Shery its all straight ahead on bloomberg best. Shery hello and welcome. Im shery ahn. This is bloomberg best, your weekly review of the most important Business News, analysis, and interviews around the world. On tuesday, Eurasia Group released its top 10 global risks for 2018. In a bloomberg surveillance special, a distinguished panel of guests discussed it in detail. Tom keene began the young conversation begin the conversation by asking why the prevailing talent is so gloomy. Because when the Global Economy feels the way geopolitics do today, people respond. They see it is a crisis. They know they need to do something. Theyve got to bail things out, do infrastructure projects, get the banks ready. We had that back in 2008, and everyone knew we talked about this we all knew it was a crisis and we had to respond. Geopolitics are easily as bad today as the economics were in 2008. They might be worse, and yet, there is no crisis, no sense of we have to respond. In fact, if you look at the americas, the one superpower in the world, the one country that could conceivably help to respond and dig us out of this crisis, its actively doubling down. We are saying we have no intention of providing the kind of certainty to our allies or supporting institutions, so as a consequence, anyone who looks at geopolitics today has to understand this is not sustainable and the crises are coming. Tom your Mckinsey Global institute is just a miracle, what you do there. I dont care about that. I want to know what businesses are going to do this year. Dr. Bremmer talks about accidents. You cannot do three or fiveyear planning amid a milieu of accidents. What do you see in the behavior of cclass officers this year . Is the union the yang. It is the yin and the yang. We should recall there is growth and over the past couple of years, we have seen that improve. The challenge is you have to go after that growth but at the same time, be prepared for these risks. The number one risk ceos see out there is geopolitical. That is the number one risk. The problem with those risks is they are not probability curves. They are one or zero. If something goes pearshaped, it is bad. Theres issues about resilience. While you are growing, what are you doing for resilience . What does your supply chain look like . How will it withstand some of the shocks that ian is talking about . How do you think about agility in your organization to be able to move resources very quickly how do you think about agility in your organization . Also we are on the brink of a Massive Technology transformation. Tom francine, please, jump in from london. Francine is 2018 the year protectionism strikes back . 2018 is certainly the year we see much bigger fragmentation because governments are becoming more interventionist. Part of that is because the chinese have an alternative model for their investments, and they will be seen as increasingly the most important driver of other economies around the world who will align themselves more with beijing than with washington. Part of it is that President Trump here in the United States, who in 2017 talked a lot about protectionism, talked about beating up on trade deals, but aside from leaving the transpacific partnership, did not do very much. In 2018, the u. S. China economic relationship gets worse. In 2018, nafta has to get renegotiated in the midst of a mexican president ial election. That is not likely to go well. Clearly, this is the year we will talk a lot about not only traditional Tariff Barriers but also nonTariff Barriers and Government Support protectionism for their own industries. Francine what does this mean for globalization . Depending on your outlook, what would you advise ceos to do . We are also worried about this trade issue. Nafta is the big one on the table right now, as to how that goes. That will be a bellwether, i think, as to how that moves because once we start going against trade, it is a race to the bottom. I hope that will not happen, but it is a big risk that is there. What ceos and organizations have to think about is you have to think about being localized. The idea of being a multinational, you have your supply chain around the world. You have to be localized. What are you doing for the local economy . How resilient are you . How do you move people . There are shortages of talent. How do you deal with all of a sudden a shutdown a trade . A shutdown in trade . Tom you lead this year with china and the vacuum of china. How powerful is there is their leadership . How assertive can they be this year . The most important speech i have heard in my life on the global stage since gorbachev declared the end of the soviet union in 1991 was when xi jinping stood up at the end of the 19th Party Congress and said china is ready to play a global role. We are prepared to become a global superpower. They had never said that before. Tom what was the distinctive feature for eurasia . It was that china is no longer small, no longer modest, they will no longer be underneath them. They see that not only are they bigger than they have ever been before, not only does china will have consolidated leadership under the strongest leader they have had since mao may be greater than that but also that is happening in the context of nobody else. It is happening in the context of trump. If trump has had one major impact on the global order and he has it has been the road that he has created for xi jinping. The opportunity for the chinese to just really occupy some of that vacuum. But the last time we had a big transformation of global order was the u. K. To the u. S. Special relationship, great allies, fought in the war together. Now, this transition from the United States not going to china. China is creating an alternative. Francine where do you see the relationship between australia and china going, and will that hurt trade and investment in australia . Obviously, there are political tensions between the governments at present. Prime minister turnbull has made a series of statements about chinese activities in australia. This has caused reaction from beijing. We will see how this stabilizes in the period ahead or if it does not, and furthermore, we will see if economic consequences flow from the current political instabilities, but i get back to my earlier point. The relationship between china and australia is one of a much broader equation involving all regional governments where the rise of china is a palpable phenomenon. Shery coming up, more discussion of Eurasia Groups top risks for 2018. Wall street must change the way it deals with women. It is not just sexual harassment. It is a lack of diversity. Shery and former treasury secretary jack lew does not think the new u. S. Tax legislation will have a positive impact. Leaving us broke so we cannot deal with these fundamental problems so we are further behind than making progress. Shery this is bloomberg. Shery welcome back to bloomberg best. Were examining Eurasia Groups report on top global risks for 2018. High on the list is a global tech cold war. Microsofts president and chief legal officer brad smith described the International Landscape for technology. Brad at one level, i. T. , information technology, has become more global. The industry has become more global. This is another area where ian has been saying we are seeing the rise of china. We are seeing chinese tech leaders emerge as global tech leaders, but at the same time, we are seeing fragmentation in the sector. There no longer in some respects is quite as global and internet global an internet as there was a decade ago and five years from now, we may see more of that fragmentation there is no longer in some respects is quite as global and internet. Tom how afraid should google and apple be of washington . Brad there is an increasing tension between the west coast and east coast. I think we have seen this unfold over the last decade. You certainly see political commentators and washington, d. C. Identify the tech sector as a pinata, as you mentioned. It is not just those on the left. Its those on the right, those on the center. I do not know that people have yet transferred that concern about technology into a defined course of potential political regulation, but that could come, and i think it really behooves all of us in the tech sector to be listening to that and be out addressing the concerns and even just acknowledging the concerns, which Silicon Valley has sometimes been a little bit slow to do. Tom lets go to the commonwealth of massachusetts and talk to ian bremmer about the tech commons. What a great phrase within your study of technology for this year. What is it and what does it mean for us . You have the president of microsoft saying that what we thought was going to be a global tech commons increasingly looks like you are going to see fragmentation. You see that in the internet space. As we move from the information revolution to a data revolution, it is much more topdown, right. You can the space that is being created, the way people are engaging and the filters people see to engage in commerce or surveillance are increasingly coming from a bunch of fragmented companies that are competing with each other very sophisticated in the u. S. Or through the chinese government. Those are two completely different models. That is not the u. S. Led globalization we have been thinking about for the past 40 years. I think you could make an argument that the facebooks and googles and microsofts are easily as strategically important for the United States for our economy and National Security as lockheed and raytheon ever were during the cold war, but i do not think the u. S. Government is prepared to align with these companies that way. I dont think they have the technological sophistication to understand how to do it, and i also think that some of the Silicon Valley libertarianism is part of the problem. In china, you want to talk about patriotic corporations, it is all kind of the same thing. I think that is an incredibly important space for brad to be a leader on. Shery among the biggest risks for global wall street in 2018 institutional inequality. Sallie krawcheck says business and government are failing women and a culture change is necessary. Somehow, as a country, we are calling mantocracies that are 95 men meritocracys and believing it. Silicon valley, wall street, which have been these epicenters of harassment actually are not providing particularly good returns for their investors. Venture capital funds, mostly you could just invest in the public markets. It is not just the sexual harassment. It is a lack of diversity, which has led to poor results, which has made all of us poorer. Francine are you going to see a shift in 2018 . Was 2017 and Inflection Point . I think theres no doubt. We had in 2017 what i believe is the largest march in history, with over 3 million people, 5 million people, etc. People were asking where is this generations gloria steinem. She did not show, so women started naming names and something happened that was very different than what happened before. We supported each other and rallied around each other. Tom we are behind on this policy, this policy for families and on and on and on and on, and we see that with the tone of this present administration. I would not editorialize, but say it is the observance at the end of the year. What would you say to the leader of our big banks, the leaders of our investment banking, the leader of our Brokerage Firms . I will never forget being on your show last year, a couple of years ago, where leo was a portfolio manager, and he turned to me and we were talking about women in business and he said, we just love having women. We just find it hard to keep them. Tom i remember this. I turned to him. I was like your mom says to be polite. And i said, have you thought about promoting them . And he just went, oh, what a novel idea. Promote them, promote them, promote them. The very first new story of 2018 is timesup, which is women in hollywood coming together to put money behind the issue. Tom take this into top risk. We have talked about developed country institutions, and the number one risk is that trump provides space for the chinese to actually do a lot more. You cannot look at the Metoo Movement in the absence of President Trump. It is probably the single biggest domestic impact he has had in the United States. Yes. It is precisely the fact that women around the country and around the world are looking at Democratic Institutions and saying these do not feel legitimate for me. They dont feel legitimate for us, and we dont think the governments are going to fix them. Shery still ahead, former u. S. Treasury secretary jack lew joins a conversation on global risk in 2018. He sees significant risk in the gops recent tax overhaul. I fear the next shoe to drop will be an attack on the most vulnerable in our society. Shery this is bloomberg. Shery you are watching bloomberg best. Im shery ahn. Former u. S. Treasury secretary jack lew joined this weeks surveillance special, analyzing eurasias report on analyzing Eurasia Groups report on the top risks of 2018. He noted a Common Thread in the report. The thing that underlies so much of it is chaos. It is the unpredictability of key leaders, the lack of a north are with the United States stepping back in so many ways, and it is this kind of destructive policy without anything constructive to take its place, and that is true on issue after issue here in the United States. You look at markets over the last year, the calmness of the markets, enthusiasm of markets almost suggest we should look past this uncertainty because what can we do about it, but the moment comes when something happens that is a surprise or should not be a surprise, i worry about binary changes. Tom i want to go back to the beginning of your career with joe moakley of massachusetts, who was the most basic of politicians from another time. What does your Democratic Party need to do to provide leadership within this chaos . What do you wish from mr. Schumer, ms. Pelosi, and many others . Fundamentally, democrats are not in charge right now, so i dont think it is fair or realistic to look to democrats lead the way out of this. You have an administration chose to make policy in a very oneparty way, did not include democrats in any of the conversations and now cannot rally their own troops to do the basic business of running the government, making sure we do not default on the debt, making sure children do not get thrown off health insurance. I think the challenge will be to truly work together, and that does not mean coming with a fait accompli and saying we need your vote. It means doing things you otherwise would not have done to reach a consensus around reasonable compromise. Reasonable compromise is the basis around working together. We are not seeing any of that. You called this tax bill dangerous. Why . If you look at the tax bill, what it does is almost the exact opposite of what anxious and angry voters were calling for in an election just a year ago. You have people who were worried about where they fit in an economy where technology and trade and globalization seem to be changing all the rules they grew up with. What we need is training, education, infrastructure. We need to invest in the kind of workforce of the future that gives people confidence. What we have seen as a tax cut that spends money we dont have to have very concentrated benefits for Global Corporations and the top 1 , and its leaving us broke so that we cannot deal with these fundamental problems, so we are farther behind in actually making progress, and i fear the next shoe to drop will be an attack on the most vulnerable in our society. How are we going to pay for the deficit caused by the tax cut . You will see legislation to take basic food support away from poor people, to attack medicare and social security. One could not have made up a more cynical strategy. People are going to reject things that otherwise are good when they do not work for them. Free trade good thing for global growth, but people reject it if they think it does not work for them. Technology obviously a good thing, but they reject it when they see it does not work for them. What jack is saying now is on the back of this extraordinary tax bill, if you do not see cuts for the average american people, the response is going to be vast rejection of the establishment and redder polarization. Democrats and republicans both have to deal with that. This did not arrive with the election of donald trump. The United States has been spending money it has not had for a long time. My question is, why is this any different to what we have seen before . I have been in office in several different periods. I spent three years running the office of management and budget in the clinton administration, we ran a surplus. We fixed the problem. When i can into the office of management and budget in the obama administration, we went from a deficit of almost 10 of gdp to 3 of gdp. We have now intentionally as a government made the decision to add substantial amounts of debt at a time when the economy does not need fiscal stimulus. When it needs is targeted investment. The risk of the tax bill is both further disenchantment with institutions, and if you look at and the report gets to this, the kind of rejection of institutions. How are people going to respect institutions more when they realize what the tax bill does . Tom ian bremmer, you grew up tough in chelsea. When you are living fat and large in weston or wellesley hills, you know where chelsea is. How would your mother do it today in this environment . Could you have gotten to tulane in this milieu today . Lets be clear, i did not grow up tough. I grew up getting my ass kicked. [laughter] slightly different. If you look at me, you understand why. But i am good for radio. Today, my mother would have voted for trump or maybe for bernie sanders. There is no way she would have