165. Trump’s Timebomb: The Warning No One Has Spotted

0:00Monzo Business is the proud partner of The Rest is Money. Now, did you know that over 600 ,000 businesses are already banking with Monzo Business? And mine is one of them. To celebrate us teaming up, we've got a special offer for you. New customers get Monzo Business Pro or team for free for the first six months. Just head to monzo.com slash the rest is money to claim it for your business. Now, maybe you run your own company and you're looking for a bank with the solutions to make your financial admin easier, like expense cards that help your team serve loads of time as your business grows. Just go to monzola.com forward slash the rest is money to learn more about the special offer and find out which of their plans is right for you.

0:46Offer is available to new Monzola business customers only for either Pro or Team plan. Offer ends on the 31st of July 2025. After the offer period ends, Pro will be£9 a month and Team from£25 a month. expense cards are only available with team only sole traders or limited company directors in the uk can apply t's and c's apply

1:19hello and welcome to the rest is money with me steph mcgovern and with me robert paston and And listen, it's, you know, hang out the bunting, open the champagne. We're recording as Donald Trump has 100 days in his second term of office. And what 100 days it has been. He claims it's the best start any American president has ever made. It's certainly, I have to say, given what I do for a living and what you do for a living, the most exhausting stuff for those of us who have to make sense of it. It depends how you measure it, doesn't it? If he's measuring it on the amount of chaos you can cause in the first hundred days and volatility and wiping, you know, billions if not trillions of pounds off companies' values, then he's done really well because that's basically what he's done, hasn't he?

2:12Knocked a third off the wealth of one of his best friends, Elon Musk. That's quite an achievement, Donald Trump. He's having a spat with all of his mates, isn't he? Because it was Jeff Bezos as well this week. That was another thing, the Amazon price list. Yeah, so Bezos sucking up to him when he became president. And then there were all these reports about whether or not Amazon were, well, there was a report that Amazon was going to put on its American prices, how much they'd gone up as a result of tariffs, which Trump's spokesperson then laid into Amazon. She held up a picture of him while she was laying into him as well, as if nobody knows what Jeff Bezos looks like.

2:49Like he was a wanted man. But, I mean, what's been interesting about this is there's some really interesting statistics that have come out as well in all of this around what's happening with trade. Because we know, Trump has always said he is obsessed with trade. He thinks Americans have been fleeced by other countries for years. So he said, even before he came in, he wanted to bring in tariffs in the hope that this would bring back the making of those products to America. So it would be American jobs and, you know, bring growth from that perspective. And it has just caused absolute chaos. And obviously he's rode back on a lot of the trade tariffs he originally said he was going to do.

3:31But if you look at what's been happening because of this, first of all, the fact that we were preempting these tariffs coming in, that instantly impacted business decisions. So businesses were then going, if they were a country, if they were a business that exported to America, they were thinking, right, quick, get these products there now. Let's ship them all over to America now before we get back in. And that's what we're seeing from these trade deficit figures, aren't we? The goods trade deficit in America has widened to a record of$162 billion. So that's the difference between what they've been exporting and what they've been importing.

4:11So that gap has now widened against Americans' favour. That's the opposite of what Trump wants. Trump said, you know, the disaster for America was that deficit. And as you point out, Steph, he has achieved in his first 100 days the biggest deficit in American history. And the other thing he has achieved is, again, the opposite of what he would claim he wanted to achieve, which is almost definitionally, because of that deficit, America's economy will have shown to have shrunk in the first three quarters of this year. Now, just to remind listeners who aren't as steeped in the terminology of this stuff as we are, it takes two quarters of an economy shrinking for that to be classified as a recession, right?

5:04I mean, one quarter of shrinking is bad. Two quarters regarded, as I say, technically as something that is very bad, which is a recession. And there is a pretty, there's growing evidence that we are going to see a recession in America and actually, you know, significant downturn globally. And I want to actually start with something I can't remember. I was really obsessed with when we were working together in 2008, and it's called the Baltic Dry Goods Index. Imagine our chats back then, guys. They're not unlike our chats today. Anyway, the Baltic Dry Goods Index was the canary in the coal mine before the collapse of Lehman.

5:48And it was basically what it measures is what people pay to ship dry goods, oil, steel, coal around the world. Right. It's the cost of renting space in a tanker, in a container. Right. It was collapsing in the autumn of 2008. And I looked at that and basically it reinforced my view that we were heading towards a massive global economic slowdown because it shows the extent to which businesses are losing confidence and they are not buying the stuff that keeps the economy going. Right. And so back then, Baltic dry goods index collapses. I'm able to forecast we're in for really hard times. The mother of all slowdowns.

6:43Baltic dry goods index falling again directly as a result of tariffs. It has been falling again to pretty low levels. Equally, we are seeing other data which shows that tankers are not travelling all those thousands of miles from China to America's ports. The deficit that you've been referring to was a manifestation of suppliers to America getting their stuff there to beat the tariffs. Stocks building, those stocks are now being run down. But because there is a view that American businesses and consumers do not want to pay 145 % tariffs on Chinese made stuff, the risk is that with these tankers not going there, America is just going to run out of stuff.

7:35Right. And so there is an economist who I thought produced a beautiful little graphic explaining in a sense the mechanics of a Trump made recession. Torsten Slock. Steph, do you want to talk us through essentially the chain reaction from tariffs through to nothing on American shelves? So what you're seeing from this is the kind of lag between when Trump announced the tariffs, so this so-called Liberation Day, so that was April 2nd, and suddenly at that point the container departures, so these massive ships carrying all these products from China to America, slowed down. Now, it's not until kind of early, mid-Mir when you get the impact of this, because suddenly these container ships are not turning up, so there aren't as many arriving in the ports in America.

8:27That then impacts the truckers, who are all the people who collect these containers and take them off across the country to wherever they need to be. Suddenly their demand comes to a grinding halt. And they get sacked, many of them. Yeah, so they lose their jobs. So that's kind of, it's Mir before you feel that impact. then because the truckers aren't taking the products around the country you get empty shelves so you'll suddenly see the big companies like your walmart's your walgreens whatever it is these big companies will have fewer products on the shelves because they haven't come from china they haven't been on the ships they haven't been delivered by the truckers and therefore they are not on the shelves so all of this happens over a couple of months the impact is then really felt by the Americans in the summer when they're you know these companies start to run out of these products they've got empty shelves people can't buy them people can't spend money they can't contribute to the economy the economy does not grow and therefore as Robert says you get the you'll get possibly another quarter of negative of shrinking which means recession if you get two of them that's a recession precisely right and just to be clear this is not just some economist plucking stuff out of the air as a theoretical possibility you know it was only a few days ago that the bosses of Walmart and Target, these enormous American retailers, you know, went in to see Trump and said, there's a risk of stuff not being on our shelves.

9:53And just we think of America as being the consumer economy beyond all other consumer economies. And for the American president to engineer a situation in which Americans can't buy the stuff that they want in their favourite stores, it's sort of mind-boggling. And we've also seen this thing, as you've probably seen, they have become increasingly dependent on Chinese online businesses like Shein and Timu. And they've all been saying their prices are going to be going through the roof. Yeah, and it's just worth pointing out as well why this is important to the rest of the world too. Because this is businesses that will essentially be not selling their goods in America.

10:38And as we've said, it's the biggest economy. when they slow, the world slows. And so this has ramifications across the world, not just for American people. And then there's one other thing which I think would be good to talk about, which is another of his great achievements. You know, if you want to know about how he's destroyed confidence in American assets, the way that investors have been selling the dollar and, you know, selling US government debt. Listen to earlier episodes. We talk a lot about that. So not going to have more of that today, but I am going to talk about how he has succeeded in getting the anti-Trump elected in Canada, an important country, an important economy.

11:20And one of the things, actually, I don't know, did you know this? I didn't really focus on this until, you know, Mark Carney became this sort of symbol of, you know, what many people would regard as a sort of global uprising against Trump. But anyway, did you know that Canada has the second largest landmass of any country in the world? I didn't know that. Is it? Yeah, it is. I mean, so, anyway, Carney I've known for years. He was governor of the Bank of England. The reason I call him the anti-Trump is not only because his entire election campaign was about standing up to Trump's bullying. Trump, you know, notoriously saying he thinks Canada would be better off as America's 51st state.

12:01He wants to absorb Canada into America. This has absolutely infuriated so many Canadians. And the reason I say he engineered Carney's victory is because before Trump became president, it was absolutely clear at that point that the Conservative Party, led by Pierre Polyever, was going to win the election. There's been the most monumental swing to Carney's Liberal Party. And so, you know, Carney, in that sense, is Trump's creation. As I say, he's literally summoned from the world of technocracy, probably the person who is most dangerous to him because he is the opposite. Because he's an economist as well.

12:45So he actually knows what he's talking about when it comes to the economy. So he knows what he's talking about. You know, he is somebody who was put the hours in to understand the way the global economy works and the way the global financial system works. And he's got a brain. And so his success has, you know, he's a charming individual. I'm not claiming that he's, you know, some sort of geek who just sits in a bedroom and isn't capable of relating to human beings. Which is nothing wrong if you are one of those people, by the way. But he is not, you know, he's not a populist. He is the opposite of populist in terms of his entire career.

13:23He was a technocrat, he was a banker at Goldman Sachs. Not everybody's a fan of Goldman Sachs, but they do only employ, on the whole, very, very brainy people. He then became governor of the Bank of Canada. And I think to his credit, many people would say that Canada and the Canadian banking system came out of the financial crisis in much better shape than most other Western economies. He was then recruited because of his success there. Also, he was chairman of something called the Financial Stability Board, which is the organisation that coordinates global banking financial policy. He then gets recruited because of his success in Canada to run the Bank of England by George Osborne.

14:03It wasn't an unblemished record. There were certain things that he didn't get quite right. So he did this thing called forward guidance, which was about trying to help people understand where interest rates were going. And he did it, frankly, in a slightly cack handed way. because he sort of said interest rates would not go up until unemployment fell to a certain level. And, you know, it was a slightly crass way of signalling to the market what was likely to happen to interest rates didn't really work and he had to backtrack on that. It wasn't a disaster. It was something that didn't work in the execution.

14:38It wasn't, though, that we suddenly found ourselves, you know, significantly poorer as a result of all of that. And apparently some people, I should add here, that some people apparently don't like the phrase cat candy because it's apparently a slur on left-handers. But I am a left-hander, so it's a slur on myself. What can I tell you? Just on the left-handed point, my daughter's left-handed and when we went to, she's only five, when we went to her school to ask them and we said, you know, is it going to be harder for her? Because, for example, they do their writing on whiteboards and you automatically rub stuff out, don't you, when you're writing with the left hand.

15:11Anyway, nearly half of her class are left-handed. Oh. So I think there's a revolution of the left-handeds happening and you could lead it, Robert. Well, as it happens, I've always been a champion of... Did you know that sinister means left? Oh, does it? Yeah. So historically there has been a lot of denigration of, you know, left-handed people. Did they try and make you right-handed at school? Because I've heard horror stories about people having their hand tied behind the back and made to right with the right. I'm not quite, I think, old enough to be in that category. I think I'm, so to be honest, I'm probably ambidextrous in the sense that there are certain things that I do with my right hand.

15:53But I always naturally picked up a pen with my left hand and I'm left footed. In football. But to get back to your whiteboard thing, my main memory of being at primary school was coming home with my hand absolutely covered in ink. Because you did just smudge everything into you. Of course, of course. As you're right. Coming back to Mark Carney, though, he obviously, unlike Trump, also knows how to talk to the markets, doesn't he? Because I remember really vividly the morning of Brexit, being at the Bank of England, and him meticulously going over exactly what he was going to say, the first thing he was going to say as governor of the Bank of England following the Brexit vote.

16:35And obviously then the curveball came with Cameron saying he was going to resign. He changed his script again. But, you know, he knows what to do in that situation in terms of what the stock markets, what investors want to hear. And that is crucial in all of this, because a lot of what has really impacted Trump is how investors have felt about everything he's doing. Yeah, I mean, look, he absolutely understands the, I said that he didn't give the certainty to investors with his forward guidance to the Bank of England that perhaps would have been more sensible, as it were. He didn't choose the right measures to present to them in terms of them assessing what was likely to happen to interest rates.

17:14But in general, of course, he gets the point that what we need for global economic growth is for all investors, whether they're people running businesses or whether they're financial investors, is a sort of sense of where we're going. certainty and the problem with, you know, you said 100 days of chaos about Trump. And that is the big problem with Trump is the unpredictability that he has created for businesses and consumers planning for their futures. The thing, though, that I think is potentially the most significant, certainly for the next few weeks and months about Carney's election, takes us to the conversation that we had with Jim O 'Neill.

17:58And Jim O 'Neill, like me, this is something we've both been talking about for weeks now, is how it would be really good for the rest of the world outside of America if we could create something that we've called the coalition of the economically willing. The logic of it is you just bring down tariffs between like-minded nations, nations that really believe in free trade or areas that believe in free trade. So, you know, obviously, Keir Starmer's desperate to get a better trading arrangement with the EU and the EU single market. And there are some signs that, you know, we may get improved terms of trade, maybe not as soon as we would like, but things are definitely moving in that direction.

18:42But equally, you want to make alliance. You want to get, you know, better trade deals with the likes of South Korea, with Japan, even potentially with China, you know, even though China, you know, in a political sense is a million miles from where we are. The fact is China does not want a world of protectionism because it totally undermines its economic model. And so actually we are now in a better position to try and get terms of trade with China that we haven't had hitherto that could benefit us. So there is just a massive opportunity here outside of America to bring down frictions, to bring down costs.

19:25Some of them are direct tariffs, some of them are restrictions, non-tariff barriers, prohibitions on certain kinds of services and goods and services being provided to some parts of the country. So this idea, this opportunity to create a coalition of the economically willing involving Asia, Europe, Canada, even parts of South America, it's exciting. Yeah. So Trump could have done us a favour. Well, let's just see how it pans out. I mean, look, I think most of us would rather have not had his chaos of the first hundred days. But, you know, one of the reasons, as you know, why in some ways I'm feeling more optimistic about Europe's future is this is a shock where I think all sorts of things we thought were impossible, like getting much better trade trading arrangements with other parts of the world now become an imperative.

20:14And of course, everyone now is wondering whether this will mean that Albanese, again, another anti-Trump, will win in Australia in their election, which is coming up because of this. And I'm sure it's something we're going to come back to a lot talking about this, but we should probably go to a quick break. And then after which, bringing us back home to the UK, M &S have had a terrible time with it, aren't they? They're still going through it. They are. And you were texting me from M &S's empty shelves. I was. I'll tell you that story after the break.

21:09Hello, welcome back to The Rest is Money with me, Steph McGovern. And with me, Robert Peston. We're going to talk M &S. So obviously, whenever a business is in trouble, I text Robert to find out what's going on. That happened in M &S last week. So I was in various stores. I was travelling quite a bit. And I noticed every time I went into a shop, there were lots of the staff panicking because their contactless payments weren't working. And I mean, on Oxford Street, it was carnage because everyone going in for the lunch was facing the getting to the till, it not working. and then leaving all this piles of food at the tills because they couldn't pay for it.

21:45And then I was talking to one of the staff members going, what the hell's going on here? And he went, oh, mate, this is terrible. We should have just closed the shop when we realised we had a problem. A day later, I then was in another store, same thing going on. Text you going, what's going on? And then we got this announcement about this cyber attack on Marks & Spencers. They stopped their online sales, didn't they? They announced that last Friday. they obviously saw their share price take a hit from it because essentially they've had to stop doing as much trade as they normally would and they're struggling with the supply side of this now because they're obviously...

22:23I think for a period you couldn't pay with your card, I think. No, you couldn't. I mean, I used chip and PIN, but I had that nightmare. I couldn't remember my PIN number because who uses PIN numbers these days? And I couldn't remember anyway. So it was contactless that they stopped, wasn't it? Yes. Anyway, we now know a bit more about it, don't we? and this is supposedly a cyber attack. They're not saying exactly who's done it, but there's a lot of speculation during the rounds that it might be this scattered spider group. I mean, the name itself tells you that this is young lads, isn't it? I mean, come on, it's sweeping generalisation, but this is the teenagers who've managed to hack into, very sophisticated ones, by the way.

23:01I mean, I think what you've got is this whole industry of people who sort of grew up in a sort of world of gaming and coding and all of that. But, you know, this is business for these people, right? And so just to be clear, spoken to sources at M &S, spoken to, you know, others with knowledge of what's been going on here. This is a cyber attack. I mean, to be absolutely clear, it's a straightforward cyber attack. They don't know for sure who the attacker was, but they are not knocking down, they're not denying that it is the Scattered Spider group, which, as you say, is apparently a group of young men, men largely in America and indeed Britain.

23:41And I think I'm right in saying that a few members of this group have recently been arrested by the FBI and indeed the police. I think there was a Scottish, a youngish Scottish person who was arrested in the UK. But the things about it that I think are important and a wake-up call for all businesses, but also actually, frankly, for the government, is that, you know, when I talk to those who know about this incident, one of the things they all say is the issue now, today, is not whether you're going to be attacked, right? Because there are now so many of these really sophisticated groups out there with the capability to mount these kinds of cyber attacks.

24:32Now, we've talked, you know, Scatter Spider is UK, US. Most of these very dangerous groups come from countries we regard as effectively enemy countries. So, you know, Russia, Iran, North Korea, you know, they have enormous capability. some in China. They have enormous capability to damage businesses. And what they do is it's not just finding, you know, a weakness in the system. What they tend to do is actually they start with an old-fashioned con, right? It's what they, in the trade, call social engineering. It's phishing. It's finding, you know, let's say you're a company like M &S. You've got tens of thousands of servers, but you've also got thousands and thousands of employees.

25:27You've got subcontractors. They've got access to your system. One example that was given to me by an M &S source was, you know, you've got some person in India with a laptop, right? If they somehow con, you know, that individual in India who's working for them to basically change their multi-factor authorisation that gives access to the system. They're in. They're in, basically. Or they find a way to clone his laptop, and that's another way. And once they're in, this is the other thing which is interesting, is they then spend weeks. They don't just try and bring a system down like that. They spend weeks using that entry point to find out all about M &S's systems, its vulnerabilities.

26:15Yes, because this started in February. So they got in in February, apparently. That's exactly right. What then the nightmare for a company like Marks & Spencer is they then don't know which of their systems and they will have multiple systems built up over many, many years. they don't actually know which of their systems have been breached, have been jeopardised. And so they then have to go through literally the entire business system by system to check whether it's clean. And it's not just a question of whether or not the perpetrators will essentially lock a system. It is actually about whether that system then becomes a backdoor into a supplier system.

27:00So one of the reasons why they've had to take some of their systems down, like the online system, is because they know that, well, because their suppliers have said, unless we're confident that your systems are not going to allow access of these bad actors into our systems, we're not going to supply it. Understandable. And so it is, it's a really arduous process to make sure, to sanitise the whole system. Yeah, yeah, yeah. Literally a needle in a hair stack, isn't it? Trying to work it out. And that's why it goes on for so long and it causes so much disruption. And then there's the other aspect of it, which is the sort of, just to be clear, this is an industry, right?

27:40This is not, you know, years ago, I don't know if you, I used to love the, you know, those thrillers, the girl with the dragon tattoo, right? Which was all based on this idea that there were these hackers who were just basically anarchists, so they just wanted to bring anarchy to the world, right? These people are out to make money, right? This is not anarchy. This is just, you know, this is basically an illegal business. How do they make money from it? So basically, they apparently join forces with another group that then contact a business on the dark web, set up a chat room. And this is where this other group is.

28:19It's almost like a sort of consultancy, except it's a dodgy corrupt consultancy. Like when you outsource a hit on someone. And this this this this this other group will say, look, you know, if you pay us, you know, we will help you to clean this up. You know, we can give you back. You know, they have a sort of some kind of relationship with the original hackers. But they're then making money. They're trying to make money out of essentially helping M &S to clean this thing up. Sometimes they are also the route where they basically say, give us the ransom. And we will hand it over. And they're obviously going to take a cut of the ransom themselves.

29:01But it is super dodgy, obviously, but also incredibly difficult for law enforcement to get to the bottom of it. Because obviously, once you're on the dark web, a lot of this is anonymized. And also, if you're paying in crypto, which almost certainly they're going to be insisting on, you're not involving the banking system. So you've got no named individuals attached to the money. Now, to be clear, crypto is not a perfect way for these people of getting away with the money because of blockchain. You can see where the money is going. And sometimes the authorities do succeed in following the money and then freezing it.