Speaker 1: we have tariff on imported trucks, so whether it's foreign
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  Speaker 1: products or industrial products, that very really varies. But you know,
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  Speaker 1: over the last forty years, we have been very active
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  Speaker 1: through a series of bilateral multilateral realms of lowering our
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  Speaker 1: tariffs and actually that has benefited the U S economy
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  Speaker 1: and it most certainly benefited the U S. Consumer. Alright,
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  Speaker 1: So what I'm trying to figure out is for the
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  Speaker 1: country is that have imposed tariffs, Um, what is the benefit?
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  Speaker 1: In other words, what what can we expect the effect?
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  Speaker 1: I know that people are saying slow the economy, but
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  Speaker 1: is there any beneficial effect from imposing tariffs? Well, if
• 3:16
  Speaker 1: if you believe in an import substitution, or if you
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  Speaker 1: think that you want to try to pull back supply
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  Speaker 1: chains back to the US UH, if that's your objective,
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  Speaker 1: then you can use tariffs as a way to de
• 3:27
  Speaker 1: store prices and and and redirect trade back to the US.
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  Speaker 1: But you know, in some ways we're fighting the wars
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  Speaker 1: of of the seventies and eighties. Uh. You know, these
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  Speaker 1: economy is predominantly a services based economy, and we run
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  Speaker 1: a surplus in services, and we run a surplus in
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  Speaker 1: services with with the Chinese. Actually, so in some ways
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  Speaker 1: we're focused on a very small percentage of the of
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  Speaker 1: the U. S. Economy, and we're focused almost obsessively so
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  Speaker 1: on on trade imbalances, when in fact it's just a
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  Speaker 1: small part of the overall story of the U. S. Economy.
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  Speaker 1: Can you speak specifically about the United States in its
• 4:00
  Speaker 1: relationship with China? And who do you believe if anyone
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  Speaker 1: has the upper hand and these trade negotiations, Sure, what
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  Speaker 1: it's strained right now, and and you know there have
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  Speaker 1: been occasions over there are a long history of China
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  Speaker 1: where they have become strained. I think the Chinese, and
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  Speaker 1: I was just in Beijing two weeks ago. I think
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  Speaker 1: they're looking for some signals from Washington as to what
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  Speaker 1: it is this administration actually wants from them, and they
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  Speaker 1: get a lot of mixed signals depending on who they
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  Speaker 1: talked to. I think they're looking for a way to
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  Speaker 1: to get an exit strategy from where we are to
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  Speaker 1: avoid these huge parist president talking about huge numbers today.
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  Speaker 1: I think they're just looking for signals, and it's not
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  Speaker 1: clear what the current administration wants from them, but I
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  Speaker 1: think they're willing to come to the table. You know, Tim,
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  Speaker 1: I was struck by President Trump's tweet this morning about
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  Speaker 1: the dollar and about accusing China and your opinionion of
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  Speaker 1: currency manipulation. We had Blood Setser of the Council on
• 4:50
  Speaker 1: Foreign Relations on the radio show a couple of weeks ago,
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  Speaker 1: and he was saying, you know, pretty much every economist
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  Speaker 1: out there doesn't think that trade imbalances, uh hand, your
• 5:00
  Speaker 1: be affected by tariffs. What they'll be affected by is
• 5:03
  Speaker 1: exchange rates and interest rate policies. Um, I'm just wondering,
• 5:07
  Speaker 1: you know, how much do you expect President Trump to
• 5:09
  Speaker 1: kind of home in on weakening the dollar to sort
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  Speaker 1: of offset the effects that we've seen so far. Yeah?
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  Speaker 1: I think I think absolutely right, and most economists not
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  Speaker 1: would agree that imbalances external and balances surplus or death
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  Speaker 1: or our function of macro policy. Right now, we're running
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  Speaker 1: incredibly uh supportive accommodative fiscal monetary policy, and that spills
• 5:34
  Speaker 1: over into the external sector. Tariffs on a macro basis
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  Speaker 1: won't have much effect in the short term. It sort
• 5:40
  Speaker 1: of moves trade around. It will certainly raise prices for
• 5:43
  Speaker 1: consumers and and inputs for goods here. But ultimately, at
• 5:48
  Speaker 1: the end of the day, if we're running an incredibly
• 5:50
  Speaker 1: hot economy and we are, then interest rates are going
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  Speaker 1: to rise, as we've heard from j PL, and that
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  Speaker 1: affects the value of the dollar and and external balances.
• 5:58
  Speaker 1: Let's shift your attention just for a moment. I want
• 6:00
  Speaker 1: to get your thoughts on what is going on with
• 6:03
  Speaker 1: Brexit and do you believe that there will be a
• 6:05
  Speaker 1: bank exodus from London. I don't think there's a bank exodus,
• 6:10
  Speaker 1: but I think more and more effect. I was just
• 6:11
  Speaker 1: in the phone with a banker just ten minutes ago
• 6:15
  Speaker 1: who was worried about are we really just going to
• 6:17
  Speaker 1: stumble into a heart Brexit? And I watch it every
• 6:19
  Speaker 1: day and I get downloads of input from from London
• 6:23
  Speaker 1: from our office there, and I must say it's uh.
• 6:26
  Speaker 1: Being whip solid from day to day is a bit tiring.
• 6:30
  Speaker 1: But I've grown really concerned that we're that we're going
• 6:32
  Speaker 1: to run out of time and we're going to stumble
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  Speaker 1: into what would be a hard Brexit, and that would
• 6:37
  Speaker 1: potentially be really damaging to the to London is the
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  Speaker 1: city and the UK economy. But you know, it's hard
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  Speaker 1: to dismantle and disrupt what has been a financial center
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  Speaker 1: for hundreds of years. So I think London remains an
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  Speaker 1: important financial center, but they could do some damage, you know,
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  Speaker 1: tim to tie all of this up together. I mean,
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  Speaker 1: what we're seeing is sort of a repudiation of the
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  Speaker 1: world order where you have a wish towards more freely
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  Speaker 1: flowing trade and cooperation with the major powers. And I'm wondering,
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  Speaker 1: given your decades of experience with trade policy, where do
• 7:10
  Speaker 1: you think this goes well? One would argue of the
• 7:15
  Speaker 1: administration with the re boid. Else would probably argue that
• 7:18
  Speaker 1: they're simply using these tools and access to market to
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  Speaker 1: actually open up other markets that they actually believe in
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  Speaker 1: in trade, but they wanted to occur on a fair basis,
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  Speaker 1: and who can be against fairness. We're all for that.
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  Speaker 1: My concern is that there's potential for miscalculation that that
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  Speaker 1: we end up with a protracted period of trade wars
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  Speaker 1: or trade skirmishes that actually ultimately impact negatively, trade flows,
• 7:41
  Speaker 1: capital flows, investment flows, market sentiment, consumer sentiment, and sentiment
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  Speaker 1: of the boardroom, and we screw up what is really
• 7:48
  Speaker 1: a really great U S economy. And I hope that
• 7:51
  Speaker 1: doesn't happen. Tim, want to just quickly get your thoughts
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  Speaker 1: on the competitors to traditional banks and finance companies coming
• 8:00
  Speaker 1: from companies such as Ali Pay, Amazon and Apple. Is
• 8:04
  Speaker 1: the financial industry ready, We're getting ready. We've been We've
• 8:09
  Speaker 1: been putting up boarding sides for four years now that
• 8:12
  Speaker 1: huge internet platform companies, especially based in China, pose a
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  Speaker 1: serious risks to all incumbent financial institutions. They are financial
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  Speaker 1: intermediaries and financial runs the largest money market fund in
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  Speaker 1: the world. They provide insurance products and wealth products and
• 8:27
  Speaker 1: financial intermediation. And yet they say it's a very different
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  Speaker 1: rule book and we're just asking for a level playing
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  Speaker 1: field of quotes the President, Tim Adams, thank you so
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  Speaker 1: much for being with us. To Adams as President, chief
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  Speaker 1: executive Officer of the Institute for International Finance based in Washington,
• 8:42
  Speaker 1: d c UH. He's the former Under Secretary of Treasury
• 8:45
  Speaker 1: for your National Affairs, has been helping to shape US
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  Speaker 1: trade policies for decades well. The Aspen Security Conference typically
• 9:08
  Speaker 1: is a place where policy is talked about in public,
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  Speaker 1: but at this time a little bit different. The President's
• 9:15
  Speaker 1: National Curity Advisor, Dan Coates, was in the room when
• 9:19
  Speaker 1: he was informed about an invitation that the President had
• 9:23
  Speaker 1: made to Russian President Vladimir Putin to come to Washington
• 9:28
  Speaker 1: in the fall. Let's listen to what Dan Coates said
• 9:32
  Speaker 1: after hearing about this. I don't know what happened in
• 9:35
  Speaker 1: that meeting. Um I think as time goes by and
• 9:40
  Speaker 1: President has already mentioned some things that happened in that meeting,
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  Speaker 1: I think we will learn more, but that is the
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  Speaker 1: president's prerogative. Um uh. If you had asked me how
• 9:51
  Speaker 1: that out of uh be conducted, I would have suggested
• 9:55
  Speaker 1: a different way. That was Dan Coates speaking at the
• 9:59
  Speaker 1: Aspen Secure Charity Conference in Colorado. Also in Colorado now
• 10:03
  Speaker 1: is Toby Harshaw, our editor at Bloomberg Opinion for all
• 10:06
  Speaker 1: things related to national security and defense. Toby, what can
• 10:11
  Speaker 1: you tell us about the mood at this meeting and
• 10:14
  Speaker 1: what are your thoughts about the comments from a former
• 10:17
  Speaker 1: Republican Senator Dan Coates, who is now one of the
• 10:21
  Speaker 1: nation's top security advisors. Uh, mine was awfully good. Tim
• 10:26
  Speaker 1: and Lisa. I'm standing on an overlook of the Roaring
• 10:28
  Speaker 1: Fork River watching a black hair fish for trout. At
• 10:31
  Speaker 1: the moment um, the mood in the room, it's elf.
• 10:34
  Speaker 1: Yesterday when Henry Mitchell informed him that he had invited
• 10:37
  Speaker 1: Putin to come to Washington was it's like a lot
• 10:40
  Speaker 1: of things with this administration. It was shocking but not surprising. Um.
• 10:44
  Speaker 1: You know, Donald Trump does what he wants to do
• 10:46
  Speaker 1: and he doesn't even tell his Director of National or
• 10:48
  Speaker 1: intelligence about it. Well, but Toby, I guess the question is,
• 10:52
  Speaker 1: as President Trump sets up another meeting with Russian President
• 10:55
  Speaker 1: Vladimir Putin, I'm just wondering what checks does is a
• 11:00
  Speaker 1: security team have on what he says or what he
• 11:04
  Speaker 1: plans with Vladimir Putin? I mean, can they shoot it
• 11:07
  Speaker 1: down if they think that it is a national security threat? Uh?
• 11:11
  Speaker 1: What are you looking at here? Um? We you know,
• 11:14
  Speaker 1: we have no clue. Um. They met, you know, in
• 11:17
  Speaker 1: private with just translators in Helsinki. UM. Dan Coats didn't
• 11:21
  Speaker 1: actually specifically say that he knows everything they talked about. Um.
• 11:24
  Speaker 1: All he said was that details will come out over time. UM,
• 11:28
  Speaker 1: we have no idea what what Trump promised. We know
• 11:32
  Speaker 1: that the Director of National Intelligence, UM was you know,
• 11:35
  Speaker 1: completely out of the loop. Um, that Trump was considering
• 11:40
  Speaker 1: this whole sending of of US interrogators to Russia and
• 11:44
  Speaker 1: vice versa. Well, I guess, well, sorry to break in there,
• 11:49
  Speaker 1: But one thing that I'm struck by is I know
• 11:51
  Speaker 1: that there was a proposal put out of the Democrats saying,
• 11:54
  Speaker 1: let's subpoena the translator that came with President Trump to
• 11:57
  Speaker 1: try to find out what was discussed. And one ring
• 12:00
  Speaker 1: there that was shot down by a number of Republicans.
• 12:03
  Speaker 1: I'm wondering why, Um, Because the President doesn't want to
• 12:08
  Speaker 1: do that, and the President is the most popular person
• 12:10
  Speaker 1: in their party right now. Um, and the few times
• 12:14
  Speaker 1: that they have crossed him, um, you know, have not
• 12:17
  Speaker 1: always turned out well for them. Toby tell us a
• 12:20
  Speaker 1: little bit about Dan Coates, the National Security Advisor. He's
• 12:25
  Speaker 1: a former Republican senator from Indiana, and about four years
• 12:29
  Speaker 1: ago he was on a blacklist that the Kremlin had
• 12:33
  Speaker 1: put together, that Russia had put together, banning US officials
• 12:38
  Speaker 1: from entering Russia. And I just love his quote when
• 12:41
  Speaker 1: he heard that he was banned. He said that While
• 12:43
  Speaker 1: I'm disappointed that I won't be able to go on
• 12:45
  Speaker 1: vacation with my family in Siberia this summer, I'm honored
• 12:49
  Speaker 1: to be on the list. Well, he's in Aspen this summer.
• 12:54
  Speaker 1: H Yeah, he's he's actually the he's the director of
• 12:57
  Speaker 1: National Intelligence, John Bolton's the National Security Advisor. Um. He
• 13:01
  Speaker 1: has always taken a very very strong line on Russia.
• 13:04
  Speaker 1: He has been sort of the hero of both Tonado
• 13:07
  Speaker 1: and the Healthinky tobaccles in terms of the administration. Um,
• 13:11
  Speaker 1: but you've got to think he's pretty far out of
• 13:13
  Speaker 1: the loop. Um that you know, he's he's unformed on
• 13:16
  Speaker 1: this stuff. The Waite House is obviously not telling him
• 13:19
  Speaker 1: what's going on. Um. He's a stand up tie, but
• 13:21
  Speaker 1: he's getting stood up. Yeah, Toby, I'm just struggling to understand.
• 13:25
  Speaker 1: I mean, on one hand, there are a lot of
• 13:27
  Speaker 1: question marks here, and uh, it's an unusual meeting for sure.
• 13:32
  Speaker 1: On the other, I guess, uh, you know, people might
• 13:35
  Speaker 1: be saying, well, the media is making too much of
• 13:37
  Speaker 1: this meeting and of President Trump's promises. It's good for
• 13:40
  Speaker 1: the two countries to have a good relationship, and President
• 13:44
  Speaker 1: Trump isn't necessarily changing policy right now by himself. So
• 13:49
  Speaker 1: you know, what do you say to that, and what
• 13:51
  Speaker 1: is the scope for President Trump to unilaterally change policy
• 13:54
  Speaker 1: with respect to the US and Russia. UM. Well, you know,
• 13:58
  Speaker 1: first of all, that communication is good. UM. You know,
• 14:01
  Speaker 1: Reagan garbage lam at several times, uh, and came out
• 14:04
  Speaker 1: with some pretty important, you know, non proliferation agreements. UM.
• 14:07
  Speaker 1: It's good to have that channel. UM. The problem is
• 14:10
  Speaker 1: that this is you know, this is not a normal president. UM.
• 14:13
  Speaker 1: We don't know what's going on. You know, Reagan kept
• 14:15
  Speaker 1: the public informed and his staff did. UM. So we
• 14:19
  Speaker 1: don't know what was said behind closed doors at that meeting.
• 14:23
  Speaker 1: We don't know if anything was promised. Um. They were
• 14:26
  Speaker 1: pretty in the press conference afterward. UM, they didn't really
• 14:29
  Speaker 1: say much at all about what they might have talked about. UM.
• 14:32
  Speaker 1: But then you know, the next day they were saying
• 14:35
  Speaker 1: that they had you know, we're working on a deal
• 14:36
  Speaker 1: on Syria. UM. So uh, you know, I just I
• 14:40
  Speaker 1: have to say communication is good, but you also have
• 14:43
  Speaker 1: to pay with the American public on this. Just quickly, Toby,
• 14:47
  Speaker 1: what do you think the future of Dan Coates is?
• 14:49
  Speaker 1: He's a former U s Ambassador to Germany. He really
• 14:53
  Speaker 1: entered politics by winning Dan Quayle's old House seat. UM.
• 14:58
  Speaker 1: I can't imagine he would stay much longer, would you?
• 15:01
  Speaker 1: I mean, how how can you do your job if
• 15:05
  Speaker 1: the president is making it impossible to do your job? Um.
• 15:08
  Speaker 1: John Bolton, you know, is relatively brand new in this administration,
• 15:12
  Speaker 1: and he seems to have lost favor you know, sort
• 15:14
  Speaker 1: of immediately. UM. I honestly don't see how these people, um,
• 15:22
  Speaker 1: can can stay in this administration. Kirsen Nielsen, the uh,
• 15:25
  Speaker 1: the Homeland Security Director was secretary, was here yesterday and
• 15:29
  Speaker 1: was asked that question point blank. UM. And she you know,
• 15:33
  Speaker 1: she twice UM and asked yes no, and she wouldn't
• 15:37
  Speaker 1: answer yes no. She was very good at reflective questions, UM,
• 15:40
  Speaker 1: you know. And she's she's sort of the understudy for
• 15:42
  Speaker 1: General Kelly, but the chief of staff. And I can't
• 15:45
  Speaker 1: imagine you know that he's still there much more. Toby Harshaw,
• 15:48
  Speaker 1: thank you so much for your insights. Toby Harshaw, as
• 15:50
  Speaker 1: an editor with Bloomberg Opinion, currently watching bears fish for
• 15:54
  Speaker 1: salmon in Aspen. Thank you so much for being with us.
• 16:12
  Speaker 1: The administration of President Donald Trump has enacted tariffs on
• 16:16
  Speaker 1: more than thirty five billion dollars of Chinese made goods,
• 16:19
  Speaker 1: and that includes some textiles. And here to tell us
• 16:22
  Speaker 1: about the effects of those tariffs and what the industry
• 16:26
  Speaker 1: can face in the future is Rick Health and Bind.
• 16:29
  Speaker 1: He is the president and chief executive of the American
• 16:32
  Speaker 1: Apparel and Footwear Association. Are of course based in Washington,
• 16:37
  Speaker 1: d C. And can be followed on Twitter at Apparel
• 16:41
  Speaker 1: Footwear and Our Health and okay, our health and give
• 16:45
  Speaker 1: us an update. You were in Washington, I believe just yesterday,
• 16:49
  Speaker 1: just yesterday. What is the feeling, what's the mood on
• 16:52
  Speaker 1: Capitol Hill and the people you speak to and what
• 16:56
  Speaker 1: it means for your industry. Well, I mean, I'm getting
• 16:58
  Speaker 1: a sense on Capital Hill that at least on the
• 17:01
  Speaker 1: Senate side, they'd like to rain the president's ability to
• 17:06
  Speaker 1: levy tariffs in because it's getting particularly out of control
• 17:11
  Speaker 1: on the Republican side. On the Republican side and which
• 17:14
  Speaker 1: would quite frankly have the most impact. And uh, you know,
• 17:18
  Speaker 1: they were also to be candid looking at steel and aluminum. Um,
• 17:22
  Speaker 1: we'd like them to look at everything, you know that's
• 17:25
  Speaker 1: the stealing rooms the two thirty two group. We'd like
• 17:27
  Speaker 1: them to look at the three oh one. We are
• 17:29
  Speaker 1: extremely concerned as an industry. All right, So just to
• 17:32
  Speaker 1: sort of bring in today's news, President Trump today said
• 17:36
  Speaker 1: he's quote ready to go with tariffs and five hundred
• 17:39
  Speaker 1: billion dollars of Chinese imports. Uh, this would be in
• 17:42
  Speaker 1: your words, ahead of the segment the whole enchilada. What
• 17:45
  Speaker 1: would that do if it went through to your industry,
• 17:50
  Speaker 1: it would have severe impact because we are an industry
• 17:54
  Speaker 1: that is trapped to some degree. Forty one percent, forty
• 17:58
  Speaker 1: one of all the pair are coming into the United
• 18:01
  Speaker 1: States comes from China. Seventy two of all footwear comes
• 18:06
  Speaker 1: from China. Of all accessories that includes handbags and travel
• 18:11
  Speaker 1: goods comes from China. And you could say, wow, why
• 18:14
  Speaker 1: so much? Why didn't you protect yourself against this? Believe me,
• 18:18
  Speaker 1: if our industry could have moved, it would have moved.
• 18:20
  Speaker 1: But China just does it better and does it more competitively.
• 18:25
  Speaker 1: So you're in trench there. Now you're gonna raise prices
• 18:28
  Speaker 1: on an industry that's already tariff. That's not a good thing.
• 18:31
  Speaker 1: I mean, think about the average tariff coming into America
• 18:34
  Speaker 1: is one point four percent. The average tariff on apparel
• 18:38
  Speaker 1: is twelve point five percent. The average tariffy on footwear
• 18:42
  Speaker 1: is like eleven point five percent, So you're gonna add
• 18:46
  Speaker 1: ten percent on top and then it you must be kidding.
• 18:49
  Speaker 1: Do you know what that'll do to retail? You know
• 18:51
  Speaker 1: what it'll do to the consumer? You know, no what
• 18:54
  Speaker 1: will it do? It will simply put sales will go down,
• 19:00
  Speaker 1: jobs will be lost, prices will go up. It's a
• 19:05
  Speaker 1: triple negative. You cannot win in this scenario. And we
• 19:08
  Speaker 1: have no place else to put the goods. It is
• 19:10
  Speaker 1: already baked into the system that this will be an
• 19:13
  Speaker 1: inflationary cycle because people are trying to run out of China.
• 19:16
  Speaker 1: Now you can't put ten pounds in five pounds sack,
• 19:20
  Speaker 1: it will burst. So they're running the Vietnam, Indonesia, Bangladesh,
• 19:23
  Speaker 1: Philippines where they gonna go. Everybody is raising their prices.
• 19:28
  Speaker 1: So you're gonna see back to school. You know, Prime
• 19:30
  Speaker 1: Day just happened. Should have doubled what you bought because
• 19:33
  Speaker 1: the prices are going to go up. Come back to
• 19:35
  Speaker 1: school come the spring. No matter what whether these tariffs
• 19:38
  Speaker 1: go through or not, the scare is real. Are the
• 19:42
  Speaker 1: companies that you speak to boosting their inventories in anticipation
• 19:47
  Speaker 1: of greater towiffs. They're trying every tactic they can't they can.
• 19:51
  Speaker 1: Most of the companies in our group have set up
• 19:53
  Speaker 1: many war rooms to try and figure out, well, exactly
• 19:56
  Speaker 1: how much product do I have in China? Can I
• 19:59
  Speaker 1: move some product out of China? Should I bring goods
• 20:01
  Speaker 1: early to avoid the price increase? They're thinking any which
• 20:05
  Speaker 1: way they can. It's try and stay competitive. You know,
• 20:08
  Speaker 1: the numbers in the retail side, we're not great. We
• 20:11
  Speaker 1: had more bankruptcies last year than we did in two
• 20:13
  Speaker 1: thousand and eight. Think about that. But just you know,
• 20:17
  Speaker 1: I want to go back to something that you said,
• 20:18
  Speaker 1: which is that the retail industry can't avoid this um
• 20:24
  Speaker 1: that China just does it better and cheaper. Why and
• 20:27
  Speaker 1: could it be that the US could be prompted to
• 20:29
  Speaker 1: do it better and cheaper if there was more focus
• 20:32
  Speaker 1: on that. Well, the part of our industry that a
• 20:36
  Speaker 1: lot of people don't understand, it's not the row material
• 20:39
  Speaker 1: part necessarily, it's the assembly part, which is highly labor intensive. Consequently,
• 20:45
  Speaker 1: you need to be near where the raw materials are.
• 20:48
  Speaker 1: Most of the raw materials come out of China, so
• 20:50
  Speaker 1: you bring the sewing, the assembly part closer to where
• 20:53
  Speaker 1: it's manufactured. You have great infrastructure, you have great logistics,
• 20:57
  Speaker 1: and it works in China, and that's why the industry
• 20:59
  Speaker 1: is there. Look, you know, nobody thought. We thought back
• 21:03
  Speaker 1: in March when these tariffs started coming out, we thought
• 21:06
  Speaker 1: very clearly, they'd run through the whole number, the whole
• 21:10
  Speaker 1: what's the whole number we sell to China thirty billion dollars,
• 21:14
  Speaker 1: we import from China five five billion dollars. That's the
• 21:18
  Speaker 1: number prison and Trump used today, five oh five billion.
• 21:22
  Speaker 1: He said that means everything would be hit, everything, including us.
• 21:27
  Speaker 1: In the second round, he hit us, uh partially hit
• 21:30
  Speaker 1: us on hats they were they were trying to avoid consumables,
• 21:34
  Speaker 1: this on hats. He hit us on handbacks, travel goods.
• 21:36
  Speaker 1: So we've got that already in the second trunche. Now
• 21:41
  Speaker 1: we go into the third tronche. You know, I think
• 21:43
  Speaker 1: what they figured. You know the old expression you pluck
• 21:46
  Speaker 1: a chicken one feather at a time, Well, at the
• 21:48
  Speaker 1: end of the day, you're gonna get a naked chicken.
• 21:50
  Speaker 1: That's gonna it's gonna happen to our parrel industry. You
• 21:53
  Speaker 1: have a bunch of naked chickens running around because the
• 21:55
  Speaker 1: price is just gonna go through the ceiling. Talk about
• 22:00
  Speaker 1: machinery and the actual equipment that is necessary to make
• 22:04
  Speaker 1: all of these products. Where does that currently come from.
• 22:08
  Speaker 1: It comes from all over the world, but a fair
• 22:10
  Speaker 1: bit of it came from China, and in the first
• 22:12
  Speaker 1: fifty billion that was levied UH, there was a significant
• 22:16
  Speaker 1: amount of machinery that was used a to make socks,
• 22:18
  Speaker 1: to sew foot We're in America because we also represent
• 22:21
  Speaker 1: the Maid in America group, So they're trying to survive
• 22:24
  Speaker 1: their buying their equipment from China. They're going to attack that.
• 22:28
  Speaker 1: We went to the u str Conference group and we
• 22:31
  Speaker 1: testified and they removed that they've been very kind to us.
• 22:34
  Speaker 1: They've been trying to protect consumables. So then you come
• 22:38
  Speaker 1: out with the second two and they hit us again,
• 22:41
  Speaker 1: and they hit more machinery and they hit more textile.
• 22:45
  Speaker 1: So what happens You want to set up a sewing
• 22:47
  Speaker 1: factory in America and you buy your textiles from Ajia
• 22:50
  Speaker 1: because they're not made here. What's gonna happen? You just
• 22:54
  Speaker 1: priced yourself at the domestic business. So, just just to
• 22:57
  Speaker 1: wrap things up here, how much consumers expect to pay
• 23:01
  Speaker 1: more for retail goods. Should this UH tariff on five
• 23:06
  Speaker 1: billion dollars of Chinese good I think a minimum. You know,
• 23:09
  Speaker 1: we we talk about five dollars per household, but now
• 23:12
  Speaker 1: I think it's going to be significantly higher. I wouldn't
• 23:15
  Speaker 1: be surprised if you see prices increases upwards. So by
• 23:20
  Speaker 1: now have a strong back to school because come the spring,
• 23:24
  Speaker 1: watch out. Rick Helfanbin, thank you so much for being
• 23:28
  Speaker 1: with us. Rick Helfenbin is President and chief executive of
• 23:32
  Speaker 1: the American Apparel and Footwear Association based in Washington, d C.
• 23:37
  Speaker 1: Joining us here in our eleven three studios, just back
• 23:39
  Speaker 1: from Washington, d C and talking with some of the representatives.
• 23:42
  Speaker 1: Currently trying to grapple with the consequences on all sides.
• 24:00
  Speaker 1: General Electric cannot catch a break. The company beat earnings,
• 24:05
  Speaker 1: released earnings that on the face of it looked pretty good.
• 24:08
  Speaker 1: Shares in pre market trading rallied a touch, and then
• 24:12
  Speaker 1: passing through the details, they are down now nearly four percent,
• 24:15
  Speaker 1: bringing gear to date losses to more than twenty three percent.
• 24:19
  Speaker 1: What happened? The person who knows is Karen you will Heart.
• 24:22
  Speaker 1: She's industrials analyst for Bloomberg Intelligence she joins us. Now, Karen,
• 24:27
  Speaker 1: what's going on now? It looks like the black hole
• 24:30
  Speaker 1: called power could be a bigger black hole and they, frankly,
• 24:36
  Speaker 1: they don't know, you know, how far down it's gonna
• 24:39
  Speaker 1: keep going. And that was that was the first question
• 24:41
  Speaker 1: on the call um. He basically said, it's a multi
• 24:43
  Speaker 1: The CEO said, it's a multi year issue. We knew
• 24:46
  Speaker 1: that to fix it. But it sounds like it's still going.
• 24:50
  Speaker 1: You know, it's going down after it went down, and
• 24:53
  Speaker 1: if it came across, they don't have their arms around
• 24:55
  Speaker 1: that big business. Remember that's going to be their biggest
• 24:58
  Speaker 1: business when they make GE. So there's a There was
• 25:01
  Speaker 1: a lot that the story was really Power, I would say,
• 25:04
  Speaker 1: and then a little bit, you know, air airspace margins
• 25:07
  Speaker 1: were down a little bit, but that's the timing of
• 25:09
  Speaker 1: launching their new engine. That's not a concern. Karen. How
• 25:12
  Speaker 1: long you've been covering GE, oh, about eight or nine years.
• 25:16
  Speaker 1: When you look at what Flanner, John Flannery, the chief
• 25:19
  Speaker 1: executive has done, do you believe there's any more that
• 25:23
  Speaker 1: he could do? I think he's got to take and
• 25:26
  Speaker 1: this this this, you know, the cost the cost cutting
• 25:31
  Speaker 1: in Power is probably not enough. Um, and I think
• 25:35
  Speaker 1: that is a big concern. You know, we've done he
• 25:38
  Speaker 1: announced a billion dollar cost cutting program. The footprints still
• 25:41
  Speaker 1: too big. He's laying off twelve uh six percent of
• 25:45
  Speaker 1: the people twelve thousand. That's just not enough. Um, He's
• 25:50
  Speaker 1: got to do more. And uh, I think he was
• 25:52
  Speaker 1: hoping that the market would stabilize and it's still going down.
• 25:57
  Speaker 1: All right, So General Electric is a special story of
• 26:00
  Speaker 1: pain that seems to be ongoing, with shareholders offering them
• 26:05
  Speaker 1: very little leeway. I'm trying to figure out industrial companies
• 26:09
  Speaker 1: broadly are generally outperforming. We've seen this with Honey Well
• 26:12
  Speaker 1: are earnings that came out earlier today? Uh, and just
• 26:15
  Speaker 1: in general, almost one fourth of industrial companies in the
• 26:17
  Speaker 1: SP five index reported second quarter results in all eighteen
• 26:21
  Speaker 1: have beaten on the bottom line. Why is the narrative
• 26:25
  Speaker 1: not shifting to these companies are in good shape? Synchronized
• 26:29
  Speaker 1: global growth is still a thing. What are we talking
• 26:32
  Speaker 1: that way? Because people are concerned about the longevity of
• 26:37
  Speaker 1: you know, the good times. Um, the peak of the
• 26:39
  Speaker 1: cycle comes up in almost every call. I've had a
• 26:42
  Speaker 1: couple of companies report very good numbers already, and it
• 26:46
  Speaker 1: doesn't seem to matter in some companies such as Caterpillar,
• 26:50
  Speaker 1: and you know some of these global companies. The tariff
• 26:53
  Speaker 1: thing keeps coming up again, so trade concerns. Um. You know,
• 26:57
  Speaker 1: it's really a question of Okay, it's great now, but
• 26:59
  Speaker 1: how long is it gonna stay? Right back to GE specifically,
• 27:05
  Speaker 1: how much patient do you think shareholders are going to
• 27:07
  Speaker 1: be with John Flannery. I think they're already losing some
• 27:11
  Speaker 1: patients because they haven't really seen anything turned yet. Um.
• 27:17
  Speaker 1: He gave the big plan, but now we've got to
• 27:19
  Speaker 1: wait twelve to eighteen months for healthcare and two to
• 27:21
  Speaker 1: three years for baker use. So um, I think the
• 27:25
  Speaker 1: patients is very limited. Actually, I think we could see
• 27:29
  Speaker 1: any kind of change at the top of GE. No.
• 27:32
  Speaker 1: I think I think the board will give him some
• 27:34
  Speaker 1: time because it is I mean, it is a multi
• 27:36
  Speaker 1: year problem to move this big ship. But and and
• 27:39
  Speaker 1: and he's announced some bold moves. I think they're going
• 27:41
  Speaker 1: to give him time to execute it. All right, So
• 27:44
  Speaker 1: in general, Electric definitely still struggling through the pain. I'm
• 27:49
  Speaker 1: just wondering elsewhere on the industrial landscape, with Honeywell and
• 27:52
  Speaker 1: some of the other earnings, is there anything that that
• 27:54
  Speaker 1: sort of stood out to you, especially as you said,
• 27:57
  Speaker 1: they're still doing pretty well, but they are cons earned
• 28:00
  Speaker 1: about those tariffs. Uh. You know, the organic growth was
• 28:04
  Speaker 1: really superb at at Honeywell, even greater than people expected. Uh.
• 28:10
  Speaker 1: So that's the level of growth actually really surprised me.
• 28:14
  Speaker 1: And it was largely driven by aerospace. Aerospace is booming
• 28:18
  Speaker 1: and frankly it is for g E as well. But
• 28:20
  Speaker 1: they've got bigger, bigger problems. So that's a that's a
• 28:23
  Speaker 1: tear of good news story. Um. And uh, the global
• 28:28
  Speaker 1: growth is there, so, I mean the top line looks
• 28:31
  Speaker 1: really really good. Um, it's as I said, how how
• 28:35
  Speaker 1: long does it stay good? Well? But Karen, this is
• 28:37
  Speaker 1: actually really interesting to me because it raises the question,
• 28:40
  Speaker 1: if say, there is some resolution to the trade tensions
• 28:43
  Speaker 1: that have been escalating, should these industrials outperform much more
• 28:49
  Speaker 1: than they have so far. I think that would. I
• 28:52
  Speaker 1: think that would really help because people are not don't
• 28:54
  Speaker 1: we don't have our arms around it. How big is it?
• 28:55
  Speaker 1: How bad is it? Um? What's he gonna do next? Um?
• 28:59
  Speaker 1: You know, and this escalation just brought the fearbacks and
• 29:02
  Speaker 1: there's and there's a discount sort of baked into the
• 29:04
  Speaker 1: shares as a result of that. That really isn't borne
• 29:06
  Speaker 1: out by the numbers, right right, there's not really been
• 29:09
  Speaker 1: much impact and there probably won't be much impact at
• 29:12
  Speaker 1: least this year. Um, And we don't know how serious
• 29:15
  Speaker 1: this is going to be if if it's you know
• 29:17
  Speaker 1: talked to you know, big talk and little action. We
• 29:20
  Speaker 1: have to see. But you know, um, you've got a
• 29:22
  Speaker 1: long elongated cycle for a lot of these end markets.
• 29:26
  Speaker 1: You've got interest rates going up, You've got you know,
• 29:28
  Speaker 1: trade concerns. It's all adding up to all right, is
• 29:31
  Speaker 1: this as good as it gets? And cyclicals in particular,
• 29:34
  Speaker 1: and um, industrials in general, they discount a downturn way ahead.
• 29:39
  Speaker 1: And I think that's sort of what that's some of
• 29:41
  Speaker 1: what's going on. Just a quick thought on Honeywell free
• 29:45
  Speaker 1: cash flow one point seven billion, Yeah, that was what
• 29:50
  Speaker 1: is that? Like? That's a increase, yes, and uh, you
• 29:54
  Speaker 1: know on the cash flow conversion it was a hundred
• 29:56
  Speaker 1: and eight percent, which is way ahead of what they
• 29:58
  Speaker 1: had expected. Uh. You know, their margins were better in
• 30:02
  Speaker 1: every business. Uh you know, the growth was better in
• 30:05
  Speaker 1: every business, So they're kind of coining cash and uh
• 30:08
  Speaker 1: he wants to the CEO m Adam Check wants to
• 30:13
  Speaker 1: buy something, but he's he's afraid of the prices, so
• 30:16
  Speaker 1: he's just generating all this money. He's done. He's doing
• 30:20
  Speaker 1: more buyback to try to use some of that cash,
• 30:22
  Speaker 1: but he really wants to do acquisitions, and they're they're expensive.
• 30:26
  Speaker 1: Thanks very much, Karen Yubilehard industrials analysts for Bloomberg Intelligence,
• 30:31
  Speaker 1: speaking to us about General Electric and Honeywell. Thanks for
• 30:37
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 30:40
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 30:44
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 30:47
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramowits
• 30:51
  Speaker 1: one before the podcast. You can always catch us worldwide
• 30:55
  Speaker 1: on Bloomberg Radio to te