168. Is Trump’s Deal Good for Britain?

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1:18Hello and welcome to The Rest is Money. It's a sort of Trump's turmoil special, isn't it, Steph? Yes, it certainly is. Hello, everyone. I mean, it's the 8th of May. What a day. Because, like, I mean, literally everything's happened in one day. We've got VE Day. So 80 years since the end of the Second World War. You know, Victory in Europe Day. A trade deal with America. A cut in interest rates here in the UK. A new Pope. Pope Robert. Pope Robert. Yeah, Pope Robert. And let me be absolutely clear. Yeah, let's get this in there. It's very, very important because one of the things that I constantly lament is how few Roberts there are these days.

1:58And I suspect we are now going to see a flurry of baby Roberts. And, you know, your sainthood can't be far down the line as well now. But amongst all of this as well, big day for you because basically Downing Street sent you to the wrong place, didn't they? You got sent to Coventry. What happened? Yeah, when I get off the train, I look at the Downing Street email. It's the email that every single political reporter had received. It said, go to a Jaguar Land Rover site in Coventry. Got in my taxi, drove half an hour to Coventry. It's already 35 quid on the meter. I then get a panic text from my office saying, they've sent you the wrong address.

2:40So I stayed in the, I mean, this taxi driver couldn't believe his luck. He's never had a fare like this. We go all the way back to Solly. I can't even begin to tell you the size of the bill. All I will tell you is I am going to submit it to the government to pay. Rachel Reeves, obviously, when she gets the bill, is going to have to put taxes up. Yeah, because that'll be the fiscal headroom gone now. Is that why the presser was late? Because Washington had said, didn't they, that it was going to be at like 10 a.m. their time, which was 3 p.m. our time. And then everyone was, you know, I was doing that classic thing of watching all the news channels, just try and fill for ages.

3:17Was it you lot trying to get to Solihull? I mean, this is one of the most surreal events I've ever witnessed where, you know, you've got Donald Trump hailing what he says is this enormously important trade deal. He's in the Oval Office. He rings up his mate Keir Starmer. Keir Starmer is in some weird anonymous room at Jaguar Land Rover on the speakerphone to the American. It all just sort of dragged on. I mean, it was, honestly, it was nuts. I don't know if you watched that conversation between the two of them. I did, yeah. I mean, what is it with the British Prime Minister referring to the American president as Donald the whole time?

3:58Hello, Donald. Yes. This is great, Donald. This is the best deal ever, Donald. And with Peter Mandelson stood behind him, just the kind of shadow over Trump, that was the other thing. I know, and Peter Mandelson doing that. Oh, Mr. President, you are so great. You are so wonderful. Struck in his hair, basically. It was. As diplomacy goes, this was slightly at the sick-making end of it, but it seems to work. I kept thinking that Trump was just going to end the call. There was a few times when Keyes started to talk a bit too much in Trump's eyes about the positives for the UK, and I could just see him potentially hovering over, OK, that's enough, bye.

4:37And also the background to the whole deal is sort of weird. I mean, we'd been genuinely trying to negotiate a comprehensive trade deal that wasn't just about getting rid of, you know, the so-called reciprocal tariffs. Those are the big tariffs, the, you know, 27.5 % on motor car manufacturers. We all thought it was 25%, but of course, we'd forgotten there's already 2.5 % there. So 27.5 % on motor manufacturers like Jaguar Land Rover, 25 % on steel, but also 10 % on pretty much everything else. And the British government was trying to get rid of the lot. And then last night, the British trade negotiators in Washington and ring up the business secretary who is in the city, I think at Mansion House, giving some speech or other.

5:18It's about eight or nine o 'clock. And they talk to Jonathan Reynolds, who's been on the show, and say, look, they're not going to do a comprehensive deal. But, you know, if we allow them to sell a load of beef and ethanol, you know, basically no tariffs into the UK, he will reduce the motor car tariff to the standard 10 % on 100 ,000 cars and we can not sure 100 ,000 cars is enough because Jaguar Land Rover on its own as I understand it was currently selling about 100 ,000 cars into America it's quite restrictive because it is subject to that quota so if you're Aston Martin or you know you know if we end up selling more than 100 ,000, then the motor car manufacturers have to pay that 27.5%, right?

6:10And how do they work that out, though? Because that's the thing I was wondering. If you then reach the quarter and, let's say, Jaguar Land Rover gets the full quarter, then what do Aston Martin go? Well, hang on a minute. Do we have to sell all of ours at 27.5 % more? Well, I don't know whether they count them in as they cross the border. I've literally now... It's sort of interesting. That kind of detail we need to find out about. And then allegedly, right, they were also saying that steel was going to have zero tariffs on it. But then if you look at what the American government has put out, that's not quite what it says.

6:44So it looks to me as though maybe it's 0 % on a limited amount of steel exports to America. And then again, but we don't know what that limit is. They haven't published the quota. But so I think, again, steel, there will be potentially tariffs if we happen to have a steel. We're lucky to have any steel being made in Britain at all at the moment, given how much that industry has shrunk. But, you know, government has rescued British steel. If they succeed in selling steel to America that Americans want, who knows whether they'll bust through the limits and tariffs become payable. But the big point is basically that's all that was on offer.

7:23Right. The British trade negotiations. has ring Jonathan Reynolds. He has to take a view about whether he thinks it's worth doing. I think he says to his trade negotiators, write this up. And then in the middle, you know, obviously it was a very challenging night for both me and the Prime Minister last night because our beloved Arsenal was being beaten by Paris Saint-Germain. He was watching the match. Midway through the match, he gets a call that, you know, Donald Trump is offering him this partial. It's not really a trade deal. It's a deal. It's an arrangement to reduce these tariffs, these big tariffs, not all of them.

7:59And he has to make up its mind whether or not to accept it. And I imagine, I mean, look, I was watching the match while doing my TV show last night. I was pretty gloomy. I imagine he was feeling pretty gloomy about the world. And he just thought, what the hell, I'll take this deal. Yeah. The thing I want, I'm really interested in as well. And I know this is something you've been talking about today. is there's an argument now that actually Trump's been quite tactically smart here by putting up tariffs on this big liberation day and you know to 25 % to much higher for other countries and things and then everyone like us goes oh great when they come down to 10 % forgetting that they were less than that before all of this happened and you know you worked all this out didn't you in terms of what we were paying before compared to what we're likely, you know, what we're going to be paying now.

8:52It's actually more. So we're not better off in any way other than what was announced on Liberation Day, but we're not better off than we were before that. Well, we don't actually know when these big tariffs are going to be reduced anyway. Starmer wouldn't put a date on it, but let's just say this deal does go through. You're absolutely right that we will be better off, you know, motor manufacturers and steel manufacturers will be better off when those tariffs are reduced than they are today. But if you go back to before Trump was elected and before he started imposing tariffs, the UK is way worse off than it was compared to, you know, under Biden, as it were, and, you know, in round numbers, the tariff that the US imposes on us on average in the round across the board has gone up by a factor of three.

9:51And the tariffs that we impose on US exporters has been cut by two thirds. I have in the past referred to Donald Trump's approach to tariffs, to the economy as sort of gangster capitalism. And this is, you know, basically bullying or gangsterism paying off, right? Because, you know, in the end, he's put bigger taxes on our businesses and we have responded by cutting what we charge their businesses and giving better access, particularly to American farmers, to our important markets. So, you know, Trump, as you say, has won. And if you're sitting actually almost anywhere in the rest of the world, I think you're going to be feeling very uncomfortable that an economy as important as the UK has capitulated so rapidly.

10:53And so the interesting question is, is this now a sort of example, a precedent, a template for the rest of the world? have what we've done made it almost now impossible for other countries not to capitulate in the same way and therefore to an extent Trump gets his way he gets better access to other markets and manages to essentially get a lot of tax uh from you know countries like ours and it'd be very interesting to see for example how the EU how Japan or South Korea responds and obviously the most important negotiation of all, starting right now in Switzerland, is between China and America. And those are the mega tariffs that are in play.

11:36They're the ones that really matter. I don't think China will capitulate. In this game of ticking, they're not going to blink first. But anyway, as far as the rest of the world is concerned, I'm not sure the rest of the world looks at the UK and thinks, oh, you're being clever, Mr. Starmer. They may think, oh, Mr. Starmer, it would have been slightly better for us if you'd hung firm and shown a bit more solidarity with the rest of us so we could all have got better deals. And the sacrifices we've made now in terms of the agricultural side of things is a really interesting one. But let's go to a quick break and then we'll come back on that.

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12:38Welcome back to Arrested Money special with me, Robert Perston. And me, Steph McGovern. Now, you mentioned before the break about the fact that in terms of what we've sacrificed and what we've negotiated for these lower tariffs on cars and on steel and aluminium is the Americans now able to sell a certain amount of beef and other agricultural products as well, like bioethanol is a big one. It's something that you get in the beer industry, also used for fuel. But yeah, the Americans are desperate to sell that to us too. Yeah, so there are two important points here. One is, as of this moment, Starmer has resisted the enormous American pressure for us to take chlorine washed chicken and hormone-injected beef and the other products that are regarded in this country as a bit controversial.

13:33And the main reason for that is that if he had allowed those products into the country, there is absolutely no chance he could have done a better deal than the current one we have with the European Union on access for our agri-products, our food to the EU market. And, you know, we're only 10 days away from an incredibly important British EU summit, which will range across a trade deal, a security deal, a defence deal. A big part of all this will be agri-products. And EU has made it absolutely clear, never, ever will chlorine-washed chicken or hormone-injected beef ever get into the EU. So if we'd taken it, we would have then been permanently shut out of a better agricultural deal with the EU.

14:19So that is why Starmer has, at least at this point, stood firm. Although when I pointed out to him that all the polling shows that the British people actually think that a trade deal with the EU is way more important than the US, and that therefore he should probably do an even more ambitious trade deal with the EU than the one he's considering, He came back with his stock response that, you know, he's not going to choose between the EU and the US. He's still trying to have his cake and eat it. I don't think that's sustainable over the medium term. But let's just go to the other material point you made.

15:03The UK has done something quite risky in capitulating to some of Trump's pressure when it comes to things like zero tariffs on ethanol, this new deal on beef, because under global trading rules, there is this important concept called the most favoured nation rule, which basically means if you offer a preferential deal to one country, you basically got to offer to all other countries with whom you do not have a fully fledged free trade arrangement. Right. And this is not a free trade arrangement with the US. This is a very partial deal. And in essentially doing these little narrow tit for tat deals with America, we have opened ourselves up to a legal case from other countries that they also now need, you know, access to the UK for their beef and their ethanol.

16:09And when we finally get the small print of this, we may find there are other side deals that we've offered America that basically breach the most favoured nation rule. And we may find ourselves having to offer these deals to other countries or find ourselves on the receiving end of an international law problem. Yeah. And talking of small print, when we've been looking at what might be in this deal and the sacrifices we might have to make, We were talking about the digital services tax, so the tax paid by the big tech companies. Now, we know that this isn't part of this tariff deal so far, but you think this is going to come further down the line to try and reduce these tariffs even more?

16:55So the British government, Keir Starmer, Jonathan Reynolds, have both said today that they are still hopeful that that across the board 10 % tariff can be reduced. Peter Mandelson has said today that he wants this really broad technological partnership with the US. I have been told by senior members of the government that the digital services tax, this is his 2 % tax on the digital giants, on the likes of Google and Meta and Amazon, raises about£800 million a year. It's supposed to level the playing field with bricks and mortar retailers or traditional media companies. But it is one of the things that are being negotiated in what the government hopes will be a much more ambitious trade agreement, a proper trade agreement, which what we had today is absolutely not, that they hope could be negotiated in a matter of months.

18:02I mean, for what it's worth, I think good luck with that. If I just look at the history of free trade negotiations with all countries, but particularly with America, they tend to go on for years and years and years. But there is a theoretical possibility that Trump now loves us so much that he will expedite these talks. I'm saying I'm rather sceptical about it. And in those circumstances, it could be that our tax sovereignty would be basically undermined, that we might give to Washington changes to this tax, which they don't like. And most British people would say is a perfectly fair tax. And then the other big industries who are waiting to see what it all means for them is obviously the pharmaceutical sector, massive in the UK.

18:45I think we export something like nearly£7 billion worth of pharmaceuticals to the US. And then also the film and TV industry, we were talking about them the other day, and Trump's determined to put tariffs on that sector as well. So again, all the kind of players, the big players in those sectors are wondering what on earth all of this is going to mean because so far it's only cars and steel that have been talked about in the sense of something we're going to benefit from. Well, another element actually of what was announced today, although I have to say it's sort of, you know, I mean, none of us really know what it means, but one of the things Keir Starmer was very excited about when he did his press conference is that part of what has been agreed today is that as and when Donald Trump imposes tariffs on pharmaceutical companies, he has allegedly promised Britain that we will get a better deal than the rest of the world.

19:48But what on earth that means? I've talked to British officials and ministers and none of them quite know. Do you remember I talked about the other thing that Trump wants to do, which is to bring down what the American government, its Medicaid program, pays American drug companies for their drugs to the kind of levels the NHS pays, right? And one of the things that I fear, and actually I got some sense of this from a UK minister today, that they have, I don't know, maybe unwittingly agreed to, is that in order to help American drug companies cut what they charge the American government for these important drugs, I think the British government may have accepted that the NHS is going to have to start paying more for these drugs.

20:48So prop up the drug companies' profits. Now, you know, at a time when, you know, the NHS is very limited resources anyway. If that happens, I think that would be hugely damaging and hugely controversial. So I think we just need to get to the bottom of what the British government has essentially allowed to be put on the table. And then separately on this whole, you know, tariffs on film companies. I mean, this sort of does my head in because as you probably know, okay, technically speaking, you can't put tariffs on services. Right. Technically speaking, tariffs only apply to goods. Yeah. Right.

21:30Now, you can, in some ways, tax services when they cross borders. It's not to say there aren't ways of putting in, but it's not easy. So when Trump said he was going to put tariffs on films, I mean, none of us actually had the faintest idea what he meant. Yeah, how you would do it. I mean, if you were shipping DVDs, which almost nobody watches anymore, from Britain to America, okay, that's a physical thing. You can put a tariff on it. But if what you're talking about is a dematerialized thing that you send down the line across the Atlantic in digital form, and then it gets basically played in a cinema or on a television, and how on earth you monitor, you know, the fact that it's come from the UK to the US and how you charge for it.

22:20I mean, it's just, I don't know. I mean, the technical problems of raising money for a James Bond film made in the UK is really, you know, it's a bit of a head scratcher. Well, I was trying to think of this from the perspective of that show I did for Netflix last year when I went AWOL for a month. And, you know, I was filming that celebrity bear hunt program with basically being chased around a Costa Rican jungle by Bear Grylls. How would you account for that? So it was a load of British, well, actually not all British, but predominantly British people filming in Costa Rica, going out on television across the world.

22:58Like, how would you ever work that out? If it was all Americans in it, would that be different? Does it have to physically be filmed in America? Like, there's so, you know, look at something like Wicked. Wicked is seen as a, you know, it's filmed in the UK, but you'd think of it as an American movie. So it's just, like you say, how do you even categorise all of this? The practicalities around it just feel like impossible. And there'd be plenty of ways around it because we all know there'll be plenty of people employed to try and just find loopholes so that they don't have to pay the tariffs. I mean, there's going to be loads more to talk about on all of this, isn't there?

23:37And it's going to keep us going. I imagine, for quite far to come. But before we wrap things up, should we just quickly talk about interest rates? Because obviously that's another thing that happened today. The Bank of England announcing that they are cutting the main base rate from 4.5 % to 4.25%. Interesting division amongst the nine Monetary Policy Committee members, so this group, this bit like a conclave, have decided to cut, but they didn't all agree. a couple of them wanted to keep it at 4.5%. Including the Bank of England's chief economist, which is sort of extraordinary that the chief economist votes against the majority.

24:19He didn't want any cut at all. And our hero, Swati Dhingra, who was on this programme, did what I think would have been the right thing. They cut by a quarter of a percent, as you say. I think they should have cut by a half percent because I do think the economy is slowing down quite rapidly and quite worryingly. And she wanted a half percent, along with Alan Taylor, another member. So there were two who wanted a half percent, two who wanted no change at all, boo, hiss, and five, only a slim majority, who wanted a quarter percent cut, which is what we are getting. As I say, I was quite struck today.

25:05I saw, this was before the Bank of England have made this announcement, but Goldman Sachs has come up with a really bearish assessment of the UK's prospects. And it actually thinks that the Bank of England will, and it would have to be in a panic, have to cut interest rates to two and three quarters percent by, you know, I think sort of middle of next year, right? So, and that is way more than most economists are forecasting and way more than markets are currently discounting. And they say the reason for that is they do think that the underlying, you know, the signs about what's happening in an underlying terms of the British economy is not great.

25:48So do you think, given that they were so split on their decision of what to do with rates, that they now might come down slower than we thought? Well, look, I'm interested that analysts and the markets seem to think that. I mean, I personally think this is an example of the market being wrong. So whether the interest rate cuts will be as great as Goldman Sachs expects, I can't be sure. But I'd note that markets are now discounting broadly two cuts by the end of the year. And my own view would be there will be three cuts, maybe more. But certainly, I'd be staggered if only another half percent came off before the end of the year.

26:28I still stand by my view that it doesn't read. Domestic changes to rates do not do much for inflation when it's so global. But anyway, that's a chat for another time. We should probably wrap things up, shouldn't we? As we say, there's going to be loads to talk about as the finer details of these deals and things happen. But thank you so much again for listening to us. But that's it from us for now. Bye bye. All the best. Goodbye.