Source: Barron's Chinese Author: Nicholas Jaskinski Evan Greenberg, CEO of Chubb Ltd, has a highly influential fan - Warren Buffet, CEO of Berkshire Hathaway. Berkshire Hathaway disclosed last month that it held 6% of the shares in Chubb, one of the world's largest insurance companies, by the end of 2023. Berkshire itself is a major participant in the insurance industry, but it is not the only buyer. In the past year, Chubb's stock return, including dividends, was about 40%, surpassing the S&P 500 index's total return of 25%, and making the company's market capitalization reach $110 billion. This increase in market capitalization reflects Chubb's outstanding performance, which is attributed to its prudent underwriting practices and conservative management of its investment portfolio of about $140 billion. The company's earnings per share increased by 48% in 2023 and its book value per share increased by 21%. Greenberg is the son of Maurice "Hank" Greenberg, the former CEO of American International Group (AIG). Greenberg worked at AIG for 25 years, rising through the ranks. He left the insurance company in 2000 and took over Ace Limited in 2004. The company merged with Chubb in 2016, the largest M&A in the property and casualty insurance industry at the time. Today, Chubb is the largest commercial insurance provider in the United States, and the company is also known for its high-end homeowner insurance for the wealthy. However, about half of the company's premiums last year came from outside the United States. Asia has always been a growth area where the company is bullish: Although Asia accounts for 40% of global GDP, the insurance industry accounts for only 26% of the global insurance market share. This gap is expected to narrow over time. Greenberg sits on the board of several nonprofits that focus on international and Asian affairs. Barron's recently interviewed Greenberg about his underwriting philosophy, the challenges of dealing with increasingly frequent climate disasters, and US-China relations. Following are the edited excerpts of the conversation.

Author: William Watts

Local time on the evening of November 25, the elected president of the USA, Trump, announced on "Truth Social" that he is ready to fulfill his campaign promise on the first day of taking office by imposing a 25% tariff on commodities imported from Mexico and Canada, and an additional 10% tariff on commodities imported from China.

The "Tariff Man" is back, and the forex market was immediately impacted; stock markets in Europe and Asia fell on Tuesday, but the major U.S. stock indices were basically unaffected—at least for now.

In 2018, Trump referred to himself as "Tariff Man"; the above statement recalls his first term. BMO Capital Markets interest rate strategist Ian Lyngen wrote in a research report: "Events like this provided investors with important (but unpredictable) clues regarding trade direction and market impact back then." However, although Trump's statement led to the depreciation of the Mexican peso, Canadian dollar, and Chinese yuan, investors in other sectors seem to remain unperturbed.

Lyngen pointed out that this calm sentiment—especially in the U.S. bond market—may reflect that investors should not feel surprised, as Trump frequently emphasized tariff issues during the campaign. He stated that this reaction suggests that "the market has not only digested the expectation of Trump using 'tariffs as trade policy,' but also believes that the impact of increased tariffs on inflation is a one-time effect."

However, Lyngen noted that tariffs could also weaken demand and alter the trajectory of the currently resilient U.S. economy.

After Trump announced the tariff increase, the yield on 10-year US bonds initially rose but then fell back. The bond market remained relatively calm, allowing room for the stock market to rise, with the three major US stock indexes closing higher on Monday and Tuesday.

When trying to infer the market's potential reaction to the new round of tariffs and assess the impact of tariffs on US economic growth and inflation, investors can look back at what happened during Trump's first term.

Economists at Oxford Economics noted in a report released this month that tariffs would make imported products more expensive, shifting consumer spending toward domestically produced goods and goods imported from countries not affected by tariffs, meaning that prices in tariff-imposing countries would rise and economic growth would decline in both the tariff-imposing and tariff-affected countries.

Economists pointed out that evidence from the US-China trade war that erupted during Trump's first term indicates that tariffs have a significant negative impact on bilateral trade flows—every 1% increase in tariffs would reduce imports from China by 2.5%. However, the impact of tariffs on inflation is minimal, as the USA is a relatively closed economy, retailers absorb part of the impact, and US demand shifts towards imported goods from other sources.

Economists estimate that increasing tariffs on all Chinese goods to 60% could raise the US Consumer Price Index (CPI) by up to 0.7%.

Additionally, Rob Arnott, founder and chairman of the investment consulting firm Research Associates, pointed out earlier this month that unless there is a series of retaliatory escalations, the impact on inflation may be temporary.

Arnott said, "The calculations regarding tariffs indicate that they will not have a significant impact on inflation."

Nevertheless, Arnott noted that shortly before and after Trump's victory, US bond yields had surged significantly due to market worries that tariffs might again push up inflation, in addition to concerns that the Federal Reserve's interest rate cuts this autumn were too aggressive.

Some economists believe that tariffs will suppress market expectations for the Federal Reserve's future interest rate cuts.

Economists Carl Weinberg and Rubeela Farooqi from High Frequency Economics wrote in a research report on Tuesday: "Faced with such a large-scale tariff shock, the Federal Reserve may slow down the pace of rate cuts or stop cutting rates, waiting to observe the impact of tariffs on prices."

They pointed out that after Trump raised tariffs from 2018 to 2019, the US CPI did not rise significantly, but the tariffs were implemented in phases and not all at once.

The two economists wrote: "Whether or not the Federal Reserve reacts, if these tariffs are implemented as the elected president suggests, real income in the USA will decline, and GDP will also decrease. If the Federal Reserve ultimately decides to maintain high interest rates for a longer period, US GDP will further decline. If tariffs lead to price instability, rising inflation will also suppress GDP growth."

Meanwhile, the two economists believe that it is still unclear whether Trump will firmly push forward his tariff measures or use tariffs more as a negotiation strategy. Analysts say this ambiguity may also be the reason why the US market has yet to be significantly affected.

Trump stated that he will push forward tariff measures unless the situation of fentanyl and other drugs and illegal immigration into the USA stops.

Stephen Brown, deputy chief North American economist at Capital Economics, wrote in a research report: "This seems to indicate that if these countries wish to avoid being subjected to tariffs, they can take action to reduce drug supply or ensure border security by putting forward credible plans, similar to how Mexico avoided Trump's similar threats in 2019."

Editor/Rocky