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internet connected Gemini device separate Netflix membership and additional paid subscriptions required for third -party apps you're listening to well business report here on the BBC world service with me Rahul Tandon occasionally we devote a whole program to a topic because it is such an important topic when it comes to the global economy and that is what we are doing today and that topic is tariffs because over the past few weeks if you've been listening to our program any program on the BBC World Service you have heard, as used that phrase a lot.
Why are we using it?
Well, let's be honest because the man who's running the world's largest economy, Donald Trump, has also been talking about them and using them as well.
If you don't make your product in America, however, under the Trump administration, you will pay a tariff and, in some cases, a rather large one.
Let's be clear. If Trump is imposing tariffs, we're ready.
We're ready with 155 billion dollars worth of tariffs.
Donald Trump has doubled down on his threat of tariffs, saying that time ran out to reach a deal.
No room left for Mexico or for Canada.
No, the tariffs, you know, they're all set.
We will stand up for Canadians every single second of every single day.
U .S. stock market's not surprisingly off the back of the announcement from the White House that these tariffs would be going ahead responded pretty badly.
This is in soccer terms it's a known goal but if you wanted in American parlance it's a self -inflicted wound.
It's a second climb down in as many days over the imposition of trade tariffs.
First, Donald Trump rode back in relation to Mexico and in the last couple of hours Canada has also won a reprieve on goods covered in a trade agreement with the US.
Mr. Trump says the recent dramatic falls in financial markets, crashing to their lowest level since November last year, has nothing to do with his change of heart.
This is very modest, and what we're going to be doing is a 25 % tariff on all cars that are not made in the United States.
If they're made in the United States, there's absolutely no tariff.
We started off with a 2 .5 % base, which is what we were at.
And we go to 25%. And basically, as you know, and as you've been saying, not reporting as accurately as it should be reported because it's a massive story.
Business is coming back to the United States so that they don't have to pay tariffs.
Right. To guide us through tariffs on this programme, we have the Nobel Prize -winning economist Simon Johnson, former chief economist of the International Monetary Fund at MIT, most importantly, a Yorkshireman as well, born in Sheffield.
Simon, thanks for joining us on the programme.
Can we start with a very simple question from our audience?
Just explain what a tariff is and who pays for it?
A tariff is just a tax.
It's a particular kind of tax that is levied on imports, so you stick it on the people who are importing the goods into your country and then typically they try and pass it on.
They don't probably pass on 100%, but roughly speaking on average 50 % will be seen in a higher price for the consumer.
So it's just not there for tax, really.
Have you in your period looking at the global economy seen anything like this where we've had Trump 1 .0 but this time it seems that tariffs or the threat of tariffs are being used more than before?
Yeah absolutely I think Trump won as people call his first administration which was quite different and actually the Biden administration was rather similar to Trump one.
There were some tariffs.
They were used strategically.
Mr Trump got to renegotiate NAFTA into something, it's now called USMCA, with Mexico and Canada.
I think in retrospect that was done fairly deftly.
The Biden administration did not really undo any of the tariffs that Trump 1 put in place, but Trump 2 is totally different.
Trump 2 is at the rhetorical level, night and day, and in terms of actual policy implementation, well, nobody knows what's going to happen.
No, nobody does, but we're gonna try to predict I'll have a go on the programme.
We have had periods in global trade history, haven't we?
Where tariffs were quite common. Let's go back to the beginning of the last century and we had the Holy Smoot tariff, didn't we?
That saw tariffs being quite popular?
Well, that was a tariff that was stuck on during the 1930s as part of the sort of response to the Great Depression, that doesn't get good marks in retrospect.
So trade wars are definitely something we've seen with the word tariffs in the 19th century, There were tariffs for long periods of time in American history, but there are not such large tariffs.
There wasn't that much uncertainty about tariffs.
There also weren't other sources of revenue for the federal government.
So this is a different world and this is a world in which nobody was expecting this kind of drama and hoopla and big taxes imposed on imports in this way.
Okay. Stay with us Simon. I also want to bring in Peter Tjankauskas, Vice President Research and Analysis, Arbor Financial Services.
services. Peter, you are a busy man looking at those markets because they don't seem to like the thought of further tariffs being imposed.
What have they been doing today the markets?
Well, today, they started out down very strongly.
The S &P 500 was down more than one and a half percent early in the day.
As the day progressed, they rallied back, which was a little bit surprising.
Makes me suspect that either people hope that the tariffs will be less than anticipated or perhaps even some people already know.
You never know for sure.
What's your guess? My guess is a mixture of both.
I suspect that the tariffs will be less than the worst -case scenarios that have been put out there.
And as always, it's difficult to keep any of these things totally secret.
So there probably is some information in the trades that have occurred that people have some information that they're acting on in those cases.
As Simon alluded to there, it's an important week for the global economy because we are expecting Donald Trump to unveil more tariffs on later this week and what he is calling Liberation Day.
We're looking for clues as Peter is as well so here's the White House Press Secretary Caroline Leavitt addressing reporters outside the White House just a short while ago.
It's Monday, we have another big week on Wednesday, it will be Liberation Day in America as President Trump has so proudly dubbed it.
the president will be announcing a tariff plan that will roll back the unfair trade practices that have been ripping off our country for decades.
He's doing this in the best interest of the American worker.
So what tariffs has Donald Trump imposed so far and what might we see?
Who better to ask than our North of America business correspondent Michelle Fleury?
So far the most significant tariffs that he's put in place are the ones on steel and aluminium imports and they are already causing a lot of pain.
Anecdotally I was hearing about one British CEO who is traveling to the US this week to meet with one of his clients to figure out how they were going to navigate the tariffs and the cost of the sort of import duties on the company that's bringing in his product.
It's already causing a lot of pain.
We've also got an announcement on car imports and part imports that is due to go into effect later this week.
And then of course there was those Mexico and Canada tariffs.
They were put on pause.
Potentially those also go into effect soon and that's before we even get to the reciprocal tariffs that we're expecting on Wednesday.
Yes, Donald Trump has called it Liberation Day.
Why does he use that phrase and here we go, good luck.
What might we see? So he, as you say, is calling it Liberation Day.
There is going to be a splashy announcement.
We learned today for example that it's going to be held in the Rose Garden and that all of his cabinet will be there Alongside him for the big day.
Why is it such a big deal?
Well, Donald Trump believes that the u .s. Has been taken advantage of and sees tariffs as a way of Evening out the score if you like Also in addition to that it's a way to raise revenue.
Remember one of Trump's other campaign promises is tax cuts he's got to find a way to pay for that it's difficult to know what's going to happen others certain parts of the world certain countries certain trading blocks you think he's likely to target you know I'm standing here on Wall Street they're desperate for some kind of clarity it's not clear to me that we're going to get it this week last week the assumption was that there was going to be a select group of countries the dirty 15 if they were calling it that would be targeted for tariffs based on the perceived unfairness of their trade
policies. Then, over the weekend, it seemed that we were actually in line for something much bigger than that, a return to the universal tariff idea that Trump touted on the campaign trail.
Ultimately, this decision comes down to Donald Trump.
Reports have been submitted by all of his economic advisers.
And so the final call is going to be made by the president as to how severe and how this global trade war will be.
The fact that he may be wavering about going as far as people initially thought he would go, why do you think that could be the case?
You're there on Wall Street, is that the answer, the markets?
No, I mean, I think if you go back to the first term, when the markets wavered, Donald Trump tended to pull back.
There were forces that would act on him to moderate some of his impulses.
This time around, You know, I was talking to Wilbur Ross, the former Commerce Secretary, he was talking to the BBC, and he said the President has more power now than he did during his first term.
And so I think that markets won't be as much as an influence, particularly for a President who this time round is more focused on legacy than perhaps the movement of the Dow Jones and sees tariffs as a way to kind of really, again, redress the scales when it comes to that idea of America being taken advantage of.
Michelle Fleury there.
Simon Johnson still with us as is Peter Jankowski.
Simon, on that idea that America is unfairly treated, does Donald Trump have a point there?
No, I don't think so.
I mean, you could always find isolated trade practices you don't like, you know, selling cars and car parts to Japan has always been difficult for the United States, for example.
But if you look at the way the broader trading system has operated since It's 1945, 1948, when it was established, it's been run by the Americans, for the Americans in the interests of big American businesses.
And that's happened in every big trade round.
We've got what we wanted.
So if you look at the big picture of trading goods and services, the US has got what it wanted.
Now, the outcomes have not always been perfect in its design.
Big surge of Chinese imports into United States in the early 2000s, of course.
So there are some grievances.
But the grievances are not particularly about tariffs being put on American goods elsewhere.
It's much more about how we've managed our economy, how we've managed our exchange rate, and frankly, how we've mistreated American workers in many cases.
And those cheap Chinese imports, they will be often in conversations about tariffs and global trade.
On the other hand, those cheap Chinese products have been good for American consumers, haven't they?
They've enjoyed those cheap products.
Well, that is part of what you get when imports are cheap.
It puts pressure on your producers, you hope your producers will become more efficient and be able to pay good wages of course a lot of American companies packed up and decided to move their operations off shore that wasn't that was more than was desired for certainly and you know your consumers benefit but where are the jobs and big parts of the country have absolutely suffered from the decline in manufacturing.
So there are legitimate concerns and negative impacts we've had from the trading system but it's not because other people have been treating us unfairly it's much more because the people running the American economy didn't do a good job.
OK so how will countries respond?
Let's start with one one of the biggest investors into the US, which is Japan.
Here's Steve Anagi, professor at the International Christian University in Tokyo.
Japan is expecting Mr. Trump to put on some reciprocal tariffs.
The question is where they'll put the tariffs.
Will it be on agriculture?
The view is probably yes.
The problem is, is that for the high level consumers in Japan, they actually don't really want to consume American products or even Canadian products, because they've cultivated products domestically that suit their cuisine and their food.
It's a bit difficult to say please buy our rice but we can't use your rice and I think that's actually ultimately the question for the Japanese what can we buy from the Americans that we use every day in our everyday lives for food and culture etcetera.
Japan is one of the biggest investors into the US, how will it respond to tariffs?
What can it do? So what I expect is the Japanese will likely say we're interested in investing more in terms of AI and infrastructure and connectivity to the United States, that they're going to expand some of the investments of the big automobile companies, so that they're making more products in the United States and helping hire more Americans, and again, making America great again.
I also expect them to purchase more arms and deepen their alliance to ensure that Mr. Trump understands that the Japanese are doing something for themselves, but they're also doing something for the Americans.
And that is ultimately, I think, the formula that the Japanese will take.
So different to maybe Canada and the EU which are taking a much more hardline stance at the moment.
Japan has a much more disciplined form of communication when it comes to the United States.
They, I think rarely or if ever, criticize the MAGA followers or President Trump directly.
These difficult conversations are behind closed doors.
And I think that this has enabled the Japanese to take a stronger position publicly because they don't criticize and make the tariffs something personal that I think other countries like Canada or the Europeans have done.
Stephen Nyagi, the Simon Johnson Nobel Prize winning economist still with us as is Peter Jankowski.
Simon, the Japan strategy there, do you think other countries will follow that strategy or do you think they'll be a little bit more aggressive in their response to Donald Trump?
Well, I think different countries are trying different strategies.
it depends on where your position.
Of course, Canada, for example, has some real grievances because they were told by Mr. Trump in the first administration that if they renegotiated NAFTA, the free trade agreement with Canada and Mexico, that they were good to go.
They've kept, I think, completely to the terms of that agreement and now they feel themselves to have been completely blindsided.
They're pretty angry and, of course, his tone with Canada, this whole rhetoric about them becoming the 51st state, which is absolutely ridiculous and insulting.
You know, of course it's got them antagonized.
Other countries such as Mexico are being more cautious, we'll see what the European Union does, that's really really important.
And the Chinese are stepping very softly, which is extremely interesting, because many of us thought that the point of Trump too was to confront China on trade and to cut a different deal.
But the Chinese are being pretty clever about it right now.
And Peter, that is what the mark is.
That's the last thing they want to see, isn't it, a global trade war between the world's biggest economies, China, and the U .S., and other countries like Japan, the EU, India, big trading blocs getting involved in it as well?
Well, I think it's more of a spread.
I think everyone already was seeing a pretty significant trade war and other types of competition between the U .S. and China.
I think the more disheartening thing is that rather than uh embracing our our allies and and and looking for their assistance we've gone out and antagonized them instead.
That that to me personally is the most disturbing part about all this.
There are there many within the American manufacturing sector that do support tariffs, it's one of the reasons that Donald Trump won the election.
Over the past few weeks we've been hearing from some of them, Camin Thompson has been working at the Cleveland Cliffs steel plant near Philadelphia for 20 years.
We always wanted a fair playing ground and these tariffs does give us that opportunity for the steel industry.
My plant is a main producer of high strength steel for the United States military.
We can have China coming in and just dumping overcapacity still here and cutting our jobs and closing our factories.
So this gives us the type of opportunity when these tariffs get on, that we can be able to buy American steel to keep our factories and jobs here.
Scott Paul is the president of the Alliance for American Manufacturing.
I think there's the potential to have a big upside for American manufacturing.
Look, I do think that workers, particularly those in manufacturing, feel like tariffs are part of the solution to keeping jobs in the United States and also creating the opportunity for the next generation and that we had seen that erode.
So, I do think that there certainly is that connection being made.
Simon, that is what Donald Trump says he wants to do, bring jobs back in the manufacturing sector to the US.
Will that do that? It will to some extent, won't it?
Well, I think he will get some announced investments in the United States.
I think companies can get themselves out of the penalty box right now by saying, oh, we're going to do this and that and it will create jobs.
I think, honestly, when you get down to it, a lot of modern manufacturing is highly automated, It would not surprise me at all if manufacturing output goes up in the United States.
I think actually this was already in the works.
Manufacturing employment, I'm less convinced to be completely honest. I don't think what Mr. Trump is proposing, particularly the way it's unfolding with the uncertainty and the trade wars and the on again, off again and all the ripple effects that that has, let alone raising the price of screws and steel and aluminum throughout the economy.
and I don't think that's gonna give you a boom in employment and manufacturing, sorry.
Let's bring in Lynn Fisher -Fox, a partner at Arnold & Poyner, former US trade official, a former Deputy Assistant Secretary with the US Department of Commerce.
Lynn, I know that you spend a lot of time now advising companies on trade.
When you're speaking to businesses, what's the sense you're getting from them about tariffs?
Well, as we speak to companies across various sectors, the biggest concern is uncertainty, and obviously they're very concerned about the increase in prices and the impact it's going to have on their market share.
Whether that's in the United States or US companies who are seeking to sell into other countries and facing these retaliatory tariffs, or potential retaliatory tariffs coming in response to Mr Trump's actions.
What is it they want?
Is it clarity the most important thing of what the policies are actually going to be so they can get back to planning?
because businesses we speak to at the moment say that's almost impossible.
That's right, the uncertainty with respect to these tariffs has been very difficult for business.
The tariffs are placed on, they're taken off, and I think while we'll see perhaps some certainty with this announcement on Wednesday of reciprocal tariffs, I don't know that that's going to give companies the certainty they need to really plan because those tariffs are touted as being a leverage for negotiation, which means that they could quickly come off or be lowered or perhaps increased as other trading partners react to the actions that are announced on Wednesday.
And Lynne, the global supply chains are complicated if we look at the auto business, this is on the US and the Canada border and the Mexico and the US border.
Those parts go back and forth many, many times, so it is difficult, isn't it?
But it's very difficult for companies, especially companies in those integrated supply chains in North America, because these are very significant tariffs, which have a very important impact on their pricing and cost as the tariffs go back and forth.
The reciprocal tariffs that could be announced on Wednesday may also play significant tariffs, but different tariff rates on different countries, which then also causes disruption in the supply chain is countries are looking at their sourcing questions and assessing where they're sourcing from.
If tariff rates are different in Italy than they are in Spain or different in Korea than they are in Japan, that also can change and impact their long term planning decisions.
And if that's an uncertain difference in tariffs, it makes planning very difficult.
Do you want to hazard a guess to what may happen on Wednesday Lyn or would you like to perhaps on that one?
I think that all of us are seeing that there's a lot of uncertainty and there's been a lot of shifting in what might happen, so it's sounding like there's going to be tariffs announced for nearly all imports into the United States from nearly all trading partners but the rates on different countries might be different but I'm having a hard time predicting exactly what's gonna happen.
I think everyone is, and then thanks so much for joining us here on the program.
You're with World Business Report from the BBC World Series.
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Simon, if we do see more and more tariffs you alluded to this at the beginning.
That will be bad for the global economy, won't it?
Yeah, absolutely. I mean, the course we're in right now higher tariffs, a lot of uncertainty, businesses not really knowing which way this is going, that's a recipe for a slow down.
You just sit on the sidelines and say, you know what, we can't really make this investment right now.
It's too uncertain.
We can't buy this company.
We don't want to set up this new line, let's wait and see what happens.
Well, if everybody is doing that around the world and this is a global problem Mr. Trump is inducing and that adds up to a big slowdown in the global economy.
It is not just about tariffs though, is it?
One of the areas that businesses have been talking to us about is implementation of trade policies that are put in place.
Bradford Mueller is the senior marketing strategy with the US firm Charlotte Pipe & Foundry.
I work for a 125 year -old, family -owned manufacturer and without fair and trade practices, our company wouldn't have lasted 125 years.
So we believe the President is doing the right thing to help protect American manufacturing.
We need that for our economic and our national security.
What is the biggest threat you face when we're talking about international trade?
Is it coming from China and the fact that their industry is heavily subsidised?
Yes. China's the main threat.
So our company makes cast iron pipe and fittings for plumbing and they go into large buildings, office towers, stadiums, hospitals, schools.
And seven years ago, we filed trade cases at the International Trade Commission in Washington and the Department of Commerce investigates.
And we found that the Chinese competitors were dumping their products in the US at below their cost, and trying to take market share away from domestic producers.
And they do that with the illegal subsidies that the Chinese government provides to their manufacturers, so they can take American jobs.
So, we had duties put in place on those products.
And the Chinese producers never paid the duties.
The Chinese have always denied that they're doing that, though there seems to be an increasing amount of evidence that in some sectors that is the case.
So, in the end tariffs were put on those products.
Does that always solve the problem?
Are tariffs always the answer?
Well tariffs are a blunt instrument, and I think even President Trump would tell you that, they're not going to solve every issue.
I think they've been very helpful on aluminum and steel in the United States.
Unfortunately, our products are cast iron and there are not across the board tariffs on cast iron products, either original materials or downstream products, so you can't tariff everything and there's going to be markets and products that are always going to be under pressure and the Chinese will go to where the markets are and they'll figure out which sectors are vulnerable and target those.
So yes, tariffs can help, but we've got to have broad trade enforcement of all our trade laws so that we can protect American jobs.
How much of a threat to your business is this?
Well, like I said, we've been around for 125 years and we're not planning on going anywhere, but it's really been a significant threat.
And if you look at some other sectors that that the Chinese have targeted, they tend to be very effective at driving out domestic producers.
So, you look at our textiles in the United States, you look at furniture manufacturing, they can be ruthlessly effective when they are allowed to target a sector or an industry without protection.
Yes. Interesting to hear those thoughts there also about how the Chinese are moving around to avoid some of the tariffs put in place.
media Jankowski's Donald Trump has now set an office with the department of commerce which will facilitate investments above a billion dollars in the US but until we get certainty on those tariff policies markets will be volatile.
Indeed indeed and I think you'll also continue to see pressure on the stocks with the very highest valuation since those were built on the expectation of strong growth and obviously all these tariffs is going to slow growth.
Peter thank you very much indeed Simon Johnson final thoughts for you you know for all the people across the world who are listening in different parts of the world, wherever you are, this will or could likely affect you because it could drive up prices across the globe, couldn't it?
Yes, this is a global shock coming from the United States, another shock coming from the United States, this time not caused by financial markets or by infectious disease, but caused by the government.
Mr. Trump is deliberately blowing things up in the global trading system.
And nobody knows. And I'm sure he doesn't know either where this is going.
So I'm sorry. it's just gonna be a very rough ride.
Let us see what happens over the course of the next few days.
Peter Jankowski, as always, thank you for guiding us through the market.
Simon Johnson, Nobel Prize -winning economist with his thoughts on this period of uncertainty that the global economy is and will continue to face.
We will be back with you with Business Matters in a couple of hours time where we will continue the conversation about tariffs.
I'm Rodney Williams. And I'm Travis Holloway.
Welcome to the Wealth Break podcast, a real conversation about finance.
Let's be honest, building wealth doesn't look the same for everyone.
I feel like sometimes being broke is a cycle in that we might have to revisit that.
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