Donald Trump recognises tariff 'transition difficulty' as US stock market falls again

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0:42Hello and welcome to Business Matters. I'm Roger Hearing. On the programme today, the latest as Asian markets open and the relief over Wednesday's US tariff pause begins to fade. We'll also ask if high tariffs are going to bring an end to the globalised economy. me. We've entered one of two alternatives, either what we call managed globalisation light, or we've entered fragmentation. But what I think is pretty clear to me is that we are at the end of the ever closer globalisation. Plus, Argentina faces mass disruption from a general strike against austerity policies, why Prada is buying Versace, and how tariffs are affecting the world's biggest cut flower supplier, a special report from Colombia.

1:29And I'll be joined throughout the program by two guests on opposite sides of the world, Tony Nash, CEO and founder of Complete Intelligence, who's joining us on the line from Houston, Texas. Tony, very good evening to you. Hi, Roger. Thanks for having me. Good to have you there. And across the other side of the world, Yoko Ishikura, Professor Emeritus at Hitotsubashi University, also a member of the World Economic Forum's Global Future Council, who's joining us on the line from Tokyo. So, Yoko, very good morning to you. Good morning. Thanks for having me. Good to have you both there. We'll start, I mean, as we normally do.

2:01I sort of imagine the kind of news stories that are probably around at the moment. But, Yoko, what's caught your eye this morning in news terms? In terms of the news, I thought I was getting so much bogged down with the terrorist thing and what Trump does every single day. So whenever I wake up in the morning, I said, what did he say and what's going to happen kind of thing. I think that's kind of what most of us are doing really at the moment, do one for another. Tony, is it tariffs, tariffs all the way as far as what's on your agenda? It's fun, right? It's all we hear about. It does seem to be, doesn't it?

2:39I mean, it's extraordinary, but, you know, it's important. It's sometimes a little bit bizarre, but it's certainly important. Well, anyway, let's catch up then on the very latest in the implications of all this, because this week's been about the share markets pretty much and their response to the imposition of the new tariffs by Donald Trump. And it's been pretty much a continued dive until the president paused the tariffs on all except China. And he did that, of course, on Wednesday. Then there was the huge resurgence on Wall Street in response. Well, Thursday looked rather more gloomy again, at least on Wall Street.

3:15and in Europe as the reality of the remaining challenges set in. But the Asian markets have just opened, so let's get a sense of what is going on there. Let's speak to Mariko Oye, our reporter in Singapore. Mariko, thanks for being with us here on Business Matters. Okay, how does it look at the open? Well, Roger, I said earlier in the week we're back on a rollercoaster ride and I kind of regret saying it because we're definitely on it. Of course, as you were saying yesterday, we saw that surge in Asian markets and, of course, global stock markets until Wall Street kicked in. And this morning, Asian markets are taking their cue from Wall Street.

3:55So Japan's in the K225 down about three and a half percent at the moment. South Greece, KOSPI and Australian stock markets also open lower. It's not a wild swing that we've seen earlier in the week. We're still talking about two, three percent. And so, you know, but, you know, slightly not the sharp fall that I had been experiencing all week on that roller coaster. But still, it is quite exhausting, isn't it? Just going up and down. Well, I think we're all kind of feeling that just in whatever you think of it, just in terms of tracking it. But Marika, I mean, I just want to get a sense from you of how it looks from there, because you're very much focused on Wall Street and how it's all playing there.

4:33And we've heard about what's going on now from you in the Asian markets this morning. But do you get a sense that at least as far as China is concerned, they're going to escalate further? We had, of course, Donald Trump now or the White House at least saying 145 percent on many items. I mean, you know, is it now time for Beijing to fire back? Well, we'll see. But, you know, I think a lot of analysts have been telling us that Beijing wouldn't want to, you know, wouldn't want to look weak in this trade war and they would not back down and they have so far not backed down. And I think in terms of tariffs, I mean, it's astronomical numbers that we're talking about.

5:12But some analysts were telling us even yesterday or the day before that they're so high, those tariffs that the US and China have been slapping on each other. They're so high that it's impossible for any businesses to make a profit by exporting to each other. So it almost kind of does not matter how high these tariffs go. I think the question is whether or not Beijing decides to retaliate in another way. Of course, they have several options, some of which more extreme than the others. And that's what we're watching. I mean, it has been fascinating, however, that the mainland Chinese stock market hasn't actually been doing all badly at all.

5:48It's been mainly Japan's Nikkei 225. And also the Taiwan stock market has been hit really, really hard because of these tariffs. And I think that is because a lot of Asian countries, many of them are very close allies and friends of America, have been hit by very high tariffs until, of course, they were paused yesterday, the day before. And, you know, a lot of investors were caught off guard by that. But of course, the trade tensions between the world's two biggest economies, that has a huge implication on the rest of the world and the region, of course. So So that's why I think we're seeing this wild swing once again.

6:25Well, Mariko, what about all those other places in your part of the world? And there are many of them that initially, of course, were facing up some pretty hefty tariffs. I think Cambodia came very, very high on the list. And now that seems to have eased, at least temporarily. But at the same time, knowing what's happening with China, how does that all play out? Because in the past, these countries, a lot of them in Southeast Asia, have been real supply shops, perhaps sometimes the Chinese factories, that then make things that go to the US. Yes, that's right. I think, you know, these are the countries that actually benefited from the first trade war.

7:01If you remember back in, when was it, 2016, when Mr. Trump started that first trade war against China, because a lot of companies shifted their manufacturing from China to Vietnam, other parts of Southeast Asia. And as a result, Washington's deficit against, for example, Vietnam, that became so high, it's now the third highest after China and Mexico. And that's why Vietnam became one of the key targets in this latest trade war until that pause button was hit. Now, these governments have taken a very different approach from Beijing. They hadn't retaliated, but also for Vietnam, they've been actually lowering import duties on American products, entering Vietnam, trying to win some favor and whatnot.

7:45But otherwise, until that pause button was hit, it would have been impossible for Vietnam or Cambodia to buy more from America because their economies are much smaller, of course. And it's just impossible for them to keep buying from America, which is what Mr. Trump and the White House have been wanting. So at least yesterday when that pause was announced, it was definitely a collective sigh of relief in this part of the world because they now have 90 days or 89 days now to negotiate that deal with Washington. And we'll see who can actually get some kind of a deal. But, you know, so far, no one has been too successful, but at least not taking that aggressive stance by retaliating like Beijing.

8:26So far, that seems to have worked with the White House. Well, we'll see where it goes. Mariko, thank you so much for being with us, giving us that insight, really, into thinking in your part of the world about the, well, real crisis, I suppose you could call it, in terms of response to the tariffs and also just not really knowing when they're coming on, when they're going off, what's all going to happen. I mean, Yoko, in Japan, I mean, you're looking at this again. And, I mean, Japan was subject to tariffs and then the tariffs eased as well. What's the feeling there? I think it's still sort of wait and see.

9:03And I think we started off with that. And we had a little bit of wishful thinking that Japan may be exempt from all these other things from the U.S. tariff policy. But then, you know, we were disappointed. And so I think people are sort of waiting to see what Trump is going to do. because I think the Secretary of Commerce in the U.S. kind of mentioned that Japan is in a good position in terms of the negotiations because they were the first ones who came to talk to Trump after this tariff thing. So we'll see how it goes. But we do have lots and lots of things with the U.S. and other countries in Asia.

9:54And quite a few Japanese companies moved the manufacturing facilities and things to other Southeast Asian countries. But then we were hit again. So it's sort of how far do you want to go? But I don't think that the Japanese government is going to do the reciprocal things like China. I mean, China is just standing very strong against the U.S., which you really do not see that much in other countries in Asia. But, I mean, the U.S., on the other hand, is really focusing on China. And they don't really care about other countries. I think they're much more focused on China and they want to make sure that they take the leadership position against China and try to get rid of China.

10:53Yeah, trying to, as you say, trying to confront in a way, I suppose. But Tony, let me come to you because there's an image building in my mind of a long, long queue of countries coming in a suppliant way to the White House. Oh, can we do a deal? Can we do a deal? all lined up and that this somehow is almost what Donald Trump wants. And of course, excluded from all that is China. Is that the right way to see it? Well, I don't know. Let's first of all, I am pulling for Japan. I love Japan. I help me get it done. I think they're a great partner for the US. And I really want that to be one of the first ones done.

11:31But Roger, you know, here, let me just pull back a minute. And let's look at how this started, right? This started as a reciprocal tariff. So Donald Trump is bad, and everyone hates him and all that. So let's just put that aside. And let's just look at this objectively. And this started with the US putting reciprocal tariffs on these countries. So basically saying, the tariffs and non tariff barriers that you levy on the US, we're going to monetize those and levy those back onto you. And that simple action caused all of this. Okay. So the U.S. treating other countries the way the U.S. treats them.

12:14Now, we may not like the mode that it came in. We may not like the pacing. There's a lot of we may not like about it. But the objective fact remains that this is simply the U.S. putting onto other countries what they put onto the U.S. Now, China is different. It's moved well beyond that in some of these cases. Objectively, looking at the rest of the world, that's what the U.S. has done. Now, with China, there are a lot of other factors, including this list that China published yesterday talking about the things that they would do and consider in retaliation for the US or to the US. So this includes banning US services exports.

13:04OK, so that tells me that China won't have access to US financial markets. That's not going to happen. Halting IP protection for US companies. OK, well, that just tells Americans that China is what we always thought they were. Imposing forced technology transfers. Again, that's just reinforcing, like they're saying this stuff out loud, like in black and white. So is China going to go and force technology transfers from American companies? Microsoft has massive operations there. Google, you know, Tesla, all these places have massive operations there. So China put this in black and white. So if the US, can you imagine, people are actually coming to China's defense over this.

13:44Can you imagine if Trump put this in black and white and said, we're going to go to British and German companies, and we're going to extract their intellectual property, and we're going to impose forced technology transfers. So this is just, to me, it's surreal that China's actually put this out in public. Okay, well, I mean, it's interesting, as you say, that it's got to that stage. And I want to move the conversation on a bit, because what it will do, whatever the rights and wrongs on either side of it, and there's much to be said, what it's going to do is change the dynamic in terms of the trade between the world's two largest economies and many other economies besides.

14:22And of course, that is all was about globalization. Let's just use that term for a moment. Globalization, the process whereby after the end of the Cold War, the world economy became integrated. So a car designed in Europe with parts from Malaysia could be assembled in China and shipped to the United States. In theory, it brought jobs and prosperity to some developing countries and cheaper goods for consumers in the developed world. But the lower wages for workers in poorer countries, of course, also damaged industry in the richer ones and became, of course, hugely unpopular there as a result. Now, that was in a world where trade barriers like tariffs existed, but they were not impossibly high.

15:03Now, is the era of globalization coming to an end as a result of everything that's happened? Well, I put that question to Mohamed El-Erian. He's the former IMF Deputy Director, now President of Queen's College, Cambridge. I think we're definitely leaving behind this era of unfettered globalisation, where the objective and desire was for ever closer integration of people, of trade and of finance. We've entered one of two alternatives, either what we call managed globalisation light. It is managed. It involves a whole series of negotiations between countries. And it's slight. It's not the extreme version of globalization.

15:47Or we've entered fragmentation, where the system develops a number of pipes, and there is no common theme to the global economy, and there's very little global cooperation. But what I think is pretty clear to me is that we are at the end of the ever closer globalization. Well, doesn't that sound in a way a bit drastic. What we've got, in effect, is a US president putting in place, perhaps temporarily, who knows, some extremely heavy tariffs. But we know he might take them off tomorrow, next week, in a month's time. Is it really the moment to sound the death knell? I think it is for a few reasons.

16:26First, we've gotten to the point where, because we didn't deal with the distributional effects of globalization, in particular segments of the populations that were alienated, marginalized, and became angry, you will not get democratic support for return to the globalization era. And I think that politically and socially is very important. Second, it's well beyond economics now. National security and geopolitics are driving the truck. Economics is sitting in the back seat. And the minute you talk about national security, then the weaponization of tariffs and the weaponization of investment sanctions becomes an extremely attractive tool.

17:07Now, you mentioned two options, managed globalization and fragmentation. I mean, can you just get a sense of what that means? Managed globalization would mean that the trade will still go on reasonably easily between the major economies, but not as easily as it did before? Correct. The design would stay the same. So think of a system where the U.S. is at the core. The U.S. provides the global reserve currency. The U.S. financial markets are where countries outsource their savings. And in response, the U.S. plays a leading role in global policy coordination. Think of that as the system. Under managed globalization light, that system would have lots of negotiated outcomes and differentiated tariff rates.

17:55but it will still operate. Fragmentation is a system whereby you build a whole set of pipes around the US. You can't replace the US. There is no other currency that can be the reserve currency. There is no other financial system that can step in. But countries start turning towards bilateral and regional partnerships and rely less and less on the US. So that's the big difference between the two. It's a difference of design. But it's also a difference of implication. I mean, if you're saying lots of small pipes, if you like, from the US to the rest of the global economy. Would that be based on bilateral deals, essentially, and not much more?

18:32It has started. Let me give you three examples. One is the creation of a new multilateral institutions a few years ago that doesn't include the US. It was the China-led Asian Infrastructure Investment Bank. Second, over 50 bilateral agreements between China and other countries that never involved the dollar. And then the final one, and the one that's getting a lot more attention than many realize, is Russia. How has Russia managed to continue to trade while being thrown out of SWIFT, out of the dollar payment system? And there's a lot of interest in this cluttered, inefficient system that has emerged.

19:10And of course, the trouble with more countries being interested is that they can take that system, which currently is very inefficient, to a more efficient destination. Now, one of the things people would say about globalization is it had many issues, but one of them was it brought a capacity for people in developing poorer countries to earn. It brought jobs and that that has changed dramatically the nature of the modern world. Will that come to an end as well? The notion which played out in many, many countries was a simple one. You can use the global economy, global markets, global production, global supply chains to turbocharge your own domestic efforts.

19:52China did that very well. Korea did this very well. Country after country managed to use the global system as an accelerator of their own development process. That is no longer going to be available. Similarly, in the old days, if you had a choice, you wanted to be a small open economy. Singapore was the example where you're very agile and you didn't really need much internal resilience in terms of raw materials and everything else because cross-border supply chains work very well. In the new world, you want to be a Brazil. You want to be an India. Very large domestic markets, resources, and relatively closed.

20:31So we're seeing fundamental changes not only in what are the most attractive attributes, but also in the ability to use an external engine to accelerate your own domestic engine. Mohamed El-Aryan speaking to me earlier. Yoko, do you agree? Do you think it is effectively the end of globalization? I tend to agree with that, unfortunately. I mean, even though I don't like it, I mean, the globalization has benefited a lot of things. And yet, I think we're at the end of that. And I'm afraid that the fragmentation is going to take place, which means a lot of things, particularly for the developing economies and the people there.

21:14Yeah, I mean, because it brought obviously some benefits, huge benefits, jobs, as I was saying, in places like Bangladesh, for example. But Tony, one of the problems and maybe part of what got Donald Trump into power is the anger of workers in the richer countries who felt undermined by globalism, by globalization. Yeah, I think that anger is a little bit overplayed. I think it undermines the intelligence of the people in the countries who see how these countries are subsidizing and regulating their industries into an export position. So it's easy to go, oh, those people whose families just have jobs in manufacturing, they're just mad.

22:02And yeah, maybe, but maybe they're just smarter and they can see that these companies are gaming the system. And, you know, under the GATT, the General Agreement on Tariffs and Trade, which we had until 1992, you had a more rigid system for tariffs and non-tariff barriers and other things. Under the WTO, you have a much freer system for this. So the average tariff under the WTO has been something like 2.4%. Under the GATT, it was 35%. Okay. But under the WTO, you have a lot more regulatory restrictions on imports and a lot more subsidies. And so I think people have just realized over the past 10 years, hey, countries are gaming this system, whether it's German automotive or Chinese technology or whatever it is or American food or whatever it is.

23:00People are gaming this system. So I think the working class anger is overplayed. played, I think the intelligence of the citizens is something that people have just realized. Well, it'd be interesting to see. I mean, it certainly, there is anger out there and there is annoyance, maybe for good or bad reasons, but it may well now, of course, bring about the end of that period altogether and something we don't quite know what will emerge. We'll see Mohamed Al-Aryan setting out some of the options there. Stay with us. Much more coming up here on Business Matters in just a moment. In fact, we're going to Argentina.

23:32See you then.

23:38The Interview. The best conversations from across the BBC. Today we are spending trivians on war and peanuts on peace. With the people shaping our world. You're making decisions that will have long-term consequences for the levels of greenhouse gases in the atmosphere. Wind power in the United States has been subsidised for 33 years. Solar for 25 years. That's enough! The Interview from the BBC World Service. Listen now wherever you get your BBC podcasts.

24:15Welcome back to Business Matters with me, Roger Hearing, and my guests today, Yoko Ishikura and Tony Nash. Now let's turn our thoughts to Argentina. There's been a general strike there on Thursday, called by the powerful Union Confederations. It's against public spending cuts put in place by President Javier Millet, who took office at the end of 2023. All domestic flights have been cancelled. Trains and metro services were suspended. Many shops were closed. Isabel de Bray is an Associated Press journalist in Buenos Aires, and I got her to give me a picture of the day. A bit of a mixed outcome from this general strike that was called by the main union, this cross-section of Argentine workers.

24:56I woke up today and the first thing I noticed was a pile of trash outside my house because garbage collectors did not come. And then I noticed I couldn't take the subway because subways were canceled and then trains were canceled and hundreds of flights were called off. Some hospitals weren't taking appointments because they were only available for urgent cases. Some schools were closed. So we really saw that ultimately the country's main union confederations called CGT was able to get a large number of workers and union members to walk out of work. But at the same time, as the government was very keen to point out, there were some movements, there were taxis actually that were operating, even though the taxi union didn't want them to.

25:38There were buses, crucially, that were operating because the bus union decided not to join the strike. And actually cafes and bars and clothing stores were all open. So that wasn't the case in past strikes. I would say that, you know, the union leaders are calling it a success. The government is calling it a failure. And the truth is usually somewhere in the middle. Yeah. And this isn't the first time that President Millais has faced a general strike, is it? No, it's actually the third since he took office in December 2023. and there has been the past two strikes were pretty big in the sense that they always cost the government a substantial amount of money.

26:14I think today the government said that it was 880 million already lost just within the first hours of the strike, mostly because of the airports being closed. So they are the sign that even though the trade unions are in the political opposition now, they do retain power. They do have the ability to turn the economy on and off with a switch. But the government, again, was keen to point out that this is a sign, the fact that we didn't see the level of engagement that we saw in past strikes was a sign that they are losing influence. And what is it the unions are trying to do? I mean, what are they protesting about?