Latest / Trumponomics / The Year Ahead: Tariffs, AI and Fed Independence

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The Year Ahead: Tariffs, AI and Fed Independence · Trumponomics

0:00
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: Maybe that will be the story for the global economy
0:11
Speaker 2: in twenty twenty six. Yes, the risks are there, but
0:15
Speaker 2: actually it's the momentum and the optimism and the AI
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Speaker 2: revolution which continue to dominate the narrative.
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Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
0:36
Speaker 3: and this is Trumpnomics, the podcast that looks at the
0:39
Speaker 3: economic world of Donald Trump, how he's already shaped the
0:42
Speaker 3: global economy and what on earth is going to happen next.
0:49
Speaker 3: And this week it's a traditional Trumpanomic look ahead to
0:52
Speaker 3: twenty twenty six. As we look forward, I hope to
0:55
Speaker 3: the holidays. I wanted to take a deep breath and
0:57
Speaker 3: think a little bit about what's happened in the past year,
1:00
Speaker 3: and a lot about what it means for the year
1:03
Speaker 3: ahead and the Christmas bundle I've selected to help me
1:06
Speaker 3: with this, and I hope provide just the right amount
1:09
Speaker 3: of illumination. Are in Washington, Mario Parker, our managing editor
1:13
Speaker 3: for US Politics, amazingly joining Trumponomics for the first time. Mario, Hello,
1:18
Speaker 3: I am very happy to be here.
1:19
Speaker 4: Thank you.
1:20
Speaker 3: Also in Washington, frequent visitors to the pod. Tom Orlick,
1:23
Speaker 3: chief economists for Bloomberg Economics.
1:25
Speaker 2: Great to be a Stephanie and in London.
1:27
Speaker 3: Welcome back. Palmei Olson, a Bloomberg opinion columnist covering technology,
1:31
Speaker 3: whose book Supremacy, AI, Chat, GBT and The Race That
1:35
Speaker 3: Will Change the World was the FT's Business Book of
1:38
Speaker 3: the Year for twenty twenty four. Parmey, welcome back.
1:41
Speaker 5: Thank you for having me.
1:49
Speaker 3: I mean I wanted the three of you for various reasons,
1:52
Speaker 3: some of them pretty obvious. You've been right at the
1:54
Speaker 3: heart of the action this year, and I find you
1:56
Speaker 3: always wise about what's to come. The way we always
2:02
Speaker 3: start these things where I like to start, is just
2:04
Speaker 3: for each of us to think, what was the most
2:07
Speaker 3: memorable moment of this year? So Mary, I'll put you
2:12
Speaker 3: on the spot. What was the most memorable moment for you?
2:15
Speaker 6: I think it was in the specific to this podcast
2:18
Speaker 6: very much, which was the Liberation Day rollout where it started.
2:22
Speaker 4: There were fits and starts.
2:24
Speaker 6: There were problems with the White House's copying machine, there
2:28
Speaker 6: were typographical errors on some of the cars, and there
2:32
Speaker 6: was just a lot of confusion, and I think that
2:35
Speaker 6: set the stage for what we saw with both a
2:38
Speaker 6: teariff rollout, and the way and the many things that
2:41
Speaker 6: the administration promised it did not quite come to fruition,
2:45
Speaker 6: but also the fast pace and the chaos that we've
2:48
Speaker 6: seen wrought by the administration deliberately so where they want
2:52
Speaker 6: to move fast and quote unquote break things, and we've
2:55
Speaker 6: seen that throughout the rest of the year.
2:56
Speaker 4: So that was the most memorable moment I think, Tom.
2:59
Speaker 2: There was a moment just before the US made that
3:03
Speaker 2: faithful decision to join Israel in attacking Iran's nuclear facilities,
3:09
Speaker 2: and there was still intense speculation about whether Operation Midnight Hammer,
3:15
Speaker 2: as it was called, would go ahead or not, and
3:17
Speaker 2: President Trump took to truth social and said, I may
3:21
Speaker 2: do it, I may not do it. Only I will decide,
3:26
Speaker 2: and I expect everyone else's way ahead of me on this.
3:29
Speaker 2: But for me, that was a real clarifying moment, right
3:32
Speaker 2: and it clarified that the intense uncertainty, the kind of
3:38
Speaker 2: presidency as a soap opera with a cliffhanger at the
3:42
Speaker 2: end of every episode to keep you tuning in the
3:44
Speaker 2: next day. That wasn't a bug of some of the
3:48
Speaker 2: trade policies and security policies we'd seen in the previous
3:51
Speaker 2: few months. It was a feature, a deliberate strategy to
3:55
Speaker 2: allow the President to very successfully dominate the conversation, dominate
4:00
Speaker 2: the headlines, keep himself at the front of everyone's consciousness.
4:05
Speaker 4: Pa well.
4:06
Speaker 1: The highlight for me was actually at the very beginning
4:07
Speaker 1: of this year in January, when a little company in
4:11
Speaker 1: China called deep Seek released an AI model that caused
4:16
Speaker 1: a freak out in Silicon Valley.
4:18
Speaker 5: This was an AI model that was as good as.
4:20
Speaker 1: Chat GBT, but developed for what apparently was a fraction
4:24
Speaker 1: of the price, and it was an open model some
4:27
Speaker 1: would call it open source, so they essentially put the
4:30
Speaker 1: blueprints of this AI model on the Internet for anybody
4:33
Speaker 1: to develop on themselves. And I thought it was just
4:36
Speaker 1: such an interesting twist on this effort by the Trump
4:40
Speaker 1: administration and previous White Houses before to restrict chip exports
4:46
Speaker 1: to China to try and ensure that the US would
4:49
Speaker 1: stay ahead on tech. And yet the constraint bread innovation,
4:54
Speaker 1: the lack of chips, led this one company to try
4:58
Speaker 1: and do more with less. And since then, deep Seek
5:02
Speaker 1: isn't quite as popular as I would have thought it
5:05
Speaker 1: would be by this point in time, but other Chinese
5:08
Speaker 1: open source models are becoming much more popular, in particular
5:11
Speaker 1: Ali Baba's Quen. So lots of Silicon Valley startups are
5:15
Speaker 1: using models from China now, and I think that's just
5:18
Speaker 1: such an interesting highlight for this ascendancy we're seeing from China,
5:23
Speaker 1: both in AI and also in robotics.
5:26
Speaker 3: And it's funny for me because your slightly relates to
5:28
Speaker 3: one of mine. If I'm completely honest, if I think
5:30
Speaker 3: of what was the most memorable, I think watching in
5:33
Speaker 3: the office and watching in real time the feed coming
5:36
Speaker 3: in of that' Zelenski, the sort of car crash Zelenski
5:39
Speaker 3: session in the White House with the President, the visceral
5:42
Speaker 3: reaction we all had of oh my god, this is
5:45
Speaker 3: really very bad. But if I think about what was
5:48
Speaker 3: the most eye opening, it was when we'd all been
5:52
Speaker 3: completely focused on the US and I went to a
5:55
Speaker 3: sort of reasonably high level senior people involved in global business,
5:59
Speaker 3: some of them based in Hong Kong, were others in US,
6:03
Speaker 3: and I'd asked them on this panel, you know what's
6:06
Speaker 3: the thing that surprised you so far this year? Assuming
6:08
Speaker 3: they would all talk about Donald Trump, every single one
6:10
Speaker 3: of them pointed to a technological advance that they'd been
6:13
Speaker 3: surprised that China had made whether it was in electric
6:17
Speaker 3: vehicles or I'm sure a couple of them were talking
6:19
Speaker 3: about deep seek and it just sort of made me think, Ah,
6:23
Speaker 3: maybe China's just going to win this, even as we
6:26
Speaker 3: spend an awful lot of time watching every move coming
6:28
Speaker 3: out of the White House, so Tom partly because of that,
6:31
Speaker 3: how the rest of the world has absorbed and responded
6:34
Speaker 3: to trumpernomics has obviously been a big theme for the year.
6:37
Speaker 3: The big surprise being that countries, in many ways most
6:41
Speaker 3: almost all of them apart from China, did not retaliate
6:44
Speaker 3: to the tariffs, and that has had its own consequences.
6:47
Speaker 3: But how do you see the global ramifications of mister
6:51
Speaker 3: Trump's economic policies playing out now in twenty twenty six.
6:55
Speaker 3: We've had stage one? What's stage two going to look like?
6:58
Speaker 2: So I think if we think about trade, if we
7:01
Speaker 2: think about security, if we think about AI, if we
7:06
Speaker 2: think about the FED, the twenty twenty five story isn't
7:09
Speaker 2: over right. The consequences are still going to be playing
7:13
Speaker 2: out in twenty twenty six. On trade, I think one
7:16
Speaker 2: of the surprises is that we've not seen this enormous
7:19
Speaker 2: hike in tariffs playing out immediately in higher prices for
7:24
Speaker 2: US consumers and lower profits for US businesses. But I
7:29
Speaker 2: think that passed through of tariffs to the rest of
7:33
Speaker 2: the economy. Higher prices at the shops, lower margins for
7:37
Speaker 2: US businesses, potentially a hit to US stocks. That's still
7:41
Speaker 2: something that will play out in the early months of
7:44
Speaker 2: twenty twenty six. If we think about security, I think
7:48
Speaker 2: one of the big things we're looking for in twenty
7:50
Speaker 2: twenty six is resolution of that terrible ongoing conflict in Ukraine.
7:56
Speaker 2: If we think about the situation right now, well, it
7:59
Speaker 2: seems like that resolution could be on terms which are
8:02
Speaker 2: very favorable to Moscow, and that's something which has significant
8:06
Speaker 2: economic consequences. We're already seeing Germany and other European nations
8:11
Speaker 2: responding with a significant increase in their defense spending. Good
8:15
Speaker 2: news for growth, good news for defense stocks, bad news
8:19
Speaker 2: for countries already struggling under a heavy burden of debt.
8:22
Speaker 2: On AI, well, one of the good news stories in
8:26
Speaker 2: twenty twenty five was just the enormous optimism about AI,
8:30
Speaker 2: and I'm sure we'll hear more about that from Pami later.
8:33
Speaker 2: Big question for twenty twenty six, is that optimism going
8:36
Speaker 2: to be sustained? And on central banks, well, huge challenges
8:40
Speaker 2: to FED independence in twenty twenty five. In twenty twenty six,
8:45
Speaker 2: Trump's going to be able to pick the chair of
8:47
Speaker 2: the Federal Reserve.
8:49
Speaker 3: And I think we probably all of those things we're
8:51
Speaker 3: going to end up touching on. If I just think
8:53
Speaker 3: about China, because that was such a focus of the
8:56
Speaker 3: administration's attention at the starts of the year and has
8:59
Speaker 3: been such a dominant theme if you sort of look back,
9:04
Speaker 3: is China stronger or weaker economically going into twenty twenty
9:09
Speaker 3: six as a result of trumpnomics?
9:12
Speaker 2: So I think about it on a couple of dimensions, Stephanie.
9:15
Speaker 2: The first one is how hawkish on China is Donald Trump?
9:19
Speaker 2: And it's actually quite hard to answer that question. In
9:22
Speaker 2: one respect, he's America's biggest China hawk. Until he descended
9:26
Speaker 2: that Golden Escalator to start his presidential bid in twenty sixteen,
9:31
Speaker 2: the view in Washington, DC was, yeah, there's some problems
9:34
Speaker 2: with China. We've got some issues, but we can work together.
9:37
Speaker 2: And it was Trump who was responsible for that enormous pivot,
9:41
Speaker 2: that big reorientation saying, actually, China's not our friend, not
9:45
Speaker 2: someone we're going to work with. China's our rival and
9:48
Speaker 2: our adversary. But if you look at the details of
9:50
Speaker 2: China policy right now, well, tariffs have come down, Controls
9:55
Speaker 2: on China's access to the chips which power the Ai
9:58
Speaker 2: Revolution have been relaxed. Apparently Trump got on the phone
10:03
Speaker 2: with Japan's Prime Minister Takaichi and said, cool it on Taiwan.
10:08
Speaker 2: You don't want to upset President Shei. Right, So the
10:11
Speaker 2: big reorientation starting in twenty sixteen that positions Trump as
10:15
Speaker 2: an enormous China hawk, the details of policy in the
10:19
Speaker 2: last few months a bit less hawkish.
10:22
Speaker 4: I think.
10:22
Speaker 2: The other big question for China, the other dimension I
10:24
Speaker 2: would think about this is kind of short term long term.
10:27
Speaker 2: So short term, China's facing a crisis in its property sector,
10:32
Speaker 2: collapse in real estate, the consequences of years of overbuilding,
10:36
Speaker 2: and when you've got weak domestic demand, what you really
10:39
Speaker 2: want is strong global demand, strong exports to keep your
10:42
Speaker 2: economy going. Clearly, facing new high tariffs from the United
10:47
Speaker 2: States is not very constructive. Longer term, though, there's a
10:52
Speaker 2: narrative in China that democracy plus capitalism doesn't work. Democracy
10:57
Speaker 2: plus capitalism ends if you're going to be generous in plutocracy,
11:02
Speaker 2: if you're going to be less generous in kleptocracy. And
11:05
Speaker 2: I think when Beijing looks at what's happening in Washington, DC,
11:08
Speaker 2: that's very much their understanding of how things are playing out,
11:12
Speaker 2: and I think long term they think that can only
11:14
Speaker 2: be positive for China and China's emergence as a global power.
11:19
Speaker 3: I mean, there was quite a lot of focus just
11:21
Speaker 3: in the weeks leading up to the end of the
11:23
Speaker 3: year on trade surplus still being enormous in China and
11:28
Speaker 3: having quite successfully diverted a lot of exports that are
11:32
Speaker 3: not going to the US to other parts of the world. Pami,
11:35
Speaker 3: We're going to get into the relative strength, I would
11:38
Speaker 3: suggest of the US economy this year. Some pain may
11:42
Speaker 3: be still to come, but I think as a general
11:45
Speaker 3: feeling that the impact of AI investment has been a
11:48
Speaker 3: big part of that, supporting the economy and indeed just
11:51
Speaker 3: making it hard to read the economy. Do you see
11:54
Speaker 3: that level of capex as Tom talked about continuing next
11:58
Speaker 3: year and as we say see this rollout of AI,
12:02
Speaker 3: what are the potential bear traps there? Waiting down the
12:05
Speaker 3: road for the administration or the economy.
12:08
Speaker 5: Well, I think you're absolutely right in a lot of ways.
12:10
Speaker 1: AI boom has given the Trump administration a lot of
12:13
Speaker 1: cover because it's just made it look like everything is
12:16
Speaker 1: going so well. And in aggregate, the Magnificent seven tech
12:20
Speaker 1: stocks have seen their market valuations increase by trillions of
12:25
Speaker 1: dollars just in the last three years since chat GBT
12:28
Speaker 1: came out. I personally think there is going to be
12:31
Speaker 1: some kind of correction in twenty twenty six, and for
12:35
Speaker 1: all the reasons that people are saying, which is that
12:39
Speaker 1: there is very high risk of near term monetization not happening.
12:44
Speaker 1: In other words, there's been this huge buildout of infrastructure
12:48
Speaker 1: anticipating all this demand that probably will come in eventually,
12:53
Speaker 1: but it's just not going to come in fast enough
12:55
Speaker 1: to meet the expectations of investors.
12:58
Speaker 5: And this is exactly why we saw.
13:00
Speaker 1: Booms and bust in the dot com era early two thousands.
13:04
Speaker 1: You had this big rollout of fiber optic cables that
13:06
Speaker 1: eventually got used, but just didn't get used quickly enough.
13:08
Speaker 1: Same with the railroads in the nineteenth century. I think
13:11
Speaker 1: we'll just see perhaps that the sparks will be leaked
13:15
Speaker 1: reports from open ai showing a kind of soft demand
13:19
Speaker 1: for their enterprise AI products, or something in the earnings
13:22
Speaker 1: reports from Microsoft or Google or Amazon DAWs, just showing
13:27
Speaker 1: that it's actually been quite difficult to get businesses to
13:30
Speaker 1: adopt these AI services because that's where.
13:33
Speaker 5: All the money is. Right now.
13:34
Speaker 1: The huge success of generative AI is consumer based. You've
13:39
Speaker 1: got nine hundred million people, that's about a ten percent
13:42
Speaker 1: of the global population is using chatchbt every week every week.
13:47
Speaker 1: That's astoundingly successful from a market dominance perspective, but it's
13:52
Speaker 1: not really making money from open.
13:54
Speaker 5: Ai because very few of those people are paying subscriptions.
13:56
Speaker 1: The real money is going to come when businesses start
13:59
Speaker 1: paying for the access to that service, and that's just
14:02
Speaker 1: taking longer than these companies need. So the more signals
14:05
Speaker 1: we get that lack of demand, which I guess will
14:09
Speaker 1: happen next year, the more likely we'll have some kind
14:11
Speaker 1: of decline in the markets. But I do think ultimately
14:15
Speaker 1: that'll probably could work out quite well for the biggest
14:18
Speaker 1: tech companies because they're the ones that can weather the storm.
14:22
Speaker 5: They're so well capitalized.
14:24
Speaker 1: It's the startups and the smaller companies who will really struggle,
14:28
Speaker 1: who will see their valuations fall, and then here comes
14:31
Speaker 1: an opportunity for big tech firms to acqui hire those
14:33
Speaker 1: companies or buy those companies, acquire all their talent and
14:37
Speaker 1: IP and just become even stronger out of all of this.
14:41
Speaker 4: And that's a very good point.
14:42
Speaker 3: In your book, your award winning book, you chart the
14:45
Speaker 3: history of that crucial bits of the AI revolution, and
14:48
Speaker 3: I think in the process we're reporting very closely on
14:51
Speaker 3: the individuals in the industry. And of course the tech
14:54
Speaker 3: bros are unusually close or at least people who have
14:59
Speaker 3: the back of the AI industry, and these big tech
15:02
Speaker 3: companies are very close to the White House and sort
15:06
Speaker 3: of famously have the ear of the President. Some of
15:08
Speaker 3: the kind of inconsistencies in China policy that Tom mentioned
15:11
Speaker 3: is a reflection of that. The decision to allow Nvidia
15:15
Speaker 3: to sell some of these more advanced ships to China.
15:19
Speaker 3: If we start to see pame that AI costing jobs
15:24
Speaker 3: or being associated with other social ills like we've already
15:30
Speaker 3: seen with social media, if it starts being associated with
15:33
Speaker 3: higher electricity costs for a lot of people as they
15:35
Speaker 3: roll out these data processing centers, is there nervousness in
15:39
Speaker 3: Silicon Valley about the kind of political exposure they have now.
15:42
Speaker 3: And it's great to be influencing policy, but then means
15:45
Speaker 3: they're a bit more implicated, I suppose.
15:48
Speaker 5: But what choice do they have?
15:49
Speaker 1: I think right now their view as this is the
15:52
Speaker 1: strategy that has worked till now, which is to lobby
15:56
Speaker 1: as hard as you can to try and prevent any
16:00
Speaker 1: other regulations from coming down the pipeline that are going
16:04
Speaker 1: to affect you. So that approach seems to be working
16:09
Speaker 1: the Trump administration. As soon as Trump got into power,
16:12
Speaker 1: he rescinded the executive order that Biden had put in
16:15
Speaker 1: place on AI that calls on tech companies to do
16:19
Speaker 1: some very basic stuff around auditing of their algorithms.
16:22
Speaker 5: That was scrapped.
16:24
Speaker 1: And now there's of course talk of trying to prevent
16:26
Speaker 1: states from implementing their own AI rules because that might
16:31
Speaker 1: create this kind of patchwork effect of regulation that will
16:35
Speaker 1: hinder innovation. I'd personally find that completely exaggerated and overblown.
16:40
Speaker 5: That has not been an issue in the past. With
16:43
Speaker 5: privacy laws.
16:44
Speaker 1: Usually companies will find the state with the strictest law,
16:48
Speaker 1: like California, and then they'll just implement that across the board,
16:52
Speaker 1: it's very workable. So I think this kind of narrative
16:55
Speaker 1: spun by large companies around if you regulate US will
17:00
Speaker 1: hinder innovation for everyone.
17:02
Speaker 5: And we see this in Europe as well.
17:04
Speaker 1: It's just not true, but somehow it has really taken
17:07
Speaker 1: hold when Europe. The real issue is we just don't
17:10
Speaker 1: have enough funding on this side of the pond for
17:13
Speaker 1: tech startups.
17:13
Speaker 5: The issue is not regulation.
17:15
Speaker 1: The real problem is there's a real vacuum of thoughtful,
17:19
Speaker 1: specific regulation, rules and standards that are going to govern
17:23
Speaker 1: how this incredibly transformative technology that's addictive for some people,
17:28
Speaker 1: that is actually affecting people's mental health already, there are
17:32
Speaker 1: no rules out there to govern how that is used.
17:47
Speaker 3: Mario, you've been nodding patiently through some of this. I mean, clearly,
17:51
Speaker 3: the sort of the buzzword as we end twenty twenty five,
17:55
Speaker 3: at least in sort of politically, has been affordability. And
17:58
Speaker 3: there is a bit of a read a cross from
18:00
Speaker 3: this AI discussion. And I know people who are being
18:04
Speaker 3: told that the big increase in electricity supply that's going
18:07
Speaker 3: to be needed for their area, which everyone knows is
18:10
Speaker 3: due to data processing centers and big tech companies at
18:14
Speaker 3: least everyone in that area knows is going to double
18:17
Speaker 3: or sometimes even trouble their electricity costs. Is that going
18:20
Speaker 3: to be one of the things that could continue to
18:23
Speaker 3: stoke questions about affordability and cost of living.
18:27
Speaker 6: Absolutely, And I was nodding with just the comments that
18:30
Speaker 6: you all have been making just because I see the
18:32
Speaker 6: through line of it all politically, right, So as PARMI
18:36
Speaker 6: kind of mentioned or alluded to, you saw the influence
18:39
Speaker 6: of the tech sector on display last week two ways
18:42
Speaker 6: right with the easing the restrictions on in videos eight
18:46
Speaker 6: two hundred the chips. But then also Donald Trump, I
18:50
Speaker 6: mean almost verbatim repeated the rationale for AI not being
18:56
Speaker 6: having a patchwork with the States and that they would
18:59
Speaker 6: inherit bit the innovation of the industry as well, but
19:03
Speaker 6: also the sugar high, right that it provides in an
19:05
Speaker 6: economy that Americans are pretty sour on and giving Trump
19:09
Speaker 6: pretty bad marks. The sugar high. That one bright spot
19:13
Speaker 6: is that AIDS are showing the president the proliferation of
19:17
Speaker 6: data centers, building the data centers across the country, and
19:20
Speaker 6: he sees that as a win, appealing to his sense
19:23
Speaker 6: of that the US can lead the way with this
19:26
Speaker 6: breaking edge, this cutting edge technology as well.
19:30
Speaker 4: Now, the other part of that coin is.
19:33
Speaker 6: The fact that it leaves him vulnerable, he and the
19:35
Speaker 6: party vulnerable to arguments about affordability, even as he touts
19:39
Speaker 6: lower energy costs for gasoline, etc. Electritricity prices have skyrocketed,
19:46
Speaker 6: and we saw that play out in some of the
19:49
Speaker 6: elections that we saw in November, where Republicans lost pretty
19:54
Speaker 6: handily in several places in affordability became a salient issue
19:58
Speaker 6: and electricity prices became a salient issue. The other part
20:02
Speaker 6: of it politically is, as you all have both alluded to,
20:06
Speaker 6: Americans still don't quite understand all of the nuances of AI.
20:12
Speaker 6: The administration hasn't been able to or the industry explain
20:16
Speaker 6: it in a way that common Americans can really grasp it.
20:20
Speaker 6: They see it as something that's fun, They see it
20:23
Speaker 6: as something that can be confusing, They see it as
20:26
Speaker 6: something that could be toxic to mental health at times.
20:29
Speaker 4: They see it as a threat to their livelihoods and jobs.
20:31
Speaker 6: Right, and then you add on the affordability issue as well,
20:35
Speaker 6: and so we'll see that continue to play out in
20:38
Speaker 6: twenty twenty six.
20:39
Speaker 3: The President has been on something of an affordability tour,
20:43
Speaker 3: quite a few big events on this, and yet it's
20:46
Speaker 3: not clear what levers he's going to pull because in
20:51
Speaker 3: some ways he doesn't recognize that there is an affordability crisis.
20:55
Speaker 3: As we go into the midterms, how crucial is that
20:59
Speaker 3: going to be. Do you think that there's going to
21:01
Speaker 3: be actual moved by the administration more direct efforts or
21:05
Speaker 3: is the White House going to still feel like this
21:07
Speaker 3: is really just about messaging more than substance.
21:11
Speaker 4: I think a little bit of both, right.
21:13
Speaker 6: I think the problem for the White House is the
21:15
Speaker 6: fact that Donald Trump, went back to our interview with
21:17
Speaker 6: him in summer of twenty twenty four, has looked at
21:20
Speaker 6: tariffs and argued that tariffs don't have a material effect
21:23
Speaker 6: on consumer prices. Well, what you've seen over the last
21:27
Speaker 6: month and change or so is some of the reversals
21:31
Speaker 6: on food stuffs, right, bananas, coffee as well. So you
21:35
Speaker 6: see the administration also trying to pull levers on things
21:38
Speaker 6: like beef. So it's an acknowledgment in some ways that
21:41
Speaker 6: tariffs are having this additive cost to the consumer from
21:46
Speaker 6: the administration, even as Trump has argued, so you've got
21:49
Speaker 6: this discordant message coming from the administration, and quite frankly,
21:53
Speaker 6: if anyone saw the president's speech the rally, his heart
21:56
Speaker 6: just wasn't into this affordability message. I mean he all
22:00
Speaker 6: but said that his chief of staff, Susie wils told
22:04
Speaker 6: him you need to go out here in campaign on this.
22:06
Speaker 6: So almost sounded like someone who was grudgingly told you
22:10
Speaker 6: got to go outside and do something that you really
22:12
Speaker 6: don't want to do.
22:14
Speaker 3: It's convenient for the purposes of this podcast to feel
22:17
Speaker 3: that the economy is central to everything, we should step
22:19
Speaker 3: back and ask what is the state of the US
22:21
Speaker 3: economy going into twenty six. I mean, I know many
22:23
Speaker 3: of us, certainly a year ago, if we've been told
22:27
Speaker 3: what the administration was going to do, what was going
22:29
Speaker 3: to happen in terms of tariffs and uncertainty and other things,
22:32
Speaker 3: we probably would not have expected it to be as
22:36
Speaker 3: strong or inflation to be as low. But what does
22:39
Speaker 3: it look like now and what are you watching going
22:42
Speaker 3: into twenty six on just the strength of the economy.
22:46
Speaker 2: So I think there's quite a lot to be optimistic
22:48
Speaker 2: about on the US economy heading into twenty twenty six.
22:51
Speaker 2: Inflation's a bit higher than the FED would like it
22:53
Speaker 2: to be, but it's certainly not spiraling higher growth pretty
22:57
Speaker 2: robust looking into twenty twenty six. We've got easier monetary conditions.
23:02
Speaker 2: The FED is cutting interest rates. We think they're going
23:06
Speaker 2: to be cutting quite a lot more in the year ahead.
23:09
Speaker 2: We've got supportive fiscal policy, the one big beautiful bill
23:13
Speaker 2: cutting taxes for big US businesses. We've got a bonfire
23:18
Speaker 2: of regulations. We can argue about whether or not that's
23:22
Speaker 2: socially optimum or not, but certainly it sparks animal spirits.
23:27
Speaker 2: And of course we've got the AI revolution and all
23:30
Speaker 2: that means for market optimism and for capital spending. So
23:34
Speaker 2: if you put all of those things together, I think
23:37
Speaker 2: the base case for US growth in twenty twenty six,
23:40
Speaker 2: US growth heading towards the midterms is pretty optimistic. There's
23:45
Speaker 2: stuff that could go wrong. AI optimism could evaporate. A
23:50
Speaker 2: new FED chair could potentially overplay their hand, bringing concerns
23:56
Speaker 2: about lost FED independence back into perspectiveishing interest rates higher.
24:02
Speaker 2: So some risks there, but the base case heading into
24:05
Speaker 2: twenty twenty six I think pretty optimistic.
24:08
Speaker 3: Well, you mentioned the FED, and obviously the independence of
24:11
Speaker 3: the FED has been a great focus. There's been this
24:14
Speaker 3: kind of horse race around who was going to be
24:17
Speaker 3: named by the President as the new chairman of the FED.
24:20
Speaker 3: The betting as we're recording this is still on. Kevin
24:23
Speaker 3: has it, but there's been some desire from the White
24:25
Speaker 3: House to still preserve the element of surprise. But that's
24:30
Speaker 3: a power that the president has always had, but there
24:33
Speaker 3: is uncertainty about whether the president also has the power
24:36
Speaker 3: to fire members of the FED Board. I mean, Maria,
24:39
Speaker 3: there's some pretty crucial Supreme Court decisions coming down the track,
24:42
Speaker 3: and that's one of them.
24:44
Speaker 4: Yes, absolutely.
24:45
Speaker 6: One of the cases stems around nineteen thirty's era law
24:49
Speaker 6: that prohibited presidents from firing people on independent branches of government.
24:55
Speaker 6: This one is an FTC case that we're quite eager
24:58
Speaker 6: to get the results of, but the Supreme Court is
25:01
Speaker 6: already signaling that it will likely side with the president.
25:05
Speaker 6: Another extraordinary expansion of executive authority that we've seen. Another case, obviously,
25:11
Speaker 6: is the president's use of AIBA in order to enact
25:15
Speaker 6: some of the tariffs. He's characterized that as essentially make
25:20
Speaker 6: or break for the country. We'll see whether or not
25:23
Speaker 6: the Supreme Court sides with him or not, but make
25:26
Speaker 6: no question about it.
25:28
Speaker 4: What we've seen the security.
25:29
Speaker 6: So this Supreme Court just grant the president just an
25:32
Speaker 6: enormous amount of executive leeway.
25:34
Speaker 3: Here, Tom, there's the Lisa Cook judgment. There's been some
25:37
Speaker 3: question about whether or not there would be a line
25:40
Speaker 3: drawn between the FED and other independent eights supposed so
25:44
Speaker 3: called agencies, where the Supreme Court appears set to say
25:50
Speaker 3: that the president can kind of do what he wants
25:52
Speaker 3: with almost all the agencies. But they have suggested earlier
25:56
Speaker 3: in the year that the Federal Reserve had a slightly
25:58
Speaker 3: different status, which might effect whether they ruled differently in
26:02
Speaker 3: the case of Lisa Cook, which we've talked about before.
26:05
Speaker 4: On this program.
26:06
Speaker 3: But how important is that do you think in terms
26:09
Speaker 3: of the way the Fed is viewed, Because at the moment,
26:11
Speaker 3: obviously the market seem to be quite relaxed about the
26:15
Speaker 3: pressure that the White House is putting on the Central Bank.
26:18
Speaker 2: So a few years ago we talked about the twilight
26:21
Speaker 2: of the economic idols, right, kind of slightly grandiose term.
26:25
Speaker 2: Can't remember who came up with it, but the idea was, well,
26:29
Speaker 2: the populists have smashed down the door of so many institutions,
26:34
Speaker 2: right the universities, the media, the law firms, the scientific profession.
26:41
Speaker 2: Maybe they'll come for the central banks. Right, The Federal
26:44
Speaker 2: Reserve has failed on its basic task of controlling inflation.
26:49
Speaker 2: The Federal Reserve back then had to kick out two
26:52
Speaker 2: members of its governing council because of concerns about insider trading.
26:57
Speaker 2: This is a vulnerable institution. The populists have knocked over
27:01
Speaker 2: so many other institutions. Maybe they'll come for the FED
27:04
Speaker 2: as well. And sure enough, here we are at the
27:07
Speaker 2: end of twenty twenty five, looking ahead into twenty twenty six,
27:10
Speaker 2: and the populists are certainly banging at the Fed's door.
27:14
Speaker 4: Right.
27:14
Speaker 2: We already have Stephen Myron, the chair of the Council
27:18
Speaker 2: of Economic Advisors for President Trump, serving on the FED board.
27:22
Speaker 2: We have the court case against Lisa Cook that you mentioned,
27:25
Speaker 2: which could open up another board seat for the President
27:29
Speaker 2: to fill. And we have Chair Powell exiting in May
27:33
Speaker 2: and scope for the President to appoint his own chair.
27:36
Speaker 2: And whoever he picks, no matter how credible they are,
27:39
Speaker 2: is going to be laboring under the suspicion that they've
27:43
Speaker 2: made some kind of low rate loyalty pledge to the
27:46
Speaker 2: president in order to get the job.
27:48
Speaker 4: Now.
27:49
Speaker 2: We haven't seen the markets reacting to this much so far,
27:54
Speaker 2: but it really is quite consequential. And independent federal reserve
27:58
Speaker 2: is a fundamental underpinning of market confidence that the US
28:03
Speaker 2: will be serious about controlling inflation. And that's a fundamental
28:07
Speaker 2: underpinning of the role of the dollar as the world's
28:10
Speaker 2: reserve currency and US treasuries as the world's safe asset.
28:16
Speaker 2: If that confidence is undermined, well, the status of the dollar,
28:20
Speaker 2: the status of the treasury market both open to question.
28:24
Speaker 3: This kind of maximalist view of presidential power that we've
28:27
Speaker 3: seen so far. Mario, I mean, how does that play politically?
28:30
Speaker 3: Do you think there is a chance of this Congress,
28:33
Speaker 3: previously rather feeble biting back.
28:36
Speaker 6: Yeah, that's a great word for it. It's been mostly
28:39
Speaker 6: feeble for the better part of this year. But we
28:42
Speaker 6: have seen signs of life in recent months.
28:46
Speaker 4: Right.
28:46
Speaker 6: We saw obviously the evergrain here is the split between
28:50
Speaker 6: the president and Marjorie Taylor Grain. We're also saying at
28:53
Speaker 6: the state level, and if democracy functions the way it
28:58
Speaker 6: should in operation, it could funnel up to Congress as well.
29:02
Speaker 6: But we've seen pushback at some of the redistricting efforts
29:05
Speaker 6: as well. We've seen the Congress, bipartisan Republicans even kind
29:10
Speaker 6: of blanching a bit at the boat strikes in the Caribbean,
29:14
Speaker 6: particularly the one in which it was like a double
29:17
Speaker 6: what's called a double tap in a boat as well.
29:20
Speaker 6: So we've started to see the president called for during
29:24
Speaker 6: the shutdown, the President called for Republicans to eliminate the
29:27
Speaker 6: filibuster that was aligned too far for them as well,
29:30
Speaker 6: that they didn't heed. And then obviously, and again I
29:33
Speaker 6: mentioned Marjorie Taylor Green, the fact that the Epstein files
29:38
Speaker 6: and the legislation there, they forced the President to do
29:41
Speaker 6: an about face on that issue as well. So we're
29:43
Speaker 6: starting to see some semblances of life. Maybe that's because
29:48
Speaker 6: of what the polls are bearing out with some erosion
29:52
Speaker 6: among parts of the MAGA base, the pressure that we
29:56
Speaker 6: have for congress people representatives as we head toward the
30:00
Speaker 6: midterms as well, So that kind of tension may we
30:05
Speaker 6: may see some checks there on a president's power.
30:08
Speaker 3: You've both mentioned that the White House has been trying
30:11
Speaker 3: to establish that it's going to be the president and
30:14
Speaker 3: certainly federal government that dictates a single set of rules
30:19
Speaker 3: for AI. But we also know there's plenty of individual states,
30:22
Speaker 3: not least California, and indeed some in Congress that would
30:25
Speaker 3: like to have more of a role and not just
30:28
Speaker 3: leave it to the president. What should we be watching
30:30
Speaker 3: on that? What are the key debates we should be
30:33
Speaker 3: looking out for next year if we're kind of concerned
30:36
Speaker 3: about the form that AI is going to take.
30:39
Speaker 1: Personally, I think this allowing states to roll out their
30:44
Speaker 1: own laws is actually quite a healthy approach, because then
30:47
Speaker 1: it almost becomes like a lab Each state becomes like
30:51
Speaker 1: its own laboratory for running an experiment on what law
30:55
Speaker 1: works best, whether it's on tackling deep fakes or deep
30:58
Speaker 1: fake porn or spam or fraud, or whatever approach you
31:02
Speaker 1: want to take. In there are so many different ways
31:04
Speaker 1: to approach AI. Centralizing regulation isn't always the best approach.
31:11
Speaker 1: And I hate to say this because when the European
31:14
Speaker 1: Union first rolled out it's AI Act, I was so
31:17
Speaker 1: excited and I thought, this is the first comprehensive law
31:20
Speaker 1: addressing AI, and it's so great and we need this
31:23
Speaker 1: and they're moving so quickly. And then that was like
31:25
Speaker 1: maybe two and a half years ago, and now I'm
31:28
Speaker 1: just so disappointed on how it has turned out because
31:32
Speaker 1: they've delayed it, they've blamed the standards organizations that are
31:36
Speaker 1: trying to make it more specific, which is what it
31:38
Speaker 1: really needs. It's all just been quite a big disaster.
31:42
Speaker 1: But to answer your question about what to watch out for,
31:46
Speaker 1: I would also just watch out for what's happening in
31:49
Speaker 1: the court system, because some of the lawsuits that have
31:52
Speaker 1: been thrown against that have targeted open AI, that have
31:57
Speaker 1: targeted anthropic over copyright infringement, I mean, these are pretty
32:00
Speaker 1: big cases. There is several there's some several cases against
32:05
Speaker 1: open ai from more than a dozen families of people
32:09
Speaker 1: who've experienced some kind of mental health serious mental health
32:13
Speaker 1: harm from using chat GBT, and these are getting a
32:17
Speaker 1: lot of attention, and open ai has publicly addressed them
32:20
Speaker 1: and talked about making changes.
32:22
Speaker 5: So I almost feel like, actually the.
32:24
Speaker 1: Court system is having much more of an impact than
32:27
Speaker 1: any kind of legislation is right now.
32:30
Speaker 3: One of the surprises that we've had over the last
32:33
Speaker 3: few years actually has been the strength, the relative strength
32:36
Speaker 3: of US productivity.
32:38
Speaker 4: Growth.
32:39
Speaker 3: Economists tend to be obsessed with it because making more
32:41
Speaker 3: stuff with the same number of people is how you
32:43
Speaker 3: get richer. A key part of having AI feed into
32:47
Speaker 3: continued productivity growth is going to be that, as you mentioned,
32:50
Speaker 3: partly the diffusion across the economy. How has it applied
32:55
Speaker 3: historically if I look at Europe, certainly of looking at
32:57
Speaker 3: the UK, but I think in other places as well.
33:00
Speaker 3: It's the diffusion of technology that's been lacking. Actually, the
33:03
Speaker 3: best companies have had the best know how, but it's
33:07
Speaker 3: not spread through the economy nearly as well as it
33:10
Speaker 3: has in the US. Regulation is going to be an
33:12
Speaker 3: important part of a rollout, but its diffusion is the
33:15
Speaker 3: other big piece. What should we be looking at there
33:18
Speaker 3: because obviously it also feeds into whether those at least
33:21
Speaker 3: some of those high prices for AI companies are justified.
33:25
Speaker 5: Yeah, that's a really great point to bring up.
33:28
Speaker 1: Actually, and it's a point that politicians and lawmakers have
33:31
Speaker 1: been making that. Actually in Europe we might not be
33:35
Speaker 1: developing the big models that everybody's using in Silicon Valley,
33:38
Speaker 1: but hey, let's use that as an opportunity. Let's capitalize
33:42
Speaker 1: on all this money that Silicon Valley is spending and
33:45
Speaker 1: all this infrastructure, and let's just use this technology to
33:49
Speaker 1: make ourselves more productive. So to your point, exactly, this
33:52
Speaker 1: is about winning the AI race. What does that even mean?
33:56
Speaker 1: Does it mean that you have developed the most capable
33:59
Speaker 1: AI model from a company in your country, or does
34:03
Speaker 1: it just mean that the citizens of your country have
34:05
Speaker 1: actually adopted this technology much more quickly than anyone else
34:09
Speaker 1: and are exploiting it much more quickly. The government of Estonia,
34:12
Speaker 1: for instance, they've a population of one and a half
34:14
Speaker 1: million people, and they're the first in the world to
34:17
Speaker 1: roll out chat ept to all their schools. It's an
34:20
Speaker 1: educational version of chat ept. And someone else in Silicon
34:24
Speaker 1: Valley has built this, but they're tweaking it. They're trying
34:27
Speaker 1: to make it less of an answer engine and more
34:30
Speaker 1: of a question engine, where the bot doesn't just give
34:33
Speaker 1: the kids the answer all the time, but ask them
34:35
Speaker 1: questions to get them thinking more. Now, if they can
34:38
Speaker 1: make that work, they're going to be doing the rest
34:40
Speaker 1: of the world a favor, but they'll also be doing
34:42
Speaker 1: a huge favor to their students and to their educational system.
34:58
Speaker 3: He's talked about on this show, the possibility of a
35:01
Speaker 3: stock market correction or even something bigger than that, due
35:04
Speaker 3: to reduce confidence in that handful of AI companies tech companies.
35:10
Speaker 3: Tom I know that the economists have done a bit
35:12
Speaker 3: of analysis on this. What's our guess in terms of
35:15
Speaker 3: what the impact on the real economy would be of
35:17
Speaker 3: that kind of stock market correction? I mean, given that
35:20
Speaker 3: we I remember we saw in the tech bubble bursting
35:23
Speaker 3: in two thousand and two thousand and one that actually
35:25
Speaker 3: didn't have much impact on the economy. Could we expect
35:28
Speaker 3: something like that this time?
35:30
Speaker 4: Yeah.
35:31
Speaker 2: So it's a big question, Stephanie, and it's one that
35:33
Speaker 2: it's all too easy to wave your hands out in generalities.
35:37
Speaker 2: What we've done at Bloomberg Economics is take out the
35:40
Speaker 2: fed's big model of the US economy that's called FURBUS,
35:44
Speaker 2: and we modeled a specific scenario. We looked at what
35:47
Speaker 2: would happen if stock prices dropped around twenty twenty five
35:51
Speaker 2: percent and there was a broadening of credit spreads for
35:54
Speaker 2: corporate borrowers. And if you plug that shock into the
35:58
Speaker 2: Furbus model, what it tells you is, well, you have
36:01
Speaker 2: a blow to confidence, you have a blow to wealth
36:04
Speaker 2: that starts hitting consumption. Is more expensive for corporates to borrow,
36:09
Speaker 2: so it starts hitting investment as well. And as those
36:12
Speaker 2: shocks hit the economy in the end, you have a
36:16
Speaker 2: blow to GDP growth of around zero point seventy five
36:19
Speaker 2: percent and a blow to employment or a boost to
36:23
Speaker 2: unemployment of around zero point five percent. So those are
36:26
Speaker 2: macro significant shocks. You'd see them in the numbers, and
36:30
Speaker 2: if you have a snowball effect, well things could be
36:34
Speaker 2: even worse. Still, those numbers are numbers which would damage
36:38
Speaker 2: the growth trajectory for the US economy in twenty twenty six,
36:41
Speaker 2: they wouldn't entirely derail.
36:43
Speaker 3: It, and to short term if the bubble did burst,
36:46
Speaker 3: or at least you had a big correction. Given the
36:49
Speaker 3: relative to other countries, there's quite widespread holding of stock markets.
36:53
Speaker 3: There's a lot of households that have feel that they've
36:56
Speaker 3: got quite a lot richer as a result of this,
36:59
Speaker 3: the run up in the stocks. Do you think we
37:01
Speaker 3: should worry about the short term economic consequence of that?
37:04
Speaker 2: Yeah, I think I'd worry about it in a couple
37:06
Speaker 2: of respects, Stephanie. The first, as you mentioned is the
37:10
Speaker 2: stock market. US households hold a lot of stocks. They
37:14
Speaker 2: feel richer, They feel more inclined to consume if the
37:17
Speaker 2: stock market is going up. If the stock market is
37:20
Speaker 2: going down, that dynamic swings into reverse. Secondly, the funding
37:25
Speaker 2: for the AI infrastructure build out is also tied to
37:29
Speaker 2: market confidence on AI, right, and if that confidence evaporates, well,
37:35
Speaker 2: companies like Google and Meta they're still going to have
37:38
Speaker 2: the money to spend, but there's an entire ecosystem of
37:42
Speaker 2: other AI startups which are going to suffer, and that
37:45
Speaker 2: would be an additional negative for growth.
37:48
Speaker 3: There was a lot of discussion earlier in the year,
37:50
Speaker 3: especially in the wake of the Big Beautiful Bill, that
37:54
Speaker 3: there would be pressure on the bond market, and indeed
37:58
Speaker 3: you would expect if you look at the highlight level
38:00
Speaker 3: of government borrowing in the US at a time when
38:03
Speaker 3: the economy is pretty strong, there's certainly a very unsustainable
38:07
Speaker 3: debt path. You see the path of debt as a
38:10
Speaker 3: share of GDP just continuing to go up, which is
38:12
Speaker 3: kind of by definition unsustainable. And yet it's one of
38:16
Speaker 3: the few countries, certainly developed economies where the ten year
38:21
Speaker 3: yield was for most of the year was lower than
38:24
Speaker 3: the second half of the year was than it had
38:26
Speaker 3: been at the start. Most governments are sort of dealing
38:29
Speaker 3: with a higher cost of borrowing. That has been less
38:31
Speaker 3: true in the US. Despite all of this, marriage, does
38:35
Speaker 3: the administration kind of feel that it doesn't have to
38:38
Speaker 3: worry about fiscal risks at all, and is it going
38:41
Speaker 3: to feel sort of vindicated by the fact that despite
38:45
Speaker 3: that passing of that bill, you know, investors just don't
38:47
Speaker 3: seem to be worried about it.
38:50
Speaker 6: So you say, one feature of both Trump one point
38:53
Speaker 6: zero and two point zero is just the absence of
38:56
Speaker 6: the presidents speaking about fiscal policy. That's something that had
38:59
Speaker 6: traditionally been and tried and true point of American conservatism.
39:04
Speaker 6: When it has come up in Trump two point zero,
39:07
Speaker 6: you've seen the president both rationalize it with both his
39:10
Speaker 6: tear of policy, saying that the US is going to
39:13
Speaker 6: take in these massive amounts of good tear funds, but
39:18
Speaker 6: then also the output from the one big beautiful bill,
39:22
Speaker 6: the supercharging of the economy from his different policies, the
39:26
Speaker 6: regulatory easing as well, and he's rationalized it in that way.
39:33
Speaker 3: One thing I'm going to be watching. I don't know
39:35
Speaker 3: about you, Tom, but we might see, ironically, if if
39:40
Speaker 3: the president's power is kind of checked by the midterms,
39:45
Speaker 3: you might find that the last few months of next
39:48
Speaker 3: year are actually a tougher time in terms of the
39:51
Speaker 3: bond market and investors than the previous few months, because
39:57
Speaker 3: we saw in the UK that it's not now the
40:00
Speaker 3: policies you have, it's kind of the way it's being done,
40:03
Speaker 3: and the feeling that there's no constraints or no possible
40:06
Speaker 3: checks if you end up with sort of genuine gridlock
40:08
Speaker 3: in Congress at a time where naturally there's also questions
40:13
Speaker 3: about whether the FED is going to tighten policy as needed.
40:18
Speaker 3: If inflation starts heading up again, which many people see
40:21
Speaker 3: is potentially happening in the second half of next year.
40:24
Speaker 3: I think things could get a little bit ugly in
40:26
Speaker 3: the bond markets. Ironically, even though in theory the president
40:30
Speaker 3: looks a bit less powerful. That will actually worry some
40:34
Speaker 3: in the markets. But who knows, Tom, what are you
40:36
Speaker 3: going to be watching? What's the kind of wild card?
40:39
Speaker 3: Now we're reaching the end and we're thinking about potential
40:42
Speaker 3: risks or just yeah, things that we need to be
40:45
Speaker 3: watching twenty twenty six that we might not otherwise be
40:48
Speaker 3: paying attention to.
40:49
Speaker 2: Yeah, maybe I could just pick up briefly on that
40:51
Speaker 2: last thought, Stephanie, I think that's really interesting. So I
40:54
Speaker 2: think traditionally we think about US presidents who are constrained
40:58
Speaker 2: by congressional gridlock at home, trying to do more abroad. Right,
41:02
Speaker 2: I can't get anything through Congress, Let me pursue an
41:04
Speaker 2: aggressive foreign policy on one dimension or another.
41:07
Speaker 4: Right.
41:08
Speaker 2: I think the possibility, as you're pointing to, which I
41:10
Speaker 2: hadn't occurred to me before, was well, President Trump my
41:13
Speaker 2: begridlocked in Congress. But if he's got his man in
41:16
Speaker 2: at the FED and he's unembarrassed about pulling that lever, well,
41:20
Speaker 2: perhaps that's an unconstrained option for him.
41:24
Speaker 1: Right.
41:25
Speaker 2: So it could be that there's some dynamic between loss
41:28
Speaker 2: of power at the midterms, greater capacity to and willingness
41:32
Speaker 2: to influence the Fed, which could potentially play out in
41:35
Speaker 2: a pretty negative way for the US bond market. In
41:38
Speaker 2: terms of wild cards for twenty twenty six, I guess
41:41
Speaker 2: my wildcard is everything goes great. Right, I'll tell you
41:45
Speaker 2: why I was thinking that, So Bloomberg Economics. One place
41:47
Speaker 2: in the world we pay a lot of attention to
41:50
Speaker 2: is Taiwan because Taiwan sits at this kind of nexus
41:53
Speaker 2: of geopolitical and trade risk. Right, Concerned that Shi Jinping
41:58
Speaker 2: has ambitions to extend Chinese control to Taypeay, concern that
42:04
Speaker 2: tariffs would be a real negative for an economy which
42:08
Speaker 2: relies more on exports than pretty much any other economy
42:11
Speaker 2: in the world. Guess what Taiwan's GDP growth was in
42:14
Speaker 2: the first three quarters of twenty twenty five.
42:17
Speaker 3: Pretty high.
42:18
Speaker 2: I think you're going to tell me seven percent? Seven
42:21
Speaker 2: percent growth, right, So, all of these very real concerns
42:25
Speaker 2: about trade, all of these very real concerns about geopolitics.
42:29
Speaker 2: Through it all, this rebel island, which should be at
42:33
Speaker 2: the absolute nexus of these risks, continuing to significantly outperform,
42:38
Speaker 2: precisely because of that optimism about Ai supercharging demand for
42:43
Speaker 2: Taiwan's chips. Maybe in a microcosm, that will be the
42:47
Speaker 2: story for the global economy in twenty twenty six. Yes,
42:51
Speaker 2: the risks are there, but actually it's the momentum and
42:55
Speaker 2: the optimism and the Ai revolution which continue to dominate
42:59
Speaker 2: the narrative.
43:01
Speaker 3: So, Mario, are you girding yourself for things to go
43:03
Speaker 3: really right next year as you contemplate your Christmas holidays?
43:10
Speaker 6: No, absolutely, I mean it's similar to Tom kind of
43:14
Speaker 6: His answer was kind of similar to what I was
43:16
Speaker 6: thinking as well. Just I mean in the last fifty
43:19
Speaker 6: or sixty years or so, only two times has a
43:22
Speaker 6: president been able to buck the midterm historical midterm trend
43:26
Speaker 6: and keep their majority or expand it. Last month was
43:30
Speaker 6: a bad month for the president and he continues to
43:32
Speaker 6: be in a rut. Right now, Democrats are abiliate in
43:37
Speaker 6: some ways and looking toward a blue wave.
43:40
Speaker 4: But what if it doesn't happen, What if it doesn't materialize.
43:44
Speaker 6: This is a president who was indicted, who went through
43:47
Speaker 6: court cases, who was impeached twice, and still ended up
43:51
Speaker 6: back in the White House.
43:53
Speaker 4: What if he ends up with a hot hand electorally
43:55
Speaker 4: again and keeps control of Congress next year.
43:58
Speaker 3: It's interesting that we think that as the wildcard. Well,
44:01
Speaker 3: funnily enough, and of course you can tell from this
44:02
Speaker 3: that none of us coordinated. Mine was a combination of
44:05
Speaker 3: those two. In the sense, I do think a lot
44:08
Speaker 3: more could go right economically than people might expect. I
44:11
Speaker 3: was just looking today noticing that both the trade deficit
44:14
Speaker 3: and the federal deficit have been falling in recent months,
44:17
Speaker 3: and in fact, the budget deficit has been falling for
44:19
Speaker 3: most of this year. In that sense, you could say,
44:22
Speaker 3: big picture, President Trump's policies are working. If he was
44:26
Speaker 3: coming in wanting to shrink the trade deficit, well, that
44:30
Speaker 3: is very much what has been happening. He has had
44:33
Speaker 3: a big impact on the Chinese imports coming into the US,
44:37
Speaker 3: as he suggested. Inflation has been pretty stable, Growth is
44:41
Speaker 3: pretty stable, as we've noted, Productivity is a bit higher
44:44
Speaker 3: than it has been elsewhere. I guess the kicker I
44:47
Speaker 3: would add to that is I think that things could
44:49
Speaker 3: go right in the big picture economically, and we could
44:53
Speaker 3: all be giving a certain amount of credit to the
44:55
Speaker 3: President for that, and he'll still lose the midterms, because
44:57
Speaker 3: if we've learned anything in the last few years, it's
44:59
Speaker 3: a household don't necessarily give credit for those kind of
45:02
Speaker 3: big picture macro achievements if they're still seeing quite a
45:05
Speaker 3: lot of micro pain. And I think they will be
45:08
Speaker 3: still seeing a bit of micro pain, and even the
45:10
Speaker 3: shrinking of that trade deficit will be reflecting a bit
45:13
Speaker 3: of pain on the ground because US manufacturers will be
45:16
Speaker 3: under pressure by those tariffs. So a combination these go
45:20
Speaker 3: really well, but not so well for the president despite that,
45:23
Speaker 3: and then he will fulminate at how unfair it is
45:26
Speaker 3: and just finally put me from you your wild card
45:29
Speaker 3: or the thing that you're going to be watching that
45:31
Speaker 3: we might not otherwise be watching in twenty six.
45:34
Speaker 5: Well, my wild card isn't a particularly wild name.
45:38
Speaker 1: It would just be to look at Google and how
45:41
Speaker 1: much it continues to move ahead in the race against
45:44
Speaker 1: open AI. They if you think about the story of
45:47
Speaker 1: the hair and the tortoise, I would really put open
45:50
Speaker 1: ai as the hair and Google.
45:52
Speaker 5: As the tortoise.
45:53
Speaker 1: They started off on the back foot, way behind when
45:55
Speaker 1: chatgybt came out three years ago, and they have just
45:58
Speaker 1: gradually caught up. And now their latest model, Gemini, is
46:03
Speaker 1: better than the latest model of open aies by some benchmarks,
46:08
Speaker 1: and they're gaining ground in terms of market share.
46:10
Speaker 5: They've got this.
46:11
Speaker 1: Very cautious, corporate scientific approach to AI, which is very
46:17
Speaker 1: different samal than an open AI, who is much more
46:20
Speaker 1: product oriented and let's make this an engaging product with
46:23
Speaker 1: lots of features that are going to keep people engaged
46:26
Speaker 1: for as long as possible. So maybe Google's approach of
46:30
Speaker 1: this kind of utilitarian approach to building AI it's not
46:34
Speaker 1: as exciting, it's a little bit more boring, but they
46:37
Speaker 1: are slowly gaining ground. And of course they are the
46:40
Speaker 1: established company and so I would not be surprised to
46:44
Speaker 1: see them actually maybe surpass Open Ai certainly in terms
46:48
Speaker 1: of capabilities of their AI models.
46:51
Speaker 3: Next year, all right, Google the boring company to watch.
46:55
Speaker 3: Thank you very much, Marion Parker, pome Elsen, Tom Wllick,
46:58
Speaker 3: thank you so.
46:59
Speaker 4: Much, thank you, thank you, thanks definitely, and.
47:03
Speaker 3: Happy New Year. Thanks for listening to Trumponomics from Bloomberg.
47:10
Speaker 3: It was hosted by me Stephanie Flanders. I was joined
47:13
Speaker 3: by Bloomberg Opinion columnist Pame Olsen, Bloomberg Economics Chief economist
47:18
Speaker 3: Tom Orlick, and our managing editor for US Government, Mario Parker.
47:26
Speaker 3: Trumponomics was produced by Summer Sadi and Moses and Am,
47:29
Speaker 3: with help from Amy Keen and special thanks to Rachel
47:33
Speaker 3: Lewis Chrisky. Sound design was by Blake Maples and Sage
47:37
Speaker 3: Bowman is Bloomberg's head of podcast. To help others find
47:41
Speaker 3: the show, please rate and review us highly wherever you
47:44
Speaker 3: listen to your podcasts, and I hope whatever you're doing
47:48
Speaker 3: you have a really great holiday.
48:00
Speaker 4: The mat found the p