Latest / Bloomberg Intelligence / Electric Cars Will Dominate Market by 2040, New Energy Finance's Morsy Says

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Electric Cars Will Dominate Market by 2040, New Energy Finance's Morsy Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa A. Bramowitz. Each
• 0:11
  Speaker 1: day we bring you the most important, noteworthy, and useful
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  Speaker 1: interviews for you and your money, whether you're at the
• 0:17
  Speaker 1: grocery store or the trading floor. Find the Bloomberg P
• 0:20
  Speaker 1: M L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.
• 0:32
  Speaker 1: Now we want to turn to electric cars and specifically
• 0:35
  Speaker 1: h Salim Morsey, Advanced Transport analyst for Bloomberg New Energy Finance.
• 0:40
  Speaker 1: There's a new forecast coming out or that has come out.
• 0:43
  Speaker 1: I beg your pardon and sle maybe you could go
• 0:46
  Speaker 1: ahead and tell us the genesis of this report and
• 0:49
  Speaker 1: when do you think we'll all be driving electric cars? Hi, Pim,
• 0:54
  Speaker 1: thanks for stending me. So we uh we we took
• 0:56
  Speaker 1: a very basic observation, which is the fact that price
• 1:00
  Speaker 1: of batteries, the price of batteries, the stuff that test
• 1:03
  Speaker 1: U puts in the cars, is falling rapidly. It's on
• 1:05
  Speaker 1: seventy in the last six years, and we expect those, uh,
• 1:09
  Speaker 1: those prices to continue down. And so the impacts of
• 1:13
  Speaker 1: this trend are profound and wide ranging. And we think
• 1:16
  Speaker 1: that by about half of all cars sold globally will
• 1:20
  Speaker 1: be electric. In other words, we'll have a plug on them,
• 1:22
  Speaker 1: and we will be phasing out internal combustion engines. The
• 1:27
  Speaker 1: phasing out of internal combustion engines has got to come
• 1:31
  Speaker 1: not only with the lower cost of batteries, but an
• 1:34
  Speaker 1: infrastructure in the country to be able to support that
• 1:38
  Speaker 1: kind of electrification. That's that's absolutely correct. So it's it's
• 1:42
  Speaker 1: it's a it's a it's a vertical. It's kind of
• 1:45
  Speaker 1: a tangential requirement for e v s to scale up.
• 1:48
  Speaker 1: And we see a lot of investments today in infrastructure.
• 1:51
  Speaker 1: The one you probably have heard of is the test
• 1:54
  Speaker 1: A supercharger, but many other stakeholders are investing in this,
• 1:57
  Speaker 1: and certainly we we think that there will be sufficient
• 2:01
  Speaker 1: infrastructure to get to a market penetration of over fifty,
• 2:05
  Speaker 1: but our forecast is actually capped because of this hurdle.
• 2:09
  Speaker 1: We think that rural areas uh in the developing world,
• 2:13
  Speaker 1: or or cities without the proper urban infrastructure with multi
• 2:17
  Speaker 1: dwelling units will suffer and as a result, even though
• 2:20
  Speaker 1: the attractiveness of the purchase makes sense, the refueling component,
• 2:25
  Speaker 1: in other words, the charging will still be a hurdle
• 2:28
  Speaker 1: we think in the future, is there a technical obstacle
• 2:32
  Speaker 1: that you can see that would prevent independent charging stations
• 2:36
  Speaker 1: drawing solar power and converting it into battery technology that
• 2:41
  Speaker 1: would then sort of obfuscate the need for this network
• 2:45
  Speaker 1: of delivery and so on. So solar it's certainly a
• 2:50
  Speaker 1: top of mind for many, uh, for for many folks,
• 2:52
  Speaker 1: and stories like Musk that's why I went there exactly exactly. So,
• 2:56
  Speaker 1: so the value proposition that that testa puts forth it
• 3:00
  Speaker 1: is that you know, solar charges their stationary storage which
• 3:04
  Speaker 1: is then used off the grid to charge batteries, that
• 3:07
  Speaker 1: there's some value to that. But remember when we're talking
• 3:10
  Speaker 1: about charging cars, where we're talking about significant amounts of power,
• 3:13
  Speaker 1: and the requirements for the storage and the solar grow
• 3:17
  Speaker 1: exponent exponentially as the car fleet and utilization grows. So
• 3:22
  Speaker 1: if you take one car, maybe that's feasible. If you
• 3:24
  Speaker 1: have a hundred cars charging, you need a lot of
• 3:26
  Speaker 1: solar and you certainly need a lot of batteries to
• 3:28
  Speaker 1: dispense all that energy back into electric cars. What role
• 3:32
  Speaker 1: does the Model three play in all this? Yeah, so
• 3:37
  Speaker 1: you know we're coincidentally our report is coming out the
• 3:40
  Speaker 1: months that Tesla is launching their Model three, and it's
• 3:43
  Speaker 1: certainly their flagship product. You've seen their sales kind of
• 3:47
  Speaker 1: I guess disappointed Wall Street with regards to their guidance,
• 3:50
  Speaker 1: and certainly Model three the product that carries them to
• 3:55
  Speaker 1: five hundred thousand units a year if they do hit that,
• 3:58
  Speaker 1: and so it's an important least because it is what
• 4:01
  Speaker 1: we call down market product, is a more affordable product,
• 4:04
  Speaker 1: and certainly we think that should the Model three cell,
• 4:07
  Speaker 1: well you know in the US we're talking over a
• 4:10
  Speaker 1: hundred thousand units a year, it will usher in, you know,
• 4:13
  Speaker 1: it will it will signal I think to entrenched incumbent
• 4:18
  Speaker 1: O E M S, Auto, O E M S, the four's,
• 4:20
  Speaker 1: the g ms of this world that really electric vehicles
• 4:22
  Speaker 1: are not just some compliance regulatory compliance product, but really
• 4:26
  Speaker 1: a product that that the mass market wants and and
• 4:30
  Speaker 1: uh for which there is a lot of demand. So
• 4:32
  Speaker 1: I think it's a it might be a seminal moment
• 4:34
  Speaker 1: in this market. Well, I want to thank you very
• 4:36
  Speaker 1: much for sharing some of this information with us. It's
• 4:39
  Speaker 1: a wonderful report. I recommend it to anyone that wants
• 4:41
  Speaker 1: to know about the electric vehicle market and also the
• 4:45
  Speaker 1: hybrid vehicle market. So Lead Morsey is our advanced transport
• 4:48
  Speaker 1: analyst for Bloomberg New Energy Finance. Well, you know the
• 5:05
  Speaker 1: Institute for Supply Management. The non Manufacturing index for June
• 5:10
  Speaker 1: rose to fifty seven point four. Now the estimate was
• 5:14
  Speaker 1: for an increase to fifty six point five, while readings
• 5:18
  Speaker 1: above fifty indicate growth. Well, does this make it more
• 5:22
  Speaker 1: difficult for the Federal Reserve to decide when to begin
• 5:26
  Speaker 1: the unwinding of its balance sheet and the timing of
• 5:29
  Speaker 1: interest rate increases? Here to tell us more as Terry Wiseman.
• 5:32
  Speaker 1: He is Global Interest Rates and Currencies Strategist for Macquarie.
• 5:36
  Speaker 1: Terry always a pleasure, Thanks for being here, all right.
• 5:38
  Speaker 1: So you've got the I s M number coming in
• 5:40
  Speaker 1: better than estimated. Uh, you've got the jobs report, the
• 5:44
  Speaker 1: pay the non farm paywall report tomorrow eight thirty. Live
• 5:47
  Speaker 1: here always on Bloomberg. What what do you think is
• 5:51
  Speaker 1: going on in the minds of policymakers. I think what's
• 5:54
  Speaker 1: more important or what is becoming more important PIM is
• 5:57
  Speaker 1: is not so much the rate of job growth. The
• 6:00
  Speaker 1: last few years have seen steady job growth. Um, what
• 6:05
  Speaker 1: I think is becoming more important with respect the job
• 6:07
  Speaker 1: market is the unemployment rate, because I think that the
• 6:09
  Speaker 1: FED has not moved away from the view that conventional
• 6:12
  Speaker 1: measures of labor market tightness like the youth three unemployment rate,
• 6:15
  Speaker 1: like the U six unemployment are valid measures of labor
• 6:19
  Speaker 1: force tightness. And if they believe that, and I think
• 6:23
  Speaker 1: there's no reason for them to not believe that in
• 6:25
  Speaker 1: order to have suggested that they wouldn't believe this UH.
• 6:28
  Speaker 1: It is the case that the unemployment right now, at
• 6:30
  Speaker 1: four point three percent is at their projected media. It's
• 6:34
  Speaker 1: possible it drops even further with the employment report tomorrow,
• 6:37
  Speaker 1: and I actually think this makes the Fed's job easier.
• 6:39
  Speaker 1: To reference what you asked earlier, The feds job will
• 6:42
  Speaker 1: be made easy by a four point two percent unemployment rate,
• 6:44
  Speaker 1: i e. They should be raising rates at these levels,
• 6:47
  Speaker 1: especially levels of the unemployment right there below their long
• 6:50
  Speaker 1: term average and at or slightly below their median projection
• 6:54
  Speaker 1: for two seventeen. Is that what the bond market is
• 6:56
  Speaker 1: telling you as well. The bond market is not necessary
• 6:59
  Speaker 1: if you're looking at a tenure yield, that's not necessarily
• 7:01
  Speaker 1: a good tracker of what the FED UH is going
• 7:03
  Speaker 1: to do. That's really a good tracker of what the
• 7:06
  Speaker 1: market thinks that Fed is going to do over the
• 7:07
  Speaker 1: next ten years. When you look at where implied the
• 7:11
  Speaker 1: implied probability of the FED funds rate is across the
• 7:15
  Speaker 1: next six months, the market is, I agree, has not
• 7:18
  Speaker 1: yet UH anticipated fully fledged anticipation of the FED raising
• 7:24
  Speaker 1: rates this year. I think the implied probability is about that.
• 7:29
  Speaker 1: Is it because the actual constituents that make up the
• 7:32
  Speaker 1: bond market UH have never been in a rate tightening
• 7:37
  Speaker 1: cycle before. No, I don't think that. I don't think so.
• 7:41
  Speaker 1: I think that in normal times this is the These
• 7:44
  Speaker 1: are the types of economic outcomes and economic circumstances where
• 7:47
  Speaker 1: the mark would be much more confident about the FED
• 7:49
  Speaker 1: moving forward with rate hiking. What I point to, however,
• 7:53
  Speaker 1: is a lot of doubt on the part of the
• 7:54
  Speaker 1: market as to whether or not the inflation drop that
• 7:57
  Speaker 1: we saw in the first quarter of this year is
• 7:59
  Speaker 1: in fact it be transitory. There's obviously a lot of doubts.
• 8:02
  Speaker 1: You believe it will be I do. I I believe
• 8:04
  Speaker 1: that oil prices, having dropped as much as they have
• 8:07
  Speaker 1: in the last few weeks, is going to sustain low
• 8:11
  Speaker 1: headline inflation for the next few months. And I believe
• 8:15
  Speaker 1: this is not something that the Fed normally or would
• 8:17
  Speaker 1: have anticipated, let's say, back in June or back in March,
• 8:21
  Speaker 1: when they've been you know, and over the last few months,
• 8:24
  Speaker 1: let's say, when they've been talking about transitory inflation. However,
• 8:27
  Speaker 1: this is still a one off in the sense that
• 8:29
  Speaker 1: it's created by one thing. Wages, on the other hand,
• 8:33
  Speaker 1: are higher or going higher. Materials costs are not necessarily
• 8:37
  Speaker 1: being driven down. Operating margins in new economy are low,
• 8:40
  Speaker 1: but ultimately companies like Uber and all of these other
• 8:43
  Speaker 1: companies that are competing for market share against the old
• 8:46
  Speaker 1: economy are going to have to raise prices. So my
• 8:49
  Speaker 1: sense is that we can see a few more months
• 8:50
  Speaker 1: of low inflation, but it's not the kind of situation
• 8:53
  Speaker 1: that's going to deter the FED from raising rates. Okay, well,
• 8:56
  Speaker 1: as we speak, the long bond is down one and
• 8:59
  Speaker 1: twelve thirty seconds. We are now at two point nine
• 9:02
  Speaker 1: one percent, So clearly someone's listening to the same tune
• 9:07
  Speaker 1: that you're playing. Well, at least today, keep in mind
• 9:09
  Speaker 1: that the data in the last few days has actually
• 9:11
  Speaker 1: been good for the US. We got the manufacturing I
• 9:13
  Speaker 1: s M. Last week it was solid. We got the
• 9:16
  Speaker 1: non manufacturing UH this week, actually we got it before
• 9:18
  Speaker 1: the holiday. We got the noting this week was also solid.
• 9:21
  Speaker 1: But every other survey based indicator of the economy is strong.
• 9:24
  Speaker 1: You look at the n f I B hiring plans
• 9:26
  Speaker 1: in decks well above the average of the last decade
• 9:29
  Speaker 1: during the go go years, UM other surveys and UM,
• 9:33
  Speaker 1: you know the the the you know when you look
• 9:35
  Speaker 1: at the gallop surveys of of of of Whatso there's
• 9:39
  Speaker 1: some kind of business optimism as well, small and mid
• 9:42
  Speaker 1: sized business. I would caution, however, that a lot of
• 9:44
  Speaker 1: that optimism from the part of businesses is due to
• 9:46
  Speaker 1: the new administration and tax cuts. But but that or
• 9:50
  Speaker 1: may not material now, may not may or may not materializing.
• 9:52
  Speaker 1: The FED is not taking a stance on that yet.
• 9:55
  Speaker 1: Based on what we read in the minutes this week. However,
• 9:58
  Speaker 1: hiring plans forget investment plans for a moment, which would
• 10:01
  Speaker 1: be more sensitive to tax reform and tax policy. Hiring
• 10:04
  Speaker 1: plans are solid. I want to turn your attention out
• 10:07
  Speaker 1: of this connection that exists or that you that you're
• 10:10
  Speaker 1: going to tell us about the connection between oil prices
• 10:13
  Speaker 1: and interest rates. And one of the things that oil
• 10:16
  Speaker 1: prices right now crewe forty eight four. All right, so
• 10:19
  Speaker 1: it's up seventy one cents, and it makes it look
• 10:21
  Speaker 1: really big because it's a one and a half percent move,
• 10:24
  Speaker 1: but you know, it's still seventy cents forty five eight three.
• 10:28
  Speaker 1: Gasoline prices are understand nominally the same as they were
• 10:32
  Speaker 1: in two thousand and five. Do low gasoline prices by
• 10:38
  Speaker 1: countries like the United States a lot of time in
• 10:41
  Speaker 1: order to make that switch that which seems to be
• 10:44
  Speaker 1: slowly happening to hybrid and electric forms of transport. Well,
• 10:49
  Speaker 1: if you're if you're asking to low gasoline prices deter
• 10:52
  Speaker 1: people from making the substitution into non oil based technologies,
• 10:57
  Speaker 1: I would have to say the answer is yes, as
• 10:58
  Speaker 1: long as all prices are low. When hydrocarbon prices are low,
• 11:01
  Speaker 1: there's going to be a slow movement rather than a
• 11:03
  Speaker 1: rapid movement. But it's happening in parallel, right, I mean,
• 11:06
  Speaker 1: that's the that's the irony is and Evolva just coming
• 11:08
  Speaker 1: out and saying they're gonna do hybrid and electric and testlow.
• 11:12
  Speaker 1: That's right. But I think these companies are looking more
• 11:14
  Speaker 1: towards the long term and and the regulatory basis for
• 11:17
  Speaker 1: trying to undo the dependence on on hydrocarbons in this
• 11:20
  Speaker 1: economy and other modern economies. This is what they're doing.
• 11:23
  Speaker 1: As little reference to oil prices over the last few years,
• 11:26
  Speaker 1: I would say, however, that if oil prices stay at
• 11:28
  Speaker 1: state as high as they were in late two thousand
• 11:30
  Speaker 1: and fourteen before the OPEC supply increases in the news
• 11:35
  Speaker 1: regarding that, I think they would have been even slower
• 11:37
  Speaker 1: adoption of these of these of these technologies, I'm sorry,
• 11:40
  Speaker 1: more rapid adoption of these technologies oil and interest rates.
• 11:46
  Speaker 1: So there is a correlation. I mean, I mean, take
• 11:48
  Speaker 1: a look at just the past twelve months, the period
• 11:52
  Speaker 1: that we can most easily remember because it's still still
• 11:54
  Speaker 1: embedded there, hopefully, if you were looking at the middle
• 11:56
  Speaker 1: of two thousand and um UH sixteen, there were also
• 12:00
  Speaker 1: a lot of doubts as to whether inflation could go
• 12:02
  Speaker 1: up because oil prices were kind of in the dumps.
• 12:05
  Speaker 1: And then starting in the third quarter we got a
• 12:07
  Speaker 1: rally in oil prices. We also got a rally in inflation.
• 12:10
  Speaker 1: It may have been temporary, it may have only lasted
• 12:12
  Speaker 1: until Q one of this year, but it happened. And
• 12:14
  Speaker 1: now look at the chart on bond deals. You saw
• 12:16
  Speaker 1: that bond deals actually rose during this period of rising
• 12:18
  Speaker 1: inflation starting in Q three and into Q four and
• 12:21
  Speaker 1: early Q one of this year. So just on the
• 12:23
  Speaker 1: on the base of that anecdotal evidence, I would say that, yes,
• 12:25
  Speaker 1: there is a correlation. The fact that all prices have
• 12:27
  Speaker 1: gone down again recently may cap bond deals into the
• 12:30
  Speaker 1: end of this year because we're going to continue to
• 12:32
  Speaker 1: see effect of that dropping all the prices into the
• 12:34
  Speaker 1: data end to the end of this year. But that's
• 12:36
  Speaker 1: not going to deter the FED again from raising rates.
• 12:39
  Speaker 1: All right, We're gonna look forward to that July meeting
• 12:41
  Speaker 1: that's coming up next right, absolutely going to pay attention
• 12:43
  Speaker 1: to you'll help us do that, Thanks very much. Terry
• 12:46
  Speaker 1: Wiseman is the Global interest rates and Currencies strategist for mcquarie,
• 12:51
  Speaker 1: giving us his view on the connection between oil prices
• 12:54
  Speaker 1: and interest rates. Well. President Donald Trump is headed to
• 13:10
  Speaker 1: Hamburg for the G twenty meeting, where he will meet
• 13:13
  Speaker 1: with President Vladimir Putin of Russia and one of the
• 13:17
  Speaker 1: topics most likely will be North Korea. Here to help
• 13:21
  Speaker 1: us understand what is going on and the possibility for
• 13:24
  Speaker 1: some kind of action is Tom Orlick. He is our
• 13:27
  Speaker 1: chief Asia economist for Bloomberg Intelligence. Tom, thanks for being
• 13:30
  Speaker 1: here with me in the studio. You know, the there
• 13:35
  Speaker 1: always seems to be a little bit of a battle
• 13:36
  Speaker 1: between you know, there's an ideological confrontation that goes on,
• 13:40
  Speaker 1: but then everyone ultimately says, it's always about the money.
• 13:43
  Speaker 1: And I'm wondering if you could describe is it effective
• 13:46
  Speaker 1: to try to isolate North Korea's economy based on what
• 13:49
  Speaker 1: you know and based on the trading patterns that exist
• 13:53
  Speaker 1: in Asia. Well, I think the interesting thing which has
• 13:56
  Speaker 1: happened in the last few months is that we've seen
• 13:58
  Speaker 1: an unprecedented move by China to put the economic chokehold
• 14:03
  Speaker 1: on Pyongyang. North Korea's financial lifeline. Their economic lifeline is
• 14:09
  Speaker 1: exports to China, and in those exports, coal is a
• 14:13
  Speaker 1: very significant component. If you look at the numbers, coal
• 14:17
  Speaker 1: exports from North Korea to China have gone to zero
• 14:20
  Speaker 1: in the last few months. So they have followed through
• 14:23
  Speaker 1: on a request. I believe that was part of a
• 14:26
  Speaker 1: conversation between President Trump and J. J. Pain when he visited.
• 14:30
  Speaker 1: They followed through on their commitment on embargoing coal imports
• 14:35
  Speaker 1: from North Korea. Um. Now, the question in my mind
• 14:39
  Speaker 1: is why has the timetable moved forward so aggressively. Clearly,
• 14:44
  Speaker 1: a move like effect of economic sanctions is not going
• 14:48
  Speaker 1: to play out in terms of a change in North
• 14:51
  Speaker 1: Korean behavior immediately. You would want to see a period
• 14:55
  Speaker 1: of time to allow that to play out in terms
• 14:58
  Speaker 1: of a shift in thinking in yong Yang. Clearly that
• 15:01
  Speaker 1: hasn't happened based on your experience in the region. Is
• 15:05
  Speaker 1: that likely to happen? That is the That is the
• 15:09
  Speaker 1: I mean, do we have any evidence that the leader
• 15:11
  Speaker 1: of North Korea has ever changed his behavior and the
• 15:15
  Speaker 1: behavior of the country because of outside pressure? That is
• 15:18
  Speaker 1: a very good question. Um. And of course, even if
• 15:22
  Speaker 1: China follows through on effective economic sanctions, that's no guarantee
• 15:27
  Speaker 1: that it's going to deliver the results which the US
• 15:30
  Speaker 1: and China and everyone else in the world wants to see,
• 15:33
  Speaker 1: which is a more rational North Korean regime. It's possible
• 15:38
  Speaker 1: that it could have an unintended consequence. That unintended consequence
• 15:42
  Speaker 1: could also come with military action, couldn't it. So we're
• 15:46
  Speaker 1: straying a little bit far from the field of economics
• 15:49
  Speaker 1: into into international relations. But yes, clearly that is one
• 15:54
  Speaker 1: of the risks. All right, tell us about the Japanese
• 15:57
  Speaker 1: participation in all of this. The Japanese economy, and it
• 16:00
  Speaker 1: is not monolithic in this sense that it's all in Japan.
• 16:03
  Speaker 1: I mean, the Japanese multinational corporations have business all around
• 16:08
  Speaker 1: the world and specifically in Southeast Asia. Yeah, that's absolutely true.
• 16:13
  Speaker 1: And one of the interesting things about the whole security
• 16:16
  Speaker 1: dynamic in Asia is how it's playing out in terms
• 16:20
  Speaker 1: of economic and financial consequences. We see that in Southeast
• 16:24
  Speaker 1: Asia where China's moves as part of the Belton Road
• 16:28
  Speaker 1: initiative have prompted a people about that. Why that is
• 16:32
  Speaker 1: of paramount interest if you are interested in business in Asia.
• 16:36
  Speaker 1: So the Belt and Road initiative is China's big foreign
• 16:39
  Speaker 1: policy push. UM. It's their attempts to ratchet up their
• 16:44
  Speaker 1: political influence in Asia UM and the and the surrounding
• 16:48
  Speaker 1: regions by amping up spending on infrastructure UM. Now, for
• 16:54
  Speaker 1: Japan this obviously is a source of tension. And the
• 16:57
  Speaker 1: happy consequence of this for Southeast Asia nations is that
• 17:01
  Speaker 1: they find themselves the center of a tussle for influence
• 17:04
  Speaker 1: between China and Japan, both of which are pouring money
• 17:07
  Speaker 1: into the region to try and win friends. I want
• 17:11
  Speaker 1: to talk about money, but money that is here in
• 17:13
  Speaker 1: the United States, and it has to do with steel,
• 17:15
  Speaker 1: because there have been many attempts by UH steel companies
• 17:19
  Speaker 1: in the United States, some of them anyway, to have
• 17:22
  Speaker 1: the administration work for increased tariffs of imported steel. But
• 17:28
  Speaker 1: all steel is not the same, and I'm wondering if
• 17:30
  Speaker 1: you could give us some details. That's right. So, UM,
• 17:34
  Speaker 1: we've seen tariffs bubbling up the agenda again. One report
• 17:37
  Speaker 1: in the press said that President Trump was hell bent
• 17:40
  Speaker 1: on imposing tariffs on steel. UM. One of the targets
• 17:44
  Speaker 1: for that could be China, which is viewed as dumping
• 17:47
  Speaker 1: steel bargain basement price prices on global markets. UM. I
• 17:52
  Speaker 1: think this is one of a number of indications that
• 17:54
  Speaker 1: the trajectory on US China relations is looking a little
• 17:58
  Speaker 1: bit less negative. UM. Big picture though, I think is
• 18:01
  Speaker 1: that relative to where we were at the end of
• 18:04
  Speaker 1: two thousand and sixteen, when Donald Trump was talking about
• 18:07
  Speaker 1: a forty five tariff on all Chinese exports, the current
• 18:11
  Speaker 1: situation is actually still pretty positive for China. Well in
• 18:14
  Speaker 1: that in that Vein. I'm wondering if the Chinese have already,
• 18:17
  Speaker 1: as you said earlier, followed through with their plan to
• 18:21
  Speaker 1: cut off coal imports from North Korea, do they expect
• 18:26
  Speaker 1: a quid pro quo from the Trump administration on these
• 18:30
  Speaker 1: kinds of trade tariffs. You know, it's very hard to
• 18:34
  Speaker 1: see into the mind of the Chinese administration, and I
• 18:37
  Speaker 1: wouldn't claim to know what they're thinking, but I imagine
• 18:41
  Speaker 1: there in Beijing right now there's a certain amount of puzzlement. Um.
• 18:45
  Speaker 1: The conversation between Trump and she in Mara Lago seemed
• 18:49
  Speaker 1: to go very well the Chinese and now talk about
• 18:51
  Speaker 1: the Mara Lago Consensus. Since then, if anything, China has
• 18:56
  Speaker 1: over delivered relative to expectations on North Korea. They have
• 19:00
  Speaker 1: followed through on that embargo on coal imports, and yet
• 19:04
  Speaker 1: the response from the US has become more there's more
• 19:10
  Speaker 1: friction has been added to the relationship, right It's been
• 19:12
  Speaker 1: more fragmented to a to a certain But is it
• 19:15
  Speaker 1: actually referred to as the Mara Lago Consensus? Yes, I believe.
• 19:19
  Speaker 1: I believe She Jimping has spoken about the has has
• 19:23
  Speaker 1: has spoken about negative elements damaging the Mara Lago consensus. Interesting. Yeah,
• 19:28
  Speaker 1: and at the same time, the dollar has weakened against
• 19:32
  Speaker 1: the yuan. The remember the Chinese currency, which is one
• 19:36
  Speaker 1: of the other things that the United States was for.
• 19:38
  Speaker 1: So this is part of the general positive, bigger picture
• 19:41
  Speaker 1: in U S. China relations. Following the Trump administration, Trump
• 19:45
  Speaker 1: came into office warning that he would name China currency manipulator.
• 19:50
  Speaker 1: That hasn't happened. Thank you very much for being here.
• 19:53
  Speaker 1: Always a pleasure. Tom Oilick he is our chief Asian
• 19:55
  Speaker 1: economist for Bloomberg Intelligence. You can follow him on Twitter
• 20:00
  Speaker 1: at Tom orlck O r l i K. You're listening
• 20:04
  Speaker 1: to Bloomberg thirty minutes. Thirty minutes. That's about how long
• 20:21
  Speaker 1: it would take a nuclear tipped intercontinental ballistic missile that's
• 20:25
  Speaker 1: launched from North Korea to reach Los Angeles thirty minutes.
• 20:30
  Speaker 1: Eli Lake is a Bloomberg View columnist and our topic
• 20:34
  Speaker 1: is North Korea, and Eli, we don't want those thirty
• 20:38
  Speaker 1: minutes to ever become part of history. We just rather
• 20:41
  Speaker 1: have them be a sentence. Uh. Is it possible that
• 20:46
  Speaker 1: North Korea will have nuclear capability to deliver internationally intercontinentally
• 20:52
  Speaker 1: before Donald Trump even completes the first a one year
• 20:56
  Speaker 1: you know, four your term. Yeah, there are a lot
• 20:58
  Speaker 1: of estimates in the U S and elegance communities, uh,
• 21:01
  Speaker 1: And I don't put much stake in that. Usually those
• 21:05
  Speaker 1: estimates are wrong. Um. And I would also point out
• 21:08
  Speaker 1: that there are things that the US can do to
• 21:11
  Speaker 1: purchase time on this, and that is you can sabotage,
• 21:15
  Speaker 1: you can do cyber attacks like what was done against
• 21:18
  Speaker 1: the Iranian program in two thousand nine. UM. So it's
• 21:23
  Speaker 1: hard to get into that, but I do think that
• 21:24
  Speaker 1: it's it's now a point where what we know is
• 21:28
  Speaker 1: the North Koreans have mastered the fuel cycle, they can
• 21:31
  Speaker 1: produce UM weapons grade UH material for a bomb. They
• 21:36
  Speaker 1: are coming dangerously close to mastering the I CBM technology
• 21:41
  Speaker 1: and multi stage rockets that can travel a long distance.
• 21:44
  Speaker 1: And we know that it's once you've got those two
• 21:48
  Speaker 1: legs of the stool, it's easier to then miniaturize UM
• 21:53
  Speaker 1: the nuclear materials so into a warhead so that you
• 21:57
  Speaker 1: can deliver that with a missile. So that this is
• 22:00
  Speaker 1: the problem I think, and UM, you know it's and
• 22:03
  Speaker 1: so it's it's probably not right to get into timelines
• 22:06
  Speaker 1: at this point, but they're getting very close and Uh,
• 22:09
  Speaker 1: you know, we're gonna have to start dealing with this
• 22:12
  Speaker 1: no good options. That's right. What are some of the
• 22:16
  Speaker 1: no good options? Well, um, you know, I don't think
• 22:20
  Speaker 1: that this is really an option. But you could go
• 22:22
  Speaker 1: to war with North Korea and risk the incineration of
• 22:26
  Speaker 1: soul um because we know that there are thousands of
• 22:30
  Speaker 1: mortars that are on the demilitarized zone and they would
• 22:33
  Speaker 1: be fired in if there was any kind of an attack. Um.
• 22:38
  Speaker 1: But uh, and I don't think that that's something that
• 22:40
  Speaker 1: would get any support really in the US at this point.
• 22:43
  Speaker 1: I don't think it's something that Donald Trump would want
• 22:45
  Speaker 1: to do. He he sort of campaigned against these like
• 22:48
  Speaker 1: large scale interventions. Um, you can buy time with sabotage,
• 22:53
  Speaker 1: but that's not really a solution. It only kicks the
• 22:55
  Speaker 1: can down the road. Um. But the notion that and
• 22:58
  Speaker 1: this is what I wrote my calm about yesterday, the
• 23:00
  Speaker 1: notes that you can negotiate with the North Koreans and
• 23:03
  Speaker 1: get them to the position that is the goal of
• 23:06
  Speaker 1: US policy for a quarter century, which is to be
• 23:09
  Speaker 1: nuclearized the Korean peninsula. Is at this point that you
• 23:14
  Speaker 1: know that train has left the station. The North Koreans
• 23:17
  Speaker 1: will not give up their quest for a nuclear weapon.
• 23:21
  Speaker 1: It's not on the table, and they, correctly, I think,
• 23:23
  Speaker 1: understand that their development of a nuclear weapon is the
• 23:27
  Speaker 1: key to their regime's survival. And this goes back to UM.
• 23:32
  Speaker 1: The broad outlines of the deal that was offered in
• 23:35
  Speaker 1: the Clinton administration and what was known in the Joint
• 23:37
  Speaker 1: Framework Agreement is that we will help your regime survives
• 23:43
  Speaker 1: is you abandon your nuclear program. And what ended up
• 23:47
  Speaker 1: happening was the North Koreans cheated. Uh, there was hemming
• 23:52
  Speaker 1: and hawing, but largely every American president sooner or later
• 23:55
  Speaker 1: pursued some kind of negotiation with them, and those negotiations
• 23:58
  Speaker 1: have failed. The North Koreans purchased time and they're very
• 24:02
  Speaker 1: very close at this point. So it requires I think
• 24:05
  Speaker 1: a new you know, kind of a re refitting of
• 24:09
  Speaker 1: our goals at this point. Can we deter the North
• 24:12
  Speaker 1: Koreans if they have a nuclear weapon? Can we say, well,
• 24:16
  Speaker 1: you know, if you use it will destroy you. And
• 24:18
  Speaker 1: will they be a rational UM actor in this regard
• 24:21
  Speaker 1: and respond to the Terrans the way the Soviet Union
• 24:24
  Speaker 1: and other adversaries who had nuclear weapons did during the
• 24:27
  Speaker 1: Cold War. That's one way of looking at it. UM.
• 24:31
  Speaker 1: Could we diffuse the situation entirely if we rethought our
• 24:35
  Speaker 1: defense agreement with South Korea UM, which is sort of
• 24:38
  Speaker 1: the heart of the issue right now, which is sort
• 24:41
  Speaker 1: of the Korea is a frozen conflict. UM. But there
• 24:45
  Speaker 1: are no real good options at this point. And I
• 24:47
  Speaker 1: don't think that it's realistic to think that any negotiations
• 24:51
  Speaker 1: will end the nuclear program in North Korea. That was
• 24:54
  Speaker 1: the key point. And Uh, I mean, I think it's
• 24:56
  Speaker 1: time for American you know, leaders to sort of level
• 24:59
  Speaker 1: with the public out this. Let's let's uh sort of
• 25:03
  Speaker 1: go one step deeper into this if we can. UM.
• 25:06
  Speaker 1: North Korea has already moved its medium range missiles and
• 25:12
  Speaker 1: its SCUD missiles out of testing and they put it
• 25:14
  Speaker 1: into they put them into active service, and the range
• 25:19
  Speaker 1: extends to South Korean port cities, military sites as well
• 25:23
  Speaker 1: as there's a US Marine Corps air station in uh
• 25:27
  Speaker 1: Iwakuni in Japan. Uh. These missiles travel at well then
• 25:32
  Speaker 1: the test miles this is and they don't have to
• 25:36
  Speaker 1: be nuclear tip to do a lot of damage. That's correct. UM.
• 25:41
  Speaker 1: And this is the big problem, which is that during
• 25:45
  Speaker 1: the Clean administration, they sort of broke up the negotiations
• 25:48
  Speaker 1: into two different baskets. One was going to be uh,
• 25:52
  Speaker 1: you know, the the nuclear program itself to get to
• 25:56
  Speaker 1: the point where you could you could you could yield
• 25:58
  Speaker 1: a nuclear explosion. But the other was the missile program.
• 26:01
  Speaker 1: And the missile program they never got a deal on.
• 26:04
  Speaker 1: Not only did the North Koreans, by the way, have
• 26:06
  Speaker 1: developed these missiles and are threatening our forces in the
• 26:10
  Speaker 1: East Asia, UM, they also are proliferators, so they have
• 26:15
  Speaker 1: helped other countries we suspect, probably with the Iranians in
• 26:19
  Speaker 1: developing their missile programs. What's more, we found out during
• 26:23
  Speaker 1: the George W. Bush administration that they were uh sending
• 26:27
  Speaker 1: technical experts to help Syria develop their own nuclear program.
• 26:32
  Speaker 1: So North Korea is a real menace. And you know,
• 26:35
  Speaker 1: I'm not saying that we should invade the North North
• 26:38
  Speaker 1: Korea because of all the problems of you know that
• 26:40
  Speaker 1: I mentioned before, but we really should start thinking about
• 26:44
  Speaker 1: North Korea as a kind of problem that um would
• 26:48
  Speaker 1: be solved eventually through um, you know, non violent you know,
• 26:52
  Speaker 1: democratic revolution hopefully, and I think that we're going to
• 26:56
  Speaker 1: hope for that. Eli Lake, Bloomberg View columnists speaking of
• 27:00
  Speaker 1: out the U S policy towards North Korea. This is Bloomberg.
• 27:07
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 27:10
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 27:14
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 27:18
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:22
  Speaker 1: It's one before the podcast. You can always catch us
• 27:24
  Speaker 1: worldwide on Bloomberg Radio.