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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 takes its dispute over U .S.
tariffs to the World Trade Organization.
The issue of debanking debated in the U .S.
Congress. Are financial institutions discriminating against certain groups or industries?
And the insurance crisis caused by California wildfires.
But let's start with the China issue, as has been developing across the trade between China and the US.
China's now made a formal complaint to the World Trade Organization over the new US tariffs on its imports to America.
In a statement cited by the WTO, China said the measures appeared to be inconsistent with US obligations under the agreement that led to the creation of the WTO.
So could the US face a judgement against the tariffs?
Well, it's unlikely since December 2019, the WTO's dispute settlement system has been effectively paralysed because the first Donald Trump administration and then President Biden blocked the appointment of new judges.
Well, I got the latest on all this from our North America business reporter, Ritika Gupta.
No, we haven't had any reaction yet from the Trump administration.
The latest has been is that China has formally launched this.
And the speed, I think, is interesting of to which China filed this complaint with the WTO because it's indication of Beijing's readiness for this trade fight.
The WTO procedures, it gives the U .S.
and China 60 days to resolve this dispute through their own consultation.
But the final WTO panel that settles those trade disputes remains unable to function.
So I think that's also another big issue to keep in mind here because the U .S.
has refused to approve the appointment of new judges to the body.
And I think they need three of those.
But of course, meanwhile, the whole issue about tariffs seems to be rolling on, not least in terms of a dispute, seems to be a kind of confusion almost about small parcels coming into the U .S.
from China. Now, the US Postal Service actually, for a certain point, refusing to deal with them at all.
Yes, you're quite right.
There was a lot of confusion over this.
But the US parcel halt, it seems to be an example of the potential impact for Chinese consumer goods makers and sellers from those 10 % tariffs imposed by Trump on Chinese goods.
And the latest development being that the US Postal Service has reversed a decision to halt China's shipments and said it's accepting all international inbound mail and packages from China and Hong Kong.
And that walks back an announcement that they made just hours earlier to halt some overseas shipments.
And the agency said it's working to ensure efficient tariff collection.
And as you mentioned, it caused quite the stir, a lot of confusion late Tuesday when it said it would temporarily freeze the package shipments from China and Hong Kong without really providing an explanation either.
And this abrupt move, I mean, it just threatens to exacerbate this trade war.
And it weighed quite heavily on the shares of some of those retailers like Alibaba and JD .com.
And again, it's unclear what prompted that initial pause and the reversal as well, or whether this turnaround was the result of a political decision or a logistical one.
But it comes after Trump revoked a de minimis rule for China, which had previously allowed small packages of under $800 to enter the US duty free.
And that exemption was revoked as part of this new 10 % tariff on goods coming from China.
So as we sit now, the situation is that these tariffs are there, there's no sign of a phone call with President Xi Jinping, which we had been told about earlier in the week, and the trade war is going to go on as per plan.
There doesn't seem to be a way out of it.
I mean, that still remains uncertain.
As I mentioned, there is still time before China's retaliatory tariffs come into place on February the 10th.
Here on World Business Report.
The complaint that China is bringing to the WTO on its normal basis, do you think it is a strong case?
It may be a strong case the way the WTO dispute settlement system used to work, but it has no possibility of succeeding here ultimately.
The WTO appellate body, the second -tier review body, isn't functioning.
It's closed and has been for five years.
And the panel stage, the first stage, works very slowly.
It would probably be a year before there would be a decision from that.
And so as far as the legality and enforcement ability of the WTO, it's practically nonexistent.
And the United States has defied a number of other decisions that it disagreed with and simply appealed them to the non -existent appellate body, in other words, put them into limbo indefinitely.
And that's what they do here, even if they got an adverse decision by a panel.
Well, Tom, let's break that down a little bit, because there are two things going on.
There's the appellate body, as you say, the group of judges.
You were involved, of course, with that, which hasn't been functioning because the U .S.
has blocked the appointment of new judges on that.
But the other system, the longer -running system, does that have teeth?
Could that actually at least suggest a way of trying to bring America into line?
No, in short, except by diplomatic pressure.
And a number of countries will probably disagree with and challenge or at least argue against what the US has done.
And it's conceivable that they could form some type of coalition that might impose additional measures against the United States.
But that would be extra WTO.
The WTO's role in that would not be much more than a talking form, a place to get together and talk about these things.
So the WTO has no teeth at all at the moment.
Does it have relevance even?
uh it it has i think it has relevance for discussing a play a forum for discussing large issues like climate change and ai and things of that kind i don't think it has much relevance in the foreseeable future on dispute settlement as such on enforcing the rules well that's that's pretty disappointing
for you isn't i mean you were on this appellate body for a while And it is, in fact, your government.
But that would be extra WTO.
The WTO's role in that would not be much more than a talking for a place to get together and talk about these things.
So the WTO has no teeth at all at the moment.
Does it have relevance even?
uh it has i think it has relevance for discussing a play a forum for discussing large issues like climate change and ai and things of that kind i don't think it has much relevance in the foreseeable future on dispute settlement as such on enforcing the rules well that's that's pretty disappointing for you
isn't i mean you were on this appellate body for a while and it is in fact your government the Biden and, of course, the Trump administrations that have defanged it?
Actually, it's not so disappointing because the U .S.
critique, as I've called it for a long time, U .S.
critique of overreach by the dispute settlement system, particularly the appellate body, has been a bipartisan complaint for 20 years or more through Democratic and Republican administrations.
I joined the appellate body during the Obama administration.
I am not a Trump devotee, but nevertheless, the point that the U .S.
has made for 20 years and tried to get others to engage with unsuccessfully is that the speech settlement function, especially the appellate body, overreached what its original mandate was and made itself into a court of international law.
extending the meaning of the rules that those who negotiated them intended and wrote them down as and agreed to.
And it's a sovereignty versus international, like the international power dispute in a way.
And the U .S. had asked others to discuss that over 20 years and never really got a reckoning with it because most others were happy with.
So you'd be, just to be clear on this, Tom, you would support the blocking, if you like, of the judges being appointed because you agree with the idea that there has, in fact, been overreach.
Yes, I do. I agree with the fact I was a dissenter often, especially in the latter years that I was there on the appellate body.
And I did not object at the time that the appellate body was closed because I had agreed with what is called the U .S.
critique for some time.
Let's talk to Susan Schmidt, Portfolio Manager at Exchange Capital Resources in Chicago.
Susan, thanks for being with us.
I mean, just give us a sense of where the markets are now.
I see the volatility index, at least, seems to have dropped a bit.
Ah, I don't think we have, Susan.
Susan, are you there?
No, I feel we may have to come back to Susan.
There we are. Susan, can you hear me?
Yes, I can. Sorry about that.
And hopefully you can hear me.
I can hear you as well.
Yeah, sorry, slight technical issues.
I was just asking there about the volatility index, which is this way of measuring, I suppose, what's happening in the markets overall and confidence and this kind of thing.
That's dropped a bit, hasn't it?
It has dropped. I think of volatility as another way to measure investors' sense of risk in the market.
So that has dropped.
And that's largely reflecting the fact that there was a lot of concern over an abrupt implementation of tariffs.
this weekend going into Monday, that's pulled back quite a bit as we now see that most of those tariffs have been given a 30 -day delay for further discussions.
Investors are really taking some comfort from that.
Investors don't like knee -jerk reactions or sudden changes, and that's what you're seeing is that volatility index drops back down.
Now, there's also other things happening, of course.
We shouldn't just say it's all about tariffs at the moment because it was interesting some data came out today, the private payroll data.
Now, that's to do with jobs.
What do we learn about that in the US economy?
So private payroll data is very important.
It's followed by the government data two days later, private payroll data today on Wednesday, the government data on labor usually comes out on Friday.
And what we saw today was a much bigger sense of new jobs being added, 180 ,000 plus jobs added to the economy.
That was well over expectations.
And last month's reading was 135 ,000.
That implies a very supportive, growing economy underneath, which also means the Fed probably isn't going to change interest rates because things are going on well.
They like the labor market as they see it.
It might even be a little bit strong for a Fed that's trying to tame inflation.
So at the moment, it's all going with what the Fed has said.
There's not likely to be a change at the next point where they consider all this.
That's right. If anything, it tells investors that the Fed is likely to stay as is for the next meeting or two, given the strength of this reading.
And of course, the market will do another on Friday with the government debt.
Indeed, it's all sorts of things to bear in mind, isn't there?
Susan, thank you so much for being with us.
Susan Schmidt, Portfolio Manager there at Exchange Capital Resources in Chicago.
Now, debanking, that's a term used to describe financial institutions refusing to provide banking services.
So private payroll data is very important.
is followed by the government data two days later, private payroll data today on Wednesday.
The government data on labor usually comes out on Friday.
And what we saw today was a much bigger sense of new jobs being added, 180 ,000 plus jobs added to the economy.
That was well over expectations.
And last month's reading was 135 ,000.
That implies a very supportive growing economy underneath, which also means the Fed probably isn't going to change interest rates because things are going on well, they like the labor market as they see it.
It might even be a little bit strong for a Fed that's trying to tame inflation.
So, at the moment, it's all going with what the Fed has said.
There's not likely to be a change at the next point where they consider all this.
That's right. If anything, it tells investors that the Fed is likely to stay as is for the next meeting or two, given the strength of this reading.
And, of course, the market will do another meeting on Friday with the government debt.
Indeed. There's all sorts of things to bear in mind, isn't there?
Susan, thank you so much for being with us.
Susan Schmidt, Portfolio Manager there at Exchange Capital Resources in Chicago.
Now, debanking, that's a term used to describe financial institutions refusing to provide banking services to certain groups and industries.
And it's been the subject of heated discussion in the US Congress at hearings by the Senate Banking Committee on Wednesday.
Senior Republicans and Democrats agreed banks may be improperly denying services to some clients.
But they disagreed on the root cause.
Republicans suggesting restrictive rules and oversight discouraged banking for industries like firearms and cryptocurrencies.
Democrats suggested that Muslims, cannabis businesses and people recently freed from jail were being discriminated against.
So how prevalent is debanking and does it happen and who is affected by it?
Joining me now is Aaron Klein, Senior Fellow in Economic Studies at the Brookings Institution.
Thanks so much for being with us, Aaron.
Now, I know you were Chief Economist formerly at the Senate Banking Committee, so you'll have a sense, I guess, of what's been going on and the issue at the heart of all this.
Is there a lot of debanking?
Is there a lot of discrimination against groups or individuals or companies for reasons other than financial?
Well, thank you for having me.
It was a joy to be back and testify before my old committee where I worked.
Look, America has a debanking problem.
Ten percent of Americans didn't have a bank account at some point last year and about four percent of households in America currently don't have an account.
And the real reason people don't have bank accounts in America is basic banking is very discrimination against groups or individuals or companies for reasons other than financial.
Well, thank you for having me.
It was a joy to be back and testify before my old committee where I worked.
Look, America has a debanking problem.
Ten percent of Americans didn't have a bank account at some point last year.
And about four percent of households in America currently don't have an account.
And the real reason people don't have bank accounts in America is basic banking is very expensive.
Unlike in Canada or Germany or the United Kingdom, where 99 .5 % of folks have accounts because the accounts are structured better.
In the US, the less money you have, the more it costs to have a bank account.
We have very expensive fees on people which drive them out of the banking system.
So, Aaron, is it just that then, a financial issue?
Or is there genuinely what a number of members of the Senate were suggesting, more ideological almost, based on perhaps worries about certain groups of people, whether it's people in particular industries or whether it's people with particular political affiliations?
Does that go on? Is that why people would be refused bank accounts?
Well, look, there's a second issue in addition to the cost that drives out low income people, which is a massive problem.
The second issue is we have an anti -money laundering regime that can be very expensive for certain types of people.
And the way the banks have handled it is, well, if you're lower income and higher risk or require more reporting, we just don't want your business.
But if you're rich and you're doing all sorts of stuff, that's OK.
We'll just charge you more.
And so in that situation, we have a set of problems, some of which is dealt in the law, some of it is in regulation.
In the United States, we have this currency transaction limit that was set at $10 ,000 in 1972.
Index for inflation would be over $75 ,000 today, but Congress, when they wrote the law, just hardwired the number.
That's really interesting, Aaron, that that's what's happened.
Yeah. I'm an economist.
I hate unindexed numbers for policy.
And now we generate over 20 million of these reports a year.
And so if you're in certain businesses, if you're dealing with a lot of cash, the bank says, it's a lot of reports.
Nah, no thanks. But again, it doesn't keep money launderers or bad people out of the system.
If they're doing bad things, they just kind of have to pay more to access the banking system.
And it's really not serving anybody's interest.
So I told Congress today we should reform this.
And so it's not driven by ideology.
It's driven by economics.
And, you know, this has been a problem for a long time.
The first Trump administration did nothing to address this.
We'll see if the second one does.
See what happens. And the other thing, I suppose, is what we you know, the term politically exposed persons is often mentioned when people talk about debanking in Europe.
Is that the case as well?
Banks say, well, if we get someone who potentially could cause embarrassment, we're not going to touch them either.
Well, look, again, from my experience, it's more of a question of how much money do you have.
One of the cases I looked at in my testimony was the Japanese baseball star, Shahani Otani, the most famous baseball player in the world.
his account he was allegedly impersonated by his translator and wired 18 million dollars to an illegal gambling operation in 200 000 300 000 wires this auto of raised 5 000 red flags and had his account shut down instead the bank said oh you're a really rich guy we'll keep processing all of these payments
gosh interesting how it works thanks so much for being with us Aaron and Erin Klein there, of the Brookings Institution.
Now, the wildfires in Los Angeles may become the most costliest natural disaster in US history.
With thousands of homes destroyed, the fires have also highlighted a significant insurance crisis.
This issue has been developing for years, affecting California and other regions across the United States that are prone to climate -related catastrophes, like wildfires or floods or storms, as our reporter Lexi O 'Connor has been finding out.
It had a fountain in the front.
On clear days, you can see out to the ocean.
And it was just a home where everybody was invited and everybody came together.
And that was grandpa's house.
Breaking news right now.
Another fire breaking out right now.
This one is near Altadena.
You can see the fire.
Rita Maldonado lives in the Pasadena district of Los Angeles.
Her home wasn't burned in the recent wildfires, but on the night of the 7th of January this year, as fires raged around the city, she rushed to help her dad and step -mom evacuate.
They live a couple of miles away in an area called Altadina.
As we were leaving, we could see the flames at the top of the street and the wind was just so strong and it was just so eerily silent.
There was no emergency personnel anywhere.
It just felt unreal.
So when did you first realise that the house was gone?
My dad and I were actually able to drive up there the next morning.
When I turned onto his street, which is a cul -de -sac, his house always blocked the sky and I saw sun shining through and I knew it was gone and I knew he knew.
Unfortunately, like increasing numbers of people in California, Rita's father had no insurance.
We got down from the car and he kind of just stood there.
And I just remember him saying, this is what I expected to see.
And of course, I wanted to just break down and cry.
But I saw him just so accepting of the situation that, you know, I had to be strong for him.
Rita's dad told her he was dropped by the provider of his fire insurance.
On top of that, he couldn't afford the rising costs of his other household premiums.
So what's going on here?
There are some 18 states in the United States that, at varying degrees of severity, are faced with insurance rates going up, as well as insurers declining to renew or write new insurance.
Dave Jones is now Director of the Climate Risk Initiative at UC Berkeley School of Law.
But until 2018, he was the Insurance Commissioner for the state of California, a role that involves regulating the insurance industry and protecting consumers.
So when I left office in 2018, the California Fair Plan, which is the insurer of last resort, had 180 ,000 policies.
It's now over 455 ,000 policies.
So these are people that can't find private insurance because the private insurers have concluded that the risk of loss is too great.
and what's happening across the United States is that because of our failure to transition from fossil fuels, global temperatures are rising and they're driving more severe and extreme weather related events.
So we are marching towards an uninsurable future in the United States and I think the insurance industry is the proverbial canary in the coal mine with regard to the climate crisis and the canary is dying.
So will what's happened in Los Angeles make a bad situation even worse?
Estimates for insurance company losses go as high as 45 billion dollars.
Lexi O 'Connor reporting there.
Now let's turn our thoughts to Japan because a man from Indonesia has been hired as Japan's first ever foreign bus driver.
He's been taken on because the ageing population has left a shortage of homegrown workers.
The 40 -year -old Indonesian called EAS will fill one of the tens of thousands of vacancies for drivers.
The fact he's Japan's first ever foreign bus driver rather highlights the government's previous reluctance to accept overseas workers and its new determination now to let in more.
Let's speak to Kenji Kushida, Senior Fellow for Japan Studies at Carnegie's Asia Programme, directing research on Japan, who joins us now.
Kenji, thanks so much for being with us on World Business Report.
how big a problem is japan's lack of available workers hi yeah thanks for having me uh it's a it's been a slow moving problem that people could see on the horizon but it's massive in areas like buses taxis truck drivers elder care healthcare retail manufacturing um there's a sort of a cliff of lack
of labor force uh looming and that's starting to hit areas.
So some regional bus lines in Japan, for example, from a few years ago, started shutting down because of the lack of drivers, not riders.
And of course, the population's aging.
The average age of bus drivers in Japan is about 53 years old.
Taxis average age is about 58.
Full -time farmers is an astonishing 68 years old average.
And are they getting foreigners in?
I mean, the government clearly wants to, to try and fill this gap.
Is it working? Because in the past, Japan has certainly shunned foreign workers.
Yes. So politically, it's very difficult to have any kind of path towards permanent residency and definitely not citizenship.
So what are the terms in which you can bring in foreign workers?
And politically, it's been a situation for, well, let's open the gates a little bit and then kick the problem down the road a little bit until necessity requires us to open the gates a little more.
So that's been the political reality of this.
And clearly there hasn't been enough in terms of filling labor shortage.
And at the current rate, there's many estimates, but a shortage of about 4 million workers or so by 2035.
And so then clearly more workers should be coming in from that perspective, But then you get the social issues of what do you do if you have a lot of workers in a relatively low wage jobs?
What does that do to the social?
