Trump trade: one step forward, two steps back
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Hello and welcome to World Business Report from the BBC World Service. I'm Leanna Byrne and on this edition, there's another twist to the tariffs tale. US President Donald Trump says he's stopping trade talks with Canada over a tax he's not happy about. We'll also take a look at the details of a minerals deal the US and China have struck and whether it is a big deal or not.

And finally, how one of the world's most famous festivals springs up a mini-economy in South West England. But first, another major trade move from President Trump. And yes, I know this is becoming a daily occurrence. But this time, Canada is in the crosshairs. Donald Trump says he's cutting off all trade talks with its neighbours immediately. And he's blaming Canada's digital services tax...

which targets big tech firms. Earlier today, I spoke to Carleen Varian, Associate Vice President at Summer Strategies and a former Chief of Staff of former Canadian Prime Minister Justin Trudeau. I wouldn't call it entirely unexpected in substance. It has long been known that the United States had issues

issues with Canada's digital services tax and its implementation. That dates back actually to the Biden administration. This is not just a Donald Trump and Republican grievance. Under President Biden, his US trade representative frequently raised the issue of the DST with Canadian counterparts as a point of disagreement and something that was a challenge for the trading relationship.

What's interesting is the timing. So it has been known for about a year and a half that Canada intended to move forward with implementing this digital services tax. It's due to come into effect and begin being collected on Monday, so just before July 1st.

Trump has posted on social media that he only found out about this today. That's both hard to believe and easy to believe, depending on which way you look at it. But it does represent a rather big sort of development in terms of the trading relationship. And to come at the 11th hour like this, right as the tax was supposed to be beginning to be collected, is probably deliberate on his part. I presume as well, it's, you know, this is quite worrying for a lot of businesses in Canada.

I think it is. The digital services tax doesn't impact them at all. But the repercussions, if President Trump decides to walk away from a trade talk with Canada and further punish other Canadian industries, this will matter a lot. The digital services tax is essentially a way for countries to put taxes on large technology companies that provide services. That would be things like streaming, video, film, movies, or even online services like email servers, wherever they do business. And so most of those companies are American companies.

You could think of companies like Amazon or Facebook, for example. These are taxes that a number of developed countries have. So the United Kingdom, for example, has a digital services tax. That tax in the UK made it untouched in the UK's trade dealings with the US last month. So it's interesting that he's sort of picking on Canada in this. But...

I think the president likes to create some drama at the 11th hour. And this is the moment when the tax would have been implemented. So it does create pressure on the Canadian government to make some kind of an announcement in the next three days. You had Canadian business groups coming out and they say they want the government to drop that tax on the big tech firms. Is that a dangerous precedent, though, if that's pushing essentially for Canadian law? Trump wants is going to push what Canadian lawmakers might do.

It is a bit complex in that way. And I think you see a division among Canadian businesses. On the one hand, Canadians don't want to see themselves punished by the U.S. for attacks that has nothing to do with them. But at the same time, you also have businesses who I think directly are impacted by this. And that's

because many of the tech companies are choosing to pass on digital services tax directly to their customers. So, for example, if you own a hair salon and you have a website and you allow people to book online, you're paying a technology company to do that, you're going to indirectly pay the DST. So there are costs to it. I think that it is probably something that if I had to guess, the Canadian government would

would be willing to give in on if it can create larger gains in the trade discussion. So I don't think that this is a red line for the Canadians. I would expect, and I don't like to make bets, but I would not be surprised at all to see the Canadian government at least announce before Monday an intention to

pause the implementation of the tax and perhaps review it, perhaps delay it. Something to that effect, calm the president down. Yeah, because you're kind of stuck between a rock and a hard place, aren't you? Because that tax would bring money in. But at the same time, the US is Canada's top trading partner, and you could lose out on more than $400 billion in goods and trade. Exactly, exactly. And there are a lot of industries in Canada right now,

steel industry, the agriculture industry that are really hurting from tariffs that are in place. And those industries and what they mean in terms of a hit to the economy in Canada represent a larger figure on the balance sheet, so to speak, than what the Canadian government collects in the digital services tax. So I think it's likely something that

Prime Minister Mark Carney has known for a while would come up as an irritant with the U.S. I expect he's probably already made up his mind about what he's going to do about it. But it will be the how that is interesting. You know, do they offer the Americans an inch now or do they insist on holding off until more formal discussions at the training table if they do return to one? I think the tactic that he decides to use will probably be interesting.

That was Carleen Varian, a former chief of staff of former Canadian Prime Minister Justin Trudeau. Also with us is Takara Small, national technology columnist at CBC, who's joining me from Toronto. Takara, thanks so much for joining us. Thanks for having me. Takara, rock and a hard place. Do you feel like, you know, Trump might have the upper hand in this one?

I mean, Trump definitely has an advantage. As was previously mentioned, Canada and the U.S. have been trading partners for a long time. The U.S. is Canada's largest trading partner. So, you know, Carney himself and his team are at –

an impasse of sorts. I do see them, you know, possibly pausing implementing this. And I must say this conversation itself is quite ironic because on the 1st of July, Canada celebrates Canada Day, which is meant to bring together Canadians to celebrate our sovereignty and independence.

And at this point in time, there's a conversation about whether or not our lawmakers can implement a digital service tax. So all of this happening right now at the 11th hour is more than ironic. It is confusing to me because the tax itself, why would be such a flashpoint for the U.S.? Because there are other similar taxes out there that other countries or trading blocks have, don't they?

It is. But Trump in the past and in both administrations both times has talked about U.S. power and how he felt that American companies in the country itself are being, quote unquote, screwed over. So I'm not surprised that this has become kind of a lightning rod for how he feels about not just Canada, but other jurisdictions around the world. I think it's important to know when we're talking about this particular tax, it's for, you know, big, quote, big tech.

These are companies that have worldwide revenues of at least a billion dollars and make at least $20 million annually in Canadian revenue. So it's not the small tech startups in the US that will be impacted by this. It's the big Ubers, the Metas, the Googles of the world. And it just feels like that's a whole trend in many countries in the EU. They are looking for those companies to pay more tax. So is Trump trying to stem the tide or something?

I think so. I mean, this conversation has been going on for years. I mean, you know, at least the Canadian finance ministers have been talking with peers of the G7 since 2020 about this. And this really is in response to how the world of tech has changed. I mean, digital services have grown. We've seen companies being able to make money around the world without necessarily being domiciled or head

quartered in certain countries. And I think it's been hard for governments to define how these companies should be paying taxes and how the billions they earn through sale of intangible goods like streaming should be approached. And so this conversation has been going on for years. And I think countries in the world are just saying, hey, maybe, you know, these big tech firms should pay their way if they're going to make money off of our citizens and residents. But at the end of the day, for Canada, it's very much weighing up whether it's worth paying

you know, damaging that trading relationship or bringing in that money through that tax, right? It is. I mean, Canada right now is still suffering from 50% tariffs on steel and aluminum. And then we have a 25% tax on auto. So it's been a challenging time for Canadians and Canadian businesses as well. You know, we've seen a lot of American consumers who perhaps haven't been able to purchase goods from both big and small businesses because of that tariff. Canadians are definitely feeling the weight of

of this, and I'm not sure how they will feel if more tariffs are added. I do want to add that Carney was elected. Part of his election was based on standing up to the U.S. and Trump. So again, he's in a rock and a hard place right now. Okay. Takara Small, thank you so much for joining us. Now, while negotiations with Canada and the U.S. look to be going backwards,

there has actually been progress elsewhere for the White House. As we reported last night, the US says it's reached a breakthrough with China. It's not a full trade deal yet, but both sides have agreed to fast-track shipments of strategic minerals. That's a key step in easing months of economic tensions.

Mary Lovely is a senior fellow at the Peterson Institute and an expert in US-China relations. And she joins us from Washington, D.C. Mary, well, first of all, what a great name. You have a great second name, I have to say. Thank you. Anything lovely about this agreement?

Well, we are happy that the agreement has been confirmed. We were at sky-high tariff rates. Those came down with the meeting in Geneva. Tensions flared after that meeting, so we're happy to see that

the truth that was reached in London is going to, it looks like it's going to hold. Because it has been very much months of economic tensions. So is this light at the end of the tunnel or, you know, is this something that maybe they would have reached an agreement on anyway? Well, in some sense, it's a made up war, right? Because

The only reason that China, you know, went ahead with its export controls on rare earth magnets in particular was because that was the tool that it felt that it could use against Washington, which began the aggression with, you know, President Trump.

escalating the tariff war. So the fact that they've reached a truce is important, I think, but none of this actually had to happen. We haven't seen any big changes in the relationship as a result.

just backing down of this kind of tit for tat. So the underlying issues still are there. They're now hopefully beginning to tackle those. OK, Mary Lovely, thank you very much. Now, minerals have been at the heart of these trade negotiations. Why? Well, let's ask Ashley Zumwalt Forbes, who's the principal of Smoketree Resources and formerly served as the US deputy director for batteries and critical minerals.

I find it to be quite fascinating that over the last six months to a year, it's hard to have a conversation about geopolitics where critical minerals doesn't take front and center position. You know, I think particularly with the discussions between the U.S. and China, it really emerged that critical minerals and specifically defense critical minerals like the rare earth complex are

is truly the U.S.'s Achilles heel in an area that China both completely dominates and is able to turn off the tap at the turn of a switch. So we are extremely vulnerable. When that tap is turned off, which industries or technologies are most exposed?

The biggest fear is defense industries are impacted. So when you're looking at rare earth materials, their traditional uses are permanent magnets, which go into motors, go into wind turbines, are important kind of across the board for electrification. If you're looking at modern warfare, permanent magnets would be incredibly important for things like drones.

And so the worry would be that you enter a global conflict and we as the West would be completely unable to supply our industrial base with the needed materials to be successful. I mean,

I mean, from China's perspective, are these exports just economic or are they also a source of political leverage? Because it sounds like it. It actually is not economic at all. I would argue that it is much more political, much more strategic. The reason it's so hard for the U.S. to emerge as a player in this space is that China greatly subsidizes these industries.

and doesn't need to make a profit. The reason they do that is they see it as a strategic position to exact influence, to have control, and ultimately to get a monopoly.

If you look at that in the West, we have to make quarterly returns. And so standing up an industry that isn't competitive is extremely challenging. What do you think, Ashley? Is the long term play for the US to build up its own capacity like mining, refining and recycling? Or will this dispendency really just linger on for years to come?

So I worry with, you know, today's development with the US-China trade agreement that the dependency will linger on. I think, you know, it's short term relief for our supply lines to be able to access rare earths, but we should take no comfort in that as the West.

We really need to develop our own capabilities to supply these materials and importantly, the IP to make the end products like permanent magnets such that we aren't completely beholden on one for an adversary. That was Ashley Zumwalt Forbes, the critical principal of Smoketree Resources.

And you're with World Business Report from the BBC World Service. Now we have Chris Lowe, Chief Economist at FHN Financial, who's joining us from New York. Chris, I mean, we've spoken about a lot of things there, you know, Canada, China. What have the market reactions been today to both of those stories? Well, I think the China story is the bigger one. If you look at the market reaction, the NASDAQ, which is the

where most of the technology companies dominate the index, was trading actually at an all-time high when the Canada news was announced that Trump was canceling negotiations. For a brief moment, that index fell into negative territory, but it came roaring back at the close. And I think...

Bottom line, having those rare earth metals and magnets available, absolutely necessary for technological development. That was the big story today. OK, well, on the Canada story, though, I mean, could that pose an inflationary risk if more tariffs are coming down the line for Canadian imports?

Yeah, I think that's absolutely right. But I suspect that what traders concluded by the end of the day is that today was an example of Mark Carney playing Donald Trump's game. That is, a lot of analysts thought Canada would dismantle this digital services tax before it went into place.

Instead, Carney wants to negotiate from a position of strength. He wants to have something to offer. And now he does. And I think traders have concluded that Canada will back off on that tax.

But in exchange, they're going to want easier terms from the US. Now, Chris, we sometimes struggle a lot with all this different news. And, you know, how do investors interpret this rhythm of escalation, walk back, all these announcements? I'm sure it's quite tough. I've seen some people say that there's almost a Trump premium built into the markets these days.

Yeah, it is tough. And I think probably the most important adjustment happened in the first half of April, which, of course, is when we had that absolute whirlwind of market selling. And in that, traders took off leverage.

So they simply don't have the levered risk they had before. They're still in the market playing, but they're not playing with borrowed money. And that's what allows you to sleep at night. And that's what ultimately allows you to

to weather the volatility caused not just by Trump, but by global wars and other surprises. Well, Chris, we hope you sleep sound. Chris Lowe, Chief Economist at FHN Financial. Thank you so much for joining us.

Now to the Strait of Hormuz, a vital artery for global trade where around a fifth of the world's oil flows through. And after nearly two weeks of war between Iran and Israel, a ceasefire has held since Tuesday. But the conflict has cast a spotlight on this narrow stretch of water and the region's heavy reliance on it. Samir Hashmi reports from Dubai. A bomb strikes Tehran.

For nearly two weeks, Iran and Israel were locked in their most intense conflict in decades. And for a few hours, it felt like the Gulf was on the brink. One of the biggest fears? That Iran might block the Strait of Hormuz, one of the world's most important shipping routes and its most vital oil transit chokepoint, with nearly 20% of the world's oil passing through it. Ben Cahill is an energy expert at the Center for Strategic and International Studies and

He says Iran closing the Strait was never a likely scenario. The full closure of the Strait would cut off Iran's critical source of export revenues, foreign currency revenues, and that's definitely not in the interest of the Iranian state or the oil sector. So that would be a major reason why Iran would not decide to go for a full-scale closure of the Strait. And no matter what happens in the months to come, I mean, Iran will be highly dependent on oil revenues. But it wasn't just oil that was affected.

I'm standing right now at Dubai Creek, the heart of all Dubai's trading routes. But now this place has become more symbolic than strategic. But just a few kilometres away from here sits Jabal Ali, the largest port in the Middle East and one of the busiest in the world. Over the last few decades, Dubai has emerged as a major global trade hub, connecting Asia, Africa and Europe. But the recent Israel-Iran conflict

threatened to disrupt that rhythm.

Average container shipping rates jumped by 55%. Roshman Manoli is the vice president of freight forwarding at Consolidated Shipping Services, one of Dubai's largest freight companies. At the moment, it's still fluid. Everybody's waiting and watching how things unfold. And the prices that go up, do they immediately come down or does it take some time then for the prices to gradually settle down? It gradually settles down. Initial impact is when you have a choke point and when you have a situation of backlogs

Obviously, the vessels will need to be diverted to other ports and then moving those containers from those transshipment ports back into UAE, that's additional cost. So yes, if there is a long term, then the prices will continue to be long term. Throughout the conflict, Gulf states tried desperately to avoid being dragged in. The region also houses some of the world's largest oil and gas facilities, infrastructure that has been targeted in past attacks.

Since then, Saudi Arabia and the UAE have worked to thaw relations with the Iranian regime, even as they have deepened security ties with the United States. Badr Al-Saaf, a Gulf-based geopolitical analyst and a professor at the Kuwait University, believes that the recent conflict will push Gulf states to double down on improving ties with Tehran. Look, the Gulf states have been pursuing a nimble foreign policy.

that caters to fast-changing dynamics, that advances their security, their national interests.

that also advances their domestic needs. And those plans require peace and stability. For the Gulf economies, war is not just a matter of geopolitics. It's about survival. In a region trying to chart a new course away from oil towards innovation and growth, stability is currency. Samir Hashmi reporting. And finally, on a farm in Somerset in England, you'll be hearing a lot of this. Glastonbury, thank you so much! CHEERING

more than I could ever express. Yes, it is the UK's famous Glastonbury Festival, which last year made $8 million in profits and contributes $85 million to the British economy. Tickets this year can cost almost $550 and a pint can cost you just under $10. And I asked Charlotte Gallagher, our reporter who's at the festival, what the vibe's been like so far. So I'm about two minutes walk from the Pyramid stage. Alana's more upset.

has just finished. And so people are kind of milling around between different acts. We've got Buster Rhymes coming on later on the other stage. And then on the Pyramid stage, it's going to be Biffy Cairo and the 1975 are the big headliners tonight on the Pyramid stage. So it's kind of a time for people to get a drink, get some food and also...

a bit of relief from the sun and the heat because it has been bakingly hot all day. I've seen a lot of sunburned people at Glastonbury. And I'd say the sales of aloe vera might go up tomorrow because, you know what, Glastonbury, it's so huge, isn't it, Charlotte, that it's almost like a mini economy. Yes, I mean, 200,000 people or more than 200,000 people in fact will be here over the next few days. Now, not all of them are people that have paid to be here. Some are staff, some are volunteers.

But that's a huge number of people. So, of course, there's lots of businesses that want to be involved, whether that's, you know, the independent food stores, there's clothing stores. There's even a place where you can get your hair blow dried. I must confess, I did get my hair washed and blow dried. Very nice. I didn't want to rough it.

It makes millions, doesn't it, every year? But actually a lot of that goes to charity. But it's doing so well. But a lot of other music festivals around the UK are actually closing down, aren't they? Yes, it's really bucking the trend, Glastonbury. It sells out every time.

People are desperate to get tickets. You know, they spend hours in an online queue trying to get tickets. And of course, a lot of people are left disappointed. They can't get them. But then you hear the huge number of other music festivals closing in the UK. And one thing that's really interesting about Glastonbury as well is they don't pay their acts the kind of money that

that other festivals do because people want to be at Glastonbury. It's a huge draw for international acts to come here, perform at Glastonbury because it's such an important influential event. So some even say they'll spend their fee essentially on putting on the performance, the band, everything like that, the staging. So other festivals say, oh, it's not fair really. Well, they don't think it's fair because they have to pay such huge amounts. But this festival just has the kudos

But some don't. I've been to a lot of festivals, actually, in my time. But a lot of them have a lot of corporate sponsors. Glastonbury has some, but it doesn't have as much, perhaps, as some of the others that you might see around Europe. No. I mean, when you're walking down the main street that's got the shops and the restaurants, it's all independent. There's no...

big chains. You're not going to see it at McDonald's at Glastonbury, for example, or at Five Guys or anything like that. It's smaller independent businesses. I was in the Glastonbury gift shop and the things were made in Britain in the local area. So it was very much a focus

on keeping it small, keeping it independent. The vibe that Glastonbury has always had is kind of more of an independent, free-thinking kind of festival. Charlotte, now make me jealous. What are you going to go see later? I'm off to see Busta Rhymes. Nice. The rapper, the American rapper. He's going to be on the other stage. Also, Rob Stewart. So Rob Stewart. Of course. On Sunday, the Tea Time Slot, although he said he doesn't like to call it the Tea Time Slot because it sounds like pipe and slippers territory. He's going to be rocking out his 1970s 80s

80s, 90s, noughties hits on the Pyramid Stage and then it's going to be finished off on Sunday night with Olivia Rodrigo. So still a fairly long way to go and I'm probably going to need another blow dry I think. Absolutely and probably some blister plasters by the end of the weekend. Okay Charlotte Gallagher, thank you.

That was Charlotte Gallagher there, probably having the time of her life. And a reminder of our top story, President Trump has cut off trade talks with Canada, threatening new tariffs in response to its digital tax on big tech firms. And that's it from World Business Report from the BBC World Service. Josh Martin is our producer today, and so is Victoria Holland. I'm Leanna Byrne. Thanks so much for listening.