156. Trump Turmoil: A Pause Won’t Stop Uncertainty

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1:13Oh, well, this is becoming something of a bad habit. Welcome to another Rest is Money. Trump's tariffs, Trump's turmoil. special with me, Robert Peston. And me, Steph McGovern, which has now turned into Trump's back down. He's back down, hasn't he, now? Most of the higher tariffs have been paused for 90 days. Massive news last night. Trump said this is off the back of more than 75 countries wanting to negotiate. And because of that, he's putting tariffs at 10 % for three months. Not for China, though. They've gone up again now at 125%. And also it's important to remember the tariffs, which are on things like cars, steel and aluminium, still stand at 25 % too.

2:05But the stock markets obviously flew up off the back of this news and the US stocks had their best day in 17 years. People are now talking about why he's done it, what he might do next. There's still so much uncertainty around all of this. So Robert, before we get into all of that, just give me your initial reaction when you heard, because you were actually, you know, you were in the middle of doing your show, weren't you? And tell me what it was like when this news came out. Well, it was logistically quite complicated because I'd actually just finished recording an interview with a Goldhanger colleague, Anthony Scaramucci.

2:44And my very first question to him was connected to the difficulty that we talked about in yesterday's podcast, which was the growing risk for the American government, for Trump, that he would struggle to borrow the money that the U.S. government needs to fund this enormous deficit. it, having seen, you know, this is the thing that terrified me yesterday morning was the collapse in the price of US Treasuries, the rise in the interest rate that the American government has to borrow. And, you know, this is really chilling. And it raised the prospect of a fiscal crisis, a Liz Truss style fiscal crisis for the American government.

3:28And so, you know, I began by asking Anthony Scaramucci, why wasn't the American president backing down? And then literally the interview finished, the American president backed down and put, you know, slightly frustratingly. He heard you. He heard you. Yeah, he may have heard me, but also the Mooch at that point, because he's an elusive kind of guy, the Mooch. You know, you've got to grab him while you can. And of course, he then vanished off the face of the planet. So we couldn't redo the beginning of the interview. So I had to chop, even though it was a really interesting interview with Amuch, we had to chop the first part out.

4:04But, you know, I was lucky because I'd done this interview earlier in the day for the programme with the Prime Minister. And actually, in fairness to Starmer, he did get in the interview, you know, a fair amount right. And in particular, one of the things that he stressed, And I think this is something that the markets don't appear to, frankly, to fully appreciate. But Keir Starmer said to me, tariffs are here to stay. Trump has changed, is changing. The economic structure of the world, free trade is over. And that remains the case. You know, there are 10 % tariffs remaining in place on all, on all, you know, there are 10 % tariffs remaining in place on all countries.

5:03That means all exports to the US now carry this 10 % tax, which raises enormous sums of money for the US government. We've got these 25 % protectionist tariffs on motor cars and steel and 125 % tariffs on Chinese exports to the US. There's something like 300 billion a year in sterling, I'm talking now, of Chinese exports to America. There are 84 % tariffs on US exports to China. It's just to be clear, just so that people understand the magnitude. At 125%, Chinese exports to America will basically fall to zero. It is impossible now for Chinese manufacturers to sell into the US market. This will have huge economic repercussions.

6:09The global economy will significantly slow down. Very likely to be the case that inflation in America will be higher. We can talk about the implications for the UK later. But, you know, to see share prices in America, you know, the S &P 500 rises nine and a half percent, an astonishing rise yesterday. We are seeing share prices across the world surge. I probably said this to you many times. You know, the theory that markets are rational is one of the stupidest theories in the sort of economic textbooks. This is irrational exuberance on an absolutely colossal scale. And it's basically predicated on the idea, you know, it's the relief that Trump is sort of swerved the vehicle.

7:07We're no longer necessarily driving over the edge of the cliff, but we're still basically driving to the marsh and the wheels of the car are going to get stuck. We should not assume that these massive economic shifts caused by tariffs have gone away. You know, globalization is over. Free trade, certainly as regards the two most powerful economies, China and the United States is over. There's a very interesting question about whether the rest of the world can preserve free trade between all of us. But this is massive stuff. And as you say, the thing now is what we have is uncertainty still, because Liberation Day, as Trump called it last week, you know, it was only this time, you know, last Wednesday, that Liberation Day happened.

8:00And so much has, you know, happened in that time when it was announced trillions was wiped off stock markets. You know, there was a sell-off of US bonds, a drop in oil price to pandemic levels. And the problem now still is uncertainty still hangs in the air because Liberation Day showed, didn't it, and it was only last Wednesday when he announced these tariffs, that he is capable of anything. He's also, you know, only got this in as a pause for 90 days. So there'll be still lots of people and lots of companies who are making decisions about investments and things who are going to hold off. How could you decide whether to, you know, create a new factory in America when you have no idea what the tariff regime is going to be?

8:45Yeah. And also, do you know what really gets me in all of this, Robert, is this gaslighting that the Americans are trying to do? You know, Scott Besant came out. He's, of course, the Treasury Secretary. We've talked about him before a lot. He came out and said this was a strategy from the start to get at China. You know, we said do not retaliate and you will be rewarded, suggesting that they were kind of trying to split China off from the rest of the global pack. But they're just making stuff up as they go along. You know, Trump admitted, didn't he, that people were getting queasy. But he probably also didn't love the fact Goldman Sachs came out saying the US was going to go into recession.

9:25He realised he'd gone too far and then thought, you know what I'm going to say? I'm going to say that actually this was the plan all along. And then he tries to make us feel grateful for the rally in the stock markets by going on about how, you know, we've had the biggest rise ever. And this is all thanks to me. even though he caused the crash in the first place. You know, someone called it the Orange Crash and I thought that's actually quite a good name for it. But this gaslighting is off the scale, but it's on the assumption that we're all thick. No, no, look, I mean, the idea that this is, you know, Trump playing 3D or 4D chess and he's got what he wanted is ridiculous.

10:08He was playing a game of chicken and he blinked. And, you know, who wouldn't panic when you see, you know, the risk that you are going to be unable to fund your deficit. But I just wanted those to share a couple of numbers with you, which also sort of capture the magnitude of the change that is still in place. of the economic sort of significance of all of this. So JP Morgan has calculated that the increase in tariffs that are still in place, right, still in place, will raise$300 billion a year for Washington. That is an enormous tax increase, right? And the notion that that is not going to affect global output is absurd.

10:58And then I think I've just thought the second thing is I saw Bloomberg did this quite interesting analysis, I think with looking also using some Goldman Sachs data, on American dependence on Chinese exports. So there were$41 billion of imports into the US last year of smartphones from China. Most of them were Apple iPhones. 70 % of smartphones that go into the US are from China. As a result of these tariffs, I mean, it'll be almost impossible for Americans to buy an iPhone. They're going to have, you know, you've got to assume that smartphones in general go up in price. These are amazing statistics.

11:5186 % of game consoles in America come from China. 79 % of PC monitors. 76 % of toys, 73%, as I say, of smartphones, 66 % of laptops. This is my favourite one. China supplies the entirety of hair from badgers and other animals imported into the US for brush making. So if you want a badger hair brush in America, that's impossible. It's out the window. 99 % of electric toasters. Good news for badgers. 99 % of electric toasters, heated blankets, calcium and alarm clocks come from China. 90 % of folding umbrellas. I mean, how are they going to keep the rain out in America? I mean, this is big stuff.

12:37That is quite an eclectic mix of products then, isn't it? But I mean, your point stands that it just shows you how much China is selling to the US and the impact that this could have on, you know, people in America for all of the things they're buying in the shops, they're inevitably going to go up in price. And it's such a wide range of stuff. Loads more still to talk about, but let's go to a quick break, after which we will come back. I mean, it's good to talk about these billionaires who all kicked off, because you wonder how much they have influenced Donald Trump. Of course, you know, people like Bill Ackman were saying tariffs should be around 10%.

13:13So I wonder if he's happy now he's a big supporter of Trump or has been in the past. And also the sectors as well. you know we've mentioned cars and aluminium but it's probably worth us talking about what impact this could have on pharmaceuticals because i know you've got quite a lot to say on that but for now let's have a quick break

13:32welcome back to a rest is money trump's turmoil special with me robert perston and me steph mcgovern so we mentioned at the start of the week when we were looking into all this about the criticism that Trump was facing from people who'd supported him in the past, you know, Bill Ackman, the big head fund manager. What do you think is going to happen now? Because, you know, we heard some of them saying yes, you know, because they voted Trump in based on the fact that he was going to put tariffs in. And he has. So he's done what they all thought he was going to do, what he said he was going to do.

14:06But obviously, criticism from people like Bill was that he did it too high and too fast. So do you think this is going to chill the billionaires out? Well, look, they've all done that classic thing, which we often see from those around Trump, of now fawning all over him. So Bill Ackman, legendary investor, Ray Dalio, another very distinguished investor, mega rich, both of them. I mean, they had both made really telling and important criticisms of the way that these mega tariffs were likely to harm the US in a pretty fundamental way. Both of them now are claiming that this will lead to a rational outcome.

14:57Both of them make the point, which is a reasonable point, which is that for decades, China has been engaging in what many people would regard as very unfair trading practices, manipulating the currency, massive subsidies for their industries. they now both believe, but we'll just see if this happens, that there will now be a negotiation between China and America, and the nuclear weapons will be put down by America and China, and they'll come to some kind of arrangement in which the US would like to see would be the opposite of, in fact, what's happening at the moment. China is actually depreciating its currency at the moment in reaction to the mega tariffs in order to make their exports more competitive.

15:48What America wants is for the Chinese central bank to take steps to increase the value of China's currency so that, in America's view, China doesn't have an unfair trading advantage. We'll just see. I mean, at the moment, there is very little sign from Beijing and from President Xi that he's in a mood to negotiate with Trump. Possibly these things do happen over time. Possibly we will over time see a negotiation that leads to at least a slight lessening of this trade war. But I just do think that there's a slight naivety or maybe just an attempt not to be on the wrong side of Donald Trump from the likes of, you know, Ackman and Dalio in the way that they're now praising Trump.

16:42But on China, though, you know, these tariffs, they've had these tariffs before, obviously not as high as they are now when Trump came in in his first term. And what China did was just to try and find their way around it, didn't they? You know, rerouting stuff through other countries, which is obviously partly why Vietnam was slapped with such a big tariff when they came out last week. So China have said they're going to fight to the end. And so far, that is what we're seeing. They get hit with a tariff. They then put a tariff on the US. The US then increases it. They then increase theirs. You know, when now, as you've said, China have got an 84 % tariff on US imports into their country.

17:21The US has now got a tariff 125 % on Chinese imports into America. It's, you know, they don't look like a country who are going to back down. And as you said, changing the, manipulating the currency so that that can offset some of the cost of the trade tariffs. It doesn't feel like their countries are going to back down. So you wonder how that then is going to, and as you say, the two biggest economies in the world in this massive trade war will impact everyone, including us in the UK. Just to be clear, the Chinese government's way, some of this is inherited from Mao, is not to show weakness and in particular not to show weakness in relation to the United States, which, you know, ever since the creation of the Chinese Communist Party has been regarded as the great enemy.

18:11And so I do think, you know, you have to be cautious in assuming that suddenly there'll be flexibility from Beijing and they'll want to get into negotiations. Yes, they have debt problems in the Chinese government and the Chinese state, but they do have more flexibility to stimulate demand at home to at least partly offset the shock to their economy from what looks like a total freeze in trade with America. You know, and I'm just looking at forecasts, you know, those who make forecasts about the Chinese economy. What, you know, American forecasters and global forecasters say about China is growth will slow, right?

18:54but it'll slow from maybe 4 % a year to 3.5 % a year. And we would love that here, wouldn't we? Imagine growth like that here in the UK. We'd be out in the streets celebrating. And of course, that is still way lower growth than they had only a few years ago. But compared to the shock that we may yet still see, there's still a very high probability that America falls into recession as a result of the tariffs that remain in place and the uncertainty that Trump has caused. That is definitely, you know, what we're looking at for America looks worse right now than what's going on in China. Four to three and a half in China in terms of growth, a recession in America.

19:37So it's not obvious to me that China will have to rush to the table and negotiate with Trump. We'll see. I mean, I may be proved wrong. It may be that in the next 24 hours we'll begin to see an improvement in the relationship. I don't think we should take that for granted. And the other thing that China has historically always done, this will cause problems for our government, is when it can't sell to one country, what it then does is divert that trade to other countries. And there's a great risk in these circumstances that you get dumping. So, you know, one of the things that the EU and the UK are deeply concerned about is, you know, whether it's steel, whether it's finished products, you will get this stuff dumped on Europe.

20:25And if the stuff that's dumped on Europe, you know, motor cars, for example, are dumped at prices that do absolute, which do terrible damage to our domestic manufacturers, then that poses a problem for the EU and the UK. Do you then put tariffs, do they then put restrictions, quotas on what China can supply to our region? Do you put tariffs on China? But they will divert stuff to us if they do it in a clever way. and it's not just dumping, it's just a bit more stuff at lower prices, that's good for UK consumers, right? I was telling you about all those sort of smartphones and laptops that can't go to America now.

21:09We may find ourselves in the fortunate position that we suddenly find smartphones, laptops, badger brushes, badger hair brushes, suddenly quite cheap in the UK. And I think most British people would regard that as a good thing, particularly if it brings down inflation here. And if inflation comes down as a result of China cutting the price of goods here, then of course the Bank of England can cut interest rates faster. So there could be a benign, a positive set of circumstances for the UK and to an extent from Europe here, so long as China doesn't engage in the kind of aggressive dumping of stuff that really undermines the strength of our industries.

21:48Before we wrap things up, should we just talk, because we alluded to this yesterday about pharmaceuticals and the impact it might have here because one of the things that it feels like Trump is still going to do is have these kind of sector tariffs. You know, we've mentioned cars, mentioned steel, aluminium, and there's other areas as well, like chips perhaps too, that you'll still see tariffs on and higher tariffs than the 10%. Pharmaceuticals are kind of feeling a bit edgy about this as well, aren't they, in terms of what it'll mean for them? Yeah, I've been talking to pharmaceutical bosses.

22:19Absolutely fascinating conversations. And the sort of framework for this is they believe, and actually I then went and looked all this stuff up and they're absolutely right, that Donald Trump sees the pharmaceutical industry in the way that he sees defense. Now, what do I mean by that? His argument in respect to defence is that America, and this is true, has been subsidising the protection of Europe. America spends way more on military and on arms purchases than Europe has been historically. And Trump threatened to withdraw protection from Europe and has basically forced Europe, including the UK, to massively include defence spending.

23:15And so there's a process in Europe going on expensively for governments of rearming, trying to bolster the domestic defence industry, increasing the size of military all round, right? Expensive for governments. But in the face of the threat from Putin, many people would say this is too late. And even now, there are many who are saying we're still not spending enough, right? And Trump forced that. And many would say that's probably a positive in some ways outcome of, you know, one shouldn't always be acutely critical of Trump. It is almost certainly the case that Europe should have taken more responsibility for its defence than it has been over the past 10, 15 years.

23:58Now, the other thing that Trump has noticed, which again, I think is probably reasonable, is that now the majority of research and development into pharmaceuticals takes place in America. It's very, very expensive. But what is really striking is that even though this research all goes on in America, what American citizens, what American consumers pay for those life changing important drugs is way higher than we pay, for example, in the UK via the NHS and is way higher, frankly, than Europeans pay. And his view is a bit like the fence that America is subsidizing European pharmaceuticals. And he believes that's unfair.

24:47And obviously from him, for his view is it would be popular if he could somehow get Europe to pay more for its pharmaceuticals so that the drug companies in America don't charge Americans as much as they are currently charging. Now, it's not obvious that actually, even though he has threatened pharmaceuticals, that tariffs is the way to do that. One of the things he looked at in the past is to look at trading rules, the so-called most favoured nation rules. And as I say, I've been talking to pharmaceutical bosses about this and what they think he will do. and they are sort of battening down the hatches for this, is that he will launch a case, a sort of trade rules, most favoured nation, WTO style case, in which he will say that the drug companies have to charge American consumers the lowest price that they are charging elsewhere.

25:50Right, that sounds fair. Now, that has a number of potential consequences. What it almost certainly means is that drug companies at that point would put up the price that Europeans pay, maybe not to American levels, but to the extent that it's then affordable for them to cut American prices a bit, which would be, let's be absolutely clear, terrible news, particularly for the UK. The NHS does not have enough money, even though Tomsmore is going in. If the NHS drugs bill goes up because of what Trump is likely to do, that is a major headache for Wes Streeting, the health secretary, a major headache for the prime minister.

26:36And the drug companies are telling me this is coming down the track. Yeah, it's just incredible how far reaching the impact of the tariffs are, isn't it? It's, you know, there isn't even, even if we did this show 24-7, we still wouldn't be able to talk about everything that's going to be impacted by this. And that's what's really hard for businesses as well, is to work out what they do in all of this. A bit like when Brexit happened and there were so many things to think about that it just can feel overwhelming. I mean, so it's no shock that businesses are just going to think about, hang on, do we do anything?

27:13Do we invest? You're so right, Steph. I mean, on your Brexit analogy, you know, it was quite interesting to me that the Mooch Goldhanger colleague referred to this on my show as America's Brexit. And that feels right to me. But of course, the big point here, which is why we're doing these specials and we'll continue to do these special episodes, is in the end, none of us have lived in a world with an American president that is not only hyperactive in the way that Trump is, but just breaks all the rules. And, you know, whether it's tariffs, whether it's the separate issue of, you know, just been talking about the way that drug companies charge Americans versus how they charge Europeans, whether it's, I mean, you know, the talks that are taking place this weekend between America and Iran over its nuclear program and the sort of hidden threat from America and Israel that if the talks go badly, they're going to bomb Iran.

28:22All of this stuff is scary and momentous. And the fact that, as we've seen, and, you know, this is essentially the sort of big point about what happened last night. OK, Trump makes some decisions that most rational people say are totally irrational, going to damage America. He plows on, he plows on, he plows on, you know, surrounded by sycophants who won't stop him. Critics on the outside saying this is terrible. Eventually, when markets absolutely panic, he backs down because he suddenly realises the harm that's going to be done. But the personal power that he wields is terrifying. That's apparently not going to change any time soon.

29:07As you say, another thing about this is, is the distraction from all the other things going on. So, you know, it wasn't that long ago we were talking about what Elon Musk is doing at the, you know, at Dodge. And that's still ongoing. There's still loads of people losing their jobs behind the scenes here. And it's, you know, people working on really important drug reviews. You've got people who are working on bird flu and chronic disease and reproductive health. They've all lost their jobs. So you've got all of that going on, too, as well as these tariffs. So it's scary. And yeah, that's why we've got to keep analysing it and working out what it all means for us and what we can do about it.

29:44That's totally right, because Trump's hope is that if he keeps making a noise, that we'll turn off our attention from some of the other, you know, we would regard them as very damaging things that he does. So we must not lose our focus on explaining all the big stuff he's doing and not get distracted by him. And just one final thought. I think it turns out the North East gets one thing absolutely right about Musk and indeed Trump. Because most people call it Doge. You called it Dodge. Dodge is better. Right. Let's wrap things up. Tomorrow, goodness knows what's going to happen in the next 24 hours.