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Hello and welcome to World Business Report on the BBC World Service, I'm Will Bayne.
Great as always to have your company.
In the past hour the global business world has once again been turned on its head by an announcement from President Trump in what seemed a pretty fired up start to his Friday the President first took aim at one of the world's biggest companies the American tech firm Apple I have long ago informed Tim Cook of Apple the President said that I expect that iPhones that will be sold in the United States of America will be manufactured and built in the United States not India or any place else he had written on his true social site a few minutes later it was one of the world's biggest trade blocks in his crosshairs
the European Union as the president announced 50 % tariffs potentially from June the first on all European imports to the United States after declaring his frustration that talks on a deal between the two sides had gone nowhere.
Q, global stock market falls and a slew of scrambling business HQs on both sides of the Atlantic this Friday.
Erin Delmore is with us, North America Business Correspondent joining us live from New York Shanti Kellerman also with us live, chief investment officer at M &G Wealth here in London.
Erin, it exploded almost out of nowhere this on Friday didn't it?
Yes well it did and it's not just any Friday here in the United States.
Memorial Day weekend is when a lot of folks have the Monday off.
That's this coming Monday it's also a bank holiday and a lot of people here tend to slide into their weekends kind of gradually on the Friday before.
No such thing if you were attuned to president Trump's truth social account this morning.
Now, let's be clear.
It's not an announcement.
He's saying he's recommending these increased tariffs on goods imported into the U .S. from Europe and again with Apple.
You know when he talks about these specific tariffs on one consumer product the iPhone we're not sure at this moment what legal backing he's relying on for this.
It is very unusual to target one consumer product.
And so you know one thing that we do as reporters is we look around And we do a 360 -degree view and say, well, what changed?
Why is this happening now?
And we look for a reportable, observable fact.
And one thing I can point you to today is that the US Trade Representative Jameson Greer is meeting with his European counterpart, Mario Sefcovic.
And with that meeting, you can see how an adjustment in how the US views this trade relationship in Europe could actually set a very different stage for those talks.
And in fact, perhaps put the European negotiator on a bit of the defensive here with a bit more work to claw back to a place of parity with tariffs.
Europe is still within the 90 -day pause that Donald Trump himself set, that pause which is supposed to grant time to negotiate a new tariff scheme and Europe is a 27 -nation bloc.
It takes longer to craft a deal with Europe than it does with a singular nation.
We were in fact on the programme today going to mark pretty much bang on halfway this weekend isn't it in that 90 -day pause for countries all around the world in terms of the trade truce.
That's what we are expecting to chat about on the programme today.
That's an important point you make Aaron as well though has this been followed up by anything more official than the president seemingly sort of lashing out on his social media accounts or trying to put pressure on or social media accounts has it been followed up at all by officials or anything yet.
So typically what we see you know in times past would be the White House putting out an economic adviser and maybe it's Howard Lutnick maybe it's Scott Besant maybe it's Jameson Greer.
We're not seeing that yet today.
Now President Trump does have an unusual way of communicating what he recommends as policy changes or what he hopes will come down the pike or what he says he intends to do with policy, really using his own truth social platform as a microphone here.
But no, we don't have more meat on the bones of the policy here.
That said, a social media post is enough for the US stock market to react.
And in fact, for global stock markets to react.
We saw stocks take a real hit this morning, certainly in Europe where trading was underway and in pre -market trading here in the United States.
That meant on the opening bell, we saw stocks continue to slide.
And right now the markets are paring.
Some of those losses from earlier markets opened here about an hour ago.
We are still seeing all three of the major U .S. averages down.
Apple stock was down at one point a bit closer to 3 percent.
Now it's more like 2 percent again on that news the President Trump is targeting tariffs on iPhone sales of iPhones made outside the United States.
Again it's something that he's put on social media.
It is not something that has been inked into US policy.
Yes Shanti standing by to look at those markets in a bit more depth just on Apple specifically then, Erin, as well you were reporting you were sending your emails round to the rest of our team in the business unit all around the world here for the BBC about these talks that has supposedly been going on between Tim Cook the CEO of Apple and the president and his administration through the week what's been the kind of tension point and clearly that those talks presumably have also similarly run into some sort of breaking area too given the president feeling the need I guess to try and eject some
some jeopardy, some urgency into those as well.
Yeah I mean this certainly spices up some of those conversations that have been the review.
Tim Cook was meeting with Donald Trump earlier this week.
Broadly let's set the stage here Apple is one of the country companies that has been in the US President's sights, you know, he hasn't shied away from making criticisms, he did it with Walmart as well and Apple is a company that makes a lot of the components for its iPhones in China.
Now, it had been moving production out of China to other countries, chiefly to India, which had a more positive tariff structure with the United States.
China got those eye -watering triple -digit tariffs on goods coming in from China to the US, which again, we use as shorthand we say tariffs on China.
What we mean is that US importers pay the tariffs on the goods coming in from China.
And so China had rerouted some of that production to India but wasn't shy.
You know on May 1st Apple had an earnings call and talked about how there would be a significant effect.
You know they said that they expect a nine hundred million dollar additional costs for tariffs in the current quarter.
And that's the kind of headline the Trump administration does not want to see.
They want to see a real policy about building up domestic manufacturing.
Well Apple also put five hundred billion dollars on US development, and Tim Cook, for his part, did donate a million dollars to President Trump's inaugural fund.
So this is a relationship that we've really seen kind of ebb and flow.
To see Apple in the crosshairs here is something new and different.
But let's break it down by the numbers.
An Apple iPhone here, an iPhone 16 costs something like $1 ,000, and some estimates say that if that US -made iPhone existed, if it was completely made within the US borders, it would cost at a minimum 25 percent more.
and some estimates have that $1 ,000 phone as costing $3 ,500, because, Will, we're not just talking about making components, making machinery, training up a workforce to make the parts, we're also talking about labor costs, which are higher in the United States than they are elsewhere.
This is a real sticking point about moving manufacturing over to the U .S. And so, right, they're framing it up really as a national security imperative saying semiconductors are important to national security.
Apple, the company the government is saying should help build up that supply chain here.
But they're saying it's not going to be without some pain points along the way.
Yeah, we're going to have more of those through the program and they're not been the only ones talking about some of the difficulties and just flicking a switch, isn't it and bringing production back Nike earlier in the week and their financial results to Erin.
Thanks so much for your time.
Erin Delmore. There are North America business correspondent joining us live from New York with what we know then.
So that's laid the ground.
What about what's happening?
Shanti. Kellerman as I say, Chief Investment Officer Emigy Wells is looking at exactly that right now shanti.
Great to have you back on the program, yeah, exploded and nowhere, as I was saying a little bit, and the market reacted kind of accordingly, I suppose not just in Europe, but in the US as everyone was saying as well.
Yeah, but I think looking at the market we're down, I don't know, maybe one and a half, two percent in Europe now, but one in the US, I don't think people are expecting that 50 % to actually be implemented.
If it were, I think those numbers would be, you'd be down a lot more.
And the other thing that's happened in the last hour or so is you've had Scott Besant who's a Treasury Secretary come out and give some kind of positive thoughts about trade deals with other partners in Asia so that's kind of counterbalance some of it in the market so I think I think the main thing is we've kind of forgotten a little bit discussing on some of the tax and spending bills in the US that has a much more positive spin in a way for equities that's all about it you might have higher economic growth and yes but we go back to tariffs then the focus goes on possible recession trade war
and it just brings back that negative all the thoughts about the bad things could happen and what about Apple specifically shanty as well just looking at those what damn just over 2 % right now it shares as well what did you kind of what do you make what does the market make of that round I'm sure it's legally possible to have tariffs on a single product from one company?
I mean, maybe it is, but I don't think it's ever been done before.
You might have tariffs on a specific type or class of steel.
So one, is it possible?
I'm not really sure.
Apple has committed to invest a lot of money in the US.
They've said, I think, 500 billion over four years.
So it's not like they're not doing anything in the US and and even their move to India took a really long time you know there is no overnight fix I you know will it actually implemented I think it's unlikely but at the same time you don't want to be have all these threats being thrown around about your company and you don't want your prices to have to rise really significantly because then probably less consumers will buy your product even if they're good products good point about the legalities that both you and Aaron raise we'll try and put that we've got Professor Kent Smetters coming up a little
bit later on in the programme.
Professor Smetters is a former US Treasury official himself, maybe he'll be able to shed a bit of light for us on the legalities all of that.
But let's get some more European reaction.
First of all, because Lucas Sipa has been waiting patiently to speak to us as well.
Lucas is a member of the European Parliament sits on the International Trade Committee as an MEP there.
Lucas, thanks for being with us on World Business Report.
Thanks for having me.
It's a pleasure. Your reaction then to this today.
So I think the first thing that you to stress it's very interesting that Trump switches from just making an announcement to making a recommendation.
That's something that we haven't seen before and it's now questionable how his government will actually act on this.
I think it's another example of Trump's negotiation tactics where he punches you face first and then asks you for a deal.
I hope that our commissioner doesn't fall for this.
And now, it will force the European Commission, of course, to rethink its strategy.
We have, after the so -called Freedom Day, paused our countermeasures.
The original plan that was outlined in our committee was to do it for two weeks.
We now gave the US a little bit more.
I think now we have to have a stronger stance and actually pull through with the countermeasures if the US keeps on acting like this.
What the president seemed to go on to say, and we didn't read all of that out and from the true Social Post because it was a long one on the European Union stuff wasn't that he was cross about there not being kind of reciprocal moves, as he saw all the EU moving first, he kind of felt that it was in these deals that partners coming to the US should be moving first and then the US can negotiate after you would like to see the European Union stay in its position that if someone moves on tariffs, then both move equally in the same amount in the same direction.
I mean, I think the U .S. moved first, in the very beginning, right?
We had a working trade relationship, and then Trump came and trampled it all down.
So we made an offer with a 0 for 0 policy, and we haven't had any response to this in any kind so far.
That would be a good deal.
But what we have also seen in the negotiations is that the U .S., our U .S. partners, are asking for us to take back some of our legislation that we agreed upon within the European Union and that we will definitely not do.
I was gonna say a big one seems to be the EU Digital Services Act doesn't it?
This is a policy that's sort of meant to kind of police particularly those really big technology firms are particular ones running kind of internet services – the Matas and the Googles etc. You see that as a red line do you.
I see it as a red line and I also have some bad news for the U .S. for this in light of Elon Musk's recent actions and especially his interference in European elections we will even make this law stronger.
What do you mean by that?
That we will enact ...
No, but what are you accusing Elon Musk of doing?
Oh, here I mean he basically gave big interviews for example in the German federal election for the AfD.
he used his platform to advocate for certain political groups in the Romanian election.
He took a stance on Le Pen's proceedings.
But there's plenty of European politicians, I mean, there's plenty of your colleagues in the European Parliament, aren't there, in Strasbourg or whatever, who come out and have told plenty of people to vote for President Biden in the US election or to stay well away from voting a Republican?
I mean, that's just all… that's just political knockabout, isn't it?
That's what happens everywhere in the world.
Yeah, but the difference is we cannot turn the algorithm of the platform to push for our posts.
Elon Musk can do that, and he is doing this.
Whenever there is a post of Elon Musk, this post is being shown to millions and millions of people who don't even follow him.
And that's the clear difference, and that's where he crossed the line in our opinion.
You can have your opinion, you can advocate for political stuff, but when you're also the owner of the platform, and then you use the mechanism of this platform, that's where democracy is in danger.
The issue in Europe here, Lucas, and we're going to hear a little bit more from the Danish export association in just a moment as well, is that we're hearing from companies talking about the pressure they're under immediately already.
Hacken Samuelson, the now new CEO, been kind of brought back into Firefight at Volvo, the big Swedish car and truck manufacturer, been saying in the last last sort of hour or so as well in response to all of this, look, it's pretty simple.
Some of our models just won't be affordable to export to the US anymore.
We're looking at laying off staff, and that prices are gonna have to rise.
I mean, this is going to have an immediate impact, even if this is just a threat, right, because they're gonna have to act now.
I mean, that's why it's terrible, isn't it?
And I think what we'll do is we will support our companies with that.
We're gonna subsidise them where we can.
And also what you have to take into account, all this legislation that we're doing right now with the omnibus, with the fight against overwhelming bureaucracy and the help for the green transition, all of that is also meant to strengthen our internal market.
And at the same time, we are discussing Trump in the committee for international trade.
We are also discussing all the time how can we deepen the single market and get rid of trade barriers within Europe to help our companies and our workers and our population to bear the costs of this trade war that the US is threatening, you start or even has started and not reached.
Lucas, thanks so much for your time this afternoon, Lucas C, the member of the European Parliament sits on the Committee for International Trade then, all as I mentioned, and that Glasgow has also been speaking to us Annette is the CEO of the Danish Export Association.
This is the kind of urgency I think we have been in since Trump's, you know, since his election campaign and time after time we have been in a situation where we have tried to deal with the urgency and then it didn't happen so I think there's also kind of a a cautiousness or sort of a waitingness where companies are trying to see okay so what is this actually going to happen, and what is going to happen, you know, so far what we have been able to calculate is that only 3 % of the Danish companies will only 3 % of the export will be affected by this but of course we have companies that are worried.
Well yeah and already making decisions right already having an impact I mean we've seen say a big company like Nova Nordisk or a big company like Orsted the wind turbine maker have had significant actual tangible impacts really already because of the type of uncertainty you've you've kind of illustrated there.
Yes, absolutely. I think there are two types of companies.
The ones that already have production in the US, they are not as affected.
And that can be positive to some of the sub -suppliers to these companies.
And then there are the SMEs that right now, they do not have the luxury to actually ship, you know, to produce in the US.
So for them, this could be a really big problem.
But I think a lot of the companies are trying to see how they can maneuver and how they can redirect some of their exports.
For example, we have seen an interest in exporting to Canada and some of our members are wanting to keep stock for some of the other companies, waiting to see what is happening.
So you don't have to ship directly to the US.
You can ship to Canada and then you can have your goods there and then you can ship them into the US when you have your sales.
So you sort of try to break up the challenge of shipping directly into the US if this makes sense.
But a lot of the companies are trying to see, you know, find alternative ways if they have production in Denmark.
They might be able to produce something here and then wait before they ship it or they have production in China, for example.
What we hear all over is really everybody is looking for certainty and security and if there's something that Trump is not providing, that's exactly that.
Annette Glascott there of the Danish Export Association.
You're with World Business Report on the BBC World.
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Well, plenty of European reactions so far, haven't we?
Let's get a bit more American reaction.
I mentioned him a little earlier, didn't I?
Professor Kent Smetters is joining us live.
of professors matters is at the Department of Business and Economics and Public Policy at the University of Pennsylvania.
He's also the Director of the PEN Wharton budget model a program that charts the economic impact of US government economic policy in real time.
And as I mentioned a little earlier as well, former Deputy Assistant Secretary for economic policy at the US Treasury professors matters.
Thanks so much for being with us on world business report.
Great to be here. This is a little bit different to the interview we'd originally lined you up to chat about, we were going to go halfway through what impact is tariffs had now?
Why don't you just give us a top line reaction to what the president said.
And as Erin Delmore, and Shanti Kellerman was stressing at the top of the programme, it is just what's been said.
So far, isn't it hasn't really been followed up by officials yet.
That's right. I mean, this is a classic, what we call game of chicken in economics, where lots of threats are made if people go through with these threats, they actually been terrorised, were all kind of worse off.
But the whole goal of the Game of Chicken is to try to get the other side to move and in the end, you know, extract something from them.
You know, Thomas Schelling, who won the Nobel Prize in Game Theory, basically said if you're playing the game of chicken, basically you want to convince the other side that you really are willing to go through with your threats.
You know, you act really extreme act kind of crazy.
it's good game theory but in the end you know these things can often end where you know both sides are acting proud and things just unravel.
And as we were just talking about damage is done immediately right because a lot of these companies international globalized companies in a globalized marketplace have to make decisions on the maybes right not just not just the facts.
Yes economic uncertainty has gone up that reduces investment but you know the one part that is not getting enough attention.
It's not just the trading goods and services, but it's the capital flows.
It's the other side of the balance of accounts.
In particular, capital really was leaving the United States on April 2nd, the whole Liberation Day tariffs.
Very nervous about the future of the United States.
And this is happening at the same time that Congress is trying to pass, you know, these tax cuts and you so therefore, you're trying to sell new debt into more narrow capital markets.
You know, these it's a it's a it's a pretty dangerous combination.
Yeah, just explain that through.
So in particular, you're talking about the cost of US government borrowing what we call treasuries and and the yield on those as well.
I've got equities up on the screen next to me.
So you might have to talk us through what's been happening in the last couple of 20 minutes with those or so is there a bit of big reaction on that?
Sure, as some of the earlier commentators in your show pointed out, the market right now is clearly pricing in the likelihood that these are just threats that are not going to go through.
If the United States actually goes through with some of these threats, and then there's a legal issue whether they can actually do a specific threat like this on Apple But if they went through with a 50 % tariff on Europe, then you're going to see a very sharp decline in the stock market But what really is going to happen, too, is a lot of capital is going to flow out of the United States.
Ten years ago, foreign entities bought 40 to 50 percent of all new treasury securities.
That number has been coming down.
It started coming down during the first Trump term with the rise of tariffs, and that number is coming down even more.
We're likely looking at less than 20 percent foreign take above U .S. treasuries.
So that means the U .S. with this ballooning kind of debt is trying to sell more and more debt into a more shallow capital market.
And that's going to make it really more painful.
It's going to mean higher interest costs.
But it also could mean that we don't actually just feel a smooth pain.
What all the models and as well as all the data shows historically in other countries is that we can even jump to an equilibrium of more of a doom loop of, you know, a bank run problem.
And that's, we were hinted on that already on April 2nd.
A team loop is where all the bad things kinda keep chasing each other around.
One kinda keeps informing the other.
So people keep selling various bits and everything that, you know, at a time where people are meant to buy bonds, when they sell company stocks and shares, all those things start happening at the same time everybody just leaves everything, basically.
That's right. And that's really the big threat.
It's not the smooth, you know, trade -offs, you know, you say, okay, maybe we went too far, you know, we have too much that we're selling to a narrow capital market.
let's unwind some of this, let's make some tough decisions.
Sometimes once you realize that you've gone too far, it's simply too late, you've shifted over to an entire different equilibrium of failure and it takes a lot of pain, austerity style, Greece style to get back to the more favorable economic outcome.
Just a quick thought on Apple, I don't know if you know the answer to this, don't know if I unfairly posed that you might be able to help us answer it but, And Shanti Kellerman was asking whether it's legal to put tariffs on an individual company.
From your understanding and your time in the Treasury, that's something that's come up before.
Yeah, I don't want to necessarily play lawyer, given my training in economics, but I will say the precedent does have legal authority in the United States, but it's broad and it's in four different areas.
It usually requires clear guidance on national security threats or what's called product Dumping that is if there's a surge that is happening or clear declared national emergency.
So one could argue that certain products like Tiktok, deep sync and so forth, you know, one could say maybe there are some secrets and there's some, you know, foreign intelligence embedded in that and things like that.
That's maybe a stretch. I'll leave it to the lawyers to figure that one out.
But when it comes to the apple iPhone, that's a much harder case to make.
And so the four different mechanisms that the President has available, it's very unlikely that something as specific as the iPhone could fit within that.
Interesting. Professor, thanks so much for your time and your explanations that Professor Kent matters that professor at the Department of Business and Economics and Public Policy at the University of Pennsylvania in the US.
Well, let's end with some international reaction we've heard from both sides, really Europe and the US.
What does it mean for all the rest of us listening around the world Andrew Wilson Deputy Secretary General at the international chambers of commerce is with us.
Andrew afternoon. Thanks so much for being with us on World Business Report.
Good to be with you will as we've mentioned before in a globalized world these companies where they're employing people where they're investing it doesn't matter if it's just two markets that are that are arguing with each other.
It could have implications right around the world, right?
There's absolutely no doubt about that.
And I think what we're seeing is another and very sad in many ways you turn in what for many businesses is now becoming a horror story as you very rightly said just a few minutes before the announcement from the President today injects huge uncertainty into the world's largest bilateral trading relationship and I think if we're if we're looking at a potential 50 % tariffs on imports from the European Union then that implies a significant dislocation and what would you like to see now what would you be appealing for?
Look, I think the EU needs to come together quite urgently.
Clearly, the European Union has, to a degree, a collective action problem.
It has different national interests within the bloc.
The US is citing different national level measures in terms of its complaints about EU unfair trade practices.
I think we need to see the European Union urgently come together, work through a clear concerted strategy, redouble efforts, and hopefully de -escalate this.
Yeah well, it'll be something we're gonna have to watch. Rahul Tanden will be here with the late edition of World Business Report at 10 .30 GMT with all the very latest and more reaction from right around the world.
Andrew, thanks so much for your time.
Sorry we got a little squash there on what's been, as you can imagine, a heartbreaking news filled programme.
Andrew Wilson there, the Deputy Secretary General of the International Chambers of Commerce.
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