The trade war hits China’s factory output
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Dana-Farber's momentum of discovery keeps finding new ways to outmaneuver cancer. Learn more at dana-farber.org slash everywhere. This trade war is already hitting China's factory output. Good morning. This is the Marketplace Morning Report, and we're live from the BBC World Service. I'm Leanna Byrne.

So let's start in China, where new data shows manufacturing activity took a sharp dip in April. It's a sign that the ongoing trade war with the US is starting to bite. The BBC's Nick Marsh is going to tell us what's behind the numbers. Hello, Nick. Hi, Leanna. Nick, just how much of this drop in manufacturing activity is directly tied to the tariffs? And also, what does that tell us right now about the state of China's economy?

Well, it's very much tied to the tariffs. Maybe not in the way you might think. So this is the purchasing managers index, managers factory activity. There was this contraction, this slowdown in output in April. The caveat, though, is that March saw the highest PMI in a year because basically there was this flurry of exports as manufacturers rushed to ship out goods

to the United States just before the tariffs kicked in this month. That's why there was a drop in part, so kind of connected to the tariffs, if that makes sense. But in any case, the drop was even sharper than expected, so it shows that even at this early stage,

these incredible 145% US tariffs are having an effect on Chinese manufacturers. I guess for American businesses as well, especially importers or retailers, are they going to start feeling this drop in Chinese factory output? Yeah, I think you ask any analyst, any economist, the first thing they'll tell you is that tariffs increase prices. Someone's got to pay that along the line and it'll pretty much all

always be the consumer. In terms of a drop in output, I mean, it's kind of tied to how many willing buyers there are, you know, and if Chinese goods then become very, very expensive for American exporters, then fewer goods are going to be produced. At the same time, China has this enormous manufacturing capacity. They are going to want to continue producing goods and they're going to have to sell these goods somewhere eventually.

Plan A, I suppose, is to sell to your own vast domestic market in China. You know, a billion-plus people think that's why policymakers in Beijing...

fairly sanguine for the time being. They can sell internally, they can sell to places like Europe, sell to here, Southeast Asia, the rest of Asia, that kind of thing. But it doesn't mean it's good for anyone. These tariffs are going to push up prices for consumers in the United States, and they are going to put a bit of pressure on manufacturers in China as well. And

There really isn't any sign that this is going to let up. It's kind of a game of chicken. And I think, you know, Beijing, the government in China, they don't really want to be the ones to blink first. And I think that they think that China has more of a capacity to resist these pressures than maybe U.S. citizens do. OK, Nick Marsh, thank you so much for joining us in Marketplace.

Pleasure. Meanwhile, President Trump has signed an executive order to slash import duties and car parts, allowing companies with US factories to reduce how much they pay on sourcing foreign parts. Trump says the two-year measure is a short-term move to help the US automakers as they rethink where and how they get their supplies. Now, let's do the numbers. ♪

Volkswagen shares dropped nearly 3% as it reported a 40% fall in profits in Q1. The car giant's CFO also revealed it's cut 7,000 jobs in Germany since launching its cost-cutting plan last year. And the Indian rupee hit its highest level this year, boosted by strong equity inflows and exporters selling dollars.

Now, the UK is scrapping a centuries-old tax perk that let wealthy foreigners shield their global assets. It's a big shift, but with concerns about growth and investment, the government is rolling it out more gradually than it had first planned. The BBC's James Graham has the story. For years, the UK has had a controversial tax status known as the non-dom. It's short for non-domiciled, which meant you could live in the UK, but your home for tax purposes was overseas.

it's a different concept to the US where citizens are taxed on income wherever it's earned.

This has long been an emotive subject in the UK, and there was uproar in 2022 when it emerged that the then Finance Minister's wife, Aksharta Murthy, was one of 74,000 non-DOMs. Now, despite having three homes in the UK, she is not resident in the UK for tax purposes. She doesn't have to pay UK tax on income earned overseas. That was the BBC's business editor, Simon Jack, explaining this thorny concept –

A qualifying resident could pay a fee to nominate another country as their permanent home to avoid UK tax on worldwide income. It was widely seen as an anachronism and both major parties had promised reforms. I have always said that if you make Britain your home, you should pay your taxes here too. Yay!

That's the current finance minister, Rachel Reeves, setting out plans to abolish the non-dom status last October. The government said it wanted to address unfairness in the system and raise money for services, but its position did soften. Non-doms now have longer, four years in fact, to bring their money onshore tax-free, and after that period, taxes kick in on worldwide income.

The change came after critics said wealthy people would leave the UK, and one report found numbers had risen, but those figures have been disputed. Chris Ball advises high net worth individuals at Hoxton Wealth. He says clients are looking at countries with more sympathetic tax policies.

I think a lot of people that this applies to are mobile and they have other options. So we're seeing people go to the Middle East, Dubai. We're seeing people look at Italy. And Chris thinks that the US is also becoming an attractive option.

I think this administration is very pro-people with money residing in the US. Our view is that they're trying to make it easier for them to come over and gain residence and gain citizenship. One person who says she'll leave the UK is Magda Wierszczycka, founder of financial services firm Signia. She currently splits her time between Cape Town and London. You need people, entrepreneurs, entrepreneurs

But Julia Davis, an angel investor and co-founder of a group called Patriotic Millionaires UK, supports the change.

We've been sold quite a long time. What I would say is a fairy story of trickle-down wealth, as in if there are some people that are doing incredibly wealthy in the UK, it's going to be good for everyone. But it hasn't turned out that way. But while some wealthy people might leave, others could be attracted by that four-year tax break, says Jo Bateson, a tax lawyer at Mercer & Hole.

The new regime is really attractive for a kind of a typical entrepreneurial client, somebody who doesn't necessarily need to work from their business, so could work from anywhere in the world. The UK is still a good place to be.

And Jo says it could also tempt Brits living abroad to move back home. If I'm a Brit who has gone overseas with work or something, maybe living in America for 10 years, I can now come back to the UK and I can get the first four years under this regime. So while some people will feel they're losing out, it may mean home sweet home for some homesick returnees. In the UK, I'm the BBC's James Graham for Marketplace. And I'm Leanna Byrne with the Marketplace Morning Report from the BBC World Service.

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