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Hello, welcome to World Business Report from the BBC World Service.
My name's Ed Butler.
Today, it has been another day of tariff turmoil around the world, it seems. President Trump has announced new measures against Brazil and he's amended his global tariff regime on copper imports as well.
All this just as India and the European Union respond to new framework agreements for their US exports.
We're going to be hearing about all of those stories in a little while.
Plus, we're also going to get the latest from the Federal Reserve as Jerome Powell again announces a continued freeze on US interest rates.
That much to the president's displeasure, I should add.
He wants rates cut.
We should be the lowest interest rate and we're not.
We're 38, number 38 because of the Fed.
It's all because of the Fed.
I call him too late.
You know, he's always too late.
More on Donald Trump, his view of Jerome Powell and the interest rates in the US to come a little later in the show.
But first, let's go to Brazil, that story I mentioned, and its seemingly fraught relations with the White House.
President Trump has stepped up his diplomatic assault on the government of Brazil's left wing president, Luiz Inácio Lula da Silva.
He signed an executive order which brings total tariffs on Brazilian goods to 50%.
Yes, 50%. It follows an announcement from the US Treasury imposing financial sanctions on a senior Brazilian judge who's overseeing the criminal case against Brazil's former president, Jair Bolsonaro.
Donald Trump has described the trial against his right -wing ally, Mr Bolsonaro, as politically motivated persecution.
Let's get into the details, though, of this new tariff announcement.
What exactly it means.
I'm joined by the BBC's Leandro Prazeres.
He is on the line from the capital of Brazil, Brasilia.
Hi, Leandro. So 50 % tariffs, that's the headline figure.
I mean, it seems catastrophic, but we're learning, aren't we, that there are going to be a few exemptions on this.
Can you just explain what is and is not being sanctioned here?
yes well most uh most of the products uh that have been accepted from uh the tariffs they include oil for example uh airplanes uh oranges and and other other brazilian goods that according to an estimate represent 42 percent of all brazilian exports so uh well in brazil the feeling here is ambivalent.
There is a sense that the impact of this tariffs could be much worse than what is currently taking shape.
Right. It could be worse still.
Do you... I mean, I suppose the assumption will be on the part of some people that this is a negotiating position.
Is there any sense of talks taking place before these tariffs take Which is supposed to take effect on Friday, aren't they, on August the 1st?
Yes. Well, recently, one of the things that the Brazilian government was complaining about was the fact that they were alleging that there was no negotiation channels with the U .S. government.
But just a few hours ago, we learned that Brazil's foreign minister, Mauro Vieira, met today with U .S. Secretary of State Marco Rubio.
It's the first time that both have a meeting in person.
And actually, probably it's the first time that they are talking to each other since Mark Rubin took office.
So this is very new and not worth it development.
But we still don't know whether there will be any new development regarding the negotiations.
So a lot still in play.
Thank you very much. That's the BBC's Leandro Pargera.
I want to bring in now Welber Baral.
He's an international trade consultant.
He's also a former foreign trade secretary of Brazil.
So I guess we'll be plugged in very much to the latest developments.
developments how shocked stunned or perhaps relaxed are you feeling today well about um about what we're hearing from the united states this this latest i mean it's a very political move isn't it and it's clearly tied in with uh the president's relationship with uh brazil's president what's your response to these tariffs i mean how severe are they do they look well Well, I'm really not relaxed because many, 60 % of the Brazilian exports are affected.
There is a six -day delay, so in seven days they are going to apply 50 % against important exports like beef or coffee or sugar.
So basically 50 % is almost a barrier to access the US market.
On the other hand, if you look at the executive order, they justify as because Brazil is a threat to the U .S. interests, naming the Bolsonaro investigation or other issues like freedom of expression, which really doesn't make sense considering the rule of law in Brazil.
So it has a political justification for a national emergency, which it doesn't seem so.
Yeah. So what, I mean, if you were in Brazil right now in the capital in Brasilia, you are in Brazil, but you were in Brasilia in the capital and you were part of this administration, what would you be advising the government to do as it prepares to react?
because it's going to have to react, isn't it?
Is there a wiggle room, do you think, for negotiation here?
Yeah, well, I'm in Brazil, but I'm happy that I'm not in the government now because the government is under huge pressure from these sectors that are being affected.
Well, so far what we know is that the Brazilian government has a list of retaliation, but retaliation is not going to be the first option.
Brazil will try probably to exclude some sectors that are important, then Brazil will probably make some concessions in trade issues, but not in political issues.
Brazil cannot allow an interference in its judiciary, for example.
The judicial power in Brazil is extremely independent.
So I don't see any kind of negotiation in this area.
You mentioned agricultural exports, you mentioned things like sugar.
I guess, I mean, is there any alternative for those industries?
Are there other markets they can switch to?
Is the U .S. just the only place they can go?
No, no, no. If you talk about commodities, they are probably going to be exported to other directions.
We have, for example, mango or fruits.
So these commodities are going to be exported to other directions, actions, maybe without the same price, because the U .S. is a premium market.
But if you look at industrial goods, you have a lot of integration between U .S. companies and Brazilian companies and U .S. companies in Brazil, so the production chains are going to be affected, especially on auto parts, tractor parts, industrial machinery.
machinery. So for these goods, it's not so easy to divert to another market.
What are businesses saying right now?
I mean, are they panicking?
Well, some sectors, because, you know, today China is the main Brazilian importer, is the main trading partner.
Then you have some important markets like the European Union, Union, you have Argentina, you have the regional markets.
So the US today is 11 % of the Brazilian exports.
We cannot compare with Mexico or Canada that are very dependent on the US market.
Brazil is not so dependent, but some specific sectors have the US as their main market, or at least their first market.
That's the case of, I don't know, for example, or coffee or mango go or salt, even salt is going to be affected because the US is 50 % of their market.
OK, so these measures are supposed to come in on Friday, right, on August the 1st. There is that line, Trump always chickens out.
That's the line that they quote, don't they, on some of the markets, they expectation that this is just a negotiating position and that he will pull back when the pain is felt by by the US consumer, which perhaps it will be because prices are going to go up in that country if goods like these cannot reach their markets as easily.
Do you think that there is a sense that the cool response will be one of wait and see by the Brazilian government?
Or do you think that they're going to be scrambling to make compromises?
So the executive order, it's going to be in effect fact, in seven days.
So, in fact, we still have one week before Thursday next week before it's enforced.
But I don't see, for example, President Lula going to Washington and meeting Trump.
The bilateral relationship is not so good at this moment.
So I don't see that.
Maybe we are going to try diplomatic negotiations before next week.
We know that a lot of U .S. importers are dependent on the Brazilian raw material.
Coffee, for example.
Brazil provides 30 % of the US consumption.
So you are going to have an impact on inflation, necessarily.
So there is some expectation that importers in the US are going to put pressure on their government.
OK, well, Babaral, we shall see.
That's the international trade consultant and the former foreign trade secretary of Brazil there.
Thank you very much for your time.
The US Central Bank, the Federal Reserve, has kept interest rates unchanged at four and a quarter to four and a half percent in the last few hours.
The widely expected decision comes despite an unprecedented barrage of criticism from Donald Trump, who wanted to see them slashed.
Jerome Powell is the chairperson of the Fed.
Everything we do is in service to our public mission, even excluding tariff effects.
The labor market's solid, historically low unemployment.
This is an intermeeting period when we'll get two full rounds of employment and inflation data before the time of the September meeting.
We have made no decisions about September.
We don't do that in advance.
So rates held as expected.
Two governors within the Federal Reserve, though, apparently dissented from that decision.
A short time ago, I discussed this with the BBC's North America editor, Michelle Fleury.
What we've seen in recent years is a sort of gentleman's agreement, An unspoken agreement, if you like, where you see the committee tending to keep their divisions largely out of public view.
But here we're starting to see a split with two governors and Christopher Waller and Michelle Bowman basically advocating for the Federal Reserve to start cutting rates now.
So echoing the views of the president.
In fact, the last time I think that you've seen governors cast no votes on a rate decision was back in late 1993.
So it gives you a sense of sort of how unusual it is.
That being said, chair of the Federal Reserve, Jay Powell, said during his press conference he tried to downplay it, saying, well, you know, we have discussions, we have our opinions.
opinions uh but broadly speaking the committee as a whole uh was in favor of keeping rates as they are which is in a range between four and a quarter and four and a half percent yeah and jerome powell is stressing this is premised i guess on uncertainty i mean he's still saying we just don't know we don't know how the economy is going to trend uh obviously some reasonably strong uh economic data recently but economists are warning aren't they that this could all be kind of fluff that brought by, you know, events at the beginning of the year and the real pain is yet to come.
Well, you know, I was talking to a Wall Street banker just earlier this week who was saying that the data has been surprisingly strong.
And of course, we got confirmation of that this morning with the latest GDP figures, which showed the US growing at a 3 % annual rate between March and June.
So it sounds pretty strong.
But here's the thing, that same economist I was was chatting to warned that cracks were starting to appear and that was borne out in this data which showed that consumer sentiment that's softening if you look at business investment it's a little bit shaky and so against that backdrop you've got the federal reserve also trying to assess the impact of tariffs on prices and they're kind of concluding at the moment you know what if we're worried about inflation going back up or if we're worrying for example about the jobs market beginning to weaken at the moment the way things stand it's actually
safer to wait a little bit longer get a little bit more information in to sort of make our final assessment before they move but here's the problem that does not sit well with the president of the united states who for several weeks now has been criticizing the federal reserve and attacking them for not lowering rates sooner to boost the economy the bbc's michelle flurry there well our regular markets analyst Susan Schmidt is with me.
She's a portfolio manager at Exchange Capital Resources in Chicago.
Hi, Susan. So you heard Michelle there say there is vulnerability in the US economy, there is concern in some quarters that they're going to have to cut at some point.
But we're not surprised, are we, that they held this time?
We're not surprised.
This is what the market expected.
Investors were anticipating no change at all today, and waiting really until that that September meeting, as Chairman Powell said in that quote, they don't identify in advance what they will do.
They're waiting for economic data between now and September.
About two thirds of the market expects to see some sort of decline in interest rates from the Fed at the September meeting.
Today was a no reaction effectively with very little movement in the market as a result of of the decision.
Okay, let's move on to perhaps a bigger story in market terms today, which has been these announcements that we've had from the White House on copper.
Now, copper futures have plunged nearly 20%, I'm reading, after Washington's, I'm going to have to express this carefully so people can follow, Washington's earlier decision to impose a 50 % import tariff on some copper products, it becomes clear that this is not going to be on copper metal. This is the raw commodity as had been expected.
Is that right? I mean, talk us through what is and is not being sanctioned and why the market reacted as it has.
Yes, this is confusing.
So we heard 50 % tariffs on copper, and immediately there was a surge in copper prices as people worried it increased the price of the the copper that they already had in the country.
And we've since learned that copper is going to be identified in different categories, and thus we saw that big price decline in copper today, because not everything will be subject to this tariff.
Now, copper goes into a lot of things.
So it's everywhere in construction.
It's heavily used in appliances and electronics, renewable energy, automotive.
So it does become a critical component and a potential excess cost should we get this tariff.
Refined copper is excluded.
So that means bits and pieces that have already been formed, are specialized, are ready to be inserted into a larger device.
What is going to be tariffed are things like copper pipes, rods, sheets, tubes, connectors, and electrical components, which are very simple devices.
Those more generic bits of copper copper that comes in in raw state that needs to be formed, that's what's going to be subject to that 50 % tariff.
Okay, so that will clearly, as you say, have a big role to play in how all this plays out in the US economy, but interesting and one to watch. Thank you very much for now, Susan Schmidt.
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You are with World Business Report from the BBC World Service.
Now, India today says it will take all steps necessary to secure its national interest after Donald Trump announced a 25 % tariff on goods imported from that country.
This includes a penalty for buying oil and weapons, according to Donald Trump, from Russia following the war in Ukraine.
The Indian government has said it's committed to achieving a fair trade agreement with Washington.
President Trump had earlier described Indian tariffs on US goods as obnoxious.
I was speaking about all of this with with Ajay Srivastav.
He's a founder of Global Trade Research, the Global Trade Research Initiative based in New Delhi.
And he's also a former trade service officer himself.
Trump's pronouncement says 25 % plus penalty.
So until we know the quantum of penalty, I don't think we'll be in position to assess what will be the impact on India.
If penalties Penalties for certain sectors, the impact will be different.
If penalty is 10 % different, 100 % different.
So we are totally in the dark.
There was an implication, was there, that a penalty would be for buying oil and weapons from Russia.
So it might be connected with those industries.
Absolutely. It might be that or it might be because India is a member of the BRICS.
So penalty for oil, one of the senators announced as 500%.
Penalty for bricks, Mr. Trump himself announced as 10%.
We don't know. And is 25 % a blow to India's expectations, do you think?
Because every country is facing tariffs to some degree, aren't they?
25 % is high, but look at the countries who have got the deal with the US.
Say, Vietnam has got 20%, Indonesia 19%, Philippines 20%.
Japan and the EU, of course, got 15%.
But what they offered in return, they opened their entire agriculture sector.
Even if India wants, India is not in position to open its agriculture sector.
Agriculture was a problem.
I mean, the core agriculture was a problem because half the population, their livelihood depends on the agriculture.
So agriculture was a problem.
And I think that could have been the deal breaker.
Right. Right. So, I mean, what is going to suffer?
Where is India's trade with the US right now?
OK, so India's exports in merchandise, they're about $85 billion.
Of this, the top, top item is our pharmaceuticals.
And then we export a lot of electronics.
And most of the electronics is that is smartphones, including those made by Apple, iPhones from India.
Then we export diamond and gold jewelry, about $6 -7 billion.
dollars. We export petroleum products about $5 billion.
We export garments and textiles about $5 billion.
So these are essentially the basic exports to the US.
We're about to hear from the European Union and they're going to perhaps express their opinion about this.
But the implication seems to be that we're in a holding pattern right now.
We announced these big top line stories coming from the White House of 25 % or whatever the percentage rate is, and a deal being finalized between the US and one country, but nothing seems entirely final.
Do you just see this as just another negotiating position from Donald Trump that has yet to really play out and be defined?
mind so more than from the united from from donald trump i see all countries you know europe is saying japan is saying vietnam is saying that the deals announced by donald trump they are just framework deals they're in principle deals and the real deals have to be announced and some people say that whatever mr trump has announced may not have been agreed upon so till they see everything in paper.
It's only in principle deal.
The real export and import under those deals will start only when these deals are negotiated at the finer level.
Ajay Srivastav in India.
Well, amidst all that tariff talk, let's consider just one more story, if we may.
The dust is still settling on what was called the biggest trade deal in history on Monday.
This was the one signed between the US and the European Union on that day, fixing 15 % tariffs on most European goods heading towards the US.
There's been much talk about winners and losers, of course, but one area that seemingly has been suffering is the European pharmaceutical industry.
Hans Deutl is the president of VFA, this is the German Association of Research -Based Pharmaceutical Companies, And it represents the pharmaceutical companies in Germany.
You previously, Hans Deutel, thanks for being with us.
You previously said that tariffs could be devastating for the industry.
A 15 % tariff rate, is that devastating?
Well, by definition, any percentage point increase in tariffs is bad for free trade.
and particularly because of the fact that the U .S. is the biggest market worldwide for pharmaceuticals and Germany is an export nation with a very strong local pharmaceutical industry.
Of course, this is absolutely a blow to us, particularly also in the light of the fact that since 1994 we had a zero for zero framework agreement and that no tariffs would ever be put on top of imports or exports.
Why does pharmaceuticals specifically deserve tariff -free trade, above and beyond that of any other sector?
In the first place, pharmaceuticals are not comparable to other commodities because normally any therapy is really suited for the individual patient.
So anything you do in relation to making this more difficult to get to this drug or treatment is bad news for patients in general.
And the other reason is we are a truly global industry.
I mean, intellect can flow freely across the world.
So anything you do in that respect by sort of protective measures to protect your home country is not helpful for further development worldwide.
I've seen one estimate suggesting this could cost the pharmaceutical industry in Europe between $13 and $19 billion.
Does that sound right to you?
I mean, and if so, what will be the effect, do you think, of measures, of tariffs at this rate for the industry?
I can't confirm that number.
The numbers I've seen for Germany is between two and three billion.
But of course, it can be more.
It can also be... This was a Europe -wide figure, I think.
Yeah, I understand.
So I haven't seen that.
I can comment for Germany, where we anticipate that this is also costing us billions in terms terms of revenues as we anticipate that because of the increase in tariff or because of the tariff by itself it will be very difficult to transfer this amount of money.
And it will affect future medication, future research and development briefly?
Well clearly if liquidity is taken out, if cash flow is taken out, this comes at the expense of further investments in R &D.
That's That's very clear.
The other very important part is, of course, will all new medications be readily available to a country like the US or the reverse, looking at Europe?
OK, Hans Deutl, thank you very much indeed.
A quick final thought from away from tariffs and trade.
AI is the key word in the latest tech earnings that we've been hearing.
We've got the latest financial data in from Meta, the owner of Facebook and Instagram, and for Microsoft on Wednesday, Susan Schmidt with a quick upsum.
What are we learning today, Susan?
Well, both companies had very strong quarters.
We're seeing good demand.
And interestingly, comment from both companies is that they are doing well in their cloud and AI segments.
So nothing new for investors, but important that that message continue because investors are putting such a premium on those segments right now.
And importantly as well, each company said that they would be increasing their spend, their capital expenditures on AI as we go into the end of the year.
So, that's increasing, you know, well over 10 -20 % initial estimates on the billions they're spending in that area to maximise efficiency.
Okay. Susan Schmidt, Portfolio manager at the Exchange Capital Resources in Chicago.
Thank you. That's it for today's programme.
We'll have more on AI and tech in Business Matters at midnight for now, though, from all of us here on World Business Report.
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