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Hello and welcome to World Business Report from the BBC World Service.
I'm Roger Hearing and on this edition, a last minute lifeline for small businesses affected. by the end of a long-standing tariff exemption on small items coming into the US.
Also, the Fed governor that Donald Trump wants to fire fights back with a legal challenge.
Raids across Brazil as the authorities there try to close down a $10 billion money laundering operation.
Also, we speak to the man at the centre of a multi-billion dollar investment in US shipbuilding.
And how old is too old for a pilot? It is no reason to have an arbitrary age.
Some pilots are unfit at 55 and others are still fit at 75.
But the airlines say they want to raise the current retirement age from 65 to 67.
But let's start with that development within the last couple of hours.
Now, if you've been listening to the programme this week, you'll know that the end of the so-called de minimis exemption on tariffs of small parcels worth under $800 arriving in the US, was coming to an end.
Now, that was causing a lot of headaches.
Multiple countries halted postal services to the US altogether, and many small businesses inside and outside the US were in despair.
Well, a few days ago, I spoke about all this to Kate Moote, who's executive director of the International Mailers Advisory Group in Virginia.
Now, she joins me again now because, Kate, something's changed.
Now, we know that the actual ending of the exemption is definitely going to happen.
That's no doubt about that. Trade advisor to the White House made that clear.
But there now seems to be a cooling-off period, about six months, with flat rates being charged.
What is the effect of this? Well, actually, I'm going to correct you here because there actually isn't really a cooling off period.
Flat rate charge has been available from the beginning.
There's two methodologies that can be used for the postal operators.
And one of them is that flat per package rate.
But it is so high, $80 to $200, depending on the country of origin, that no one's actually going to use it.
So the rate that's still most likely to be used is what's called the IEPA, tied to your tariff for your country.
But we're still kind of in the same position that we were earlier this week.
So you're saying there's no real change in this.
It's not going to make any difference with the the flat duty won't help, essentially.
Well, the Black Duty won't help because the way that's set up is it's $80 per package if you are one of the lower-tariffed countries.
So, for example, the UK would... good that's maybe twenty dollars coming to the U. S. if you use that flat rate per package it would be eighty dollars as the tariff so.
That was really put in place if the airlines just wanted to essentially count packages and put a flat rate tariff on it.
Everyone is going to primarily use this.
It's an ad valorem, which is on the... on the tariff that that country has under the IEPA or the reciprocal tariff rate that the US has on that country.
So what they're describing, the White House is describing as a six-month transition period when all this is happening.
You're saying that was there anyway. So the six-month transition period effectively doesn't mean anything. months that flat rate goes away completely- and I think in six months we'll probably have a whole new. system perhaps in place and the expectation is Customs and Border Protection will have a new rulemaking that makes postal clearance a lot more similar to the commercial clearance process. a more fully automated system.
But in any event, that flat rate goes away and I don't expect anybody to use it anyways.
Right. And you're saying in six months or so you think there'll be a different system.
But that system itself will still be far too expensive for an awful lot of people who want to use sending small parcels into the U.S.
I think what's happening is that we're trying to get it so that the commercial clearance process where you use a FedEx or a UPS or a freight forwarder and the postal clearance process are the same. same requirements, the same customs information and the same mechanism to collect the duties and taxes.
But tomorrow, in six and a half hours when this all starts, we will have a system whereby the postal operators have to collect and remit using either third-party provider, which is what Royal Mail has said they're ready to go and they're ready to do,
Or you rely on the airlines to collect and remit, but not a single airline has said they're willing to do this.
So most of the postal operators that are getting ready to, you know, a lot of countries are still having suspending packages to the U.S., but...
Those that are ready to go, like Royal Mail and I think Canada Post, have a third-party provider solution in place.
OK, OK. But as you say, essentially not much of a solution to the problem that still is at the core of all this.
OK, thanks so much for being with us and clearing that up.
Now, most of this week we've been talking about Donald Trump's efforts to get rid of one of the governors of the US central bank.
Federal Reserve, and the intention of that governor, Lisa Cook, to sue the president to prevent him from dismissing her.
Well, now she has formally filed a legal case in a Washington court.
Well, they asked our business correspondent in New York, Michelle Fleury... whether we're any clearer then now as to what that legal challenge is.
So she is basically fighting in court her attempts to dismiss and remove her from her position as Federal Reserve Governor.
This all stems from allegations that she committed mortgage fraud.
The Justice Department is investigating, but that's kind of where that stands.
And so this lawsuit is essentially saying, well, look, she hasn't been found guilty of doing anything yet.
So what is the cause that is being used here to justify her firing?
A judge will hear that case in Washington DC on Friday, but many legal experts think that this has the potential to to go all the way to the Supreme Court with both sides, the White House and Lisa Cook, clearly digging in.
And also, Michelle, you've actually been at a protest on Wall Street today.
What was that about? Yeah, so this was organised by the civil rights leader, Reverend Al Sharpton, and it was marching... down to Wall Street, past Wall Street, basically urging companies, American companies, to stick with diversity and inclusion policies which have come under pressure from the Trump administration.
But it quickly became really a sort of protest about economic leadership. with Reverend Al Charlton urging those attending to use kind of of their dollars to boycott businesses and Trump policies.
They also spoke out in many cases. They shared their opinions on the firing or the attempts to remove Lisa Cook.
Have a listen to what some protesters told me.
We have to fight for our right. We can fight with nonviolence.
We can fight peacefully. But we have to do something, because if we do nothing, then nothing will happen.
And then it'll just make it worse for the children.
I feel badly for individuals that are put in positions where they are being forced to completely sacrifice themselves for the sake of our country and fighting back.
A little part of me breaks every time I see someone being pushed out, being attacked, and I know what they must be. fearing and feeling.
Some people there on Wall Street obviously not happy with the way things are going, either the Trump administration or the economy generally.
But Michelle. We actually know a little bit more about how the economy is going.
We had GDP figures from the US today and the economy grew and actually a bit faster than most people thought in the second quarter.
Yeah, I mean, 3.3% annualised pace in the last quarter.
That's according to the government's revised second estimate.
Much better than people were thinking. This was for the period between April and June.
But here's the thing. Many people are still waiting to see the fallout from President Donald Trump's trade wars.
And economists say again and again that we won't really... see a full kind of account, if you like, of that until maybe October.
And the reason for that is that if you think about tariffs when they were introduced back in April...
Many companies anticipated that and so brought forward their kind of purchases.
In other words, they stocked up on inventory to avoid the tariffs.
And as they start to run out of stock and as these tariffs go into effect...
That's why you've got this delayed effect that people are kind of waiting.
So people are saying this number is great, but it's backward looking and we're still worried about the future.
Michel Fleury. Well, let's now talk to Kerry Leahy, economist at Columbia University in New York, who's joining us now.
Kerry, thanks for being with us again. Do you share that analysis that essentially...
The figures now, the GDP figures are not meaningless, but they don't really give you the full picture of the impact that Donald Trump is having on the economy.
We'll have to wait for that. Oh, absolutely.
The first thing you need to do is average the last two quarters.
And if you average a zero and a three, you get about one and a half points. which I think is what most people think the economy is cruising at at the moment.
And then, as Michelle correctly pointed out, Firms went into into recession mode and planning for the tariffs by by. pulling in inventories and light to deal with the tariffs.
And we have not yet seen the economic impact of tariffs themselves on activity, just on inventories and basic planning.
And that we probably won't know until October, and October may still be a little too early because things really have not settled down in terms of, A, what is the size of the tariff, and, two, what we should do now that we know what its size is.
Yeah, and all that, of course, all that data is going to inform a lot about what the Fed decides to do in terms of interest rates.
And as we know, there's some very heavy pressure on the Fed right now.
We know that Lisa Cook is... launching a legal action.
How concerned are the markets about the independence of the Fed, of the central bank, which is what seems to be at the heart of this?
I would say they're handling it surprisingly well, but I don't think they are underestimating the extent of what this could ultimately mean. revolves around the fact that a more independent central bank, which the Fed is a member of that club, generally has better outcomes for the economy, both on the inflation rate and the unemployment rate, and if we go down the road of a less independent Fed, we're probably going down the road of slower growth and higher inflation.
But in the meantime, what Trump really wants to do is to lower his interest costs.
And the way to do that is to stack the Fed with his appointees who will push down short-term rates that will allow them to finance deficit and let long-term rates do what they may do.
And that may mean that we'll have higher mortgage interest rates rather than lower, depending on how the market looks at the story about the tariffs, inflation and the economy.
So a lot's hanging on that. But the sound of it could go, as we've heard, potentially all the way up to the Supreme Court.
So we'll keep an eye on that. Oh, absolutely.
I mean, otherwise, just looking around at the moment, what's interesting, Kerry, is the way that the US government is becoming involved in business.
Not quite nationalising, but taking stock literally of certain companies, Intel being the most obvious example of What are people reading into that?
I mean it's not what you'd expect of a traditional Republican government, is it?
No, it is not. It's certainly in keeping with a leader with a big stick, and if necessary, you will nationalize industries.
We know that didn't end up well in the UK, and it probably won't end well in the US.
Generally, stores don't have good... Where there are good outcomes are at the beginning when the government provides some seeds of to mainly technology and science-related businesses.
And that's one of the reasons why we had the Internet and the development of the microchip, which really started out with a lot of federal government And the outcome of that was obviously very, very positive.
Yeah, well, we'll see what happens with Intel.
It will be very interesting to see. Kerry, thanks so much for being with us.
Kerry Leahy there, giving us a sense of where the US economy is right now, where it might be heading.
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You're with World Business Report from the BBC World Service.
Now, just a few days after the visit of the South Korean president to the White House, one of that country's biggest business conglomerates has announced a $5 billion investment in a commercial shipyard in Philadelphia.
The Hanwha Philly shipyard is the one, in fact, that President Lee Jae-myung came to see yesterday. during his trip to the US.
Meanwhile, leading Korean shipbuilders HD Hyundai and Samsung Heavy Industries have taken the first steps in a $150 billion deal shipbuilding cooperation investment between Seoul and Washington, also known as Make America Shipbuilding Great Again, or MASGA.
Well, on Wednesday, the U.S. Treasury Secretary Scott Besant specified shipbuilding as one of the industries that the government itself could now invest in.
I don't think NVIDIA needs financial support.
THAT SEEMS NOT ON THE TABLE RIGHT NOW, BUT COULD THERE BE reshaping something like shipbuilding that, sure, there could be things like that.
And these are critical industries. that we have to We have to be self-sufficient in the United States.
That was Scott Besson, but at the moment it's the big Korean business interests that are buying into U.S. shipbuilding.
I spoke to David Kim, he's chief executive of the Hanwha Philly shipyard, and asked him what this latest huge investment was intended to do.
There's an opportunity to revitalize and rebuild and be a part of that in terms of the U.S. maritime industrial base.
And that's one thing that's driving that.
The other thing that kind of comes from that is being able to help modernize, bring some technology, but also create jobs.
We've already been able to start to do that.
And given some of the growth aspirations, we see a significant opportunity to have more U.S.-built ships that are done with smart technologies, new improved processes, and creating both direct jobs as well as indirect jobs along the way.
Well, I can clearly see the advantage to the US economy from this, certainly to the area around where this is going on.
But is there an advantage to Korea in all this?
When we first looked at the Philly shipyard, we saw an opportunity where we knew there was benefits that we could bring and contribute. bringing some of the expertise and knowledge from our international yard in Korea. and bringing those to improve the operations here.
So in that aspect, there's an opportunity to create value, improve the operations and help to grow the business here. while also creating jobs and helping the economy.
So what about the profits that come from this venture?
How does it break down in terms of putting an investment in?
What do you get out of it? What does the US side of it get out of it?
How does it all come through? through. Clearly, we want to reinvest those profits here.
And we're going to need to do that given the growth that we have.
You've seen building up to 20 ships per year is the aspiration from where we are now, which is less than two ships per year.
So that's going to require some reinvesting of those profits.
Many folks know that the U.S. is a little bit in a crisis just in terms of shipbuilding capacity, both commercial and naval capacity.
And this is one way to help build not only just capacity, but also being able to modernize the yard and doing it in terms, I would say, more efficient and productive capacity.
Also goes to what you mentioned earlier, kind of the economic development and the jobs. and just overall strengthen the maritime industrial base here.
It was only a few days ago, of course, that South Korea's president actually came to the Philly shipyard, of course, as part of his visit to the United States.
He's clearly trying to improve relations between Seoul and Washington, perhaps with an eye to trade tariffs and things of this nature.
Is that really what's behind all this? I mean, I'm not going to speak to the political intent of the president.
What I can say is we as Hanwha were already looking at opportunities to establish a presence in the US shipbuilding industry.
We were looking at at the Philly shipyard before Trump came to office, before the early drafts of the SHIPS Act.
So fundamentally for us, it started as a opportunity around strategy and growth and globalization.
Number two is, yes, there were some things that came into place in terms of the bipartisan attention to shipbuilding that as well as the ships act and some other things that have created some. tailwinds and support for what we had started even before that.
So again, I can't speak to political intent.
I could just tell you that we as Hanwha were already moving and acting well before a lot of the other recent events that have come to play.
Well, let me ask you then finally about the nature of the business you're in, I suppose, in a way.
A lot of people thought that post-COVID, but also with the new trade. brought about by the tariffs and people calling some of it a trade war, the general view is there'll be less stuff going across the Pacific in ships and perhaps even all around the world.
In that sense, do we need more ships? Does America need more ships?
Does the world need more ships? I would say fundamentally, when you look at the US market, there will continue to be a need for ships.
And regardless of kind of the number of ships, I think one thing that's been clear that's come out over the recent discussions and studies is that it is for the U.S., There is a need to grow capacity and capabilities and to strengthen the workforce with respect to the maritime industrial base here in the U.S.
And that was David Kim, the chief executive of Hanwha Philly Shipyard.
Now, police in Brazil have been carrying out the biggest operation in the country's history with raids right across the nation.
The aim is to dismantle a criminal network that's accused of laundering almost $10 billion over the last four years.
The network channeled its funds through more than 1,000 petrol stations and 40 investment companies in order to conceal the origins.
The police have been carrying out 350 raids targeting individuals and companies.
Joining me now from Sao Paulo is the BBC Brazil reporter Camila Mota.
Camila, thanks for being with us. Just tell me what's been happening.
Sure, Roger. You know, I'm in a WhatsApp group with the Federal Police Press Office with 400 other journalists.
And 6.30 this morning, we get this message. that they were launching this huge operation targeting a fraud and money laundering scheme in the fuel sector.
1,400 agents went out with 350 warrants in eight different states to make arrests, to seize assets.
And in the epicenter of all this is one of Brazil's biggest crime gangs, the First Capital Command, or PCC, the acronym in Portuguese, which as the operation has shown has completely infiltrated the fuel sector.
They own businesses in every step of the production chain, you know, from sugar cane farms to produce ethanol, all the way to gas stations, including a port terminal and a fleet of 1600 trucks and they use all this both to launder money and also to make money illegally. either importing fuel illegally or tampering with fuel to increase their profits, mixing it with illegally imported methanol, which is highly toxic.
Well, this is extraordinary. I mean there's an awful lot of money involved in this too.
I mean they're talking billions of dollars.
Exactly. You know, it's hard to pin down a number, but we've heard a lot of them throughout the day.
The revenue service mentioned at least $1.4 billion INVADED TEXAS ALONE.
THE POLICE SAY FUEL SALES THE POLICE SAY FUEL SALES ACCOUNTED FOR AROUND $10 BILLION ACCOUNTED FOR AROUND $10 BILLION FROM 2020 TO 2024.
FROM 2020 TO 2024. AND AS YOU MENTIONED, AND AS YOU MENTIONED, also rated 40 investment funds allegedly controlled by the PCC with around $6 billion in assets. which means the PCC might have also infiltrated São Paulo's main financial district, Brazil's Wall Street, so to speak.
I mean, that's the most extraordinary thing, isn't it?
I mean, it shows you how far this has happened.
It's been infiltrated. What does it tell us about Brazil that it functions in this way almost for four years? without noticing the fact that the petrol stations, investment companies have all been infiltrated in this way.
Right. You know, I think it tells a lot about how organized crime has been infiltrating traditional economic sectors. the real economy, quote unquote.
A few months back, I remember being surprised by this research that showed that organized crime in Brazil nowadays profits more from fuel, liquor, cigarettes, and gold than from cocaine.
With the details of the operation today, we can better understand the scope of all this, how drug businesses might have become secondary.
And it also shows how this criminal organization has expanded over the past decades.
The PCC was born in the 1990s, inside prisons in Brazil, and it's become this international enterprise.
Absolutely extraordinary, isn't it? Camilla, thank you so much for taking us through that.
Camilla Mota there in Sao Paulo. Now, how old is too old when it comes to being a commercial pilot?
Well, right now the international age limit is 65.
But IATA, the group representing global airlines, has asked the UN's aviation agency to raise that to 67%.
They say worldwide demand for air travel is outstripping the current supply of aviators, so they want to keep their older pilots on a bit longer.
Well, the major pilot unions in the US have opposed a higher retirement age based on safety concerns.
So I've been talking to Kit Darby. Now, he was a commercial pilot for around 30 years. captaining 767 passenger planes for United Airlines in the US before having to retire aged 60.
And that was just months before the limit was then raised to the current 65.
I asked him whether he thought it was reasonable to be able to retire at 67 now rather than 65.
Well, I believe it is. It very much depends on the individuals.
It's not a blanket approval. An individual pilot needs to be certified medically every six months that he continues to meet a medical standard.
And as long as you can do that, then you should be able to fly safely, successfully, and bring your years of experience with you as well as helping alleviate the pilot shortage.
But a number of your former colleagues would say, well, hang on, this is a very demanding, strenuous... sort of work really the the hours that you would serve and also the timing you need people to be at the peak of fitness and you know even just that couple of extra years might make a difference It is a demanding job, but pilots have been doing it their whole life and you benefit from their experience.
And of course, there's two of them. So I really don't see the issue.
I mean, the biggest thing, the objections I see from the pilots that are younger are that the older pilot stays a little longer and that delays their progress up what we would call the seniority list.
So this is not a merit promotion system.
If you meet the minimum standards, you move up in seniority, length of service with the company.
So they're concerned that if you stay a little longer, they don't move up as fast.
It is short-sighted, however, because they too will have the additional years, and those additional years are at maximum pay, best time off, best airplane.
So it is a decent trade and it does help alleviate the shortage.
On the basis of what you're saying, about the amount of tests that have to be done to prove fitness.
I mean, why have a retirement age at all?
Why don't just keep going until people fail the test?
I would agree with that 100%. I mean, it is no reason to have an arbitrary age.
Some pilots are unfit at 55 and others are still fit at 75.
I'm 78, and until a couple of years ago, I was taking the same check ride that a working pilot took to maintain my position as a simulator instructor and would have certified had I been allowed to and able to fly the plane until 75.
And you had to retire at 60. Is that right?
I did. I was back in 07. And six months after I retired, they upped it to 65.
The difference was a multimillion dollar difference for my career.
So you weren't pleased that you had to retire, I guess?
No, it had always been that way. I was anticipating it.
I dealt with it okay. I continue working today.
So for some people, if that's all you do and it's taken away, it is devastating.
For me, I've always had a few different irons in the fire and I've moved on to other things.
I suppose the risk about having people just able to pass the test and keep going is that there'll be an incentive for a lot of companies maybe to turn a blind eye sometimes at things. to keep the people there, to avoid having to pension them off and train new people in.
I mean, you could see how the financial pressures might push them to actually keep people longer than they should.
Oh, I'm not sure how the pension is formed in your country, but in our country, you sort of pay as you go.
So the pension is funded as you work. And I might add, there's another very important test here.
I mean, not only do you have to certify medically hearing, vision, cognitively, that kind of thing, But you also take an operational check in a simulator, which is just like the airplane, and do all types of normal and emergency procedures –
So not only are you medically fit, but you're tested in the job under the most demanding circumstances.
There should be no doubt that you can do the job.
So, Kit, if we put you in a simulator today, would you be able to pass you at your age, do you think?
I'm sure I could. Like I said, until two years ago, I was passing the same test that an active airline pilot captain took.
So I would have passed the test. Kit Darby there, who might, I suppose, still be piloting planes, but certainly not the big commercial airliners.
Anyway, that's it from this particular flight on World Business Report from me and the rest of the team.
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