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You're listening to World Business Report here on the BBC World Service.
I'm Rahul Tandon, thanks so much for joining us.
It's been another busy day for the global economy, lots of conversations once again about tariffs.
We'll be hearing from the head of the US Central Bank, very, very shortly, also hearing voices from the business community in the US, Bangladesh, and looking at what may take place in those tariff talks between Japan and the world's largest economy.
But let us start with the World Trade Organisation, because it is saying that global trade will fall this year hit by the tariffs that have been imposed by the United States.
Its director Ngozi Okonjo -Iweala warned that a trade war between the world's two largest economies could affect the whole world.
Whilst US -China trade accounts for only around 3 % of world merchandise trade, a decoupling between the two major economies could have far -reaching consequences.
If it were to contribute to a broader fragmentation of the global economy along geopolitical lines into two isolated blocs, Our estimates suggest that global rural GDP would be lowered by nearly 7 % in the long term.
Here with some more details is our correspondent in Geneva, Imogen Figgs.
This is based on general tariffs staying at 10 % and not this long list of very punitive tariffs.
You remember the poster that Donald Trump held up in the Rose Garden.
They were on pause for 90 days, but if they were to come in, then the whole outlook would be even bleaker than what the WTO outlined today with a big, big fall in global trade, probably a fall in global GDP, perhaps even a global economic recession.
OK, let's start the conversation about this now.
Let's firstly bring in Susan Schmidt, Portfolio Manager at Exchange Capital Resources.
Familiar voice on the programme.
A lot has gone on today.
We'll talk about tech stocks and the market in a few minutes' time.
Susan, but that warning from the head of the World Trade Organization, not something the markets would want to hear?
Definitely not something investors want to hear but the stark reality and something that investors have been suspecting and fearing hence the volatility in the market.
We're seeing some strong comments today certainly from Chairman Powell.
Very direct comments on how damaging the tariffs can be for the overall economy and what a difficult position it's putting that central bank in trying to balance between the threat of inflation exacerbated by the tariffs and the hit to the economy.
Yeah, we're gonna hear a little bit more from Jerome Powell in the programme.
Let's also bring in David Autor, economist from MIT, who was the co -author of a study that Thank you very much pleased to be here.
That's Yep. Yeah, study of yours that looked at how US communities were devastated by cheap imports.
You came up with that phrase, didn't you David?
The China shock. Just remind our listeners a little bit about it because you did show that a lot of jobs did go in the U .S. as China became a huge manufacturing power.
That's right, that refers to work that I've done with Gordon Hansen of the Harvard Kennedy School and David Dorn of the University of Zurich. And we looked in particular when China joined the World Trade Organization in 2001 and there was a surge of inexpensive exports as China became more productive and tariffs against itself.
And this led to a lot of displacement of US manufacturing employment on the of a couple million jobs.
And this was a couple million jobs is not large relative to the size of the US economy.
But manufacturing is extremely geographically concentrated, not just all manufacturing but sector by sector.
And so it kind of blew out the economic foundations of many labor markets in towns, and so was fairly devastating, strongly felt and created both economic and social and political pressures.
So David, let's fast forward to now, and what's happening with Donald Trump, will these tariffs bring some of those jobs back, is this a policy that could achieve that?
No, unfortunately this is the wrong answer to the right question.
We made huge mistakes in how we handled China's accession to the WTO, it happened too fast and we didn't have appropriate supports in place to assist workers and communities.
But right now we are busily arming ourselves to fight the last war and fighting for jobs like, you know, making commodity furniture and doing assembly and shoes and textiles that not only did we lose 20 years ago, but China is also losing to Vietnam and Cambodia and other low -wage countries.
China's lost them as it develops, but it doesn't want those jobs back.
It wants jobs in robotics, artificial intelligence, semiconductors, batteries, quantum computing, fusion energy, high -speed rail telecommunications, those are the sectors of the United States that are now threatened in the United States.
And so the U .S. shouldn't be asking whether it can get manufacturing from 10 percent back to 12 percent, but whether it can keep it from falling from 10 percent to 5 percent.
And to accomplish that will require a different set of policies to protect the sectors that highly vulnerable and invest in them.
We heard from the head of the World Trade Organization earlier today about the impact of tariffs on global trade.
A lot of people are asking this question, are we looking at the end, David, of globalisation?
Is that a fair question?
It's a fair question.
And the answer is definitely not.
We're looking at the end of US leadership of the global rules of fair play in trade, but China will happily take that role.
It's already doing extensive diplomacy to say, look, you can't trust the United States anymore.
It's not a reliable partner.
It's erratic. It places terrorists on friends and foes.
Why don't you work with us?
We're in business to do business.
So it's an irony that the world's largest communist country is now also the global leader of world trade.
David, stay with us.
I want to bring in another voice now because we have with us Kristof Levine, president of High Field USA.
Boat builders in Cadillac, Michigan.
who they specialise in rigid, inflatable boats.
Christophe, thanks so much for joining us on the program.
You are part of that manufacturing industry that Donald Trump wants to protect.
So when you see these tariffs being put in place, 10 % across the board, much heavier tariffs on China, is that protecting you or making your business more difficult?
That's a very good question.
And thank you very much for having me on the program.
I feel that it's remarkable that you're inviting small companies like we are.
I feel it is a small company.
To answer your questions, no, it's not protecting us right now.
I feel it's an interesting company, we bring products from China, we make boats in China, we now make boats in the US, but we are very dependent in our Chinese factory in a way that we bring components, we bring holes and tubes and different aspects of the boats in order to manufacture progressively more and more in the US.
And despite the idea to protect us, at the moment, it's very devastating.
It's hurting us a lot and affecting our capacity to survive.
Hurting you a lot. What can you do to make sure that that hurt doesn't become something a lot more serious?
So after 2018, you know, in the first wave of tariffs, which was additional 20 % for a Chinese made product on the boat side, we decided to, to reorganize our company and be less dependent of our Chinese manufacture.
So we started a factory in the US two years ago, we have now adapt integration of Americans, parts, engines, traders, laborers, a certain aspect.
And we have done, we progress from zero to 40 % in two years.
Forty percent of war boats are now either made in the US or heavily modified in the US in order to match the American market.
We are still dependent.
Sixty percent of all trade and production remain made in China.
We didn't have time to compete that integration.
So I am hurt because I'm not ready 100%.
And I am still dependent on certain aspects of the boat that are made in China, like the tubes, for example, which is a critical part of receding invisible boats.
And with that level of tariff today, I'm stuck.
I cannot import anymore these components.
And I have no solutions in the short term to find that entity.
Christophe, stay with us for a minute.
I want to bring David back in.
Is it a question, then, we heard from Christophe there, that it may not be the policy, it's the timeframe of the policy, David.
and in the speed of which the tariffs are being brought in?
I think there's two issues.
But absolutely, the speed of change means if you think about the term China shock, part of what made it so shocking was that it happened so fast and labor markets and supply chains and manufacturing, they have a natural rate of change, but it's over the course of years and decades, not overnight.
And, so, yes, this is a, you know, we're going from the China shock to the Trump trauma at a moment, at this moment, to see it happen so fast. It's also the case, as Christoph points out, Christoph, I apologize if I'm not saying the name correctly, points out, you know, a lot of the things we're importing from China, they're not just the final goods that you would find at a Walmart or a Target.
They are parts of the US manufacturing supply chain, and we're raising our own costs.
you know, the auto companies that have been most helped by Trump's tariffs are not Ford and GM and Stellantis.
They're BYD, the big Chinese EV manufacturers.
So this is, you know, this is not helpful to US manufacturing.
This is not how we get to where we want to go.
Christophe, yeah, please.
I totally agree. If you look at our situation, we made the decision two years ago to invest, in the U .S. It took us two years to integrate 40 percent of our business, which is already extremely good in such a short period of time.
But now in the last two months, I have to find a solution for the remaining 60 – impossible.
I have different things that block me.
I cannot do it with my time frame.
I am not even sure I should do it because the situation is erratic, as you mentioned before.
It's where are we going?
Is it stable, not stable?
Should I invest in robotics or not?
I am not in a position to make a decision that are, I would say, rational.
We live in a non -rational environment, which is tough for investors and small companies like we are.
It frees everything.
we need to find a way to give us an opportunity to really start making rational decisions to move forward. Christophe, it's been a real pleasure having you on the program and we're going to keep in touch with you to see how this journey continues.
Christophe from a small business there, Susan, have a listen to this, Shares and Invidias I'm sure you know they plunged on Wednesday down almost 7 % Dan Ives is managing director and senior equity analyst at Wedbush Securities.
Oh, it's going to get worse before it gets better because we're in the midst of a twilight zone trade war.
And until US and China sit down at the table, we're going to see this tip for tack.
And it's US tech and its investors that are caught in the middle.
And that's why tech stocks are down, because no one knows, you're playing blindfolded darts.
Do you think at some point, because some of these tech companies are losing serious money when it comes to their evaluations?
Aren't they? That they're going to go to the president and say, look, you know, this is doing pretty long term damage to us now?
I think they've already done that.
And I actually think that's one of the reasons we got to reprieve the one to two months that we saw over the weekend.
But ultimately, Trump news, what's the biggest, what's the queen piece in chess?
It's Nvidia. there's only one chip in the world, AI revolution, and that is why we're seeing this play out and you know, I think we ultimately will get through it, but it could be some darker days ahead.
Is that what you think, Susan, darker days ahead, for some of those big tech companies that have driven up those share prices in the US over the last few years?
Well, I think they're gonna continue to operate into a great unknown.
it. That's the problem that investors have. And investors certainly take that as darker days ahead, because they can't figure out what the right valuation is for companies when they can't predict the sales growth and what their ability is to tap into the marketplace.
Investors are going to have a hard time with this as long as this trade discussion continues.
And that's going to cause pressure on these stock prices.
David, you were talking earlier before about the markets that are going to grow and it's that the US continues to dominate in those markets.
So is Donald Trump right here when he's putting restrictions on Invidia and that high tech sector?
I think that you know, these are, there's not a simple answer to this question.
We have a strategic national interest in those sectors both for technical leadership, military leadership, and even you know, political and diplomatic leadership, because it puts us ahead or makes us you know, a role model to follow.
How we protect and invest in that is a complicated question.
It involves some, you know, control of exports.
It involves some terrorists potentially, but it involves a lot of domestic investment.
We can't win a race simply by hobbling our opponents over and over again.
Eventually we need to like, you know, get strong, bulk up and run.
And that means improving our own capabilities.
China has invested massively in doing so through a variety of tools.
Some of them protectionism, some of them, you know, not fair use of the trade system or intellectual property, but some of them just through incredible amounts of investment in playing a very long game.
And playing the long game does not seem to be the strength of this administration.
Well let us see what happens there.
David, real pleasure having you on the programme.
Susan's still with us, the Chairman of the Federal Reserve, as she told us at the beginning of the programme, has been making some pretty strong comments about the impact of tariffs.
Let's have a listen.
Tariffs are highly likely to generate at least a temporary rise in inflation.
The inflationary effects could also be more persistent.
Avoiding that outcome will depend on the size of the effects, on how long it takes for them to pass through fully to prices, and ultimately on keeping longer term inflation expectations well anchored.
Susan, you hinted at this at the beginning of the programme.
The tone is important here.
Those are some of the strongest words we've heard from Jerome Powell, aren't they?
They are, and I think it's important to listen into that cone because it's reflecting on the surprise that's happened in the market at how large the tariffs are.
The bigger the impact of the tariffs, the bigger the threat to inflation.
And the magnitude of the tariffs, the variability of the conversations around them is all indicating that the inflation impact could be much greater than initially expected.
And I think that's what Chairman Powell is really trying to focus attention on.
Well, he certainly got the market's attention a little bit today, didn't he?
It's been another difficult day also there's been some reporting in the last couple of hours that Teemu and shindo's huge Chinese companies are slashing the U .S. advertising spending by 30 % or so in the last two weeks on platforms including meta x and alphabets YouTube.
There are estimates there from the market intelligence group.
so really a lot going on as always.
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Right, we know that companies are trying to at the moment negotiate, aren't they, with Donald Trump to hammer out trade deals, so they won't have to face those reciprocals.
tariffs that have been suspended for 90 days.
Top of the tree is going to be Japan and Donald Trump says he'll personally meet Japan's trade negotiator on Wednesday.
So why is Japan first in the queue?
Here is Tobias Harris, founder and principal at Political Risk Advisory Japan Foresight.
Tobias, thanks so much for joining us again.
So why is Japan first in that line?
Well, I think maybe unlike some other major trading partners, Japan has been very clear that it's not interested in retaliatory tariffs it has not even hinted at retaliatory tariffs and so they've been very clear about wanting to negotiate they've been very eager to negotiate and so to some extent I think the Trump administration is responding and maybe rewarding that eagerness.
It's interesting Donald Trump has just said he's met with the Japanese delegation on trade already.
He wants the Japanese to buy more American products, like cars.
Is that going to be easy to get the Japanese to do?
You know, that's really the big question and the question that I think the Japanese government has been struggling with, you know, a feeling that they don't really know what exactly the ask from the Trump administration is going to be because there's a there's definitely range of potential outcomes here.
If they really are looking for deep, serious concessions from the Japanese government in a 90 day window, that's going to be a really, really tough sell for Tokyo.
They've got elections coming up.
There's a lot of talk from the US side about agricultural protection in Japan.
That is a real political third rail ahead of an election, particularly for the ruling LDP.
I mean, auto concessions on auto non -terror failures, you know, there aren't really terrorists but non -terror failures, that might be an easier sell, but there's still going to be some negotiating domestically that will have to go on with there, so, and it really depends just what the US government is looking for and frankly the whole point of this meeting this week was really supposed to be the Japanese government sounding out the Trump administration, but with Trump in the room maybe the nature of these thoughts will be a little different.
Could well be good me.
I suppose though for Japan You know the u .s. Is such a hugely important market there's gonna have to be some sort of compromise they're gonna have to offer Donald Trump something because he's being first in the queue means he wants to go out and tell the world that he's done a deal with Japan before anyone else Well right right and that's that's I think some of the the trickiness with figuring out about what exactly the ask is.
Because if Japan is able to maybe repackage things that they've already hinted they're willing to do, you know, LNG purchases is pretty high on that list. If it's maybe able to add some sweeteners to things it's already talking about, maybe add some investment or government support for private investment here in the United States, and maybe there's a pathway to a quick deal.
So it really does depend just how deep they want to go into the, if you look at the USTR list of trade barriers of major US trading partners, they've got 10 pages or so on Japan, a lot of non -tariff barriers, how deep into those do they want to go?
Because if they want to go deep into those, it's just gonna take time.
Yeah, Donald Trump says, big progress on tariffs after meeting Japan's envoys so that meeting has already taken place.
Stay with us, Susan a quick thought from you on this the markets will want to see some sort of deal being done quickly whether it's with Japan, India, anybody to show that progress is happening here.
They will but the markets are already gun -shy on this because they've had several statements come out of the White House and the administration saying that certain products are exempt, certain terms have been set, only to see that walk back or changed several days later.
And so investors are going to be very skeptical about this.
And I do think that while investors want to see a deal, they want to see some sort of certainty.
They're also learning that this is going to continue to be a variable playing field, and that certainty hasn't been delivered yet.
That's going to be a problem.
Tobias, do you think the Japanese are a little upset about what's happened to them?
Because, A lot of other countries don't invest hugely in the US.
You can't say that about Japanese companies.
They're among the biggest, aren't they?
Yeah, there's definitely been a fair deal of bitterness and not just among opposition politicians, not just among the public, even within the prime minister's own party, the LDP.
There's almost a sense of betrayal and the approximate cause for that was that there was a handshake agreement back in 2019 when you had the US -Japan free trade agreement signed between Trump and then Prime Minister Abe, and supposedly they'd agreed that if Japan made certain concessions on agriculture that the US would not raise automobile tariffs.
And so there's a feeling that, well, Trump broke his promise.
And so why, how can we trust that, you know, any deal we make now is going to be honored.
And so there's, there's a certain amount of skepticism, there's a certain amount of anger.
And, I mean, and that's why, you know, yes, you know, Ishima has to make a deal, he's got to find a way, you know, or at least explore, you know, what deal is on the table.
But if he is too eager to make concessions, there's, you know, potential consequences at home, if he you know, rushes to make concessions that, you know, that look unfair, and it looks like he's been bullied into giving up too much. Tobias Thank you very much, indeed for that.
to see if we get more details on what that big progress that has been made actually is.
Another country trying to strike a deal with the United States is Bangladesh.
I've been speaking to Rubana Huq, she's chairman of the Mohammedi Group, former president also a member of the Bangladeshi Garment Manufacturers and Exports Association.
A special delegation from Bangladesh is going to be visiting the United States next week with significant initiatives to reduce the trade deficit and to lower the non -tariff barriers, and of course with the aim of improving the import volumes from the United States.
So we are hopeful. Let's see how it pans out.
When you talk about improving those import volumes into Bangladesh, what sort of products are you talking about there?
Is it bringing in more cotton?
Yes. Bangladesh imports around $3 billion worth of cotton from the rest of the world, and only 350 million is actually from the United States.
So there is a potential of increasing the import of cotton from the United States.
The Bangladesh government at this current moment is considering allowing US companies to set up warehouses in Bangladesh for cotton so that the lead time is also significantly reduced.
So these are positive vibes.
We are hopeful that we'll at least have a win -win situation after the discussions that the government has with their USDR. But I presume the reason that Bangladesh doesn't import so much US cotton at the moment is that it's more expensive than other cotton.
So that's also going to impact companies like yours.
You see, there was a double fumigation requirement, which has been eliminated by Bangladesh government.
So when the cotton reaches us, it used to be fumigated one more time, but it isn't anymore.
So that has lowered the cost. even then, US cotton is around five to six cents more expensive than the rest. But that, of course, will be lowered if the American companies can actually set up warehouses in Bangladesh.
So the lead time will be reduced, the prices will also come down.
We saw, didn't we, after the overthrow of the Sheikh Hasina government, some uncertainty in the textile industry, some orders put on hold.
What is the current situation now with further uncertainty?
Well, right after Sheikh Hasina left, yes, there was a transition, which wasn't very comfortable for the industry because buyers were very shaken up by the change.
And of course, we lost some business to India and Pakistan, namely, the denims went to Pakistan.
But after that, you know, after two three months, again, things started being steady.
And we were kind of really looking forward to a good season.
But now, with the global uncertainty looming all over, it's yet another blow, of course.
Are you seeing some buyers putting plans on hold with this uncertainty?
Well, I'll be honest. Right when the tariffs were announced, there was a New York reaction from many of the brands and retailers.
But right now, I think they are adopting a wait and watch policy.
And since the negotiations starting off with Japan, and we're kind of also hoping that that's going to be shedding some light on how the tariff negotiations are actually going to go with the United States.
Because it is so uncertain, are you also now thinking, look, the US is obviously a huge market for you, but we need to develop other markets as well?
Bangladesh governments actually go to many, many non -traditional markets as well.
but the truth be known, you know, US is the fastest growing market for Bangladesh, and we were certainly hoping that we would share a considerable share of the Chinese exports in Bangladesh.
Rubana Hug there, Susan Schmidt, got the last 20 seconds of the programme, I'm going to hand it over to you, and that is a problem for many countries, the US, such a big economy, that people want to be part of it and trade with it.
That's absolutely true.
People do want to interact with the US, but the US is losing a lot of that credibility by not being able to have a consistent message as to what the US needs in return.
I think that's the balancing act right now that people are going to have to confront and that businesses are trying to deal with.
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