Warning issued over any US-China trade war
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You're listening to World Business Report here on the BBC World Service. I'm Rahul Tandon. Thanks so much for joining us. It's been another busy day for the global economy. Lots of conversations once again about tariffs. We'll be hearing from the head of the US Central Bank very, very shortly. Also hearing voices from the business community in the US, Bangladesh,

and looking at what may take place in those tariff talks between Japan and the world's largest economy. But let us start with the World Trade Organization, because it is saying that global trade will fall this year, hit by the tariffs that have been imposed by the United States. Its director, Ngozi Okonjo-Iweala, warned that a trade war between the world's two largest economies, well, that could affect the whole world.

whilst u s china trade accounts for only around three per cent of world merchandise trade a decoupling between the two major economies could have far-reaching consequences if it were to contribute to a broader fragmentation of the global economy along geopolitical lines into two isolated blocs

Our estimates suggest that global real GDP would be lowered by nearly 7% in the long term. Here with some more details is our correspondent in Geneva, Imogen Figgs. This is based on general tariffs staying at 10%.

and not this long list of very punitive tariffs. You remember the poster that Donald Trump held up in the Rose Garden. They're on pause for 90 days. But if they were to come in, then the whole outlook would be even bleaker than what the WTO outlined today with a big, big fall in global trade, probably a fall in global GDP, perhaps even a global economic recession.

OK, let's start the conversation about this now. Let's firstly bring in Susan Schmidt, Portfolio Manager at Exchange Capital Resources. Familiar voice on the programme. A lot has gone on today. We'll talk about tech stocks and the market in a few minutes' time, Susan. But that warning from the head of the World Trade Organisation, not something the markets would want to hear?

Definitely not something investors want to hear, but the stark reality and it's something that investors have been suspecting and fearing, hence the volatility in the market. We're seeing some strong comments today, certainly from Chairman Powell, very direct comments on how damaging the tariffs can be for the overall economy and what a difficult position it's putting that central bank in, trying to balance between the threat of inflation exacerbated by the tariffs and the

the hit to the economy. Yeah, we're going to hear a little bit more from Jerome Powell in the program. Let's also bring in David Autor, economist from MIT, who was the co-author of a study that... Thank you very much. Pleased to be here. That's, yep. Yeah, a study of yours that looked at how US communities were devastated by cheap imports from China. You came up with that phrase, didn't you, David? The China shock. Just remind our listeners a little bit about it, because you did show that a lot of jobs did go in the US as China became a huge manufacturing power.

That's right. That refers to work that I've done with Gordon Hanson of the Harvard Kennedy School and David Dorn of the University of Zurich. And we looked in particular when China joined the World Trade Organization in 2001. There was a surge of inexpensive exports as China became more productive and tariffs against it fell. And this led to a lot of displacement of U.S. manufacturing employment on the order of a couple of million jobs.

And this was – a couple million jobs is not large relative to the size of the U.S. economy, but manufacturing is extremely geographically concentrated, not just all manufacturing but sector by sector. And so it kind of blew out the economic foundations of many labor markets and towns and so was fairly –

devastating, strongly felt and created both economic and social and political pressures. So, David, let's fast forward to now and what's happening with Donald Trump. Will these tariffs bring some of those jobs back? Is this a policy that could achieve that?

No, unfortunately, this is the wrong answer to the right question. We made huge mistakes in how we handled China's accession to the WTO. WTO, it happened too fast.

and we didn't have appropriate supports in place to assist workers and communities. But right now, we are busily arming ourselves to fight the last war and fighting for jobs like making commodity furniture and doing assembly and shoes and textiles that not only did we lose 20 years ago, but China is also losing to Vietnam and Cambodia and other low-wage countries. China's lost them as it develops, but it doesn't want those jobs back.

It wants jobs in robotics, artificial intelligence, semiconductors, batteries, quantum computing, fusion energy, high-speed rail, telecommunications. Those are the sectors that are now threatened in the United States.

And so the U.S. shouldn't be asking whether it can get manufacturing from 10 percent back to 12 percent, but whether it can keep it from falling from 10 percent to 5 percent. And to accomplish that will require a different set of policies to protect the sectors that are highly vulnerable and invest in them. We heard from the head of the World Trade Organization earlier today about the impact of tariffs on global trade.

A lot of people are asking this question. Are we looking at the end, David, of globalisation? Is that a fair question?

It's a fair question, and the answer is definitely not. We're looking at the end of U.S. leadership of the global rules of fair play in trade. But China will happily take that role. It's already doing extensive diplomacy to say, look, you can't trust the United States anymore. It's not a reliable partner. It's erratic. It places tariffs on friends and foes. Why don't you work with us? We're in business to do business.

So it's an irony that the world's largest communist country is now also the global leader of world trade.

David, stay with us. I want to bring in another voice now because we have with us Christophe Levine, president of Highfield USA Boat Builders in Cadillac, Michigan, who they specialize in rigid inflatable boats. Christophe, thanks so much for joining us on the program. You are part of that manufacturing industry that Donald Trump wants to protect. So when you see these tariffs being put in place, 10% across the board, much heavier tariffs on China, is that positive?

protecting you or making your business more difficult? It's a very good question. And thank you very much for having me on the program. I feel that it's remarkable that you're inviting small companies like we are. You know, I feel it's a small company. To answer your questions, no, it's not protecting us right now. I feel it's an interesting company. We bring product from China. We make boats in China. We now make boats in the U.S.,

But we are very dependent in our Chinese factory in a way that we bring components, we bring hulls and tubes and different aspects of the boats in order to manufacture progressively more and more in the U.S. And despite the idea to protect us, at the moment, it's very devastating. It's hurting us a lot and affecting our capacity to survive.

hurting you a lot, what can you do to make sure that that hurt doesn't become something a lot more serious? After 2018, you know, in the first wave of tariffs, which was additional 20% for a Chinese-made product on the boat side, we decided to reorganize our company and be less dependent of our Chinese manufacturers.

So we started a factory in the US two years ago. We have now adapted integration of Americans

Parts, engines, traders, laborers, a certain aspect. And we have done, we progressed from zero to 40% in two years. 40% of all boats are now either made in the U.S. or heavily modified in the U.S. in order to match the American market. We are still dependent. 60% of all trade and production remain made in China. We didn't have time.

to complete that integration. So I am hurt because I'm not ready 100%. And I am still dependent on certain aspects of the boats that are made in China, like the tubes, for example, which is a critical part of rigid inflatable boats. And with that level of tariffs today, I'm stuck. I cannot import any more of these components and I have no solutions on the short term.

to find identity. Christophe, stay with us for a minute. I want to bring David back in. Is it a question then, we heard from Christophe there, that it may not be the policy, it's the timeframe of the policy, David, and in the speed of which the tariffs have been brought in?

I think there's two issues, but absolutely the speed of change. I mean, if you think about the term China shock, part of what made it so shocking was that it happened so fast. And labor markets and supply chains and manufacturing, they have a natural rate of change, but it's over the course of, you know, years and decades, not overnight. And so, yes, this is a, you know, we're going from the China shock to the Trump trauma at a moment, this moment to see it happen so fast.

It's also the case, as Christophe points – Christophe, I apologize if I'm not saying the name correctly, points out, a lot of the things we're importing from China, they're not just the final goods that you would find at a Walmart or a Target. They are parts of the U.S. manufacturing supply chain, and we're raising our own costs. Yeah.

The auto companies that have been most helped by Trump's tariffs are not Ford and GM and Stellantis. They're BYD, the big Chinese EV manufacturer. So this is not helpful to U.S. manufacturing. This is not how we get to where we want to go.

Christophe, yeah, please. I totally agree. If you look at our situation, we made the decision two years ago to invest in the US. It took us two years to integrate 40% of our business, which is already extremely good in such a short period of time. But now in the last two months, I have to find a solution for the remaining 60, impossible. I have different things that block me. I cannot do it with my timeframe.

I am not even sure I should do it because the situation is erratic, as you mentioned before. Where are we going? Is it stable, not stable? Should I invest in robotics or not? I am not in a position to make a decision that are, I would say, rational.

We live in a non-rational environment, which is tough for investors and small companies like we are. It frees everything. We need to find a way, a view, how...

to give us an opportunity to really start making rational decisions to move forward. Christophe, it's been a real pleasure having you on the program. And we're going to keep in touch with you to see how this journey continues. Christophe from a small business there. Susan, have a listen to this. Shares and videos, I'm sure you know, they plunged on Wednesday down almost 7%. Dan Ives is Managing Director and Senior Equity Analyst at Wedbush Securities.

It's going to get worse before it gets better because we're in the midst of a twilight zone trade war. And until US and China sit down at the table, we're going to see this tit for tat. And it's US tech and its investors that are caught in the middle. And that's why tech stocks are down because no one knows. You're playing blindfolded darts. Do you think at some point, because some of these tech companies...

are losing serious money when it comes to their valuations, aren't they? That they're going to go to the president and say, look, you know, this is doing pretty long term damage to us now. I think they've already done that. And I actually think that's one of the reasons we got to reprieve the one to two month that we saw over the weekend.

But ultimately, Trump news, what's the queen piece in chess? It's NVIDIA. There's only one chip in the world, AI revolution. And that is why we're seeing this play out. And I think we ultimately will get through it, but it could be some darker days ahead. Is that what you think, Susan, darker days ahead for some of those big tech companies that have driven up those share prices in the U.S. over the last few years? Yeah.

Well, I think they're going to continue to operate into a great unknown. That's the problem that investors have. And investors certainly take that as darker days ahead because they can't figure out what the right valuation is for companies when they can't predict the sales growth and what their ability is to tap into the marketplace. Investors are going to have a hard time with this as long as this trade discussion continues. And that's going to cause pressure on these stock prices.

David, you were talking earlier before about the markets that are going to grow, and it's important that the U.S. continues to dominate in those markets. So is Donald Trump right here when he's putting restrictions on NVIDIA and that high-tech sector? I think that, you know, there's not a simple answer to this question. We have a strategic national interest in those sectors, both for technical leadership, military leadership, and even, you know, political and diplomatic leadership, because it puts us ahead or makes us, you know, a role model to follow. Right.

How we protect and invest in that is a complicated question. It involves some, you know, control of exports, involves some terrorists potentially, but it involves a lot of domestic investment. We can't win a race simply by hobbling our opponents over and over again. Eventually we need to like, you know, get strong, bulk up and run. And that means improving our own capabilities. Chuck?

China has invested massively in doing so through a variety of tools, some of them protectionism, some of them not fair use of the trade system or intellectual property, but some of them just through incredible amounts of investment and playing a very long game. And playing the long game does not seem to be the strength of this administration.

Well, let us see what happens there. David, a real pleasure having you on the programme. Susan's still with us. The chairman of the Federal Reserve, as she told us at the beginning of the programme, has been making some pretty strong comments about the impact of tariffs. Let's have a listen. Tariffs are highly likely to generate at least a temporary rise in inflation. The inflationary effects could also be more persistent. Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices...

and ultimately on keeping longer-term inflation expectations well anchored. Susan, you hinted at this at the beginning of the programme. The tone is important here. Those are some of the strongest words we've heard from Jerome Powell, aren't they?

They are, and I think it's important to listen to that tone because it's reflecting on the surprise that's happened in the market at how large the tariffs are. The bigger the impact of the tariffs, the bigger the threat to inflation. And the magnitude of the tariffs, the variability of the conversations around them is all indicating that inflation

the inflation impact could be much greater than initially expected. And I think that's what Chairman Powell is really trying to focus attention on.

Well, he certainly got the market's attention a little bit today, didn't he? He did. It's been another difficult day. Also, there's been some reporting in the last couple of hours that Timu and Shindo's huge Chinese companies are slashing the US advertising spending by 30% or so in the last two weeks on platforms including MetaX and Alphabet's YouTube. There are estimates there from the market intelligence group. So really a lot going on as always.

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If you're going there, so are we. Book now on Emirates.com. Fly Emirates. Fly better. You're with World Business Report from the BBC World Service. Right. We know that companies are trying to, at the moment, negotiate, aren't they, with Donald Trump to hammer out trade deals so they won't have to face those reciprocal tariffs that have been...

suspended for 90 days. Top of the tree is going to be Japan. And Donald Trump says he'll personally meet Japan's trade negotiator on Wednesday. So why is Japan first in the queue? Here's Tobias Harris, founder and principal at Political Risk Advisory Japan, Foresight. Tobias, thanks so much for joining us again. So why is Japan first in that line?

Well, I think maybe unlike some other major trading partners, Japan has been very clear that it's not interested in retaliatory tariffs. It has not even hinted at retaliatory tariffs. And so they've been very clear about wanting to negotiate. They've been very eager to negotiate. And so to some extent, I think the Trump administration is responding and maybe rewarding that eagerness.

It's interesting. Donald Trump has just said he's met with the Japanese delegation on trade already. He wants the Japanese to buy more American products like cars. Is that going to be easy to get the Japanese to do?

You know, that's really the big question and the question that I think the Japanese government has been struggling with, you know, a feeling that they don't really know what exactly the ask from the Trump administration is going to be, because there's definitely a range of potential outcomes here. You know, if they really are looking for deep, serious concessions from the Japanese government in Japan,

a 90 day window, that's going to be a really, really tough sell for Tokyo. They've got, you know, they've got elections coming up. You know, there's a lot of talk from the U S side about agricultural protection in Japan. That is a, you know, a real political third rail ahead of an election, particularly for the ruling LDP. I mean, auto concessions on auto,

non-terror farriers. You know, there aren't really terrorists, but non-terror farriers, that might be an easier sell. But there's still going to be some negotiating domestically that we'll have to go on with there. So I mean, it really depends just what the U.S. government is looking for. And frankly, the whole point of this meeting this week was really supposed to be the Japanese government sounding out the Trump administration. But with Trump in the room, maybe the nature of these talks will be a little different. Could well be, couldn't it?

I suppose, though, for Japan, you know, the U.S. is such a hugely important market. There's going to have to be some sort of compromise. They're going to have to offer Donald Trump something because he's being first in the queue means he wants to go out and tell the world that he's done a deal with Japan before anyone else. Well, right. And that's that's I think some of the trickiness with figuring out, you

what exactly the ask is because if you know if japan is able to maybe repackage uh things that they've already hinted they're willing to do you know lng purchases is pretty high on that list um

If it's maybe able to add some sweeteners to things it's already talking about, maybe add some investment or government support for private investment here in the United States, maybe there's a pathway to a quick deal. So it really does depend just how...

Just how deep they want to go into the, you know, if you look at the USTR list of trade barriers of major US trading partners, you know, they've got 10 pages or so on Japan, you know, a lot of non-tariff barriers. How deep into those do they want to go? Because if they want to go deep into those, it's just going to take time. Yeah. Donald Trump says big progress on tariffs after meeting Japan's envoys at that.

has already taken place. Stay with us, Tobias. Susan, a quick thought from you on this. The markets will want to see some sort of deal being done quickly, whether it's with Japan, India, anybody, to show that progress is happening here. They will, but the markets are already gun-shy on this because they've had several statements come out of the White House and the administration saying that certain products are exempt, certain terms have been set, only to see that walked back or changed

several days later. And so investors are going to be very skeptical about this. And I do think that while investors want to see a deal, they want to see some sort of certainty, they're also learning that this is going to continue to be a variable playing field and that certainty hasn't been delivered yet. That's going to be a problem. Tobias, do you think the Japanese are a little upset about what's happened to them? Because

A lot of other countries don't invest hugely in the U.S. You can't say that about Japanese companies. They're amongst the biggest, aren't they? There's definitely been...

A fair deal of bitterness and not just, you know, among opposition politicians, not just among the public. I mean, even within the, you know, the prime minister's own party, the LDP, there's there's almost a sense of betrayal. And the major the proximate cause for that was that there was a handshake agreement back in 2019 when you had the U.S.-Japan agreement.

free trade agreement signed between Trump and then Prime Minister Abe. And supposedly they had agreed that if Japan made certain concessions on agriculture, that the U.S. would not raise automobile tariffs. And so there's a feeling that, well, Trump broke his promise. And so why, you know, how can we trust that, you know, any deal we make now is going to be honored? And so there's a certain amount of skepticism, there's a certain amount of anger. And

And I mean, that's why, you know, yes, you know, he has to make a deal. He's got to find a way or at least explore, you know, what deal is on the table. But if he is too eager to make concessions, there's, you know, potential consequences at home if he, you know, rushes to make concessions that, you know, that look unfair. And it looks like he's been bullied into giving up too much. It's a

Tobias, thank you very much indeed for that. Let's see if we get more details on what that big progress that has been made actually is. Another country trying to strike a deal with the United States is Bangladesh. I've been speaking to Rubana Huq. She's chairman of the Mohammadi Group, former president, also a member of the Bangladeshi Garment Manufacturers and Exports Association.

A special delegation from Bangladesh is going to be visiting the United States next week with significant initiatives to reduce the trade deficit and to lower the non-tariff barriers. And of course, with the aim of improving the import volumes from the United States. So we are hopeful. Let's see how it pans out. When you talk about improving those import volumes into Bangladesh, what sort of products are you talking about there? Is it

bringing in more cotton? Yes, Bangladesh imports around $3 billion worth of cotton from the rest of the world and only $350 million is actually from the United States. So there is a potential of increasing the import of cotton from the United States. The Bangladesh government at this current moment is considering allowing US companies to set up warehouses in Bangladesh for cotton so that the lead time is also significantly reduced.

So these are positive vibes. We're hopeful that, you know, we'll at least have a win-win situation after the discussions that the government has with the USDR. But I presume the reason that Bangladesh doesn't import so much US cotton at the moment is that it's more expensive than other cotton. So that's also going to impact companies like yours. You see, there was a double fumigation requirement which has been eliminated by Bangladesh government. So when the cotton reaches us,

It used to be fumigated one more time, but it isn't anymore. So that has lowered the cost. Even then, U.S. cotton is around five to six cents more expensive than the rest. But that, of course, will be lowered if the American companies can actually set up warehouses in Bangladesh. So the lead time will be reduced. The prices will also come down. We saw, didn't we, after...

overthrow of the Sheikh Hasina government, some uncertainty in the textile industry, some orders put on hold. What is the current situation now with further uncertainty? Well, right after Sheikh Hasina left, yes, there was a transition which wasn't very comfortable for

the industry because buyers were very shaken up by the change. And of course, we lost some business to India and Pakistan, namely the denims went to Pakistan. But after that, you know, after two, three months, again, things started being steady.

and we were kind of really looking forward to a good season. But now with the global uncertainty looming all over, it's yet another blow, of course. Are you seeing some buyers putting plans on hold with this uncertainty? Well, I'll be honest, right when the tariffs were announced, there was New Jerk reaction from many of the brands and retailers. But right now, I think they're adopting a wait and watch policy. And since the negotiation starting off with Japan, we kind of

Also hoping that that's going to be shedding some light on how the tariff negotiations are actually going to go with the United States. Because it is so uncertain, are you also now thinking, look, the US, obviously a huge market for you, but we need to develop markets.

other markets as well. Bangladesh garments actually goes to many, many non-traditional markets as well. But truth be known, you know, US is the fastest growing market for Bangladesh. And we were certainly hoping that we would share a considerable share of the Chinese exports in Bangladesh.

Ruben, a hug there. Susan Schmidt, got the last 20 seconds of the program. I'm going to hand it over to you. And that is a problem for many countries. The US, such a big economy that people want to be part of it and trade with it.

That's absolutely true. People do want to interact with the U.S., but the U.S. is losing a lot of that credibility by not being able to have a consistent message as to what the U.S. needs in return. I think that's the balancing act right now that people are going to have to confront and that businesses are trying to deal with. That is it from World Business Report. This advertisement feature is paid and presented by Standard Bank Corporate and Investment Banking.

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