US-China trade talks: second day concludes
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Hello and welcome to World Business Report here on the BBC World Service. I'm Rahul Tandon. Coming up, Donald Trump said drill, baby, drill. So is it happening? I think the drill, baby, drill has now become wait, baby, wait. We will bring you more on that story and tell you the latest on Japan's rice shortage. But we're going to start the programme once again with this.

the second and final day of high-stakes U.S.-China trade talks. Investors optimistic... Yeah, we're looking at those trade talks between the U.S. and China. They're taking place in London. Faisal Islam is our economics editor, and he's outside where the talks are taking place.

So much riding on this. It's been what's casting a shadow over the whole world economy. This trade war centred on the two world big economies, the US and China. And President Trump and President Xi have sent their top lieutenants to negotiate here at Lancaster House, a very important seat of UK diplomacy here in London. As you said, Scott Besson, the most senior US diplomat.

official on this delegation has just left. Said talks are ongoing, said they've been productive, but there's been no deal yet. Those negotiations continue.

Naza Nizakhtar was a former assistant secretary of commerce in the first Trump administration, now is a partner at Wiley Rand Law Firm, where she advises clients in international trade. Thank you for joining us once again. We thought these talks were going to last two days. Looks like they're going to go to day three. The US Treasury Secretary Scott Besant just has been indicating that. Does that surprise you? Does that look like we're going to get a deal or is it an indication that things are not going so well?

Well, good to be with you again. Look, these discussions are incredibly complicated. What each side wants, the other side doesn't want to give. China is looking for us to remove our export controls on dual use technology. This is items that have significant military applications.

and obviously a reduction of tariffs. And the U.S. wants China to stop its IP theft, stop its market manipulation practices that are leading to the erosion of U.S. jobs. And certainly the U.S. is asking to get the permanent magnets that we need for our commercial sector and importantly, defense capabilities and to continue to have access to the other supply chains

including pharmaceuticals. Neither side wants to give up the leverage they have. So I'm not surprised that we're going to go into day three. Let's see if we go into day four. Nazik, have a listen to this for us. Michael Hart is president of the American Chamber of Commerce in China. He's been asking his 800 plus members how they're affected by the current trade spat.

We've heard everything from automakers will have to shut down, the people who make other electronic equipment may have to shut down. And actually in our survey, we asked them, how much longer do you have a supply of rare earths? And 75% of our members for who this was important said they had three months or less of supply. So pretty quickly, supply chains in the U.S. and other parts of the world that rely on rare earths either started to or would very soon start to shut down.

Naza, you speak to lots of people. You have lots of clients, don't you, who are involved in industry. What are they saying to you on the U.S. side? Do you get a sense that it is the U.S. side who needs to deal more here than the Chinese side? Actually, that's a really, really great question. So first, I think the clients that I work with, and this is, you know, major companies and companies of all sizes, are really underscoring. And this is a sort of an issue.

that they've been repeating over and over again. They saw this coming. When China has these global, it was only a matter of time that China was going to repeat what it did in 2010 to Japan and restrict access to rare earths, permanent magnets to get countries to bend to its will, to essentially not protect our own national security interests because China has a critical supply chain.

That said, I really also want to underscore this. The U.S., the U.K., other countries in the world who depend on the exclusive rare earth mineral supply chain, magnet supply chain that China currently controls. One, America is growing an ex-China industrial base for rare earths and the magnets. It's going to take...

couple of years for that to grow. But, and this is something that's important, as I said, for the UK, the US and the rest of the world, magnets can be reused. We can take magnets out of whatever is existing that we're going to throw away and recycle. We can take those magnets out, remagnetize them and put them in new things, which means that we are not as vulnerable as we think we are. And some might in the government might think we are as China might think we are. So

Well, let's see how that develops. One second. I'm going to bring in George Combo, chairman of Brighton Securities based in New York. George, the markets, they want to see a deal here, don't they, between the world's two biggest economies? That would give global markets, you know, a bit of a spur, wouldn't it?

Markets always want to see peace and prosperity, Rahul. They don't want interruption. They don't want uncertainty. They'd like a deal. They're not going to get it right away, but I believe they will get it, and probably sooner rather than later. But there may be a few more back and forths. Yeah, there could well be. And, Zach, on those back and forths, that's to be expected now, isn't it? We're talking about the world's two largest economies. You were in that first Trump administration looking at export controls.

It's been a long time since we had two competing global economic powers. Tensions will be here in the short term and the long term between the US and China. Absolutely.

That's absolutely right. Look, neither country can leave London without making a deal. We're going to get a small deal. The big question is which country is going to adhere to the terms of the deal. And as we've seen before, China's long trail of broken promises, we're going to make a deal. China's not going to adhere to it. I am confident that in a month from now, we're going to be back dealing with

What makes you so confident that China, you've dealt with the Chinese in the first Trump administration. What makes you so confident that they won't adhere to it? They say the U.S. didn't adhere to that deal in Geneva and actually then started pulling some of the supplies that they needed, didn't they, in terms of mobile phone technology? Well, I've been dealing with China for about 25 years, ever since China's entry into the WTO. None of the WTO rules that China adhered to. That's the World Trade Organization. The World Trade Organization.

Yeah. The 2015 big cybersecurity deal that it had with the United States, it broke. It broke the phase one deal. It broke the Geneva deal. You know, one can say, yeah, maybe we did some things, too. But we have a whole body of evidence over 25 years of China's broken promises. They're going to do the same again. OK. Do you think we'll go to day four or will it finish on day three in Azak?

Well, I can say that I'm confident they're going to end this week. But both sides are really busy posturing right now, right? And maybe the pressure on day three will force both sides to talk about brass taxes. But I really do want to stress the market...

We get a deal. The markets are going to react. They're going to be positive. And within a month, we're going to find ourselves in the same exact situation. We're not going to get the things from China that we need, and we're going to be back at it. OK, we'll come back to you on that moment. Stay there. I just want to bring George in on some World Bank news today because they followed International Monetary Fund in sharply cutting growth forecasts for 2025. U.S. growth figures, interesting hit.

Here, George, down, they're saying from 2.8% growth to 1.4% growth. That's a significant drop, isn't it?

Yeah, the projections really were fairly dire in what the World Bank is expecting for a slowing economy, both in the U.S. and internationally. I think they've probably overshot. I think they haven't gauged the idea that the tariff talks may wind up a little sooner and a little more modestly poised than many are expecting. I don't think the growth is going to be as bad as they're expecting, probably dip a bit.

But in the long term, not a big change. And that's it. When you talk to your clients in international trade, they're big clients, aren't they? What are they saying to you? What is their perception of where things are going in the US economy in the next few months?

There is a more cautious stance, especially for the next few months. And beyond the tariff deal, the economic slowdown deal, one of the big concerns is U.S. deficit spending and where interest rates are headed, not because of what they think the Fed might do, but because of what they think the Fed might do.

but because of what they think the markets may do to push rates higher for the level of risk. So there's some real concern on the CapEx side for where we think rates are headed. Yep. And Nazak, what about UL Clients? What do they say? Yeah. Specifically, yeah.

They're looking at the whole holistic picture, the global supply chains, their supply chains are integrated. They're seeing our imposition of tariffs, retaliatory tariffs, this sort of trade feud with China that just seems to be never ending. And they genuinely are scratching their heads, figuring out what they're going to do next.

I think we're going to just they know that they're going to have to endure a little bit of more time of instability before we get some sense of certainty. But what they do with their supply chains, access to things that they need to keep production running. And nobody has the answer there yet. Let us see. As always, thank you so much for joining us on the program. Let's see where those talks get to. I'm sure we will be talking soon.

to you about them once again there. Nasik, who was in the first Trump administration overseeing export controls as well. Pretty big job there. Right. It wasn't that long ago that we were hearing this from President Trump. The inflation crisis was caused by massive overspending and escalating energy prices. And that is why today I will also declare a national energy emergency. We will drill, baby, drill.

Here on the program, we like to follow up on stories. So we wanted to find out, is that happening? The oil price is down about 11% already this year. Kirk Edwards runs his old oil and gas company called Latigo Petroleum. He's also a former chair of the U.S. Petroleum Association. The energy business in the United States has been very good over the last, oh, I'd say 12 to 18 months, especially in December and January. But when the new administration came in,

We started seeing tariffs that were happening. We were asking, the president was asking the Saudis to help increase production to lower prices. And all that combined is more like a COVID situation from 2020. And it's just the perfect storm to bring oil and gas prices down. And that's exactly what's happening today.

We heard the president talk. He used that phrase, didn't he? Drill, baby, drill. Is that what is happening in the industry? Are you letting people off? Are you drilling more or less? Yeah, so I think the drill, baby, drill has now become wait, baby, wait, because no oil and gas companies are going to drill more.

for a lower oil price because we still have our costs that are the same. Matter of fact, they've gone up because of tariffs on steel and tubulars and things like that that we put in our wells. And so now the wells are costing more. We're getting 16 to 20% less of an oil price, which means the wells don't pay out the same. So people are now taking rigs off the market. So we're drilling less in this country than we have since probably November of 2021.

And it's getting worse every week. We stacked another 10 drilling rigs just here in the Permian Basin last week. So this is going to get a lot worse before it gets better. Give us a sense then for you and your company. What does that mean specifically in terms of numbers of people that you have? Are you having to say to some of your workers, look, at the moment, we don't need you?

Yeah. So again, for oil and gas companies, it's okay because we don't overpopulate our folks. We hire other companies called service companies to do the drilling. They do the fracking. They do all the field work for us. That's where you're seeing the pain. So the oil companies also can hedge when prices were good in December, January. We were able to take advantage of those prices just like a farmer would on his corn or a cattle guy would on his cows. You

You can hedge and take some of that risk out. Again, the service companies can't. I live in an area of West Texas in the middle of Odessa. We're right in the middle of the Permian Basin where the biggest oil field is. It's in the world right now drilling. And you're seeing many of our friends and family that are getting laid off. And we're seeing it every day. We're down probably 31 drilling rigs just in the last six weeks. We're down probably 70 frack crews over the last year.

And if you think about it, a drilling rig has probably 100 people associated with it. So you stack 33 of them, that's 3,300 people just here in the Permian that are out of business. And then the amount of money roll that was getting put into drilling. So each one of those rigs was generating probably $12 million a month of capital expenditures. That's $400 million total.

month combined. And still think about that. That's almost $4 to $5 billion a year that's getting taken out of our local economy. So it definitely has a devastating effect. And again, it's just going to get worse from here. Well, I'm interested in that because before I came to talk to you, I was reading a report, S&P Global, who were talking about the oil price dropping below $50. That, you know, $50 a barrel, that's going to make things even worse, isn't it?

Oh, sure. It would. And again, people are preparing for 50. So nobody knows where it's going to go. I'd always say this in my speeches. Saudi Arabia knows where it's going to go. Saudi can put as much oil or take as little off the market as they want to, to manipulate the price to where they want it to be. So I think they're trying to appease President Trump right now by having lower oil prices, which mean lower gasoline prices across this country. Helps the GDP of the country, but it hurts the

The main industry that we have that was 100 percent supportive of him, which was the domestic energy industry. Sorry to interrupt you there, but are you disappointed in President Trump?

We're very happy with a lot of his policies, especially on immigration and some of the other things that have taken place. But to do this to the energy industry, something that is vitally important for our national security, that's based in America, that is based and has all the employees here, that utilizes our GDP, that helps generate that for this country. I think people are more in shock than they are disappointed at how this could happen and how quickly it happened.

Last thoughts from you. We have these talks in London between China and the US. If those talks go well, and there's some resolution of the trade dispute, that could help the oil price recover a little bit, couldn't it?

Well, it could. But again, what does he have worked out with Saudi? So again, Saudi is the key to this. They can put and they are going to put another million barrels a day on the market over the next few months. They're up to 1.2 million over the last three months that they've implemented, putting more oil on the market in an already kind of saturated world with everybody kind of hanging on right now because of the tariffs, because of the China trade.

I think the economy is definitely slowing. So you put more oil on the market, all it can do is drive the price down because people can't eat oil. So it's going to be interesting to see, yes, if China and everybody makes up, but still, is Saudi going to keep those barrels on the market or does the GDP of the globe pick back up to absorb them? That'll be the $20 question I had.

Kirk there with those thoughts, George, and that's become a bit of surprise that, you know, some of those within the oil industry now getting worried about Donald Trump's policies. Sure. Well, the oil business, right? It's a commodity business. And no one went into it thinking that an incoming Trump administration would want higher prices. But your guest did mention what's bad for the oil industry, sadly, for them, is good for the rest of the economy. And while it's a big sector, the rest of the economy is bigger. So

So lower energy prices across the board should be a boost for the economy. We didn't fall flat on our faces when oil was nine bucks a barrel back in 86. And as tough as 50 bucks would be for the oil patch, the rest of the economy probably just thrive on that. Let us see what happens. You're with World Business Report from the BBC World Service. Let's head to South Asia now. Budget khasara GDP ka 3.9% ja ke primary surplus GDP ka 2.6%.

That is Pakistan's finance minister, Mohammed Aurangzeb, announcing Pakistan's budget on Tuesday. He announced that defence spending is increasing by 17% in the next fiscal year. Of course, we have been reporting, haven't we, here on the BBC World Service about the worst fighting with India in decades that happened recently. The country is also trying to stabilise its economy under an IMF policy.

program. So I've been getting reaction to today's announcement from Uzair Yunus, principal at the Atlantic Council's Asia Group. It's not a surprise at all. In fact, I would say it's been a long time coming even before the conflict with India. Because if you look at the Pakistani defense budget over the last decade and look at it in inflation adjusted terms, the defense budget has been the lowest last

year was the lowest in a decade in that sense. And so this increase was a long time coming. It had been paused because of the sustained economic crises. And now that there's some space and also a need post the conflict with India, the government has decided to increase the spending for the sector. You sort of hinted at it there.

We've talked to you about it, haven't we? Things have improved economically in Pakistan slowly, but can it still afford this amount of spending on defence? I think the core thing to look out for, even in the budget documents, is that for the last year, they outperformed the fiscal deficit target, despite missing tax revenue collections. And they also generated a higher than expected primary surplus, something that the IMF looks at very closely when it looks at Pakistan's targets. So

Yes, there are a lot of missed opportunities on the taxation side that have come up in the last year. But the government has done a decent job or a more than decent job in curtailing spending. And I think so far they're signalling that they will continue going down that path for the next year. Curtailing spending is one way you balance your books. You hinted at the other one, which is trying to increase the amount of tax revenues. Why are they struggling with that?

I think it's been a struggle, particularly because of a lack of capacity on the Federal Bureau of Revenue. But also, more importantly, that it's a politically challenging thing to do. And as you and I have talked about previously as well, this government has serious questions over its legitimacy and its support among the

people, given what happened in the elections, as a result of which it has been quite hesitant to take some of those tough measures. Now, perhaps that it has some space with inflation coming down and some level of economic activity picking up that it can cover that space. But again, it's a politically difficult challenge. And it's something that even General Musharraf, when he was at the peak of his power, was unable to do in terms of expanding the tax net. Is it just political or is it just...

just difficult to get people to pay tax. And this is not just a Pakistan problem. This is a problem facing many South Asian economies when people haven't paid tax sometimes. I think it's people in no country, right, even in the UK or the United States, like to pay taxes. They just have to because the sort of enforcement of that is super, super strict.

strict. In the Pakistani case, I think the challenge has been that there are political patronage networks, whether in the real estate side, whether in the big tobacco side, whether in the retail and wholesale side, that have that power to either lock down the streets and

cities like Lahore on the retail side, or use their connections in the real estate industry that goes all the way up to the military to coerce the political leadership or the ruling elite to not do those tough things. And I think that's been the perpetual challenge. They've tried to make progress and talked about the right things, but ultimately it comes down to brass tacks politics. And that's where sort of it's been difficult.

We've talked a lot, haven't we, about how things have improved in Pakistan. If you look at the stock exchange, which sometimes is a way of reflecting how things are improving, the Karachi stock exchange has been strong recently, hasn't it? But are we looking at a sustained economic recovery in Pakistan or is this still very fragile? I think it's still very fragile. And the way I put it is that Pakistan is in a

period of stable instability at this point in time. So for example, if oil prices were to go through the roof, which is unlikely at this point, but let's imagine a scenario where oil is again at $80 a barrel. Pakistan would be in an economic crisis. Let's imagine a scenario where the US trade war leads to a 30% decline in Pakistani exports to the United States. Pakistan would feel the pain. Let's imagine a scenario where there's a 10% decline in remittances from a

from Pakistani workers, Pakistan would be in an economic crisis. And all of those things would happen because the structural issues that Pakistan's economy has still persist. There have been some tinkering at the margins to deal with those problems, but nothing holds sail. And I think so long as that does not happen, the question over sustainability of this trajectory, but more importantly, of a higher growth trajectory that can be sustained will always linger.

Uzair Yunus there with his thoughts. George, Pakistan increasing its defence spending. That is not unusual. We are seeing many countries, particularly in Europe, doing that as well. But that does come at a cost to the rest of the economy.

It does, although I think you'll see the Europeans and to a lesser extent the Pakistanis increasing that spending in their own domestic defense sectors. So there will be some internal growth from that. I'm not too surprised, but really the concern for markets is a little down the road.

with India and Pakistan and with an increase in defense spending intentions on the border, does that lead to destabilization? No markets like that. No, they don't. But if a lot of countries are increasing their defense spending, the U.S. has the biggest global defense industry. So it could be good for the U.S.

It certainly will as countries look to add technology to their otherwise basic military sectors. And we'll get a big piece of that, no question. Although don't count out the Chinese and the Russians to want to sell into some of those countries as well. And countries like Pakistan, not Europe.

But certainly Pakistan will look there as well as to the U.S. Yeah, and of course, countries like the U.K., France have big defense industries as well. Well, as we talked about a few times on the program, Japan is experiencing an extreme shortage of one of the country's staple foods, that is rice.

Prices have soared, and supply is short. The problem is so acute that the government has to tap its emergency rice stockpile, which is normally reserved for natural disasters. It's also considering taking another unusual step by importing rice, a plan not everyone agrees with, as our Tokyo correspondent Shyamal Khalil has been finding out.

It's a busy afternoon in Akedai, a small local supermarket chain here in Tokyo. It's been a tough couple of years for Japanese households. They've struggled with inflation, high prices, stagnant wages and a sluggish economy. And yet, not many could see the rice crisis coming. Hiromichi Akiba is the owner of the Akedai supermarket chain. Honestly speaking, our customers are in trouble. Many other things like food prices have gone up.

Then the rice, which had been inexpensive, went up so sharply. I'm looking at the rice shelves close to the till.

Unlike other supermarkets, this one still has some bags left. But like all other supermarkets, the prices have doubled since last year. Images of long lines of people queuing up to get their hands on a bag of rice shocked the public here. Momoko Abe is here shopping with her four-month-old baby. As you know, it's a staple in our lives, sort of a ticket for granted, and it was quite shocking that the price could rise like this.

within such a short period of time. The government has started releasing rice from its emergency natural disaster reserve, but it's been very slow getting to consumers. They're also considering importing rice.

But Mr. Akiba doesn't think this is a good idea. Japan is a nation of rice. We take pride in that. I'm worried that one import of rice would make the rice producer weak here and become a new threat for Japanese farmers. The current agriculture minister, Shinji Rukoi Izumi, has vowed to bring the prices down and to modify the supply chain.

The problem is more structural here. For decades, Japan has tightly regulated rice production to avoid supply overflow and to control prices. But this policy backfired, with one expert describing it as disastrous. The rice crisis is symptomatic of the country's broader struggle to revitalize the economy and contain inflation. Japan imports over half of its food, but the Japanese are very particular about the rice. For many here, this is about much more than putting food on the table.

Shaiman Khalil with that report there. George, you come back, haven't you, from Japan recently? Go on, tell us about what your observations were when it came to rice. Now, we did see some lines in Kyoto. We didn't have any problem in restaurants, of course, but the few people we talked to about the topic, there weren't many, were concerned about it. And there was a lot of grumbling about the Koizumi government. There's some

I don't know if you'd call it rumor or just general conversation that if they don't get this straightened out soon, it will be a major issue in the national elections when they next roll around. Yeah, briefly, 20 seconds if you don't mind. Because you have some products that are associated with the country. If those prices go up, that's bad news for a government. Absolutely, both rice and sake. So it's fixed that problem. The best way to do it, let the markets do it. It's their cartel that caused the problem. Which one do you prefer, rice or sake?

I'd like both. Thank you. Yeah, that's a good answer. I think a bit of sake with some nice Japanese rice. You can't go wrong there, George. Thanks, as always, for joining us on the program. We'll have further analysis of those trade talks taking place in London between the U.S. and China on Business Matters.