Are tariffs biting the United States and China?
26:26 Share

This BBC podcast is supported by ads outside the UK. Asking the right questions can greatly impact your future, especially when it comes to your finances. So if you're looking for a financial advisor you can trust, certified financial planner professionals are committed to acting in your best interest. That's why it's got to be a CFP. Find your CFP professional at letsmakeaplan.org.

Lowe's helps refresh your garden in time for Mother's Day. Right now, get five bags of 1 1⁄2 cubic foot Scott's NatureScapes mulch for just $10. Plus, select 1 1⁄2 gallon annuals hanging baskets make the perfect gift. Now two for only $15. The best garden starts with great deals. Lowe's. We help. You save. Valid through 5-7. Selection varies by location. While supplies last, discount taken at time of purchase.

Hello and welcome to World Business Report here on the BBC World Service. I'm Rahul Tandon. Plenty coming up on this edition. President Trump praises his tariffs again, but the US economy has shrunk for the first time in three years. Some companies have been stockpiling, others tell us consumers will face the pinch. Businesses are jumping ahead and increasing prices. And ultimately, I think that the government will need to recognise that this 145% with China is ludicrous.

That is the world's largest economy. We'll take you to the second largest one, China, where the tariff threat facing the world's largest wholesale market. How big is it? We'll let you know. And we take a look at the high price of housing in Australia ahead of elections this weekend. The reason is because Australia hasn't built enough homes to meet the needs of a growing population. And so Australia is only one of four countries in the OECD where housing per person has gone backwards.

But we're going to start in the world's largest economy, which of course is the US, because it has shrunk for the first time in three years. President Trump insisted the fault was nothing to do with tariffs and instead blamed his predecessor, Joe Biden. You probably saw some numbers today. And I have to start off by saying that's Biden, that's not Trump, because we came in on January, this is quarterly numbers. And we came in and...

I was very against everything that Biden was doing in terms of the economy destroying our country. The numbers we're talking about are GDP numbers, gross domestic product. So what can we read from this latest economic data? Michelle Fleury is our North America business correspondent. She's in New York. People are always trying to assess whether an economy is on the right track, whether it's growing or not. And GDP essentially is one measure of that.

And the idea is you're trying to find out if things look healthy. And if they are, that usually is good for jobs. It's usually good for the money in your pocket. It usually is a sign of things moving along nicely. And so when you get a report like this, which shows the US economy shrank 0.3% on an annualized basis, as the economists like to put it, that basically seems to suggest that things are moving in reverse. They're going in the wrong direction, particularly when you compare it to the previous report,

quarter, where you saw growth of 2.4%. It's a pretty dramatic kind of change in direction. And it certainly spooked US financial markets at the start of the day, because they

became increasingly worried that, well, does this mean we're headed for a recession? Now, calmer heads sort of seemed to prevail throughout the day as people dug a bit deeper into the numbers and kind of drew some comfort from some of the finer detail. And so at the end of the trading session, we saw markets actually, in the case of the Dow and the S&P, finish higher. These were figures from January to March, weren't they? So I suppose the question is,

If we're seeing those numbers that are not as good as people hoped, is that Donald Trump's fault or is that the previous president's fault?

Well, Donald Trump certainly thinks that he should get a pass and is blaming his predecessor. But if you look at what was driving a lot of the negativity, if you like, in this report, it has to do with the sharp increase in imports, the number of goods that America is bringing in from abroad. And that made up a huge chunk of this, if you like, reversal in fortunes. It

If you sort of talk to people out in the street, many of them were nervous about tariff policy, trade policies. And so in some cases, they rushed out to buy things like cars or electronics or clothes, trying to get ahead of those duties. Businesses also did the same. They tried to kind of stockpile goods to make sure they had enough on their shelves. And so you kind of essentially saw things being pulled forward. And that's what depressed these numbers.

You look at the numbers, you also talk to lots of businesses, and from that you get an overall picture, don't you, Michelle, of sentiment.

You're doing that. What is the picture that is being painted for you? Well, when it comes to sentiment, it's the same few words we keep hearing. Uncertainty, frustration, fear. And the key question, I think, is at what point does that translate from, if you like, vibes, how people are feeling, into kind of the real economy? In other words, declines in profits, job losses, and people feeling much worse off.

Michelle Fleury, the Susan Schmidt Portfolio Manager, Exchange Capital Resources, is with us from Chicago. We heard about Michelle saying they're talking about people on the streets. We've been speaking to some people on the streets in the U.S. Nothing is helping the people with the low income. All the people are just struggling.

Still, everything is just sad. At the moment, the signs are clear that it's not fixing. He's promising, a lot of promises, but for now, that's all we see. It's just promising. So far, I'm OK. I believe that we've got to play the long game, that we can't just have it over in a short amount of time. Susan, it's a complicated picture, isn't it? What did the markets make of the GDP figures that we saw today?

markets looked at this and initial reaction was of course negative. We saw the markets trend down, but that started to level out and markets

closing effectively flat as we got to the end of the day and investors took this in stride. What they did see as they looked at those GDP numbers is that while it was a negative GDP report, it's because there was so much advanced buying. So that purchasing of consumers acts as a negative in the GDP calculation. And that's because people were pre-buying with the expectation that prices would rise.

Markets looked through to that and said, all right, tariffs clearly still the topic of the day for the consumer and impacting sentiment. We're seeing that again and again in consumers' reactions. A lot of that pre-buying came from China. So let's head there now because manufacturing in China is down, no great surprise, but it did fall more sharply than most economies had predicted yesterday.

As we know, overall trade between China and the United States is slowing down. Our China correspondent Laura Bicker has been to the world's largest wholesale market. We are in Yiwu Wholesale Market. This is the biggest wholesale market in the world and it is huge. We're in one level and it has hundreds of stalls selling various toys and

Things have changed here since Donald Trump was last in power. The US president's first trade war taught Yiwu a lesson. There are buyers elsewhere. As trader Hu Qianqiang explains. What do you think of Trump? Trump, he's a joke.

He tells jokes every day. Imposing tariffs is like a joke to him. We used to have buyers from the US. Now we don't care. We have rich buyers from elsewhere. Doing business with them is good.

The 75,000 stallholders in Iwu are no longer as reliant on the US as they once were. Eight years ago, 20% of Chinese exports were sold to the US. That figure is now 14%. Instead, the halls are filled with buyers from the Middle East, Russia and South America. Oscar is from Colombia. China is a big country, a big people, a big food, a big...

Around 80% of all U.S. toys come from China. And seller Lin Xu Peng believes this trade war will hurt Americans more than the Chinese. I hear there are lots of protests in the U.S. Most of their products came from here. Do you think they need us? Of course they do.

While the US president waits for his Chinese counterpart to pick up the phone, the city of Yiwu is looking for new customers even as darkness falls. Susan, a lot of people are looking for signs of what's happening with global trade. When we look at those numbers from the US today and then those numbers from China, it's a pretty concerning picture, isn't it?

because you're starting to see the separation of the two nations. And we've seen that also investors look at all sorts of detailed data, including shipping and shipping rates, how many container ships are coming across the ocean from China into the U.S. That number's dropped significantly. So we're seeing these countries really isolate themselves with their trade. We're seeing that within the U.S. where we had so many

forward advance orders, people stockpiling goods, anticipating that it would be more expensive to buy them later. That then brings us to the next quarter where there's probably a low because people won't be buying. They've got enough stored up now. They're going to wait and see how this plays out. At the same time, we're not seeing a lot of dialogue happening between the White House and President Trump's administration and China, which

It's ostensibly the biggest trading partner that it could have. And yet the dialogue isn't forthcoming. That's really causing a divide that makes investors increasingly nervous. Let's stay on the toy theme and speak to somebody, I'm sure, who probably wants to see some dialogue between China and the U.S. That's Rick Waldenberg, CEO of Learning Resources, a Chicago-based company that produces educational toys.

for young people. Rick, thanks for joining us on the programme. Again, we heard from Laura Bicker there from that big centre of toy manufacturing. What's happening with your manufacturing from China? What are you doing with orders? Have you suspended them at the moment because of the high tariffs or are you still waiting to see what to do?

No, we have to suspend them. Anything that would come into this country at 145% duty is stopped unless there's some desperate need that we can't get past. So we've sort of hit a careening stop and we're evacuating. Evacuating is obviously something that we're seeing a number of US companies doing. If you were to import those products, what sort of higher tariff bill would you be looking at?

Well, we've we estimated that, well, based on last year's expenditures, we spent about two point three million dollars and in the full year on duties and tariffs. And we estimate on an apples apples basis that under the current rules, we would spend more than one hundred million dollars.

And I understand that that's a tough number to swallow. But you have to understand that last year our duty rate was zero. And this year it's about one and a half times the full cost of the product. And so about 95% of the estimated $100 million relates to China if nothing had changed. Stay with us from there because I want to talk to you about another issue that you're involved in. But Susan, bringing you back in here, we heard Donald Trump for the first time almost admitting today that –

There could be some shelves in the U.S. with less products on than before in the next few months. That's going to happen unless these tariffs come down on China. I think it's absolutely going to happen. And even if the tariffs come down, you're in a timing pattern now where there will be a delay before shipping lanes open up, product starts to normalize once again. There's still a great unknown. And we have data and numbers everywhere.

trying to figure out what the costs and what the tariffs actually will be. They keep moving daily, weekly, no real sense of what's going to happen. Listen to the management teams that are announcing their earnings, talking about the quarter and the business outlook right now. And you hear the hesitancy from those management teams trying to predict

what that business outlook is going to be because of that. We've heard that hesitancy, haven't you, from you, Rick? You're not happy with the tariffs. You're trying to do something about it. What are you trying to do?

Well, we sued President Trump and the Secretary of the Treasury and the Secretary of the Commerce and the Director of Homeland Security because we believe that the tariffs are illegal. We do not believe he had the authority to create this tariff regime that includes tariffs on Mexico and Canada as well, which he used the same justification for. Why doesn't he have the authority?

Well, we believe that the law that he's relying on does not provide for tariffs. And so we've gone to court in Washington, D.C., to ask a court to adjudicate this dispute. The lawsuit is literally worth trillions of dollars, like no exaggeration. And the issues that we've raised about the authority to –

invoke these tariffs really relates back to the framers of the Constitution and the vision they had for what American government would look like relative to, if you'll pardon the expression, the British form of government. They did not want one person to be able to decide on taxation. They wanted taxation by representation. You know, we know a lot of companies are concerned about this. Is this not more of a symbolic gesture than one that's actually going to achieve anything?

Well, I would say I sure hope it's not symbolic. The legal fees aren't symbolic. I think that we have a legitimate claim and I would like to have a court hear our complaint and read our briefs and make a judgment. So it's a serious lawsuit as far as I'm concerned. Rick, thank you so much for joining us on the program. The point, Sarah, Susan, that

We hear Donald Trump saying time and time again, he says that these tariffs are going to bring manufacturing back to the US. There's going to be short-term pain, but there'll be a lot of long-term gain. And some manufacturing will come back, won't it? Some manufacturing should come back. However, building a manufacturing plant...

takes quite some time. And you have to remember that the election cycle in the U.S. is four years per presidential office. So for President Trump serving his second term, we're really looking at three years from now. It's tough for a CEO to determine that he's going to spend quite possibly billions of dollars on a new manufacturing plant in the U.S. when policies could change again in as little as three years.

Stay with us, Susan. We were talking about GDP, gross domestic product, and we're at the start of the programme, which is about the production of goods and services in an economy, but away from that economy.

Sentiment is clearly important as well. This week we had numbers from the conference board in the US that showed consumer expectations were at their lowest level since 2011. Tariffs are a key factor in that. Let's hear from a businesswoman who's trying to deal with those factors. Marie Ubsenki is the founder and CEO of the Whole Leaf Tea and Teaware company, the tea spot which imports 55% of its tea from China.

Our margins will go down. Prices will certainly go up. The point that I would like to bring home with my customers, in which they already know, and that's why a lot of people really do come to tea to begin with, is tea is a premium product that you can still get somewhat affordably. It's not as though it's tripling from $10,000 to $30,000. It'll be tripling from $1 to $3 per serving for the most premium ones.

And then I'm also counting, of course, on the U.S. presidential administration's

eventual backing off of this whole situation. But do you think that's going to happen? There doesn't seem to be any sign of that, does there? There isn't any sign of it now, but it will ultimately happen. I mean, it's not a reasonable stance for the US consumer. And, you know, in terms of trade imbalances, from my perspective, it's not about how much you import or export as a nation. It's what your citizens can afford to buy. Right.

And for me, trade balance is all about, you know, U.S. citizens had the most purchase power in the world. And once that really slips away, I think the government has to back off. Donald Trump says there will be a cost of tariffs in the short term. And you're one of the businesses that will probably pay that cost. He thinks for the U.S. economy as a whole, it's a price worth paying. What do you make of that?

I think that they don't wish to understand the whole story. So what I make of that is that...

I'm not quite sure, nor have many of us been communicated what the long-term plan is, or any of us in that case. And if we think that we're going to bring heavy manufacturing back to the States, that's going to take far more than any of our lifetimes would allow. We've moved away from that. We've been so successful with light manufacturing and software. Why in the world would we want to try to bring manufacturing that...

serves us far better being done in other countries like China, other Asian countries, India.

to the states. That doesn't make sense. Yes, it will be painful in the near term. And of course, you're aware of the fact that shelves are already emptying, prices are already increasing. Even before people have incurred the cost of the tariffs, businesses are jumping ahead and increasing prices. It's not going to be a pretty picture for the U.S. consumer. And ultimately, I think that the government will need to recognize that the

This 145% with China is ludicrous, just makes absolutely no sense. There are a lot of industries who are lobbying the White House at the moment saying, my product should be exempt from these tariffs. Is that what you would like the tea industry to be doing? Is it doing that? Our tea industry has tried very much and have testified in front of Congress. So the president of the US Tea Association, Peter Gaggi, and our friend Jason Walker from Furs DT, which is the largest Chinese tea

importer distributor of teas in the US have both spoken in front of Congress quite eloquently. But the message clearly hasn't made it to the decision makers or maker. Susan Schmidt, Portfolio Manager, Exchange Capital Resources, Chicago still with us. Interesting to hear from Maria there. But on the other hand, we've had all this contradictory data, two of the world's biggest tech companies, Meta and Microsoft. Well, they've had some pretty good figures out today, haven't they?

They have. So two of our biggest companies reporting today after the close, Microsoft exceeding revenue and earnings estimates, and the same thing for Meta, Facebook, exceeding earnings and revenue estimates from the street. Both of them cited strong business conditions and put

put forth positive guidance on what they see rolling forward for the next three months. I think that's very encouraging for the market. We're seeing both of these companies trade up in aftermarket hours and investors are taking it very well. It's nice to see companies coming out with...

really mention of strength in the underlying business and investors are taking some comfort in that, that this might help stabilize the markets overall as we roll through the next several days of earnings reports from our large tech companies. 30 seconds if you don't mind, Susan. And that's where people get confused because we call one set of dates at the beginning of the program saying, hey, things are not too good. And then we have some of the world's biggest companies saying, look, we're doing pretty well.

That's right. And that's why the markets always keep us surprised and volatile in this type of situation. We have many different moving pieces here. It makes for a lot of confusion and investors are having a hard time coming to terms with how to put the pieces of the puzzle together. How does this all make sense? But so far from the big tech companies, we've heard some balance, some out

optimistic outlook. Hopefully that continues and a lot of things to be sorted out on the manufacturing side and around those tariffs still. Susan, thank you for helping us try and put those pieces together. It seems quite hard at the moment. It's almost like a piece of the jigsaw sometimes is missing.

Asking the right questions can greatly impact your future, especially when it comes to your finances. So if you're looking for a financial advisor you can trust, certified financial planner professionals are committed to acting in your best interest. That's why it's got to be a CFP. Find your CFP professional at letsmakeaplan.org. Our kids have said to us since we moved to Minnesota, we are far more active than we've ever been anywhere else we've ever lived.

Moving to Minnesota opened up a lot of doors for us. Just this overall sense of community, the values that Minnesotans have. It's a real accepting, loving community, especially with two young kids. See what makes Minnesota the star of the North. New residents share why they love calling it home at exploreminnesota.com slash live.

You're with World Business Report from the BBC World Service. Australia go to the polls this week and in a vote in what's being called a cost of living election. House prices there have skyrocketed over the past two decades, making matters worse. Rents have risen steeply since the pandemic, leaving many young people unable to save the large deposit that's needed to break into the housing market. Pressure is mounting on politicians to act, as the BBC's Vivian Nunes reports today.

from Melbourne. Housing issues are front and centre of this election campaign and I've come to a property that's open for inspection in Box Hill. That's just about half an hour outside of central Melbourne and I'm here with the real estate agent Daniels.

Daniel, thanks so much for letting me come and have a look at this house. Tell us about the property first of all. Well, this is a mid-century 1960s build. I call them old walk-up apartments with double carport, three bedrooms. It is first floor, but it has a private little courtyard. We anticipate this will sell somewhere between around $550,000 and $600,000, ideal for sort of your first home buyer market.

Around $600,000 Australian, we're talking about $380,000 US. How hard is it for first home buyers that you see coming in? It is difficult for first home buyers to get into the market in these inner city fringe sort of suburbs with the better facilities and infrastructure and transport and schools and the likes. $600,000 Australian is a substantial amount of money, particularly when the home really could undergo a major renovation in order to get it up to today's living standards.

I think we've got a prospective buyer coming in, so I'll let you go and have a chat. Thank you. My name's Chanel, so I'm 32. It is challenging for people to get into the market at this point. I have a pretty decent job, but still being able to sort of afford rent and all of the expenses and then being able to save that deposit, buying within the area that I'm keen to buy in is challenging.

extremely challenging. Most banks want a 20% deposit before they'll sign off on a loan. That means young people need to save around $120,000 Australian dollars for an average entry-level home. For many, that's an astronomical figure and saving it all is out of the question since rental costs in Australia's capital cities have risen far faster than incomes since the pandemic. We've actually moved into my parents' house in

for the last year to save because we were renting previously but we were just finding it really hard to save for a property on top of rent. I've got a three-year-old daughter and we've just had a baby like a nine-week-old baby so they've been really helpful it's been good a good time to do it but we'll definitely be glad to get our own space again that's for sure.

So how did Australia get to the point where working couples are unable to afford a home without moving in with mum and dad? Brendan Coates is a housing expert at the Grattan Institute, a think tank in Melbourne. The reason is because Australia hasn't built enough homes to meet the needs of a growing population. And so Australia is only one of four countries in the OECD where housing per person has gone backwards.

over the last 20 years. And we actually have some of the least housing per person of any country in the OECD. So despite being an island nation with an enormous landmass, most Australians live in our five major cities, which means that if we don't build enough homes in those cities, then housing becomes increasingly expensive, which is what we've seen in Australia.

Two decades ago, a house in Australia's major cities cost three or four times the average income. Today, it's seven or eight times, even up to ten times in Sydney. Now, after decades of inaction from both major parties, politicians in Canberra are scrambling. Clashing on the ABC's 7.30 report recently were the current housing minister, Labor's Claire O'Neill, and the man who wants her job, Michael Sukkar, from the conservative oppositions.

If you're going to wait for the Labor government to build you a home, you'll be waiting a very long time because we're at the end of the first term of a Labor government and they're yet to deliver a single home. Well, that's also not true. Let's hold that thought because we're going to come back to that. You can't come on to the 7.30 report and just make it up. You can't come on and just make it up, Michael. Let me handle it. Let me handle it.

The governing Labor Party has promised to guarantee 15% of a deposit if a first home buyer can save the first 5%. The opposition, meanwhile, is offering first home buyers the chance to access their compulsory retirement savings while making interest payments on mortgages tax deductible for the first five years. Housing expert Brendan Coates says both sides of politics are trying to increase...

In the background, both parties are actually competing to build more housing for the first time, at least I've seen in a federal election. Labor has a plan to put $10 billion into 100,000 homes that would be built by state government developers. And the coalition's put $5 billion on the table to get more housing built by paying for the infrastructure that councils are struggling to afford. Sewage, water, power, telecommunications and the like.

This election marks the first time millennial and Gen Z voters outnumber the property-owning baby boomers. Both sides of politics are desperately trying to win over younger voters. By the end of the weekend, we'll know which party was more convincing.

Vivian Nunes with that report. The United States has signed a much discussed mineral resources deal with Ukraine, which it says will help with the country's war-torn economy. Let's hear from the Ukrainian MP, Maria Messines-Saber, who welcomed what she said were the improved terms of the deal. Vivian Nunes.

It's quite a good investment opportunity and a fair deal in the end where no sort of deaths on military aid are mentioned. Everything is done in a manner due to Ukrainian constitution and doesn't breach any oversight of our EU aspirations. That is it from World Business Report.

Asking the right questions can greatly impact your future, especially when it comes to your finances. So if you're looking for a financial advisor you can trust, certified financial planner professionals are committed to acting in your best interest. That's why it's got to be a CFP. Find your CFP professional at letsmakeaplan.org.