UNGA, Trump-Xi, and a Global Bond Selloff

0:00Michael Froman: If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the Flipside wherever you get your podcasts. When you're a business owner interested in expanding to new markets, there's a lot to consider and countless questions to answer before making the call.

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1:52or watch us live on YouTube. The book that I treasure the most is James from Williams College, and it's an autograph from Bernard Balin to James McGregor Burns. That's a really treasured book. So if I go down the hall and I've got to pick up Vet Bill because he's afraid of the wind or whatever, and I walk back, right by my left shoulder when I walked back, is a book that changed our thinking on China. It's called The River Runs Black. She was like 19 years old at Michigan when she wrote the book. It was unbelievable. And what she did is what most people don't do. It was like Dylan. You know, it wasn't the first album.

2:30She just kept doing it. I mean, Michael Froman was an earlier Elizabeth Economy. And I told him, I said, Michael, you're not the interview of the day. Elizabeth Economy's the interview of the day. And he was very gracious. She's at Stanford, at Hoover, and of course definitive at the Council on Foreign Relations for years. Elizabeth Economy on China. Liz, I did this with Orville Schell and Jonathan Spence, and I got goosebumps doing it with you. That guy came off the plane. You've written three books about him. How is he different now when you wrote The Third Revolution over 10 years ago? I mean, I'm not sure that he himself is different.

3:13I think he has always maintained sort of a similar approach. He's always had a strong degree of inner confidence, but that in some respects, mass insecurity about the fact that he's not an elected leader of China. But I think he's always had a centralized approach to his governance, amassing a lot of power in his own hands. I think what's changed is his own position on the global stage, where he is now recognized as an equal to President Trump. You open your wonderful foreign affairs article. This is from Michael Froman's Foreign Affairs. Very good. Liz Economy writing from the West Coast. Liz, you have the Istanbul Bridge.

3:56It's a British boat. And it goes, I guess, from China to Europe. Okay. But it doesn't do Christopher Columbus or the Panama Canal. It goes to the Arctic Ocean. How naive are we, Elizabeth Economy, of the burgeoning China? You know, I don't think we're that naive anymore. I think there's a pretty good sense, both within the U.S. government, you know, and more broadly in U.S. society about sort of China's rise on the global stage, the range of challenges that China now poses to the United States, whether it's, you know, in the trade and investment or it's in technology or it's in China's efforts really to transform the international system in ways that reflect Chinese values and interests and priorities.

4:41And so I think we have a pretty good sense of what Xi Jinping is trying to accomplish on the global stage and the way that it challenges us. I think the question is whether we can amount whether we can mount an effective response. I think that's really where the issue rests at this point.

4:57Michael Froman: Liz, as we get ready for President Trump and President Xi to meet today at this summit in Washington, D.C., how does President Xi view President Trump and this administration as they get ready to meet today? You know, I think he's not. I think there's a lot of big sense out there that somehow China holds, you know, all the leverage and that Xi Jinping is coming into this, you know, fully confident about his ability to control the narrative and to control the sort of set of discussions they're going to have. I don't think that's actually the case. I think the United States retains some pretty critical strengths.

5:38I think we saw, for example, the United States lead a discussion in the G20 that pushed back against China's export of its overcapacity. And the vote came down 19 to one with China being the only holdout. So I think they recognize that that the United States is still in the game. That being said, you know, we are mired in a war in Iran. China knows it has a chokehold on the United States around critical minerals and rare earths. You know, we're going to China to ask for help, you know, on Iran, on Russia's invasion of Ukraine. So we have a lot of asks on the table. And China has probably fewer asks of us at this point, which does give him a little bit more leverage.

6:23Michael Froman: Liz, you just returned from two weeks in Taiwan and Japan. How does this summit play for the folks in that part of the world? I think in Japan, there's sort of a mixed sense. On the one hand, I think they've been a little bit concerned about President Trump's failure to speak out loudly and coherently about the challenge that China now presents to Japan, both in terms of economic squeeze that it's placing on Japan, but also the military. You know, China's been very militarily aggressive toward Japan over the past year or more. And so I think, you know, Japan is one of our strongest allies, and they probably expect a little bit more from the president in terms of a defense, at least a rhetorical defense of Japan.

7:13On the other hand, the Japanese, I think, are quite pleased with the degree to which the security relationship between Japan and the United States has been bolstered over the past few years. So it's, you know, they recognize there's no plan B. America is their most important ally and they're going to we're going to remain that way. Taiwan, for its part, frankly, has been moving very aggressively, both in terms of taking its defense into its own hands, of course, still very reliant on the United States, but also de-risking from China. I mean, I think if the United States wants an example of how to de-risk, they ought to look at what Taiwan's done over the past five to seven years, because they've taken their trade with China down from 43 to about 23 percent.

7:57So, you know, some concern over what President Trump might say or do with regard to U.S. support for Taiwan in his discussions. But overall here, too, I think very pleased with the overall state of the U.S.-Taiwan relationship. Elizabeth Economy with us, folks, our conversation of the day definitive on China. So this has been my theme. Can I call her ambassador economy? Oh, she needs a job. Not in this administration. Thanks very much. Thank you. I knew I'd hear that. Liz, I want to talk about after Trump. And folks, you know, I've been talking this up a lot. I have Nicholas Burns of Wellesley, Massachusetts, heavyweight.

8:40And on the weekends, he would go to Harbin to look at the Winter Festival, or he'd go to Shanghai, you know, and this, and NYU Shanghai and all that. There was a different diplomacy. So whether it's Republican or Democrat after this, we get smart and we plant ambassador economy in Beijing. Can we get back to what we knew for whether it's a peace hotel and Kissinger or Nixon or Nick Burns, or are we forever changed? I mean, look, we're forever changed because, you know, change is constant and there's no going back. I think what you're asking is, can we get this relationship to a better place where the range of issues that we're discussing is not sort of limited to trade and, you know, AI, but but and, you know, Iran and Russia, but expands to how can we actually use the two largest economies to meet climate change and global public health?

9:37We can get to that place that will require two different leaders. It will require a leader in the United States that cares about a broader array of issues. And it will require a leader in China that is more open and doesn't see the United States as its top strategic. She's looking after she.

9:54Michael Froman: Yeah, absolutely. I'm not. Yes. I'll get one more in here. Post Trump world. Liz, should we expect anything to come out of this summit here today? Are you kidding? I mean, we're going to get things out of the summit. I think, again, on AI, I think Treasury Secretary Veson has actually worked really hard to try to set up this mechanism for consultation on a hotline, right, in case there's some major accident, AI accident in either country or national security breach. And some sense of can we work together to prevent advanced AI from falling into the hands of rogue actors? So I think that's a takeaway and it's important.

10:35You know, it's going to be small to start off with, but it isn't an important step forward. People will get progress on the board of trade, you know, reducing or zeroing out tariffs on 30 billion dollars worth of goods on each side, you know, in sort of non security oriented consumer goods. So I think those are going to be the two potential major takeaways. It's not nothing, but but does it sort of match up with the attention that this summit is getting with the pageantry that President Trump has sort of put around the summit? I don't think so. Liz, I don't care. When's the next book? Twenty twenty seven.

11:16I'm working as fast as I can because I don't want you to keep talking about the river runs black, which is, you know, 16 years ago or more. It was a few years ago or more, as they would say. Elizabeth Economy, thank you so much at Stanford. Stay with us. More from Bloomberg Surveillance coming up after this.

11:37Michael Froman: If you invest, lead a business or allocate capital, one sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the Flipside wherever you get your podcasts. With Jatchy BT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions.

12:18ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at ChatGPT.com.

12:48You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. This is the conversation of the day. Good morning, Liz Economy. You're not. Michael Froman is. It is. Mr. Froman, folks, is definitive across the arc of the modern age of our trade and international relations. It is an earned ability as chief of staff ages ago to Robert Rubin and far before that, with all of his work accounts on foreign relations and foreign affairs magazine. You know, I am full full disclosure, folks.

13:27I'm a member. Paul, have I paid my dues? I can't remember.

13:30Michael Froman: I'll take a look. We'll take a look. OK. You've got Rebecca Patterson, Sebastian Malaby with their new podcast. CFR and foreign affairs are on fire. And the reason they are is a million years ago, Michael Froman, before trade, before public service, wrote an essay called Negotiating from Strength. This is ancient, ancient history back at Woodrow Wilson Princeton years ago. Is President Trump negotiating from strength in the festivities this week? Tom, I think you may be the only person who ever read that essay. I am very impressed. The worst moment for me was Paul Krugman's first essay at Yale was on the economics of Star Trek.

14:11He got angry at me for pulling that up. So you wrote that essay years ago. I did. And from the arc of George Marshall in World War II over to where we are now, are we negotiating from strength with China?

14:23Michael Froman: Well, look, we have a lot of strengths in our economy, clearly. And we're growing from a technological perspective on AI. We are still very much in the lead, at least in terms of innovation. But China is a peer competitor now in many respects. In many technologies, they are ahead of us. In others, they are trying to catch up. And while we have an uncomfortable detente at the moment, I'd say, sort of a strategic stability, there is a lot of tension beneath the surface and a lot of issues yet to be resolved. So there's a lot to negotiate in this summit that's happening today. We'll see what really comes out of it.

15:01Michael Froman: Michael, I was looking at the schedule today for the meetings and all the pageantry and meetings between President Xi and President Trump. There's not a lot of meeting time. There's not a lot of business time here. There's a lot of pomp and circumstance, a lot of dinners, a lot of parades. Is there any expectation that anything's going to get done yet? Expectations are very low. I mean, you're absolutely right. There's a big emphasis on pageantry, including the president going to Joint Base Andrews yesterday to welcome President Xi himself, the flyover, etc. So we're rolling out the red carpet for President Xi.

15:34Michael Froman: In terms of expectations of outcomes, I think Secretary Bessens has already announced that there will be a short extension of the trade truce for a couple of months beyond November. So that will take some pressure off. There will be some discussion, I imagine, of Chinese purchases of agriculture products, energy products, potentially other products. They haven't followed through on some of the previous commitments they've made. So perhaps holding China's feet to the fire on that. One big issue will be this AI dialogue that has been announced, which is fraught because neither the president seems to be very enthusiastic about imposing regulations on AI.

16:13Michael Froman: And it's very unclear what the Chinese would want to do with us. But interesting that there is an announcement around that. And then everyone will be watching to see, is there some new language around Taiwan? Maybe not in an official statement or a communique, but in what the president says offhand. But come on, Froman 101 is the Chinese will always outweigh us. They have to be briefed in the midterms. They have to be briefed on the chaos of the election of 2028. Is Xi in a position where he just outweighs the American experiment? Certainly China believes that there is a historical trajectory where they're on the rise and the U.S.

16:53Michael Froman: is in decline. I think the reality is, and you know this well because you follow it so closely, China has more than its share of challenges, from the demographics to the economic model, which seems to be running out of steam. You can only export your way to growth for so long at the size that they are. See how he does that? He's stealing from Liz Economies Act. Liz is a great former colleague and a great expert on China. So I think while China does have a long view of things, They've got a lot of challenges in the short and medium term that they need to work through as well. Isn't there challenge a la Catherine Mann and the idea of the dysfunction and codependency?

17:35What does Michael Froman believe our new codependency is between U.S. and China? It's not narrow. It's a broader, bigger codependency.

17:44Michael Froman: There's a lot of interdependence, clearly, from both sides. I think there's selective decoupling going on. I think we've realized that all the emphasis on integration and efficiency, while it delivered more products at cheaper prices for the American public, for the American consumer, very much to the benefit of low-income Americans in particular, it created certain dependencies. And now we're looking strategically to say, from a national security perspective, we cannot be dependent on China for the critical minerals and magnets that go into the tip of our missiles, let alone into automobiles and other products.

18:21Michael Froman: The question is, what other areas do we really need to decouple from? We are completely dependent on China for the active pharmaceutical ingredients to go into most of our drugs. Does that mean we have to produce all of them ourselves? Can we rely on allies and partners to produce them as well? But diversification, resilience of supply chains, that is going to certainly be one of the major focuses going forward. By the way, that means we're going to be living in a more expensive world, higher prices, but that trade-off may well be worth it. You served as a U.S. trade representative for President Obama's administration.

18:56Michael Froman: You traveled the world negotiating trade agreements with many partners. It's a different world we live in right now. It's a world of tariffs. It's a world where we seem to be, you know, fighting economically with our closest neighbors, Canada, for example. How does that shape up? I mean, how does that kind of, I don't know, it just seems so much different than the world we all grew up in, where it was trying to form trade agreements with allies to strengthen the U.S. and our allies. Look, I think they're really two different dynamics at play at the moment. Other countries are continuing to pursue trade and integration.

19:35Michael Froman: So the U.K. joined the Comprehensive and Progressive Trans-Pacific Partnership, TPP. The Europeans are thinking about having some relationship with TPP. The Europeans have negotiated trade agreements with a lot of other countries that have been longstanding negotiations, Brazil, India, elsewhere. Africa has a continental-wide free trade agreement, 54 countries. Who would have thought they would have opened their economies to each other in the way that they have? The U.S., on the other hand, has raised the issue, and the President Trump in particular, but it was continued during the Biden administration, of tariffs being an important tool.

20:12Michael Froman: Other countries, I believe, are responding to that, particularly with regard to China and China's overcapacity and its export-led growth model. So while the Europeans, I think, are ideologically more committed to free trade than the U.S. has ever been, They're seeing their own auto sector, their own manufacturing sector under serious pressure from Chinese imports. My guess is we're going to see more protectionism there as well. You've got to go to see famous world leaders, right? We can't have them for another hour? Let me do this. Let me do an audible on this. The most piercing essay I've seen out of CFR in the last number of days is Douglas Beck on drones.

20:52Now, that's tangential to your remit, but at the same time, it's not. Michael Froman, should our listeners and viewers basically be petrified of how slow motion our drone response is?

21:05Michael Froman: Yes. Look, I think this is the new integration of emerging technology into warfare and drones has been at the cutting edge of that. It requires a lot of attention, a lot of focus, a lot of investment. I think the good news is while a lot of the drones currently being made are being made in China, we're accepting their access to the United States. We have a lot of capacity in the United States in this area, and I think we're going to be able to contribute significantly to the development of that sector. I've got one more. First of all, I love that your entourage only shows up in bow ties. I just think that's great.

21:37Michael Froman: You've set a role model here. Well, let me ask you, I guess, the final closing question, which has been a theme of mine, and Paul's worn out from it. I think of Nicholas Burns, who on the weekend in China is out going into the deepest, darkest parts of China as U.S. ambassador. and there's this haze of a State Department of yore. After Trump, do we get back to some kind of diplomacy that the Council on Foreign Relations remembers? Or are we permanently to a new new? So, look, I think the president has raised a lot of really important questions that we all need to take seriously, whether or not we agree with his responses to them.

22:17Michael Froman: And I don't think the pendulum is necessarily going to shift all the way back to the way it was before. but I think there'll be an opportunity to say, okay, there are a variety of ways to rethink the system going forward, whether it's how we manage alliances, how we manage adversaries, how we organize the global economic system. And that's work that we are doing at the council, and I think together with a lot of other think tanks, universities, and experts. And I think it's something that we all need to take quite seriously. I'll get the essay out, folks. and Foreign Affairs magazine, Michael Fromm, and the next global economic crisis could be made in China.

22:53Stay with us. More from Bloomberg Surveillance coming up after this.

23:05You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. She's the queen of bullet points. Are you kidding me? You should see her deck here.

23:22Michael Froman: I like it. Makes it easy for me. Kelly Garrity out of Boston College and NYU with Morgan Stanley and with Eaton Vance always and forever with us here on Fixed Income. I'm going to suggest price down, yield up. everyone is afeard, but usually that means there's an opportunity in duration, an opportunity in risk. What is the most optimal risk thing now to study given this bond moment? Thanks so much for having me today. Yes, it's definitely an exciting week. There's a lot going on. And yesterday, a lot of red on the screen. So 14 basis point move in the 10 year is... So what's the opportunity? So the opportunity, we think opportunities abound in fixed income.

24:10Honestly, this is the place to be. Bonds are exciting. Again, you are getting paid. I am genuinely excited. And I don't always say that. My background is in high yields. I was managing portfolios in 2021 when high yields was 3.78 % yields. There was no high in the high yield. Now you have real yields that are actually compensating investors for taking on that duration risk, as you point out. So these historic levels, yes, we keep ticking a little bit higher, but there's going to be a point where demand is really going to fill in there. So we see demand coming from, you know, cyclical demand and also structural demand, you know, with huge pools of capital and insurance and pension that need that liability matching, and that will come in at these levels.

25:01And so we're not as concerned.

25:06Michael Froman: I look in your notes, you say, keep calm, carry on and stay active. Am I staying active by just clipping a 5 % coupon on the 10 year? Or do I take some credit risk? Do I try to go into the muni market for some tax equivalent yield, which are pretty interesting? How are you guys suggesting people stay active? I think staying active right now is really critical in this environment because spreads are tight. So spreads are tight. And, you know, that has been the headline. How could that be when we have all of this chaos happening around us? And, you know, there's a few reasons that are driving that.

25:42But overall, it's really the the economy is strong and fundamentals are very strong. So we think that there's scope for that to continue, for the spreads to continue to be tight here. But it's not the wrong idea to go out into corporate credit and take on that additional duration. But you have to stay active, meaning you have to be selective. You have to pick your spots. You can't just say, you know, buy the yields because it's attractive right now. So all this is great. I get it. But as I mentioned earlier, about October 20th, people are going to get their statements on their bond portfolios.

26:21People are, let's be clear, people are looking at price down in bonds, right? Yes. So do you rebalance? Do you reallocate? Do you put new money there? Obviously, I guess you do. But we talk about losses in the equity markets and everybody's mental. Right. And bonds, nobody talks about it. Like a coupon. There's some substantial losses out there, aren't there? There are losses right now. But if you look back to 2022, so in any period where you have this transition, So 2022, fixed income had a real inflation problem. We were looking at negative real yields that were substantial. Right now, I think fixed income has an income opportunity.

27:05So starting yields matter. Yes, I would have told you a couple months ago that yields are attractive and you should be excited about fixed income. Right now, I can make that point even stronger. So getting in at today's yields is a very strong predictor of what your future return stream would be. And so as an asset allocator, you know, we're talking to institutions, we're talking to, you know, to insurance companies, and they are looking at their allocations and saying bonds are interesting. I mean, I'm looking at 2022 and the collapse of bonds, Paul, and just as a given ETF, doesn't matter the name, down 25%.

27:47The same ETF right now is down 6 % from the recent highs.

27:51Michael Froman: They're getting coupon. So it's not a 2022 moment. Yep. What do you do when you get the phone call from the random salesperson on Wall Street pushing another AI-related bond? Because a lot of folks are telling me they have to be really focused on their direct exposure to AI and their indirect exposure to AI. It's not just an equity risk anymore. It's in your market now. How do you guys think about that? Absolutely. Well, AI is obviously the key theme that's driving everything. So we're seeing that across all the fixed income sectors. So in the ABS market, in, you know, leveraged loans and high yields and all the hyperscalers that in corporate credit, we're being selective.

28:32So we had been underweight in our, you know, higher quality investment grade portfolios because there was uncertainty about, you know, the supply coming. So it's not really a fundamental credit concern. It's really about the technical there. And you don't know when Amazon is going to drop another$20 billion issuance. So that's backed up spreads. And that's just a technical phenomenon. So but we've been closing that overweight because we're comfortable with the fundamentals. That's the most important point is that growth is still there and demand is still there. So growth is really your get out of jail free card.

29:08You can have wars, You can have tariffs. You can have, you know, all kinds of chaos in the world. But if you look at the underlying growth, that means fundamentals are strong and cash flows are increasing, which that's ultimately what pays your bond. Kelly, thank you so much. Kelly Garridge, you're with us. Morgan Stanley. Today, fixed income client, portfolio manager with a lot of experience in high yield. Stay with us. More from Bloomberg Surveillance coming up after this.

29:45you're listening to the bloomberg surveillance podcast catch us live weekday afternoons from 7 to 10 a.m eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube i have the book at home it's on the coffee table it's called the Edge, Jonathan Maxwell. It is a blistering essay on our naivete about infrastructure. Jonathan Maxwell joins us now, CEO, Sustainable Development Capital with a killer substack. What's the number one thing Americans are naive about when fancy people like you talk about infrastructure?

30:24Michael Froman: Well, the number one thing that's hitting people on energy infrastructure at the moment is at the pump. So gas up 27%. Diesel, you know, liquid fuels are up about 50%. A lot of that's imported from geopolitical problems, which I wrote about in The Edge. I think it's being conflated. So if you want about confused, you know, I think the what's driving the American and I've got to say UK GDP right now is technology. Technology is being blamed for these cost increases. You don't run data centers on liquid fuels you run them on electricity so i think there's a big and uh short story here we i'm here for climate week there was a event pulled i don't know if you saw this on sunday that was a wacker data center it was actually sort of removed from the agenda for um you know for climate week but you know this is such an interesting week you know the The banner on top of the door this week is climate week.

31:27The conversation is about energy.

31:31Michael Froman: And actually, outside of the door, there's a queue and it's about power. But there's this huge negative polling, 80 % negative on data centers. It's as if these two things are in conflict with each other. Whereas what's actually going on, in my view, is you've got one of the most important opportunities for efficiency and productivity that we've ever seen. If we get this right, and I think that's the big confusion, if we get this right and we make the energy close to where it's needed, we get the heat out of data centers because that's what you put in, megawatts in, heat comes out. This is an incredible opportunity for my thesis of edge infrastructure, efficiency and decentralized generation of energy.

32:13What do you think is the most efficient way to power the infrastructure of AI,

32:19Michael Froman: whether it's a data center or something else? Because again, you're correct. It's become a political issue. We're going to see it in the midterm elections in a few weeks. What do you think are some of the solutions that we should be talking about? Well, one of the problems to get before the solution is there's a queue, right? I mean, they've got 5.2 years on average. You have to wait for a grid connection in the US, roughly the same five years in Europe. So the first thing is what do you do with the queue? The second thing is when you get the energy to the data center, how much has been wasted on the way?

32:49Michael Froman: And this is my drum. I thump the whole time. But roughly speaking, in the UK, it's 53 percent. In America, it's 65 percent. So let me go back to this. Every time you come in here, that blows me away. From the source of the energy to where it's used, you lose about half of it. Right. Where do you lose it? How do you lose it? So most of it is lost as heat. So if you put energy in a generator, whether it's gas or uranium for nukes, what happens is the energy goes in, the primary energy, the fuel goes in, whatever it is. And then you produce two products, power and then heat. Now, if you don't do anything with the heat, it goes up into space and they don't need it up there.

33:27Michael Froman: So that's the biggest loss in the world, which is heat loss. There's transmission distribution losses. But to answer your question, if you want to do a data center well, A, you interact with the grid and do the deal that you can. But good luck, because you're going to wait five, ten years in the U.S. But B, bring the energy where you need it. And then you can take the heat off, use the heat that comes off for industrial processes, and it doubles the efficiency. I've got to get this in, because we've got so much going on. It's such a busy day, folks. Jonathan Maxwell, we've got the president of China meeting with the president of the United States of America.

34:00The stereotype is China's doing lots of touchy-feely climate stuff, way more than Trump. but at the same time they're flatlining or even burning more coal. Are they still polluting the world? Is China leading in coal pollution?

34:15Michael Froman: So US switched from coal to gas. It was probably the biggest climate benefit that really ever brought to the world. If China followed the same pattern, so I think China's roughly 50-60 % coal at the moment, then that would help. The problem is... Why can't we incentivize... I mean, folks, I'm talking my book here. Michael Bloomberg's leadership in Bloomberg philanthropies has been, OK, coal works. We don't want to blow up West Virginia. But you know what? We've got to get to a new place. Why can't we help China do what America did? Well, I think China's doing what America did partly. I mean, by the way, America has gas, right?

34:55Michael Froman: And it's a huge petro state. China imports a lot of gas, particularly from places like Russia. So I don't know how you want to encourage that too much. I think the alternatives that they're going, which is extraordinary, and I think they're doing it perfectly well without the UK or the US advising them at the moment, it seems, is there's this enormous renewable energy push, which is good for electricity, doesn't help you much on heat, and a huge electrification of their transport system, which is typically 30-40 % of energy use, which is the liquid fuel displacement. So China, for 20 years, they wrote something called the Medium Term Economic Plan in 2006.

35:32Michael Froman: China is doing actually a pretty good job and it's already gone through peak oil. Too short of a visit. Do it longer next time. Jonathan Maxwell in for the climate meetings in New York. He's the chief executive officer, Sustainable Development Corporation. Stay with us. More from Bloomberg surveillance coming up after this. with chat gpt you can do more than get answers you can get things done when you're running a business and looking to expand you need a clear view of the landscape before making any decisions chat gpt can help you prepare connect your google drive point to relevant files and reports and ask chat to research competitors industry forecasts and market signals it can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team.

36:25Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at ChatGPT.com.

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37:29You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. Paul Sweeney and Tom Keen, we welcome all of you across America, around the world, and particularly in Europe. We are with the Prime Minister of Moldova, very newly minted. Vassali Tofan has been hugely controversial and important for the debate of democracy in Eastern Europe, and we're thrilled he could join us in our studios today. I want to paint this out first of Moldova. If I'm in Istanbul and I'm on the west side and I look over to Asia and I move north and there's Kristalina Gorgiev is Bulgaria.

38:17Admiral Stravitas of the U.S. Navy has talked about the importance of Romania on the Black Sea. And there, you know, with the Dessa of Ukraine is landlocked Moldova. It is like a chess set. Where does Modova fit in to the geopolitics of the region, of Bulgaria, of Romania, and of this horrific war in Ukraine? How do you fit into that? I like the chess set metaphor. And I think we're in an important piece on that chess set where the size of the country is not representative for its geographic and strategic importance. We share the longest border with Ukraine of any other country to the southwest of Ukraine.

38:57over 800 miles border, which means that for any potential reconstruction project in Ukraine, but also for the security of Ukraine, Moldova is key truly. Americans spend too much time watching Netflix, Apple TV and all. And we have a stereotype of the Russian tension there. You have a tangible threat from Russia, maybe not violence, maybe not invasion, but what is the threat for Mr. Putin and Russia? Russia has been waging what we call a hybrid war against Moldova, primarily by trying to interfere in our elections. And I'm very proud that we managed to withstand that threat. Actually, democratic forces...

39:39You weren't Mr. Putin's candidate? I'm anything but Mr. Putin's candidate. If anything, I'm probably one of the biggest Mr. Putin's enemies in the region. And I think Moldova is a sort of good example of a lab where we managed to counteract Russian interventions. And I think even Western democracies, larger democracies, have something to learn from Moldova in terms of how we did it.

40:03Michael Froman: What I think a lot of folks here, at least in the global financial markets, are just trying to figure out as it relates to Russia and Ukraine. How does this all end? Where does it go from here? What is a reasonable resolution? No one is closer to it than your countrymen in Moldova. What's your view? In my case, this is even more personal. Before taking the prime minister job, I actually lived for 15 years in Kiev, Ukraine. So I was there when the war started. I continued working there, running one of the larger private equity funds in the region. And indeed, all I can say is that we count on a just piece for Ukraine.

40:37I understand the temptation to get it done at any cost. But we have to understand that setting such precedents where the aggressor is tolerated will disrupt things going forward. So it's very important to get not only a peace, but a just peace.

40:54Michael Froman: One of the byproducts of this war in Ukraine has been higher global energy prices exacerbated by the U.S.-Iran situation. No one feels it, again, more acute than people in your region of the world. And I believe your government just introduced a 60-day state of emergency for energy and water. Talk to us about day-to-day life in Moldova, given what's going on in the world. Indeed. In economic terms, our energy imports are at around 10 % of GDP. We've diversified a lot over the last year, so we did two important things. One, we built a renewables industry from scratch. within five years, the portion of renewable energy went from zero to nearly 30 percent.

41:37The other thing we did, and Russia is unhappy about that, we diversified away from Russian gas. But that does have a cost for us. So and now, of course, with the spike driven by the Ormuz blockage, we do have to pay higher prices for gas. Bloomberg Surveillance across America, around the world. Thank you for the way you choose to listen to us on YouTube. Good morning on Spotify and the Pacific Rim. Greatly appreciate that. And, of course, in Europe as well. With us, the prime minister of Moldova, again, adjacent to Romania and with that southwestern border up to their northeast, I should say, with Ukraine, Vesely Tofan with us, their prime minister.

42:18I was literally educating cherubs the other day on the horror of 1989 and the collapse of Romania, which was maybe the most difficult collapse in all of those years. What do you need from Romania? What do you need from the success of Poland? And bring it right over to us. What do you need from the United States of America to protect your democracy and your capitalism? Romania has been a great friend. and we share more than a common history and language and identity. So we also share, we look up to Romania as the kind of path we want to follow. So if you look at the growth of Romania over the last years before joining the EU, it was one of the most fascinating growth stories in the world, comparable to the Asian targets or other, say, fascinating growth stories.

43:06And that's why this EU integration path, and we became a candidate country in 2022, creates gigantic economic opportunities for us, but also for the investors that are going to come to Moldova. And Romania is our primary advocate and primary ambassador on that path. And maybe, as I'm in Bloomberg, I also have to speak to the investors interested in potentially capitalizing on that growth. I think Moldova is one of the most compelling EU convergence stories. EU offered us a growth plan to the tune of 10 % of GDP. So the growth will be accelerating, creating a lot of opportunities for people who want to bank in Moldova.

43:42Michael Froman: What are the challenges that Moldova faces gaining EU membership? I think some of the challenges are fully in our hands, you understand. So this is adopting tens of thousands of pages of regulation, but we're doing that. And we're actually one of the best pupils in the class based on European Commission reports. At the same time, I think, of course, I don't want to dance around it. We're also dependent on the results of elections in key European democracies. And we understand that, you know, the European enlargement debate is a complicated one. Quickly here, Mr. Prime Minister, I think of the Belgrade conference where Condoleezza Rice and Robert Gates talked about a projection of NATO east.

44:26Romania is in NATO. This is a third real issue with Mr. Putin as well. And yet if I get out the surveillance map, Moldova should be in NATO. Is there any discussion of that or is that just something you can't? move towards. Thank you for asking this. By the way, this is one of the scary stories that Russia is using that somehow we're going to be dragged into the war as a potential NATO member. So I want to make it clear, we're not a NATO candidate. We are a neutral country by our constitution, and there are no plans to join NATO. But at the same time, for us, it's very important to have a good relationship with NATO, including Romania, who's a NATO member.

45:02You lived this, you were in you went to Erasmus and then Harvard Business School. We have a president who's decided international students really shouldn't be in our graduate schools. How do you, what was your first day at HBS like? Look, HBS transformed my life, so to that, and I think it built a big friend for US, you know, after spending time in US, going to Boston, on going to a school like Harvard Business School, you become a huge believer in American values. Did Michael Porter give you a C? I actually did. I did interact with Michael Porter. Moreover, I worked for Michael Porter's firm, Monitor Group, in the prime times.

45:45So in that sense, I would hope that more international students would get these kind of opportunities and come to U.S., get graduate studies here, and become friends of U.S. going forward. This has been wonderful, Mr. Prime Minister. Thank you so much for joining Bloomberg today. It is a fascinating experiment in democracy. I can't say enough about the suddenness of this. The Prime Minister of Mendoza since July 22nd. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

46:26You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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