EU Leaders Defend US Deal as German Industry Voices Concerns

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1:29Population growth is so enormous in Africa. Listen to Next Africa on Apple, Spotify, or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. All right. As we mentioned, Tim and I setting the stage at the top. A lot coming at investors this week.

2:13And I mentioned Julian Emanuel over at Evercore ISI calling this a moment of truth for the markets because you've got big tech earnings, some of those MAG-7. You've got the trade negotiations like we just talked with Catherine. You've got the FOMC, the jobs report, and earnings report. It's a lot, Tim. Let's ask Nancy Lazar all about it. She's chief economist for Piper Sandler. She joins us from Aspen. Which is the biggest element on your radar this week? We opened our program talking about, OK, yes, the trade deals. Those are obviously very big. We have everything happening when it comes to tariff deadlines later this week.

2:47We've got earnings out this week from some of the mega cap tech players. And then, of course, the jobs report coming at us on Friday. not to mention Fed Chair Jay Powell coming at us on Wednesday. How are you making sense of it? Well, I think really the consumer spending data we're going to see for the month of June from an economic perspective is going to be really important. Our best guess is that the consumer is going through a soft patch right now. We have already clearly seen that in the retail sales data. Within consumer spending, we're going to get more information on services. We heard last week from some of the service-oriented consumer companies, airlines, hotels, restaurants, that consumer spending in the service sector also is a little squishy.

3:28It's not just goods. It's also the service side. So consumer spending, how weak will it be as we go into second quarter, into the third quarter, excuse me? We are expecting a soft patch. We think it will be on the softer side, reflecting in part demand was pulled forward in anticipation of these tariffs. And you have already seen price increases. And that's also impacting consumer spending. How do you make sense of that, given what we heard from airlines over the last couple of weeks? Not every airline, of course, but I'm talking mainly of United and Delta, who said, you know, as we got a little clarity about what was happening with tariffs late June, early July, we started to see a real big turnaround when it came to consumer spending.

4:07How do you gel those two things? I think it really is a bifurcated consumer. One of these days, I look forward to not using that word anymore. We've talked about that for a couple of years now, but there is really a bifurcation. The higher-end business-oriented airlines are, I'm not an airline analyst, but they are being supported by the higher-end and businesses, whereas the airlines that reported last week, a couple of them anyway, and again today, some layoffs, those are more for the lower-end consumer. And the lower-end consumer is really getting squeezed from these tariffs. It is basically a regressive tax on the consumer.

4:41So the bifurcation, And companies that are geared toward businesses and the higher end consumer can plow through this. Those that are more tied to the lower end consumer are struggling. The consumer really is looking at price points right now. I want to get to what our Sean Donnan wrote about on the Bloomberg Today and at Bloomberg.com. And that has to do, Nancy, with the damage to the global economy from American protectionism. He notes that it's becoming increasingly evident, even if financial markets get somewhat excited as we see trade deals being done. He says it all amounts to another step change in the trade barrier that the president has erected around America, which is starting to reshape trade and investment patterns worldwide.

5:21Not his opinion, but his reporting out that Sean has done here at Bloomberg and Bloomberg Economics saying the hit to the world economy will reach two trillion by the end of 2027 relative to its pre-trade war path. It's going to be a different global environment. Yes. Oh, for sure. It's going to be a different global environment. But I think we have to look at the economy as three-dimensional chess, not just as a flat board. No question, tariffs are a tax. I'm definitely more for free trade, but I'm also for fair trade. Maybe we can shake one little positive out of this and get some fair trade, i.e.

5:59incrementally sell more to Japan and Europe in particular. But to be sure, right now our effective tariff rate that we're calculating is about 17. Now it's down dramatically, but 17 is the highest since the 1930s. And so, to be sure, that is a headwind to global growth. But I think that is just one part of the puzzle. The second thing that's going on in the United States is the capital spending cycle. And the tax legislation, or that was just passed, actually, in the one big, beautiful bill, indeed does very, very, very significant accelerated depreciation for capital spending, full CapEx depreciation for 80 % of CapEx.

6:39That is going to be a significant boost to cash flow, corporate cash flow. We've already heard that. Last week, we had four companies, AT &T, Verizon, T-Mobile, and United Rental. I'll say this tax legislation is a support for their cash flow. So again, I think we can't just look at one level. We have to look at what's going to happen to capital spending. And capital spending, I call it the ugly duckling of economic data. It's underappreciated for what it does for growth. It creates productivity, profitability, and lifts potential GDP growth. And that eventually lifts living standards. So quite frankly, I think that article is a little bit way too one-sided, and you need to look at the bigger picture.

7:18And near-term, again, economic soft patch for sure. But you're already seeing signs, the companies that I mentioned. You're seeing it in data where U.S. capital spending is picking up. And that's going to come back and help not only productivity, but the job cycle as we go through 2026. So it's important to look at the bigger picture. And I didn't mention deregulation. I'll stop. But that's also another really important support for the U.S. and therefore the global economy. But is it OK? And, you know, one of the things I want to go back to, as you say, support for the labor market. We had Rob Kaplan on, former president of the Dallas Fed, on Friday.

7:51And he said he talked repeatedly over the tight labor market and the impact of immigration, perhaps on that and how that could then impact U.S. growth. So I just want to throw that out there. But when you talk about CapEx and what it can do for growth, certainly great for company balance sheets. Does it help workers? Does it actually provide momentum throughout the economy? Absolutely. Again, it's called a business cycle for a reason. And when businesses invest, again, they improve their profitability through productivity. And if companies are making more money, their cash flow is indeed going up.

8:27That is incentive to spend not only on capital spending, but eventually on jobs and and in wages. And you see it. You see it historically in the data. Again, capital spending always grows faster than housing. Capital spending, except except potentially in recession. Capital spending always grows faster than consumer spending. So it's really, really underappreciated. Businesses create jobs and pay wages. So near term, absolutely. I would argue we're in a soft patch. The unemployment rate is grinding higher. Although initial claims have come down a little bit, continuing claims remain elevated. Companies, I'm not sure the labor market is tight.

9:10Continuing claims remain very elevated. Companies are reluctant to hire given the trade uncertainty. We think as we go into 2026, the improvement in corporate profits, which right now are sluggish, but they'll improve into 2026, then leads to a stronger labor market. So, yes, there's nothing more beneficial for the consumer than stronger productivity growth, a low inflationary environment, and that gives you stronger real income growth. To what extent is that productivity growth, in your view, hampered or not by tariffs? I don't think it really is hampered by tariffs, per se. They incrementally, maybe from a higher cost of certain investments.

9:50As a result, we are seeing an increase in the price of certain capital goods. So at the margin, that is a little bit of a nick. But this is a very significant full capex depreciation, which, again, those four companies early on in this earnings season, I can't wait to hear what happens over the next couple of weeks that have seen significant savings in cash flow. So we don't know yet the full, quote unquote, saving to companies from this new depreciation schedule. And it could more than offset anything, which I think it does, from a tariff perspective. Tariffs are a one-time tax versus capital spending has a very long tail and will help the economy at least through 26, if not into 27.

10:33So, Nancy, we've got a Fed meeting, as you well know, Fed decision on Wednesday. So you say we're in a bit of a soft patch right now, but you're looking for improvement in 2026, and you see profits leading to a stronger labor market. If we've already got stimulus coming as a result of some of the tax measures by the president's big, beautiful bill, then does the Fed really, should they not do anything for maybe the rest of the year? Because they don't need to. There's stimulus already coming, and they've got to be careful about inflation. Just got about 40 seconds. Yes, I would agree that the Fed doesn't need to cut rates.

11:05Our guess is they probably do, according to my colleague Benson, at least once. But we don't really need more than that. They already cut rates 100 basis points last fall. And that's still working its way through into the economy. So good point. Combination of the incremental, I don't want to call it fiscal stimulus. It's basically an implicit tax cut for corporations and deregulation are not inflationary. They're actually disinflationary through improving productivity growth. But no, we really don't need it, but we'll probably get at least one. All right. Great to get some time with you again.

11:39Nancy, thank you so much. Have a good week. Nancy Lazar, she's chief economist over at Piper Sandler. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town. Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

12:18You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. The U.S. and Chinese officials finished their first two days of talks aimed at extending their tariff truce beyond a mid-August deadline and hashing out ways to maintain trade ties while safeguarding economic security. The agenda includes giving more time for high-stakes negotiations to play out on issues ranging from U.S. levies tied to fentanyl trafficking to Chinese purchases of sanctioned Russian and Iranian oil.

12:56Andrew Bishop is following this all. He's senior partner, global head of policy research at Signum Global Advisors. He joins us from Washington, D.C. Andrew, given your view of what has happened over these first of two days of trade talks, do you think that this tariff truce will be extended? Oh, yes, very much so. I think the tariff truce is absolutely going to be extended. But the main reason for that is not so much because I think there's great progress being made on the substance of these talks. Rather, I think President Trump essentially realized back in April, May, that high tariffs on China just don't work because the impact on the U.S.

13:36economy is too great. And China has too much leverage in the form of its control over rare earths. So as a consequence of that, I think the president is in very much de-escalation mode and trying to buy time, make sure that the U.S. receives the rare earths that China has promised in Geneva and London. And therefore, he's definitely interested in extending that pause. So if China has, in the words of Donald Trump maybe, has the cards in this negotiation, in your words, has too much leverage in this negotiation, then what does the U.S. have aside from an economy that relies on goods from China?

14:12The U.S. really only has a tariff rate, which is why I think the Chinese side is going to be bargaining hard for a reduction in tariffs, as well as a reduction or at least a stabilization in export controls, in particular of semiconductors. What's interesting in the latest recent events of the past couple of weeks is that the Trump administration has reversed some of its earlier export controls on NVIDIA SH-20 chips, for example, as I'm sure you're well aware. That was a view that we had at Signum that this would be part of the deal that they struck in London. The problem for the Trump administration is that that move is already getting enormous pushback.

14:54Right. So while China is going to be demanding more of that, more more repeal of export controls, it's going to be hard for President Trump to agree to that without facing major backlash domestically. And that's why I think he'll start pivoting the conversation away towards tariff relief, just not as imminently as this week, I don't think. Who has more at stake here? We so often, Andrew, talk about the relationship and the dependent relationship between the United States and China. But when you look at this relationship, does one of the countries have more at stake here? So I think the answer to that is and the reason why you get different answers, right, is that China definitely has more to lose economically than the U.S.

15:42does. The problem is the U.S. has a lower political pain tolerance. And as a consequence, even though the U.S. economy is far more resilient and can absorb these shocks, from a political standpoint, you have a president. And it wouldn't be the case with any other president that essentially faces a taco situation as soon as they come under pressure. So then talk to us. Take us to China in terms of what is happening in their economy right now. And we know that you're right in terms of pain tolerance, that much has been reported, I guess I should say, in terms of the Chinese government, that they'll do what they need to do, right, in terms of potentially inflicting pain, economic pain, on their citizens.

16:26But tell us about what is the truth or reality, at least as you know it, to be the Chinese economy today? But what's interesting is you see a lot of vulnerabilities in the Chinese economy. youth unemployment is a major one. You know, sort of misallocated savings and low consumption is another. And of course, major problems in the real estate market. But what's interesting is that a lot of those problems aren't directly related to President Trump's tariff threats or tariff enactments, if you will. So there are two ways of looking at that. You could say any marginal worsening of the situation due to Trump makes the Chinese position even harder to sustain.

17:07But a different interpretation, which I would lean with, is that because China is aware that these are structural problems, that it's on its way to at least resolve or at least tackle on its own, President Trump really isn't the major agenda item on the table here. And he can be sort of kept at bay and handled almost like as a singular issue in its own bucket, if you will. We spent a lot of time over the last few weeks and over the last few months talking about rare earths, talking about tariff rates. But one thing that hasn't necessarily come up a lot of late has been the fate of TikTok and how TikTok could or could not be used as a bargaining chip in these negotiations.

17:50What's your view? So my view on that is that you can have a TikTok deal any day, right, as long as the U.S. is willing to accept a situation where China continues to control the algorithm. So that could look one of two ways. Either China controls the algorithm and there are essentially two TikToks, a Chinese TikTok and an American TikTok. And the American TikTok is sort of fully U.S. owned, but it just doesn't have that initial algorithm. Or you have a situation where the TikTok platform in the U.S. still has the underlying algorithm, but there's an existing dependency on China. What I don't see is China agreeing to part ways with that algorithm.

18:35So a simpler version of that is to say China is not going to give away the real TikTok. So the question is whether the U.S. wants to continue with the status quo or downgrade TikTok's quality, if you like. Hey, Andrew, something we talked about in the two o 'clock hour about all of these trade agreements that the devil's in the details. Right. And it just feels like in many ways we're just getting kind of agreements to do something. something like a U.S.-China trade deal is going to be a complicated one and lots and lots of pages and items to discuss. So I guess what my question is, is we will probably not know the specific details for a while.

19:19So investors trading off of, I mean, what should they trade off of? What should they be looking for in terms of specifics when it comes to a U.S.-China trade deal and how long might that take? Yeah, so I think one thing that they can trade on is direction of travel, right? So very concretely, experts debate whether there's going to be a minor tariff relief tomorrow or in November or sometime in between. But most experts at this stage agree that there is a floor under the relationship and that it's unlikely we're going to see tariff increase, right? So one answer is things are probably going to get better, not worse, over the coming six months.

19:56It's different if you look over the two to five year horizon, but that's a separate question. So that's one answer. The second answer would be any deal is likely to involve purchase commitments from China. Right. So similar to the phase one trade agreement that they struck back during President Trump's first term, China will probably promise to buy more American things, items, including agricultural goods. Those targets are not likely to be as high as during the first agreement. They were unrealistic back then. But that's the second component. the third is again oh sorry no unfortunately we've got to wrap it and leave it there which is a mega tease we'll have you back to talk about the third one okay that's what we call a mega tease that was great though we really appreciate Andrew Bishop he's senior partner global head of policy research at Signum Global Advisors joining us from DC this is the Bloomberg Business Week Daily podcast listen live each weekday starting at 2 p.m eastern on Apple CarPlay and Android Auto with the Bloomberg Business app.

20:53You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. Now to a very serious global issue. We're going to start in the Middle East where President Donald Trump said the U.S. would work on a new effort to provide food aid to alleviate starvation in Gaza, along with other governments and organizations, including the U.K. and the European Union. His comments from this morning from Scotland in a press conference with the U.K. Prime Minister, Keir Starmer. The United States will be helping with the food. We have a lot of access to food. We got a lot of food ourselves and we're going to bring it over there.

21:31We're also going to make sure that they don't have barriers stopping people. We're going to be getting some good, strong food. We can save a lot of people. I mean, some of those kids are that's real starvation stuff. I see it and you can't fake that. So we're going to be even more involved. That's President Trump earlier today from Scotland. We're going to head to Tel Aviv now to Bloomberg News Israel Bureau Chief Ethan Brawner. Ethan, we've all seen the pictures by now of starving Palestinians, many of whom are children. You've wrote about this, and you wrote about this last week in the back and forth, what the Israeli government has said is happening, what many in the worldwide community has said is happening, what the World Health Organization said is happening.

22:14In your view, what is going on? Tim, I mean, you know, I wish I had the wisdom for a genuinely deep answer. I think there can be no question that people are going hungry in Gaza. I think that we are now beyond any discussion of that. The issue begins to get complicated when we're talking about famine or starvation and whose fault it is and how long it's been going on. And I have to tell you that as a reporter here who can't get into Gaza, I mean, the the Israeli military and government have barred us from going in. It's been a source of enormous frustration for the entire two years almost that this war has gone on.

22:56You have international aid organizations talking about starvation and you have the Israeli military saying none of it. So I think that for a while it was exaggerated. It may still be exaggerated, but it is real. And even the Israelis have acknowledged it. And indeed, as you just noted, so has President Trump. So a very difficult situation is underway where people don't have food to eat just 50 miles from where I'm sitting. Ethan, so many ways to go here. But one thing I want to say is you say, for the most part, everyone has agreed that there's no starvation. But Israeli Prime Minister Benjamin Netanyahu says that there's no starvation in Gaza.

23:38So, right. I said I think we can all agree there is hunger. right? I mean, these are these various technical definitions. He has said there's no starvation. He doesn't seem to be right. I think the next question is, is there famine? I'm not sure I know how to distinguish among these things, but clearly, as we go down the words, we get to a more difficult situation. There is no question there is hunger. Even the Israeli military, which held a briefing for us a few days ago, used the phrase food insecurity when I pressed the spokesman, the colonel, at some length about it. So there's no doubt about that.

24:16But, you know, and we see people, we see what they look like, and we hear people talking about having no food and being afraid of dying from it. So this is not a joke. How do reports of the hunger happening there coincide with Israel blocking aid supplies for Gaza in early March? So at that point, I mean, I'm not a government spokesman, as you know, but the Israeli argument at that time was that Hamas was hoarding huge amounts of this food, and that there was enough of it for a while, and that Israel was going to find a way to keep it out of the hands of Hamas for a bunch of reasons. Their main complaint was that Hamas was taking the food aid, feeding its own militants, keeping it from ordinary people, and then selling it on the market so as to continue their war against Israel.

25:08That has been challenged in various ways, but some version of that seems to be true. And that's why Israel did it and then set up this rather inefficient organization to try to skirt Hamas, and that has not gone well. We have a viewer who has written in and said, I'm wondering why President Trump is not pushing for a permanent end to the Gaza war. I guess if it was easy, it would be done. You're hoping I can answer that question? I know. Forgive you for giving you such a test. But I think it's been going on for how long? Look, I would say the following, that for most people abroad, for most people anywhere, the idea that there's a war is terrible.

25:53Wars are terrible. Okay. But we do have a war underway between two forces. the Israel believes that if Hamas is not eliminated, that it will reconstitute itself and reconstitute itself as a threat to Israel. I think that President Trump is somewhat sympathetic to that idea. Now, while they're trying to eliminate Hamas, if people are starving, if ordinary people have no food, this is a separate issue. So in theory, and again, I'm not the president's spokesman, in theory, if they could flood the area with food over the next weeks, then they could start their war up again because Hamas is, after all, holding 50 Israeli hostages and has said it will not step down from power or give up its arms, which from Israel's perspective is a danger to Israel.

26:43So I think that the president is somewhat sympathetic to that reasoning. Whether that's appropriate reasoning, we can discuss at another time. And we should point out that this week we have dozens of ministers that are gathering at the United nations in a conference to really push for a two-state solution between Israel and the Palestinians. We should also point out, Tim, that the U.S. and Israel have boycotted this event. Ethan, we've spoken to you constantly over the last 21 months or so after October 7th. And one thing that you've shared with us throughout that time from Israel is the view of the Israeli public support of the war, support of Prime Minister Benjamin Netanyahu.