Odd Lots - This Is What A Trade War With China Would Actually Look Like

Episode Date: April 9, 2018

Recent threats to impose tariffs on Chinese goods, coupled with China's own retaliatory announcements have raised the prospects of a trade war between the world's two biggest economies. But what is a trade war, and what would be the economic ramifications if there were one? Brad Setser, the Steven A. Tananbaum senior fellow for international economics at the Council on Foreign Relations, joins us on this week’s Odd Lots to help answer those questions. Brad has been writing about trade issues for many years, and explains what exactly we're seeing now, how the current trade actions differ from standard moves on trade, and where ultimately all these actions might go. See omnystudio.com/listener for privacy information.

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I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, there's a new story that's made our jobs very exciting again. Well, there's any number of things at the moment, but I think I know what you're talking about. It's trade, right? Yeah, but you're actually right that we're in this moment for markets where there just seems to be a lot going on again, lots of different crosswinds and narratives and themes, whether it's, anxiety about rising inflation, concern about the Fed, the changing leadership in the market with

regards to tech stocks. And now, as you say, trade has really come to the fore as a major thing that people are trying to wrap their heads around. Right. So what we've seen just over the past couple of weeks is the Trump administration unveiled a big set of tariffs on goods imported from China and then China retaliated. They announced, I think it was, tariffs on about $50 billion worth of goods, including aircraft parts, soybeans, and cars, which are some big ones for the market and for the economy. Right, because a few days earlier, China had announced some retaliatory tariff measures, but they were on pretty minor stuff like ginsing exports, which I doubt the U.S. exports

a lot of ginsing to China or macadamia nuts and stuff like that or wine earlier, stuff that's kind of a little bit more marginal. But when they announced the tariffs on soybeans, given that that's a major crop in the U.S. and given how much China consumes of soybeans, then people are like, whoa, this is maybe a little bit more serious than we expected. Right. This is the week that everyone decided that soybeans were actually very, very important. We are sort of dancing around one issue, Joe, that we've been speaking a lot about internally. And that's what do we call this?

are we calling it a trade war? Right. We've had this discussion internally because I kind of get the impression that trade war is one of these things that doesn't have a very crisp definition. It's kind of like you know it when you see it. So some people are using that term. Others aren't. But that's obviously something we have to figure out.

And are we just seeing sort of a standard early stage negotiation or is this a serious thing? And that's sort of what we're all trying to wrap our heads around. Right. And some people are being really. cute about it and calling it a trade skirmish or a trade standoff or a trade tiff, any number of synonyms for that. Yeah.

All right. So for the purposes of this podcast, can we just agree that we're going to call it various things and no one can get mad at us? That sounds good. Well, I think we actually have the perfect guest to tell us exactly what we're seeing right now. We're going to be speaking with Brad Setser. He's the Stephen A. Tenenbaum Senior Fellow for International Economics. He's written for years.

about trade and other macroeconomic issues. He blogs. He used to be at the Treasury. Anyone who follows this space has surely seen his work. He's here with us now. Brad, thank you very much for joining us. My pleasure. So, Brad, what is a trade war? I think a trade war is a series of measures, I guess a significant set of trade restrictive measures by one country that prompt an equally significant response from another country. And you could call that a trade war. You could say you need another round of escalation before you have a trade war. I wouldn't use the term trade war if you're playing in what you might call the standard trade remedy space, a standard dumping case, a standard safeguards case. But the U.S. is doing a 301 case, which is a tool that hasn't been used

for a long time. And 50 billion is, it's not enormous relative to the size of our economy. But but for a trade measure, it's quite large. So if we proceed to the stage where we actually implement the tariffs, which we haven't done, and if China proceeds to implement the tariffs in response, I think for all intents and purposes, that would meet a reasonable standard for a trade war. So we want to focus on what actually happens to the international economy when such a trade war is underway. But before we do, this is a big question that's currently hanging over.

markets and people who are watching this entire spat unfold. What are the prospects, in your opinion, that we get some sort of compromise before the tariffs are actually enacted? I'm having a hard time getting a clear read on that particular issue, in large part because I don't quite know what the Trump administration views as an acceptable compromise. There's been a lot of criticism that the Trump administration has it really articulated what trade piece would look like, what set of concessions would be enough. I think the Chinese are willing to offer some modest concessions and maybe they will go beyond the more modest concessions that they've been signaling, but I don't know that the U.S. has decided on what would constitute an acceptable offer.

Can I just say before we go on that I am very relieved and I'm actually excited that you say that if the current measures went into effect, we could call it a trade war because I I was worried that you were going to say, oh, everyone needs to be less hysterical about this. So it's nice to talk to an expert who has given us the green light to use the exciting language. So I just want to say thank you right up. Look, and a trade war is not a shooting war. A trade war is a period of economic hostility. Tell us, you mentioned the difference between the standard trade remedies, the anti-dumping stuff, stuff like that in a 301 case.

Just walk us through the differences between those two things. A standard remedy, a safeguard or a dumping, comes when a sort of specific product is flowing into, say, the U.S., the industry petitions for relief, either on the grounds that there's been a surge in imports, which is a safeguard, or on the grounds that the other country is dumping or unfairly subsidizing its products, in which case there would be a dumping duty or countervailing duty. All these things go through a standardized process with lags. At the end of the day, the president has to authorize the tariffs in the case of a safeguard. But they are approved within the rules remedies that are available. And after the fact, people will litigate whether the dumping criteria were used correctly and whether there really was a subsidy. So there may be cases in the WTO.

But these are sort of the within. in the system safety valves, relief measures. A 301 in this particular case is aimed at practices, which the USTR argues hurt the U.S. economy that fall outside the scope of China's WTO commitments. And because of that, the U.S. is essentially unilaterally imposing tariffs and other sanctions on China in order to change policies where there,

where there isn't really an argument that China's already agreed in the WTO to get rid of them. So do the 301 measures, do those have a different impact than the sort of more standard anti-dumping measures would? Well, in a dumping case, you're going to target the sector where the dumping takes place. In a 301, you're essentially choosing the sectors where you want to impose tariffs to impose pain in order to try to convince your trading partner to remove measures that you judge to be unfair. So it's a U.S. determination that China's actions constitute something that impedes American exports and impedes American firms. And as a result of that unilateral judgment, the U.S. will decide on its own what sectors it target.

So there's a lot more freedom and flexibility to broaden out. the set of sectors that are covered by the tariffs when you're not responding to a specific concern of a specific industry that is seeking relief from a flood of imports. Now, President Trump seems very fixated on the bilateral trade deficit. With China, he's always throwing around that number, I think, $500 billion or whatever it is, and he just wants to see it lowered. And typically the response from economists is that looking at the trade deficit in isolation like that is not a particularly productive way to think about our trading relationship

with any given country or even the idea of that a trade deficit with all countries is per se a bad thing. Most economists argue is not a particularly useful way to think about the scoreboard. So can you, for the average listener, sort of explain why that is generally not viewed as a useful way to think about the relationship? So think about the following set of trading patterns. Say the U.S. is exporting a lot of construction equipment to a third party, which is mining a lot of iron, which is shipping that iron to, I guess, a second party, I got my math a little wrong, that is taking iron and then selling consumer goods. It is quite possible that that three-way trade would be entirely balanced. Think of it

as the U.S. selling construction equipment to Australia, Australia selling iron to China, China selling consumer goods to the United States. It could be a perfectly balanced trading relationship, but the U.S. would be running a bilateral deficit with China. So there's no particular reason why trade should balance between any individual country pair. And when you look at simply the bilateral balance, that can be quite misleading. The global, trade deficit is, I think, a little bit different. The global trade deficit indicates that you're either receiving equity investment from the world or borrowing from the world. In the U.S. case, we've been borrowing from the world for a long time. And the trade deficit represents

both, you know, we're importing more than we export, but also that we are building up our external debt. And there's always a question about whether or not that buildup of external debt is fueling unhealthy economic expansion, fueling a lot of investment, or whether it's some sense unhealthy, that it reflects an excess of spending and excess of consumption and that we are borrowing from our future wealth. And I would say the U.S. trade deficit is right at the edge of being a problem. That's my personal view. So I don't view that any trade deficit is a problem, but I do think that trade deficits can be a problem. Okay, well, as Joe mentioned, Donald Trump clearly has his own views about the desirability of trade deficits.

So let's say that all these various tariffs go through and we have an actual trade war on our hands. Walk us through the real world effects that we would likely see. You know, from day one, how does it actually play out? Well, before we jump to the implementation of the tariffs, I think it's important to recognize that there's a period of comment, and the immediate next step will be essentially a review of the U.S. tariffs where industries that are believed they are adversely affected will lobby USDR to change the list. And then after that, there's a period of time for negotiations. Tariffs don't have to be introduced at the end of the comment period.

So we're not necessarily going to implement tariffs tomorrow. It could come with a significant lag. But let's assume that there isn't an agreement that the tariff list stays pretty much as it is. The U.S. was put 25% tariffs on 50 billion roughly of Chinese goods. Some are more final stage consumer goods like TVs. Some are more intermediate inputs into, production, various categories of parts, parts for air conditioners, parts for various mechanical devices.

In some cases, there may not be any possibility to substitute, in which case American consumers would see an increase in price, and the U.S. government would see an increase in revenue. $50 billion is ballpark $25, a quarter of a point of U.S. GDP. So the tariff would be, if fully paid, would be in the order of magnitude of a little over, you know, five basis points of GDP. So, you know, meaningful but not giant. In some product categories, though, there may be opportunities to substitute, be it U.S. production or be it production of parts from Europe or Mexico or elsewhere in Asia. in which case you would see trade diverted away from China toward the untariffed parts of the global economy. Then the economy would react to the Chinese tariffs.

And there I think it really depends on the sectors. China went after the big three or threatened to go after the big three U.S. export categories to China, aircraft, soybeans, and autos. With aircraft, I think they were pretty, they may have been playing it a little cute. They clearly have exempted wide bodies from the tariffs. They may have exempted most of the new 737 line. There's a debate about whether the 737-8 max

has a weight that would exclude it from the tariff or not. they clearly have tariff used 737s for what it's worth and golf streams. So I think you can argue that that it was designed to avoid immediately whacking Chinese airlines that have large orders on the books for Boeing. And I think what probably matters more going forward is will those airlines continue to buy boeings or will they tilt towards Airbus? There's an interesting side note there, which is that China has always tried to play Boeing against Airbus, both to get a better price, of course, but also to induce both companies to shift more production to China, to do offsets, to buy more parts, and to help build up China's own aviation industry. If there isn't a threat of buying Boeing, China loses a little bit of leverage in future negotiations with Airbus.

So I think China is in some ways constrained in the aircraft sector. There's another important note, though, which is China has its own narrow body aircraft, the C-919, and undoubtedly Chinese airlines are going to be buying C-1919-s rather than 737s or A320s. Does China have ambitions to have a homegrown aviation company that is on the same scale in capabilities as a Boeing or an Airbus? And is that plausible in the medium-term future in your view? China unambiguously has that ambition. China has been working over time to build up a domestic aviation industry. Whether or not they will succeed at building planes that can compete with the latest generation from Airbus and Boeing, I think remains an open question.

But I suspect that China won't give up. It's too important. It's too central to the China 25 plan and to China's own vision of what it wants to become. This China 2025 plan, I don't think, is something that a lot of Americans are particularly familiar with. The ambitions the country has to sort of develop its own homegrown champions and all these different spaces like medical technology and aviation. and semiconductors. Can you just explain to us a little bit about what this plan is and how they've gone about implementing it so far? So China 2025 identifies a set of advanced manufacturing technology sectors generally, medical equipment, semiconductors, aviation, next generation vehicles.

And it sets out targets for Chinese production and Chinese market share, Chinese firm and Chinese production inside China to meet the Chinese market. A lot of these sectors are sort of cutting-edge sectors where China now is a large buyer of goods made in the rest of the world. So there certainly is a component in the targets of import substitution. These are products that China now imports, and China has articulated a goal of being able to meet its own demand with its own production. and to do so with technology developed and owned by China.

So there is a very legitimate trade complaint around these industrial policy goals. I think the tools that China uses vary from sector to sector. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court. cases, the latest actions from Congress and regulators, and the legal moves driving the markets, from corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines.

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So how much do the U.S. tariffs actually play into China's long-term ambitions of import substitution? Because, you know, if the U.S. slaps tariffs on things like aerospace equipment and China has ambitions to build up its own industry in the space, then that seems almost like a benefit to them. Well, I'm not sure that's the case. China in, say, aerospace needs to develop its capability. And as I mentioned earlier, in order to develop its capability, China likes to play Boeing against Airbus. It got Airbus to build an A320 line in China. and if the U.S. is saying more or less if Boeing subcontracts from China, it faces a tariff on anything it imports, that would discourage Boeing at the margin from shifting production to China or shifting some of its contracting towards Chinese subcomponent manufacturing. And if China is not going to buy any Boeing going forward because of the Chinese retaliation, Airbus's incentives change. They don't have to produce aircraft in China to sell to China. They're the only supplier. There's not that competition.

So I think that's the sense in which China is in some ways still constrained by the fact that in some of these sectors, it is not yet at the cutting edge of technology. And it still needs to play European and U.S. firms off against each other to help it progress up the technological ladder. One of the things you hear, and I think the Trump administration has frustrations about it, is the degree to which China demand some sort of transfer of technological know-how from these companies that want to participate in the Chinese market. So I don't know exactly what it does with aviation, but this idea that these big companies, if they want access to the Chinese market, have to have some mechanism to give their technology to the local players. Can you walk us through what exactly China does with that and how much that deviates from sort of typical international norms? So this is the substance of the 301 complaint. This is what the U.S. is saying that China is doing that warrants the unilateral U.S. tariffs.

China under its WTO obligations cannot condition approval of investment. on technology transfer as a matter of policy. So that is one of China's WTO obligations. But there are an awful lot of things that China still can do. So China is not required on the WTO to allow investment into any sector. That's a choice that China makes. In many cases, China can require, does require, that any U.S. firm wanting to produce in China set up a joint venture.

And if the joint venture partner, and most of the plausible joint venture partners will be state-owned firms, given the nature of China's economy, and if the joint venture partner says that as a commercial matter, we will only enter into this joint venture, if you agree to transfer technology to our subsidiary, where we will have 51% control, then you have to kind of transfer the technology. It's part of the conditions of the deal. but it is not a matter of government policy. It is a matter of commercial negotiations between two companies. Similarly, say in the electric vehicle space, if you want to qualify for the subsidies for new energy vehicles, well, you're much better off if you have a Chinese partner and if the technology has been moved to China. So, you know, there's a lot of sources of pressure

given the nature of China's economy that don't come in the form of formally conditioning as a matter of government policy, approval of investment on technology transfer, but have nonetheless created de facto requirements that if you want to supply the Chinese market, it's pretty hard to do that without producing in China. And if you want to produce in China,

you pretty much need a state firm as your joint venture partner. And that state firm can, as a major, matter of its own policy, so to speak, ask for tech transfer. Because if it doesn't get that tech transfer, it will lose out because, you know, the joint venture with the European company has agreed to do something a little bit more in China. So there certainly are many pressure points. And I don't think very many people challenge the core truth of the 301 complaint. I want to talk about something that comes up whenever we talk about the U.S. China trade deficit, and that is the idea of China retaliating by basically boycotting the U.S.'s biggest export,

which has to be U.S. treasuries. This always, always comes up the idea that China is going to retaliate in a trade war by selling off some of its vast treasury holdings. How realistic do you think that actually is? and I know there are strong opinions on either side. I personally think I was one of the first to use the line that the U.S.'s biggest export was treasuries and agencies 10 years ago when the U.S. was running 5% of GDP trade deficits. So it's been one of my favorite lines for a long time. Oh, I've definitely borrowed it since then, so thank you.

I'm not sure I can claim original credit, but I like the phrase. Let's stipulate a couple of things. Let's stipulate that Chinese holdings of treasuries are typically a function of China's reserve holdings. Private Chinese investors tend not to buy treasuries. They tend to put money in bank accounts or in real estate. So the vast bulk of the Chinese holdings of treasuries are a reflection of Chinese reserves. Second point to stipulate is that over time, the amount of treasuries that China holds has tended to move in line with the evolution of China's reserves.

It's been a pretty constant share of China's portfolio over time. And third point is that China's reserves are right now not growing very fast. So you would not normally expect China to be a big buyer right now. In fact, if you look at kind of the global flow of funds, China's current account surplus, so the aggregate amount that it is lending to the world is smaller than that of Japan. certainly smaller than that of the euro area and well below the combined current account surplus

of the Asian newly industrialized economies, Korea, Taiwan, Singapore, and just for the sake of argument, and I would throw in Thailand into that category. So much or even the majority of the financing that the U.S. is getting to support its trade deficit and current account deficit is not right now coming from China. So I think those are kind of important. important background pieces. This is not 2007 when China's current account surplus was the biggest in the world, and when China was adding $600 billion to its reserves every year, and two-thirds of that ballpark was flowing into U.S. bonds. China, though, of course, does have a large, outstanding stock of treasuries. Biggest in the world, probably a little bit bigger than shows up in the

data the treasury releases. And China, if it wanted to, could move its portfolio around. We know that during the crisis, China shifted its portfolio. It sold agencies and it bought treasuries. And by selling agencies, it put pressure on the agency market. So China can affect spreads in the market. And just for the terminology, the agency market, this is like Fannie and Freddie, the housing agencies. Oh, correct. That issued a lot of, no, I just. You know, just for the sake of people, the terminology that went into funding a lot of American homes and stuff. That's right. And that was, you know, before the crisis, everyone spoke of China as being a big buyer of treasuries. When actually before the crisis, China was the biggest buyer of agencies.

It's like one of those little details that is actually quite important that tends to get glossed over. But during the crisis, China shifted its portfolio out of agencies and into treasuries. that undoubtedly caused problems in the agency market. But remember that in QE1, the Fed started buying agencies, and that stabilized the market. I think there's a little bit of a lesson there. If China sells treasuries, A, it has to put its money somewhere. It may sell long-term treasuries and buy short-term bills,

which would raise long-term rates relative to short-term rates. It may sell treasuries and then sell dollars and move it. to euros or yen. That would weaken the dollar. And I think it would cause more problems for Japan and Europe, which would see their currencies appreciate and have difficulty exporting. Or it could just move within the U.S. market, move to the short end of the curve, which is probably the most plausible option. If it did that, I think it would have a short-term impact on the market. But I don't think you should think of it as a one-round game. If it's impacting the market in a way that adversely impacts the U.S. economy, the Fed should logically respond, either by adjusting

the pace at which it tightens or by adjusting the pace of the balance sheet roll-off. I think at the end of the day, there should be no question that the Federal Reserve has a much bigger impact on the U.S. Treasury market than China. So just to sort of sum up what you're saying, a lot of interesting points there is that this sort of naive way you hear people talk about it is we borrow a lot from China. One day they might not want to lend to us and then we're in trouble. Whereas the more subtle point is, yes, China could change its policies and change the market, but the response would be not as clear cut. It's not as binary. And the moves in some ways could harm them or harm others. It's just it's not as simple as say your bank no longer willing to extend your credit.

That's right. If you work through all the reactions and the counter reactions, what eventually happens is the Fed ends up easy and the dollar ends up weakening, which isn't actually necessarily a bad thing for the U.S. economy. It's a bad thing, much worse thing in some ways for those who've lent money to the U.S. in dollars. And so it's, it is hard to imagine how China could cause a funding crisis for the U.S. Treasury. Actually, China's greatest leverage comes, at least in my view, when it is buying things other than treasuries. When it was buying agencies or if it's buying corporate bonds, it's buying things that in the normal course of monetary policy, the Fed doesn't typically buy. And so it is much easier for China to influence credit spreads or the agency treasury spread and a little bit more difficult for the Fed to respond, although obviously we did respond by extending our purchases of assets to agencies. So I think there are subtle ways that China can put pressure on the U.S. market, but that at the end of the day, this isn't China's most powerful source of leverage.

So once a trade war is well and truly underway, what stops it? Like, what is the resolution? I guess my other question is how much of our existing tariffs stem from trade wars that started, you know, 10, 20, maybe even 50 years ago? How long do these effects actually linger? There are interesting quirks in global trade that reflect the legacy of past trade fights. So the very high U.S. tariff on light trucks apparently stems from a fight in the 1960s. So we have a 2.5% tariff on cars, but a 25% tariff on light trucks.

And that's now enshrined in our WTO commitments and da-da-da-da-da. Back a long, long time ago, the Europeans agreed to, as a concession to the U.S. to get rid of tariffs on soybeans, but not grain, which is why soybeans sort of emerged as the globally traded animal food and became a much more traded commodity than, say, corn, given that both can be used as a source of animal feed. So, you know, there certainly are permanent scars in the trading system that reflect past decisions. I think there are three ways the current 301 tariff threat could play out. One is after the list is refined, there's a period of negotiation in the U.S. and China come to a deal that either permanently removes the threat of tariffs or leads the Trump administration to, let's say, put the tariffs on hold on ice to allow more time for negotiation.

We will withdraw this current petition and we will refile it if necessary. But we don't have full agreement, but we have enough progress to allow us to. have confidence that we will get to agreement with more time. That's possibility one. Possibility two is that the U.S. imposes its tariffs. China imposes its tariffs, and more or less, that's the end of it. There are tariffs on soybeans. There are tariffs on U.S. auto exports.

Interestingly enough, the biggest, at least in my view, exporters of cars from the U.S. to China are the two German transplants. So the BMW factory in South Carolina and the Mercedes factory in Alabama. So the global economy is integrated. And then it sort of stops there, that there's no further escalation. And then there will be ongoing negotiations over the conditions that would allow both sides to step back down. But there wouldn't be a threat of further measures. And China, of course, would challenge the U.S. tariffs for the WTO because the 301s,

legality under the WTO is very unclear. The U.S. is violating its WTO commitments by raising tariffs against Chinese goods, at least in the Chinese few. Third option is that it continues to escalate and that the U.S. comes up with an additional round of tariffs and then China responds with another round of tariffs. And so we go from $50 billion to a bigger number. And there are other ways that either China or the U.S. could escalate. So China could retaliate against U.S. firms operating inside China. The U.S. could take steps that adversely affect Chinese interests in the U.S. All right.

So then we've got to put you on this spot here. Of the scenarios, what is your guess and what is the trading relationship between the U.S. and China look like a year from now? If I had to guess right now, I would say we both implement the tariffs. And then it stops. That seems like a plausible equilibrium. I think it will be hard for the Trump administration to get enough from China to convince the president, who seems personally animated by this, to step back. I also don't see any other major legal process underway where the U.S. would initiate another type of complaint that would extend terror. to new sectors. The highest probability is that we do round one of a trade war, but then we don't,

there isn't further escalation. But of course, that has knock-on impacts throughout the global economy. Brad Sitzer, Stephen A. Tannenbaum's Senior Fellow for International Economics at the Council for Foreign Relations. That was awesome. I learned a lot from that discussion. Thank you very much. Oh, my pleasure. Joe, I enjoyed that conversation so much, not least because I continued to learn more about soybeans with every passing day this month. Yeah, I definitely did not predict that the big commodity at the heart of the biggest economic story this month would be soybeans. But it's kind of a pleasant surprise. And I guess we should have seen it coming because, as Brad mentioned, there's the big three

aviation autos and soybeans. So if we were a little more knowledgeable, we could have seen that coming. Nonetheless, now you have to learn something new all the time. Yeah. The other thing I liked about that conversation, obviously a really, really nuanced series of thoughts from Brad. But I also like that we have to go ahead to use the term trade war, essentially, or we're one round of escalation away from it. Yeah, I agree. Right. If the tariffs actually go into places planned, then we have the green light to use that colorful language. I'm glad that you brought up the treasury issuance and the theoretical threat of China not buying our treasury is because when you think about various ways that if things deteriorated between the two countries and deterioration could transmit themselves

to the market, you always hear about the treasury angle. And so I like that it's not that there's nothing there, but that it's just far more complex and subtle than perhaps most of us think of it. Yeah, I suppose in retrospect, it's not a major surprise that talk about China's selling off its U.S. bond holdings tends to descend into a lot of rhetoric on either side, rather than having a realistic conversation about it. But there we are. But Brad definitely walked us through all the details of that, which was fantastic. The other interesting thing, Joe, and I know you've been talking about it,

but the market reaction to the trade wars that we've been seeing so far. Yeah, I love the way in which people's perception of how the trade war is going, or the trade tensions, or not there yet, how the trade tensions are going seem to invariably be dictated by the market. So on days when markets are green, it's like, oh, people are optimistic that they're going to be talks and some of the rhetoric is easing. And then that afternoon, stocks turn red and suddenly everyone is afraid of imminent trade wars. It's a good reminder then our business. Price always leads a narrative.

We like to pretend that we construct these stories and then the market digest them and then reprises. But I'm pretty sure it's the exact opposite. The market does its thing. And then we construct stories ex post facto to explain it. It would be nice to get away from that, but I'm not sure that's going to happen anytime soon. Good thing we don't host a narrative markets podcast or anything like that. Otherwise, our job would be tricky. We would never do that.

We would never do articles about these subjects day after day trying to explain market movies. I'm glad we never do anything like that. Okay, I think we better stop here. This has been another edition of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. you can follow me on Twitter at the stalwart, and you can follow Brad on Twitter at Brad

Setzer with an underscore between Brad and Setzer. And you can follow our producer, Tofer Forges, at Forrest T, and follow the Bloomberg head of podcast, Francesca Levy at Francesca today. Thanks for listening. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world.

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