Trump China Tariffs Imposed, Beijing Hits Back & Starmer's US-EU Tightrope
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Amazon Business, your partner for smart business buying. Bloomberg Audio Studios. Podcasts. Radio. News. This is the Bloomberg Day Bake You Up podcast, available every morning on Apple, Spotify or wherever you listen. It's Tuesday the 4th of February in London. I'm Caroline Hepker. And I'm Stephen Carroll. Coming up today, Trump's 10% China tariffs take effect in the opening shot of a fresh trade war as China retaliates with new measures.

The US president delays 25% tariffs on Canada and Mexico after securing some concessions. Plus walking a diplomatic tightrope, Keir Starmer tries to stay on good terms with both the US and the EU. But is the UK risking its relationship with both? Let's start with a roundup of our top stories.

President Donald Trump has imposed a 10% tariff on all Chinese goods, triggering a series of retaliatory measures from Beijing. A midnight US deadline for the duties to go into effect passed on Tuesday, hours after Trump reached separate agreements with the leaders of Canada and Mexico to delay 25% duties for a month.

Minutes after the deadline passed, China responded. Beijing says it will investigate Google for alleged competition law violations. The world's second largest economy also announced 15% levies on coal and liquefied natural gas and 10% on oil and agricultural equipment from the US. Further measures include export controls on tungsten-related materials and adding the owner of Calvin Klein and Illumina to an unreliable entity list.

The decision to delay those 25% tariffs on goods from Canada and Mexico for a month came after new commitments from both countries to combat migration and drug trafficking. The concessions include Mexico sending 10,000 National Guard officers to the border and Canada creating a new, quote, strike force with the US to fight organised crime. But Bloomberg's Dan Flatley says President Trump's deal to pause tariffs

still leaves a number of unanswered questions. It would seem that he has a victory to declare with this deal with Mexico and Canada at this point, although we really don't know what's to come, what will happen after 30 days. And again, we still have those other two things on the table, revenue, which he needs for the tax cuts, and rebalancing trade, which was one of his campaign promises. So I don't think this is over by a long shot, but this is sort of the opening salvo in the

what's to come. Dan Flatley there referring to the fact that President Trump has previously said that he would use the revenue from tariffs to generate money to pay for US tax cuts. The news takes the three North American trading partners back to the brink of trade war that economists warn will hurt US growth, worsen inflation and

possibly plunge Canada and Mexico into recession. UK Prime Minister Keir Starmer says Britain isn't choosing between its alliances with the EU or the United States. That's after Britain appeared to escape tariff threats from Donald Trump, who said measures against the EU are definitely coming. Starmer was speaking in Brussels, where he attended a meeting of EU leaders last night.

It's early days and I think what's really important is open and strong trading relations and that's been the basis of my discussions with President Trump and I know that intense US-EU discussions are planned.

Keir Starmer speaking there during a joint press conference with the NATO Secretary General in Brussels. Meanwhile, the pound is being seen as an unlikely haven in the market turmoil provoked by the tariff threats. The UK's services-focused economy and improving relations with the EU and US are contributing to the pound's strength.

Meanwhile, when it comes to domestic issues, austerity may be on the cards for the UK once again. That's as the Treasury tells government departments to brace for spending freezes due to pressure on the public finances. Here is Bloomberg's Tiwa Adebayo reporting.

Before taking up her role as Chancellor, Rachel Reeves vowed there would be no return to austerity under a Labour government. But that promise is becoming increasingly difficult to keep as her party contends with high borrowing costs and stagnant growth. Now, unprotected government departments, including Justice and Culture, are facing significant budget pullbacks, with some modelling flat cash spending plans or 3-5% real-terms cuts.

That's despite a £50 billion uptick in overall spending in last October's budget, which saw most funding reserved for health, education and defence, whose spending is protected. The government's full review, which will determine how the overall amount of cash is shared between departments, will be published in June. In London, Tiwa Adebayo, Bloomberg Radio.

UBS has announced plans to boost share buybacks this year after its profits beat expectations in the fourth quarter. Net income at the bank came in at $770 million compared to estimates of $486 million. The firm now plans to repurchase a billion dollars of shares in the first half of the year and an additional $2 billion in the second half.

Meanwhile in France, BNP Paribas' fourth quarter profits also beat estimates, coming in at just over €2.3 billion. It also announced it would start paying a semi-annual interim dividend this year.

French Prime Minister François Bayrou has forced through his 2025 budget bill using a constitutional provision and bypassing Parliament's lower house. It's a move that will likely trigger a no-confidence vote, with the far-left France Unbowed already announcing its intention to file a motion, while the socialist leadership has said that it won't stop.

support it. Marine Le Pen's national rally has yet to give a clear indication of how it will vote. Beirut, meanwhile, has called on members of parliament not to overthrow his government. No country can live without a budget and France less than all the others. For the first time since the foundation of the Fifth Republic...

For the first time in close to 70 years, our country is still without a budget in February. The image of France as a serious democracy, a pillar of the European Union, will be affected.

So Prime Minister François Bayrou speaking there via a translator to fellow lawmakers. His remarks come after a period of turmoil for French politics since President Emmanuel Macron's snap election last summer, which fractured the National Assembly into three opposing blocs.

Those are your top stories. On the markets, the MSCIH Pacific Index is nine tenths of one percent higher after the news of the retaliatory measures from China, though we have an oil prices sliding Brent Crudes down 1.2 percent, WTI down by 1.8 percent. European stock futures are slightly negative this morning on Eurostox, 50 FTSE 100 futures down two tenths of one percent. And on Wall Street, S&P E-Money and Nasdaq futures are both two tenths of one percent weaker. The Bloomberg Dollar Spot Index is unchanged on the day.

Now, in a moment, we'll bring you more on Donald Trump's tariff step up with China retaliating in the early hours this morning, just in the past few minutes. Plus, why also the UK's prime minister is in Europe and the difficult balancing act that he faces between the EU and the US. But there's a lighter story that caught my eye.

I know. Did it, Caroline? What caught your eye about this story exactly? Oh, the list, the extravagant list of wonderful gifts that you can give somebody that you love for Valentine's Day. Hmm. Yes. Are you sharing this podcast with anyone, Caroline? Maybe.

Maybe. Helpfully, one of the producers has listed all of the items from most expensive to least expensive. I went to the very bottom of that list immediately, which is chocolates, which I'm actually probably of all of them, to be honest, because some of these things are

Let's say not to my taste. But I mean, give me chocolates. You are, I must say, a genius chocolate giver in terms of your gifts. But yes, this is by Kristen Shirley. If you want to have a look at it, it's the luxury Valentine gift idea list for you. So I do recommend it. Yes, there are some very expensive items, lots of sparkly jewels and all sorts of things on there. But if you do want to get that list from Bloomberg, I recommend it.

Well, let's turn back to our top story now. China announcing a series of measures in response to the fresh US tariffs which came into effect at 5am UK time. The US President said his administration plans to hold talks with China. He delayed the tariffs on Canada and Mexico for a month after speaking to leaders of those countries yesterday. Let's bring in our senior editor Bill Ferries for more. Bill, the China deadline has passed then. What does this mean in practice?

Well, it looks like we have, if not a full-blown trade war, some kind of a trade skirmish here because just as we pass that one-minute past deadline time zone in the U.S., we got China immediately slapping tariffs on a whole range of U.S. products and announcing a probe into Google. So China not waiting to see if there's a big impact from this. They made a move very quickly.

And, you know, we had been waiting for a potential call between Donald Trump and Xi Jinping. It doesn't look like that call took place. We you know, it could have taken place and neither side has said anything so far, but it doesn't look like it did. So there's still a potential for talks in the coming days. But as we've seen in the past, once these tariffs are in place, they can sometimes be politically a little bit harder to remove.

OK, President Trump, though, did manage to get deals and therefore delay the imposition of tariffs on Mexico and Canada. What did those deals achieve? Well, from the U.S. side, I think from the Trump administration side, they feel like they got...

enough progress promised to them when it comes to securing the border, both the northern border and the southern border, trying to stop fentanyl. Both nations, Canada and Mexico, saying that they would deploy 10,000 troops or agents of some kind to try to work to stop the flow of fentanyl and undocumented migrants across the border.

Justin Trudeau had basically committed to a plan along those lines in December, a $900 million plan. But Trump said that his, you know, reiteration of that plan was sufficient. Canada is announcing a fentanyl czar to help oversee those efforts. There's going to be a lot more coordination with U.S. border forces.

And it's not clear that these tariffs are never going to happen. They've bought themselves a month. So our next deadline is March 4th. What about for the rest of the world that's wondering where Donald Trump will turn to next? He said that he would definitely impose measures against the European Union, for example. Anything else we should be watching out for?

Well, he said, yeah, he said he's looking at the European Union, but he seems to be giving the UK a bit of a reprieve. He said he thinks things can be worked out with the UK, even though he said there's still grounds for having some tariffs or action there. I think the message overall

is, you know, we didn't see the steepest tariffs that we were expecting today, that those 25% tariffs didn't come in. We did see the 10% on China. So Trump has shown that he's willing to use this tool. We don't know if he's willing to use it to the maximum power. You know, he talked in the campaign about 60% tariffs on China, and economists have come out and talked about how severely that would impact global trade and the U.S. economy, the Chinese economy.

So we know he's willing to put these into place. We just don't know how far he's willing to go if he doesn't get what he wants. Bill, thank you so much for being with us this morning. Bloomberg Senior Editor Bill Fairey. This show is sponsored by BetterHelp. BetterHelp has been revolutionary in connecting people to mental health services. Using BetterHelp can be as easy as opening your laptop or your phone and clicking a button and the session begins.

Clients are able to choose in what way they would like to communicate with me, whether video or on the phone or chat texting. BetterHelp is there when you need it, and that's what makes all the difference. Visit betterhelp.com slash podbusiness to get 10% off your first month. Therapists were compensated. In 15th century Florence, the great inventor Leonardo da Vinci dreamt of creating a flying machine, but something kept getting in his way.

admin, piles of it. Luckily, Leo used the smart buying tools on Amazon Business so he could work more efficiently. With the extra time, he not only invented the flying machine, but actually built it. Magnifico. Incredibile. Splendido. Whoa, easy there, Leo. Amazon Business, your partner for smart business buying.

Well, the pound is emerging as an unlikely haven amid the Trump tariff turmoil. But can that continue? The Prime Minister Keir Starmer was at NATO headquarters in Brussels yesterday. He attended an informal dinner of EU leaders last night as well. Our UK correspondent Lizzie Burden is in Brussels for us this morning. Lizzie, good morning. This is an interesting place that Keir Starmer has found himself. Can he court both the US and the European Union? Yeah, good morning, Stephen. You're right, it's

Really interesting moment for Keir Starmer to be at NATO, given the questions of one, whether the US threatening tariffs on Canada means that NATO is breaking down. And two, as you suggest, who Starmer would pick if Trump made him pick between the US and the EU? Starmer says he's talking to both sides. The NATO Secretary General Mark Rutter said there are always issues among allies.

Frankly, these are more than issues and you do have to wonder how long Trump will let Starmer sit on the fence. I was listening to Bill there, you know, as Trump suggested, the UK can escape tariffs

Just because, as the US-UK trade is at the moment, it's out of line. But as Trump says, that one can be worked out. Now, you could interpret that as a warning to Starmer, don't put a foot wrong or else. But the closer Starmer aligns with Europe, the less interesting

he has to accommodate Trump's demands on trades. And what's for sure is the UK cannot afford a trade war with the US given its growth. And no one is more conscious of that than Keir Starmer. The risk is that Starmer tries to straddle the Atlantic and offends Britain.

both sides. And you'll remember he already conspicuously failed to back Denmark in the Greenland dispute when he was given the chance on Bloomberg TV. That will have been pretty awkward, I expect, around the dinner table last night with those 27 EU leaders in Brussels. It's the first time a UK Prime Minister has attended an EU summit dinner since Brexit five years ago. And I'm sure it'll come up again today when the EU Trade Commissioner meets the UK's

EU Relations Minister Nick Thomas-Simmons here in Brussels. So, in terms of other issues and the NATO meeting in particular, how did Keir Starmer's message on defence go down? Which is also related to the trade story, isn't it? The pressure from the US for more defence spending. Yeah, I mean...

he echoed rutter's message that to prevent war we must spend more so starmer said that the uk will give more military support to ukraine nato allies need to step up trump's threatened more sanctions on russia starmer says that's already got putin rattled but look starmer still hasn't set a deadline to hit this target of spending 2.5 percent of gdp on defense let alone to raise it above three percent as trump's advisors want

And remember, Trump's called for NATO countries to spend 5% of GDP on defence. So it's something of a sore spot that Starmer appears to be lecturing Europeans to do more. French officials have been calling him the demandeur. And when you look at how crunched the UK is fiscally, it's hard to see how Starmer can afford to go full throttle on defence spending anytime soon.

Well, on that note, the UK Treasury has told several government departments to prepare for their budgets to be frozen in cash terms. Lizzie, briefly, is austerity back? Well, Reeves promised at Labour conference last year it wouldn't be, but the public finances are under so much pressure, the Treasury's asked departments whose budgets aren't protected to model flat

cash spending plans. This may not materialise, but they are preparing for a worst-case scenario if Reeves' headroom is wiped out. And today she'll get a clue as to whether she'll actually face that choice because the Office for Budget Responsibility is going to hand her a copy of its first updated forecast estimate, and it's the first of five rounds before that all-important verdict on her headroom on March the 26th.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepker. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day, right here on Bloomberg Daybreak Europe.

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