Narration: The U.S. economy has slowed down. How will that affect President Trump’s bid for re-election?
Simone: Do you think the US economy peaked too early for the president to take advantage of the…
Steve: you know, with a good economy, it doesn’t have to be great, but it has to be good. Then I think Donald Trump will win
Narration: President Trump tweeted that he could order U.S. companies to leave China. Will he really do it?
Simone: do you think, the president is exerting maximum pressure on China in order to force a deal out with China before 2020 or is he signaling a definite decoupling of the two economies? [inaudible]
Steve Moore: That’s a good question. I think it’s the former.
Narration: For the United States and China to reach a trade deal before 2020, would the U.S. have to compromise on fundamental issues?
Simone:So are you saying he will likely make concessions even on those structural changes?
Steve Moore: I don’t know what’s in his mind right now, but you know, I can just tell you what a lot of people are advising him who are close to him, you know, including some advice I gave him was “Mr President get the best deal you can from China now.” Narration: 14 months before the 2020 election, my interview with economist Steve Moore. The U.S. economy is showing signs of slowing down. Is a trade deal with China important in President Trump’s bid for a second term? Will the American people side with the president and bear the negative effects of the trade war for long term benefits to the country? And will the President make concessions on critical structural changes that the U.S. has demanded from China?
Host: I am Simone Gao and you are watching Zooming In.
Simone: Thank you Mr Moore for being with us today.
Steve Moore: Thank you so much. A pleasure.
Simone: Thank you. So last time when we spoke, it was when president Trump just imposed tariffs on $300 billion of Chinese goods. And at that time you said the Fed should lower the interest rate immediately. Otherwise the US economy and the world economy would risk going into a recession. But the fed didn’t lower the interest rates. So how is the US economy, and the world economy doing right now?
Steve Moore: Both have slowed down. The US economy is still doing pretty well. Not Great, but good. We got a jobs report out this week that showed continued employment gains for the United States. You know, we’ve got very strong consumer…consumers are spending and that’s really lifted the economy. And so you see a lot of our major retailers like Home Depot and Lowe’s and Walmart doing very well in terms of their sales. But we could be doing better. Our growth rate was at 3% last year and now we’re probably closer to two. I don’t believe all of these claims about the US headed to a recession. I don’t believe that for one minute. In fact, the new jobs report shows, you know, is another indication that we’re not going to go negative. But you know, we’d like to be growing faster and clearly the trade dispute with China is having a big impact on both sides of the Pacific in terms of, you know, getting the growth rates up to where both countries would like to see them.
Simone: You just said the jobs. I mean, things are slowing down a little bit.
Steve Moore: Yeah.
Simone: Do you think the US economy peaked too early for the president to take advantage of the…
Steve Moore: Well, obviously…well 2020 is going to be a crucial year for the economy because Donald Trump needs a strong economy to get reelected. Right. And you know, we’ll see. I think that the answer to that question is, you know, with a good economy, it doesn’t have to be great, but it has to be good. Then I think Donald Trump will win, you know, re-election Ii f the economy goes negative and people, you know, may look for alternatives and may turn to the Democratic Party. So that raises the stakes of the trade deal. You know, we would love to see a trade deal get done with China. By the way, I’ll say this again. A trade deal, you know, along the parameters what Trump is saying, you know, China opens up its markets more to US products. There’s less, you know, theft of intellectual property.
Steve Moore: But maybe we reduce our tariffs as well. So both sides can declare victory. That would be great. For the world economy. Great for the US, great for China. So I’m just praying that this happens because I think it’d be a wonderful thing for the whole world. And I think it would be…you know, create a lot of jobs for people, would save people a lot of money. And so we’re hoping that’ll happen. I don’t know where it’s headed. I mean, I think the ball really is in Beijing’s court right now. I mean, Trump has basically said, you know, here are the conditions that need to be met. He’s willing to negotiate. For now it seems to me, you know, and I’ve talked to our trade negotiators that China’s taking a very hard line position and I hope that they start to become more flexible because you know, so much is riding on a good outcome.
Simone: You said president Trump wants a trade deal before his re-election. What about China?
Steve Moore: I don’t know. You know, that’s the, that’s the $64 billion question. Does China want to get a deal done because look, Trump is not going to move forward with the status quo. I mean, it’s clear we’re not going back to the old rules, right? So there’s going to be new rules and these tariffs will take effect, you know, if China doesn’t negotiate and that will be bad for both countries. So…I get asked that question every day from American media, European media, you know, Asian media. Is there going to be a deal? I still think there will. I think that it’s…I’d put the odds at 60% that sometime in the next three or four months there will be a deal. And by the way, can you just imagine what will happen to the US economy? To China? It’ll be like an explosion of growth.
Steve Moore: I mean, the upside of this is so high. So let’s settle these tensions. Let the two presidents sit down across the table. You know…and by the way, it doesn’t have to be an earth shattering agreement, but just some concessions…That China needs to make concessions. And the US can make some concessions on lowering these tariffs. And my gosh, I mean…then I’m really bullish on the US and the China and the world economy. This has put like a big, you know, roadblock on growth. You know this trade dispute. So I just so hope that it gets resolved, but it’s going to take some concessions from the government in Beijing and so far they haven’t really made many.
Simone: Hmm. You’re talking about recessions. I don’t think neither side is making much recessions. Uh, we’ll try. I mean, I’m sorry, let me do that again. So you’re talking about concessions. I don’t think neither side is doing much concessions right now. That’s true. And it seems to me that the president is maximizing pressure on China with tariffs and everything else. And the newest thing is Huawei. The president said….president Trump said Huawei is out while is not going to be able to buy equipment from from the US very soon. So my question is, do you think, the president is exerting maximum pressure on China in order to force a deal out with China before 2020 or is he signaling a definite decoupling of the two economies?
Steve Moore: That’s a good question. I think it’s the former, I mean, I think Donald Trump would like to see a good trade deal with China, I mean, look, we just can’t go forward with the way trade has happened in the last 10 years. It’s been you know…it’s put the United States…it’s been an abusive relationship. And it was one thing for that abusive relationship when China was a smaller economy. But now China is one of the, you know, the second largest economies in the world. We, we can’t go forward in the United States with the, with the kind of trade protectionism and one sided trade deal that we had before. So there are going to be new rules. And you know Trump is…you know, he wrote this book called the Art of the Deal, right? And it was a mega bestseller here in the United States.
Steve Moore: A lot of people in Asia and Europe have read that book. Trump loves to make a deal. You know, he wants to make a deal. He wants to sign that deal and I think that the president Xi is going to have to make some concessions. Now look, I think we all understand that it can’t be a one sided deal. You know, China, Beijing is going to be able to say we got this. United States can be to say we got that. And so…but you know, China will have to make concessions. China would love to just go back to the old rules. But that’s not happening. I can guarantee we are not going back to the old rules. So it is time for a new set of trade arrangements that are fairer. A level playing field that both countries can prosper from. And by the way, this would benefit not just the workers but the consumers in China because they would now have access to American goods and services. And you know, cultural items that the Chinese citizens would like to buy. If those tariffs are lower to China, that means they can, they can buy more of the things that they want, whether it’s our music or our movies, or our technology or our computers, or our blue jeans or our bourbon. You know, why not open up the markets to those kinds of products?
Simone: A few days ago, president Trump tweeted that he could order the US economies to stop doing business with China. So that to me doesn’t sound like a concession. And also it seems to me, it sounds like the US economy is, he’s signaling the U s economy should decouple with the Chinese economy. What’s your read on that?
Steve Moore: I think that that’s the worst of all worlds. You know, I don’t want that to happen. I don’t think Trump really wants that to happen. But this guy means business.
Simone: Why did he do that?
Steve Moore: To put pressure on China, to put pressure on the Chinese government to, you know, come to the negotiating table. And that’s why he’s tightening the screws on these tariffs because they do real damage to the Chinese economy, but they do damage to us as well. So this is a negotiating tactic by Trump. It really is and you know, but if in the worst of all worlds, if China just says, we’re not negotiating, you know, no, no no to everything, then Trump will impose these tariffs and he will continue these sanctions on Huawei, then we will have more, uh, you know, pressure on American businesses to stop doing business in China because look, the American people feel like China has abused, you know, the United States and its trading arrangement. It’s one of the reasons Trump won the election. Frankly. He took a very hard line stance with China and that was popular with the American voters. So something is going to have to change. And I hope that the change is a closer relationship between the United States in China, but a level playing field.
Simone: When the new tariffs come in. I mean, when the new tariffs hit the consumer products, do you think the president will be able to persuade the American people to bear the negative effects of the trade war for the long term interest of the country?
Steve Moore: That’s a good question too. And you know, I don’t think anyone knows the answer to that, but I do think the American people understand the stakes here. I mean, this is…look China has acted in a way that’s been very aggressive and predatory, especially in the last year or so. And so we see some dangerous trends in China. We see human rights violations. We see, you know, the potential for the Chinese, you know, military to move into Hong Kong, which would be a disaster. We see, you know, continued cyber espionage against the United States. We see the Chinese continuing to you know, lock out American companies. That’s not, those are not, that’s not the behavior of a friendly nation. That’s the behavior or country that is adversarial. And more and more…and I hope I’m wrong on this…we may be headed to a new kind of cold war relationship with China. I don’t want that to happen. I want there to be a detente. I want there to be a truce here. But you know, China’s behavior has not been helpful. And we’re very concerned about that from, with every angle…economic…And the American people get it. I mean, if you ask the American people today about China, its a negative attitude. People have turned negative towards China, not the Chinese people, but the Chinese government.
Simone: Right. I want your assessment. How badly has the trade war been hitting the states that are critical to the president’s 2020 reelection?
Steve Moore: Well, the first thing I’ll say about this is I think most Americans understand that this is short term pain. You know, for the American economy for a longer term gain, a better longer term relationship with China that will benefit everyone. So I think the American people will bite the bullet here and they understand that this is a trade war and that there are casualties and there are costs to this. How much does it hurt the American economy? Hard to know for sure. But I would say that we’ve probably knocked, you know, a half a percentage point to a percentage point of growth off of our GDP. And that’s a lot, you know, it’s not insignificant. You know, we were…instead of growing at 3%, where we’re now growing at a little less than 2%. So, uh, and it’s not just the China trade war.
Steve Moore: There are other things going on too, but, you know, it’s something I think the American people are willing to bite the bullet and understand that Trump is fighting a good fight. You know, by the way, Trump does not have many democratic allies in the congress or around the country. And the Democrats are pretty, you know, hostile to Donald Trump. But on this issue, China, you see key democratic leaders like Chuck Schumer, who’s runs Senate for the Democrats. He’s very much in Trump’s camp. So there’s even kind of a bipartisan consensus, which is rare in Washington these days, that Trump is, you know, waging an important battle with China right now and a battle that we can’t back down from.
Simone: So, I mean, do you think the president needs a trade deal for his reelection?
Steve Moore: I think that sure would help.
Simone: Without it can he make it?
Steve Moore: Well you know it’s a tougher, you know, it’s tougher to get reelected if you don’t have a trade deal in hand. So, but look, I think Trump is going to get reelected. You know, people like what he’s done on the economy. People like what he’s done in terms of, you know, putting America first and the jobs and the incomes are up in the United States. People feel good about, you know, the direction of the country. And not everybody, it’s a 50/50 country and it’s very split. But you know, Donald Trump was able to win a battle, you know, beat Hillary Clinton three years ago and I think he’s going to beat Joe Biden or you know, Bernie Sanders, whoever the Democrats might put up. But you know, there’s no guarantees on this. And if the economy is really floundering, people will say, oh, we need a change. And so that’s the danger for Trump.
Simone: When it comes down to it, Do you think the reelection hangs on jobs? If that’s the case, would the trade war really hit the jobs?
Steve Moore: Well, we have 7 million more jobs than people to fill them right now. So we don’t have a shortage of jobs. We have a shortage of workers in the United States, and that’s a good problem to have. Now, you know, we just got this new report out that showed, you know, another half a million Americans entered the workforce. We’ve got a record number of Americans working, we’ve got, you know, wages rising. So the employment picture is very strong. I mean, it’s maybe stronger than it’s been in 50 years. Little concerned about manufacturing. That’s fallen in the last month. A little concerned about construction, although it’s still pretty strong. And what we got now is our consumers really carrying the economy.
Steve Moore: But how long can that last? You need businesses to be spending and investing. And I’d like to see more of that. And that’ll happen once we get a trade deal. I mean, the trade deal creates a lot of economic uncertainty in China and the United States. And that, you know, when businesses are uncertain, they don’t make big, major plans to spend. They want to wait it out to see how it’s going to be resolved.
Simone: So if there’s no certainty in the business circle and the consumer confidence will eventually drop…
Steve Moore: Probably, I mean, yeah, because you know, consumers are at the end of the chain, right? You know, these consumers can only spend when they have a job and when the wages rise. And, and that happens when businesses expand and so on. So if businesses are hunkered down and contracting, then, you know, ultimately that goes through the food chain. And then consumers don’t have as much money. So we do need a big, rebound in business spending and investment.
Simone: The market expects the fed to lower the interest rate again before the end of this year.
Steve Moore: Yes.
Simone: And some reports even say twice, lower the interest rate twice in order for the economy to keep going. What, what’s your opinion?
Steve Moore: You mean what they should do or what they will do? Because those are two different things? Well let me start by saying what they should do. The Fed has really hurt the economy. They’ve been too tight. They have created a deflationary environment in the United States. You see that with respect to commodity prices, you see that the consumer prices keep coming in below the Fed targets. You’re seeing these long term bonds, you know, at 2% interest rates. That’s a sign that people think prices are going to fall, not rise in the future. And so that’s not a healthy thing. You know, I don’t want inflation, but I don’t want deflation either. The Fed needs to put more dollar liquidity into the economy. Partly because, you know, we are…for all our faults. You know, we are what I call the Alpha male economy in the world economy right now. Everybody wants to invest in the United States, you know, yeah, we’re growing slower. But look what’s happening in Europe. They’re stagnant. Look in Japan’s not growing very fast, China’s growth rate has come down. So, you know, people are looking at the United States and, and at the same time, there’s a big demand for dollars. The Fed is pulling dollars out of the economy.
Steve Moore: So I think that’s been a disaster and hurt the economy a lot. At the end of last year. And the beginning of this year, they should cut rates by about 50 basis points. That would inject more money into the economy. You’d get, you know…stop this deflation in prices of things like corn and wheat and soy beans and oil and, and timber. And that would be healthy for the economy. And if you do that in combination with getting a trade deal done, you know, then we’re looking at, you know, three to 4% growth next year and you know, the, the Democrats could run mother Teresa against Trump and he would still win. So he needs that to happen. Now what will the Fed do? I think that they’re almost certainly going to cut interest rates by 25 basis points later this month when they meet. I think that’s insufficient, but it’s a start and I do think they’ll probably have to cut rates again next year. I mean later, at the later, at the end of 2019 and we’ll see what happens then. It really kind of depends on how the economy does. And by the way, my point isn’t that the, somehow that these rate cuts are to reverse the negative effects of the trade deal, that’s not of the trade dispute. It’s that we want to have prices level. And when I look at prices, you know what I’m seeing downward drift. And that’s a very negative thing for the economy.
Simone: So when we last spoke, you said the fed needs to lower the interest rate, right then, immediately…
Steve Moore: Who said that?
Simone: You said that.
Steve Moore: Yes, That sounds like something I would say, yeah, I did. They should’ve done it last week. You know, they should have done it a long time ago. So the Fed is behind the curve here. They’re too slow in reacting and you know, Donald Trump is right. You know, they’re like a, you know, he likes to use these golf metaphors and he says they’re like, you know, chairman Powell is like a putter on the putting green who can’t knock the ball in the cup. And there’s a lot of truth to that. So, you know, the irony is, you know, Donald Trump, who’s not an economist, I mean, he has an MBA, great businessman…He understands the monetary situation better than the 300 PhD economists we have over at the Fed.
Simone: But the thing is, if they cut interest rates in December and by the end of this year, would it be too late?
Steve Moore: No. The markets will react instantly and positively to those changes. Now the September rate cut, that I feel very confident is going to happen. That’s priced into the market already. So in other words, what would be really negative is if they announced that they weren’t going to cut rates. Because then, you know, you’d see a big sell off. The big question is what are they going to do after this? I think there’s 90% agreement. They’re going to cut rates in September. Where there’s uncertainty is, then what do they do? And I don’t think anybody knows.
Simone: You know, there’s one question. Yeah. When the White House announced that tariffs…when the White House announced that the US China trade talks will continue in October, the market reacted and went up quite a bit. So its almost like the market is pushing the president to reach a deal. Like reaction is very, very, very fast. Yeah. So my question is, do you think that, to what extent do you think the market is a true indicator of the state of the real economy?
Steve Moore: I think that the market is like a bouncing ball when it comes to the trade deal. You know, one day they’re in a depression and the next day there’s euphoria, you know, based on the latest news about whether they’re going to negotiate and, you know, look, there’s gonna be a deal when a deal is reached and that deal, it’s not going to be like a smooth, you know, a plane landing where it’s a gradual…it’s gonna be, at some point, you know, Donald Trump gets a call for president Xi or president Xi gets a call from Trump and says, come on, let’s get this done. And you know, they’ve got an announcement, you know, that we’re going to do A, B, and C and we’re going to put this aside. So it’s going to be a bumpy road, you know, for the next few months. And so I do think the market overreacts every time there’s some good news.
Steve Moore: And you know, it overreacts on the positive side and then it overreacts on the negative side when they reach a bump in the road. But this will be positive for the economy, positive for the stock market if a deal gets announced. And at this point, I don’t even think the exact parameters of the deal matter as much as the fact that they can sit down at the table and reach a deal. You know, now I’m not saying that the details don’t matter. They do, but I think the most important thing is it shows that these two leaders can sit down and shake hands and get something done.
Simone: On that note, do you think president Trump will make concessions? On you know, the core things regarding…
Steve Moore: He will make concessions as long as China makes concessions.
Simone: Like what concessions would the president do?
Steve Moore: He would lower tariffs.
Simone: What about structural changes that the US demands of China to do. Do you think you will make concessions on those?
Steve Moore: You know, the reason I’m hesitating with the question is because there’s a lot of unresolved issues here, right? And we’ve got the two largest world economies with, you know, trillions of dollars of GDP and hundreds of billions of dollars of trade between the two and so on. So, you know, you could have hundreds of pages of, you know, details in this report. I think Trump would, would be fine with, you know, a first step, you know, in other words, when we get a trade deal with China, assuming that we do get one in the next year, it’s not going to be the end of it. It’s going to be the first step. You know, this is going to go on for 10 years where we’re going to have negotiations with China. And so, this will just be seen as a first step down a journey where we have a more stable, and fair trading relationship with the Chinese. It’s not going to… We’re not going to resolve all of these problems in the next year.
Simone: So are you saying he will likely make concessions even on those structural changes?
Steve Moore: Well, we’ll see. I mean, I can’t speak for him mean, you know, I don’t know what’s in his mind right now, but you know, I can just tell you what a lot of people are advising him who are close to him, you know, including some advice I gave him was “Mr President get the best deal you can from China now.” It’s not going to be a great deal, but it’ll be…you can get a good deal with the Chinese. It’ll resolve some of these problems and won’t resolve all of them. And then, you know, the economy will be in good shape next year or you can get reelected and then we can resume, you know, talking with the Chinese and hopefully make more concessions in the future.
Simone: Hmm. Making more concessions. on the US side or maybe…
Steve Moore: China, I mean China, there’s a lot of problems with China right now. I mean, the intellectual property theft is something we can’t live with anymore. That’s just thievery and you know, there’s going to have to be some structural changes and not just words on a piece of paper. There’s going to have to be action by the Chinese government to prevent the intellectual property theft. Because by the way, that’s not just hurting the United States. You know, China’s doing that with respect to Europe and other…Canada and other countries and the, the Chinese…I met with a Chinese delegation a few weeks ago. It’s even hurting China because if you are inventing something or you have gotten some new technology that you develop in China as a company and then another Chinese company can come and just steal it from you, then that in that inhibits the willingness of companies to do the research in the first place. So that’s why we have intellectual property laws. It’s one of the reasons the United States has been rich. We respect people’s patents and copyrights and their inventions because that is what leads to inventions. So, you know, we do feel strongly about the intellectual property theft and we want it to end.