EU pauses retaliation tariffs against US
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Hello and welcome to World Business Report from the BBC World Service. Namaste. I'm Divina Gupta from Delhi. And on this edition, it's another busy day in the global economy. There's been a temporary ceasefire of sorts in steep US tariffs for all the countries except for one major player, China.

And as the trade showdown between these two superpowers continues, the big question we are asking is, what does it mean for the rest of us? How are smaller economies in Asia and Africa bracing for impact?

Could they end up as a collateral damage or turn this crisis into opportunity? We'll be putting those questions to the chief economist at the Asian Development Bank and a key voice from BRICS trading blog. That's Brazil, Russia, India, China and South Africa. No, I mean, there are measures of trade policy uncertainty and they're at all time highs. We've never seen anything like it.

All that coming up on the show. So stay with me. Let's start with some good news. In the past few hours, the European Union has paused its planned retaliation of U.S. tariffs. A spokesperson for the European Commission, Olaf Gill, said the EU was ready to negotiate with the U.S. We are not going to offer any greater detail at this point about what

We are not saying to the Americans, beyond what we have already said, we want to negotiate, we want to talk.

We appreciate that you have brought this pause on so-called reciprocal tariffs, and we in turn are now pausing our proposed countermeasures in order that we have the maximum space to consult with our member states, consult with our industry, and negotiate with the US. We're ready to make deals. Let's talk.

Let's talk. That's the message from the European Union. Emma Wall is head of platform investments at Hargreaves. Lance Down is joining me. Emma, I can hear a lot of sighs of relief all the way here in Delhi from the investors with that statement. How are the stock markets reacting today to that? Well, the stock markets are very divided today because just as Europe is closing, which is a sea of green on my screen, so European stocks

up nearly 5%. The UK stock market up nearly 4%. Asia had a very good day. Hang Seng index, Shanghai, so Chinese markets. But as we're talking, the US markets are opening. And after an incredible day yesterday, a record-breaking day yesterday, in fact, the US markets are opening down. And this is very much

After the euphoria, the reality of the fact that, yes, supplementary tariffs have been paused for 90 days, but 10% tariffs still remain and a pause is only a pause. And you still have the two largest economies in the world very much locked in a trade war together, the US and China. So the markets today, a little bit hungover from the party of yesterday.

And yippee, isn't that the word that Donald Trump used for investors on the Wall Street? A bit uneasy. But looking at that pause news which came yesterday, we talked about it a lot. But do you think President Trump was forced to walk back because of the pressure from the markets? And it now seems as they open, it might have missed the trick.

Yes, it's really interesting. In his first presidency, Donald Trump quite often quoted the success of the stock market as one of his biggest success metrics. So every time that the S&P 500, the largest companies in the US, did well, he claimed it as his very own victory. This time around, he has actually been less wedded to the stock market and the stock market performance

and more towards economic growth and the bond market. And it was very much the bond market, well, pretty much imploding over the last couple of days that actually experts have suggested that is what forced his hand in order to put that pause in place. So less so stocks and more so bonds.

All right. We will be talking about those bond market and what it means as well. But Emma, stay with us. So President Trump has high tariffs on Chinese goods to a whopping 125 percent.

and the World Trade Organization is warning that trade between the U.S. and China could plunge by as much as 80% after that. At a media briefing, Chinese Foreign Ministry spokesperson Lin Jian said Washington's actions had destabilized the global economic order.

The US, for its own selfish reasons, has used tariffs as a weapon to exert extreme pressure and seek selfish gains, which has seriously impacted the stability of the global economic order. This is a blatant act that goes against the will of the world and goes against the whole world.

So this could mean real consequences for all of us, especially here in Asia. 60% of the world's population lives right here in this continent. And a huge chunk of that population is engaged in manufacturing. So when supply chains shift or demand shrinks, it's not just numbers, it's livelihoods on the line.

Albert Park is chief economist at the Asian Development Bank, and I was speaking to him about this earlier. There are measures of trade policy uncertainty, and they're at all-time highs. We've never seen anything like it. And, you know, the fact that it keeps going back and forth

really doesn't resolve the uncertainty, right? It just makes people even more nervous or more unsure about what the future holds. So trade uncertainty will stay high for the foreseeable future, I think. Yes, let's take this step by step then, because let's first talk about the fallout from the US-China tariff war, because the World Trade Organization has said that this tariff war could cut trade in goods between the two countries by 80%.

What's your current assessment there? Well, it'll be a big negative shock for both economies. For China, one thing that has happened in recent years is they've reduced their reliance on exports to the U.S.,

Although it still is sizable, you know, something like half a trillion dollars a year. But nonetheless, as a share of their whole economy, if you look at the end use U.S. demand and its size relative to China's GDP, it's something like 3%.

So it's meaningful, but it will not be devastating, I think, to China. Could U.S. come off worse than it is right now? Well, I'm not sure what the reference point of right now is, but certainly cutting off imports from such a major supplier is

We'll have the same effects we've been talking about with it'll lead to higher import costs, higher inflation, more than likely in the U.S., and that will create more pressure for keeping interest rates higher for longer. Of course, that's all relative to a world without this escalation with China. But compared to the world we were in yesterday when tariffs were very high on many, many countries in the world, especially on many Asian economies,

It's actually much more promising compared to that worst case scenario kind of we were living in yesterday. And I mean, today there's a temporary 90 day pause on new tariffs on many of those economies. What steps should smaller and more vulnerable economies like Sri Lanka, Pakistan, what steps should they take to hedge against future trade shocks and uncertainty then?

Well, I think everyone should approach negotiations in good faith. For some economies in Asia, actually, they've had kind of a protectionist tilt. I think India and other South Asian economies, to greater extent than the East Asia and Southeast Asian economies,

And a hidden blessing of negotiating on trade restrictions is that it might get these countries to liberalize their trade a bit more. Well, Malaysian Prime Minister Anwar Ibrahim has called for this kind of free trade between Southeast Asian economies. But then there is a fear, isn't it? Because we've seen that China...

is often also accused of dumping their goods to these Asian markets, which again, in turn, is impacting local industries, be it India, Bangladesh or Indonesia. So what's the balance out here?

If the access to U.S. market is tightened for Chinese goods, isn't there more threat that domestic industries here would suffer? It's not a new challenge. But if China really dumps, dumps meaning they're setting prices at really artificially low prices below even the cost of production. If that's the case, you know, WTO provides for remediation measures,

I think China will be understanding that this may be a hard time for other countries to absorb, let's say, more diverted exports if they're also struggling with higher tariffs. I mean, let's not forget that even 10 percent tariffs can be challenging for many countries.

economies that are reliant on exports to the U.S. But how are you at the ADB preparing for any kind of contingency plans in anticipation of further global trade disruption? I think we have been monitoring the situation very closely in all of the countries where we work.

And, you know, we stand ready really to support them. If there are major shocks that lead to social disruptions, just as we have done in other periods of crisis, we stand ready to provide assistance to protect vulnerable groups. Are there certain countries in your radar now, especially because you will be watching out for them, whether they are more at risk as the tariff war continues? Well, if tariffs stay at 10 percent,

Probably most of our countries will weather it okay. So, you know, even before the tariffs, we were having some challenging debt levels in some of our countries like Maldives and Laos. And so we continue to monitor those.

Finally, what's the end game here? Do you see a path back to stability in global trade? Or should the region prepare for, say, a more fundamentally altered trading landscape in the long term? I kind of have an optimism that other than China, all of the other countries in the region responded to these unprecedented high tariffs from the U.S.,

with a commitment not to retaliate and, in fact, to try to stay the course and even deepen trade investment. But it still will be a world where countries remain open to each other, committed to each other, and have opportunities to gain from globalization, especially the poorer economies in the region.

That's Albert Park, chief economist at the Asian Development Bank, with an underlying message, negotiate and let's talk is also the statement coming from the European Union. But of course, China is holding out. As we've been discussing after President Trump's 125% tariffs on Chinese goods on Wednesday, it's interesting to see now what measures China might now take.

Those don't have to be just tariffs because one of the lines coming out of China today really stood out to us.

It has said to moderately reduce the number of U.S. films it imported into the country. In other words, to further reduce the favorable impression of domestic audiences on American films. So let's go across to Chang Tai Shea, professor of economics at the University of Chicago, who is joining us. Welcome.

What do you make of this, having fewer Hollywood films cross over to China? I think that what they're doing with movies is something that they have done a lot in the past. And most of the time, it's really not in response to...

to trade conflict with the US. But I think that you're absolutely right in pointing to the use of non-tariff barriers. I would point to three facts. One is

In the last trade war the US had with China in 2018 and 2019, if you look at what happened there, the biggest part of what China did was to use non-tariff barriers to restrict imports of American products. And the basic constraint that it was operating under then, and it's still operating under the same constraint now, is that

China, obviously, as everybody knows, exports a lot more than the U.S. to the U.S. and the U.S. exports to China. At the same time, the other constraint that China was operating under is that it wanted to give the impression that it was not

that it was the aggrieved party, that it was not the person, it was not the party that was initiating the trade war. So it was very careful at only matching the tariffs imposed by the US. This is what it did in 2018 and 2019. And this is what it's clearly doing now. That is, you know, it's just responding tit for tat. But then-

But it's using other tools too, isn't it? Like manipulating its currency. Can you briefly explain to us how that works to give its exporters competitive advantage right now? That's a big part of what they're doing. I think if I look at the biggest part of what

of what they did in 2018 and 2019. And a big part of what I think they're going to do now is that they're just going to do stuff like let the stuff sit in the ports or let American products sit in the ports. The other thing that I expect them to do is that they're going to strike...

at services, most services are not subject to tariffs. And the US actually has a pretty big surplus in services in China. So they're going to start to impose informal restrictions or restrictions that they're not going to publicize.

in terms of U.S. exports of services. But the most intriguing thing that I've seen in the last few days is that I see some evidence that the Chinese are

dumping their holdings of U.S. Treasury bonds. Like the most remarkable thing in the last few days is that yields on U.S. Treasuries started to rise. And this is really astonishing because in the previous financial crisis that the U.S. has had, we see a narrowing, a decrease in U.S.

Treasury bonds yields. This is what we saw in the 2008 crisis. This is what we saw in the COVID crisis. And what is really interesting in the last few days is that it went exactly in the opposite direction. Stock prices fell as everybody knew, but yields on U.S. Treasury bonds went up.

And Chang, I would ask you to stay with us because this is a perfect segue to get our market expert in Emma Waltz, who's been with us through the show. Emma, we use those words there, U.S. bonds, treasury yield and Chinese investment. Could you just simplify it for our listeners? What are they and how are they operating?

It is debt issued by the US government or by any government, a government bond, but in particularly treasuries or T-bonds of what is issued by the US government in order to fund expenditure. But really, when we're talking about what's happened over the last couple of days, it's also a mechanism by which investors, professional investors and economists,

gauge how confident the market is in that nation and in actually its kind of economic stability. And the reason why yields really popped, in fact, some people called it a fire sale over the last couple of days, is because confidence in the U.S. economy and in the U.S.,

political strategy dropped so significantly that people sold out of treasury bonds, sold out of US government debt and bought alternatives. And that meant that the US's perception of a safe haven asset, it is

previously and has been historically considered one of the safest investments that you can make because the likelihood of the US defaulting on its debt and not being able to pay you back the money that you've invested as well as the interest rate or the coupon that you get from buying a bond. The likelihood of them defaulting is very low. But really what the market is saying by selling those US treasuries, selling out of US debt, is that

they consider the US to not be as safe as it was before. And because of the mechanism of the bond market, actually when people sell, when demand drops,

And when the price falls, the yield rises. And that is really what put Donald Trump off, because Donald Trump wants to issue debt at much lower levels so that he doesn't have to pay so much interest in the same way that all of us do when we get, for example, a mortgage. It's preferable to have a lower rate of interest on our debt or on our loan than it is a higher rate of interest. And that is really what spooked the market and what spooked the president.

And even businesses, because this would also mean higher costs for companies to borrow. And if businesses can't get access to credit, that can halt economic growth, lead to job losses over time. So it is a circle that's there. But Chang, here's the bit, just stepping back a little bit more. Is it really also about...

Turning into a personality clash, a reflection of how U.S. President Donald Trump and China's President Xi Jinping have chosen to approach this crisis. I think that absolutely is the case. My instinct is that both parties would really like to have a deal.

My expectation when President Trump came into office is that what he really wanted from the Chinese was the equivalent of what was called a phase one deal, which was signed in January of 2020 in the first term of the president in which that deal basically obligated the Chinese to purchase a large amount of American products. I think that is really what the president wanted. And the

The problem is that the way that President Trump, I think, has gone about it is that he's he.

He started by implementing a first 10% tariff in China and an additional 10% tariff in China. And I think what he wanted is that he wanted the Chinese to come begging to him, like this is what you see all the other countries of the world doing. But politically, that would be suicide for the Chinese leader. Right.

So I think even though the Chinese would, I think they would be happy to make that kind of a deal under the current terms or that is, you know, there's no way that a Chinese leader can survive politically if he makes a deal under these circumstances. That's part of the tragedy. Just between the U.S. and China, just one word, who's going to blink first according to you?

I don't see any off-ramp. I don't see any way in which any party is going to blink. So I really don't see an off-ramp. Zhang Taishai, we'll have to leave it there. Professor of Economics at the University of Chicago, thank you so much for joining us. You're with World Business Report from the BBC World Service. Thank you.

Hi, I'm Lindsey Graham, host of Wondery's Business Movers. In our latest series, media mogul Ted Turner launches a 24-hour channel dedicated solely to breaking news. But CNN doesn't just shake up the television industry. It transforms journalism, politics, and culture in America forever. Listen to Business Movers, making the news on Amazon Music or wherever you get your podcasts.

Now, we've been talking about how Asia is feeling the heat from rising trade tensions between the world's biggest economies. Let's now turn our attention to the African continent. How are businesses and economies there coping as global trade routes shift and uncertainty grows?

I earlier spoke with Dr. Stravos Nikalo from South Africa, which is a member of the BRICS global trade bloc that also includes Brazil, Russia, India and China. He's on the executive committee of the Aspen Pharmaceutical Company. I started by asking him how much concern there is among the business community in South Africa over the latest developments. Look, I think it's fair to say this is a

As far as trade and tariff measures go, I suspect we haven't seen anything like this ever before, certainly not in my 35-odd years in the pharmaceutical industry. And I think the mood is reasonably pervasive, not just here in South Africa, but I happen to interact extensively with

with other countries. South Africa is hosting the G20 this year and I've had a number of interactions with fellow G20 business people and it's safe to say that there's a depressed mood at the moment. There is uncertainty and unpredictability and one thing is for certain, I think that the trade and tariff regime is probably going to be changed forever.

Will that be a change to the positive or the negative? I think time will tell, but it's up to us as a business sector together with the governments, the WTO and other institutions to try and frame this positively. And certainly what we are supportive of as a South African business community is a multilateral trading system. You know, there are no winners in trade wars anymore.

I mean, that would be ideal, isn't it? That's the utopian world. But as we look at it, South Africa was reportedly facing tariffs of up to 30%. There's now a 90-day pause on that. But the basic levies of 10% still stand, which could again change quite quickly. Who knows what's being done on the ground to prepare for whatever comes next?

Look, the preparation and the next steps require careful analysis and also require a measured and sober analysis. So we haven't gone into any knee-jerk mode in South Africa. I think we're trying to de-escalate some of the tensions that could arise from this, certainly the trade tensions. We are looking to take a measured approach. South Africa runs a trade surplus with the United States,

And as far as I can tell, and many other colleagues, the tariffs have been determined as a percentage of the trade surplus against the overall trade with the U.S.,

We're not certain that that is a model that looks towards a partnership. So our response on the ground here is twofold. I think stay out of the politics as a business community and rather try and work towards a trade and or even an economic partnership with the U.S. I think there's a strong realization, again, on the ground that

that a goer at some point in time, regardless of whether there was a Trump administration or not, I think a goer would not have lasted in perpetuity. And I think this is a good time to look at where the complementarities lie and where they sit between the United States and South Africa. There are certain things that the U.S. relies on

for South Africa for critical minerals and other things, some radioisotypes. And similarly, we need the U.S. It's a big market for us. So I think what we would like to see and what we're going to encourage and work very hard at as a business community is a trade deal of sorts that's beneficial to both partners here. And we grow our trade and investment from that type of a platform.

That was Dr. Stravas Nikolaou from South Africa. Now, Emma, last word to you. In your view, has this experiment of this liberation war that President Trump started succeeded or failed?

I think it's far too early to tell. In terms of the stock market, it definitely doesn't feel like a win, despite the returns of yesterday and today. And I think volatility is definitely going to continue for the foreseeable future. It's not over yet.

It's not over yet. Thank you so much for joining us. Emma Wall, Head of Platform Investments at Hargreaves Lansdowne. Always a pleasure to talk with you. We are following the latest updates on this story on bbc.com. You can head there for now. You've been listening to World Business Report with Davina Gupta. Till we meet next time. Namaste.

Hi, I'm Lindsey Graham, host of Wondery's Business Movers. In our latest series, media mogul Ted Turner launches a 24-hour channel dedicated solely to breaking news. But CNN doesn't just shake up the television industry. It transforms journalism, politics, and culture in America forever. Listen to Business Movers, making the news on Amazon Music or wherever you get your podcasts.