170. Will Trump’s Deal With China Stick?

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1:18Hello and welcome to The Rest is Money with me, Robert Peston. And me, Steph McGovern. I feel like we should introduce Trump as the third presenter of the show he appears. that often in it now. It is another Trump turmoil special. Can I tell you how I framed it in my own mind? It feels to me tonight, like the first series finale, in the sense that, you know, we've got these, we've got these like mega events, we've got, you know, some laying down of arms against China, but that battle is not over. We've got something coming to fruition, which you and I've been talking about, which is how is he going to get drug prices lower in America?

2:04And we've got this extraordinary, absolutely extraordinary. And this really is straight out of sort of a modern day Game of Thrones. You've got the kingdom of Qatar, you know, giving him a$400 million super jumbo jet, which apparently kitted out like a palace. So it's just the end of series one. It's so much more to either look forward to or fear in series two. But it does feel, don't you think, a bit of a finale? Yeah, you're right, because it's making you just not walk away, isn't it? It's like we're all committed to watching what on earth is going to happen next. Because even with this China deal, it's for 90 days.

2:45It's not like forever. Not that anything would ever be forever with Trump. But yeah, you're right. You're like, well, that's 90 days. That's going to go quick, guys. And then we're going to be back on this roller coaster again. Although something's probably going to happen between now and then that'll kick it all off. I don't suppose you want to just take us through, you know, the tariffs that were in place, where they are now, how we got to this place. So, I mean, it's probably, you know, there's been tariffs between China and the US for a long time, but it got particularly aggressive, didn't it, on Liberation Day, that day a few weeks ago in April, when Trump came out with this board of tariffs, what he called reciprocal tariffs he was putting on the world.

3:30It looked like someone who was giving you the odds for a horse race when he first came out. I thought about it that way. What are they called? Tic-tac men? I can't remember. Is that what they were called down the race course? Yeah, those fellas who stand by the side of the race course going two to one and all that. But anyway, it looked like that. But it was unfortunately a lot more serious and damaging than that. But the big deal on all of this is how much Trump increased the tariffs for China, so for Chinese goods coming into America. They went up to 145%, which, as Robert and I talked about at the time, that's just closing the doors to business, basically.

4:13It's an embargo, isn't it? It's basically like saying, no trade, it's an embargo. go and similarly China retaliated and then put up their tariffs on US goods going into China to 125 percent and this sent everything into total turmoil because of course as we both know we're talking about the two biggest economies in the world here and them and so much of the global trade relies on these two countries that this is something that impacts you know all of us we saw The shares of all the big companies like your Amazons and Apple and all of those suddenly plummet because a lot of their products come from China.

4:57So it caused great angst. And since then, there's been this continued kind of standoff between them. And then today, Trump has said that the tariffs now, so on the majority of the goods from China going into the US, will now only face tariffs at 30%. That is the 10 % that all other countries have had imposed on them by Trump, including the UK, plus 20%, which is the so-called fentanyl punishment, the 20 % that he put on China weeks ago to try and force China, coerce China, into stop making the ingredients that go into the highly addictive fentanyl drug, which Trump basically says is, which I think actually this is one of the few things he says which is true, is destroying, you know, thousands and thousands of American people.

5:57You know, there are, it's a terribly addictive drug and doing terrible damage to American society. Yes. So these tariffs have come down. I mean, they're still very high compared to other nations, aren't they? Because I think was it capital economics saying that they've worked out the total US tariffs on China will still be about 40%. So this is still higher. I mean, that's including the steel tariffs and the motor car tariffs. Yeah. Yeah, exactly. So on average, you're talking 40 % tariffs, which is still incredibly high. But it's obviously come down from the, as you say, the embargo, the no business putting the shutters up 145 % tariffs.

6:37And, you know, we've seen a good reaction to this. You've seen the stock markets again rise. Companies like Maersk, the big shipping giant, they've seen their share price go up today because of it. Obviously, there's concern about the fact that it's only 90 days at the minute, which doesn't give the people who are sending goods on these ships much certainty. We talked, didn't we, a couple of episodes ago about that kind of lag between getting stuff on the ships and then getting them to America and then getting them out on the trucks and everything else. So there's probably going to be a mad rush to get a load of ships out now, but they're seeing this as something in the right direction, but not necessarily creating the certainty that they want yet.

7:21But, I mean, what do you make of it, Robert? Do you think that this is going to calm things down a bit? It doesn't get rid of uncertainty, does it? No, the uncertainty is still there because Trump is still saying he wants much better access to the Chinese market. And nothing has been negotiated on that front. I think it's also important to tell people that China has brought down its 125 % tariff to 10%, which is obviously considerably lower than the tariff which America is imposing on China. I mean, there are still going to be problems at that sort of, you know, whether it's 30 or 40, depending on what kind of business you are in China selling to America.

8:11Much lower tariffs, as you say, than there were yesterday, but still quite high. Interestingly, though, these are tariffs which allow business to pick up again. Incredibly striking that the shares in Amazon soared 8 % today. Amazon, a massive distributor throughout America, throughout the world of Chinese-made goods. Apple, however, rising. I think it raised 5 % or 6 % today. Not as much because, of course, it is still very dependent on Chinese-made parts. It's interesting, though, how and what these companies like Apple will say if they do put up prices. Because there's this whole thing, isn't there, about not wanting to get into a row with Trump.

9:05because obviously when Amazon came out and said, we're going to have to put up some of our prices and we're going to list exactly how and why to do with the tariffs, it all kicked off with Trump. So you do wonder if Apple are actually going to, if they do put up prices, give the actual reason of what it is. And obviously between the lines, everyone will know, but it feels like, for example, I feel like there's a fear amongst business retailers about saying anything against Trump. So this week I'm hosting a big world retail congress in London and a couple of the American CEOs have pulled out because they know everyone's talking about tariffs and the impact on global supply chain, on the fact that they're going to have to talk about the impact to them and their prices and what that might mean, and they don't want to.

9:58One of the most conspicuous characteristics of the Trump administration is how much incredibly wealthy business people are, which is how frightened they are of Trump. And I was talking to a very well-known, very senior figure in the whole sort of digital world about why the billionaires who run the likes of Amazon and Meta and Alphabet were all, and Microsoft were bowing and scraping to Trump. And with an absolutely straight face, he said, well, it's because they're terrified that if they don't, that he'll put them in prison. And I said, you're sort of joking, aren't you? And he said, no, I'm not joking.

10:49They're genuinely terrified of that. Yeah, similar to that, I've got a friend who has had a high profile job in the past who've said recently to me, do you know what, I don't know if I should go to America just in case, like, because I've said some public stuff in the past about Trump and what if, and you know, this person's small fryer, I guess, in lots of senses, but still has made plenty of headlines with what they said and they were like, I don't know if I should go. Like, what happens if I, like, you do get arrested or something there? And I think even though that sounds so ridiculous, because he's so unpredictable and he's so driven by his ego and what people say about him and, you know, he's quite happy to suddenly pull up the boss of Amazon and slag him off if he, you know, says anything against what he's doing.

11:40But, you know, I think there's a... You can understand why people are scared because he literally is dictating everything. You talked about how, presumably, the tankers are now rushing to various Chinese ports and are being filled up with containers to get goods over to America. But, you know, let's be absolutely clear. You know, there is going to be a problem actually around now and in the coming few weeks, because it takes weeks and weeks for these containers to reach America. And there is still a risk that there are going to be some really quite important items missing from the shelves of supermarkets or that suppliers can't get a hold of.

12:25So we could still get another significant contraction of economic activity in America as a result of the so-called embargo tariffs, the tariffs that were 145%. If, you know, we're right, and I'm sure we are, that Amazon, for example, will be pressing the button on massive shipments to America of the stuff it needs. You could have this crazy situation where you get a temporary quite significant downturn in economic activity because America runs out of Chinese made stuff. And then you get another glut, which means that the trade deficit with China will reach another record high, which is the reverse of what Trump wants to achieve.

13:14But they'll be wanting to massively stock up on Chinese made stuff for the simple reason they won't be confident that in 90 days time, penal tariffs won't be imposed again. So even though tariffs of 30 or 40 % may still be high, if you are, you know, an Amazon or a Walmart or a Target, you're going to be thinking to yourself, I mean, that could be really cheap compared to what Trump could do in just three months time. So you're going to be massively stocking up. And then there is one other point, which I do think is absolutely gripping. Right. I talked about how Trump had achieved something that is not quite unique in the history of American capitalism, but is quite close to being unique, which is he was taking such crazy risks with the American economy and America's public finances that overseas investors were dumping dollar assets rather than doing what they normally do in a time of economic uncertainty, which is to plow money into the dollar.

14:24So they were selling the dollar, selling US government debt, as I say, which normally they would buy that stuff at a time of global uncertainty. So he had turned in a way that was potentially very damaging for America, the dollar into what's known as a risk asset, right, as opposed to a relatively risk free asset. So, of course, what we saw today, with investors thinking that the risks in the global economy have diminished, we saw the dollar absolutely soar. Now, Trump probably thinks in some ways that's a good thing, but it's not because it just confirms that the dollar is now seen as a risky asset.

15:13Gold, one of those other assets people buy when they're very anxious about the outlook, gold fell today, right? Now, quite often, normally, you would expect if the gold price is going up, the dollar to go up. But the fact that they are moving in opposite directions tells you the damage that Trump has done to investor confidence in the creditworthiness of the American state. Yeah, it's like you've said all along. It's that kind of reset, isn't it? Shall we have a quick break and then come back and talk about what's happening with pharmaceuticals? And also, we must talk about the plane that you mentioned, this multi-million dollar.

15:56What is it? $400 million? Apparently, Trump himself said, he said, he made some comment at a press conference today when he was defending it. He said, well, you know, somebody gives you a plane that's worth a billion or maybe$400 million. You're not going to turn it down, are you? So we should talk about that. Yeah, we should. Let's have a quick break. So welcome back to The Rest is Money. That's another Trump special with me, Robert Burstyn. And me, Steph McGovern. So we've talked quite a bit about the pharmaceutical industry, haven't we? And the concerns there about what's going to happen with tariffs.

16:32Trump essentially is raging about how much Americans pay for drugs and how many of those drugs are imported, or at least the ingredients for them and everything else. And now, essentially, he wants to try and set the price of drugs, doesn't he? He's tried this before in his first term in office and it didn't happen. But he's come back with a vengeance now, trying to basically fix the price of drugs so that drugs companies can't charge beyond a certain price. And I have actually, I have to say on this, I have a degree of sympathy with him because there's been some very interesting work done by Rand on this, but also actually this is corroborated by a whole series of studies.

17:16What Americans pay for pharmaceuticals is something like three times what the NHS pays for the equivalent drugs and treatments. So there is no question that Americans are being ripped off, right? The NHS is paying literally a third of the price. Something's wrong with capitalism in America that somehow the drug companies are getting away with charging so much more. Obviously, NHS buys in bulk and can give certainty of demand over a period of time. But even so, that disparity just looks, I mean, if you're an American, it's great if you're the NHS, but if you're an American, that just looks terrible.

18:09I mean, it was interesting that some of the organisations around it donated to Trump's inauguration, you know, in the sense of trying to get him to be more lenient with them. And he's come out and said, which absolutely made me laugh out loud when he said it. Did you hear that quote? Campaign contributions can do wonders, but not with me and not with the Republican Party. Wow. Yeah. OK. I know, exactly. Although it has to be said, actually, since he did say that, you know, maybe it was all cunning plan after all to, you know, undermine Elon Musk's wealth. I mean, Elon Musk, the biggest donor of all, his fortune absolutely massacred, collapsing the Tesla share price since he started to work for Trump.

19:03So maybe Trump is telling the truth that, you know, So donations do not buy any increase in wealth, either for drug companies or for Elon Musk. And also, as we were saying when we were talking about the UK-US trade deal, the UK is not better off since Trump's come in, but he's totally selling it as that because of the clever move with putting the rates up so high, the tariffs up so high on Liberation Day and then bringing them down to higher than what they were before Trump even came in. And it's like it's actually worked out tactically quite well, friends. And obviously, again, talking about what's happened on the stock markets off the back of this news about wanting to set the price of drugs.

19:43We've seen, for example, Novenor Disks, a company we've talked a lot about, this Danish massive company makes. We're Govi and a Zempick, the fat jabs, that's down 4%. Roche and AstraZeneca, again, massive pharma giants, down 3 % as well. So, you know, the sense here is it's not good. It's not looking good for the pharmaceutical companies. And obviously their argument back is that this is going to impact research and development and they won't have the money for that, which Trump said that's rubbish. That's just an excuse. What are you thinking, Robert, on all this? So there are two things. I made the point that, I mean, I did think this was coming from Trump, that he wanted to reduce the price of drugs for Americans down to the lowest price that the drug companies charge other countries.

20:34Most favoured nation, it's called, isn't it? Well, that's the phrase that you use when you're talking about tariffs. He's sort of taking a tariff concept and he's applying it in this case to pricing by the pharmaceutical companies. companies. And, you know, if you take the fact that, as I say, NHS prices are something like two thirds lower than American prices, if he were able to force the drug companies to reduce their prices to the NHS, the levels the NHS pays, that would just be a massive squeeze on their profitability. What I therefore feared would happen, and I'm pretty certain it will happen, is in order therefore not to have to cut the prices in America that much to sort of jack up the prices that the likes of the NHS pay, which would be an absolute disaster for Wes Streeting and Keir Starmer, you know, time of incredibly scarce resources.

21:38The last thing they need is for Trump's actions in America to force down prices, to lead to the pharmaceutical companies, charging the NHS way more. But I think that is a very serious risk. Yeah, that's a really important point. You know the term most favoured nation? Whenever I think of it, have you ever been told when you've gone for like a, if you've ever done any work for the BBC and they want to make sure they pay you the least possible, They always say to you, it's a favoured nations and regions fee. So it means on no level can you negotiate any higher. And it's normally a random number.

22:17As you say, it arrives in your contract and it says we're hiring you on whatever that phrase is. And as you say, as soon as you see the phrase, you know. Favoured nations and regions. What you know is it's a rubbish fee. It's basically the BBC saying we're doing you a favour by, you know, basically asking you to do this. Right, let's talk about this plane then. So this is a luxury Boeing 747A. It's a donation, isn't it, from the Qatari role family? Well, just a bit, we should actually clarify that Qataris have said, they're not denied that they've offered it, but they are saying, oh, it hasn't quite been done.

22:56and, you know, we should point out that Qatar is obviously a bit embarrassed about the whole bloody thing. Donald Trump, though, not embarrassed. So it's like it's on the Christmas list. So it's there for, you know, it's on the Christmas list for Santa, but you haven't quite got it yet, is it that? You know it's coming, but you haven't got it yet. And he's off to the Middle East, actually, as we speak. Within hours, he's off to the Middle East. So I think we all expect the formal present to be, you know, or sort of be announced within a couple of days. Yeah. And the thing that blew my mind was you saying to me earlier that it's going to be upgraded to be Air Force One, right?

23:32So the president's main plane for getting about. But then when he leaves office, he gets to keep it. Well, it goes to. So this is an interesting nuance, right? He insists that it's not going to be his personally. You know, presidents, all presidents create these foundations and these libraries of all their documents and all the rest of it. Every president has a library. An archive and all that. And he is saying, so the plane will be used by him on official business and then it will be transferred to the Donald Trump library as and when. I mean, obviously, there are just going to be some librarians flying around the world in this plane.

24:15There's no chance of Donald Trump flying around the world in a plane that is basically kitted out like a palace, is there? What does it buy them? What is this buying the Qataris? That's what I'm worried about is now, what are they going to get for this massive gift? But you've hit the nail on the head here. This is what is literally astonishing about the current state of America, right? His legal advisors and his defence secretary have all said it's fine for him to have a 400 million or the American government to have a 400 million present from Qatar, a state that was only, well, actually, at the end of Trump's first term, was put on, you know, effectively the naughty step.

25:08You know, it was basically classified as not a hostile state, but as a state that was dodgy because Saudi pointed out that it was too close to some terrorist organizations. Now, it's come off that list. And it's obviously very keen to go on that list again because it's making this lovely present. But Trump's legal advisers are saying it's fine to have the president because we cannot think of any favour right now that Qatar is asking for. Right. As though, I mean, it's just you're sort of headed. Right. I mean, you know that if somebody gives you something you can't afford at some point, they're going to come back and say, hang on a second.

25:56I gave that to you. Now you can scratch my back. And there's no such thing as a free plane, is there? This reminds me of, you know, Chris Kamara, Cammy, footballing, pundit, legend, hero, is from my hometown, and he's a really good friend to them. And I went, and he, wherever we go, gets mobbed by everyone. It's like being with Harry Styles when you're with Cammy. And so we were in this Indian restaurant, and literally everyone kept trying to pay the bill or to give it for free. Like the owners of the restaurant were like, we want you to have it free. And we were like, no, no, no, no, no, it's fine, it's fine.

26:28and then people kept trying to pay the bill and we were like no and I was like does this happen to you all the time and he's like yeah yeah it happens quite a lot and he said but I never take it because it's never a free lunch they'll always want something no that's true I've got a question for you because you've got a good eye for these things right you remember Keir Starmer got those free glasses right from Waheed Ali the free spectacles right do you reckon do you reckon they are $200 spectacles or$400 spectacles? I mean, I'll tell you why. Because if they're$200 spectacles, the plane is basically the equivalent of 2 million free spectacles.

27:08And if they're 400, it's 1 million free spectacles. But can you imagine, in the UK, Keir Starman, they're like, you know, the press is all over him for effectively, and this is the most appalling act of corruption, he's had some free spectacles, right? Basically, Trump has had that times a million. Yeah, I know. And that's what we're talking about. And he just gets away with it all the time. It's really, really unfair. We should probably wrap things up, shouldn't we? Because it's getting late. I know, getting late sounds like the beginning of a song. You'll be pleased to know I'm not going to break into song.

27:41No, and that's definitely a sign that we need to wrap up. You've got Steph Landers on the next episode, haven't you? Because I'm with all those retailers. I've sort of decided that, as I said, I'm turning into a boring old fart. But on the rare occasions you're away, I've decided just to make, just so that I don't forget who I'm talking to, I'm only going to have Steph's on the show from now on. And did you know, right, so when I was working at the BBC, before I worked with you, I was Steph Landers' producer. And that's when Stephanomics came out. It was the two Steph's. I mean, she was obviously writing it, but I was her producer at the time.

28:16And we're like, isn't that funny? Stephanomics and it's the two of us. You cannot have too many Steph's. Right, let's go. All right. See you soon. Bye-bye.