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Hello and welcome to World Business Report on the BBC World Service.
I'm Will Bain. Great to have your company as always.
Today we're going to ask, are we really on the brink of a global trade war?
And if we are, what could that mean for jobs where you live and prices of goods you want to buy or sell?
As President Trump indicates he's hours away from imposing fresh tariffs on many of the United States' closest neighbours, we'll have analysis on the impact so far in financial markets, the potential ramifications for companies and economies around the world and try and assess where this all goes next
and perhaps even how it might end.
We'll be live in New York, Washington, D .C.
and Mexico City and we'll hear from a European government minister too already concerned that the EU seems to be next in the firing line.
I truly believe that US and Europe need each other and then the free economy between us is something which gives the economical growth, gives the richness and gives the better life for our people.
Yeah plenty more analysis to come here on World Business Report today.
We're going to start though by going right back to the start if you're coming new to this story and I guess to do that, we need to go right back to the US presidential campaign trail when candidate Trump told his supporters this.
I always say tariffs is the most beautiful word to me in the dictionary because tariffs are going to make us rich as hell.
It's going to bring our country's businesses back that left us.
Well, on Sunday, the president backed those words up with, well, for now, more words, but meaningful ones.
An assertion that he was to impose additional 10 % tariffs, ostensibly import taxes on all goods sent to the U .S.
from China. So far, so normal in terms of two trade adversaries.
The bigger shock, though, came as he announced tariffs in store for America's closest neighbors and some of its most significant trade partners as he announced 25 percent tariffs on all Canadian and Mexican imports.
More on the Mexican.
This U .S. tariff, Sean, which represent the most serious trade disruption in nearly a century.
The U .S. is by far our largest trading partner with Canada exporting half a trillion dollar in goods between January and November of last year.
Just for some reference, that's 76 % of our total exports and 20 % of our economy.
So, of course, they are our single largest trading partner.
And many Canadians are disappointed because these tariffs are putting at risk this mutually beneficial trade relationship, which has been built over decades of cooperation and which has proven to be a key pillar of our shared prosperity.
Sophie Avenin, owner of Grandes Venedos, a wine and spirits import export business in Mexico City, was similarly concerned.
We knew this was coming, so we prepared ahead.
We imported some goods from the United States, from wines in my company.
And concerning the exports, we started looking for other markets, Asia and Europe especially, because we knew this was coming because, well, it's Trump.
The last time was more or less the same.
So this time he wanted to be ready when he when he was in office.
Well, in the last 10 or 15 minutes or so, quite literally, there may be a reprieve or certainly a pause for Mexico because the Mexican president has taken to ex -Claudia Sheinbaum to say she understands there's a pausing of terrorists on Mexico for one month while an agreement on the US border is discussed.
Our correspondent in the Mexican capital, Mexico City, Will Grant, is going to be with us a little bit later on in the programme.
We'll break all that down with him, I'm sure.
To international concern, though, Duncan Edwards is CEO of the transatlantic trade body British American Business.
And he was worried the UK could be one of those countries next in the tariff firing line and wondered what spiralling trade tariffs might mean for global companies like the ones he represents.
You're already having British companies affected by this.
I mean, a company like Diageo that makes tequila in Mexico and bourbon in the United States, which it sells to Canada, is already being hit at both ends by this newly imposed tariff.
So not a good day for international business.
On those possible next steps then, this is what President Trump had to say when asked by the BBC on Sunday.
President, would the country be next on tariff?
Would you consider taxing that you paid with now?
Well, we're going to see what happens.
It'll happen. But we're going to fight.
We'll see how things work out.
It might happen with that, but it will definitely happen with the European Union.
I can tell you that because they've really taken advantage of us.
And, you know, we have over a 300 billion dollar deficit.
They don't take our cars.
They don't take our farm.
So not a good day for international business on those possible next steps.
then this was president trump uh this is what president trump had to say when asked by the bbc on sunday well we're going to see what happens uh it'll happen but we're gonna buy we'll see how things work out it might happen with them but it will definitely happen with the european union I can tell you
that because they've really taken advantage of us.
And, you know, we have over a $300 billion deficit.
They don't take our cars.
They don't take our farm products.
They take almost nothing.
And we take everything from them.
Millions of cars, tremendous amounts of food and farm products.
So the U .K. is way out of line.
And we'll say the U .K., but European Union is really out of line.
UK is out of line, but I'm sure that one, I think that one can be worked out.
But the European Union is, it's an atrocity what they've done.
More reaction from the European Union a little bit later on in the programme.
We'll kind of wrap up more of that international reaction shortly.
But let's get the very latest from the US and our North America business reporter.
Ritika Gupta is standing by live in New York City.
Ritika, a heck of a lot going on and moving around even as we speak.
perhaps worth though just setting out what the president outlined first of all so take everybody back to sort of Sunday night and the start of Monday.
Right yes you're right there's a lot of fast changing moves but the tariffs that were put in place were a 25 % tariff on goods from Canada and Mexico and a 10 % tariff on goods from China but as you heard there Mexico's president saying that the tariffs would be delayed for one month after a conversation that she
had with the US president.
And what about the timeline in general then?
So we think there's a pause, certainly only heard from the Mexican side so far, haven't we?
But we think there's a pause there with Mexico.
What about Canada and China?
Do we know the timeline for those?
Well, those are expected to be put into place from tomorrow.
Canada's also already announced their own retaliatory tariffs coming along to the US as well.
Yeah, absolutely. Talk a little about the politics of all of this, I suppose, Ritika, and what's the reaction been in the US where you are to the first kind of move backing up that politics, if you like?
Well, the reason these were, Trump says that these were put in place is that he's complained or accused these partners are allowing illegal immigrants to the country, fentanyl on illegal drugs coming to the US and high trade remains uncertain.
Yeah, absolutely. It seems to be kind of what next and will it even as being some of the big questions, doesn't it?
Ritika Gupta, our correspondent there in New York City, thanks so much for your time and just to what Ritika was saying as Ritika was speaking coming down on the wires the Reuters news agency perhaps this explains President Trump's potential move if indeed he has agreed to pause those tariffs on Mexico
a line from the Reuters news agency saying Mexico is set to deploy 10 ,000 troops on the US border to fight drug trafficking.
Well, let's turn away from some of the politics to the financial markets themselves because there's been a pretty sharp reaction right around the world including the US, Wall Street open for just over an hour or so now.
Jane Sydenham is with us today, investment director at Rathbone's Investment Management to look through all the financial markets and Jane, that is an unenviable task today because you're not quite sure where to look and when.
I can't even say which direction do I look in.
Let's start domestic, first of all, in Wall Street.
Everything down relatively sharply from the open.
And particularly interesting, I thought, the NASDAQ, where a lot of those really big tech companies are, that down the sharpest so far.
Yeah, I mean, I think the interesting thing here is that actually the stocks that are probably, you know, obviously, with the deep seek issue last week, I think there's still a lot of nervousness in tech.
And so, actually, that's probably, in a sense, driving some of the weakness in those stocks.
People are taking profits because they're a bit nervous about those rather than necessarily tariff issues around those stocks.
The ones that are being hit are the other sort of car companies and some of those that have got significant physical cross -border trade and complicated supply chains, which, of course, are likely to be affected by any interruptions in terms of the flow of goods.
So, you know, that's where we're seeing a lot of the pain, whereas areas like health care is actually, a lot of those stocks are actually up today.
So, you know, those areas are not necessarily going to be affected.
So the market seems to be making a sort of fairly swift judgment in that respect.
But I think technology is probably still being affected by worries about deep seek.
I think on those companies that are moving, we've seen perhaps in reaction, in anticipation to not just the tariff in Mexico because of the kind of nature of the supply chains, but the potential tariffs on European Union companies as well.
We've seen car makers have been a good barometer today, haven't they?
Lots of them, BMW, Mercedes, Stellantis, the owner of Fiat, Chrysler, among others.
all down very sharply yes that come down very heavily that kind of is a good indicator of what's going on in this story doesn't it kind of explains the the international relevance i guess for people listening outside of canada the u .s and mexico yes no definitely and of course one thing you've got to
remember is that a lot of the uh and some of those that have got significant physical cross -border trade and complicated supply chains which of course are likely to be affected by any interruptions in terms of the flow of goods.
So, you know, that's where we're seeing a lot of the pain.
Whereas areas like healthcare is actually, a lot of those stocks are actually up today.
So, you know, those areas are not necessarily going to be affected.
So the market seems to be making a sort of fairly swift judgment in that respect.
But I think technology is probably still being affected by worries about deep seek.
I think on those companies that are moving, we've seen perhaps in reaction, in anticipation to not just the tariff in Mexico because of the kind of nature of the supply chains, but the potential tariffs on European Union companies as well.
We've seen car makers have been a good barometer today, haven't they?
Lots of them, BMW, Mercedes, Stellantis, so the owner of Fiat, Chrysler, among others, all down very sharply.
Yes, all down very heavily.
That kind of is a good indicator of what's going on in this story, doesn't it?
It kind of explains the international relevance, I guess, for people listening outside of Canada, the US and Mexico.
Yes, no, definitely.
And of course, one thing you've got to remember is that a lot of European cars actually are partly also assembled in places like Mexico too.
So, you know, there's a lot of complexity in those supply chains and the car industry particularly is very, very complex.
And so I think that's why they're all being hit so hard.
Nobody really understands how this is all going to work yet.
Jane is staying with us throughout the programme and we'll get a bit more of that kind of European global perspective.
want to talk about currency markets as well because with the dollar strengthening that could have a big impact where you're listening to on all sorts of the prices of things we pay we'll discuss that a little bit more later on in the program but jane talked about those integrated supply chains so we
thought it would good to get a kind of business on the ground perspective for the u .s and we're joined from the state of minnesota by tracy topani tracy's co -president of wyoming machine company near minneapolis in minnesota makes parts for the aerospace industry computers packaging um tracy always
great to have you on world business report thanks for being with us thank you for having me and I imagine in some of those industries aerospace being an obvious one computers that different parts that go into the finished thing move across lots of international borders um yes I believe that they do
move across a lot of international borders and they also get shipped to a lot of places throughout the world when they're completed products so far then have you managed to begin to sort of sit down and work out Could this impact me?
What impact might this have for me?
Absolutely. I think that one of the biggest impacts that we're going to see is that a primary input in a metal fabrication business is buying sheets of steel and aluminum.
Both Canada and Mexico are large producers of those items.
And so I fully expect that we'll see higher prices if those tariffs go into effect and possibly even before then if people start to speculate that those tariffs are going to go into effect.
And that's definitely going to affect our business.
Just work that through for us.
I know it's a guesstimate at this time, but how quickly could you see, you know, your end buyer have to see a different price, do you think?
Well, first off, I will tell you that with larger manufacturing companies that we produce products for, they're typically going to put some pressure on us as a small manufacturer to try to absorb some of those cost increases.
And a lot of times there is negotiating going on to try to pass those costs along.
So I think that we are probably going to start talking with customers about this relatively quick because I believe that there will be some speculation in the market.
And this is going to be a hot topic for us and our customers.
And beyond your business, Tracy, obviously the state of Minnesota borders Canada.
I imagine there's a lot of crossover of all sorts of different types of goods.
Are you worried particularly about other price sort of spikes that could feed into potential inflation?
See how they're scoring on us?
Shots left and right.
I know. They know our next play before we even make it.
We got to tighten up off the court, too.
Businesses track and sell our personal information.
They dunk on us all the time with that data.
Wait, what do you mean?
You have to exercise your privacy rights.
If you don't opt out of the sale and sharing of your information, businesses will always have the upper hand.
The ball is in your court.
Get your digital privacy game plan at privacy .ca .gov.
You know, I think absolutely, because Canada has already indicated that they will put some retaliatory tariffs in place.
Minnesota is home to a large agriculture sector that exports to Canada.
And I think that we will see price increases.
I would also say that just the pressure that this kind of thing is going to put on some businesses, tariffs putting on a business like mine makes it harder for me to predict, you know, wage increases for my employees when we're already in every inflationary time.
And they're feeling that cost pressure at home.
I think it's kind of important context at this time, Tracy, if it's all right with you, you kindly helped us out in the run up to the election.
Broadly, you're quite supportive of President Trump's economic plans, aren't you think that the change was needed and a kickstarting of the U .S.
economy. I wonder, have you changed your view slightly seeing what that looks like in practice or?
You know, I don't know that I've changed my views.
I do think that we need integration and fentanyl.
They can get Mexico could have been doing more.
It should have been doing more.
And now it will do more.
With regard to Canada, that's really not an issue.
Now, there's always going to be some seepage, you know, through the Canadian border because it's a 5 ,000 -mile border.
But they are largely aligned with us.
Similarly, on trade, with regard to China, when President Biden put up his 100 % tariff on electric vehicles, Premier Trudeau did the same thing almost immediately.
They're right in line with us.
They're really our best friends.
This is absurd. I don't know what the objective is with regard to Canada.
He hasn't articulated at all what the objective is.
One of the things to keep in mind, Even though the tariffs have been suspended with Mexico, the fact that they could snap back is influencing behavior.
For example, it's freezing investment in a lot of ways because people don't know where they can produce long term without facing very punitive tariffs and what have you.
Canada is an extraordinarily important source of minerals, oil, timber for us.
Our trade with Canada is long and deep in terms of free trade.
And it's really based on comparative advantage.
We don't have the kinds of issues with Canada that, for example, people in England had with Brexit, which led to Brexit, I mean.
No, no, those sort of political and cultural ideas and those closures as well.
Right, we don't have that with Canada.
I guess if the Trump – some of the Trump – and we've heard from them, former kind of economic advisors, Their argument is you talked about changing behaviours, that it changes behaviours.
It's forced companies and they would point at numbers in manufacturing in particular in parts of the country where they won big in the general election as well, that they point to jobs coming back, traditional manufacturing jobs in those places.
Is there an argument that we've seen perhaps a shift in behaviour by some of those big US manufacturers or multinational manufacturers from that kind of change in policy from the first Trump government?
And there was actually kind of echoed a little bit, wasn't it, in terms of, like you say, the Biden administration around electric vehicles and things carried on through the previous Biden administration as well?
Well, actually, I don't think it really had much of an effect with the Biden administration, because when we implemented our industrial policies, Canada immediately followed form.
And so it didn't really change the complementary nature of the automobile sector, which is the most important sector in that regard.
The thing about Canada to recognize is their economy is so tightly integrated with ours and their policies so much follow ours that there really isn't going to be much effect in that regard, innovative tariffs and what have you.
Canada is an extraordinarily important source of minerals, oil, timber for us.
Our trade with Canada is long and deep in terms of free trade and it's really based on comparative advantage.
We don't have the kinds of issues with Canada that, for example, people in England had with Brexit, which led to Brexit, I mean.
No, no, they said the political and cultural ideas and explosions as well.
Right, we don't have that with Canada.
I guess if the Trump is some of the Trump and we've heard from them relationship former kind of economic advisers their argument is you talked about changing behaviors that it changes behaviors.
It's forced companies and they would point at numbers in manufacturing in particular in parts of the country where they won big in the general election as well that they point to jobs coming back traditional manufacturing jobs in those places.
Is there an argument that we've seen perhaps a shift in behaviour by some of those big US manufacturers or multinational manufacturers from that kind of change in policy from the first Trump government?
That was actually kind of echoed a little bit, wasn't it, in terms of, like you say, the Biden administration around electric vehicles and things carried on through the previous Biden administration as well?
Well, actually, I don't think it really had much of an effect with the Biden administration because when we implemented our industrial policies, Canada immediately followed form.
And so it didn't really change the complementary nature of the automobile sector, which is the most important sector in that regard.
The thing about Canada to recognize is their economy is so tightly integrated with ours and their policies so much follow ours that there really isn't going to be much effect in that regard unless we put up a permanent tariff and create what we call border risk.
And that is to, you know, just make it prohibitive to produce up there on a long term basis.
I really feel that the tariffs on Canada are extraordinarily foolish.
And what about the impact if it was broad?
And we played that clip right at the top, Peter, of the present European Union.
I was a consultant to the MacDonald Royal Commission, which recommended free trade in the 80s.
And I was involved in the negotiation of the agreement and wrote the Council on Foreign Relations book on the agreement.
So I really understand this.
And the reason Canada opted for free trade with the United States is that it was too far from Europe and too small relative to the United States to have the kind of productive manufacturing that it should have without free trade with the United States.
long term. If Canada's cut off in this market, it will be much poorer.
And I don't know how America is served by how America is served by that because, well, some jobs might come back here.
We're going to lose lots of exports to Canada.
Canada is an extraordinarily important market to us.
It's our largest export market for manufacturers.
My feeling is, is that this is just not a winning situation if ever if another country was ever more important to us in terms of it being prosperous I can't identify it.
Jane Sydenham just want to bring you back in here from Rathbones Investment Management we saw today I mentioned earlier the US dollar strengthening as a result of all of this just to explain you know the kind of significance of that globally.
hmm so i mean the dollar has been pretty strong for some time against most major currencies um and the issue is that by the stronger the u .s dollar is the more that america has a competitiveness problem because its exports just become more expensive because the dollar is too high so but but of course
because everybody's known or expected these tariffs are going to be brought in, the dollar has been strengthening.
And also, it's been just because the US has been growing faster than the rest of the world, the currency has also been strengthening.
So it's kind of making President Trump's problem worse, in a number of ways.
Peter, that's the sort of perverse thing about this, doesn't it?
They haven't done that deliberately.
But it does actually make things you import cheaper and things you export more expensive for people to try and buy them.
That's right. You see, this is a mechanism that's executing here because we have a large large budget deficit seven percent of GDP we sell bonds abroad and in turn that drives up the value of the dollar as an adjustment mechanism because in order to sell bonds abroad we have to have a trade deficit
it's a complicated mechanism but it's the and this is something that that applies to all economies if they do this uh so that that that what you're basically seeing is that market mechanism working out trying to reduce your trade deficit with tariffs if you're the united states with its large budget
deficit is like a dog chasing his tail so what it actually needs to do is get more competitive drive down the price of the the goods it's exporting all that kind of thing as well well what it has to do is reduce its budget deficit it has to either raise its taxes or spend less money and that's not something
that donald trump any more than congress is inclined to do, nor was Joe Biden.
The only thing we can do is shift around the nature of that deficit in terms of where it's born.
For example, if you tax China, China, the exports to China send, they will move to Malaysia and Vietnam and Indonesia and so forth.
Or you basically push the correspondent Will Grant, a busy man, as you can imagine, Will, a frantic kind of last half an hour or so.
What do we know then?
Claudia Sheinbaum is taken to ex and President Trump's favourite truth social to talk about this pause.
We haven't heard from the US yet, though.
Yeah, I think what's going to be interesting is, obviously, that both sides will doubtless play this as a victory.
From Claudia Sheinbaum's point of view, the agreement of sending 10 ,000 troops to the border with the United States, troops of the National Guard, to focus on the fentanyl issue, it appears in exchange for the tariffs being paused, as she put it, for another month is something that she will certainly
present to her audience as a victory for Mexico and a victory for her personally in how to deal with Donald Trump.
He will say, look, look what the threat of tariffs brings me, brings people to the negotiating table.
It gets me what I want.
So I think both sides are going to play this as a moment of victory for them um in essence i think um that is probably the outcome that claudia shenbaum had wanted over the weekend and is no doubt pleased to announce the first thing monday morning to her to her audience in mexico presumably trump proofing
the mexican economy goes on a pace now though as well i think it's a it's a philip isn't it for the for in the arms for shot in the arms for the for the mexican economy because you know if there is to be uh what could be uh quite a global uh wide range yeah the kind of global avoided them for for another um
another month then that is certainly a result that they will have wanted particularly on issues like um car parts and so on which are so important to the mexican economy absolutely and everybody looking for that breathing room around whether big companies or big countries as well will Grant in Mexico
City. Thanks so much for your time.
Big thanks to Peter Morisi, Professor Emeritus, Economist at the University of Maryland, and to Jane Sydenham, our Markets Analyst today from Rathbone Investment Management here in the UK.
Stay with the World Service, rolling news.
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Thanks so much for listening to World Business Report.
