The great brawl: China v America

0:10Hello and welcome to The Intelligence from The Economist. I'm your host, Rosie Bloor. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25Weeks after Friedrich Metz won the German election, he's finally put together a coalition. But with headwinds at home and chaos abroad, our correspondent asks what will happen to the plans he laid out on the campaign trail. And Betty Webb worked at Britain's wartime code-breaking centre Bletchley Park Years later, she felt compelled to discuss her once-secret work Warning younger generations of the dangers of fascism Our obituaries editor remembers her

1:01But first

1:10It's the clash of the titans. What started out as an all-out brawl has largely come down to America versus China. They've really taken advantage of our country for a long period of time. They've ripped us off beyond anybody. How people stood for it, sitting in my position, is not even believable. Donald Trump has now whacked up the total tariff on Chinese goods to a staggering 145%. Well, I have great respect for President Xi. He's been, in a true sense, he's been a friend of mine for a long period of time. And I think that we'll end up working out something. Not to be outdone, China has just hiked duties on American imports to 125%.

1:53Trump said on Monday that markets were getting a bit yippy. And they've done a lot of yapping since then. After a brief uptick, stocks are tumbling once more, and investors are flocking to safe haven assets like gold. This trade war is only just getting going. The world's two largest economies are now engaged in a huge trade clash. Don Wineland is our China business and finance editor. We've seen financial distress and panic in the US. We have seen markets crash here in China. and we don't really know when or how this is going to end. So Don, talk me through the significance of all this. How much trade actually goes on between the US and China?

2:41The two countries did about$580 billion worth of trade in 2024. Of course, most of that is dollars headed towards China and stuff, toys, electronics, iPhones headed in the other direction. So if you break down that trade relationship, about 440 billion is the US buying stuff from China. The rest of that is China buying things from the US. And it's really the deficit that the US has there that according to Mr. Trump is causing this trade conflict that we're having right now. Don, China, as we know, retaliated to the US tariffs rather than rolling over. Aside from raising its own import duties, What else is China doing to get back at the US?

3:28China has a lot it can do. So over the past couple of years, China's been building up a toolbox of reciprocal measures that it can take when the US does something like this. I think a good example is export restrictions on something like rare earths. So the US needs to import rare earths. They're difficult to process. And China processes the vast majority of these things like germanium, antimony, gallium. They're very important in iPhones and other electronic devices. China can restrict the export of things like that. That's one measure at its disposal. We've also seen U.S. companies land on something called the unreliable entities list.

4:14So China can basically pick an American company that it thinks is behaving poorly and put it onto a list. And that has a number of repercussions for it when it tries to operate within China. This happened to PVH. That's the owner of Calvin Klein and Tommy Hilfiger. And it could put a lot more American companies onto this list. How likely do you think it is that a deal between these two countries can be reached? The likelihood of a deal being struck soon is pretty low, I would say. One problem that is playing out right now is both sides have different expectations for how a deal would be struck.

4:58Trump is talking about how countries are lining up to strike deals and to capitulate to his demands, right? That's not going to happen with China. China is not going to concede to a lot of these demands. I think China is leaving the door open, but Mr. Trump is not about to get a call from Xi Jinping begging for this trade war to come to an end. And that is really something that's holding up a deal being struck. Another thing to keep in mind is that this is not 2018. This isn't China's first trade war. It's not Xi Jinping's first trade war. China's learned a lot of lessons since then, and its trade is much more diversified than in 2018.

5:40It does a lot more business with countries other than the U.S. now. So this is one thing that China has going forward. And Don, what's the feeling on the ground in China? In Shanghai, things are pretty calm. I really don't feel like there's too much of a panic right now. On April 7th, we saw the stock market meltdown here and in Hong Kong. Shares crashed. It was pretty ugly. But China has what they call the national team. It's a group of state-owned enterprises that come in and buy Chinese stocks when things get bad. So the markets have stabilized. We're also at the point in time where the tariffs haven't really taken hold yet for a lot of Chinese producers.

6:25So it's not like factories are shutting down right at this moment. We're going to see more of that in the coming weeks and months. So at the moment, things don't feel panicky on the streets of Shanghai. Don, do you think there's a way that China could actually use this to its advantage? I think it's first worth noting that this is very bad for China. It's very bad for America. And it's very bad for basically everyone around the world to be caught up in a global trade war. That said, there are a lot of benefits that China could see coming out of this. So there's this idea that U.S. policy has been shaping Chinese industrial policy for a very long time.

7:10In the same respect, as China exports fewer and fewer of its goods, it will have to consume them domestically. So this means the government might try harder to get people to buy more things domestically. That's easier said than done. China has a severe consumer confidence problem. People have seen the values of their homes collapse over the past three years. People generally don't want to get out and spend more money right now. But if the government really focused on this, I think it could turn that consumer sentiment around and get people to buy at least a few more vacuum cleaners or dishwashers or whatever is not being shipped to the US.

7:53Another benefit is China might want to try to do more trade with Europe or with other trading partners. So this is an opportunity to try to make the relationship between, say, the European Union and China a little bit better. And then, of course, you know, in the long run, if China remains a stable supporter of the global trade system and America and Trump just continue to chip away at it, more and more people will look to China as a source of stability in this era of chaos. And so, Don, with all of that, the tariffs on China, the reaction, how do you think all of this will spill out into the broader global economy, given China's dominant role in global trade?

8:41Things seem to change every 24 to 48 hours in the Trump news cycle, so it's very hard to say. Trump has paused tariffs on a lot of other countries and is now focusing on China. It's really important to see what happens with other Asian economies and whether or not China will be able to continue to reroute its trade through places like Vietnam, Cambodia, Indonesia. It seems like Trump will have to stop that type of rerouting of trade in order to accomplish his goal of stopping China from exporting so much stuff to the US. So I guess the answer to your question is it's really a reshaping of global and Asian supply chains and trade networks.

9:26The thing that I think a lot about is whether or not this remains in the area of trade. If China doesn't capitulate, how much crazier will things get in the US? Will Taiwan suddenly become a card on the table in this dispute? If that's the case, we're not just talking about global trade disruptions. We're talking about severe global political disruptions. And that's not a pretty thought. Not a pretty thought for a Friday. Don, thank you very much indeed. Good to talk to you. Thanks, Rosie.

10:15From Asia's largest economy to Europe's. Like China, Germany has built itself up on the strength of its exports. But unlike China, the country is being offered a reprieve from the worst of Donald Trump's tariffs, at least for now. Amid the turmoil this week, you'd be forgiven for missing that Germany has finally sealed a coalition deal for a new government, with Friedrich Metz at the helm. The key message to Donald Trump is Germany is back on track. Germany will fulfill the obligations in terms of defense, and Germany is willing to strengthen their own competitiveness. The incoming chancellor sounded buoyant, but he'll need to keep his spirits up.

10:57In addition to the on-again, off-again trade war, Mets will have to tackle European security, an anemic domestic economy and already waning popularity. Six weeks after Germany's election at the end of February, the centre-right Christian Democrats and the centre-left Social Democrats agreed a coalition deal. Tom Nuttall is The Economist's chief Germany correspondent. This will basically be their blueprint for governing Germany for the next four years. And after a few procedural hurdles in the next few weeks, we can expect this government to take office probably in the first week of May. And that is when Fridig Meert, the leader of the Christian Democrats, will become Germany's next chancellor.

11:45Tom, on the campaign trail, Fridig Meert's depicted himself as something of a disruptor and that he'd be a very dynamic chancellor. How's that looking now that he's had to sign a deal with some compromises? He did indeed on a campaign trail. He portrayed himself as a disruptor who would drag Germany out of the economic mire. And even before taking office, he did something extraordinary. He pushed through a package in the Bundestag, which did two important things. It suspended Germany's debt break, which is a constitutional limit on the deficit that the government may run. He exempted most defence spending in future from that.

12:24And he also pushed through a 500 billion euro fund to be spent over 12 years for infrastructure that will also be funded by debt and exempt from the debt break. It was a big surprise, a positive surprise, particularly to Germany's allies who have been looking to Germany to do more for its own security and for European security. A lot of people in his party were rather upset by it. The coalition deal doesn't really contain anything as exciting as what we saw in that big spending package a few weeks ago. It's much more work a day, 146 pages. The name of the document is Verhandforten für Deutschland, which means Responsibility for Germany, which is a title about as exciting as the contents inside the document.

13:06So that probably tells you most of what you need to know. Tom, on foreign policy, as we said before on the show, this is a really pivotal moment for Germany. and for Europe as a whole. So where does the coalition settlement come down on that? Listeners may remember that on the night of the election, Friedrich Merz made a rather extraordinary statement, unprompted. He said Europe was going to have to work towards achieving independence from the United States. He also called the future of NATO into question under the Trump administration. You don't really see many traces of that sort of attitude in this document.

13:44The stuff on transatlantic relations is completely familiar. What we've seen in many of these coalition treaties in years gone by refers to the successful transatlantic relationship, the importance of maintaining the bond with the United States, particularly under the NATO umbrella. So there's not a lot of consistency here. And for some people who have worried in the past about Merz's tendency to be a little bit erratic, a little bit inconsistent, then there's a fair amount of fuel here for that sort of thinking. I wouldn't draw too many radical conclusions from that. This is the product of a long and complicated negotiation with another party.

14:25But I think it does mean that we ought to sit on the fence for a little bit and watch how Friedrich Merz operates as an actual chancellor once he takes office. So obviously it'll take time to see what happens. Has there been a response in the German population to the new coalition? Not yet. It's too soon. But what I think we can say with a fair degree of certainty is that when Merz does take office in a few weeks' time, he's going to encounter a lot of scepticism amongst the German electorate. He's not popular. He's not even particularly popular within his own ranks, many of whom think he didn't handle these talks particularly well.

14:5928 % of CVU CSU voters, this is Merz's base, think that he's not up to the job. This is not a number that you really want to take office with. Now, if he's able to execute a turnaround in the German economy, if he's able to restore a German voice on the foreign policy stage, if he's able to restore a sense of possibility in a sense that government can do things, those numbers may turn around very quickly. So we don't need to read too much into them right now. But as a snapshot of where German public opinion is. It's a pretty gloomy country that Fridjik Mertz is about to take over the running of.

15:35A gloomy country and, of course, a really chaotic world. I mean, just the last 48 hours, we've seen an extraordinary turnaround from Donald Trump with the tariffs. What's the reaction been like to any of that in Germany? This is really important. Germany, Rosie, is a heavily export-dependent country. has a whopping trade surplus with America. I think, in fact, actually, if you were to disaggregate the EU's trade surplus with America, almost all of it is accounted for by Germany and its exports, which is one reason why Donald Trump seems to reserve a particular degree of hostility towards Germany.

16:15And Germany's overall trade surplus is increasingly reliant on America as it has been unwinding its trading relationship with China in recent years, all of which is to say Germany stands to lose a lot from a trade war and protectionism. So of course, there's a fair amount of relief that Donald Trump executed this U-turn just a few hours, in fact, after the coalition deal was unveiled. We don't have any clear sense from the incoming government what particular policies it would like to pursue, or to be more precise, what it would like the European Union to do, because of course the EU negotiates trade on behalf of its member states.

16:52But it is certainly clear that any measures that this government might want to take to lift Germany out of the economic mire risk being dwarfed by some of the damage that could be done if we do see a return to the sort of tariffs that Donald Trump has been talking about in the past. And that is something that they will be very cognizant of. They will be devoting all of their efforts to restore Germany to growth. And all of that could come undone because the occupant of the White House has decided that he's had a bad day and it's time to return some tariffs onto the European Union. And Tom, whether it's tariffs or Ukraine or foreign policy, Europe really needs a strong Germany right now.

17:34Is Germany really ready to take on that role? And can Europe actually be a united front against, or at least in dealing with, America? There's been this really tangible feeling, really ever since Donald Trump took office, or possibly even earlier than that, across Europe that they've been missing a strong German voice. Germany's government collapsed on the day after the American election back in November. So we then had political chaos. We then had an election call. We had the campaign. And then we've had these six weeks of coalition talks. So Germany has been completely consumed with itself in that time.

18:10Maatz has certainly made it clear that he wants to restore that strong German voice at the heart of European policymaking. But there's going to be a lot of stuff to deal with at home as well. This government wants to take big steps to reduce irregular migration. The economic agenda will be huge. So there'll be a lot on the intray to deal with. But I do expect that in some of these big set piece international events we've got coming up, crucially the NATO summit in June, you can expect to see Fridgett Mertz play a fairly prominent role. And that is something that Germany's allies will be very pleased to see.

18:44Tom, very good to talk to you. Thank you so much. You're welcome, Rosie.

19:02After a crazy ride in the news, tomorrow on the Weekend Intelligence, we have something otherworldly for you. People have been talking a lot of late about a beautiful future where humans settle on Mars. But here's a thing. A beautiful life often leads to beautiful interactions that end up in more beautiful lives. So the question is, can you make babies in space? You'll need to be a subscriber to find out.

19:39Sometimes as she walked in the streets in Birmingham, Betty Webb would come across a woman she knew only as Biddy. Anne Rowe is The Economist's obituaries editor. And they would nod at each other because years before they'd worked at the same place. Then one day in 1975, Biddy suddenly shouted across the road, We can talk now. It's out. What was out was the secret that, in the Second World War, The codes of both the Germans and the Japanese had been broken at an institution called Bletchley Park, and that was where they had both worked.

20:24So Biddy was jubilant and said, we can talk now, but Betty certainly didn't want to. Over the years, secrecy had become an absolute habit with her, ever since the rather terrifying moment when she'd signed on in 1941 and had been made to read the Official Secrets Act by a fierce-looking captain who'd put his service revolver down on the table and said that the penalty for breaching the Official Secrets Act was death. So she didn't tell her parents where she was going to work. She didn't tell her sister or any of her boyfriends. Most difficult, when she no longer worked there, she couldn't tell prospective employers what work she had done before.

21:10She would just say she was not at liberty to divulge it. And of course they were all fairly annoyed to hear that and wouldn't hire her.

21:23Yet the prohibition on talking to outsiders was only the most obvious level of security at Bletchley Park. None of the workers were allowed to speak to each other about what they were doing. Even people in the same room ostensibly doing the same task. Even the girl in the next desk was not to know what was going on. The work she was actually doing was indexing messages that came in in pen and paper cipher from the German police force. They didn't come in through one of the machines like Enigma. They were just old-fashioned coded messages which were decoded by other people, but she had to put them in their date order and their cipher order.

22:09So she was just looking at five figures or five numbers and putting them in order like that. This was not quite the work she'd envisaged when she'd dropped her domestic science course at a ladies college and decided she wanted to sign up and help win the war. She'd had images of herself looking rather glamorous in an army uniform or a navy uniform. But instead she found herself in ATS uniform, which featured enormously big knickers, which tended to show under her skirt. She'd found herself doing this rather weird, repetitive job. She had no idea what the significance of it was or the importance, but she just kept going.

22:58that was the thing in those days you would do what you were told to do just put your head down get on with the job everything was worth it if they were going to win the war although as she went on she never had any idea whether they were winning or not after d-day she heard one of the officials say our job is done and wondered whether it had been a success but she actually had no idea. She moved at a later point in the war from decoding the German police messages to paraphrasing Japanese army messages. This was a different task which involved looking at the translated messages and putting them into a rather easier form of English because if they were just translated they sounded as if they were code and that would signal to the Japanese that the code had been broken.

23:55So she turned them into more colloquial English and found that fairly easy to do because she'd learned as a child from her mother to paraphrase passages from the Bible and put them in her own words. She was in fact so good at that that in 1945 she spent five months in America at the Pentagon doing exactly the same sort of work. She was really wowed by America. her. She could eat steak there, she could eat ice cream, she could buy rayon stockings and go to the pictures as much as she liked. And there was a marvellous freedom about the place. Not that she had very much freedom, of course. She only began to think that perhaps she ought to talk in the 1990s, so 15 years after Biddy in the street had told her that she could talk now.

24:49She suddenly thought, there are not many of us left now, and Bletchley Park was being turned into a museum, so she signed on there as a guide for visitors, someone who would talk to them about what had gone on there. She had become convinced that the younger generation really needed to know about Bletchley Park, not only how people had worked there, but also how fiercely fascism had to be fought there. She was very horrified. In fact, she was appalled in her extremely old age to see that right-wing supporters of Trump were giving the fascists salute again. She thought, how dare they do that? It seemed to be an insult to everything that had gone on at Bletchley Park and all that had been achieved by them.

25:41Because by now that secret was well and truly out.

25:48Anne Rowe on Betty Webb, who has died aged 101.

26:06That's all for this episode of The Intelligence. The show's editors are Chris Impey and Jack Gill. Our deputy editor is John-Joe Devlin, and our sound designer is Will Rowe. Our senior creative producer is William Warren. Our senior producers are Rory Galloway, Sarah Larniuk, and Alizé Jean-Baptiste. Our producers are Henrietta McFarlane, Benji Guy, and Jonathan Day. With extra production help this week from Peter Granitz. We'll all see you back here for The Weekend Intelligence tomorrow. Thank you.