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Hello and welcome to World Business Report from the BBC World Service.
I'm Roger Hearing and on this edition, China and the US are set to begin a trade war as a phone call between Donald Trump and Xi Jinping doesn't happen.
We'll get a sense of how this is going down in Washington and in China.
and Canada and Mexico may be off the hook for a few weeks but one Canadian union leader is worried for the future.
Economically speaking, these tariffs will be very painful not just for Canadian workers but for American workers and American consumers.
And we hear about Germany's generous sick leave policies for workers.
Are they damaging the economy?
But first, US tariffs against Mexico and Canada are on hold but not, at least so far, those to be imposed on Chinese goods coming to America.
President Trump had been scheduled to have a phone call with his Chinese counterpart Xi Jinping and many in Washington had supposed that 10 % China tariffs might be suspended after that.
It was calls with the Canadian and Mexican leaders that had led to their tariffs being delayed.
Well now Donald Trump's told reporters he's in no hurry to speak to President Xi.
He said that's fine when he was asked about China's decision to issue retaliatory tariffs on US imports.
So what's the feeling about all this in China?
Well, these people in Shanghai said while the situation was regrettable, the Chinese government needed to show strength.
I think overall this is definitely not a good thing, but China also has no choice.
If it is because China is also a big country, we can't let them casually bully us and impose all kinds of tariffs all the time.
We can't be silent.
If it is because China is also a big country, we can't let them casually bully us and impose all kinds of tariffs all the time.
We can't be silent.
I don't see it as a retaliation.
It's really about the leaders of each country defending the interests of their own country.
When there is this type of trade war, whether it's between China and the United States or China and Europe, the most fundamental harm is actually to the interests of normal people, for example, on iPhones or other things.
Some views there from Shanghai.
Well, Professor Henry Wang is a former advisor to the China State Council.
He's also the founder of the Center for China and Globalization in Beijing.
How does he think the Chinese government sees relations with the US?
China still hopes through the talks, through the communications, both leaders and the government can resolve this.
And also, from what China has proposed today, it's very minimal, symbolic.
It's only an eight product category.
They have a tax on 10 % or 15%.
And China, of course, is never afraid of trade war, but China is also prepared to talk and trying to make a piece out of this.
Professor Henry Wang.
Well, let's speak now to Niall Stanage, who's White House correspondent for the political website The Hill, who joins us from Washington.
Niall, thanks for being with us.
First of all, is there a prospect now of this call happening between Donald Trump and Xi Jinping?
Well, it doesn't appear to be happening today, as you noted in your introduction, Roger, that despite the fact that President Trump's trade advisor, Peter Navarro, had told reporters that it would happen today.
So as with many things in the Trump administration, There is some confusion hanging over this call, but not today, perhaps tomorrow, perhaps the next day.
So there is an expectation then, perhaps, and maybe it might follow the pattern that we saw, obviously, yesterday with Canada and Mexico.
There's a call with the leader and then a sort of accommodation and a delay in the tariffs.
That's kind of what Washington's expecting?
Yes, to a degree. I think that there is a general expectation that President Trump is using these tariffs as threats, whether to get substantive change or to claim a propaganda victory, for want of a better term.
Now, the situation in China is a little more complicated because obviously with Canada and Mexico, those leaders could say, well, we're going to strengthen the border with the United States.
And Trump then would claim victory in that regard because of his hard line on migration.
Obviously, that is not something that can be said in relation to China, in relation to… So in a sense, they will be real.
And I guess the US and indeed Chinese consumers, ordinary people will notice them.
Yes, they will if they do indeed go into full effect.
Now, the US tariffs have gone into effect.
The Chinese tariffs are set for February the 10th.
But there is definitely the expectation that if this actually occurred, that it would have pretty direct impact because American consumers across the board are very, very accustomed to buying pretty cheap Chinese products.
And the tariffs will presumably change that.
and that is something that worries economists because of the inflationary risks inherent in it.
And I guess it must worry the politicians where you are in Washington too because I mean it's a Republican -dominated Congress but they've got constituents who are going to start noticing that their prices are going up.
I mean you imagine there must be some sort of pushback?
Well quite so and one also must note that the traditional Republican position has been very anti -tariff and very pro -free trade and the idea enunciated now by a decreasing number of Republican representatives that tariffs are taxes and Republicans should be the broadly anti -tax or low -tax party.
Some Republicans are making that argument, but they are not very vocal or numerous because Mr Trump has the GOP in such a firm grip at the moment.
Well, yes, but you imagine that could slip because in the end, if these are things that hurt, could we then begin to see a few cracks in the edifice that won the presidential election?
We could, but I think that would take some time, even if the impact of these tariffs begins to be felt in a fairly short space of time.
I think you would be looking at several months before broad -based inflation would really be biting in a way that would hurt American consumers and therefore hurt President Trump's popularity.
If all of those things happened, then I think you would be in a very serious difficulty because inflation was, for example, perhaps the issue that lost President Biden, well, the Democrats in the last election.
Kamala Harris being very identified with President Biden's policies in that respect.
And I suppose, finally, Niall, you know, this has been a whirlwind of things coming out of the White House, not just terrorists, but so much, it's hard even to keep up.
Is there a sense that there's a real dynamism, you know, whether you agree or disagree with it, that the Republicans are energised, perhaps, by everything that's coming out at the moment, or is there weariness?
China's threatening our export controls on 25 rare earth metals.
Now, some of these metals are key components for many electrical products and military equipment.
China has mastered the ability to refine such metals and produced almost 90 % of global refined output.
But what are these rare earths?
That was a question I put to Eric Shelter, professor of chemistry at the University of Pennsylvania.
Yeah, so Roger, I want to draw a quick distinction here.
You hear these terms conflated in the media sometimes.
So on the one hand, we have critical materials.
These are materials that have some essential need, would have a risk in their supply.
And the rare earth elements are one kind of critical material.
So the rare earths are a class of 17 chemical elements.
And they have this historic term, rare earth, because when they were discovered in 1788, it was a new ore.
And the geological term of the time, it was an earth because it could be dissolved.
It was a rock that could be dissolved in acid.
They are really important to the global economy because in the modern day, we find that they have tremendous use for a number of technological applications.
What kind of thing, for example?
Yeah. So for example, in the 20th century, we started discovering materials that you could make from these elements.
And it turned out that they were really useful for things like lighting phosphorus for very energy efficient lighting, things like avionics for aircraft, night vision goggles.
And also, perhaps the chief application is in permanent magnets.
So they make just spectacular permanent magnets that give you a really strong magnetism and a small amount of stuff.
So in any kind of cell phone or personal electronic device, you find these small magnets and they pretty much always contain rare earths.
So from a technological standpoint, we've really come to rely on their properties.
They've been called the vitamins of industry.
And that can only be achieved by the particular quirk of the placement of the rare earths in the periodic table and that particular chemistry and physics of those elements.
So if American industry, for example, didn't have them, we'd certainly notice.
Absolutely. Yeah, the nationalized suppliers in the PRC are supplying something like 90 % of the global market share.
And this is because since the late 90s and early 2000s, China's really built the capacity to produce and refine rare earth elements all up and down the supply chain from the mining of the ores to the separations chemistry, the production of alloys, and these things like sintered magnets.
So the most obvious implication would be that the cost of many electronic materials that we use on a regular basis would increase the quirk of the placement of the rare earths in the periodic table in that particular chemistry and physics of those elements.
So if American industry, for example, didn't have them, we'd certainly notice.
Absolutely, yeah. The nationalized suppliers in the PRC are supplying something like 90 % of the global market share.
And this is because since the late 90s and early 2000s, China has really built the capacity to produce and refine rare earth elements all up and down the supply chain from the mining of the ores to the separations chemistry, the production of alloys, and these things like sintered magnets.
So the most obvious implication would be that the cost of many electronic materials that we use on a regular basis would increase if we saw sort of a sustained restriction of supply from PRC.
I should note that during the last supply crisis, so this is not the first time we've been talking about a supply crisis for rare earths in 2011, 2012, the price of one rare earth dysprosium peaked at something like nine times the price of gold at the time that was reported by Bloomberg.
So there is a potential for a significant kind of economic hardship.
Now, we call them, as you said, it's a strange term, rare earths.
I mean, are they that rare?
I mean, could we get them from anywhere else other than China?
Indeed, they're not rare.
Rare earths are not rare.
They exist all over the world in various different kinds of deposits.
China has been able to establish this incredible capacity to produce them because they had some good sources.
But in fact, they occur everywhere.
Those sources in China gave them a good position and allowed them to build the capacity to take the current global market share in the way that they have.
And China, moreover, has a lot of expertise, scientists and engineers who've worked on the optimization of processes for the separations chemistry as well as the refining.
So they've really reinforced their capacity since they recognized that they had good sources.
That, coupled with sort of low labor costs and relatively low waste disposal costs for the mining and the separations chemistry, has created this situation where Chinese suppliers have this majority of the global market share.
Odd then, really, that the US and other countries haven't established separate kind of supply chains.
Yeah, as I say, they're suitable sources that are all over the world and they're not rare.
The established chemistry needed to purify rare earths, at least using established technology, is waste intensive and it's energy intensive.
And frankly, you know, from the 90s and early 2000s, the West was content to let China do this dirty work.
And that allowed the capacity to be built in China and established this considerable advantage.
And so it's really hard for companies or other concerns in the West to get traction in this competitive marketplace, considering things like the price volatility for the materials, the tight margins associated with production.
And frankly, the Chinese government has shown a willingness to use its position to make it challenging for competitors to get established.
So ultimately what's needed here is some radically different chemistry and engineering that can be deployed to alter the landscape with regard to how rare earths are produced.
That's going to take time and investment in fundamental chemistry for these elements, especially on the separation side.
Eric Shelter there.
Well, the tariffs on Canada and Mexico haven't gone away, and many in both countries are considering what could happen if there's no further suspension of the tariffs when the 30 days are up.
And they have to plan, of course, for that eventuality.
Well, I've been speaking about all this to Lana Payne, the president of Canada's largest private sector trade union, Unifor.
You know that our economy is quite integrated with the United States.
80 % of what we export and build here in Canada is exported to the US.
So you can imagine how difficult and challenging a 25 % tariff would be.
I've called it disastrous for working people.
If you look at the auto industry as an example, about 50 % of the parts that we build in Canada and Mexico go towards building cars in the United States.
Our estimate is that a tariff of that size on the auto industry would grind the entire North American auto industry to a halt within days, which would be the biggest kind of industrial disruption that we've seen in my lifetime.
That's for sure. So should the Canadian government, should Prime Minister Trudeau, for however long he's in power, say, OK, we'll deal with the US, we'll give you what you want in order to avoid these tariffs?
But what is it that the president wants?
Do you know? I know I have no better information than you do, I think.
I think it changes daily.
This is part of the problem.
And in reality, you know, I come from a world where we bargain collective agreements and you do not cave to concession after concession after concession.
In the end, you don't have much of a collective agreement left if you were to do that.
So the reality is here, the goalposts have kept moving in terms of the demands from the president.
First, it was a discussion about borders, and many of us never felt it was really about borders, that there was always an economic play here.
He has talked about believing in tariffs as a tool to raise money, revenue for the United States.
And of course, we know he has a tax cut agenda there.
But the reality is, is that economically speaking, these tariffs will be very painful, not just for Canadian workers, but for American workers and American consumers, because the price of things will go up for Americans, given how interconnected our economies are.
We know that the price of a vehicle, for example, will rise if we could at all make them.
That is the world that we would be living in.
And I think getting this information out to Americans has been critical.
And you're starting to see some of that happening now and more of a discussion about the trade war in the United States, which is important.
What I would say to you, though, is that Saturday was very much, I feel, a turning point for my country.
for Canada, a defining moment, if you will, because a lot of people did not think that a friend and an ally would act and take these kinds of economic warfare actions against you.
And that's what we've been experiencing for many, many weeks right now.
The threat of tariffs, the continued threat of tariffs, an executive order with tariffs, a short pause on the tariffs and the continuation of the threats of tariffs.
And Canadians have come together in what I would say has been a very special way in the last days, willing to defend their country, to stand up for their country, to buy Canadian, to do all sorts of things, to support our prime minister in what was, I believe, a necessary show of strength in that we
had huge retaliatory package announced on saturday and that would have you know ensued a quite a damaging trade war but canada doesn't have a choice here you can't just roll over to these kinds of of economic demands but if you don't roll over and these things do come in uh in 30 days or beyond that what should the government
do to support your members because your members as you said will be directly affected i think you talked about potentially pandemic style support being needed but can you give me a sense of what what that might mean?
Well, the government will have to do two things.
One is they will have to build robust worker supports.
Two, they will have to look at programs and supports that will help industry survive a trade war.
And that will be critical so that we can keep Canadians working in all the places where we can.
But the auto industry, the forestry industry, the aerospace industry, these are industries that manufacturing...
...be directly affected.
I think you talked about potentially pandemic style support being needed, but can you give me a sense of what that might mean?
Well, the government will have to do two things.
One is they will have to build robust worker supports.
Two, they will have to look at programs and supports that will help industry survive a trade war.
And that will be critical so that we can keep Canadians working in all the places where we can.
The auto industry, the forestry industry, the aerospace industry, These are industries that manufacturing that will be very much impacted by a trade war.
But also we have to look at the other tools that we have.
Canada has a lot of leverage in this kind of a battle.
We have critical minerals.
We have aluminum. We have things that the United States need.
We have semiconductors.
We build and have a lot of resources that the United States will need to make sure that their factories work and to make sure that Americans have jobs.
and we can't be afraid to use those tools if we have to.
Lana Payne there of the Unifor Trade Union in Canada.
You're with World Business Report from the BBC World Service.
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So this roller coaster of tariffs and then pause tariffs, what's been happening in terms of the share markets?
Let's speak to Ayoko Yoshiocha, who's senior portfolio manager at the Wealth Enhancement Group based in Los Angeles.
Ayoko, thanks for being with us.
First of all, well, how did share markets respond over the last 24 hours?
Hi, Roger. Yes, we had quite a rebound today with markets up about three quarters of one percent on the back of yesterday's sort of downdraft in markets.
And was that across the piece entirely?
Because obviously the various indices, but I guess what you'd expect is more the tech side to reflect that.
But was it right across the board?
Yes, the tech side was actually a little bit better than that with the tech -heavy Nasdaq index up over 1 .4%.
That segment missed street estimates, and so the stock is down a little bit in the after hours.
What are investors expecting in the next few days?
Are they keeping a wary eye on what happens with the Chinese tariffs?
Absolutely. I think tariffs and all of the trade wars, whether it's with China or Canada or Mexico or perhaps even the EU, are top of mind for many investors.
I think, however, there's a little bit of complacency that perhaps this is just being used as a negotiating tactic.
And so we'll have to see in case this actually comes to fruition.
Well, let's move our focus away from directly on the tariffs.
but there has been some interesting moves in the tech space because Alphabet, the company that's the parent, of course, of Google, I mean, their earnings, well, they've fallen a bit short of expectations, haven't they?
Absolutely, especially in their Google Cloud segment, that missed by about 2%, and so it seems like a small miss, but that's been a strong area of growth for Google, and the other areas were okay.
Yeah. And I mean, another name in that space would be Snap, I suppose, the owner of Snapchat.
How have they responded?
Because, you know, within the social media area, they're quite a key player.
Sure. So they actually beat estimates and provided an upbeat forecast.
You know, they sort of revamped their ads opportunities, sort of moving away from broad -based brand advertising towards more targeted ads, and that's really helped them out.
Now, there were two other names that stand out, I guess, in the latest tranche of earnings as we get towards the end of the financial year, of course.
PepsiCo and Estee Lauder.
Now, how have they been doing?
Sure. So Pepsi did OK.
Estee Lauder, not so much.
Estee Lauder fell today on their miss.
Why would Estee Lauder be in that position, do you think?
You know, part of it, too, is also the China tariffs that might be impacting Estee Lauder.
Because they sell a lot in China, I guess.
They do, absolutely.
And that causes... It's been a growth market.
Yeah, it's interesting, isn't it?
Everything seems to come back in the end to this standoff between China and the U .S.
Thanks so much for being with us, Ayako.
Ayako Yoshoka there.
Now, Germany has one of the most generous sick leave policies in the world.
The average employee takes 20 days off sick each year, and it could be having an impact on the German economy.
Economists at the German Association of Pharmaceutical Companies believe the country wouldn't be in recession if its workers had taken fewer days off.
Hannah Mullane's been trying to find out what's going on.
It's 8am in Berlin, Germany's capital city.
Commuters busily making their way to the office.
But how would these workers feel if they needed to take time off sick?
My name is Mariana.
I work as a production designer.
It was actually always quite easy to take a sick leave and I think people were kind of just doing it quite a lot.
Burnout was quite a common thing.
My name is Dennis and I'm a copywriter in the agency.
I think we have a quite fair policy for the employees.
I don't have to feel bad if I feel sick.
I don't have to feel bad if my kids are sick.
My name is Julia and I'm a trainee for a company that works for the German pensions.
I think I needed two weeks sick last year, but it was no big deal.
Where I worked before, I think it was an issue but at this kind of company now, we have so many employees.
Germany's generous sick leave policy means you can take six weeks off at full pay, paid for by your employer.
After that, your health insurance will pay 70 % of your salary for the next 18 months.
But what does such a generous policy mean for the economy?
Nikola Siebath is Professor of Economics at the University of Mannheim and the Centre for European Economic Research.
There's no doubt that the sick pay system is a burden on the economy, especially in crisis times like now.
We have a huge shortage of workers already.
And you can imagine if in addition to, let's say, 30 days of vacation, we have a very generous parental leave system.
Now people take more than 20 days of sickly a year.
That is a huge burden, not just and companies on their labour costs, but also consumers and people not getting services delivered when they need it.
And it's a burden that's very much on the employer, having to pay workers for up to six weeks whilst they're not working.
So how do they manage?
I think it's just baked in.
I think it's in a similar situation as you assume that obviously everybody has 30 days of vacation and you just bake this into the overall structure.
Stefan is the CEO of software company SDA and employs around 40 people.
For him the flexible working policy that came in during the pandemic is helping him manage when staff are off sick.
What I see is that people are first they say hey I will be working from home because I feel a little bit under the weather and I think this is quite good because previous to that people would be a little bit sick come to the office and then you would have a lot of sick people so that's better and you also see more flexibility around this I would say also sick
leave is also part sometimes if your child is sick and then People need to stay home to take care of the child.
A lot of people say, hey, my child is sick.
I cannot.
