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  • Need to Move Towards Deescalation: Chen on US, China

Need to Move Towards Deescalation: Chen on US, China

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Bloomberg Apr 23 11:03 · 10.8k Views

Lanhee Chen, Fellow in American Public Policy Studies at the Hoover Institution, weighs in on President Trump being optimistic about the relationship between China & the United States over the President's reciprocal tariffs. Chen also discusses the President stating he has no intention of firing Federal Reserve Chair Jerome Powell and whether or not this decision was made based off Wall Street reaction. Lanhee Chen speaks with Kailey Leinz and Joe Mathieu on the late edition of Bloomberg's "Balance of Power."

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Transcript

  • 00:00 It's the on again off again.
  • 00:01 It's the, it's the uncertainty that has been the issue almost as much or more than the tariffs themselves.
  • 00:06 Are we getting on the same page here?
  • 00:08 Well, I look, I think the other issue you have is what is the rationale for the tariffs?
  • 00:12 And we've heard different explanations from different members of the administration.
  • 00:15 I've said it's a negotiating tactic, which I think Wall Street
  • 00:18 and and folks in the markets are generally more amenable to
  • 00:21 then some fundamental effort to for example, reassure large segments of the economy, which is going to be admittedly much more difficult.
  • 00:27 But I do think what we heard in the president's remarks just right there
  • 00:31 was optimism about the China relationship.
  • 00:33 And that frankly I think has been the big dark cloud that has loomed over a lot of this.
  • 00:38 And so if we have some certainty, for example, if the president's really working toward this so-called grand bargain with China,
  • 00:44 I think that will give people a little bit more comfort of a positive resolution, which we really we haven't had in several weeks.
  • 00:49 We heard from the Treasury Secretary, although not directly, just based off people who were in the room when he addressed a closed door session
  • 00:56 of investors here in Washington.
  • 00:57 The suggestion that the current
  • 00:59 dynamics between the US and China when it comes to tariffs are unsustainable
  • 01:03 when the US secretary of the Treasury is suggesting the administration has arguably helped contribute putting itself into the situation
  • 01:11 is not a sustainable one.
  • 01:12 What does that say to you?
  • 01:14 Well, I think it's an acknowledgement of of reality in in some ways, which is to say that the status quo with the escalation and the not talking to each other, that isn't sustainable.
  • 01:22 It's not
  • 01:23 certainly not sustainable for China.
  • 01:24 We know that
  • 01:25 for the United States, it's not comfortable.
  • 01:28 And and so I think it's a recognition
  • 01:30 that we have to move towards some kind of a de escalation here.
  • 01:33 One way or the other.
  • 01:34 It is going to eventually impact the US economy.
  • 01:37 It's going to impact how our economy performs.
  • 01:39 It's going to impact how people perceive the US economy, the stability
  • 01:43 of business that's being done here.
  • 01:44 So, I mean, there are a lot of reasons why I think it was great for Secretary Besant to say what he said because it's the reality of where we're at.
  • 01:51 Well, reading between the lines here, what we just heard in the Oval Office,
  • 01:54 you sense optimism.
  • 01:56 We certainly got that
  • 01:57 from President Trump.
  • 01:58 He had a couple of messages to deliver, though, including the fact that he has no intention of firing
  • 02:03 the Fed chair.
  • 02:04 That's not what he was saying just 24 hours ago.
  • 02:06 What has happened inside this White House?
  • 02:07 Was it
  • 02:08 simply watching Wall Street respond?
  • 02:11 I, I think that's part of it.
  • 02:12 I think it's a desire to, again, sort of try and demonstrate that there is going to be some systematic way in which these policy changes are happening.
  • 02:19 But look, I think there's no question the markets have an impact on every presidential administration
  • 02:24 and certainly this one is no exception to that rule.
  • 02:26 So I, I, I do think that plays, you wake up to headlines like today and it's the worst start of the year.
  • 02:31 It's the worst run for the S&P 500 since the inauguration
  • 02:35 in 100 years.
  • 02:36 That includes, of course, the Great Depression.
  • 02:38 Donald Trump doesn't want superlatives like that, does he?
  • 02:41 Those aren't the exact headlines that they would have wished for, I'm sure.
  • 02:44 But
  • 02:45 again, I think one of the things that this administration has, that a lot of administrations, including ones I've served and don't have,
  • 02:52 is a measure of flexibility,
  • 02:53 one would say, in terms of what the president's message is, in terms of what the administration's message is.
  • 02:58 They're not afraid to say, you know what,
  • 03:00 don't worry about what we said yesterday.
  • 03:01 This is what the operative issue is today.
  • 03:04 It's hard, I think, for market participants to to participate in that situation, but that's the reality of of where we're at.
  • 03:10 Well, I also wonder is President Trump, while he said he has no intention of firing Powell, still reiterated that he thinks Powell needs to cut interest rates now or soon, that he risks being
  • 03:19 too late.
  • 03:19 If you also see this as setting the stage of messaging, if we do see a downturn in the economy for someone other
  • 03:25 than Trump and the administration to blame the fall guy.
  • 03:27 Yeah.
  • 03:28 And look, I mean, I think that that's a
  • 03:30 that's a certainly a predictable, by the way, not new messaging from the president.
  • 03:33 The president,
  • 03:35 we heard this a long time ago, right?
  • 03:36 And so
  • 03:37 to some degree, this is about positioning
  • 03:40 what the president's trying to do, what his administration's trying to do.
  • 03:43 This series of policy changes they have
  • 03:45 against the backdrop in reality that the Fed and ultimately monetary policy are going to drive as much of the economic situation over the next six months as anything the president, his administration might do.
  • 03:56 We're seeing a big pop
  • 03:57 after the bell here in the SPY and the QS.
  • 03:59 If you're with us here, Russell, 2000 moving higher, at least
  • 04:02 the the ETFs that track them will have real futures coming up at 6:00.
  • 04:06 But look at these numbers.
  • 04:07 Look at the green on the screen
  • 04:09 here, Lonnie.
  • 04:10 It's pretty important.
  • 04:11 What would be your advice to this administration about
  • 04:14 staying on message in the days ahead?
  • 04:16 Well, look, I mean, I, I think that they need to communicate clearly going forward what the rationale is going to be here, right?
  • 04:22 We've had a pause on the reciprocal tariffs.
  • 04:24 We've got some indication that maybe the China escalation is over.
  • 04:27 If we believe the comments we've just heard a couple minutes ago,
  • 04:30 all of these things should be cheered and are being cheered by market participants.
  • 04:33 So I think the question now going forward is what can we expect in terms of the philosophy animating these tariffs?
  • 04:39 If we have some confidence this is a negotiating tool that's going to dictate one set of responses.
  • 04:44 If we believe this is an effort to fundamentally restructure the US economy in the way that Peter Navarro and other advisors have indicated, that's a very different pathway.
  • 04:51 That is one that is much more unsettling for people who are participating in this economy.
  • 04:55 Then for one that says, listen, we have a bunch of negotiations.
  • 04:57 By the way, the president's not wrong about some of these negotiations that have to.
  • 05:00 To happen, if that is the strategy that needs to be clearly communicated.
  • 05:03 I think that's been the message that a lot of people have sent from day one.
  • 05:06 Obviously there's been some some Hemming and hawing on that.
  • 05:09 If ultimately this is about kind of reaching these new agreements, not necessarily raising revenue, when Congress returns to town next week starts hammering out the details of a reconciliation package that could cost trillions of dollars if
  • 05:20 these tax cuts are not offset, should they not be counting
  • 05:23 potential tariff revenue into their
  • 05:25 equation?
  • 05:26 I mean, I, I think there's an uncertainty around that, that if they were smart, they would hedge against, which is why we keep returning to conversations about Medicaid, for example, right?
  • 05:33 What's going to happen on that side of the Ledger?
  • 05:35 Because that's where all the big money is.
  • 05:36 If you think about $800 billion in savings
  • 05:39 on the House budget resolution, for example,
  • 05:41 that's a big number.
  • 05:42 And you don't get to that kind of number without
  • 05:44 potentially looking at Medicaid.
  • 05:46 So I think that the the challenge is really around how much revenue will be raised by the tariffs.
  • 05:51 That has created the uncertainty that Congressman has to go and say, how do we fill this hole?
  • 05:55 How do we actually get to the numbers we need to hit?