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You ever feel that deep pull to the land, to know it, to build something that lasts that itch for your own wild country.
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Get the tools you need to buy that dream generational tool. property stop dreaming about it and head to land.com it's your place to find your open space Hello and welcome to World Business Report from the BBC World Service.
My name's Ed Butler. On today's edition, shares have hit record highs again today as companies seemingly predict a soft landing. as a result of higher global tariffs.
Have we been too down on the global economy's prospects?
Also today, the Australian miners hoping to cash in on US-China tensions.
And why Gulf states and their businesses are betting big on Africa.
I'm not looking at trying to take their scarce resources or their mineral resources.
I'm allowing them to develop and export through my ports and airports and connections.
More on the investment rush into Africa from the Gulf states later in the show.
First, though, global stocks have continued to rally today, reaching record highs following a Better than expected US inflation numbers this week.
The 2.7% inflation rate was... Unchanged back yesterday, suggesting that the expected price rises from President Trump's tariff-raising agenda. have not yet been passed on to customers, consumers, I should say.
It's also prompted investors to forecast a rate cut by the US Federal Reserve, America's central bank next month.
The big question we're really asking is what is happening long term in the markets and to the wider population. global economy.
So let's start with the question of the US itself.
Conventional economic wisdom is that the sheer scale of disruption to free trade should be bringing higher prices to every economy. and that in turn would push the markets to react more negatively.
So why is this happening? Earlier, I was speaking to Casey Mulligan.
He's the chief counsel for advocacy at the Small Business Administration, which is a government agency. supporting entrepreneurs and small companies.
He was also a member of the Council of Economic Advisers to President trump in his first term markets are a lot smarter than the fake news i think it boils down to that The fake news is very much distorted trade policy of the Trump administration. which was very clearly laid out really in the Republican National Committee platform. in Milwaukee last year, which President Trump wrote and the Republicans enthusiastically voted for.
And it was very clear that there was going to be a shift from what you might call internal revenue to external revenue.
As an economist, I don't see how anybody could say that's a big deal, changing the mix of taxes.
You know, raising taxes is one thing, but President Trump's cutting tax is not raising them.
So... He's raising tariffs, right, which are taxes.
The platform said that external revenue was going to be increased and internal revenue was going to be cut.
And that's what he's doing. It's not the big deal from a macro perspective.
It's not the big deal people made it out to be.
And the markets understand that. But I mean, we do know, right, that the US Treasury is now garnering billions of dollars in much higher tariff payments.
Over the last couple of months, that money is being paid by somebody.
Right now, it appears to be companies and not the consumer.
What do you expect to happen in the future?
Again, we're having a mix of taxes, changing the mix of taxes.
We're not raising taxes. That was the platform.
And President Trump is following through on that.
I haven't done a study of who pays for that at an individual level.
At an aggregate level, there's no paying for it because we're just changing the mix of taxes.
This is a tax that someone's going to be paying.
Obviously, if it's income tax, we all know that's going to be paid on our income, right?
If we're on our wages. This is a tax being levied against consumers.
Yeah, it's a tax on something different.
You're right, it's a tax on something different.
No, I don't think it's right to... Tariff is collected on imports, regardless of whether it's consumption or investment or government.
Right. I'm just a bit curious here. There is a tax rise in tariffs.
So somebody is going to be paying for that.
I understand you're redistributing the balance of taxes from one place to another. but that extra tax in the place where it's going up must surely put a burden on somebody.
There's a variety of people. Some of us earn more income than others.
Some of us purchase more imports than others.
We all have our unique situations and we know what the income tax is.
We know what the payroll tax is and we know the tariffs is a revenue collect. on goods crossing the US border.
You don't think this is going to have any slowdown effect, that particular extra tax, because it will change the balance of who pays tax, right, in the future?
Yeah, it'll change the balance. The president's policy platform... which includes changing the revenues the way we described, is very strong positive for the economy. because he's giving the private sector more freedom, cutting back on overall revenue, he's deregulating.
These are strong pro-growth things. And when the previous administration was doing the opposite, they were anti-growth.
That's Katie Mulligan speaking in defence of the Trump tariff. plan and its effect on the wider US economy.
Let's take a wider view then and introduce a different review from Europe where...
Many have of course been complaining bitterly about the likely impact of the rising tariff.
I'm joined from there by Karen Carlsbrough.
She's a vice chair of the European Parliament's Committee on International Trade.
She's also president from the Swedish Liberals.
Hi, Karen. Hi. First of all, I guess... I'd like your view.
How do you explain the apparent calm on the markets, not just in the States, but in Europe? given the dire forecasts we've been hearing about inflation layoffs and so on.
I think there are several explanations for that.
And it's difficult to point at that or another.
I would say that some positive signals in the economy. is not a proof for Trump's policy's success in a larger and a longer perspective.
So we should be very careful before we make too much conclusions of what's happening this week.
Okay, let me bring in Russ Mould from AJ Bell.
Hi, Russ. Good day, Ed. The reaction this week, I mean, just explain it.
It was because of this. We're seeing flat inflation numbers coming from the States.
And I guess an expectation on the part of the market that there will be a rate cut from the Federal Reserve next month.
I mean, is that really the... the short-term response driving investment choices.
There are two things. The first one is absolutely correct.
The assumption that the US Federal Reserve will lessen the cost of borrowing in America. worldwide the last 20 central bank policy decisions 19 have been cuts So money is getting cheaper.
It's less of a competitor to other investment options like shares.
And that's one of the reasons why share prices are going up. and also that cheaper money is designed to boost economic growth and help corporate earnings.
The second thing is on the tariff situation, markets priced in a terrible situation in April after Liberation Day when they felt it would be a major trade war and tit for tat tariffs.
We have seen deals. We haven't seen an escalation.
We've seen another extension of, uh, the deadline for China, so the worst case isn't happening.
And at the moment, at least, there is a hope that we won't see a major 1930s slowdown in world trade.
Right, Corinne, I mean, are you forecasting a 1930s-style slowdown in world trade?
Well, it's too early to say, but I think we have to see this not only... from an economic perspective, but also from a political perspective. because the US and Europe had been close partners and allies for for decades because of shared interests.
And since January, we have now to be very honest, been fighting, negotiating, discussing trade policy in a way which has not been so constructive at all.
If we had seen another approach from the US, we could have been in another situation where we have developed and make our trade relation deeper.
And that would have made the EU and the US much much stronger together and that would have been much much better when it comes to the the tensions between us and China.
And of course, when it comes to the threat from aggressive Russia, for example, So you have to compare today's situation, what it could have been.
So, to conclude, I'm not so impressed by what's happening in the White House from the moment it started.
No, you're not impressed. And that's very passionate, I guess, defense of the principle of free trade and its benefits.
But will this all be so bad for Europe in the long term?
I mean, the way it has worked out... Given these framework agreements that have been announced with the EU tariff rates for Europe set...
What, 15%? Generally lower than for many other US trading partners.
I guess there might be some thinking there might be Europe might end up a beneficiary in some ways if it's competing with Asia, for instance, and sending goods to the states.
Well, I would say that I'm not impressed at all.
This aggressive trade policy, it has resulted in anything good.
If we zoom out and see this in a broader and longer perspective, it's undermines the global economy, our trade and economic relations. creates unpredictability for many companies operating on both sides of the Atlantic.
And you have to remember, it also have... This is... what this is all about.
It's a huge experiment on our part an ordinary citizen's economy, because what we know from experience by history It's that protectionism.
It's something someone had to pay for. And who will pay for it in the end?
It's you and me. Yeah. Russ, in the end, the consumer is going to be paying, I guess.
And so far, it's been companies paying for the higher tariffs.
The Trump administration's line is that it's the foreigner who pays.
But that isn't clear at all, as you say at the moment.
It seems to be American importers and corporations who are swallowing the extra costs, the tariffs, to protect the consumer, not lose volumes, and potentially not upset the president either, for that matter, because he is checking, it seems, what companies are doing in terms of pricing and saying about the tariffs.
But in the long run, there has to be a concern that American corporations will start to pass that on to American consumers.
They're already hard pressed by the cumulative impact of inflation over the last three or four years.
So then it will be interesting to see if that's just a one-off effect because of the price increases. or it does lead to a sustained bounce of inflation.
Economists continue to argue about that.
Because you look at the worst case again, say the 30s, when actually it led to a fall off in trade and falling prices not increasing.
And one more question, Russ. I mean this is the markets, of course, we've been talking about, not the real economy.
And the point about markets is they behave in very particular ways.
They're kind of double guessing themselves.
And they're also double guessing the Federal Reserve and what the Trump administration will do in the next few weeks.
They're not perhaps guessing on... you know, what the inflation rate or the jobless rate will be in six months time.
No, the markets are not the economy and the economy are not the markets, but ultimately Corporate profits can't grow that much faster than the economy, and ultimately the stock market can't go up that much faster than corporate profits over the very long run.
In the short term, all sorts of wild things can happen, but over the long run, You would expect gravity to exert itself if the tariffs do start to affect corporate profits.
Karen, final thought? Where will this end?
Well, I hope that the American people will show there and yeah we'll let protest in the end for what's going on, because in the end... ordinary citizens are going to pay for this.
And in the end, the US and Europe has since so many years shared the same interests to grow together, to be a strong voice for people, democracy, the rule of law and the international rules-based trade.
If we grow together, it benefits both of us.
Okay, my thanks very much there to you both, Karen Carlsbrough and Ross Mould joining us there. for that.
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Rare Earths have been a major sticking point in these trade negotiations that we've been discussing, the ones between China and the US especially.
China dominates the production of the critical minerals, which power everything from electric vehicles to fighter jets to data centres. with Beijing disrupting production around the world when it cut off supplies earlier this year.
China actually controls nearly 90% of the supply globally of rare earths.
One project, though, in Australia is hoping to ease the bottleneck.
Our Asia business correspondent, Surenjana Tiwari, has been given access to one of these sites.
Drive three hours south of Perth and you end up in very barren terrain.
There's hardly anything here except highways running through acres and acres of red sand, the odd hill in the distance.
This is Western Australia's mining territory, and I've been given exclusive access to a stockpile of rare earths belonging to a company called Iluka Resources.
I'm standing in the middle of a massive pit and there are mountains of what looks like worthless dirt everywhere, but in reality, This is the source of those rare earths, the critical minerals. that are so important for things like electric vehicles and defence systems.
Now, Iluka Resources says... Here there are one million tonnes off the stockpile and that's already worth more than US$650 million.
In one corner of the pit, trucks are dumping the minerals onto a separator.
Australia has some of the largest reserves of rare earths in the world.
They refer to 17 elements on the periodic table.
They're lightweight, super strong and resistant to heat, making them useful in small electric motors and other applications.
But the process of extracting those minerals from the earth is expensive and complicated.
One country produces almost all the world's supply. walking past here is the beginnings of our solvent extraction or separation building.
Dan McGrath is Head of Rare Earths for Iluka Resources.
Originally back in the 90s, where rare earths were produced in France and other places, those operations relocated to China.
And with that went the technology and the know-how for the production of those separated rare earths.
So China has since then very deliberately and overtly sought to control the rare earth market for the purposes of supporting their downstream manufacturing and defence industries.
A few hundred metres away from the stockpile, construction is in full swing.
The Australian government is loaning Iluka $1 billion to build a refinery.
It wants to reduce China's control of pricing and supply.
The refinery won't be online for two more years, but Beijing's recent restrictions on exports upended operations for major automakers and defence manufacturers globally, with some having to pause production altogether.
We know there are other governments around the world that want to participate.
Government intervention is a strategic decision, says Australia's resource minister, Madeleine King.
To help the world rely less on China and in turn reduce Beijing's control over pricing and supply.
The open international market in critical minerals and rare earths is a mirage.
It doesn't exist. And the reason it doesn't exist is because there is one supplier of these materials.
We can either sit back and do nothing about that and let that remain the case, or we can step up to take on the responsibility to develop a rare earths industry here. that competes with that market.
In China, environmental damage from years of processing rare earths has led to chemicals and radioactive waste seeping into waterways.
Cities and people bearing the scars of decades of poor regulation.
That's something Australia will have to contend with too.
I spoke to critical mineral expert Professor Jacques Ekstein from Curtin University.
There is no metal industry that is completely clean.
In Australia, we've got mechanisms to handle that. legal environment and a framework to work with it, to at least deal with it responsibly.
Inside a concentrator on Iluka's site, a handful of workers are taking minerals from the stockpile and putting them through machines to prepare them for processing.
That's all they can do until the refinery comes online in 2027.
Australia seems to have a lot going for it in the rare earths race as it tries to be a more reliable and cleaner source. and one that crucially is independent of China.
The BBC's Suranjana Tiwari. Now, with a look at the markets more generally, Russ Mould of A.J.
Bell is still with us. Hi, Russ, again. Now does debate.
We've just been hearing it. Does debate over the global rare earth supply dominate sentiment, do you think, on the markets?
It's an issue that's lurking in the background, and I think it's seen as one of the key bargaining chips in the ongoing trade negotiations between Beijing and and Washington in an extra 90 days.
It's not just rare earths, it's silicon chips, it's technology, it's national security.
But it's definitely an issue for America, given that so much of its military depends upon rare earths and China controls. half of global supply and 90% of global processing capability.
So if a Luca can break that stranglehold, It would be really interesting.
Iluka's share price has nearly doubled on the Sydney exchange this year.
But its market valuation is still relatively tiny at barely $2 billion.
So somebody somewhere is still sceptical as to whether it can pull it off.
Yeah, indeed. A lot of company news out.
It is August after all, but core weaved.
Tell me about this company. An AI darling, it has been.
Yep. Who are they and why have their shares been plunging?
It's an American company quoted on the U.S.
Nasdaq Stock Exchange. It listed its shares this year at $40.
They've more than trebled. because it's a cloud infrastructure play.
It helps to power the servers and data centers. that companies like Microsoft and ChatGPT run to provide their large language models and regenerate these AI programs.
So CoreWeave is spending huge amounts of money on these servers and data sensors.
And its revenues are growing incredibly quickly, but it's still losing money.
And in the second quarter, its numbers were the same as the first.
Fast revenue growth, increased loss, more spending.
So analysts are wondering... When do they start getting a return on all of this money?
And do they actually have a model that can turn all of this spending into profit? when you've got a $70 billion stock market valuation and you're generating $5 billion of revenue at a loss, You eventually have to come up with some cash and the shares are down 11% today.
There's a few doubts creeping. Okay, very briefly, that's a US AI company, Tencent, a Chinese one, doing a lot better.
Shares are up 50% in the last year, back to a four-year high and it runs WeChat and other online services.
Sales and profits growing quickly with AI helping them target adverts more effectively, a key reason why.
Russ Mould of AJ Bell. Thanks as ever. Now.
Over the years, China, France and the US have eased back on the scale of their investments into Africa.
But a new player with deep pockets is seemingly looking to step in.
It's the United Arab Emirates. Since 2019, these Gulf states... have become the continent's largest state investor, to the tune of over $110 billion.
Samir Hashmi is a reporter based in Dubai and he told me more.
Traditionally, the UAE was a fossil fuel economy, by which I mean... that they relied heavily on exports of fossil fuels, especially Abu Dhabi, the capital of the UAE.
But over the last few decades, we have seen that they have diversified their economy into other sectors. to reduce their dependence on exports of fossil fuels.
So now fossil fuels are only 25% of their GDP.
And they have become digital knowledge driven economy, which means that they're investing in tech, they're investing in A.I., Dubai has become a tourism and trade hub, so you get a lot of tourists. happened during COVID is that both these key pillars of their economies, apart from fossil fuels, which is trade and tourism,
Both took a hit because people weren't traveling and trade had come to a halt. which is when they realized that they need to go beyond these sectors.
And they're also starting looking at new markets to expand the reach of their economy. by investing money and Africa has emerged as one major destination when it comes to UAE investments in multiple sectors.
Okay, so which ones? I mean, which sectors is the UAE focusing on? the two main sectors they're focusing on are ports, because there's a company called DP World, which is based out of Dubai.
It is one of the largest port operators in the world.
It handles close to globally about 10% of cargoes.
So DP World has gone and invested in a host of new projects in Egypt, Mozambique, Nigeria, senegal to name a few the second is renewable energy that's because they have a lot of sun and they have invested a lot of money And now what they've done is that they're investing in Africa.
So they've gone to Egypt, South Africa, Senegal, to name a few countries where they've invested. in renewable projects in terms of both infrastructure investment as well as putting in capital in African based companies or partnering with them.
There are other sectors as well. I mean, quickly to run you through real estate and infrastructure. mining, finance and banking, manufacturing and agriculture.
So these are also the sectors we've seen the UAE backed companies. are investing money.
So does this mean they are now in direct competition with those more traditional investing regions, the US the EU and China well that's right in fact if you look at the data that since 2019, the UAE has invested $110 billion in terms of new investments coming into the continent. which makes UAE the number one in terms of a state investor. in the last six years or seven years.
So they've surpassed the investments made by China in the last six years. of France which has traditionally been one of the big investors or even the United States.
Now, I spoke to Nasser Saidi, who is the former economy minister of Lebanon, but he's also been involved in setting up the Dubai Financial Trade Center here in Dubai.
And I spoke to him about this issue and this is what he had to say.
Now you've got this opportunity for the UAE of saying, I'm going to link these countries. okay, link them to the rest of the world.
So I'm not looking at trying to take their scarce resources or their mineral resources.
I'm allowing them to develop and export through me. through my ports and airports and connections.
It's also coincided with China scaling back some of its investments.
And one of the big reasons for that is a lot of money that China has invested is in the form of debt.
And this has made it difficult for African countries because is the so-called debt trap where African companies and countries are not able to repay that debt to China.
The difference is that the UAE is not going and giving them debt.
It's investing equity, which means it's putting in capital. picking up equity in the projects, or it's backing some of the existing companies.
So for African countries, that's the biggest relief. because they don't worry about a debt trap, but they see the UAE partnering with them. to build this new infrastructure, which will help them create more jobs, expand their markets by using the UAE's infrastructure to export to different markets.
And that's a big shift if you look at the investment landscape that is emerging in Africa.
The thoughts there of Samir Hashmi in Dubai, examining what could be a new investment stream for Africa.
Well that's all we have time for in today's edition of World Business Report I hope you enjoyed it.
From me, Ed Butler, and the rest of the team here in Manchester, take care.
