00:00Of course, you're in D.C. You think about the IMF, the World Bank's meetings going on. I have to imagine the elephant in the room, though, is what is going on when it comes to the trading relationship between the U.S. and China, the world's two biggest economies.
00:15It is an elephant in the room, but I would say in general, you know, if you compare the meetings, for example, to April, I think the economists and including the IMF, everyone has become a bit more humble.
00:25You know, in April, there was a general agreement among the community coming together, particularly among the economists, that, you know, the trade policy that the U.S. government was running would be very detrimental, that the uncertainty, you know, associated with them would be devastating for the global economy, you know, dollar debasement, etc.
00:43And frankly, now we are here six months later and not a lot of this has materialized. Obviously, we have some, you know, diversification of trade, diversion of trade.
00:54But overall, the economy, in particular the U.S. economy, has been holding up together quite well.
00:59And so I don't think, you know, that China-U.S. trade spat right now is getting the same kind of attention it would have gotten, you know, six months ago.
01:08So because there's also the expectation that somehow they work it out. I dare not to say the word taco, but, you know, the idea that ultimately, you know, there's an escalation of words, but then they come together.
01:18I think that is still quite, quite dominant.
01:22Right. Christian, it's interesting. I mean, you talk about the resilience and, you know, to your point, you think about just the U.S. economy, some of the economic data that we've been getting.
01:31OK, inflation is above the Fed's target, but it's not moving higher in the way that maybe some had predicted when you think about the U.S. posture, not just versus China, but the rest of the world when it comes to these tariff levels.
01:44But even still, even with that in mind, when might we actually start to see some of the impacts of these trade wars, as President Trump is calling them, in the official data, which, by the way, we're not getting right now in the U.S.
01:57That's a good point. Yes. Well, I think and I should say this to what I what I said earlier, you know, the belief is still that ultimately what is happening right now, the kind of you want to call it, you know, the fragmentation of global supply chains, the trade wars that ultimately should lead, you know, to less efficiencies, to increase costs.
02:17And, you know, if you look into the details, we do see it in U.S. inflation. We do see it in core PCE, core, core goods, I should say.
02:26Prices are going up. It's just being offset by other elements, in particular, you know, if you look at the, you know, if they look at rental inflation, et cetera, where we have an easing and we expect this actually to continue to go up in the coming month.
02:39But as I said, there are several effects at play, but we do see it at the moment already. And I would make another point. It's not only about China and the U.S.
02:48I speak to a lot of emerging markets, you know, ministers here, and they're really concerned also about the exports from China into their countries, because as they can no longer go into the U.S., they're not, you know,
03:01China's still exporting, but they're exporting into Asia, they're diverting their trade into other emerging market countries, and they feel all this cheap Chinese goods coming in, and they say that's not sustainable.
03:11I wonder, Christian, if there's any solution for rare earth magnets, these magnets that we need to make our cars and so many consumer goods and that our military defense industry needs.
03:27Is the only solution still figuring out a way to get them from China? I've heard something like 90 percent of refined rare earths come from China.
03:37Yes. I mean, we at Barclays, we looked at this in particular through a paper a few weeks ago, going through all the details.
03:44And frankly, there is no alternative, at least in the short run. It takes a long time to build alternatives.
03:50China very strategically, with the world not really watching, I guess, you know, built up or built their position in this market, and you cannot challenge it overnight.
04:00I think what the U.S. is now doing is obviously stockpiling. That's one way to do it, right?
04:03If you, you know, you buy a lot and create a stockpile. That is costly, but in the short run, that's probably the only way to make yourself more resilient.
04:12And that also does give China still a very strong card in that game, if you want to, you know, the game they're playing with the U.S. in this trade conflict.
04:23I mean, is it the strongest? You know, J.D. Vance was on Fox last weekend saying, you know, the president of the United States has the cards.
04:32Do we have any card like that?
04:34Look, the U.S. has the card that it's still a very large market for China. I said it earlier. China is trying to now substitute the U.S. with other markets, you know, trying to export into Europe and other emerging markets.
04:50But, you know, that cannot really make up the loss they have from, you know, no longer getting easy access to the U.S.
04:56That is a strong card, I think, still, and the high-end chips. That is a strong card. I think that unnerved China, that U.S. has tightened controls on these, you know, cutting-edge chips into China.
05:09But the U.S., of course, doesn't have that one, that one single card of the rare earth, which is very particular to China.
05:15And China also, of course, has the card of, you know, hindering U.S. cooperation in China that we see already, you know, through all kinds of investigations outside of trade.
05:27And, you know, it is maybe a situation whereby China has a better position, I think, than the U.S. administration thought when they started this, you know, in terms of in this bargaining process.
05:41You know, they, I guess in game theory, you would call it, you know, they have escalation dominance.
05:47And I think that's something that we will see play out now in the coming weeks.
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