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You're listening to World Business Report with me Rahul Tanden.
We're going to take you to Indian administered Kashmir.
We're also going to be talking to a former advisor to Jerome Powell, the chair of the Federal Reserve.
But we're going to start the programme once again by talking about those relations between the world's two largest economies, United States and China.
Because the last 24 hours has been confusing.
There have been talks of a reduction in tariffs, maybe further talks between the US and China.
So where exactly are we?
We're going to try and answer that question over the next 10 minutes or so.
So here's what Donald Trump has said today.
Every country wants to partake, even countries that have ripped us off for many many years.
China is an example, but it's not just China, the European Union.
They ripped us off for many many years.
And those days are over.
We're gonna make a lot of money for our people.
we'll be able to lower taxes substantially.
And we're going to be proud of ourselves.
We're not going to be a laughingstock that taking advantage of by virtually every country in the world.
On China, the US Treasury Secretary, he's basically the man who runs the economy, Scott Besson.
Well, he said its current export -driven economic model was unsustainable.
But he said that Washington was open to dialogue with Beijing.
China's current economic model is built on exporting its way out of its economic troubles.
It's an unsustainable model that is not only harming China, but the entire world.
China needs to change.
The country knows it needs to change, everyone knows it needs to change, and we want to help it change because we need rebalancing too.
There is an opportunity for a big deal here.
If they want to rebalance, let's do it together.
So how will China react to those comments?
I've been speaking to Nancy Chen, a Chinese American economist who knows the thoughts of the Chinese leadership well, also Professor of Economics at the Kellogg School of Management.
I don't think there is going to be that much confusion in Beijing, because what they're seeing is the consistent picture.
Beijing never wanted this trade war, but before this all began, Beijing was always very open to negotiating with the Trump administration.
Then the tariffs were raised very quickly, it was a little bit chaotic and sudden.
Then it was reduced for all other countries except China, which had it raised even further to a level where it's not even meaningful anymore.
So what Beijing sees is an administration that really wants tariffs to work, but move too quickly that it caused chaos.
And now they're trying to reorganize the policies so that they make sense.
That's what they're seeing.
And I think in Beijing's mind, they probably have some sense of where the landing spot will be and they're just waiting for the US to get there.
You talked there about a landing point.
What do you think that landing point is for Beijing?
And do you think they're quite happy to sit this out.
They feel that a trade war will do more damage to the American economy than the Chinese one?
Going into the Trump administration, everyone assumed that the administration was going to raise tariffs for China.
I don't think the Chinese government or economists ever thought that things can just continue on as usual.
The thing that's really been disruptive is the speed at which the tariffs were raised and how high they went and how quickly they went.
That took everyone by surprise.
It was very aggressive, so Beijing interpreted it as very aggressive.
and that interestingly kind of put them in the mood of solidarity.
Which is, if we're going to be attacked, then the only choice we have is just to sit and wait.
So I don't think it's really a question about, is it going to hurt the American economy more or the Chinese economy more.
I think had the tariffs been implemented systemically and slowly then that would have been the calculus in Beijing's minds.
Like who's gonna suffer more and, you know, how high should we go?
But given the way that it was implemented, they're sort of in a fortress war mode.
They're being attacked and the only thing they can do is just keep on going.
So I think right now, the calculus that you're implying, it's not really the most important thing for Beijing.
That said, things can change.
If the discourse from the US, if the tone is softened, then maybe Beijing and the US will go back to the original calculus of thinking it through, which tariffs make sense, which doesn't, what's the right level that we can agree on.
When the US Treasury Secretary Scott Besson says that China's export -driven economy can't continue like that, he does have a point.
A lot of people say, look, China needs to increase its domestic consumption at the same time.
If China were the same size as Singapore, you know, then it could continue to export all the way up the income ladder, as Singapore and the other Asian Tigers did in the 1980s.
But the problem is, China is simply too big.
China's sheer size is its own limitation.
As China grows and exports more and more, there's just no foreign market that can absorb everything that China wants to sell, without damaging its own domestic production capacity in a way that people in the government care about.
It's a geopolitical limitation, but it's a real and valid one.
And because of that, China has to face the fact that people just don't want to keep buying its stuff and whatever the reason is on the other side, it's real and it's true and the limitations there.
So China has to find another way to grow.
Okay, let's dissect some of Nancy's comments and these wider issues with Wendy Cutler, a former trade deal negotiator in the office of the US trade representative.
Wendy, thanks so much for joining us here on World Business Report.
You have been trying you have tried to strike trade deals.
It's not easy to strike one when it seems that neither side wants to talk to each other.
Well, I think I think there are signals that both sides do want to talk to each other, but I think the problem right now is that neither side wants to be the demander for these talks, because they're worried that that will show weakness.
So, how do you get round that?
What is the way forward in the last few minutes Donald Trump has said again, it depends on China, how soon tariffs can come down.
He's trying to put the ball in their court, they seem to keep kicking it back.
Look, there's definitely a way that they can both get back to the table.
A call could somehow be orchestrated and made and the report out will be the two sides spoke.
And both sides will not even mention who initiated the call.
And with Secretary Besant, could meet with his Chinese counterparts this week in Washington during the IMF meetings to discuss IMF issues and just get to the talks.
Wouldn't it be great if we got together and engaged?
But the other problem with engagement really is the level.
Trump wants the call from Xi Jinping, She's Xi Jinping.
He wants to discuss these issues and be the negotiator.
That will not work in the Chinese system.
They will not do a call until they are confident that proper preparation has been made so that Xi Jinping will not be surprised nor embarrassed nor humiliated.
it. Wendy, stay with us because I want to bring in a US business now.
And that is Beth Benneke, who runs busy baby, a company in Minnesota, many of her products cutlery baby mates bungees are all made in China.
Beth, thanks so much for joining us.
It must be incredibly confusing for you because every day there's different signals coming out about whether the US is close to a deal with China, whether it's far away.
How do you deal with that?
You know, it's impossible to make any decisions right now because every time I think I have a plan of how to move forward with my company, another policy comes out changing it and I have to question, okay, maybe this isn't the right thing anymore.
And I really just can't make any decisions right now, which is it feels paralyzing.
I'm sure it is. And with the level of tariffs that are currently in place, we don't know if they'll be there in six months time.
Can you keep your business going?
If you have to pay those high tariffs?
No not at all I actually have two containers with a product ready to leave China now that I can't bring to the US because it cost way too much money 230 thousand dollars I would have to come up with just to get my products into the country and I'm gonna run out of my current inventory in about two months so I don't have time to wait for these guys to figure it out and I've got to come up with a different plan.
What plan are you trying to come Right now I'm thinking I might send it to Australia and see if I can have a market of customers in Australia, there's babies everywhere in the world.
Fortunately for me my products are usable and relatable and helpful across the planet.
So I'm going to see if I can find another market to sell my products.
Do you understand what your president is trying to do here?
No. you don't understand me?
He says he wants to protect manufacturing, he wants to bring jobs back to the US, and it's going to be painful for some businesses like yours, but in the end it'll be good for the country.
No, that's not true at all.
If he wanted to bring jobs back to the US and manufacturing back to the US, corporations that sell cell phones and computers are some of the most highest profiting businesses in the US.
Currently, Lenovo, a Chinese owned computer company does not have to pay tariffs.
They make 15 billion dollars in sales in the US every year.
I am a very small a veteran owned American -owned company.
I can't bring my products.
I'm going to go out of business.
But, companies like Apple and Microsoft, they have the money to bring manufacturing to the US.
Small businesses like mine, we don't we don't have the kind of money to do that.
And the infrastructure is not there.
Stay with us for a minute Beth.
I want to bring in Susan Schmidt, Portfolio Manager Exchange Capital Resources.
We did hear didn't we, Susan?
The chief executive of Boeing confirming that China has stopped taking delivery of their new aircraft since the US hiked tariffs on Chinese imports.
So that's right a lot of bigger companies maybe can avoid some of the tariffs, but some big companies are suffering.
Something companies are suffering, Boeing's a great example of that there's a company that is dependent on sales they're one of the lead aircraft suppliers and yet losing that growth Chinese market where they are anticipating sales and future sales for the Boeing planes is a big deficit to Boeing's outlook.
So a huge problem there.
And there's a company that very opposite of best one of the largest, obviously, going through some difficulties, but that international market incredibly important for them.
And they're the ones being targeted here too.
WENDY, we heard from Beth there about the timeframe she has in terms of her inventory as somebody who is struck trade deals.
Do you think it's possible that we could see some sort of progress in the time period that Beth has in a couple of months, we may be in a very different situation when it comes to the US and China?
Well, we're not going to have a final deal by then.
What I'm hoping is within the next few months, the two sides can get to the negotiating table, but let's be clear, these negotiations between the US and China, if indeed they're going to have a chance of achieving the, quote unquote, big deal that Secretary Besson referred to, could take years.
So the question is, is that are there ways that both the US and China can unwind some of these tariffs as they make progress in the negotiation?
Okay, Beth, what level of tariffs is gonna work for you?
Would 50 % work for you?
Would 40 % work for you?
No, we budgeted for 20 to 30%.
Prior to this administration, we didn't have a tariff on our products.
We budgeted to 20 to 30 % would still work for our business model, Anything above that, it's not worth it for us to do business in America.
Beth, we're going to keep in touch with you if you don't mind, but thank you so much for joining us on the programme.
I want to get Wendy and Susan's thoughts on this because the US Treasury Secretary, Scott Besner has accused the IMF and the World Bank of straying too far from their core missions.
Let's have a listen to what he said.
I invite our allies to work with us as we rebalance the international financial system, refocus the IMF and World Bank on their founding charters.
America First means we are doubling down on our engagement with the international economic system, including at the IMF and the World Bank.
A more sustainable economic system will be one that better serves the interests of the United States and all the other participants in the system.
Wendy, have you ever seen anything like this?
We know global trade is going through a different period.
now, but it seems that the Trump administration wants to have a whole new financial system put in place as well, with some of those organisations, they're clearly not happy with them, are they?
Well, look, these organisations they all need reform.
Let's agree on that.
The question is the degree of reform and how we get there.
I had the honour of attending that speech today by Secretary Besson.
And I'll tell you, the audience wanted to hear that at least was talking about leadership and engagement in the IMF and world bank versus exiting those organisations.
So again, it's all expectations, but again, reform is needed.
The question is how much reform?
How do you get there?
And where are the different countries?
How do they fit into this puzzle?
Wendy, thanks so much for joining us on the programme.
Susan, I suppose, with the comments that we're seeing here, it adds or seems to add to that instability that's around at the moment.
It does add to that instability.
And hearkens back to comments earlier on the program where what was the plan?
Is this something that perhaps we should have led with on these discussions on having Besant come out and talk about this early on, or rather is this being thrown into the mix as another option of things that can be discussed.
That lack of form, the lack of substance, the lack of apparent pre -planning on these comments makes investors very nervous and adds to the uncertainty and volatility in the market as a result.
Okay, let's talk about something that we do know with certainty, because President Trump has made it clear that he's not going to sack the chairman of a Federal Reserve, Jerome Powell.
Last week, he had launched a blistering attack on the man that he had appointed the head of the US central bank in November 2017.
I've been speaking to Jerome Powell's former senior adviser, John Fast. I think they're extremely worrisome.
I think that they indicate that there is a high likelihood of a existential threat to the feds independence appearing sometime over the next year or so.
How crucial a moment is this.
And from what you're saying, you see this as a very serious threat?
Yes, I don't think the risk to the Fed is imminent, because the conflict between inflation and growth has not yet materialized.
The market's been worrying about that.
So, I think we should take the president at his word today that he doesn't intend to try to fire Powell.
But this president's a bit of a quick change artist when it comes to intentions.
I think when some macro variable such as unemployment or inflation turns ugly, which is fairly likely at some point over the next year, there's not going to be a quick fix for Trump in terms of tweeting some reversal of some policy.
And the obvious scapegoat is going to be the Fed.
So I don't know the form or how the battle will play out.
But I think the battle is very likely.
You know Jerome Powell very well.
You were one of his main advisors.
How will he react to this sort of pressure, both publicly and privately?
He'll basically ignore it until such time as there's, say, some legal battle to be fought.
he'll keep his head down and pay attention to his assignment, which is to try to promote maximum employment and stable prices.
And he'll let the rest just be noise on the outside.
He will keep his head down.
And that's what he's been doing.
But it's not easy to do that when you're under this amount of political pressure, isn't it?
I think it's not an easy at all.
I think it takes a person with really extraordinary character.
And And I think that Jay Powell is a person with extraordinary character, so that we're fortunate that we've had many such chairs, but we're fortunate to have one like Jay right now.
The problem is, at some point, somebody on one side of the political divide will think that the Federal Reserve chairman is favouring one side above the other.
And that's what's happened here, hasn't it with that interest rate cut before the elections?
Yes, that's been common throughout the Fed's history that people have been unhappy with politicians of one stripe or another have been unhappy with the Fed and suspected that it was working against them.
So that's not new. What's new is the explicit discussion of attempting to fire the chair.
Is that the dangerous bit?
You know, when the President says, I want interest rates to be lower, he's entitled to that opinion.
The Federal Reserve doesn't have to follow it's when he's talking about getting rid of the person who is independent of politics and is running the US central bank.
Is that where the area of concern really comes in?
Yes, I think it would be better if presidents minimised.
Some presidents have minimised complaining about the Fed at times, where they felt disgruntled.
Others have complained, I think it's better when they don't complain.
It can tend to delegitimise the institution.
They have a right to do that, don't they?
they have a right to do that.
They can issue their opinions like everybody else.
Do you think Donald Trump pulled back not because he worried about the Fed being independent, he was worried about how the markets were beginning to respond to his calls for Jerome Powell to step down or be fired?
I think it's very difficult to tell why this president's doing whatever he does but it certainly looks like the combination of the long -term interest rates rising, the value of the dollar falling in the stock market falling, which is a pretty ugly picture.
And it seems very likely that had an influence.
There we go. Those were the thoughts of Jerome Powell's former senior adviser, John Faust. I want to bring Susan Schmidt back in here.
We're having comments from Donald Trump.
While we're on air, he says, I've not called the federal chair yet.
So he hasn't picked up the phone to Jerome Powell.
But he has made those comments.
And that did seem to calm down the markets a little bit, didn't it?
Investors breathed a sigh of relief when they heard that.
There's quite a bit of concern when the suggestions are made that President Trump might unseat the head of the United States Central Bank.
That causes a deep concern within the market in that the Fed may no longer be able to act independently.
And so that kind of inconsistency in language, the change in operations, even the suggestion that that's possible to do – no president has ever unseated its sitting chair – that causes a lot of concern in the market and that lessens the stability of the US market and therefore lessens the valuation it deserves as well.
And that's something that can inflict a long -term damage on the market in terms of that valuation.
again. So it's something that investors focus clearly on having President Trump reverse that makes a big difference to investors and how they feel about the viability of the Fed going forward. When you say the markets breathe a sigh of relief, how long is that sigh?
Until the next news soundbite crosses.
And that's the unfortunate truth of the markets right now is that that sigh of relief is potentially extremely fleeting.
It can change because as we've seen between last week and this week, the narrative of what will happen, whether it's at the Fed or with regards to the size of tariffs or where tariffs will be applied, has been changing dramatically, not just in small amounts, but in complete reversal of directions.
That causes great concern.
That sigh of relief may only last for today, and that's why you're getting such seesaw action in the market.
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You're listening to World Business Report here on the BBC World Service.
Let us take you to South Asia because India has announced it is closing its land border and is suspending an important water treaty with Pakistan.
It says recognising the seriousness of the deadly attacks on tourists in Indian administered Kashmir.
Gunmen, as you've been hearing on the BBC World Service, burst out of the forest and opened fire on tourists with semi -automatic weapons, killing more than 20 people at a beauty spot in Palgan.
Aqib Chhaya is a hotel owner in the region and a member of the Kashmir Chamber of Commerce.
We cannot get over the fact that such an incident has occurred and that to win in the place we call heaven on earth.
People have been coming here, tourists have been coming to Kashmir since the last three or four decades and they have never been touched.
I just have two emotions at the moment.
One is grief and the second is anger.
It's not only the tourism industry, but the entire Chamu in Kashmir is shut today.
All industries, traders, manufacturers, people who have nothing to do with tourism, 14 ,000 buses and lakhs of students didn't go to school today.
Everyone is in mourning.
As I could tell the BBC that many businesses are now closed.
Our correspondent, Yogi Tilama, is in the Kashmiri capital, Srinagar.
All around here in Lal Chowk, which is the bustling center of Srinagar, which right now would have been open, is all completely shut down.
It's a shutdown that's been called by people who live across this region.
Businesses, schools, shops, restaurants, all of them shut down in what is actually peak tourist season.
Mehraj, a local trader, was one of those marching.
They were our guests.
This should not have happened.
We are all in shock.
The perpetrators should be severely punished.
At the home of Sayyid ad -Rasen, the only local to be killed in the attack.
He took tourists around Pehel Garmon horseback and was the sole breadwinner for his family.
There is no one to care for us now.
We don't know what we will do without him.
His mother wept." Reporting there from Srinagar the capital of India administered Kashmir.
Well I've also been speaking to Sejad Ahmed who runs DiscoverKashmir, that's a travel agency.
He is also Secretary General of the Travel Agents Association of Kashmir.
Yes, we have received the setback, but we are hopeful that tourists will impose faith on us and they will come back.
It will have around 80 % of the cancellation, but around 20 % they have stayed back and they have not cancelled.
We have no choice but to just rebuild it and gain the faith and the confidence of the travellers.
I've been to the area many times myself.
It is stunningly beautiful and the whole region relies on tourism, doesn't it?
Yes, yes it is one of the main economic sectors.
The people are employed directly or indirectly with the tourism and over the recent years it has seen a great surge and many people had invested heavily here in this tourism sector.
But this tragic incident which we are equal vocally condemned because over the last decade we have seen haven't we as you were describing there a resurgence in tourism not just from Indians coming into the valley but also from many foreigners now visiting the area once again.
Last year around three million tourists visited here and around half a million foreigners had also visited.
But the foreign influx to Kashmir is a little lower than the domestic tourism.
You mentioned there that almost 80 % of people had cancelled initially.
How can you get people to come after an incident like this?
Because many people will be worried about their safety now.
What can be done to reassure people?
We have already started sharing the positive stories, positive videos from many tourists who didn't cancel and who stayed back.
So, those people who are already here, they are also sharing their stories that the people here, local people, are taking care of them and which will definitely help us.
Sajjad Ahmed there, and we will of course continue to follow that story here on the BBC World Service, Susan Schmidt still with us.
Let's end with our final business story, Susan, because Apple and Meta was slapped with 700 million euro fines by the European Union, the firm's fines at the conclusion of an investigation, under the so called digital fairness laws, but the fines were a little bit smaller than people expected.
So could that be to do with the sort of tariff pressure that we're seeing?
Quite passively, but I think this is an ongoing dialogue between these big tech companies from the US that are trying to operate in Europe and the European Union really coming down on them.
We've had consistent stories and pressure on these companies where they seem to have a hard time figuring out how to find that happy balance with the restrictions and regulations in the EU to be able to escape getting called into court for these items and over time.
That 700 euro in total fine is still a big hit.
It does mean that these companies are on alert and it doesn't surprise investors that this is 700 euro now, but probably a conversation that's going to continue.
Susan, thank you very much indeed for that 700 million euro fine there by the European Union on those big tech companies.
We'll be back with business matters in a couple of hours time.
We'll be having a look at what's going on in Australia with elections looming there.
How's that going to affect the economy?
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