Shownotes Transcript
This BBC podcast is supported by ads outside the UK. If you're just starting your personal finance journey, Financially Inclined is exactly what you need. I'm Janelia Espinal, host of Financially Inclined, and each week we discuss money lessons you need to know. Listen to Financially Inclined wherever you get your podcasts.
Coming up on World Business Report, the US has imposed sweeping tariffs and now the European Union and China are fighting back with their own countermeasures. From steel to agriculture, no sector is untouched. So what does it mean for global trade, markets and you? We break it all down. Plus we hear from a former Trump advisor, what's the real endgame in this tariff war? But first, the news.
BBC News with Moira Alderson. China is raising tariffs on US imports to 84% as a trade war deepens between the world's two biggest economies. Earlier, the US introduced a tax of more than 100% on imports from China. For its part, the European Union has announced retaliation for Donald Trump's imposition of a 25% tax on European steel and aluminium.
There's been further upheaval on financial markets. Shares in Europe and Asia have again fallen sharply. In New York, the Dow Jones is steady, but the uncertainty has spread to US government debt. Bonds are usually considered a safe asset. In other news, Germany's incoming chancellor has been outlining the programme of his planned coalition government. Friedrich Metz of the conservative Christian Democrats promised to form a strong administration which Germany and Europe could rely on.
Medics in the Gaza Strip say at least 29 people have been killed by Israeli strikes in the east of Gaza City. Eyewitnesses say a four-storey building was destroyed by missiles. Immigration to Israel over the last year dropped by more than a quarter compared with the previous 12 months. By far the biggest percentage of new arrivals came from Russia.
The former Congolese president, Joseph Kabila, says he'll return to the country very soon to help find a solution to the conflict in the east of the country. One of the lead investigators of the deadliest rail crash in Greek history has resigned, saying that he had received death threats. 57 people were killed in the accident two years ago.
Members of the Inuit community have accused a British adventurer of displaying privilege and ignorance after she claimed to be the first woman to travel solo across Canada's largest island. Local people said the Inuit had travelled the same route for generations. Camilla Hempelman-Adams has since apologised. That's the latest world news from the BBC.
Hello and welcome to World Business Report from the BBC World Service. Namaste. I'm Devina Gupta from Delhi. Now, it's been a news crazy day as President Trump's tariffs officially went into effect on Wednesday.
They affect around 60 countries. But all eyes are now on China and the EU, who in the last few hours have retaliated. We'll be hearing also shortly from Trump's former economic advisor on what to make all of this on the show. But let's get right in.
Erin Delmore is joining us, our North America business correspondent from New York, to understand what's happening. Erin, without a doubt, it's a day for business journalists like you and I. We have to distill it for our listeners. So let's first talk about those retaliatory tariffs that have been announced by China and the EU. What's exactly happened there?
Hi, Davina. Good to be with you on such a busy day. Now, China announced the latest retaliatory tariffs, and this is in reaction to President Donald Trump's tariffs. China is placing an additional 50% levy on all goods that are imported into the U.S., so that brings the overall number to 84%. And China says that the new taxes are going to come into force on Thursday. Now, that's after President Trump upped the tariff rate that the U.S. is posing to 104%.
And this is really that back and forth escalation that we've been seeing over the last couple of days. You know, the U.S. initially doing a 20 percent blanket tariff actually over a month ago and then upping that another 34 percent and then adding another 50. And right now, these numbers are flying higher and faster than negotiators have a chance to really address them. This is really the back and forth that we're seeing at the moment.
And tell us about the European Union, which has just announced new retaliatory tariffs in just the past few hours. And this is because of the metal tariffs that were imposed by the U.S. in the first place.
Yeah. And it's worth noting that this is because of the metal tariffs, because the EU moves a little bit more slowly than the U.S. does. The U.S. is going by the word of President Donald Trump. There's not a check. There's not a balance there. Nothing goes through Congress. Needs to be voted on. But in the EU, all 27 member states need to come to an agreement there. And that's why we see this EU gap.
going head to head with the steel and aluminum tariffs that went into effect a bit ago, not the latest tranche that went into effect today. And so we are seeing now, I want to get you the specifics here, you know, the tariffs are going to target some goods that really run the gamut, poultry, grains, clothing, metals, even down to dental floss. And they're going to go into effect on April 15th. And this is, again, you know,
The EU is facing a 20% tariff from the United States. And really, we're seeing this ping pong back and forth. So these new tariffs that the EU has announced on the United States will affect nearly 20 billion euros worth of goods is what we know so far. But what does this actually mean for Americans and American exporters and businesses? The important thing to remember here is that when we use the shorthand and we say the US is imposing tariffs on the UK, Europe, China,
China. And we do get country specific, right? And so we are going country by country here in the States when we set that tariff rate. That's a tax on imports from other countries into the United States. And so when goods arrive from, say, China into U.S. borders, there's going to be an increased fee of 100 percent, 104 percent of the value of that good.
that somebody needs to pay when the good gets to the U.S. border. The importer pays the fee. That's the business that's bringing in either finished goods that then go on to sale or unfinished goods that get made into different products that are produced here in the States. And then businesses have a choice. Will they let the extra costs
cut into their bottom line, into their profits, or will they pass it on to consumers? It is virtually impossible to see how some, if not all, of this cost does not get passed on to consumers. So what we see countries doing in retaliation is putting a tariff or a tax on U.S. goods that come into the other countries' borders. And what this does, I mean, surely listeners understand, it puts a chill on cross-border trade.
And this is really something that many past administrations, even past Republican administrations, have championed, saying that it leads each country to produce the best quality goods it can make. It keeps everybody, you know, working toward their strengths and then, you know, helps develop international partnership on other levels as well. Certainly trade and business can impact diplomacy. But we are seeing President Trump instead turn inwards to a protectionist stance, wanting to make more things in the U.S.,
wanting to make foreign competitors pay for access to the U.S. market. And it's really putting a chill on global trade. Well, Erin Delmo, thanks for joining us and breaking it all down for us. I know it's a busy day for you. We'll let you go there. But let's take the first part, which Erin was talking about. That is the reaction that we have seen from China, which came in first, whose retaliatory tariffs on U.S. goods are set to take effect from September.
Thursday, 84% is what Aaron told us is the new retaliatory tariff that China has imposed on the U.S. goods. This after the U.S. has started with 104% tariffs on goods coming from China. Now, Duncan Wrigley is the chief China economist at Pantheon Macroeconomics and is joining me now.
Duncan, it's a trade war officially, isn't it, between the world's two biggest economies. What's China aiming to get out of this at this moment? Well, China has consistently said that the door is open for talks with the U.S.,
But the issue is in Beijing, they don't really know exactly what Trump's endgame is in terms of raising tariffs. So I think what China still hopes for is that in due course, the two sides can have talks and resolve issues. I don't think anyone's realistically expecting all the tariffs to go back to where they were before, but at least the restoration of greater certainty for business and trade.
What's the trade balance here? Who stands to get hurt more? Well, China runs a very large trade surplus with the U.S., which means it exports $300 billion more than the U.S. exports to China.
So the biggest effect is on China's exports, but the pain goes both ways. So the pain on China is the hit to the export production in China represents, you know, hundreds of thousands, probably millions of jobs if it all goes away or at least have to be diverted.
But on the other side, for the U.S., large tariff heights represent inflationary pressure. And the U.S. already has high inflation. So it's mutual pain. Well, it seems to be a game of who will blink first. And it also seems that we've been here before in 2018 during Donald Trump's first administration, where he had unrolled specific tariffs on China.
How would you compare that time to now? Well, that time was just a minor skirmish. If we're calling what's happening now a trade war, you know, number one, the size of the tariffs was much smaller, 20% from the U.S., a limited selection of Chinese goods. And the impact was largely absorbed by both economies over a year or two. This time around, we're looking at, you know, 100% tariffs from the U.S. side.
Second big difference is first time round, it was only U.S. and China. This time round, it is U.S. against the world. So that is potentially a much larger global disruption to trade, not just trade. We're also seeing that in the financial markets, stocks and bonds. So depending on how far this escalates, how far it goes, it could get much worse than certainly than in 2018, 2019.
Duncan Wrigley, thank you for joining us. Chief China Economist with Pantheon Macroeconomics there.
Now, let's talk to someone who has been part of this Donald Trump administration earlier and give us some insights into what's going on in the thinking behind these tariff wars in Trump 2.0 administration. Judy Shelton is joining us, a former economic advisor to President Donald Trump during his first term. Thank you so much for being with us on World Business Report, Judy. We just heard from Arun
Our expert earlier, Duncan, saying it seems to be the U.S. against the world this time. Do you agree? I don't think it's the U.S. against the world. I think it's the U.S. against China.
an unfair trading system that has not worked to the benefit of Americans. And I think the president actually has a vision for a more ethical and orderly international trading system. You ask what his mindset is, and I can tell you, I can quote you some things he said in a speech last night.
President Trump said, I'm proud to be the president for the workers, not the outsourcers. I'm proud to be the president who stands up for Main Street, not Wall Street, who protects the middle class, not the political class, and who defends America, not trade cheaters all over the globe. I think that
He believes that what he calls our opponents, other countries, are not afraid that his policies, America First policies, will fail. He said last night they're terrified that our strategy will succeed and we're going to get bigger and stronger and better.
And when he talks about his strategy, he's combining that with a supply side pro-growth agenda that involves lower taxes and deregulation also. Okay. Okay. I just want to quote because you'd quoted President Trump there. I want to share a quote from the U.S. Central Bank Federal Reserve Chair Jay Powell, who has said that tariffs would have a persistent impact on U.S. inflation. So this means that this could lead towards increased prices.
prices for American consumers. So aren't these so-called tariffs just more taxes on Americans in a way? You talked about the middle class. Aren't they going to hit that very middle class purchasing power as goods get more expensive? But there's kind of a disconnect there. If the Federal Reserve chairman is saying that Americans are going to pay for those much more expensive goods,
and therefore it will have an inflationary effect, then why are the exporters concerned? I think the exporters are concerned that U.S. consumers won't buy those more expensive goods. They might turn to domestically produced goods. And that's the whole point of the program, is to help re-empower our private sector. We really have been hollowed out because
because of cheating, primarily from China, going back for decades. In some ways, I think the rest of the world, and particularly Europe, should appreciate that this is a battle that had to be waged. I can recall when Nicolas Sarkozy, as the head of France,
after 2008 said, we all know this is because we're being flooded with cheap imports from China and they debase their currency. They subsidize these exports. They are hurting a lot of countries. And the fact that the U.S. is willing to take on these problems in the global trading system and the global currency system
I would like to see us get closer to our European allies and in the UK. How do you do that? Because just in the past hours, the European Union has retaliated with more tariffs for the US. And are you sort of risking alienation and isolation from your closest partners? And it's just not the European Union. Even Canada has been upset with the tariffs that have been imposed on them.
But that is to say that they don't recognize that we have this problem, that we don't have a level trading field. I mean, in the field of international finance and trade, it's not fair. When we see our allies...
doing things like retaliating on soybeans, meat, iron, steel, textiles, tobacco and ice cream. That's what the European Union is putting their 25 percent on. When we see Canada, the head of Ontario, a province that borders our country, one of his first reactions was to say, well, then we're going to cut off electricity.
to 1.5 million American households. This underlines for us that we are vulnerable. We are too dependent
It's bad enough that we worry about getting pharmaceuticals. During COVID, we didn't have enough face masks. We had to import them from China. Can you imagine? Reinforcing your point only here, Judy, because again, J.P. Morgan, CEO Jamie Dimon has also said making America great again doesn't mean that America should stand alone. So does America with this policy risk standing alone again?
In this world, which is now looking at more increased globalization, there are trade talks which are happening on the sidelines between the European Union and Asian countries to circumvent the pressure from the U.S.?
I think we find out who our true friends and allies are. And it's very heartening that Japan immediately wanted to negotiate. We have 70 countries who are asking to renegotiate to have a more equitable, a more fair trading relationship with the United States.
It's disappointing when our allies, instead of joining us in this effort to have a more ethical and orderly international trading system, decide to retaliate.
You have to realize for Americans, this program that President Trump is trying to carry out to re-empower the private sector means more to them than this fight. Even in financial markets, it's painful. 60% of Americans do have retirement funds connected to the stock market. But our exports are just 11% of our gross domestic product.
Imports to the U.S. are just 14% of our gross domestic product. So just think, 89% of our economy is not involved in exporting. 86% does not depend on imports. So it seems to me that we feel we have staying power and that it is worth it morally to forge exports.
this challenge to the status quo. And it's part of our overall effort to transform our economy to make it work for everyone. But are you underestimating China in this plan there? China has been quite clear that we will fight till the end of this trade war. And perhaps this 84% of retaliatory tariffs is just a start. It could get worse from here.
If China, if it boils down to who holds out longer between the U.S. and China, that is no contest. And all this is doing is showing us that it's a good thing we started to pose this challenge to China because now we see a very belligerent response. But in actuality,
For every dollar of U.S. exports to China, they send $5 worth here. They need us much more. They need our consumer market. And if they get closed out because some of their goods now seem less desirable, they're not as cheap anymore, I think Europe will, it won't be long before Europe joins us in this fight because no economy can tolerate a government subsidized onslaught.
where products are sent cheaply until your own domestic capabilities have been exhausted, and then you are dependent on those products. And I think it's better that countries look to their national security alliances and their national economic sense of security and start prioritizing that. And it is difficult in markets, but I think people will keep the faith with the president's approach.
Judy Shelton, thank you for joining us. Former economic advisor to President Donald Trump during his first term. You're with World Business Report from the BBC World. If you're just starting your personal finance journey, Financially Inclined is exactly what you need. I'm Janelia Espinal, host of Financially Inclined. And each week we discuss money lessons you need to know. Listen to Financially Inclined wherever you get your podcasts.
Now, if the trade talks weren't enough, there's another twist today in the business headlines in this entire tale of trade wars. And that is something called the U.S. government bonds and how they've been reacting today.
To wrap my head around it, I want some help. So let me get Russ Mould from AJ Bell. Hi, Russ. How are you doing? I'm very well, Davina. Thank you. Can you say that about this week, though? Very well. Leading up to the tariffs D-Day.
It's been very volatile, but I've been in financial markets since 1991 and I've seen the Asian debt crisis, the Russian debt crisis, the technology bubble burst, the European debt crisis, the great financial crisis, COVID. These things do come and eventually they do pass. You are a survivor, Russ. You're a survivor. But...
Can you just please help us understand this? Simplify the story for us about the U.S., the sale of U.S. treasuries or government bonds that's making headlines. What exactly are they and why is it posing a problem for the world's biggest economy?
American government bonds are treasuries, are American debt from the government. So if you buy one, you are effectively lending money to the United States of America. It will pay you an interest rate. And at the end of the lifetime of the bond, which is fixed, anything from one year up to 30 or 40 or 50 years, you will get your money back. America does not default on its debt. So this is seen as a safe investment, interest paid, money returned. And at times of
and uncertainties we're seeing right now, normally investors would move towards and start buying American government bonds for that perceived safety. So that means price goes up, yield goes down. However, this time...
The price has been going down and the yield has been going up. So people have been selling American government bonds and everybody's trying to find out why. Is it because somebody's lost so much money on their shares that they've decided they have to sell American bonds just to raise some money? Is it because of phase-over inflation because of the tariffs?
Is it the Chinese selling some of their $760 billion of U.S. government bonds to try and exercise influence in another way in this trade dispute? So there are all sorts of different possible explanations, but it does suggest that somebody somewhere is nervous, and if something as safe as American government bonds are showing distress, then that is a potentially bad sign. The positive we're looking at is somebody's deciding, actually, you know what? This isn't all that bad after all. I don't need the safer government bonds anymore.
I'm going to raise some money and start dipping my toe back into the stock market because I think things are going to be fine. So there is a positive way of looking at this as well. We'll find out which view is correct over time. How are markets finding it today, especially the US markets? It's been a bit of a mixed reaction from the Asian and the European markets though.
Yeah, US stock market after a wild day yesterday when it was up a lot but finished the day down is now actually flat to slightly up today as if it's sort of trying to gauge again exactly what's going on. And it's also looking nervously at that bond market. But at the moment, after a really, really sharp fall,
I'm not surprised that people are trying to think maybe it's time for a look, maybe there's some value to be had here, because over the last 10, 15 years since the great financial crisis, buying on the dip has been a really, really successful strategy. So I'm not surprised that people will try it again, but the longer this tit-for-tat trade dispute goes on between America and China and American other big trading partners, that strategy will certainly come under a pretty fierce test, I would think.
Russ, be with us because I also want to take our listeners to how people are reacting in other economies and those economies that are export oriented. Let's go to Vietnam, which is facing a 46% tariff on its major exports like textiles to the U.S.,
That's got manufacturers like Pham Quang Anh worried. Pham is the CEO of Donny, a government factory that runs in Vietnam. He said that he's having to keep in close contact with his customers. Last week, we have just get a new order and the contract is signed already. So I call to the customer and tell with them that
If you want to cancel the contract, it's okay. If you want to delay or do something, it's okay. Don't worry about the contract. We can make a new one.
But luckily, the customer told me, "Don't worry about us." The customer agreed that we will share 50/50 about the cost and also you can continue the order. Right now, the last order is almost running and we have to finish the delivery at the end of June. The customer didn't want to change.
cannot find another supplier in a short time. So everything is okay right now. But I think if everything is high-tech next year or after next year, when the customer has time enough to find another supplier in another country, maybe everything will change, not the same like that. Will you be now looking for other markets away from the U.S.? I'm serious looking for another market from 2025.
because more than 40% of our revenue is to the US. Everything suddenly changed. So I feel it's not safe. How can we survive? So we have to find another market as soon as possible.
If the tariff continues, would you stop selling your garments and goods to the U.S.? No, I will try. The U.S. market is a very good market. So why we stop? We always try to find another way to continue selling to U.S. market.
So China has right now imposed 84% levies on U.S. goods and U.S. right now has 104% tariffs on Chinese goods.
Is this an opportunity for businesses like yours in Vietnam? Yes, maybe. Or maybe the customer will not move to Vietnam. They move to other country like India, like Bangladesh. I don't want the tax very high for China and opportunity for Vietnam because it will impact for everybody. Everything will be hurt.
And how's your staff reacting to this news? The worker, the cleaner or somebody, they work. Usually, we don't care about the macro economic information. They don't care. In Vietnam, very different. But a lot of people worry. I have a meeting with all companies to tell about how the company will keep doing. And that is the first time in my life
What's your message to U.S. President Donald Trump? I never think about that. But I just hope that everything people will have a good life, not attack together.
That's Pham Quang Anh, garment factory owner from Vietnam. And Russ, as he said, the message for taking everyone together. We heard Judy earlier, former Trump advisor, saying that it is perhaps time for different kind of trade agreements. Is it time for a new trade order globally? It's right.
It's very possible. I mean, Vietnam may seek an individual deal with the United States, but it could be a new trade order, perhaps not the ones the Americans expect, because the International Chambers of Commerce say that 13% of world trade involves America, so 87% does not. And maybe some frustrated trade partners, people who are frustrated with America, seek to do deals between themselves, which is what, say, the UK is seeking with India right now. So we could end up with something different, just not what the Americans expect.
And we don't know, but you're a survivor, Russ, always have been. You and I both have been. We shall overcome. All right, Russ Mould from AJ Bell. Thank you so much for joining us on World Business Report. For more, you can head to bbc.com. We have a live page there of all these developments of the global trade tariff war. Thank you so much for joining us.
If you're just starting your personal finance journey, Financially Inclined is exactly what you need. I'm Janelia Espinal, host of Financially Inclined, and each week we discuss money lessons you need to know. Listen to Financially Inclined wherever you get your podcasts.