255. Trump trade tariffs - who is calling the shots?

20:00Robert Peston:So if if if let's just say you paid 100 million in tariffs, if if if you did, they'll be buying them at 50 million, you know, hoping to recoup the whole 100 million when the court case is over. Actually, whether whether indeed they would pay 50, you know, 50 cents on the dollar or rather less, given that there are quite a lot of American lawyers who wonder whether the American government will ever pay out. I don't know. They may be paying even less than that. I'll look into that before the next episode about what we think the value of this possible future payout is in an investment sense.

20:36Steph McGovern:It's where there's blame, there's a claim. It's that classic, isn't it? Everyone comes out and creates an industry out of other people's turmoil. And you see it with all kinds of things, don't you? whether it's PPI or car finance, mis-selling, whatever it is, people then come out and make a business out of it.

20:57Robert Peston:Obviously, we do want to look specifically at the impact on the UK. But before we move on to that, I did think it's just useful to remind people that Trump did make huge claims about the positive impact that tariffs would have. So, for example, he insisted it would massively reduce America's trade deficit. And quite a lot of people think that that was a balmy ambition anyway. But if you think it's a good, it would have been a good thing. It hasn't done that. The trade deficit in 2025 was more or less the same as in the previous year. It has not reduced America's trade deficit. Yes, there have been quite a lot of companies saying that they were going to invest more in the US.

21:43Robert Peston:But actually, the reality of that has not yet kicked in. So investment last year in America was not significantly greater than it was under Biden. So much of what he wanted has not materialized. Now, I should also point out that there were genuine fears that this would lead to a very serious economic downturn in America. And, you know, I was one of those who on this podcast expressed those fears. We should point out that the economic damage has been less than some of us thought it would be. I mean, we are seeing inflation that is stickier than it would otherwise be. And that is a cost. And it's also a political cost to him, which we talked earlier, because it means that the cost of living for Americans is still is still rising.

22:36Robert Peston:but he has been bailed out for now by the AI investment boom and the massive investments in data centers and in energy as a result of the AI boom means that the American economy has grown, you know, at a pretty reasonable rate. I would argue nothing to do with him because of the AI boom. The negative tariff impact on America has been less than it would otherwise have been.

23:05Steph McGovern:Yeah, that's really interesting, isn't it? So we should definitely talk about the impact on the UK then and what it means for obviously the deals that Starmer negotiated and whether they're worthless now. But first, let's go to a quick break.

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23:48Robert Peston:I'm R.J. Decker, a private investigator uncovering the sunshine state's darkest secrets. Tuesday, it's the premiere of ABC's hottest new crime show. R.J. freaking Decker has that live and breathe. He's a private eye. It's not a standard murder. Someone bigger. And a public mass. Trying to get someone back to prison today? You go to prison one time and suddenly it's all the jokes. R.J. Decker, series premiere, Tuesday on ABC and stream on Hulu.

24:19Steph McGovern:This episode is brought to you by Vanguard. Now, when it comes to your finances, you want to work with companies you trust, don't you? It can be really complicated when you're investing, you know, trying to work out where your money's going. And it can be confusing, can't it? And that's where Vanguard comes in because they always put investors first and they're delivering on that promise for 50 million investors worldwide with a wide range of funds and a platform that keeps costs low and makes investing simple. You can also open an ISA or a self-invested personal pension, choosing investments yourself or letting Vanguard choose them for you.

24:57Steph McGovern:Search Vanguard Investor to find out more. Now, when investing your capital is at risk, tax rules apply. We're going to talk now about the impact of Trump's tariff changes and the Supreme Court ruling, which has meant he's now using other legislation to bring out this kind of broad brush global tariff of 15%. We've talked about the impact in terms of global economics, but we should focus on the UK because obviously Starmer spent quite a bit of time getting that deal over the line. we were the first country to get a deal with America on trade tariffs. And obviously, lots of businesses in the UK are now going, well, what does this mean for us as exporters?

25:38Steph McGovern:And one of those, which is big in all of this, is manufacturing. So before we talk about what we think on it, we wanted to hear from Stephen Phippson, who is the DG, the Director General of Make UK. And that's the body which represents manufacturers in all forms of manufacturing, whether it's aerospace or automotive or right down to, you know, small companies in the supply chain making widgets or whatever it is. It's a, you know, an organization that's been going for a long, long time. Funnily enough, side note, when I was one young engineer for Britain, it was them in their former, when they were called EEF, the Engineering Employees Federation, who gave me the award.

26:17Steph McGovern:A really important voice in manufacturing. So this is what Stephen Phippson had to say about the trade tariff changes.

26:24Robert Peston:The recent announcements about US tariffs is again causing instability, I think, would be the watchword in the manufacturing sector in the UK. The US is our single biggest export market. And if you start playing with the tariff regime, that means the pricing changes across the border. And then it's a question of who's paying. Often, if they're on a fixed term, that means that the cost of the additional tariffs goes to the manufacturer. That means the people in the UK are suffering lower margins in already a very, very difficult scenario. So for them, it causes that sort of confusion. And also the other thing we've noticed every time Donald Trump stands up and changes the tariff regime, the US customs is thrown into confusion and they don't know which bit of paperwork to use.

27:02Robert Peston:We have delays at the borders. Often attracts penalties if you're in the supply chain because you're committed to delivering in a certain time. So it's already quite a tough sector in terms of margins and getting that business to work. The US is our biggest partner, but this just creates an enormous amount of uncertainty and instability in the system. Many of those supply chain companies in particular are now looking at other markets, trying to find other markets which look more stable to them to try to export their products and capability to. So we're having a big pickup of interest, for example, in India, in the Middle East.

27:36Robert Peston:And could they pivot some of that away from the unstable US situation and try and get more stability into the system? So for manufacturing, it's all about a stable business environment. And at the moment, we're not sure that's where the US is. It seems to be changing on a regular basis.

27:51Steph McGovern:So that's Stephen Phippson there from Make UK. Making that really important point there, it's about the uncertainty as much as anything else, because, you know, as Stephen explained, this global levy doesn't impact tariffs on specific sector agreements. You know, so it doesn't impact the deals we got on steel and aluminium, pharmaceuticals, automotive and aerospace. They're not going to be affected, but it's just the general drama of A, might that change? And B, lots of business people contacting him trying to work out what it all means. And it's that uncertainty, which is a real disease in business when it comes to investment and everything else, isn't it, Robert?

28:33Robert Peston:I'm afraid I'm less optimistic than Stephen is that these carve out deals for the UK will survive, because if you look at the legislation under which Trump has now introduced, I mean, he's introduced a 10 % tariff that has been published. He has said he's going to increase that to 15 percent. What that legislation says is you cannot discriminate. All countries have to be treated equally. And so, you know, if you are the European Union, for example, or if you are China, you might well go to court in America. Or if you're one of those businesses located there, you might go to court in America and say, look, you know, this tariff is unfair because it is not being applied equally.

29:37Robert Peston:you know it is not for example being applied to you know you know the UK in the way that it's being applied to us and so there there is a there is a risk that what he will do not is is is not rip up because why would he want to do that the trade agreement with the UK but he might have to impose the extra 10 % on top of the 10 % that British auto manufacturers are already paying, right? Or, you know, add another 15%. I mean, there is a genuine, you know, I've been talking to lawyers about this, there is a genuine risk of all of that. And I know the motor manufacturers themselves are deeply uneasy.

30:25Robert Peston:And, you know, I mean, there have been manufacturers wondering, Should they actually at the moment be putting their cars on ships to America? The last thing they want is for the luxury cars to arrive there and be whacked not with 10 percent they thought they'd negotiated, but with 25 percent or 20 percent.

30:44Steph McGovern:Yeah. And it's the point, again, that Stephen made about lead times. You know, when when these and I remember this at Black and Decker, when you'd work on a product that was being manufactured in front of you. but it would be sometimes years before it would be actually in the shops and things. So as you say, so much can change in that time. So how do you price it in the first place if you're not sure whether there's going to be an additional 10 % on a tariff on the cost of the product? And that inevitably, it's that thing that stops investment because people go, well, hang on, if we don't know if there's too many variables and we can't work out our costs, how do we know how much money we have to invest in all of this so what so what do you think starma's going to do because obviously there's lots of talk the eu are fairly much more aggressive i would say in all of this in terms of potential retaliatory uh tariffs whereas the uk government of you know they've really sat on the fence a bit like the business bosses we talked about a minute ago they don't want to upset trump you won't get a minister saying publicly what they really think of Trump, you know, everyone just really plays this anodyne view of Trump.

31:56Steph McGovern:And is that what's likely to happen, do you think? What's Starmer going to do?

32:00Robert Peston:I think this is a real embarrassment for Starmer. Because, you know, if you just look at the immediate impact of what was announced by the Supreme Court last week, massively reduces tariffs paid by, for example, you know, Brazil and and China and massively increases, particularly if the 15 % rate is introduced, what the UK would play. And it blows up months and months and months of, you know, effectively the British government sucking up to Trump. And given that that is politically within the UK, not a very good look for the government, if at the end of it they don't get preferential treatment, you know i think many british voters will say what the hell was that all about yeah yeah and

32:53Steph McGovern:it's that it's also just what it says generally to people about letting bullies win it really is you know it's really hard to explain like for example to my kids and to kids about why trump's allowed to do what he does and you know we just look really weak in moments like this and i know this way it's complicated and it's all to do with this dependency we have on them for trade but not just trade. It's about security and it's about a million other things that we're not necessarily talking about when we talk about trade, but it does make us look weak. And should we be thinking about this as a way to just stop having such a codependency on America and look at the EU more closely?

33:38Steph McGovern:And I know we're out of the European Union, but it just feels like this is the time when we should just stand up for ourselves and look at another way through this. That doesn't involve us being bullied.

33:48Robert Peston:Yeah, I mean, look, if in the end we face a very similar tariff regime to the EU and Canada, you know, against a backdrop where, you know, Macron of France has stood up to Trump in a way that Starmer didn't And Carney has stood up to Trump in the way that Starmer didn't. You know, I think there will be enormous political pressure on whoever is the British prime minister. And let's be absolutely clear. There are quite a lot of people in parliament who wonder whether Starmer is going to remain prime minister for that much longer. But whether it's Starmer or a successor, you know, there will now be enormous pressure on the UK to have a rethink of what is the best way of conducting commercial and diplomatic relations with America and whether we should, you know, look a little bit less fawning and be a bit tougher.

34:51I mean, we had the extraordinary image of the former U.S.

34:59Robert Peston:ambassador, Peter Mandelson, being arrested the other day. He was the sort of living embodiment of the, you know, the Starmer approach of, you know, in essence, sucking up to Trump and his colleagues. um you know starmer today will be thinking well i didn't get a lot commercial benefit out of that and the political damage of seeing my appointee you know being uh you know arrested uh interviewed by the police in wandsworth and then returned at two in the morning those are images that are going to haunt his time in office for as long as he's in office and it is all of a piece because it was all driven by this idea that you had to placate Trump rather than standing up to him.

35:50Robert Peston:And if at the end of the day, as I say, the economic benefit of placating Trump turns out to be negligible, you know, it's just another aspect of essentially his big approach just disintegrating in his own hands.

36:05Steph McGovern:When I was talking to Sir Michael Moritz last week, you know, we were talking about the business leaders who are not necessarily standing up to Trump. And, you know, Michael was explaining how they have no choice and their job is to do business and to look after the business. And as it stands to do that, they just have to, you know, take whatever Trump throws at them and not stand against him. But there does come a point where, and this is what I asked him, is when does your morals and humanity become like more important than business? Or just does it never? Is it just always that, you know, we've just got to suck it up because life otherwise would just be too destructive and that would lead to much greater problems than dealing with a bully?

36:55Steph McGovern:And I find that really depressing.

36:57Robert Peston:And what did he say? Is there ever a line for business?

37:01Steph McGovern:Yeah, well, he kind of didn't answer it, to be honest. He was just kind of saying they, you know, because he was very, he's very vocally anti-Trump. I think he called him a buffoon on the podcast. It's worth listening to that interview, actually, if you haven't heard it. um you know one of the previous episodes he just reiterates the point about yeah yeah i mean it was a long pause first when i asked him that question but he just made the point that i guess and this is valid as well that these businesses employ you know thousands and thousands of people you're putting their jobs at risk and their lives at risk if you challenge someone who might make your business then really difficult to to function and i guess that is the same thing it's weighing that up starmer's gonna weigh up what are the consequences gonna be and yes your point that well actually we've not had any benefit from it but maybe we haven't had the negativity we we might have had if we'd have stood up to him more i don't know it just feels depressing and i know i've said that twice now but i i'm a life's optimist but i feel like we're in a really bad rut at the minute and it's just not getting any better, especially for diversity and for general human rights and living standards and everything else.

38:15Steph McGovern:It just feels like we're going backwards rather than forwards.

38:17Robert Peston:Oh gosh, well look, I'm going to cheer us up by saying, as usual.

38:21Steph McGovern:I know I didn't give you anywhere to go there. One positive thing, your point though, which I think is really true about, you were talking about AI and how actually all of the growth that's come from AI has kind of, you know, basically masked the negativity of the trade tariffs. And that is what I do think happens. You know, I think we have the potential, we've talked before about how we're the third, you know, we look, you know, the third best in terms of AI potential after America and China. And if we capitalise on that, we might circumvent all the negativity from the politics and actually just win with business and technology and we will find our way through it without, you know, by ignoring the chaos and just getting on with what we're really good at, which is creating new companies, new stuff, new tech.

39:11Steph McGovern:And that's my positive note on which I will end this on.

39:15Robert Peston:Yeah, also it's inevitable given the uncertainties around dealing with America that Stephen Phipps and so intelligently encapsulated that we are going to pivot to having closer trade relations with the European Union. That is absolutely inevitable. It is, as he said, as a trading area, it is a bigger market than the US. That is a positive. And since you've mentioned AI, I think we should come back to this in an episode soon. Yes, of course. You know, there are lots of, you know, we've had so many interesting conversations about how well-placed the UK is to take advantage of this technological revolution.

39:58Robert Peston:There are still, we should point out, enormous uncertainties for jobs and living standards in this industrial revolution. I was staggered. I don't know if you saw there was a blog. I think it's a blog put out by an organisation called Citrini, which came up with this sort of fictional account of how we were heading for a great recession as a result of AI. and it actually had an enormous impact on the stock market, which in a negative sense, or a significant impact on the stock market in a negative sense. So it shows you, you know, really, and this goes back essentially to Trump's State of the Union, where we started, and how he tries to buoy people up against a backdrop of enormous uncertainties that he created.

40:46Robert Peston:People are just very, very anxious at the moment. There is an enormous amount of uncertainty. And if a single blog, not blog, blog, the single blog can shake investors. You know, a blog, I have to say, which I read, I did not think was particularly compelling. It shows you we are, you know, there are very good things about the state of the British economy. But we just live in a time of considerable unease and anxiety, I'm afraid.

41:13Steph McGovern:I tell you who's going to do well over the next few years, though, lawyers. because lawyers are going to do so well from all this litigation and everything else working out what it all means and suing governments and everything else. So good luck to the lawyers.

41:28Robert Peston:I'm not sure that is a silver lining. And if you are listening and you're of an age where you're thinking about a career, there are quite a lot of lawyers in the world. So, I mean, it may sound attractive, but if you can think of something else to do, I'm not going to dissuade you.

41:42Steph McGovern:Okie dokie. Right, that's it from us on this episode. Thank you very much. Bye bye.

41:47Robert Peston:All the best. Goodbye.

42:16Robert Peston:and see what you've been missing.