Moody's downgrades US credit rating, citing rising debt

0:05Hello and welcome to Business Matters here on the BBC World Service with me Rahul Tandon coming up on the programme. We're going to be talking about Novo Nordisk. It was at one point Europe's most valuable company. It is not anymore and that's led to its CEO being given the boot. Why are so many consumers now boycotting products from different countries and do those boycotts even work? We will be finding out on the programme to help us answer those questions. We're joined by two guests as always. We have Laurie-Anne La Rocco from CNBC who is with us. And Laurie-Anne, I've been thinking about you quite a lot recently because I I remember that book you wrote.

0:42What was it called? Trade War Containers Don't Lie. Yeah, you were ahead of your time though, weren't you? You know, I am one tired puppy. So it's, you know, I mean, the book still stands. Like someone's like, are you writing another one? I'm like, it still exists. I mean, the tariffs that are being imposed now, they're still there. I wrote a piece today because there's such a massive global disconnect that, you know, people think that, oh, the tariff's only 30%. Actually, it's not because it's called tariff stacking. And so we have all these previous tariffs that were tariffing Chinese products.

1:24For example, a backpack for a child has a 70 % tariff on it now. 70. It's insane. Well, Laurie-Anne Leroko is a global supply chain. is what she's looking at. If you're a child listening to this programme, maybe not a profession to move into at the moment. We've also got Peter Ryan, senior business correspondent of the Australian broadcaster ABC in Sydney at the moment. But, Peter, of course, you were based in Washington, weren't you? At one stage. Are you glad you're not there at the moment or would you like to go back? It's a bit strange. I mean, I love the United States. I don't like what's going on at the moment.

2:04But as Laurie M's saying, People here think they might be able to be feeling a little bit more cautiously relaxed that the pause button might have been put on Donald Trump's tariffs campaign. But who knows what could happen? You know, once on, once off, one executive order signed. So it's a fair degree of trepidation. But I think people are making the most at the moment. But as we heard just then, it's very important to look at the fine print about what is behind those headline tariff figures. Yep, certainly is. Who knows what happens? That's sometimes what we like to describe this programme as.

2:39Let's see where we go in the next 45 minutes or so. Let's start with this. The credit rating agency Moody has stripped the United States of its AAA credit rating, warning investors about rising levels of government debt and a widening budget deficit. That, of course, comes as President Trump's Republican Party pursues a budget bill that because of those tax increases could well increase debt significantly over the next decade. Here's Chris Lowe from FHN Financials in New York. It is surprising. First off, the reason. It's because there's been a really significant increase in U.S. debt. They're starting to get nervous about it.

3:18Congress, of course, in the middle of the budget process and not focused on any kind of fiscal responsibility. I think, too, as an analyst who's watched this process over the last 40 years and watched the fish downgrade a couple of decades ago, it's absolutely typical the way it's playing out as well. We had five years where Congress increased debt with abandon and the rating agencies didn't care. This time, I think the reason they are focused is because the budget's getting so much attention because the process has devolved into chaos. They can't seem to pass a bill. Laurieann, a couple of those credit rating agencies have already done this.

4:06But when another one does it, it does grab people's attention, doesn't it? You know, it does. And the whole thing is, you know, we were talking about, you know, the Republican plan, right, the tax plan. It's going to add trillions of dollars to the national debt. And then you have the doge cuts, right, that were highly controversial and yet really didn't, you know, do anything when it comes to eliminating the debt. it's just really unfortunate if you really think about it, right, where the state of the U.S. is in the eyes of the markets and how things are trying to get steamrolled through. But yet, you know, there are all these cautionary tales to see, you know, what's going on, particularly when it comes to the finances of the U.S.

4:52government. Peter, when you were in Washington, was that at a time when people were beginning to look at the scale of the deficit? and did you ever think it would reach the scale where it is now? Yeah, look, it was an annual or a semi-annual event, keeping an eye on what was going on with the debt ceiling. That was always like a red alert flashing or an orange alert, but it's got worse now because in the note from Moody's, they're expecting federal deficits in the United States to widen, to become nearly 9 % of GDP by 2035, and then on the basis of rising entitlement spending and pretty low revenue generation from tax and looking at the federal debt burden, thinking that by 2035, it could be 134 % of GDP in the United States.

5:43So there's clearly a lot of pressure to get that under control, but it's the politics and the gridlock and the uncertainty provided by Donald Trump's economic and fiscal policies at the moment, but it should be remembered that this has been an ongoing issue in American politics. And I'm sure that's one of the first things that Donald Trump will be saying and who he's blaming, perhaps his predecessor. We'll have to wait and see. When we look at the scale of it, the numbers almost become meaningless, don't they, Laurie? Because, you know, what is it now? $1.83 trillion in 2024. How do you reduce something which is of that scale?

6:21It's mind-numbing, right? I mean, it's almost like you're watching a cartoon unfold. And, you know, a lot of folks within the business world have said that, you know, when it comes to these tariffs, this global trade war that he has put together was a way for the pay for, right, to help pay for all these things that he wanted to do. And I'm actually on the Treasury website right now for the United States looking at how much was brought in on a daily basis for the tariffs. President Trump says we're bringing in$2 billion a day in tariff money. We're not. According to U.S. Customs, which goes through the U.S.

7:00Treasury, we're looking at$258 million was brought in just yesterday. So there's a massive disconnect. And it's this rhetoric, right, the gridlock, you know, that we're talking about here, that there are unintended consequences. and unfortunately it's just going to get worse and we're just kind of all watching this train barreling down this rail. It's quite scary to see what they're doing. It is, but Peter, when we look at that ratio of debt to GDP, which a lot of people say is extremely important, look at Japan, 263%, they're still surviving. Yeah, and debt goes on, it's part of life. Australia's debt is looking like being about a trillion dollars, which is small compared to anything else here.

7:55But we are a much smaller country. I was looking at some of those Moody's comments, though, about reading between the lines, about saying that the US retains exceptional credit strength and resilience, dynamism of the economy, the role of the US dollar as a global reserve currency. but notes that recent months have been characterised by policy uncertainty, perhaps an understatement, but they're expecting and hoping that the US will continue that long history of effective monetary policy led by an independent Federal Reserve. So we've only heard some of those comments that Donald Trump has made towards Jerome Powell and that intervention or pressure to cut interest rates, and Jerome Powell's standing pretty firm there.

8:41So I thought it was also interesting that they do look at the institutional checks and balances and constitutional separations of powers between the three branches of government. And there seems to be a little bit of discussion on that from the White House at the moment. So that's separation of powers and the independence of those checks and balances are really important and something that Moody's and the other agencies are clearly looking at. Yep, I'm sure there'll be more discussion of that coming up over the course of the next few weeks. Australia's debt to GDP ratio around 49.3%. Now, one of the things we like to do on this programme is to track global trade and the impacts that tariffs have through shipping.

9:22Good to have Laurie-Anne on the programme today. Earlier this week, we saw a pause, didn't we, in the tariff war between China and the US. But as we've already been told by Laurie-Anne, still some pretty high tariffs in place. So what impact is that having? Here's Mario Codera, CEO of one of the US's busiest Portsmouth Beach. He's been telling me what the past month has been like. Well, the good news is that the two main parties, China and the USA, have agreed and are having discussions. However, we still remain in a period of uncertainty because, again, all that's been announced is a pause. I've always been optimistic that there will be a meeting of the minds.

9:57Again, good news that we have a 145 percent tariff that's gone down to 30 percent. But nevertheless, again, that's a pause. So I think what the industry is looking to is some clarity so that they could do their business planning going forward. When you talk about uncertainty, let's put some numbers on that. What sort of fall in volume have you seen at the port of Long Beach over the past few weeks? Well, we definitely saw a fall volume in the short term of 10 to 15 percent. And prior to Monday, our forecast that we were going to reduce volume in the second half of 2025 by 20 percent. However, given the discussions and the announcement that we heard Monday, I will say that in the next two weeks, we have expectations that 18 vessels will arrive.

10:42To put that in perspective, in good times, we have about 20 a week. So it gives us a signal that perhaps some of this cargo that has been delayed is now coming to the West Coast, given that the shippers have a little bit more comfort, that they're not going to be exposed to 145 % tax. But, you know, 30 % is, again, not the ideal scenario. So we were as low as 14 vessels a couple of weeks ago. One day we had one vessel at our two major terminals or six terminals in Long Beach as opposed to six. Do you sense that we're going to see quite a lot of front loading taking place in this period until we get to July, really?

11:23I do believe that we're going to see a slight surge because July is the beginning of peak season. So this cargo has to come to get ready for the back-to-school and holiday inventory. So again, on August 1st, we'll have a better idea how much of this expected surge may occur. Just in the last 48 hours, announced that prices at Walmart are going to go up. That gives you an indication that at the end of the day, the consumer is looking to higher prices. Still, we're in an uncertain period. Now, aside from the 90-day pause on the China-USA tariff, let's keep in mind the July 8th date. That's the pause that will end on reciprocal tariffs.

12:06Laurie-Anne, I'm sure you know Long Beachport very well there. That uncertainty, when you're talking to shipping companies, when you're talking to all those people in logistics, what are they saying to you at the moment? You know, I actually just did a survey with some of these guys that are coming out on Monday. And, you know, when it comes to the 30 % tariff, it's still crazy high. And so you are not going to see a huge resurgence of containers coming in. You are going to see some replenishments. But the fact is companies are retrenching in terms of how much inventory they're bringing in because they're also concerned about the consumer.

12:48Is the U.S. consumer going to spend a lot? And so as we move forward, we will, I mean, retailers have told me we will see some empty shelves still. And also when it comes to like the July 4th sales that are really big here in the United States, you've got Black Friday, Cyber Monday, those holiday sales. You're not going to see as many because why would a retailer put a product on sale if they can actually sell it at full price? And so they will be actually cutting back on promotions as well. So the U.S. consumer, which is really used to this wide breadth of product and these sales and all of that, it is not going to be there.

13:30And it really comes at a very dangerous time, if you will, for President Trump because of midterm elections. so if people are upset that they're not getting you know their product or whatever it might be or the sales they will go back and they do know that it will be the tariffs because you know Walmart and all the companies they are effectively communicating to the consumer now that this is not their fault this is the trade war yeah we had that statement didn't we from Walmart saying to people look expect prices to go up in the course of the next few months it always intrigues me Peter that And when we talk about the China and the US, one of the countries that actually, you know, if that trade war is not resolved, could suffer quite a bit is Australia, isn't it?

14:14Yeah, that's right. If China is badly hurt or already has been badly hurt by these tariffs, looking for other markets, the risk of dumping cheaper products on countries like Australia. so people buy steel, for example, cheaper or lower quality from China rather than buying the local stuff. Also, if China's economy is hurt and they stop buying our iron ore and coal and other products to keep building cities and construction, well, that's bad news for Australia's budget given that it's heavily reliant on those commodities and would put a hole in the budget bottom line if there was the worst-case scenario.

14:54So, yeah, we are exposed and China is our biggest trading partner, yet the United States is our biggest strategic ally. So pretty much caught in the middle. Definitely caught in the middle. Right, we're going to give Lorianne a little bit of a break from tariffs and from supply chains. Instead, we're going to talk about this company. Type 2 diabetes? Discover the Ozempic Trizone. Oh, oh, oh, Ozempic. I got the power of three. I lowered my A1C. It really has been one of the great success stories, the weight loss drug Zempik, has turned the Dutch, Danish even, pharmaceutical company Novo Nordisk into one of the most profitable firms in Europe.

15:34Briefly, in 2024, it was actually Europe's most valuable company. And sales of weight loss drugs have had a huge impact on the Danish economy. Here's the mayor of Kallenburg, the town where its manufacturing hub is actually based. Ten years ago, we had quite high unemployment rate. Now we have one of the lowest in the island of zealand all the people working there they have a good salary and they can pay taxes when kalenborg is expanding so much we have a greater share of a bigger cake we have a lower the taxes for people six times in 10 years and then we can afford to make some investment in the municipality too we can see that going around in the city much of that success we heard about there has come under the leadership of the company's ceo lars jensen but now he's lost his job as the company's share price has fallen by more than 50 % in the past 12 months.

16:27Adrienne Meyer is our correspondent in Denmark. She's been telling me about this story. Here in Denmark, it's been described as a bombshell. It's really overseen the huge growth of the company and the transformation of what its main product is because it's a company that's been well known in Denmark. It's been around for 100 years, but it's been principally known as a manufacturer of insulin to treat diabetes. But over the last few years, when these seemingly wonder drugs, these weight loss drugs, Wegovy and the other diabetes drug, as Zempic hit the market, there's been a huge transformation of the company.

17:04Enormous sales in the United States. So this abrupt ousting has really caught a lot of people off guard. Shares in Nevernodis fell following the announcement. But the company said that this is a decision that's been sort of made over the last few weeks. and they decided it was time to replace him and find a successor. But Janssen himself said it wasn't something he was expecting right now at this moment. There's been a race, it's been a two-headed race to produce these weight loss drugs and particularly for the US market. Novo Nordics were the first to bring their products to the United States and to other markets but Eli Lilly has really been chasing them and their latest drugs have actually in some clinical trials had a slightly higher weight loss result.

17:48So that has had an impact on the market and on Nova Nordisk. And both companies have been racing to sort of produce the next drug that they're going to bring to market. That's made investors a little bit nervous about what the future might hold. So in 12 months, it's wiped off about 50 % of the value. So having rocketed up to become Europe's most valuable company in 2023, it lost that top spot. And it's hemorrhaged about 300 billion in value in just one year. Adrian Murray there. Now, this is a market, Peter Ryan, $165 billion market, probably going to double over the next 10 years or so. But, you know, it shows you how competitive it is.

18:27You know, CEO has done an incredible job for this company, have a bit of competition for me, Eli Lilly, lose some of that market. Bye-bye, CEO. Pretty tough out there, isn't it? Yeah, it is a brutal world out there when you're a CEO on the big money, but it shows that you're only as good as your last set of results. And if the numbers don't come in right or if you upset or shock investors, you're in trouble. Just reading that earlier this month, Nova cut its sales and profit forecast for the first time since the launch of Wigavi four years ago. So it only takes a major investor or an activist investor or a fund manager to rattle the cage and ask what's going on.

19:10and if things are going backwards, results are lower than expected, your head's going to be on the chopping block. So you've just got to keep innovating and can't afford to go backwards there. So this is what has happened here. And this whole sector is a highly competitive area and it's a global money-making machine, but clearly not making enough money for this company. But that is the problem, isn't it, Laurie-Anne? Because, you know, you can innovate, but at some point, and Eli Lilly is a huge company and now the world's biggest pharmaceutical company, somebody might come along with a better product than you.

19:47Oh, absolutely. But also, too, it's like with the his and hers, like those websites where you can get the generic version of these weight loss drugs. A lot of people can't afford, you know, the name brand here in America. And so they're going to these websites to get the generics. And so that's also eating part of this market share. And so it'll be interesting to see as we move forward where consumers gravitate. I don't know in Australia if there's a big generic market for these weight loss drugs. But I know here in America, people are going to those other websites in order to reap the benefits but paying the generic price.

20:35Yeah, look, one of the things here is the Wigovi, for example, are not on what we have as a pharmaceutical benefit scheme where you can have subsidised medicines, which I think you can get for around about$31 a prescription. But I had heard earlier that generics were out there, but also some compounding chemists were able to make some of this up and were selling it. So So it's highly competitive. People want to get hold of it. They've seen the results. And if you don't have deep pockets to be able to do this because it's a very, very long commitment to keep the weight loss going, people have to think about that and probably seek other alternatives.

21:15Yeah, Laurie-Anne and Peter, Laurie-Anne, if you want to go first. And you make a great point here about the cost of these drugs. But are you seeing more and more people around you using it or thinking of using it, Laurie-Anne? Oh, most definitely. I know a lot of people that try to do weight loss this way versus, you know, the old-fashioned way of counting calories and, you know, eating healthy. But, you know, but a lot of it is the price. And from people that I know that are on these drugs, you know, they'll try to go the traditional route, but the insurance companies don't say yes. You know, they don't approve it.

21:52So you would have to pay and spend a lot of money, right? you know, for these brand drugs, which is why they're going to these alternative marketplaces. And it's the same, it's the same drug. It's the same semi-glutide and, you know, you know, the Eli Lilly, you know, they're, you know, they're, I can't even pronounce it. I won't even bother, you know, that, that drug, you know, but there's alternatives out there and we all know people love the cheaper chicken. They certainly do. Peter, 20 seconds for you, similar around you in Australia? Yeah, look, about$460 a dose. And if you're in the United States, it's looking like you might be paying$1 ,300 for a 28-day supply.

22:35So out of reach for most people. It certainly is. Now, calorie counting, that's something that I should do, though considering the number of sweets our producer forced down me before the start of this program, I think I may well have just broken the scale of that. We'll be back very shortly after the news.

23:03Welcome back to Business Matters here on the BBC World Service. Laurieann LaRocca with us from the US. Peter Ryan, of course, with us from Australia. Now, we are seeing more and more consumers boycotting products from countries, often for political reasons. At the moment, we're seeing many Indians cancelling holidays to Turkey. They provided arms to India's neighbour Pakistan during that period recently of heightened tensions. Farhan Khan is the director of sales at DMC, while a destinations management company based in New Delhi. Around 90 to 95 percent booking has been already cancelled. It is the decision by the customer.

23:42Those are mentally, emotionally attached with the nation. So we Indians also take the decision as per the sentiment of our nations. So whatever we felt that the country who is not standing with us in our tough time. So we should also boycott them whatever way we have in our hand. And we've heard lots of voices from Canada in the past few weeks on this program like this one, who are boycotting American products because of Donald Trump's comments that Canada is the US's 51st state. I just was this morning shopping at my local grocery where there's Ontario strawberries and there's California strawberries.

24:20The California strawberries are now priced down to$3 for a carton. The Ontario strawberries are$6 for a carton. Nobody was buying the cheaper California strawberries. They are rotting on the shelves. And the expensive Canadian strawberries are almost gone. That's what's happened here. Laurie-Anne, firstly, this was a story that struck us. We were discussing it. There are more consumer boycotts nowadays than before. They seem to be coming a little bit more common. Consumers thinking they maybe have more power through their wallet to express their opinions. Oh, most definitely. I mean, like these economic, it's an economic boycott.

24:55And so when you're flexing your wallet, when it comes to push comes to shove, right, you've got the rhetoric of the trade wars. But when it comes to the consumer, they're going to belly up right to that bar and say, you know what, either I open up my wallet for my own country or the other. And they're going to stand fast, right, and not buy, quote, the country that is antagonizing them. You know, that was also one of the reasons why when we saw this push comes to shove with U.S. versus Canada and U.S. versus Mexico. Remember when Canada then took all the beer off the shelves? Yeah. You know, of U.S.

25:38And then all of a sudden we started talking to them. When you look at the United States, you know, it's 50 some odd different economies. It's not just one economy for the country. Every state has its own leaning when it comes to trade. And so you have many states here in the United States that do trade heavily with Canada, that their economy would get crushed and jobs would be impacted. And so that's the whole thing when it comes to this trade war, particularly with the U.S., because of the granular impact. Trade takes people. And the consumer now knows. And so why not flex your wallet, buy something else to make a statement?

26:24Have you seen in Australia, Peter, examples where we're seeing consumer boycotts of products? Probably the main one, I think, is Australians love traveling to the United States. There have been fewer people getting on a plane and traveling across the Pacific to L.A. concerned about what might be happening at immigration as they go through, given the toughest stance on migration. So there's some evidence there that outgoing Australians are travelling. It's down a little bit. Here, a lot of scepticism or maybe a pushback against Tesla and Elon Musk. And so we've been seeing that in the United States with some of those Tesla vehicles set on fire.

27:11And just looking at Canada, not buying US bourbon or things like beautiful Californian wine that seems like a bit of a waste, but the Canadians are taking this extremely seriously. And if you look at some of the other US exports coming to Australia, a lot of people probably wouldn't even know. Things are so interconnected, you might be buying something that you might think it's local, could well have US components in it, anything like