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Hello and welcome to World Business Report from the BBC World Service.
I'm Hannah Mullane.
Coming up on today's programme…
As government borrowing costs rise around the world, we'll ask why.
And we'll head to New Zealand, as they plan to open up their housing market to foreign investors as part of their Golden Visa programme.
We really want to encourage migrant investors to spend more time in New Zealand.
When they are here more often, they get to know their local community and, outside of their initial investment, they tend to invest more.
And amid its tariff war with the US, some grocers in Canada have been ticked off for falsely labelling some goods as Canadian.
But first, we're going to start the programme talking about government debts around the world.
A dry subject, you might imagine, but business journalists around the globe have been getting very animated.
Is the government facing a fiscal, a financial crisis right now?
Is the IMF going to have to be called in to rescue the UK?
These are all big questions that are knocking around at the moment.
The cost of government borrowing continues to rise globally, sparked by the incoming German government's decision to pivot away from fiscal conservatism.
Paul, it looks like Japanese bonds are joining the global bond slide.
Normally, if you ask me to do a long hit talking about Japanese government bonds, I might think that everybody's in for a snooze fest, but not at the moment.
Credit markets front and center as the president's big bill clears a hurdle in the House.
French stocks tumbled, particularly banks, and the country's bonds fell on Tuesday.
The UK has seen borrowing costs reach a record high today the highest yield in 27 years and other countries around the world are seeing a very similar pattern.
Mohamed El-Aryan is President of Queen's College Cambridge and Chief Economic Advisor at Allianz.
Mohamed, thanks for being with us.
Let's start by explaining really simply, if you can, what bonds are for those who don't know and what we're seeing happen in the market at the moment.
Bonds are issued by governments and companies as a way of raising money that they need for other things.
The investors who buy the bonds are interested in two main things.
One, the safety of the bonds, and two, how much are they being compensated for the risk they're taking?
Great.
So this pattern we're seeing of the debt going up and the cost of these bonds going up is affecting many countries around the world at the moment.
Why is that?
There are two big reasons.
One is that deficits and debt are going up around the world, which means that governments will be issuing more bonds.
And when you issue more of a certain thing, then the price goes down or the yield that you've got to pay on it, the interest rate you've got to pay on it, goes up.
That's the first thing.
The second thing is that people are realizing that inflation is no longer coming down around the world.
And if you start getting worried about inflation going up, you have to be compensated more.
You demand a higher interest rates on the bond that you pay.
And then at the individual country level we have all sorts of issues going up from France, where the government may fall on fiscal issues, to the UK, where people are worried about what sort of budget is coming up.
And since we live in a global world, whenever the rate in one important country goes up, it will drag other rates up as well.
And is the tariff situation that we're seeing now get a little bit more certain as tariff percentages are arranged on different countries.
Is that playing into this, do you think?
It's playing a role, but it's not the major driver of higher yields.
The major driver of higher yields are the old-fashioned concern about government debts and deficits and inflation.
There's one thing that's lurking behind all this, and it explains why gold prices are hitting record high after record high is that investors no longer trust government bonds to provide the diversification and risk mitigation that they're used to.
So when you put the economic influences together, Put on top of that the financial influences and then country specific, you get a global phenomenon that goes from one country to the other.
And gold definitely been seen as that safe haven at the moment with those highs for sure.
How do we expect governments to respond to these increased costs?
How should taxpayers be feeling, the average taxpayer be feeling about this news?
So, by definition, the minute these interest rates go up around the world, the interest burden goes up.
What governments pay in order to raise new money.
And you need new money not just to cover the deficits, but also to pay for maturing bonds.
As the interest cost goes up.
Governments have a choice between one, raising revenue taxing more two, cutting spending, or three, borrowing.
If you borrow in this situation, you'll simply push interest rates even higher.
So this is about ultimately, governments convincing investors that they are committed to either tax more or cut spending in order to limit what economists say called the doom loop.
So taxpayers should be concerned, then they might be seeing their taxes go up to kind of mitigate some of these problems.
Unfortunately, yes.
This is especially true in the more vulnerable countries that include the United Kingdom.
Let's bring Russ Mould in here, Investment Director at AJ Bell.
Russ, how have the stock markets responded to this unease in the bond market?
They're taking it relatively calmly at the moment.
But what the biggest worry would be is if the yields on these government bonds continue to rise.
They provide an alternative as a source of income for investors, providing they're relaxed about inflation.
And they may then therefore start to look again at bonds if they feel the yields on offer compensate them for that inflation risk, compensate them for that debt risk.
And if they start buying more bonds, they may buy fewer equities or shares, or even sell shares to buy those bonds.
So it is a possibility over time, but not yet.
The stock market often looks to the future, doesn't it?
And prices in certain risks or certain changes it might see coming.
Is this something that the stock market has seen coming and has kind of made allowances for?
I mean, yields bottomed in 2020.
So we have been seeing this for a long time as quantitative easing ended.
Central banks rose, increased interest rates to try and combat inflation, bring it back in.
So it's a trend that they've been seeing.
Interest rates are still relatively lowly compared to what you would say a historic average is.
So at the moment, again, that's one reason why the stock market is taking this in their stride.
And they also think in some cases that central banks are going to cut interest rates to support the economy and maybe take a little bit of a chance with inflation.
And, generally speaking, stock markets tend to like lower interest rates, so long as they don't lead to galloping inflation, as we saw in the 1970s, which was a disaster of a decade for investors unless they held an awful lot of gold.
And that takes us back to where we were earlier.
Mohamed, Ariane, one final question to you then.
Russ mentioned cutting interest rates there.
Is that something you're seeing in the near future?
Do you think that's likely to happen in some of these countries that are experiencing this pain at the moment?
I think...
Yes, you will see it in the US in a couple of weeks where the Fed will probably cut by 0.25%.
And you may get one more cut in the UK.
But we will not get the sorts of aggressive interest rate cuts that people are hoping for unless – the economy has really slowed down, and that's not something you want to wish for.
No, indeed.
Mohamed El-Erian, President of Queen's College Cambridge, and Chief Economic Advisor at Allianz there.
Thank you for joining us.
Ross Mould, stay with us.
We'll be back with you later in the programme.
Now to New Zealand, because they are opening up their housing market to wealthy foreigners who invest in local businesses there.
The move reverses a previous ban and the government hopes it will boost economic growth in the country.
New Zealand's Prime Minister, Christophe Luxon, said the foreign investor market migrant visa will be reintroduced in April, enabling wealthy foreigners to buy or build a home if it costs at least 3 million.
Previously, those on the visa but not in New Zealand for six months of the year were banned from buying property.
I've been speaking to Erica Stanford, New Zealand's Minister of Immigration.
One of the key issues for us always has been the foreign buyer ban in New Zealand and the inability of our migrant investors to be able to come to New Zealand and purchase a home so that they have a base here and somewhere to come in and out of and have that house in New Zealand.
And we always knew that was going to be a barrier.
And so we've been working hard behind the scenes to create barriers, an exemption for our migrant investors to be able to purchase that home, and so that was introduced a couple of days ago and will come into effect before the end of the year.
And what are you hoping for by making this change?
We really want to encourage migrant investors to spend more time in New Zealand.
We know that when they are here more often, they get to know their local community, local businesses.
They get to see investment opportunities and outside of their initial investment, they tend to invest more in other businesses once they know the landscape.
We also know that our migrant investors are extraordinarily generous philanthropists as well, and so the more time they spend here, the more they invest in their local communities and charities and other organisations.
So it is really a welcome.
Please spend more time here.
We would love your skill and your knowledge and your contacts to help take New Zealand businesses to the world.
So please spend more time here, but also please spend more money here, I assume.
Well, I mean.
The visa program, of course, is either you're either investing five million or ten million dollars.
I mean, that is the price of being able to secure what is a very safe haven in New Zealand.
It is a beautiful country.
We've got wonderful resources, incredible people, a wonderful education and health system.
It is a wonderful place to bring up your family.
And you know, in exchange for that, you know we are requiring people to bring either 5 or 10 million, depending on their risk appetite, and help us take New Zealand great New Zealand businesses to the world.
And then now we're allowing them to buy a house in New Zealand worth at least $5 million.
There is some controversy around this policy and some opposition towards it.
The suggestion that it might bring up house prices for local residents.
What are your thoughts on that?
Look, I don't think that this will raise house prices at all.
We are talking about the top half a percent of the houses that are available in New Zealand, above 5 million.
It will not have any impact on regular hardworking New Zealanders, other than maybe our lotto winners.
This is the very high end of the market, and so we're not expecting that to make any difference at all.
But what it will make a difference to is our local communities, who will have access to these incredibly skilled and well-connected people who can help take their businesses to the world.
Other countries around the world are scrapping their golden visa policies.
There's been opposition from locals about it.
There's been controversy about where exactly that money that's being invested in the country has come from, some concerns around corruption, etc.
Is that something you're worried about?
Because you're doing the opposite kind of expanding your programme?
Well, our message is New Zealand is open to the world.
We have a new government who's been in for 18 months now and that is very much our mantra.
Our Prime Minister, Christopher Luxon, has been travelling the world, as has our Foreign Minister, promoting New Zealand being open, and part of that is welcoming direct foreign investment and migrant investors to New Zealand.
And while other countries are closing their doors, we are opening ours, because we do need the skills and experience of these people not only their capital, but also their connections to the world to help take some extraordinarily innovative New Zealand businesses and give them the boost that they need.
We have a very careful programme of checking where the money comes from.
We are very stringent when it comes to that.
We have very robust verification and risk assessments when it comes to that, because we know that there is a social licence that comes with us and we're very careful about with that.
And we've learned from the mistakes that other countries have made, and we won't be repeating those.
Erica Stanford there, New Zealand's Minister of Immigration, talking us through the country's plans to open its housing market to foreign investors.
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You're listening to World Business Report from the BBC World Service.
The US government has announced that the Taiwanese silicon chipmaker TSMC, can no longer send US chipmaking machinery to its Chinese manufacturing plants without requiring a license.
It's the latest effort by Washington to limit Beijing's access to American technology.
These chips are used in almost every electronic product from mobile phones to TVs and cars.
And the move follows a similar decision to impose the same new rules on Samsung and SK Hynix, which have also made memory chips in China.
Chris Miller is the author of Chip Wars.
I started by asking him what this new restriction could mean for TSMC.
Thus far, the US Commerce Department has only said it's not going to automatically issue licenses for TSMC, the world's largest chipmaker, to import the most advanced chipmaking tools into its facility in China.
It still could issue case-by-case licenses, but TSMC won't have the assurance that it can automatically acquire the tools that it needs to make chips.
And how likely is this to cause disruption?
What is this kind of licensing process like?
Well, the first thing to note is that TSMC's presence in China is actually quite small.
The vast majority of its manufacturing is in Taiwan, where there are no restrictions on the import of these chip making tools.
So we're talking about a small share of TSMC's overall production footprint.
And the import of these tools is only needed when you're expanding or somehow changing your production line.
So if you're going to run an existing production line forward, you generally don't need new tools, unless something breaks.
So we're really only talking about restrictions that will be impactful if TSMC wants to significantly change its production footprint and if the US government decides not to issue one of the case-by-case licenses which it could still do.
And are we likely to see TSMC and other chip makers, as a result of Trump's stance towards China at the moment, completely move away from China when they're looking to expand?
I think all of the world's chip makers have realized that producing advanced chips in China is something that the US government is not going to allow.
But when it comes to producing less advanced chips, which are the types of semiconductors that TSMC produces at its China facilities, there's a lot of uncertainty as to what the US government's stance is.
The reason that these companies had previously applied for and received the automatic licensing regime was because they wanted certainty as to what the US government would allow.
And the Trump administration is signaling now that it's not going to give that certainty, perhaps because it's going to push companies to ensure that more of their investment happens elsewhere.
Yeah.
And uncertainty isn't good for any business, is it?
But these chips are important for so many products around the world that we need these companies to keep going and expanding as they are in order to fulfill the demand.
I think that's right in the abstract.
I don't think this particular move is going to imperil global chip supply, in part because we're talking about a very small share of the world's chip plants that are impacted, and in part because these plants can continue operating as planned.
We're only going to see an impact if there's some sort of change in the production footprint or if new types of tools need to be imported for the plants to continue their existing operation.
This is unlikely to be a move that has any sort of immediate impact.
How do you think the US is going to respond now that they've put this restriction in place?
Are they going to be offering these kind of case-by-case licenses?
Right now, we just don't know.
Over the last decade the US has offered a lot of case by case licenses both to US firms and foreign firms to move restricted technology into China.
But it's also denied a lot of those license requests.
And so it's very difficult to tell what stance the Trump administration will take.
And I imagine its decision making process could be shaped by trade relations with China, as well as with other countries that are involved.
And are we likely to see China respond in any way to these kind of continued moves from the US to restrict their access to some chip making equipment?
Well, the changes in the rules only impact foreign firms operating in China.
China is, of course, happy to have foreign firms operating, but what they really want is Chinese firms producing as advanced chips as possible in China.
I think the Chinese government in general looks at the investments that TSMC, as well as Korean firms, made a decade or two ago differently as investments that were useful at the time because they helped transfer knowledge to the Chinese workforce and the Chinese ecosystem.
But now China is racing ahead to support domestic firms with domestic production.
And so for the Chinese government, these plants aren't particularly important anymore.
Chris Miller, the author of Chip Wars, there.
Alphabet, the owner of Google, shares are up sharply after a US court said on Tuesday that it won't have to sell its Chrome browser.
Russ Mould is investment director at AJ Bell and is still with us.
Russ, this must be good news for Google and for its shareholders.
It's certainly nowhere near the bad news that shareholders were most frightened of when, a year ago, Judge Mehta said that the company had too powerful a competitive position in search.
And some investors felt that would mean the judge would demand, as you said, either the sale of the Chrome browser or the spin-off of the Android operating system for mobile phones.
That is not going to be the case.
There are changes Google has to make share data, end exclusivity agreements with people like Apple or attempt to try and crowd out other competitors from the Apple iPhone.
But overall yes, nowhere near as frightening a judgment as it could have been for Google or, for that matter, Apple.
Yeah.
And good news for big tech in general, I guess, as it kind of suggests that regulators maybe aren't being as strict as we first expected they could be.
I think if I was a Google competitor I'd probably be a little bit frustrated, because I'm sure they're looking to.
They were hoping for a way to lever their way in.
I think, again, yes, a sigh of relief.
And that's why Alphabet, Google's parent shares and Apple shares are up on the New York Stock Exchange today.
And the U.S. factory orders are down 1.3 percent in July.
Is this expected now that the tariff policy is a bit more certain and we're starting to see the impact of that?
I think it's a legitimate worry.
I think we're getting some very noisy numbers in the American economy.
Companies were prepared for the tariffs.
They were preparing for the tariffs by building up inventory and finished products in the spring.
Then they got Liberation Day in April.
Then they saw the tariffs come in.
Then they saw the delay.
So they're trying to deal with many different cross-currents.
So I think the numbers are likely to be noisy as companies adapt to a fast-moving environment where presidential social media posts have great influence.
So I'm not surprised that the numbers are difficult to interpret.
It does tally with a slight softening in the US jobs market however, and we'll see what the next run of those looks like on Friday.
Yeah, lots of uncertainty there.
We'll definitely have to keep an eye on those numbers later on in the week.
And OpenAI has agreed to buy a product testing startup, Statsig, for $1.1 billion.
It's one of the largest acquisitions that chat GPT makers have made, isn't it?
Yeah, I mean they're on the acquisition trail at the moment with Statsig, with Rockset, with Johnny Ives hardware business.
But don't forget, they're paying for all of these deals in shares.
And when the company's valuation is so high, there's really very little risk in them doing that.
So I can understand why they're moving so quickly to benefit from their very lofty valuation hundreds of billions of dollars.
It's a land grab for technology.
It's a talent grab for people.
And at the moment, OpenAI has got a very useful currency with which to do that.
Yeah, it does seem to be that it's been quite an aggressive year for them in pursuing some of these big ticket acquisitions.
Well again, they have a lot of competition out there and they're trying to establish their position in this extremely exciting market and, at the same time, justify that very lofty valuation they've been giving investors, who will, at some stage, be looking for return on the money that they've pumped in.
Absolutely.
Russ Mould, Investment Director at AJ Bell.
Thank you for joining us.
Moving on.
Since US President Donald Trump started imposing tariffs on its northern neighbour, many shoppers in Canada have been determined to buy Canadian where possible.
Many shops have reacted to this by labelling locally produced items as Canadian.
But the Canadian Food Inspection Agency has now identified 12 cases where grocers engaged in maple washing.
That's a practice where companies use Canadian branding, like the maple leaf, to promote imported food products.
So far no fines have been imposed, but some shoppers committed to the Buy Canadian movement are worried that if grocers face no repercussions then maple washing might persist.
On the line is Sophia Harris of the Canadian Broadcasting Corporation.
Sophia, thanks for joining us.
You're welcome.
So is this maple washing a fairly new phenomenon?
Is it something that's been around for a while in Canada?
It's something that's always been known as a practice, but it's really sort of gained traction, I guess since February, when you know US.
President Donald Trump launched a trade war against Canada, as well as other countries, and started referring to Canada as the 51st state.
That got a lot of Canadians really upset.
They wanted to express their anger and the bi-Canadian movement really gained momentum where people are saying A lot of Canadians are seeking out Canadian made goods.
And when they can't find Canadian made goods, they want to find goods from anywhere but the US.
It's sort of their way of protesting with their wallet.
So you're really seeing sort of a renewed interest in this buy in Canadian.
Yes.
So now maple washing, you can Google it and everyone's talking about it here in Canada.
And what are you seeing when you go to the grocery store and the supermarket?
Are you seeing sort of more Canadian branding on some of these products and a real show in the supermarkets to prove that these things are Canadian?
Yeah, since the buy Canadian movement took off, grocers are bending over backwards to label things as Canadian.
The big grocers have even put out, you know, glossy TV ads with big maple leaves and it's and Canadian flags and saying you know, we're here for you.
We're helping you to buy Canadian.
They've seen this as an opportunity to get shoppers in and get them shopping, even if they're not buying US goods.
Yeah.
And it must be difficult to label some products that will have kind of multiple origins.
How do you define a product as like definitively Canadian?
Yeah.
Well, it is very confusing.
And that's one thing.
They both have different definitions.
There's also Prepared in Canada.
And, you know, Canadians aren't sure of the definitions either, but...
So, you know, it is complicated.
But, you know, the argument is grocers have had enough time to figure this out.
And when you slap a maple leaf or a Made in Canada sign on something, it better be correct.
So CBC launched an investigation and did find mislabeling in stores where the maple leaf was symbol and or, you know, made in Canada or product of Canada signage was used to advertise a product that, when you look at the fine print, actually you know came from the US.
And the Canadian Food Inspection Agency has also found cases of this, which is why you know they announced these violations, and shoppers keep sending me photos of the of this problem, where you know clearly.
When you look at the fine print, you're able to figure out this product came from the US.
Was, you know, grown in the US?
And this is a clear case of mislabelling.
Yeah, you've got shoppers turning into private investigators for you there.
That's working quite well, isn't it?
So these consumers, they're worried that this is happening and no fines have been made, have they on the grocery stores?
Is there a concern that this is going to happen more as a result that there kind of isn't a penalty?
Yes.
So what the grocers tell me is that you know they don't deny there's mistakes going on, but they tell me these are mistakes that you know they're dedicated to correct labeling.
But when you're dealing with mass inventory and constantly changing suppliers, it's just really hard to keep up with thousands of products coming through your store.
But what shoppers say is, look, this buy Canadian movement started in February.
You've had months to sort of figure this out. put resources into getting the labeling right.
And they just sort of get offended when they think you know a product they want to buy.
They think it's Canadian.
Get all excited.
And if they take the time to read the fine print, it says, you know, product of U.S.
And so shoppers say they don't understand how the grocers can't get it right by now.
That makes total sense.
Well, we'll have to keep in touch with you to see if anything changes in the future.
That's Sophia Harris, from the Canadian Broadcasting Corporation, telling us about maple washing in Canada, bringing us to a close of this edition of World Business Report.
Thanks for listening.
