Trump Threatens China Tariffs, Sees ‘No Reason’ to Meet Xi

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2:15Bloomberg 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 Stenebeck on Bloomberg Radio. I do want to bring in Michael McKee, Bloomberg TV and Radio International Economics and Policy Correspondent. He joins us also here in the Bloomberg Businessweek studio. As we've been talking about, Mike, markets lower on fears of an escalating trade war.

2:57You're a macro guy. You're international economics and policy correspondent. Is this a rethink of U.S. foreign, of U.S. policy, U.S. trade policy? It's just a social media post. Yeah, I think, well, there's a couple of things going on. And I think Eric's right that the markets are using this as an excuse to sell off because we don't know exactly what's going to happen. The Chinese have said that they're going to put new restrictions on rare earths and supermagnets and things like that that have been under discussion. And Xi and Trump are supposed to meet at APEC later this month and talk about this.

3:36And there was thought that they might reach some kind of deal. Some analysts think that this is basically the Chinese trying to get some negotiating leverage. language and Trump doesn't want to be back into a corner. So he's negotiating back in the kind of language that he tends to use. The Chinese, the main body of the Chinese new restrictions wouldn't hit till November or December. So it's not something that's imminent. And it could be that this is just all posturing. And one has to hope that at this point. But that may be why we've got a 2 % fall or roughly 2 % fall and nothing worse. I think if the president had really come out and said, I'm going to jack up these tariffs to 50, 60, 70%, then you would see a much bigger reaction.

4:31These comments, of course, are coming before he's set to meet with Chinese President Xi Jinping a little bit later this month. Have we heard any details about whether that meeting is still going to be taking place in the wake of the social media posts? Well, we haven't heard that it's off. The Chinese did not mention it's off. And the president said, I don't see any reason to meet right now, but he didn't say I'm not going to. So at this point, I think we just have to wait and see how this plays out over the next couple of days. Maybe he gets it off. Maybe he's mad because of the Nobel Prize. And instead of going after Norway, which we all thought he'd do this morning, he's just taking it out on China for the time being.

5:11But he was thanked by the winner of the Nobel Peace Prize. Well, yeah. And then he reposted this. Yes. Basically, she said, we're counting on President Trump and our friends in democracies around the world to continue the struggle for Venezuela. She didn't say, thank you, President Trump. Exactly. Well, let's shift gears a little bit, Mike, and talk about reductions in force, the idea of layoffs, permanent layoffs. Russ Vogt earlier today, White House budget director, saying the reductions in workforces, the reductions in workforce have begun. He's referring to the federal government's term for layoffs here.

5:46Do we know how many? Do we know who? Do we know where? What we know is that the White House, senior White House officials told Bloomberg News that it would be thousands a representative of the american federation of state uh local and government employees uh said that they heard 1300 but there's no exact number at this point it does seem to be affecting many agencies i've heard as many as nine and uh this is obviously going to provoke lawsuits from the federal unions the administration and vote say this is necessary because of the government shutdown, but it's not. They've never done this before.

6:29The workers aren't being paid right now. So it doesn't, it's just, it's also theater. Now, does the administration, they could be setting this up as a bargaining chip. You know, Democrats come to the table and they concede something and the president says, all right, we won't fire these people. Because remember how this went with the Doge thing. People were on the payroll, off the payroll, on the payroll again. So this could also be a big smokescreen. I'm wondering how you think that kind of impacts what could be an already weak labor market that we're seeing. We had Governor Christopher Waller from the Fed saying job growth has been negative for the last few months.

7:12The labor market is his biggest concern. Of course, that's what we've also heard from Jerome Powell. These firings, wouldn't that make the labor market even weaker or is it not quite related? There's not enough people getting fired. I mean, is it terrible for them individually? But at this point, if you said thousands, I mean, there are something like 2 million federal employees. So it wouldn't mean that many people are going to affect the economy, but it does contribute to the overall sense that the country is not doing well, that the economy is not doing well, and that may hit consumer confidence.

7:48And the more layoffs you have in your neighborhood, the more you start to worry about yourself. And then you cut back on spending. And that's how recessions begin, basically, is a confidence matter. So it's not good news in that sense, but it's not something that we will really see in the economy. What ends up happening with government shutdowns is spending is delayed, but it's not completely gone. People will get their back pay, in theory. The administration's threaten that too, but the law says they get paid and then they'll go make the important payments that they have to make. And I'm sure they'll use their charge cards for groceries and things like that in the meantime.

8:25Well, speaking of getting paid, Argentina is about to get paid to the tune of$20 billion. Is it fair to call this a bailout? It's fair to call it a bailout, but they're not really going to get$20 billion from the U.S. Essentially what we're, they're calling it a swap line, which it isn't exactly either. The swap line is an agreement between two central banks, one that needs dollars, sends money to the Fed, and the Fed sends the equivalent amount in dollars to them so that their companies in that country can pay their dollar-denominated bills. And then they send it back when the crisis is over and the Fed sends them back their money.

9:04This is more like a rescue package along the lines of what happened with Mexico in 1994, where the U.S. used the exchange stabilization fund and agreed to guarantee Mexican bonds that couldn't be sold because there was a concern about whether or not they would default. And so the U.S. guaranteed those. The U.S. bought some of the assets. They didn't give Mexico cash directly. And I think we're giving Argentina cash directly, but it'll be a system set up like that. Is it a little different than Mexico back then, though, because we share a border with Mexico, the stability of Mexico is in our best interest because it's such a large trading partner, at least right now.

9:53I mean, Argentina is a little bit of a different story. It seems more political. Well, there's definitely a political angle to it, and it just kind of depends on what your cynicism meter goes up to. Argentina is obviously a poster child for bad financial management. They owe the IMF billions and billions of dollars. They've defaulted something like 23 times. And you could argue that it could be a sort of economic domino in the way we saw things happen in the Asian financial crisis. But there's also the idea that a lot of the hedge funds that hedge fund leaders who worked with Scott Besant over the years have loaded up on Argentine debt, distressed debt, because they can buy it at a discount.

10:44And if the Argentine peso keeps falling as it has and is predicted to do if they lose the congressional elections coming up, then these people lose a lot of money. And if the U.S. can prop up the peso, then it helps best friends now i don't have any evidence one way or another but the new york times is reporting this paul krugman did a column on it today um so that is something for the i don't think you have to go as far as a tinfoil hat maybe maybe saran wrap hat or something like that to you know but yeah that could be maybe it's in the same drawer where you would find the tinfoil and But you get in these situations, you get people who are nervous about the impact on American investors and funds.

11:31We saw the same thing happen with Greece. And Greece was definitely going to default, but it was handled very gingerly so that it didn't cause systemic problems. Well, this coming from the Treasury Department, but certainly the next Fed chair might be thinking about the implications of this. And that's kind of where we want to end with you, Mike. We learned earlier today some other names that could be in the running or are in the running for Fed chair finalists. Rick Reeder, Michelle Bowman, Chris Waller, Kevin Warsh, Kevin Hassett. What's the timeline here? Is there anyone else to add? This is a CNBC report that they are the final five.

12:11OK. And that they would do another round of interviews. And then sometime maybe in December, the president would nominate someone to the Stephen Myron seat that where the term expires at the end of January. And that person would be essentially the de facto Fed chair in waiting. And then if Jay Powell resigns, they could put Steve Myron back in that seat or somebody else. We don't have any other outside confirmation of that, but it certainly tracks with what the president has been saying. He's called the Kevins and Chris Waller the finalists for some time. Michelle Bowman might be a little bit of a DEI here because we know they like her in the in the regulatory role that that she's in.

12:58And Rick Reader obviously has a good reputation in the markets. It depends on what the president ultimately ends up wanting in a Fed chair. How much of a splash does he want to make in a sense of a rock falling in the pond and sending out ripples? How much does he want to upset the apple cart? And how much can he do without upsetting the markets? So this is going to be something to watch over the next couple of weeks, because once we get to an announcement, there's going to be a lot of reaction to that as well. Well, we'll certainly be talking to you many times between now and then. Michael McKee, Bloomberg News International Economics and Policy Correspondent, Joining us here in the Bloomberg Businessweek studio.

13:39Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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17:05Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. We are all over markets today. Dollar sliding as President Trump threatens a, quote, massive increase in tariffs on Chinese goods. While the greenback is still trading on the cusp of its best week of the year, the president's latest tariff salvo threatening a once promising dollar rally. We've got with us J.T. Bardoage, director of FX strategy at TD Securities. She joins us here in the Bloomberg Businessweek studio. J.T., we wanted to talk FX.

17:41We knew you were the right person to talk to. We've seen the dollar recover a bit this month until today. Is this a temporary setback or is it something bigger? Thank you so much for having me again. Always a pleasure to come talk to you guys. I would say that, interestingly, what's been happening in the last few sessions, at least, is that we were living in sort of like a U.S. nirvana where we don't know where we're flying. We're flying blind. We don't know what the U.S. data is indicating anymore. and the hyper-focus that markets had on path of Fed cuts, how much is the Fed going to cut, how much are they going to ease next year, we took a break from that thanks to getting no U.S.

18:19data and immediately market focus shifted to everything that's happening elsewhere in the world, which is where you had elections in Japan, did not turn out the way markets were expecting. You had French election uncertainty drag on. All of this sort of allowed the dollar to behave like a safe haven again, something you saw only up until last year. So that sort of gave dollar the kind of strength that has been used for the last five years and gave dollar that nice rally. I think you bring a very good question. Does that change the picture meaningful or is it just a bounce? That's a question that clients have been asking us as well.

18:54But I think big picture, it's unlikely that euro is going to collapse to the level where we were at the start of the year. The U.S. administration policy uncertainty is still going to live. is still going to be there for the majority of the next three years. And if anything, today is a perfect example of that, where you had headlines come out with China, the relationship there deteriorating, and that's clearly taking a hit on the dollar again. I want to just talk about what you mentioned as the dollar being seen as a safe haven asset, because we're also seeing treasuries really rallying today, people piling in there.

19:27How do you kind of compare which one, I guess, signals a weakening outlook for the macro picture? If traders are piling into treasuries versus the dollar, are there any signals we can glean from those moves? I think that's also like a good debate that people have had. Like surely the dollar has had a very bad year. But you cannot say the same about treasuries because you've not seen active signs of anyone dumping U.S. treasuries. In fact, the major holders out there, Japan, EMH and central banks, while obviously they have been clearly buying gold and amping those reserves up, it's not as if they have deserted treasuries.

20:03But the dollar's relationship with treasuries is broken because while everyone still wants to hold U.S. assets, they don't want to hold U.S. assets unhedged. So they are clearly diversifying away from the dollar, not from U.S. assets per se, but clearly there's a shift away from the dollar, which has made that relationship weaker. We have to talk about the debasement trade then because you had mentioned gold when you came in before the show started. It's at a record high. Bitcoin has been rallying. You went there. You went to Bitcoin. I mean, all of these other assets. Is this a result of people moving away from the dollar, the dollar losing its appeal?

20:42I think definitely, yes. So people have always talked about dollar as a share of reserves collapsing, but that's been true for the last decade. But I think as we entered this year, the marginal collapse in people holding the dollar has amplified because of all of the uncertainty we're dealing with now. Now, for the last five years, most of the uncertainty around the world was housed in the Middle East, you know, was housed in COVID, which was a supply chain shock, which was also outside the US. I think this is the first time in many, many years where U.S. has become the source and the emanating source of global uncertainty around the world, which is why everyone is now even shyer of holding dollar in their portfolios, which is why a lot of the investors and clients we speak to are now thinking of diversifying away from U.S.

21:31assets, not marginally, much less so, because I'm sure there's still not a very strong alternative to U.S. equities, as we can all debate for months on end. But clearly there's alternatives to the US dollar now where people have shown a greater preference for the euro And in fact at times euro has been behaving like a safe haven and the dollar much less So If we're talking gold we got to talk about what we heard from ken griffin earlier this week Was that this week or last week? I don't even know what day it is. That was this Okay, that was this week. Okay. Thank you and ray dalio as well Yeah, ray dalio as well.

22:03You were were you at that event too? I was at the Greenwich Economic Forum. Okay, so Ray Dalio said that gold is certainly more of a safe haven. Then you had also Ken Griffin essentially say, if he asked if he was agreed with the view of Ken Griffin, that gold's rise reflected anxiety about the U.S. currency. How is gold a diversifier now versus where it was maybe just a few years ago? Should people be thinking about the position in our portfolios differently now? I think gold has clearly been a very topical point of late. And that definitely plays into both the fact that central banks around the world have been diversifying and trying to hold gold assets.

22:45So central banks' purchases of the yellow metal have surged in the last year. In fact, that's a trend which has been ongoing for the last five years, but it has taken a big amplification up this year. So that is what led to that massive rally in gold. and then a lot of the other investors like who've mostly been on the sidelines with gold who've not traditionally seen gold as a safe asset. Now with uncertainty around the world with people now pitching stable coins now people talking about holding their debt in Bitcoin as well with all of that and with greater uncertainty in the US and greater reliance on the US dollar acting as the global reserve currency of the world there's definitely a bigger shift of investor preference into holding gold both as an investment asset, but also as a safety asset.

23:31Because whatever happens at the end of the day, it's a physical metal which you hold in your reserves, which is not linked to any particular government and their policy, whereas the dollar clearly is linked to the U.S. administration and its policies. I want to end on, you know, just the headlines that we're seeing today, this idea that perhaps trade tensions are escalating even further now between the U.S. and China. How does that specifically impact your views on G10 FX just within the next few weeks here? I would say that depending upon what kind of a picture this evolves into, if the outcomes from here get worse, let's say if Trump comes out and again announces a tariff increase on China close to 150 percent or even above that, which is what we saw at the start of the year.

24:19That's again going to bring back a lot of macro volatility into markets. In fact, FX volatility has been heading lower. I think a lot of FX traders were frustrated with the move we saw in Q3. I think that's going to change. You will bring back a lot more volatility into the markets. I think there will be concerns on both sides. Both countries link to China and Chinese exports, so Euro can take a hit. Chile, the Chilean peso, which is usually linked to the outlook of copper prices and China will also take a hit. The US dollar will also take a hit at the end of the day. So it will definitely be a lot more volatility and will hurt currencies in that way.

24:53JT Bardoaj, Director of FX Strategy at TD Securities here in the studio. 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. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa. Play Bloomberg 1130. We're kind of going all over the place geographically right now because investors have a lot to think about. Observers have a lot to think about, including the durability of lasting peace in the Middle East. Israel began the process of withdrawing troops from Gaza while the U.S.

25:32started the clock on a 72-hour window for Hamas to release all remaining hostages. The complex process of ending the two-year war got underway. Dana Stroll is Senior Fellow and Director of Research at the Washington Institute for Near East Policy. She joins us now from Washington, D.C. Dana, good to have you on the program today. Is this the beginning of lasting peace in the region? Doubtful, but it could bring relief for Israelis and Palestinians. So what we're going to see over the next 72 hours is just the initial phase of this pretty extensive, very broad 20 point plan. So we'll see Israeli hostages hopefully released within the next 72 hours.