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Hello and welcome to World Business Report from the BBC World Service.
I'm Roger Hearing and on this edition, suggestions a deal may be in the offing to roll back at least some of the 25 % tariffs imposed by Donald Trump on Mexico and Canada.
But has damage already been done to long -term trading relationships?
There is now a lack of predictability and a lack of certainty that NAFTA gave us since the 1990s.
And we'll have reaction from China to the additional tariffs imposed on Chinese goods going into the US.
I think we're going to hurt the US more than hurting China.
Certainly it doesn't help, but we're going to have a short -term pain.
Tariffs he was imposing on Mexico, Canada and China.
Tariffs are about making America rich again and making America great again.
Find out how global markets are responding after a day of investor turmoil.
Plus, Germany's moves to change its borrowing rules to accommodate huge new spending on defence and infrastructure.
But first, Donald Trump said the new tariffs regime that he's put in place 25 % on goods from Mexico and Canada and an additional 10 % on goods from China could cause a little disturbance.
Well, that disturbance has certainly been felt on financial markets but has it perhaps been alleviated by signals from the US Commerce Secretary, Howard Lutnick that a trade deal with Mexico and Canada may be announced very soon?
He was speaking to Bloomberg TV on Wednesday.
This is what he had to say.
Remember, this is not a trade war.
This is a drug war.
We've got fentanyl still pouring into the country, and it's got to stop.
And if they can stop the flow of fentanyl, the president is open -minded.
There are going to be tariffs, let's be clear.
But what he is thinking about is which sections of the market that maybe he'll consider giving them relief.
But I don't want anybody to forget, April 2nd is the day that we announce our reciprocal tariffs around the world.
And so April 2nd is coming, but this is about fentanyl this month.
how at lutnick their world u .s markets have opened in the past hour or so joining me now answer and that is that the press secretary caroline levitt confirmed that cars imported from canada and mexico will be exempt from the 25 percent tariffs for one month and this apparently follows a conversation that there may be some sort of rolling back of these tariffs and the sectors that are doing particularly well the shares are doing particularly well are things like materials, banks, automobiles, the more exposed sectors to the American policy so far.
And what about Wall Street itself?
It's only been open about an hour, I think.
Are we getting any indications?
A gentle increase after the heavy losses, so a degree of calm, which is probably quite welcome after the recent volatility.
I'm sure. Stay with us, Russ.
We'll come back to you a little bit later.
But let's talk now to Chris Campbell.
He served as Assistant Secretary of the Treasury in Donald Trump's first presidency and knows him well.
He joins me now. Chris, thanks for being with us.
First of all, do you think this is again going to be something that happens and is then rolled back a kind of, which seems to be the Trump style almost at the moment?
Yeah, look, I mean, as we've spoken about before, the president tends to favour tariffs as a great way to disciplining negotiations.
He certainly likes them.
He calls it the best word in the English language.
But, you know, it does have world -world implications on the economy.
So to the extent that the that Canada in this in this case, Canada and Mexico and China get serious about meeting the President's demand will go into effect.
So in other words, the United States will sort of match any tariffs from other countries that US goods face in those markets.
And that if you like, is considered the big one.
It is the big one, isn't it?
It's not an easy job to make sense of what's happening because it's changing so quickly put fentanyl through and even mexico says well we're doing an awful lot is this actually you think more as a way almost of of indicating the attitude towards these countries to make sure whatever deal goes through in the end is much more advantageous to the u .s of course and remember the usmca which was originally renegotiated uh in the first term the term i served uh with President Trump, is not for renegotiation in 2026.
I think the president is looking forward to moving that deal or pulling that deal forward.
There's nothing suggested that you can't renegotiate earlier than 2026 in the agreement.
And so I think that he wants to strike a better deal.
The president has always, and has been very consistent on this, seen and measured the trade and balance in real dollar terms.
And so because of that, he really wants to discipline the trade and balance and pull that down as close to parity as possible, which is why I think last night in the joint address, he suggested reciprocal tariffs around the world.
And so as countries that do business with the United States, lower their tariffs...
There are lots of things they want tariffs to do.
And so I think that's part of the confusion, is that people aren't always sure.
Because in the case of Canada and Mexico, he says it's about stopping the flow of fentanyl into the US from those countries.
Very busy Michelle Fleury there, keeping a close eye on those changing tariff policies.
Let's bring in Susan Schmidt, Portfolio Manager Exchange Capital Resources in Chicago.
It's off its shelf.
Here's how the Canadian broadcaster CBC reported the move.
The LCBO is pulling American products off its shelves and website in retaliation to Donald Trump's tariffs.
The LCBO sells 3 ,600 products from 35 US states totaling about a billion dollars according to Doug Ford.
More news in half an hour.
Meanwhile if we head south Mexico seems to be trying to work behind the scenes before it itself imposes retaliatory tariffs on the US.
There is the prospect, of course, of real pain for exporters and importers on all sides.
Here's Sylvia Fillian, who's a Mexican mezcal producer in Oaxaca.
I do think it's going to be a problem because the U .S.
is the biggest consumer of mezcal after Mexico in the world.
So, the good mezcal, the quality mezcal, it's going to become very expensive for the people in the U .S.
So if they can't come to Mexico, they're going to stop buying it.
That's really going to hurt the farmers.
Premier Doug Ford of the Canadian state of Ontario had warned just a couple of days ago that many car factories would have had to shut down because of the tariffs.
The assembly lines in the auto sector will shut down within 10 days, I predict.
The supply chain that parts, as you've heard many times, goes back and forth up to eight times, each time hitting a 25 % tariff on both sides of the border.
I am almost positive the assembly plants will shut.
President Claudia Sheinbaum is navigating the current circumstance.
Unlike the reactions, for instance, from Canada and from China, Mexico decided to hold any action until Sunday.
So that means that the Mexican government sees a window of opportunity between yesterday and Sunday to hopefully get an agreement done.
And I think there always needs to be hope for an agreement to be reached because as we said, we're not negotiating trade, we're negotiating actions on security and actions on migration.
And I know you've been following this and perhaps talking to some of the people involved.
Do you have an idea of the shape of what this agreement might be?
Well, basically, it would be to know what exactly enough would mean to the United States in relation to actions against the cartels, actions against fentanyl, and actions in relation to preventing migrants.
And the parts companies were going to shut down.
You're making a very clear argument of why these tariffs, from your perspective, make no sense.
But then they've only been suspended, haven't they, for a month.
What do you think is going to happen after that?
Well, he hasn't changed the fundamentals of why it doesn't make sense for American industry.
You've given that side of an argument, but it's only for a month now.
You worried that after a month we go back to tariffs being in place.
I think in a month, American industry will be back in front of him and say we're going to tell a probable joint operations.
Of course, also what happened last week in relation to the extradition of 29 high caliber drug lords.
including Caro Quintero and including the two heads of the CETA cartel.
So I'm sure there's a lot of actions in the horizon that they're negotiating.
And the issue here is when to put a stop and when to say enough is enough.
And this is what was expected in order for the tariffs as a punishment not to be implemented.
So do you think at the end of this the idea is that there will be no tariffs, In other words, back to the position right at the beginning or perhaps just smaller tariffs?
Well, basically, what I think is that structural damage has been already done.
And the structural damage comes because there is now a lack of predictability and a lack of certainty that NAFTA gave us since the 1990s.
There was a treaty that gave absolute certainty to investors, to those that wanted to make business, to those that wanted to trade in the North American region.
And there is an effect on that, that I think will be long lasting and will affect prosperity in the region.
So basically having said that, I think there's always a possibility to reach an agreement and you cannot expect that we go into an increasing spiral of tariffs on top of tariffs and on top of tariffs because we will have the tariffs, then retaliation, then reciprocal tariffs as the president said yesterday.
So we cannot expect to this go to ad infinitum.
We should stop this at some point in time and the only way to stop it is through negotiations.
Mexico's former Deputy Finance Minister, Vanessa Rubio, there.
Well, what no one in Washington is talking about at the moment is relaxing the tariffs on Chinese goods, now increased a further 10%.
The Chinese Premier, Li Keqiang, announced, acknowledged what he called an increasingly complex situation outside the country, which might affect trade.
He was speaking at the opening of China's annual parliamentary session in Beijing.
internationally changes unseen in a century are unfolding across the world at a faster pace unilateralism and protectionism are on the rise the multilateral trading system is experiencing disruptions and tariff barriers continue to increase chinese premier leads to the price of new cars and use cars shoot through the roof susan really interesting to hear the views of flavio volpe there from the canadian side this is a crucial industry for the us isn't it and if car prices had began to go up quite quickly, that could have been an adverse reaction for Donald Trump's tariff policy from the US public.
Well, it certainly could be.
And that's not to say that that's not a reaction that we're going to be seeing or that we haven't started to see in recent weeks where we have started to see the used car prices increase.
Now, is that related to the threat of tariffs and buyers' concerns over having to go out and what the price of a new car will be six months down.
I mean, this year and next year is also projected at 5 percent again.
But your Premier says, warned of an increasingly complex situation.
Is that going to affect your economic prospects?
Well, I don't think it would be a big effect.
For example, we had the first term when Trump was president, the first term he added 25 percent.
But the bilateral trade has gone up 20%, you know, and the U .S.
has still suffered a big deficit there.
So, it doesn't really hurt Chinese economy because, you know, the bilateral trade since last seven years, Trump 25 % tariff, the bilateral trade has gone up 25%.
So, that means there's a big need from U .S.
consumers. And then they're paying, you know, by the U .S.
consumers for that tax, for that tariff.
Basically, that's hurting U .S.
On the other hand, China has increased the trade with ASEAN.
ASEAN become a large trading partner, and the Latin American, Middle East, and Europe.
But your officials have described this as a trade war.
Are you saying China can live with a trade war perfectly happily?
I think we're going to hurt the US more than hurting China, basically what I'm saying.
Certainly it doesn't help, but you're going to have a short -term pain.
But the long term, I think you're going to probably adjust the world economy.
The rest of the world, you know, 80 % will trade more.
And European countries, UK, Latin America, Middle East, Africa is trading more.
For example, China, while U .S.
is raising tariff, China has lifted up tariff to zero for 40 least developing countries.
So I think China is doing the opposite.
The U .S. is raising tariff.
China is reducing tariff.
But you mentioned a little bit of pain for China in this as part of the trade war.
And this is at a moment when your premier has said that there needs to be a much bigger push.
He talked about arduous efforts that will be needed to achieve the kind of targets and get Chinese consumers perhaps spending more.
This isn't going to help with that.
Well, I think, you know, China now actually depends more, rely more also on domestic consumption.
That's what the premier said in the MPC section today, that they're going to stimulate more domestic consumption.
So they have a 400 million middle class.
They're probably going to have 800 million in the next decade.
There's many ways to do that.
So I think they're going to relax the physical spending.
They're going to have more projects invested.
And then they're going to do more trade with the rest of the world.
So I think, you know, China would weather this.
And U .S. trade with China is only, you know, 10%, 15 % less than that already.
So it's not really a big picture for China now.
Henry Wang there. Let me bring in Chris Campbell, who's been patiently waiting, former assistant secretary of the U .S.
Treasury. Chris, thanks for being with us still.
We talked about Mexico and Canada, but what's the attitude, do you think, now to China?
No sign, really, of anyone saying that the 10 % should come off.
It just seems to be a way forward for the Trump White House, doesn't it?
Yeah, look, the present stated goal here is to move manufacturing away from China and China -adjacent countries and bring it back to the United States.
With all due respect to your former guest, the American consumer is the engine, is the economic engine of the entire world.
China absolutely needs and must have access to our consumers.
And if that access is cut off for any reason, trade barriers or not, terror barriers or non -terror barriers, it will dramatically impact the Chinese economy.
And so there is, you know, the president knows this well.
And so, you know, he's using tariffs again to discipline our trading partners and allies and perhaps foes to doing the right thing.
And so, you know, and maybe that changes over decades.
But right now, that is just absolutely the case.
And it's interesting, Chris, just to say that, I mean, we've heard many suggestions that there's going to be a phone call with Xi Jinping and Donald Trump and that much will be sorted out.
No sign of that at the moment.
Is it a kind of playing of chicken almost who's going to blink first?
Yeah, look, I think the president, I think, has also prioritized our relationships and our very important trading relationships, but also economic and national security relationships with Mexico and Canada, getting our getting our backyard effectively in order before we start looking exoterritorial.
He's obviously trying to find ways of putting together the Russia -Ukraine potential deal and also working on the challenges of the Middle East.
But China is going to be a totally different animal.
And I think clearly he's pushing off, you know, trying to get maybe a larger deal with China or perhaps what may lead into a significant challenge, an increase in the senior challenge in China until much later.
and so there's a leader in his administration.
And so it's a real challenge and China's going to be a real challenge.
But I think it's something the president obviously is, I think, looking forward to.
And as I would say, the president's always open to a big deal.
And so if China's willing to be a partner in a solution, I'm sure the president would look to meet them halfway and try to find some way of path forward.
Well, something tells me that the word Taiwan might crop up in those discussions.
And, of course, there we're opening up towards the whole world of microchips, microchip production fears about the security of that.
What position do you think Trump will take on that?
Well, that was an easy one because Taiwan Semiconductor has actually announced they're building very, very large plants in the United States.
And then those industries that rely upon semiconductor chips, like Apple, for instance, have now coterminously building large plants in the United States.
So, you know, we've had announced nearly a trillion dollars of new investment in semiconductors specifically and semiconductor adjacent in that process.
So we're starting to see that manufacturing move already.
It's only been 40 or 50 days in the Trump administration.
So, but, you know, Taiwan is going to be an issue.
The South China Sea is going to be an issue.
You know, the Chinese investment that they've done internationally in locking up ports, what's happened with the Panama Canal.
There are many, many, many, many, many topics that the president has in the US as, you know, East China and President Xi.
Yeah, no, it could be very interesting when that phone call finally happens, could it?
Chris, thank you so much for being with us.
Chris Campbell there, former Assistant Secretary of the US Treasury, joining us here on World Business Report.
You are with World Business Report from the BBC World Service.
Well, earlier we were talking about some of the reactions, of course, that were coming in terms of the tariffs on European stock markets, Asian stock markets, US stock markets as well.
And I'm very pleased to say Russ Mould's still with me here in the studio.
Let's look at one or two other things, which are, I suppose you might say, tariff adjacent, A lot to do with cars, of course.
European Commission saying it's going to stick to its target that by 2035 all new cars and vans sold in the European Union would have to have zero CO2 emissions.
And, of course, we are talking, I guess, about electric cars and China and electric cars and Europe are very much intertwined.
Indeed, but the European Commission's also given the car makers some room for manoeuvre in that fines will be applied from this year if they fail to start making their first targets for carbon emission reductions.
but they'll only have to pay their fines in 2027.
So that gives them two years to compensate for any shortfall that they have this year.
So that does avoid.
Some consultants classified the potential damage to carmakers as up to 16 billion euros.
So if you look again at the European stock market today, yes, maybe there's some relief on tariffs but carmaker shares are also responding to this breathing space that have been given.
Renault up 4%, the Germans up 5 % and Stellantis of Italy up 7 % on the Milan exchange.
Interesting. And while we're talking about cars, again, and tariffs too, The US wants India, it seems, to eliminate tariffs on car imports altogether.
New Delhi, a bit reluctant.
I would imagine so.
I mean, India is looking to establish itself as a powerhouse in many different markets, and cars is one of them.
So I'm sure that, again, they'll be looking to get the best deal that they can can as part of these very complicated negotiations.
And meanwhile, of course, if we look back across the Atlantic, the big thing that everyone is talking about, really, I suppose, is the health of the US economy.
We touched on it a little bit earlier.
But an indicator US private sector hiring gains have been the smallest since July.
Now, you know, there's the thing of, oh, the economy's overheating.
Well, it's certainly not doing that, is it?
No, and we've got an interesting collection of data.
We've seen consumer confidence weaken, inflation expectations go up, manufacturing orders go down, trade deficit go up as imports have accelerated.
Now, jobs are a little bit of weakness.
There is a suggestion in a lot of this is companies preparing for the imposition of tariffs and trying to take evasive action and get ready.
So what you're likely to get is some really noisy, really messy economic data from America in the first and second quarters of this year.
The Atlanta Federal Reserve is now suggesting the American economy could shrink for the first three months of this year.
Nobody, no economist is forecasting that, I can absolutely guarantee you.
But because imports are rising, that subtracts from the overall GDP calculation.
That means the numbers look bad.
And that may be one thing that could be focusing minds in the White House, because one thing the stock market doesn't expect to see is the American economy slowing down.
And briefly, that awful word, stagflation, I saw it on the front page of the Financial Times this morning.
Back to the 1970s, nobody wants to see that.
It was a terrible decade for investors unless they were sat in a big pile of gold.
Well, thanks very much anyway, Russ, for talking about that with us.
Russ Mould there joining us here on World Business Report.
Now, the man who is likely to be the next German Chancellor has announced a political deal to raise hundreds of billions of euros in extra spending on defence and infrastructure.
And what's really interesting about this is that Friedrich Mertz is planning to alter one of the fundamental pillars of German state economics in order to do this.
Mertz, whose Conservatives won Germany's election last month, said he and his likely coalition partners from the centre -left will put new proposals to parliament next week.
The US actions over Ukraine have pushed countries like Germany to reconsider their defence priorities.
And Mr Mertz said Europe needed to grow up and defend itself.
In view of the increasing threat situation, it is clear to us that Europe and Germany must now very quickly make big efforts to strengthen our defence capability.
I want to be very clear here.
Whatever it takes must also go for our defence now in the view of the threats to our freedom and peace on our continent.
Well, I'm joined now by Wendelin von Bredau, who is Senior German Correspondent for The Economist.
Wendelin, thanks for being with us here on World Business Report.
I mean, the thing I was talking about, this fundamental pillar, is something that they need to change in the Constitution.
It's all to do with the amount of debt that Germany can have.
Can you just explain what it is?
Yes, absolutely. It's called the debt break, the Schuldenbremse.
And it is enshrined in the German Constitution, as you say, and says that the annual budget deficit cannot be more than 0 .35 percent of GDP.
So basically, the budget needs to break even.
And what Mert has done or what he's proposing to do is to exempt defence from these very strict fiscal rules and say that anything beyond 1 % of GDP, any spending that is required to meet, say, the 2 % or 3 % target that NATO members should achieve will be exempt from these fiscal rules.
But this requires changing the constitution or at the very least a constitutional amendment.
And he has to get it through the Bundestag.
is it's quite a big ask, isn't it?
Is it two -thirds, I think, that have to be in favour?
Absolutely. It is two -thirds.
And he's hoping to have to get these two -thirds in the outgoing parliament, in the outgoing Bundestag, which is still convening until the 25th of March.
And then, you know, then the new team is coming in.
In the new Bundestag, he's unlikely to get the two -thirds required.
So that's why he is rushing.
There's such a rush to get this voted.
Yes, and I saw some quotes earlier from the Grüne, the Greens, saying they strike a very hard bargain.
And it was in no means certain in the current Bundestag that they would support it.
Absolutely. They are playing hard to get.
They feel they haven't really been consulted.
The problem is they agree on the substance, but it's more, I mean, they are not part of the next government and they feel a bit left out.
So I think they'll probably come round.
But I also think that Friedrich Merz will have to make some concessions to the Greens because they say in these big plans to spend 500 billion on infrastructure, which is the other big item, so defence and infrastructure, there's too little or hardly anything on climate change.
And they want this modified.
And that's sort of their condition for voting for the proposal.
And of course, the problem, I guess, is confidence.
I mean, the whole reason that debt break is in there is to engender confidence.
And that helps when Germany borrows money on the international money markets.
If this changes, that could change as well.
Indeed. And you have seen the bond markets react instantly and German borrowing costs have gone up.
So German fiscal prudence has a long tradition and it sort of also plays to the German mindset.
So this is something quite hard for many Germans to accept who are very proud of their fiscal rectitude.
And most understand that these are extraordinary times that require extraordinary measures.
But the way Marx is going about it is unorthodox, because he's pushing this through a very big reform through the outgoing Bundestag, which I think has rarely, if ever, happened in the history of the Federal Republic.
So do you get a sense this will go through and that people will accept it just because of the extraordinary time?
I think it will go through because I think the Greens will come round.
He will make some concessions to the Greens and it will go through.
As for public opinion, yes, I think there's a strong current who is opposing it, but I think the majority are behind it.
Yeah, it'll be very interesting to see if indeed it does.
But thanks for joining us on World Business Report.
That's Wendelin von Brada, the senior German correspondent for The Economist, talking about that move to change the German Constitution so that the German government can actually borrow more than it has been able to in the past.
And we'll see if that goes through, all to do with defence, of course.
And that's it from World Business Report.
Thanks very much for being with us.
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the World Cup and how that will impact the show that they're putting together behind the scenes.
Sophie Williams, a music journalist and staff writer at Billboard UK.
We will be back with you with Business Matters at 0100 GMT.
We're going to have guests in Silicon Valley in the US and we're also going to be taking a close look at what's happening inside one of South Asia's biggest countries, Bangladesh, and its economy there, the challenges that it is still continuing to face.
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