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Hello and welcome to World Business Report from the BBC World Service.
I'm Rahul Tandon. London.
Plenty coming up on this edition.
We've been here before, haven't we?
We are here once again.
It's all about tariffs.
With the world's largest economy, the United States, and the European Union agreeing a trade deal.
Between them, the US and the EU account for nearly a third of global trade.
So huge consequences here.
So on this edition of World Business Report, we're going to focus on this announcement by the European Commission President Ursula von der Leyen and the US President Donald Trump.
I think it's great that we made a deal today instead of playing games and maybe not making a deal at all.
I think it's, I'm going to let you say, but I think it's the biggest deal ever made.
Thank you very much. Congratulations We have a deal.
We have a trade deal between the two largest economies in the world.
We're going to provide you with plenty of analysis during the course of the programme.
But I firstly wanted to start by bringing in a familiar voice on the programme, Thomas Philipson, who of course is an American economist who served as acting chairman of the Council of Economic Advisers in the first Trump administration.
Thomas, you know Donald Trump well, you also know the world of trade well.
Were you surprised at this deal?
Because from the outside, it looks like a great deal for the US, maybe not so good for the EU.
We're going to try and go to Thomas in a second.
We've also got with us, as always, to provide some analysis of what is taking place, Daishini David, our Deputy Economics Editor.
Daishini, thanks so much for joining us.
Good to be with you.
We've heard Donald Trump describe this as probably the biggest trade deal ever.
You've looked at deals.
Is it? It is. Well, it's big in terms of numbers and the countries involved in the sheer volume of trade that's at stake here.
But what we've got is, quite frankly, a position whereby, you know, we talk trade deals and you think of something that is going to be a huge gain for both countries.
Well, America does stand to gain in terms of investment and sales.
sales but on the other hand the EU is still going to be worse off than it was at the start of the year because of course what we've seen here is not so much a trade deal which tears down trade barriers but a step back from the brink of an almighty trade war and instead what you've got is some relief when you've got tariffs which were perhaps not quite so high as previously feared they would be but on the other hand you know many European industries at the moment pretty unhappy that they are going to be looking at bigger barriers of selling into the US than they were previously.
We're going to hear from some of those industries a little bit later in the programme.
Dashini, stay with us for a minute.
I want to bring in Rachel Winter from Killick & Co.
Rachel, so at least we know there's a deal between these two huge trading bodies.
How have the markets responded to that?
Well, the markets are telling us that this is a bad deal for Europe and a good deal for the US.
So, we can tell that by firstly looking at the currencies.
So, the euro is very much weaker this afternoon, the dollar is stronger and looking at at how equities in the different regions are trading.
The US is largely up, whereas we are seeing some pretty big falls across some European equities, particularly some of the big exporters.
So, for example, if I look at some of the major car companies like BMW, Volkswagen, those shares are all down close to 4 % this afternoon.
Darshini, we've been getting lots of reaction from different figures across Europe.
I want you to have a listen to this.
This is the EU Trade Commission, Maros Shevchevich, and he's been speaking at a press conference in Brussels.
The world, which was there before the 2nd of April, is gone.
And we simply need to adjust. We need to address the challenges which are coming from this new approach. And I believe that the strategic cooperation with our strategic partners is a better outcome than an all -out trade war.
war. Darshini, is he right there?
We are now looking at a very different world when it comes to trade.
There's no turning back from this now, is there?
There isn't. And I think this is something you might cast your mind back to the days of April, which was such a long time ago now, doesn't it?
And we first saw President Trump unveil that board with all those tariffs that he wanted to impose on other countries.
And there was that sense of disbelief.
And surely, this could be sorted out, we could go back to where we were before, instead of which there has been this this resignation that we are now looking at a world in which the baseline tariffs, those barriers to trade, will be higher than previously thought.
This idea of tearing down trade walls has pretty much gone.
And we've got to say this sort of fracturing process actually started even before we saw President Trump coming back into office.
There was a growing feeling, perhaps, that globalisation didn't work for everyone, particularly richer countries out out there.
And if you look just the EU now and what they're selling into the US, now the average tariff, if this carries on the way it is, is likely to be around 17%.
Ahead of this, it was 2%.
And that just gives you an idea of the new norm these businesses are going to have to get used to.
Yeah. And picking up on that point there, John Clark, former EU trade negotiator, has been speaking to the BBC.
This is not a good deal.
The EU was threatened with a 30 % tariff across the border, which would have been very, very problematic.
It's resigned itself to paying 15 % duties on almost everything.
So it's the best of a bad deal.
Best of a bad deal.
Did that surprise you, Darshini?
Because the EU is a huge trading block.
China seems to be getting, or may be getting, we have those talks taking place at the moment, a better deal than the EU appears to have. And I know we don't know everything yet, do we?
We don't know everything yet.
And, you know, let's not forget that this is just an announcement that they have agreed.
And nothing's been signed as yet.
And there are lots of things that are ongoing, including pharmaceuticals.
And we've been hearing President Trump speaking in the last few hours, speaking in Scotland, in which he says that actually, details of what is likely to face pharmaceutical companies is likely to come out quite soon.
So there's a lot here still to play for, so to speak.
And don't forget a lot of this, you know, he has basically used the old all a sort of rule book of trade, if you like.
He's weaponised it against those who've come to rely on it, so the likes of Europe.
So this isn't by any means the endgame by any means.
But I think we've got to get used to the idea that there will be some anomalies that we'll have to scratch our heads and go, hang on a minute, there's some here who are relatively advantaged and disadvantaged.
But is it all good news for the US?
Because as you said there, that tariff rate is increasing, isn't it?
So won't it be US consumers to some extent who will have to bear some of the brunt for this.
Absolutely. And when you look at what's been going on in the last few months, we've had some commentators say, oh, look, but we're not seeing inflation taking off in the US.
Now, let's not forget that the US does produce a lot of what its consumers buy internally.
But there's also quite a dependency on both finished goods from abroad, but also, and this is something that some industries have warned about in Europe, on sort of, you know, the tools and the machineries to make goods coming from the places like Europe.
And so you are going to see an impact on consumer prices.
It is American households who are first in the firing line, but those impacts take a while to come through.
We've seen, for example, some importers stop piling goods in the first few months of this year ahead of those tariffs going up.
So this is still to work its way through the system.
But I was in the US just a couple of weeks ago, and it is interesting, you are seeing prices creeping up.
So, yep, sticker shock, as they like to call it, is going to be something that American consumers are going to have to face.
Ultimately, this is a tax rise, right?
And ultimately, it may be American households who bear the brunt of it.
Darshini, thanks, as always, for trying to make sense of what are complicated issues for us.
Let us bring Rachel Winter back in from Killik & Co.
very quickly. Darshini sort of explained very well there some of the challenges that US may face and its economy.
But in spite of that, Rachel, we're seeing a US stock market that continues to go up and up.
We are. So I think it is a bit of a surprise, perhaps, that the US stock market is currently at a record high.
I think that's partly because Donald Trump has shown some willingness to delay tariffs and to negotiate on tariffs.
So I think that has been perhaps a pleasant surprise to some.
But I do agree with Dushini that longer term, surely this has to have some sort of negative impact on the US economy.
I'm surprised we haven't yet seen a rise in inflation there, particularly as the dollar has weakened quite a lot over the last few months.
And the US does import a number of things from abroad.
So with a weaker dollar, those things are going to start looking more expensive.
And if you add a tariff on top of that, surely that has to be bad news for growth.
Let's bring in a couple of more voices into this debate.
Now we're going to talk to Karen Carlsborough in a second.
But let's get Thomas Philipson, who of course served as the the acting chairman of the Council of Economic Advisers in the first Trump administration to respond on that thought that eventually these tariffs may look good for the U .S. at the moment, Thomas, but they will have a long term impact, won't they, on its economy?
Maybe slow down growth, raise inflation?
I don't know. I think there's a lot of stuff going on in these trade deals that are not related to the tariffs.
So essentially what Trump has done and successfully so far in the four or five deals is he's threatened by restricting trade with the biggest economy in the world to get free trade for U .S. companies.
That certainly is the case with Vietnam, also U .K. and now EU, of getting more free trade, in particular the non -tariff restrictions on agriculture and automobiles where standards were set, not allowing the U .S. to come into the country with our standards are huge.
Obviously, the zero goods tariff is huge as well.
So, I think in these deals as well, the most important point that is not discussed is these large foreign direct investments that are taking place.
There's, you know, 2 or 3 trillion now coming in.
And last year, we had total being 330 billion.
See, these are huge investments coming into the US, which will offset any kind of negative effect if tariff increases consumer prices.
Stay there. Let's bring in Karen Carlsberg, MEP from the Swedish Liberals, regular voice on the programme because she's also a member of the European Parliament's Committee on International Trade.
Karen, thanks for joining us here on World Business Report again.
I want you to start by having a listen to this clip because we're trying to bring you a flavour of reaction from across Europe.
Laurent Saint -Martin is the French Minister for Europe and Foreign Affairs.
He's in charge of foreign trade.
and he was speaking to the French media earlier.
This tariff war, these increases in customs duties serve no one's interests.
They'll drive up prices, penalise our European companies, create inflation in the United States and lead to a slowdown and recession for everyone.
This impact will also work to the detriment of the United States.
The United States has decided to impose by force a new law of the jungle that no longer respects the international trade rules rules we had for decades, rules that fostered the prosperity of our respective countries.
Strong words coming out of France this morning.
I know when we've spoken to you in the past, you have said that you think the EU should take a strong stance when it comes to Donald Trump and these trade discussions.
Are you happy with what seems to have been the result?
result. No I have to say and it is not a surprise for you that I'm very disappointed actually.
You may say that 15 or 17 percent is much better than 30 percent but this is definitely not a good deal at all.
We recognize today that higher tariffs in an already tense global economy help absolutely no one, and in the end, all of us, consumers, businesses on both sides of the Atlantic, are going to pay for this.
So I suppose it begs the question there.
You have people like yourself who wanted a much stronger stance to be taken from the EU.
Why has that not happened?
Is that just the fact that the EU has so many different countries, so many different competing interests, that in the end, you get a weak compromise well it's it's really a good question i i think and it's easy to say today but the commission would have been uh much tougher from the beginning because the eu has very strong tools uh but but didn't use them as it would have been possible but uh we now we We have to realize the fact, but I also want to say that this is not the end of the story.
It's only the first chapter.
We're going to now study the details in this, I don't know what to call it, agreement or the first step of an agreement, a process that can lead to an agreement.
And so it's very good that it seems to still be possibilities to add goods to the list of non -tariff without any tariffs.
So I think it's time for, for example, the European Parliament and other stakeholders to actually be very active.
This is not the end of the story.
Okay. Stay there with us.
We're going to go to Germany in a second.
But just want to bring Thomas Philipsen back into the conversation here.
Because, Thomas, for the U .S., in the perspective of trade deals, where does this rank?
Because this is the first really, really big one, isn't it?
Because you have the EU.
What would the others be?
China, Canada, Mexico?
Is this the first really big one to be done, do you think?
Yeah. And this is the big one.
But also relating to the French minister, if tariffs are so bad, why did France and other countries have them up for 50 years, essentially, so that we have to use our leverage?
Well, everybody's had them up.
It's the growing scale of them, isn't it, that I think he's talking about?
I understand. But we have to use our leverage to get them down.
And that's what's now succeeded.
it's not only tariffs, it's non -tariff barriers are many, many times more important because they basically make goods ineligible to be consumed at all in a given country if they don't meet the domestic standards that favors the domestic companies, essentially.
So this has been going on for a long time.
We're now using the U .S. leverage to get freer trade.
We are creating more free trade for U .S. companies, and that's the purpose of this.
Because if there was free trade for U .S. companies, U .S. would not be so upset at their trading partners.
Okay. I want to bring in and get Hildegard Müller, the president of the German Association of the Automotive Industry, to react to those comments.
Thanks so much for joining us on the program.
You heard what Thomas said, but I suppose, what are you hearing from your members as well?
What is the mood within the German car industry at the moment, which, of course, is such a driving force of your country's economy?
economy? First of all, I'm just two minutes in, so I can't really react on all the comments.
But what I want to point out is that it's absolutely clear the US tariff of 15 percent, including for automotive products, will cost the German automotive industry billions annually and will burden them in the midst of their youth transformation due to climate and digital mobility of the future.
on the otherwise, it is a better solution or a better situation than the current point for us because we have 27 .5 tariffs since April and that's cost us billions of euros.
So we are a bit in between.
We are not going back to free trade.
I think that's not a very good symbol because the supply chain we have all over the world It brings a lot of employees and welfare to all the countries.
And due to this situation we have now with the terrorist, the whole system is disturbed.
And at the end of the day, also the customers in the United States will pay the price for what the president is doing.
Can I ask you in terms of we've seen German car companies, haven't we, layoff workers, Volkswagen in particular.
Is there a danger that this could lead to further layoffs in the country?
Layoffs, I think it's not the correct word. We have a lot of challenges right now.
The transformation to electromobility and the current situation we have with raw materials, with the competitiveness of the European Union, with the question due to charging stations, the customers are hesitating and so on.
That's one part. But the other part is really that this imbalance we have in the world that should work together.
That's a huge problem right now.
And a system of tariffs, of protectionism is very difficult.
For example, when you also look at the discussions we have in North America between Mexico, the US and Canada, a lot of suppliers are located in Mexico, for example, right now.
And they're also not sure what is the situation for the investments of the future.
So we need clarity.
We need further information also to the political deal we had yesterday because it's just a political deal.
It's not a signed deal.
For example, the investment of 600 billion euros, we don't know really what is the expectation right now.
And so we're expecting in the next days a lot of more information.
Yeah, I think more clarity maybe by the end of the week.
You talk there about the political side of this.
Can you listen to this for us?
This is the German economy minister, Katarina Rang.
This is what she has been saying.
The agreement is certainly challenging in terms of the 15 % base tariff.
But the good thing about it is that it provides certainty.
It is right and important that some sectors have been excluded.
For the others, it will mean a need to adapt.
Last thoughts from you, Helga.
That idea of certainty, I know it's not what you want, but that at least gives you a basis.
You know where you stand now, don't you, for the next few years, hopefully?
Yeah, that's why I mentioned for us the situation is much clearer and better now than with 37 .5 % we had in the past so we reduce a bit to 15 % for other branches they have to pay now so they are in a different situation like we are and we are a very global industry for example two -thirds of the let me say a point two -thirds of the exports from the US to Europe are from German car producers producers.
So it's also having this in mind, it's a mixed trade that we have right now.
Listen, thank you for joining us on the program.
We're going to keep in touch with you and see how this develops there.
But real insight there into how this may affect one of Europe's most important industries.
Thomas Phillips and Karen Carlsberg and Rachel Winter still with us.
Thomas, we talk a lot about tariffs here, but for you, is one of the more important things, The huge amount of money that Europe's going to be investing into U .S. industry, whether it's energy or other sectors.
Yeah, that's a huge deal.
Like I said, you know, foreign direct investments run about 330 billion last year.
And this is double that.
But also with Japan and other countries, we're up in trillions of new investment.
The stock of investment is about 5 .7 trillion if you add up all past investments.
investments. So this is huge for our, you know, these factors are going to be built, etc. It's going to be a lot of demand for labor, wages are going to go up for our workers, etc. So I think that's a big part of this.
What's not part of this deal, which is troublesome, and I hope it's going to be fixed, is pharmaceuticals.
Pharmaceuticals is by far the largest trade deficit, and it's the post for the US, and as opposed to child or white governments are distorting trade flows.
because the U .S. is by far the biggest innovators in pharmaceuticals.
So if you think of a comparative advantage to come up with these products, it's certainly U .S. And U .S. is buying more pharmaceuticals than they're selling because of price controls in Europe.
So we don't get to sell at normal prices in Europe, but they get to sell at our market prices.
That's a huge distortion that I think will be addressed.
There's been a lot of innovation, a lot of the weight loss drugs, and they originated outside of Europe, didn't they, Karen Carlsberg?
So there is a lot of, as you were saying before, areas to be ironed out here.
We heard from the German car industry then.
Could we see a sort of movement on some of these tariffs or do you think they are finally set in place now?
Well, it's difficult to say.
Of course, this is the latest hours we have received a very strong political signal from the American president and the president of the commission.
And I don't know how much is possible to change.
But of course, there are a lot of work to be done on the details.
And when I say details, it's not small things.
But I really want to underline that I think it's super important that businesses needs and really deserves clarity, but not at the cost of rules based trade and rules for investments.
And that's why I think it's a bit tricky to use that argument, because in this situation, in the end, we have a deal.
Yes, but it's about the content.
So we're going to work closely and look into all details and see how much we can influence from the parliament side.
You say there about rules based trade.
Is it not imperative now for the EU to maybe look to trade with others that follow those rules and move away from the US a little bit, look a little bit more at maybe different parts of Asia when it comes to trade?
Well, the EU and the US have been the best trading partners for so long time and our economies are so integrated.
So I think it would be very unstrategic to cut these relations.
But of course, the EU must be open for business and walk the talk.
And I think it would be really timely to, for example, to sign the America's Euro Agreement and move forward to show President Trump that we are ready to trade.
We are ready to shake hands with business partners with real trade agreements with low or no tariffs because what we have seen from the American president since day one that he has used trade as part of his campaign diplomacy.
He certainly has. Karen, always a pleasure having you on the program.
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For joining us, you're listening to World Business Business Report here on the BBC World Service.
Rachel, you've given us the market reaction there.
We know talks are taking place between Chinese and US officials in Sweden at this very moment.
If that deal was agreed, that would be another fillip for the markets, wouldn't it?
I think it would. I think the market has been particularly worried about the Chinese rate of growth over the last couple of years.
So if we did get to see a deal there, I think that would be great news for markets.
It would be. Let's have a listen to what Donald Trump has said on the media right now.
And, you know, we have a good relationship with China.
China is tough. And like you're tough.
You know, we're all tough.
Yes. But we're going to see what happens.
We just concluded our deal with Japan.
It's very good. Good for everybody.
We're making great deals.
We're making deals that are good for us.
but we want them to be good for everybody.
It's important. Deal with China?
Thomas, a little bit harder maybe than the deal with the EU.
Yeah, I think China is much different from the U .S., right?
We have fought communism since 1945, essentially, and many people are hesitant subsidizing their economy and therefore their military.
Just to stop you there, a lot of Americans have liked cheap goods coming in.
They've enjoyed that, haven't they?
It's been good for developing growth in the U .S.?
Yeah, but there's a different geopolitical stance of the administration against China than it is against the EU.
So EU is obviously our allies militarily.
They haven't been our allies economically, because they treated our companies a lot worse than we treated their companies coming into our market.
But China is not an ally, obviously.
So there's a much harder stance taken by the administration.
Yeah, there is indeed.
I'm going to turn to you because I want to get final thoughts from Rachel, because we wanted to hear from a big business.
Here's Dolf Venderbrink, chief executive officer of Heineken International.
I think for business in general, having clarity and having a predictable framework to operate in is very important.
And as such, even though from a European point of view, the trade deal and the new terrorists are painful, it is important and good to have now clarity and to avoid further escalation.
Final thoughts, Rachel, 10 seconds.
That's the word, isn't it?
Clarity, at least we have a bit more clarity now.
It is. We often say that businesses hate uncertainty.
So even though the deal on the face of it doesn't seem particularly great for Europe, perhaps it will help some businesses to plan and that could be a good thing in the long run.
More analysis coming up on our later edition to World Business Report.
