Global markets continue to struggle after a difficult week

0:00This BBC podcast is supported by ads outside the UK. The 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.

0:42Hello and welcome to Business Matters. I'm Roger Hearing. On the programme today, a final bump up for US share markets at the end of a week of turmoil over tariffs. While the tariffs make trade between the US and China virtually impossible, A former Trump advisor tells us it's part of the plan to put pressure on an economic enemy. China is by far the worst trading partner in terms of countries out there, where you see our small companies inventing products that then show up on Alibaba, and then the small companies can't take any Chinese companies to court. Also today, an agreement is reached after almost 10 years to try to reduce polluting emissions from shipping.

1:26The UK Parliament is recalled to allow the government to control a Chinese-owned company, British Steel. And a new Oscar has been announced. For the first time, the Academy is going to recognise stunt design. And I'll be joined throughout the programme by two guests on opposite sides of the world. Peter Ryan, ABC's senior business correspondent, joining us on the line from Sydney once again. Peter, a very good day to you, I suppose, I should say. Yes, g'day, Roger, and like everyone else here, including you, catching my breath after what a momentous week. It's been really hard to watch this all unravel and keep track of it.

2:04Well, it may be hard, but we're going to definitely talk about it in the program. No doubt about that at all. And across the other side of the world, Takara Small, National Technology Columnist for CBC, joining us from Toronto. Takara, very good evening to you. Good evening. Good to have you both there. I know. I mean, we are going to get a sense, I suppose, of what's making the news where you are. I kind of have half a feeling as to what it already is. But Takara, I mean, what are Canadians talking about right now? Yes. So tariffs are definitely top of the list. Second, though, has to be the weather.

2:37We've had some unexpected snow. It's April. We should have some warm weather. And we're digging out of an unexpected snowfall. That's also a little, I don't know, maybe the seasons are following what's happening in the news. Everything is a surprise. But I don't know, snow, a surprise in Canada? Perhaps I'm just not down with the weather. Yes, timing is everything. Secret of great comedy as well. But that's a whole other story. Peter, come on, there must be something making the news apart from tariffs in Australia. Oh, tariffs bleeds into everything, really, Roger. And it's in the middle of an election campaign, a national election campaign.

3:15And, of course, the Prime Minister, Anthony Albanese, He's been under pressure to show that he's standing up to Donald Trump and not to be bullied. And at the same time, China's been making overtures to Australia to perhaps strengthen the bond against the United States. But Mr Albanese isn't going anywhere with that. But this is making a federal election campaign where economic management is right at the heart of this. And the high cost of living is really going to take this right down to the wire. Yeah, well, it has. And as you say, all that as well, linking up very much with what's been going on in the great tariff war, I suppose we should call it, of the last few weeks, couple of weeks, really.

3:57Because it has been the end of another week of strained faces and fast moves on Wall Street as investors struggle to keep up with the changing tariff policies coming from the White House. Big falls at the start of the week, followed by record surges on Wednesday when most of the tariffs were suspended, followed by red across the screens again on Thursday as the realisation of the economic damage began to set in. So, how was Friday? I asked Emily Peck, markets correspondent at Axios. It was a bit of a tick up on Friday and the S &P 500, the closely watched stock index here in the US, actually wound up up 5.6 % for the week and all and the Dow and Nasdaq also closed up.

4:39The real worry right now lies in the bond market. Well, yeah, we'll come to that in just a moment. But I wonder whether what was going on with the share markets was to do with actually something that the Boston Fed Reserve president, Susan Collins, had said. She sort of indicated the Fed was prepared to step in. Yes, she did. And it was a reassuring message. The problem is Susan Collins doesn't actually have a vote on the Fed board to decide on rate cuts. And, you know, and it's also not a surprising message. I mean, the markets did like it. So that's great. But the reality is, of course, the Fed could intervene in the case of market dysfunction, which is what Ms.

5:15Collins said, much like they did during COVID. The question now is, will they? And that's just not something Collins has the final say on. Well, let's move on to what you were talking about just at the beginning there, which is, of course, treasuries, the US government bonds. I I mean, that really has been what seems to disturb people who know about the financial architecture because U.S. 10-year Treasury yields posted their biggest weekly increase in more than two decades. Now, I mean, that is significant, isn't it? Oh, yes. It's very significant. Typically, when there is global financial turmoil, investors rush in and buy U.S.

5:50Treasuries because they're seen as a global safe haven, and it's been that way for generations. But this week, global investors woke up to the possibility that U.S. treasuries are not actually particularly safe and definitely not a haven. Investors seem to be shedding dollars, shedding treasury. The value of the dollar also fell this week and has been falling as investors say, wait a second, maybe the U.S. isn't such a consistent economy anymore, can't be relied upon. It's something that people are watching here and worrying about. Emily Peck there. Well, whatever you think of the tariff policies, there's little doubt about the impact on confidence, both on Wall Street and around the US.

6:29The University of Michigan survey of consumers said US consumer sentiment deteriorated sharply in April and 12-month inflation expectations surged to their highest level since 1981. Well, I've been speaking to Thomas Philipson. He's an economist at the University of Chicago, also former acting chairman of President Trump's Council of Economic Advisors. So I asked him first how the effective elimination of trade between China and the US could help America's economic prospects. China is by far the worst trading partner in terms of countries out there where you see our small companies inventing products that then show up on Alibaba.

7:08And then the small companies can't take any Chinese companies to court for doing so, etc. So they are not only the trade villain, but also a military adversary who's building up their military by our purchases. So I think that is a completely different scenario than Europe or Japan, Mexico and Canada. But it's not okay not to have any trade between China and the US, is it? Chinese imports about 1.5 % relative to our GDP. So it's not as big as the press makes it up, the world falling apart. Again, the U.S. is a very self-reliant country under only about 12 to 13 percent relative to GDP as imports.

7:48But what are other costs of fighting communists? We have a military that basically is three and a half percent of GDP. So if we go away from China by going to other countries that are a little bit more expensive, but not building up a military to fight us, that is not, in my view, necessarily a bad thing. All right. Well, Thomas, what about the markets, though? Because this does matter. Their confidence matters hugely in the way an economy works, whether people are willing to lend money, for example, to the United States. And we know what's going on with treasuries, the U.S. sovereign bonds at the moment.

8:21They are very difficult. People don't want necessarily to lend money to the U.S. government in the way they did. And that kind of really gives problems to the whole plumbing underlying the U.S. economy, doesn't it? Well, I think what's crucial here is that the Trump administration gets two or three deals that are very clear in how they're breaking down foreign trade barriers. Once that happens, I think the markets will see that this could be a force for greater free trade. Essentially, if U.S. matches lower barriers abroad with other countries, this is a force for free trade among those pair of countries.

8:57And if that sets an example for other countries to see that and the markets see that, I think this will turn around. OK, what about uncertainty, though? Because that seems to be the core of what is really roiling the markets at the moment. Just not knowing what's going to happen. Donald Trump announces massive tariffs and then he suddenly announces a 90 day pause. And it's been the way it seems also with the tariffs on Canada and Mexico. They were on, they were off. People don't know. Isn't that in and of itself a big problem for markets and therefore for the economy? Yeah, they could do it a little bit more orderly, but there's clearly a trade-off between strategic uncertainty and negotiations.

9:34You don't want to reveal exactly what you're going to do because then you don't have any leverage left in the negotiation. But obviously, the markets hate that uncertainty, right? So there's a trade-off there with uncertainty is good for U.S. negotiations, but bad for markets. And I think that's some of what you're seeing in the past as well as going forward. Thomas Philipson there. Peter, could have been a bit more orderly. I mean, that seems like the understatement of the century, really. You know, this whole point, Thomas suggesting, oh, yes, it's tactics, it's a way forward, we don't need to worry about it.

10:09How do you read things? Well, you know, Roger, I was just thinking over the last couple of days in recent history, I'm talking about in the last even 30, 25 years, that to me this felt like the biggest geopolitical and economic shift that we've had since the fall of the Berlin Wall and the end of the Cold War, where all our expectations about the world order were confused and reset and all of a sudden America doesn't want to appear to be the leader of the free world or the voice of reason in guiding the global economy. So not surprisingly, so much caution about particularly what's been going on in the bond market.

10:52You were just speaking about then the safe haven, you know, where you've got money, you put it in US Treasuries and the US dollar. And now this has been fully undermined in this major self-inflicted wound, which really does impact the credibility and confidence in the United States as a political and economic leader. It's interesting, Takara, I mean, you know, Canada has been coming under fire in this area for a little bit. And a Canadian friend of mine said, well, you know, now the rest of the world is kind of gets what we've been dealing with in a way. is that the way the canadians are thinking i think i mean there's so much confusion abound but i i think it does help canadian you know entrepreneurs businesses and obviously our prime minister talking very vocally about how this is a sign that there need to be there needs to be more trade more cooperation amongst other nations outside of the u.s there needs to be better cooperation.

11:54I think this as well could possibly be positive for Canada. I mean, Mark Carney recently said that the relationship between Canada and the U.S. has fundamentally changed, which is extreme to hear a prime minister say that about our closest trading partner. But, you know, there have been talks about how this could help Canada. I mean, there could be a flight to safer currencies. Canada is quite safe. We have a bank and interest rates that have been quite steady. We obviously have commodities and natural resources. So there is talk about how perhaps the world and the global economy may be welcoming more of a Canadian leadership role.

12:32But America is still the indispensable nation, isn't it? Even for Canada, Takara, you know, it's right next to you. It's pretty big. You can't ignore it. It can't be ignored. But I do think countries are recognizing that having the US play a strategic role in the global stage may not be feasible. I mean, many of the things that people are talking about that they're surprised that Trump has done or said, he has mentioned this throughout the campaign trail. I mean, he has talked about tariffs in interviews, on stage, during campaigns. So he is literally following the playbook that he has always said he would.

13:06And so I think perhaps governments are waking up to the idea that this isn't just bluster, this isn't just campaign talks, it's exactly what he believes and how much pain we are all in, not just Canadians, but the world are in may last longer than we expected. Well, let's talk about a country that is definitely affected. I mean, we know most of the tariffs, the big, strong tariffs are suspended for 90 days now. But that isn't the case, of course, with China. China is, in fact, the country most tariffed by the US. And it's retaliated to the point, really, where trade between the world's two biggest economies is effectively impossible.

13:43When you have 125%, 145 % in terms of additional fees, it doesn't make sense. But tariffs have been a feature of the relationship between the US and China for a very long time. During Donald Trump's first term, he hiked tariffs on things like Chinese solar panels, computers and footwear. So many manufacturers expanded their operations to neighboring nations like Vietnam and Cambodia. But that strategy didn't always work out well and for a variety of reasons. since China is still the place to produce stuff. On Marketplace's China correspondent Jennifer Pack explains from the southern Chinese city of Dongguan.

14:22Shoe manufacturing is labor-intensive. Workers punch every hole and lace every shoe by hand, says James Gao, whose company ShoeBot owns this factory. Every lacing is manual. There's no robot. When local wages get too high, he says, shoe manufacturers like him have to relocate. That's been the pattern ever since shoemaking started out in the West. By the 1960s, he says shoe factories had shifted to Japan and Brazil, then Korea and Taiwan. And for the past three decades, the industry has been based largely in mainland China, until President Trump's first term, when he hiked tariffs on China, and China hit back with tariffs on U.S.

15:07goods. So seven years ago, more companies started to look at relocating production to Southeast Asia. Among them, Colorado shoe brand Zero, spelled with an X. We actually looked at Vietnam. Co-founder Lena Phoenix says, though, the brand didn't make the move to Vietnam because they produced specialized shoes meant to mimic the sensation of being barefoot. Because we have such a wide range of styles requiring different technical capabilities, We use a number of different factories. And those factories are in China because that's where the skilled workforces are. Phoenix's company is doing business with James Gao's ShoeBot.

15:47ShoeBot works with small and medium-sized brands. It also makes shoes in Vietnam, though its operations there are small. One of the company's clients, Mark Olson, co-owns a Portland shoe startup called Avali. He says Vietnam may be good for big brands, not niche ones like his that make volleyball shoes for women and girls. Vietnam is where China was maybe 15 years ago. But China, he says, has so-called industrial clusters, with everything you need for shoes, from raw materials to foam manufacturers, knitwear, lacing, and embroidery groups. They're all within driving distance of Chinese shoe factories, he says.

16:26So it's just set up to do it right. And, he says, the Chinese factories are innovative. They find new materials, upgrade machines, and cut down production times. Manufacturing in China makes it easier to roll out and test different colors for new volleyball shoe styles, says Avali's other co-founder, Rick Anguilla. There's nothing more satisfying than being at one of these tournaments and having our product on display. And you hear those four words as they pass by. Oh, those are cute. He says his company thought about manufacturing in the U.S., but decided the challenges were too great. Lena Phoenix of Zero Shoes agrees.

17:04It would take hundreds of millions of dollars of factory investment, the training of a workforce that does not exist. It would take an enormous amount of time. Vietnam seemed like a more attractive option, despite its less skilled workforce. And her company had hoped to shift manufacturing there. Since Trump increased tariffs on Vietnamese exports by 46 % last week, she's been having second thoughts. One of the things that's critical for us to know is whether or not these are in fact the final tariffs. Given all of the changes that have come out of this administration, we are to some extent waiting for the dust to settle.

17:46Lena Phoenix of Zero Shoes, ending that report from Marketplace's Jennifer Pack. Peter, I mean, it's interesting, you know, this whole idea of how you stop using, I suppose, manufacturers from China. I mean, for Americans, of course, it's essential. But where else do you go? Yeah, well, if you look at the whole history, and this applies not just in the United States, but Europe and Australia, where clothing, textiles, footwear, which were big industries around the world in Western developed economies, moved to China mainly and cheaper labour costs and meaning cheaper prices for developed countries.

18:29And so how you can actually bully countries to shift their manufacturing bases to the United States, which is a major operation where you consider that this would not take just years, but decades to move factories. How does this physically happen? How does it benefit anyone? And how does it benefit Americans, for example, who would be, I guess, expected to work in factories putting shoes and Nikes and iPhones together? Is that the sort of lifestyle they want, particularly when, I guess, robots are taking over? So how practical is this apart just from the whole bullying aspect? Yeah, it is interesting, actually.

19:14Someone showed me a meme that's doing their rounds on, well, from Chinese origin, just showing some folks, I don't know, in Minnesota or somewhere getting together in what we might see as a sweatshop. And just the implication being that this cannot possibly happen. Takara, I mean, that is the issue, isn't it, in a way? Globalization may have taken these jobs to developing countries, but it's not ending that, isn't going to bring the taste for doing that kind of work back to developed countries. And it exactly don't be very challenging. I mean, as Peter mentioned, to scale up and provide the type of infrastructure needed to produce the amount and quantity within a decade or two.

19:54But also those are the type of jobs that perhaps would you know, Americans may not want to pursue. I will say that it's an interesting situation because there's you one could say there's a contract in place, you know, in America where, yes, the goods are cheap, but you can buy a mass quantity of them. There's a huge amount of, you know, food or shoes, et cetera, you can buy. And perhaps the deal is you have to pay for your health care. There are other things that you don't have. But this is upending that contract. And I don't know how the American people have already seen huge protests over the weekend.

20:29I'm not sure how the American people will react to that. And I want to add something that's very interesting I'm seeing online. For the very first time, I'm seeing Americans talk about how they're willing to travel to Canada to get goods. Because obviously Canada is not placing the same tariffs on Chinese goods that America is. So you have Americans saying, well, I will drive up to Canada to buy my Nikes, to buy my clothes. It's such an interesting situation that I don't think we've seen before. Will Canadians welcome them, though? I don't think they're particularly keen to see Americans right now, are they?

21:03I think Canadians are a lot more generous than perhaps the media would portray. I do think that they would welcome more customers. We are suffering at the moment under tariffs. More people equals more business. There's been an influx of people who are moving conferences from the U.S. to Canada because they're worried they may not be able to actually enter the country. So it's an interesting situation. It is changing, isn't it? And Peter, another issue, of course, that comes, and I may have reflections, I suppose, in Australia, China's got a lot of stuff that it can't really export. Is it going to pile them on countries like, well, I suppose the European Union, but also countries like New Zealand, Australia, perhaps cheaply, but I mean, that's not going to be good for the local economies, is it?

21:48Yeah, well, it's known as dumping, and there are anti-dumping provisions that are designed to prevent ultra-cheap products being dumped in countries like Australia and New Zealand and elsewhere, which would really price out local manufacturing, particularly in steel. if China can't sell or is it difficult to sell to the United States, send it down under, flood the market. That's one of the big concerns, and particularly if the tariffs have a big economic impact on China. And, of course, China is Australia's biggest customer to buy iron ore and coal and other smart minerals, rare earth minerals that could really hit Australia's budget at a time when we have moved back into deficit debt is now well over a trillion Australian dollars which is a major concern so any collapse or impact in China would hurt us here of course it's looking as though China will be managing this very much and probably be dropping money and stimulus to keep local consumers spending, given that they in themselves are the world's pretty much biggest market.

23:09It's very interesting, isn't it? I mean, the implications of what's been happening and how far the ripples are spreading in all sorts of ways perhaps we didn't expect. But anyway, in the next part of the program, we're not going to be talking about tariffs. Many sighs of relief, I think, might be echoing around that. We're going to be talking about British Steel, a company which the government here, well, pretty much wants to take over, even though it's owned by China. Back in a moment.

24:00The 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 guest today, Peter Ryan and Takara Small. Now, Saturday, today in the UK, is going to see something highly unusual, an emergency recall of Parliament when members had already departed for their Easter break. Well, what they're being recalled to do is to pass a law to take control of the Chinese-owned company British Steel. And the company has been in difficulties. Their plant at Scunthorpe in eastern England has been threatened with closure, reducing the country's already shrunken steel-making capacity. Well, I've been speaking about all this to the BBC's business correspondent, Zoe Conway.

24:54So what are British MPs expected to do? What this bill is seeking to do is to give the government the power to direct the leadership of the company of British Steel owned by Jingye in China to keep, in essence, the blast furnaces going, which is where the primary iron steel is made, and to keep those fires burning. In effect, Zoe, this is nationalisation, isn't it? No, I don't think it is. This is about stepping in and making sure that those blast furnaces keep going, that there's enough coal. I mean, it's extraordinary the detail that we know in terms of what's in the bill, that the government's actually going to be able to go and buy the coal to put into these blast furnaces.

25:41And that if any workers who are trying to keep the blast furnaces running were to be sacked by the Chinese ownership for doing so, the government can reinstate them. Now the reason why I say it's not nationalisation, that is certainly not what the government's calling it. I think that would require a completely different intervention from Parliament at a later stage. I don't think the government, to be honest, has quite worked out what it wants to do yet. Is there a way to run this company without actually owning it? Do you want to really be taking on debt? We understand that British Steel is losing£700 ,000 a day.

26:24I think the government has got a difficult decision here about making sure that this plant keeps going, but also to protect the taxpayer. Well, it seems extraordinary, though, that a government can effectively tell a company, a privately owned company, you've got to keep doing business whether you want to or not, and we can control how you do it. I mean, it's only a little bit short of now taking over entirely, isn't it? I think what has really come to a head in recent days is this sense that this virgin steel, this primary steel, which is needed for our railways. We know British Heathrow has just purchased it recently, is using that steel.