China to 'Fight to the End’ as Trade War Escalates | Bloomberg: The China Show 4/8/2025

0:17 You're watching the China show. And we're starting this morning with some breaking news that's just come from the Ministry of Commerce in Beijing. They are responding to this threat from President Trump overnight that if the US was or if China was not prepared to drop their retaliatory tariffs, then he would put additional 50% duties on Chinese exports. China this morning though, has just come out saying that they are vowing to defend their right, say they are willing to take necessary actions and actually that they will fight to the end. Right. And the big question is, what is the end? That's what we've all been weighing. What is the end game here as well for Donald Trump? Yes, that's right. And just some of the other the other headlines that they're calling for, for dialogue. So they're looking for engagement with with the U.S. and Washington to try and resolve these

1:03 disputes. I think it's very telling that since President Trump has been in the White House, he hasn't had any call yet with President Xi that we're aware of at least. And so they are, again, looking to to strongly oppose these tariffs, but still keeping that door open to some sort of negotiation. I think we had that comment from Fudan University professor who's basically saying we've just been slapped in the face and you expect us to come to Washington and beg your pardon? So this is kind of the national approach to the face of tariffs, an increase beyond what is an effective 64% tariff on the Chinese goods. Yeah, that's right. Okay. Let's take a look at how it's feeding into market action so far this morning, because we're actually expecting some level of a bounce in Chinese equities that were very hard hit in the session

1:48 and that extended overnight into the Golden Dragon index where we saw a further drop. And that was again, because you had Trump coming out looking at these 50% additional levies on Chinese goods. This is really going to be sort of a bear market bounce we can't expect it to sustain when you have this level of uncertainty. But again, when you take a look at how the Asian sentiment or session is broadly faring today, again, you have still very elevated volatility, but we do see some gauges rising in the session today. Japan actually is one of those that's leading so far. If you take a look at at the broader benchmark so far. But essentially Japan, we do have them also, again, being one of the first frontrunners to start some sort of negotiations with the Trump administration. I think the assessment here overnight and why the market turned a little bit is that it looks as though the Trump

2:35 administration is offering carrots for those nations that are willing to take a conciliatory approach with the United States and sticks for those vowing retaliation, a.k.a. China. Yeah. All right. Let's bring in our team now to cover all of these headlines. We've got our China correspondent in low here with us in our studio. Joining us out of New York is Bloomberg Intelligence chief equity strategist Jane Harman and Adam's. But, Min Min, we can start with you because this is, again, as we said, Malcolm just issuing these headlines just as we came into the show this morning. What are we hearing so far? Yeah, I think this is a clearer message yet China's commerce ministry saying, number one, they are going to fight to the end. So they are going to dig in their heels. They are not really going to remove the retaliatory tariffs that we just heard on Friday. And that's expected because Chinese policymaking is very deliberative, pretty much the opposite of Trump.

3:23 So very unlikely that they're going to reverse course days later. The second thing they are saying is they are still calling for dialogue, so they are not closing the door for dialogue. They are not looking to pick a fight with the U.S., but they just feel as if they don't have a choice. Now, as Steve, you mentioned, they feel like they are being slapped in the face. They have to hit back. And we also see that the US embassy in the Chinese embassy in the US also responding that pressuring China is not the right way to engage with China. Beijing will only continue to take measures to protect the legitimate rights and interests. And also one of the Chinese analysts that Bloomberg has interviewed I think is pretty insightful. He's saying that China is patient. They're willing to wait this out because they believe that at some point Trump's

4:09 efforts at these tariffs is going to fizzle out in momentum, especially given that he's facing pushback domestically as well. The White House having to come out to veto that bipartisan bill put forward by the Senate, to limit us, to limit Trump's ability to impose tariffs. So what else can China do for the next step to support its economy and its markets? We have Xi Jinping being quoted in state media as saying that he's going to fully unleash consumption. But at the same time, we're also getting a statement from the PBOC, essentially that they're going to provide the lending support needed to the sovereign fund, central HUI gene investments to potentially buy ETFs further and bring in the national to act as the national team to prop up stocks. Yes, we actually got lines from various

4:56 of these sovereign funds and state backed funds saying they are pledging to continue to buy up these ETFs. As you said, the PBOC stepping in to provide a lending facility to them. We also know policymakers met over the weekend to discuss potentially accelerating the implementation of fiscal stimulus. Front loading at some of these measures could include measures. Is to support consumption, to support both we providing subsidies and Morgan Stanley actually expecting we could see an imminent rate cut and triple our cut 50 basis points this quarter, a 10 to 15 basis point cut to the policy base, potentially also maybe even expanding the fiscal deficit in the second half of this year. We already see the government front loading the stimulus by speeding up the pace of government bond issuance so far. And of course, the next key date to look out for is the April Politburo meeting.

5:44 That's when policymakers will meet. It's a policy. It's a window for more policy adjustments going forward. They might also extend that equipment subsidy program to maybe include even more goods and services as well. And we had the editorial on The People's Daily yesterday. The title is Focus on Doing Your Own Thing and urge governments at all levels to support companies, to guide them, to expand towards domestic consumption and to non-American markets as well. All right, Gina, we'll bring you in now. I'm taking a look at U.S. futures, and I'm not seeing too much of a reaction so far, but this is surely the biggest risk for investors, is that we continue to see these tensions between China and Washington ratcheting up. Yeah, I would say that it's the

6:30 vigorous, the not only we see tensions are happening, a ratcheting up with China, but also tensions between the U.S. and the rest of the world continuing to ratchet higher. Clearly, we're already seeing downward directionality in terms of estimate revisions, reflecting the tariffs over the course of just the last several weeks. Analyst expectations for first half earnings in the 2025 year have dropped from double digits to single digits, first quarter, which were kicking off and just later this week is expected to post just 6.7%. Earnings growth will be the slowest pace of earnings growth in a year. So we're already starting to see downward momentum emerge for earnings. But I do fear that it's just the beginning, considering that we've just got the tariffs finally announced last week and so far we've seen very little change or very little implementation in

7:19 terms of any kind of negotiation lower across most of the world. Gina, is there any indication that the Trump administration is listening to the chorus of influential money managers? Kim Griffin The latest saying it's a hefty tax on the middle class, huge policy mistake. We've heard from the likes of Jamie Dimon and yesterday Nouriel Roubini. A number of different people have talked about this being potentially a policy mistake. But yet again, in the same timeframe, we're seeing Donald Trump threatening an additional 50% tax on tariff on China just now, as the Chinese Ministry of Commerce is saying, we're going to fight this to the end. Yeah, I think you kind of answer to your own question there. In the midst of all of these sort of

8:05 complaints, Trump is only making the trade war more extreme. So, so far, no, there does not appear to be a whole lot of listening. He is very committed to this path, this course of action. And unfortunately, U.S. companies are going to be part of the fallout of that course of action, as will U.S. consumers. I've been watching some of your earlier hits as well and the things that you've been talking about on us programming as well. Gina and I know that you're pretty laser focused on where the VIX is right now, how you're reading that above 40, of course. And where do you think that signals? Have you take history as a guide? We see the later bottoming in in markets. Yeah, I think myself, as well as most

8:50 investors are now just looking for signs of capitulation, looking for signs of a bottoming formation. And the VIX is one of those indicators that most of us follow pretty carefully as a signal of volatility conditions. Of course, volatility conditions do tend to spike to extreme levels at or near major lows in the market. The problem with the VIX is it's a little bit of an unreliable narrator. As I say, in that VIX spikes can often occur toward the beginning of selloffs as well as at the end. And especially they tend to occur fairly early and sell offs that are affiliated with recessions. So in an environment in which we're moving into recession, a VIX over 40, for example, emerged in 2001 and again emerged in 2008, well before the 2009 and 212, the late 2002 bottoms and

9:39 stocks. So you could see this sort of really ugly climate continue and that's certainly as manifest itself in the VIX curves. The other things that we're watching for correlations and valuations as technical signals of an evaluation sounds like a fundamental signal, but there is kind of a magic number, if you will, on valuations of close to 14 times. For 15 times forward earnings tends to be where the market bottoms after periods of distress. We're at 18 times forward earnings with forward earnings likely to go lower. Our real valuation level may be closer to 1920 times. So we're nowhere near those typical levels on valuations yet. And then the last thing that we watch is correlations of correlations, pairwise correlations. And so the equity market do tend to spike during periods of strain, tend to spike to at least 1.5 standard

10:29 deviations above their long term average before bottom formations emerge. So we've definitely seen some early signs of capitulation, But have we seen enough have we seen enough earnings estimate revision? Have we seen enough valuation compression to imply the low is in? We have very limited confidence in that. Let's bring in again, low. Let's talk about the other levers that the Chinese might have. One is been the weaponization of the yuan. Are depreciation trends growing? Well, you look at what the last two sessions in terms of the fix had been. The PBOC, as you said, it just slightly higher, about 0.13% higher in each of those two sessions. But it's still keeping it below ¥7.2 per dollar. And I think just looking at the signal so far, so much of the priority had been

11:16 on stabilizing the stock market. All of these national team, the national sovereign funds stepping in to buy up the ETFs. We know that a part of the market sell off yesterday was not just because of implications of tariffs on the economy. It's also around fears of depreciation and aggressively depreciating. The yuan is going to go against the public's interest to stabilize the stock market. So I think it would be interesting to keep a close watch on what the next few days effects will be, whether the PBOC would slowly let the currency just float higher very gradually, or if they will continue to support the yuan while prioritizing stabilizing the stock market for now and using other measures to actually shore up the economy, ensure that capital continues to flow into the

12:05 country and to to boost domestic demand, while they also work on diversifying trade to other countries and other markets. Right. That was our China correspondent in Menlow there. And also Bloomberg Intelligence chief equity strategist Gina martin Adams. Thanks very much for staying up for us in New York and taking a look at how Taiwan markets are coming online this morning, because, of course, they opened at the top of this hour and we're continuing to see that slide. You think about the trading activity that we had to start the week in Taiwan. It was a long weekend. So again, it was sort of playing catch up to all of the tariff news. But we saw Taiwan's stock index Trump tumbling rather by the most on record in the Monday's session, even though you're seeing some sort of positivity in terms of how Japan is trading, Korea is trading Taiwan a very tech heavy index.

12:50 TSMC, the heaviest weighting on that still in negative territory. But you think about the levies that are on semiconductor exports excluded so far. But 32% tariff on Taiwan is among the highest in Asia. Yeah, on top of what happened in Hong Kong, a double digit losses for the Hang Seng for the Hang Seng tech index. The HCI catch up. Yes. From Friday's sell off. We'll have to see today. All right. Still ahead, we'll continue to talk tariffs and its impact on China with Eurasia Group as well as Morgan Stanley. Chen is going to join us. Also, Dan Wang from Eurasia Group, China of. MLG Investment joins us with their outlook as well for the markets. Amid the volatility we're seeing right now. And we are counting down to the open of trade in Shanghai, Shenzhen and Hong Kong.

13:38 Buckle up. This is China's show. You're watching the China show, taking a look at the yuan reference rate that's just come out this morning. We're above the 720 handle. The estimate had been for 730 to 97, but still, it's going to be very, very closely watched. What the PBOC signals with the fixing given they're just walking such a tightrope. Do they want to have some sort of depreciation so they can try and overcome the tariff hurdle? Or do they want to obviously let it strengthen? And then, you know, it's a very difficult one for them to to track? Yeah, absolutely.

14:25 And, you know, there's been all kinds of different expectations from different pundits, some saying they could go 15% depreciation or maybe 2 to 3% is more reasonable. Right now. We have to watch it because in trade war version one, 2018, 2019, the yuan depreciated by some 11% over two years. They've kept it stable this time until now. Let's bring in Fabiano Fidelity's CIO of equities multi-asset it and sustainability rather at Meiji investments. Thanks so much for joining us this morning in studio and we can start with the yuan. What what kind of strategy do do you see officials taking and what would be I guess the best approach when again we just had China at the top of the hour saying that they're willing to fight these tariffs until the very end. Good morning, Annabel. It is difficult to say.

15:11 I mean, the yuan has has surprised us before. I wouldn't be surprised if he would get some level of depreciation going ahead, but not disorderly. I mean, it has always been kept very, very orderly in terms of in terms of control from the Chinese authorities. So possibly that control will continue. But, you know, it's obvious China, President Xi and President Trump are likely to continue to have a very strong stance, at least publicly. Of course, the hope is that behind the curtains they are speaking. Well, let's take a step back a little bit and see what your perspective is on the damaging effect of this. We've seen it actually be played out, obviously, in the markets over the last

16:00 three days. But if this does not de-escalate this week, perhaps what's the end result going to be? We don't see an end result yet if it doesn't de-escalate from a fundamental standpoint, let alone the sentiment standpoint, it is actually damaging to many companies. And as you know, particularly equities are driven by earnings. So if companies really don't have a way to hide in any country now because these tariffs are so wide, then it becomes more difficult for them to decide where to place their supply chains. This could all change in a minute if President Trump decides to renegotiate some terms. We saw what happened last night with the images that incredible turn around when there was a news that that one was not

16:47 confirmed of potentially a reprieve. Yeah, and I think that was a $2.5 trillion melt up in the space of 7 minutes. I mean, it's really just tells you how how there is such an increase in in the speed and and velocity of of not just news in the markets but also how how equities are trading as well. So how you advising then clients and how are you looking at also making investment decisions when we just don't really know what's going to happen. So Annabel, you made a very good point. Velocity in the market is increasing and we saw it even earlier in the year from the peak, even that just the first 10% correction that we saw in the S&P 500 was the eighth fastest since 1929. So as velocity is really peaked picking

17:37 up or, you know, starting to increase, it's very difficult to time this market. And also because we don't know what the macro backdrop is going to be, we really need to look not at sweeping market bets, but more at specific company by company, idiosyncratic changes. And one of the things that we've seen in the market yesterday, which was very different from last week, was indiscriminate selling so many companies is probably not going to be as affected by tariffs or are actually been benefiting from other macro forces have been sold off. And that is an opportunity for active investors. So there's the buying opportunity there. What are the data points you're going to be looking at specifically to see the health of the American economy as we're faced with this uncertainty going

18:25 forward? Confidence is key. So look at the confidence, the confidence numbers of both corporates and consumers. Think about the Michigan survey and also think about the new orders and the these data points. One very important, if you want color that we got from one of the most recent ISM announcements was that corporates are either unable or unwilling to sign long term contracts. That obvious is. A very slippery slope. Mm hmm. In terms of the opportunities that you see. I saw some in your notes around. In defense stocks, for instance, in Europe. What are the regions? Are you looking to India, for instance? So actually, in Europe, because there is a stimulus package that has just been recently issued by the German

19:14 government. So also based on a very, very healthy balance sheet. Actually, defense stocks are benefiting from something different, which is increased defense spending. But defense stock stocks have done very well already in Europe, despite some sell off over the last day. So I wouldn't look specifically at defense stocks, but all other stocks that could benefit from the increased infrastructure and defense spending. Think about utilities. Think about consumer stocks at the moment are very depressed. Well, other areas that we like have, for example, technology stocks both in Asia and in the US, have been very severely hit. But some of them continue to have very strong long term fundamental prospects. Well, what's your outlook then for China? Is it a wait and see or are you encouraged that they do have levers of

20:02 policy to potentially reflate the economy? China has many levers to actually input in the economy. We believe we will see more stimulus. And so we still like domestic names. We just have to hope that at some point there is going to be a reprieve in the relationship with the US. That would be very important. All right, Fabiana, thanks so much for joining us. That's Fabiano Fidelity's CIO of Equities, Multi-Asset and Sustainability at M&G Investments. And yeah, we hope for a reprieve, but certainly if the news this hour is any indication, I mean, you can see it there at the bottom of the screen, China saying they're going to be fighting to the end. And we just got the first sort of indication in that in the yuan fix as well, because they allowed it to go above 720 for the first time since 2023. And you're seeing that market move off

20:50 the back. It just sort of tells you is so that tight rope weaker to allow that sort of competitiveness to work. Those could anger Beijing or Washington rather. Yeah, I think the headline surfing continues for us the rest of this week. Headline surfing. I like that. All right. We'll have plenty more ahead. You're watching the China show and also taking a look at free market. We are seeing the Hang Seng a little bit in positive territory, the more ahead. This is Bloomberg.

21:38 We're a couple of minutes out from the open markets this morning and still really parsing over these headlines that drop from the Ministry of Commerce at the top of the hour that China is saying they are going to be fighting to the end if the US insist on these new tariffs. So we are seeing futures pointing to some modest gains at the open. But remember, of course, these markets have sold off heavily and this really could just be a bear market bounce, essentially. Some of the stocks that we're going to be tracking in the session in particular today, we'll taking a look first at the biggest decliners yesterday in the session. So you had the likes of BYD, for instance. Geely also under pressure. What's very interesting as well is going to be how President Xi navigates relationships with countries in this part of the world as well. Is there going to be any level of frustration that if China can't export to the US, you're going to have

22:26 countries that are as well concerned about China trying to export overcapacity in this region and actually be widely is saying that they've knocked back investment from India sorry rather be wide into the country. So she's visit to Southeast Asia at the end this month takes on added importance. Absolutely. And also some of the big tech stocks, again, as we approach the open. We'll have plenty more ahead. This is Bloomberg. And welcome back. You're watching the China show. We're counting down to the open of the markets.

23:13 Yes. And Steve, I mean, if you've taken futures as any sort of indication, we are going to see some level of of positivity in the session today. But many strategists would tell you, really, beware of this one. This could just be a bear market bounce similar to what we're seeing in other markets. The Nikkei, for instance, today climbing more than 5% so far. Look, it's been a very, very interesting start to the show today because we had a very strong rebuke or or pushback from China just at the top of this hour, really talking about this these tariffs that Trump threatened overnight. Yeah, that's right. And the move is in your court now. Donald Trump back and forth, tit for tat. See how far this one goes, obviously, to the end if they're going to fight. We simply don't know. Yeah, that's right. So taking a look at how markets are coming online this morning, again, you

23:59 can see the CSI 300 moving a little bit higher quarter percentage point. We are opening, of course, after the worst drop that we've seen for equity markets going all the way back to 1998. But as is said, some of these headlines that have crossed. So we saw overnight Donald Trump saying that if China did not repeal its reciprocal tariffs on the US, then it would be issuing an additional 50% duties on top. China, though, at this, as we said at the top of this hour, pushing back on that and saying that they will fight until the very end on this. So, again, it just really tells us how much volatility we can expect. And and also taking a look at the different levers that they can pull. And one of the very interesting ones to watch this hour has been what China has done with the yuan, allowing the fix to weaken past the 7.2 level for the first

24:49 time going back to 2023. Again, this is a start is what we see here. Taking a look at that benchmark ten year yield there as well, because we're tracking back down to record lows for it. But we are seeing again, some of the consumer names, Kweichow, Moutai, for instance, a little bit higher. And we did see President Xi Jinping vowing to try and boost consumption as cattle again. And midday, another consumer name. But let's take a look at what's happening in Hong Kong and and again, recapping some of these these lines around the currency in particular, because we did see at the 7.2 or above that 7.2 level on the fixed, you can see here we have seen the currency moving off that again, Jefferies is saying, for instance, that they now see a 75% risk or odds of depreciation of that. And they're saying that if we do see depreciation, expect Beijing to go big

25:37 on this to the magnitude of around 20, 30%. Again, how Beijing possibly could handle this tariff risk, a lot of grain here. You can see just standing on a particularly what gains they have more than 4%. But names like Tencent, Alibaba, Baidu, Meituan, Shammy, I mean, rising nearly 6%. Apple supplies, again, we saw these under pressure in the session yesterday and there was some Wall Street Journal reporting overnight that essentially Apple could look to to produce more of its or manufacture more of its iPhones in India. We already see them doing that with certain models. But that, again, could be a risk to some of these names. And they actually are underperforming really very much the market. Also taking a look at some buybacks that are in play today because we have to that we're focusing on zijin mining is

26:23 one and go to high tong another. But again, both of these companies are planning buybacks go to a high tong, they're up to 1 billion to ¥2 billion, Steve. All right. Let's get a look at the china market. Let's bring in bloomberg equity. Senior reporter Abhishek Bishnoi joins us now from Singapore. So Abhishek, a lot has happened in the last 24 hours. The markets are bouncing back. Maybe, you know, some of those recession fears pulling back a little bit. Maybe it's just the bounce from the big selling we had yesterday. What's your read right now, first blush. That's right. I mean, it looks like a rebound from extremely oversold levels. And it's not very different from what we have seen in the US. So it is of paramount importance to see how the session progresses and where the market closes.

27:10 But one thing to note here is, I mean, both these economies, U.S. and China, are digging heels to fight a prolonged and probably disruptive trade war, which is going to get priced in. So the set up for the long term does not look good. And the odds of the green that we are seeing on the screen being just a temporary bounce are on the higher side. Now, China, you know, versus the US, it looks relatively better, but just not just because of valuations, but alongside, you know, escalation of this trade war. It is also doubling down on the stimulus efforts that its plan plans to do. It's the authorities are planning to frontload stimulus right from rate cuts to water cards to more spending to boost consumption. And amid this whole playbook, a direct

27:58 intervention by state backed funds have also increased. We have been reporting since yesterday how, you know, some ETFs that are preferred by the national team are seeing great volumes. Some of the sovereign wealth funds and other funds that are backed by China have come in the market and pledged to keep buying ETFs, tech stocks and state oriented companies from the market. So that is also providing some sort of support. More often than not, that helps the sentiment on the marginal side. And it's, you know, just you have to look at it as a package of that whole frontloading of stimulus that China is planning now. And this also underscores one very important thing. You know, it's it's to do with, you know, how governments are Fiscal spending is actually becoming the

28:45 primary focus of driving markets, not central bank. So, you know, the Fed pauses there in the backdrop. But, you know, a lot would depend on what the governments do, what the governments of U.S. and China do. Then central banks on fed this time, too, to see where the markets are headed. Abhishek, I want to mention as well, we've just seen the offshore yuan falling to its weakest since 2023, and to mention that as well, because we had the yuan fix earlier in this hour above that 7.2 levels for the first time to September 2023. But then we got you can see the bit of the currency move off the back again. You talk about sort of these arsenals that that Beijing or levers that Beijing can pull on currency depreciation could be one that a shake from the businesses that you're talking to and the investors

29:33 rather, that you're talking to. It has been very indiscriminate selling so far. And a lot of the Chinese names like Alibaba and Tencent, for instance, they're still very domestically oriented. So where are people seeing the opportunities right now? I mean. That's right. I mean, a lot of stimulus is coming and depreciation would be part of the whole package. Now, in terms of, you know, this, I mean, if you look at the Asia equity setup, there were two very big themes. One was obviously China. You know, before the deep sea thing happened. One was China and the other was the other bucket was China plus one. Now, what our reporting is showing is a lot of fund managers are actually a lot more comfortable with local China than the China plus one theme. Now, remember China plus one theme and compasses Asia.

30:21 It encompasses India. It encompasses all those economies that, you know, were helping U.S. and China to balance out the relationship and trade, you know, sourcing goods without getting into the eye of each other. That theme is breaking down a lot more because the tariffs have been blanket wide from Trump side. But for China, there are a lot of things at work. You know, you've got the deep sea problem, you've got valuations on the side, you've got commitment of a lot of, you know, local stimulus. So all these three things are sort of, you know, balancing out things in favor of China. What what is yet to be seen, though, is that, you know, this this is a market meltdown that we witnessed yesterday. And it's a you know, it walk in memories not just of, you know, Hong Kong being at the lowest since 1998, 97. But in the US also, there were a lot of

31:08 comparison made with the Black Monday crash of 1987. You know, with these kind of crash, it's usually a breakdown. It's a breakdown of sentiment. It's a change of long term trend. So what we have to see is whether, you know, rallies sustain and we get a, you know, sort of soft grind upwards, sideways movement that might be better, that might actually lay the bedrock for the next move. But if that doesn't happen, then, you know, this year would set up for a being a negative year for most markets. That was Bloomberg Equities senior reporter Abhishek Bishnoi there. And just to mention as well, and my apologies, it was the onshore yuan that has fallen to the weakest since 2023. But still we have seen again moves in the in the offshore and it is going back to the yuan fixed earlier today above that 7.2 mark for the first time since

31:57 2023 as well. A little further that discussion, of course. Let's bring in Dan Wang, China director at Eurasia Group. Dan, thanks for joining us. So the yuan right now seems to be a lever that the Beijing authorities are looking at pulling right now as the trade war intensifies. What's the likelihood we're going to see a sizable depreciation of the CNY and CMH against the dollar? I don't see much of a likelihood in that direction because it's not in China's best interest. So right now, it would be weird if the central bank doesn't respond this way because it will has to allow more of a volatility within that of 7 to 7.3 range to counter the tariff pressure. But a bigger worry for the central bank

32:43 has been the capital flight. And what is this devaluation expectation that is embedded in the financial market? Just imagine that is not a weapon actually for China to use. It's more like a financial suicide. If China let the market believe it will yuan slide. Okay. Financial suicide. I mean, you can't put it more, more strongly there, even though we do have names like Jefferies, for instance, saying there's a 75% chance now of devaluation. So talk us through then the conversations you've been having with people in China over the past couple of days and sort of the sentiment or or messages that you're hearing. Well, a lot of people do worry that at some point maybe the central bank could allow the yuan slide.

33:31 If the pressure from the US is getting too big, there's 50% or even 60% of tariff if actually become true. And that's a central decoupling of China supply chain from the rest of the world, and that's detrimental. And in that situation, I still believe the central bank will try its best and it has the credibility to actually defend the yuan. And just think about a 3 trillion foreign reserve. Technically, China's central bank can fix the yuan that any pointed ones. And one more point to that. At this point, the bilateral trade between China and the US is not not the most important one for China in the trade. Relations with its other trading partners are way more important and there is a lot of hostility towards

34:17 Chinese exports in the past few years. It's about our dumping or crowding out of local industries, especially auto or in the green industry. So for China to improve the bilateral relations with other trading partners, it's a more it's a much bigger concern. So maintaining a stable yuan or even revaluate against dollar at some point is really to China's best interest. Well, Don, how active must the national team, the you know, whether it's central Beijing investment, the sovereign fund and others to prop up not only the markets, but to prop up sentiment. Well, they're quite crucial and people have been waiting for this or those central holdings Action, as you have saying, doesn't didn't yield a much of

35:05 an impact on the stock market. It did in reverse and that downward trend. But the fact that the national team is ready and there will be more to come is a booster for the market confidence and to invest in Chinese stock market. The rationale behind it is quite different from investing in other market. Chinese stock market is quite isolated from the rest of the world and highly controlled, and many people see it as a breather for future good companies. And China is producing some of the world's leading companies now. And for anyone who is having an eye on China, they probably are viewing like automation, AI or whatever, transformative, transformative technology for the future. So the investors after this round of panic mode, probably will return to the Chinese market.

35:53 I, i, I actually see less of a chance of China's stock market to slide much this year. It could very much. Very much likely to outperform. Well, that's where I was going to go next. Don, you believe that the markets will outperform despite all this negative sentiment right now. So end of the year, we're talking maybe S&P down and the CSI 300 up. That would be quite a prediction. Well, that is is all in relative terms. So previously people didn't have this expectation that a dollar might be weak in the midterm and that the yuan might be strong. And also a relatively speaking, Chinese domestic economy is in a more stable

36:41 mode than the US on. There's a high chance that the US will enter a recessionary period before China reaching a 5% of GDP growth target is still very much likely for the government and also for the general public to believe. So one thing I want to point out is China, as a producer for this world is in a much stronger position at this point because demand can be generated out of thin air. But supply is real. You have to actually invest to be able to produce a lot of the stuff. So although the US is imposing more tariffs on China now, but one way or another, it has to pay for a lot a big portion of that cost. And the fact that Chinese yuan is maintaining a relative strong position against dollar is imposing part of that

37:30 cost onto the US buyers. So going forward there will be a bigger pressure on the US than on China. What do you think, though, Dan, about about sort of some of the headlines that we're already seeing? For instance, Wall Street Journal had reporting that Apple will now look to manufacture more of their phones inside India as opposed to China to try and offset the tariffs you've had as well. India, we have we had an interview overnight with the commerce minister talking about how they've rejected investment from BYD. Again, that points back to the that what you were mentioning there around the relationship that Beijing has with trading partners in this region as well on the need to work on that. Where do you see these impacts for for China in particular, if not to GDP, then

38:19 things like employment. Well, this will be a big blow for Chinese employment, but they will be very concentrated in export sector. And on the 40% or 50% of tariffs won't be as detrimental actually, when it comes to how many jobs it can destroy. By revoking the $800 de minimis rule, because that's the ballpark of the export sectors, employment. And those small producers do not have the means to shift their supply chain overseas. They also do not have the access to commercial banks to get cheap loans like those large producers are. So employment is a big problem. The Chinese government has been preparing for this. There are different arrangements to give

39:05 tax rebate or cheaper utilities, but I guess it's only to buy more time on eventually. There has to be a new market for those sellers and there are a lot of talks about Chinese supply chain has to be further diversified to areas like India, Latin America. But those places, even accounting for the tariffs in Southeast Asia, are not in a better position to be a production center. So Southeast Asia, as a manufacturing center, I don't see its position being shaken by those tariffs. And China is only at the initial phase of trying to get more companies to invest overseas and the global market, or eventually be much more important to China than a domestic market.

39:54 And we're only seeing the start of it. All right, Dan Wang, China director at Eurasia Group. Always good to get your insights on this critical week, obviously. For more on the impact of tariffs, you can read our big tech piece today discusses how investors and businesses are being caught in the middle of Trump's America First policies and profound changes in China's economy. That story is on the terminal. You can also read it on Bloomberg. Dotcom. There's plenty more ahead. This is the China show and this is Bloomberg. We're just over 50 minutes into the session so far. Chinese equities are moving a little bit higher in the session.

40:40 But again, we don't want to get too enthusiastic just yet because there's a lot of people out there that would say this really could just be a bit of a head fake. Yeah, that's right. And look, the markets really did respond yesterday to the downside. We had the Hang Seng tech index down 17%, The eight share index down 13.7%. The Hang Seng down 13%. Really a bear market bounce from Thursday and Friday of last week, getting a little bit of a reprieve. Be careful, though. And at the same time, you've got investors that are, again, really thinking around how much the Fed can move. You're taking a look here at market pricing of what's being implied at this point. But essentially, trade is sort of fluctuating between three and five quarter point cuts this year. And just to note as well, a Deutsche Bank, which which could be among the first actually to have put out some sort

41:26 of upgrade, but essentially they're now seeing the RBA cutting 50 basis points at their May meeting and that was before 25 basis points. That's right. All right. Bloomberg opinion columnist and former New York Fed President Bill Dudley says the central bank, the Fed is unlikely to step in and rescue the US economy from the damage caused by President Trump's tariffs. He says the Fed will only intervene if markets stop working. The problem is that they're going to be missing on both sides as their dual mandate objectives. Inflation's going to go up, growth is going to go down, the unemployment rate's going to move up. And so the question is, how do you balance those two things? I think it's more difficult to balance in the current environment because the Fed has been missing its inflation target to the upside. This would be the fifth year in a row that inflation will run above the Fed's

42:13 2% objective. In that kind of situation, it has to be awfully concerned that if they try to follow a too friendly approach, inflation expectations become an anchored and we're back. Like the experience that we had the 1970s under Arthur Burns. If you remember in the 1970s, we had these two oil price shocks. Oil prices went from around $3 a barrel to ten and then from ten to around 30. And these flow shocks were different because they were persistent. I think the situation today is similar in some respects because I think tariffs are going up and they're going to stay up for quite up quite a time by a long time. So it's not like a temporary supply disruption like we had during the COVID pandemic. Now, one question I have to your point on the COVID pandemic, you had the Fed step in and step in drastically for the market watchers who are market

43:00 participants, frankly, who are hoping for the Fed to step in, potentially even with an intermeeting cut. What do you tell them? Well, I think the COVID pandemic was quite different, right, because COVID pandemic was bad for growth and was pushing down inflation. So it also caused massive market disruption, especially in the US Treasury market. So the Fed had reason to respond both because of their dual mandate objectives but also because of market dysfunction. Now, obviously, if the markets start to break down in some fundamental way where where liquidity, you know, just starts to dry up, then I think the Fed might have to do something in terms of market intervention. But that's different than the monetary policy choices. And I think what Paul was saying on a last week was, you know, we we have to we have to have catastrophe on both sides of our dual

43:47 mandate objectives, both inflation and unemployment. I mean, one way to look at this is the Taylor rule. The euro basically is a way of encapsulating how the Fed tables inflation and unemployment and perspective. So let's imagine six months from now inflation's 5% and the unemployment rate is 5%. In that environment, the hero would tell you that the federal funds rate should be about where it is today. That's Bill Dudley, the Bloomberg opinion columnist and former New York Fed president. If you're a Bloomberg subscriber, you can catch up with all of our interviews by using our interactive function TV go. You can also join the conversation by sending instant messages to our team and to our guests during our live shows. Check it out at TV. Go. We'll have plenty more ahead. This is Bloomberg.

44:42 Welcome back to the China show. Quickly, we have a headline coming across the Bloomberg terminal. Taiwan is having ongoing talks with the United States on the tariffs. That's according to the Taiwan premier. So, again, we are seeing a number of different nations willing to talk, try and reach some common ground with the United States on the tariffs while China is digging in its heels. Yeah, that's that's right. And actually Taiwan amongst the hardest hit by by. Duties and certainly seeing that caught investors off guard that you can see here under pressure. Still taking a look at some of the consumer stocks as well in China this morning given we've had President Xi vowing to boost consumption or to spur consumption, we are seeing some gains here for names. But again, we're not seeing really

45:29 outsized moves just yet either, given this so much uncertainty and this big push back from Beijing at the top of the hour. That's right. Just to highlight, again, Taiwan has 32% tariff from the United States. Welcome back to the China show. Taking a look at how Hong Kong is faring, helping out to the station so far today. And we are seeing some upside. But you put it in the context of the extreme selling activity that we've seen over the past couple of sessions.

46:17 And this obviously could just be sort of a bear market bounce that we keep talking about in China as well. Something that really entered the fray an hour ago was China saying that they would be vowing to fight to the end if the US insists on these new tariffs as well. Digging in the heels. We're seeing it both in Washington and in Beijing, while others, including Taiwan, having talks with the Trump administration. All right. Taking a look as well at how broader markets are faring so far in the session. Indonesia, for instance, that's another benchmark that just gets on line with trading this morning. We are seeing as well this market coming back from what has been an extended holiday break. And we do see it again, a drop of of nearly 10% there for for the benchmark. Of course, a bit of catch down. But Indonesia, one of the ones that has been highlighted maybe is being a little

47:05 bit more domestically insulated. But this is the broader picture here we are seeing again is stocks moving a little higher. We've got the dollar a little under pressure, yields not doing too much, but certainly we are rethinking as well. Fed expectations and trade is really caught between, say, three and five quarter point cuts this year. And actually we had the RBA saying as well, rather economists from from Deutsche Bank saying that the RBA could move by 50 basis points instead of 25 that they had earlier forecast in May. The weather headlines are coming these days. May seems like a long ways off is very true as well. All right. Let's get more on how the markets are digesting the latest news. Brand strategist Mark Cranfield with us this morning. And Mark, I guess the question can be how long do you expect this to last, the

47:55 small moves that we're seeing to the upside today? But it's right that you start talking about central banks and specifically the Federal Reserve, because the way investors are, the nerves are very high. Markets are very dislocated. And what we've been used to over the past couple of decades is that when we get into this kind of situation, it's the central banks who blink first and they start lowering interest rates to try and smooth the way in markets and to make people feel better. So this week we've got the Reserve Bank of New Zealand and the Reserve Bank of India. Both are expected to lower interest rates, possibly even by large amounts on 25 basis points, which is the standard. People may be speculating on that. I see a headline just before I came on TV that one bank is now expecting the RBA to lower rates by 50 basis points at

48:42 its next meeting. I think what you can assume is that all central bank meetings around the world from here onwards are live. Everybody will be expecting the possibility of a decision, particularly for lowering interest rates, whoever is meeting, although the the Federal Reserve meeting is about a month away. Even by the time we get to that, there could be pressure building on the Federal Reserve to lower interest rates, even though trade speakers have been pretty resistant. We just heard again last night from Mr. Goolsbee. He seems to be one of those who wants more time to assess the data upside risks to inflation as well. But things are moving so quickly. You can see it's a very fluid situation. Look at the size of equity market moves in a very short period. One month is a very, very long time in

49:29 financial markets at the moment. By the time we get to the first week of May, things, if they haven't improved, the Federal Reserve may even have to look at lowering interest rates reluctantly, because they have warned that there's a stagflation area situation building. But at the same time, consumer confidence is crashing. People are downgrading growth outlooks. They're even talking about a recession in the United States. All of that will be on the radar of the Federal Reserve. Central banks are very much in play, and that's what investors want to hear from. And Mark, just to mention as well, we're just seeing a trading halt in Indonesia. The benchmark there has fallen more than 9%. It was shot for a public holiday. So it is catching down to all of these tariff announcements. But it really is, as you said, Steve, I think to the point that you made, that

50:18 may might seem like a long time away, just given how much these headlines are dropping. And and one of the key ones that we were tracking in the last hour, at least, was was China pushing back on these tariffs and also at China with it with their currency fix and about 7.2. Yeah, that's right. So, Mark, I just want to ask you about the yuan. What are you hearing about whether this could be the next lever of retaliation or actually support for the market? Dan Wang was on with us just a few minutes ago saying it would be suicide to let it depreciate too much. But we had Jefferies and others saying this could go even further. What are you hearing? I think if you look at the way they've shifted their fixing for the last three sessions, it's a very calibrated but clear reminder that you're one is one of

51:05 the tools that the Chinese authorities can use if they want to play hardball. In the tariff world, people are beginning to look back at the measures. In 2018 2019, when Donald Trump and his first administration imposed tariffs on China. Traders saw how the central bank and China gradually lifted the daily fixing rate until the dollar was significantly higher. About 60 big figures higher. That's a huge move. The percentage in percentage terms, it pretty much matched the kind of tariffs United were imposing. If they do anything like that this time around. And it's very early stages where you would be looking at dollar U one above eight. And that would really be a shock to the global financial system. But you can see the PBOC moves it a

51:50 little bit. They come in and they modify trading on a day to day basis. But those three shifts, successive shifts in the daily fixing are significant. They're large by Chinese standards. People are getting used to movements of just one or two basis points a day. We've seen 100 basis points clips coming in. That's a very big message to people. Don't forget we have a currency that influences the whole world. We can use it if we want to. It's not a full blown threat yet, but the messaging is very, very clear. They can and they will shift the yuan if they need to. Yeah, yeah. And I think some were saying we could see depreciation of around 30% but that was our Bloomberg, my strategist Mark Cranfield there. And as we said, it's really about trying to determine what levers China wants to

52:39 pull in this. And and as we heard at the top of the last hour, that they're vowing to to fight to the end on this one as well. If the US insists on imposing new tariffs, it does come after President Trump threatened to slap an additional 50% duties on Chinese goods following Beijing's response to Washington's reciprocal levies as well. But let's get more with our roundtable. Minion Lowe and our news desk editor Jill Dees is joining us now. So Min Min, recap for us what we've been hearing from China this morning. Yeah, I mean, look, so the US is planning to impose an additional 50% tariff on Chinese goods if you take it all in. That brings the total tariffs to over 150%, it would essentially decimate all bilateral trade between us and China. Well less than 24 hours away from the

53:25 end of that deadline for that ultimatum to pass. And China hasn't made any concrete actions to repeal the retaliatory tariffs. But they are also at the same time not adding fuel to fire. They're not taking additional countermeasures. So far. They're essentially in this hunker down and fight mode. That was the headline in yesterday's editorial Focus on doing Your Own Thing. So they're putting all their resources on managing the fallout in the domestic economy, taking extraordinary measures to support the economy. They are not closing the door to negotiations. That was very clearly mentioned this morning from Commerce ministry saying they are still calling for dialogue, but at the same time, they are not knocking that out, knocking they're not knocking down a door trying to get to the negotiation table with the US as well. They're not urgent about it.

54:12 Well, Xi Jinping, as quoted in the state media, is talking about fully unleashing the consumer. So obviously the levers at their disposal right now as they dig in their heels externally, domestically, they need to prop up the economy because there can be shocks. Yes, obviously, they can't rely so much on trade with the US and they are prepared for this moment because the amount of exports that China has to the US has declined from about 17 or 19% now down to about just 15% of their total exports. And China is certainly going to try to diversify their trade even further. We know that Presidency has been reported by an MP that he is going to visit countries like Malaysia, Cambodia, Vietnam sometime in mid-April. He'll be sure to make a pitch to these Southeast Asian countries to try to deepen trade ties with some of these

54:59 countries and also get a sense on what sort of carrots, if you will, that these countries would offer to the US in exchange for lower tariffs and ensuring that these wouldn't undercut Chinese interests. And of course, domestically they might be looking at accelerating a front loading the stimulus measures this year. We already see part of that happening with a speeding up of the issuance of local government bonds, interest rate cuts, triple all cuts that could be coming imminently as well. It's been flagged several times before. Morgan Stanley expecting a 50 basis point cut to the triple R and 10 to 15 basis point cut to the policy rate, possibly more relaxation of the home buying measures, expansion of that subsidy program to include more subsidies for other goods and services.

55:44 And yes, as Mark Cranfield said, maybe lowering that, weakening the yen gradually to blunt the impact of tariffs. Well, Jill, I think we can bring you in. And, you know, this headline only came out in the last hour. So we haven't had any sort of reaction from DC yet, but just gauging the tone that President Trump was making overnight, it's not going to be exactly well received either. No, I mean, I think what's really interesting here is you're seeing a different approach between the way that Beijing is reacting to these tariffs versus a lot of other parts of the world. Right. So Beijing, obviously, as Vindman was explaining, doubling down, really kind of digging in their heels, really showing that, you know, they don't want to bow to these types of threats from Trump. And that's where you're seeing this escalation in this trade war between the US and China. I think you take that in contrast to the approach from a lot of other

56:31 governments, including Japan, where the Prime Minister Ishiba just the other day was basically saying, you know, they don't really know why exactly they're the target of this. You know, they're they're a US ally. They were just slapped with these 24% reciprocal tariffs that go into effect tomorrow. In addition to this 25% auto tariff that's really hitting them. You also saw Israel's Bibi Netanyahu in the White House yesterday, you know, also a US ally, wondering why exactly they've been hit with with tariffs really does kind of show that difference between China, which, you know, I mean, obviously already has somewhat of an adversarial relationship to your politically with the US versus these other you know, these other nations where, you know, it's really difficult for them to kind of tell how exactly you really respond to these tariffs. I mean, a lot of this was set off of deficit levels, right, Rather than like

57:18 the actual real reciprocal tariffs that, you know, Trump is claiming that these countries are set on them. And so it becomes really difficult for certain countries to figure out how to negotiate north. We work with Trump here. Does this point to maybe deficiencies in the China policies of the new administration in Washington? I've covered China for 35 years. Any time there's a gun put to China's head, they dig in their heels and there's resistance. It's different. They respond differently to what basically assaults to their face. So what can. What's the next move, I guess, for the Trump administration? I mean, that's so difficult to tell, right, Steve? I mean, yes. I mean, we saw this during the first Trump administration, right? We saw that, you know, ultimately we entered a trade war and we saw that kind of continued through to the Biden

58:03 administration, sort of stepping in and continuing to try to, you know, implement various, you know, punitive measures on China, whether that was sanctions, trying to stop them from, you know, pursuing advanced technologies. And we've seen China, you know, ultimately try to work around this as much as possible. I mean, they, you know, continue to try to, you know, really build into advanced technologies. I think that, you know, in this whole this latest tariffs war, I mean, you can see, for example, China really kind of, you know, reaching out to a lot of other nations that have been targeted with these reciprocal tariffs by Trump, including and, you know, Southeast Asia trying to make inroads there to build their influence. I think it leaves the Trump administration in a really interesting spot. But I'm not sure exactly how you get out of this other than this continued, you know, sort of rhetoric building back and forth here.

58:48 I think ultimately, though, when you've got China saying, you know, we're going to bring the fight to essentially when you've got Trump threatening even higher tariffs, it does seem like, you know, a potential talk between Xi Jinping and Donald Trump just seems further and further away. Yesterday, people were talking about this is a high stakes game of chicken right now who de-escalate first. Right. All right, Jill, Desus, thanks so much for your insight. And also, of course, our China correspondent, Min Loh. Still ahead on the China show, we look at what Trump's tariffs will mean for China. That's what we've been discussing all morning long, and we will have that with Morgan Stanley's TED Air coming up as Beijing vows to fight U.S. duties to the end. That's next. This is book.

59:44 The two year yield is screaming. I think it's screaming at the Fed. I think it's screaming at global central banks. There is not an external pressure catalyst on President Trump right now to pull these tariffs back. And we should operate as though they are real and get over this idea of this being just a ploy. This is real. It is happening. And the president's asking the American people for a long leash. And that's what's happening right now. And we'll see if the American people give it to him. I do think it's going to be hard to avoid further further moves down in the market. We went from stagflation in terms of people's thinking to recession and about 2 seconds. I think tariffs are going up and they're going to stick up for quite a while time by a long time. So there's not like a temporary supply disruption like we had during the COVID pandemic. Obviously, some of our guests discussing the impact of U.S. tariffs on the global economy and the

1:00:32 markets. Morgan Stanley thinks the growth drag from tariff uncertainties in Asia could be bigger than what we saw in 2018 2019. Let's bring in Chetan, chief Asia economist at Morgan Stanley. Good to have you this morning. Pleasure to be here. It's been nearly a week since we got Liberation Day out of Washington. Seems like a lot longer than that. What's your first blush reaction to the impact that it's going to have on global growth because of all the uncertainty it's caused? So, you know, we are out talking about the fact that there is a risk that we could see global recession. And for Asia, as you mentioned, what we are seeing is that the damage to Asia's

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