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Just stuffed to midnight last night

1:01

US time a tariff wall unlike

1:03

anything we've seen for decades was

1:05

thrown up around the US That

1:07

means if you're listening to this

1:09

on Wednesday You're living in the

1:11

first hours of a new global

1:13

economy and the lead up to

1:15

it has been a wild ride

1:17

carnage on Wall Street Behind

1:20

the chairs, $10 trillion of

1:22

losses and counting. Well, markets

1:24

in Asia and Europe have

1:27

started to stabilize today following

1:29

three days of heavy losses

1:31

in the wake of Donald

1:33

Trump's tariffs. Today, checking

1:36

in on what the Trump tariffs

1:38

are doing to the global

1:40

economy. Why we aren't in

1:42

the worst case scenario a

1:44

global recession just yet? And

1:46

why Richard Partington, the Guardian's

1:49

senior economics correspondent, says, there

1:51

are some reasons to hope.

1:53

We may never get there.

1:55

From the Guardian, I'm Michael

1:57

Safi. Today in focus. making

1:59

sense of the Trump tariffs

2:01

one wake on. Richard,

2:07

we last spoke to you on Thursday

2:10

afternoon in London, just as Wall Street

2:12

was opening for the first time since

2:14

the Trump tariffs were announced the previous

2:16

day. These were universal tariffs across the

2:19

board on all of America's trading partners,

2:21

plus some hefty extra tariffs on countries

2:23

like China and blocks like the EU.

2:26

Markets around the world have had nearly

2:28

a week to digest the shock of

2:30

this. Take me through the fallout. The

2:33

very worst of it was at

2:35

the end of last week and

2:37

the beginning of this week where

2:39

we saw amongst the steepest falls

2:41

in global financial markets since the

2:43

spread of the COVID pandemic five

2:45

years ago. Wall Street in particular

2:47

was heavily down. on Thursday and

2:49

Friday last week, raising more than

2:52

$5 trillion of value from financial

2:54

markets. For the second day, the

2:56

dollar is already down a thousand

2:58

points after dropping almost 1,700 points

3:00

yesterday. This comes amid President Trump's.

3:02

Okay, so that was then, it

3:04

was expected to continue through Monday,

3:06

a day that many had dubbed

3:08

Black Monday. What did we actually

3:10

see when markets opened at the

3:12

beginning of the week? Markets opened

3:15

at the beginning of the week

3:17

in an incredibly gloomy mood. We'd

3:19

had over the weekend the president

3:21

really doubling down on his rhetoric,

3:23

Donald Trump, saying the world needed

3:25

to take its medicine. I don't

3:27

want anything to go down, but

3:29

sometimes you have to take medicine

3:31

to fix something. I spoke to

3:33

a lot of leaders, European, Asian,

3:36

from all over the world. They're

3:38

dying to make a deal, but

3:40

I said, we're not going to

3:42

have deficits with your country. We're

3:44

not going to do that because

3:46

to me a deficit is a

3:48

loss. There was no sign of

3:50

backing down whatsoever so Asian financial

3:52

markets which are the first to

3:54

open on Monday morning would deep

3:56

into the red. Look at the

3:59

Hong Singh almost 11% down the

4:01

worst on record since 2015. That

4:03

was followed in Europe by another

4:05

route in the Futsi 100 and

4:07

then the European continental markets as

4:09

well. Germany's tax plunged 10% on

4:11

opening before finishing the day more

4:13

than 4% in the red and

4:15

there were similar losses in France

4:17

and the UK. And the US

4:19

too, deeply down at the beginning

4:22

of the day. But it was

4:24

an incredibly volatile day on financial

4:26

markets because there were hopes that

4:28

Trump and the US administration will

4:30

begin to kind of soften its

4:32

approach and start to drive deals

4:34

with other countries. And the market

4:36

began to recover before then selling

4:38

off sharply again. So you had

4:40

this whipsawing effect. We've had a

4:43

small recovery on the White House

4:45

press secretary on the phone just

4:47

a short time ago and she

4:49

tells me it is quote unquote

4:51

fake news that the White House

4:53

is considering a 90-day pause. So

4:55

the White House pouring cold water

4:57

on this idea wherever it came

4:59

from. We've had a small recovery

5:01

on Tuesday as markets are trying

5:03

to regain a bit of footing,

5:06

a bit of posture after all

5:08

of this chaos. There's still a

5:10

lot of uncertainty, but there is

5:12

some hope that we may begin

5:14

to see deals being struck between

5:16

the US and other countries. Can

5:18

you kind of take me through

5:20

the like horror story as you

5:22

see it here? How this uncertainty

5:24

and volatility leads chain reaction by

5:26

reaction to something like a global

5:29

recession? So the way that it

5:31

plays out is this uncertainty means

5:33

businesses aren't investing. We've seen companies

5:35

like Jackie or Land Rover in

5:37

the United Kingdom pausing exports. their

5:39

cars to the United States. If

5:41

companies around the world take a

5:43

similar approach, if everybody stops doing

5:45

what they're doing, stops trading, stops

5:47

investing, stops hiring as a consequence,

5:50

that begins to have a cascading

5:52

effect on confidence for future projects

5:54

and investment and households will stop

5:56

spending if we begin to see

5:58

any company failures because of the

6:00

financial turmoil. We begin to see

6:02

job losses and that becomes self-

6:04

reinforcing if you get job losses,

6:06

people stop spending money, and then

6:08

that just adds an adds to

6:10

the worst case scenario. The market

6:13

is pricing in the risk of

6:15

a global recession. There's a heightened

6:17

likelihood of it if agreements can't

6:19

be done. JP Morgan, the US

6:21

Investment Bank, puts the probability of

6:23

a global recession at close to

6:25

60% now. There's more than 50-50

6:27

chance of a recession in the

6:29

United States, obviously the world's most

6:31

powerful economy, and there's risk of

6:33

recessions in the UK, in the

6:36

Eurozone. It's a really dangerous moment.

6:38

It's a dangerous moment, but how

6:40

close are we to that worst-case

6:42

scenario? I think that we're still

6:44

not there yet. I think there

6:46

is definitely still hope out there

6:48

that the very worst of this

6:50

can be avoided. Some of the

6:52

reasons to be cheerful is that

6:54

markets have had a bit of

6:57

a reprieve on Tuesday. We've also

6:59

kind of entered this moment with

7:01

households and... businesses in a financially

7:03

healthier position than we saw in

7:05

advance of the 2008 financial crash.

7:07

The banking system is also in

7:09

a much more robust position where,

7:11

you know, back then we had

7:13

banks failing, we had Lehman Brothers

7:15

going bust, we had the Royal

7:17

Bank of Scotland and the United

7:20

Kingdom requiring a bailout from the

7:22

government. This time around the financial

7:24

system is not actively amplifying and

7:26

adding to the crisis. So there

7:28

are some reasons to still hold

7:30

out some optimism. So

7:36

it sounds like the markets broadly

7:38

hanging on to this stubborn, maybe

7:41

irrational hope that Trump, despite what

7:43

he said for nearly 40 years,

7:45

does not really believe in tariffs,

7:47

that this is all in negotiating

7:49

strategy, that he might pull them

7:51

out and avert what may be

7:54

a US recession, a European recession,

7:56

maybe even a global recession. We'll

7:58

get to how crazy... credible those

8:00

hopes are, whether they are delusional,

8:02

but in response to all of

8:04

this volatility and uncertainty, what are

8:06

the Trump people saying in response?

8:09

There's real mixed messages coming out

8:11

of the Trump administration at the

8:13

moment and that's adding to the

8:15

uncertainty to the chaos in the

8:17

markets. You have people like Scott

8:19

Besson, who's Trump's Treasury Secretary of

8:22

former hedge fund manager, a billionaire

8:24

who's taking a much more kind

8:26

of cautious tone and... talking up

8:28

the prospect of deals being done,

8:30

saying that there's about 50 countries

8:32

that are beating a path to

8:34

the White House to try and

8:37

reach agreements. Then you get people

8:39

on the other end of the

8:41

spectrum, Trump's Commerce, Secretary Howard Lutnik,

8:43

saying that there's absolutely no chance

8:45

of postponing the tariffs. You have

8:47

his economic advisor, Peter Navarro, who's

8:49

saying similar that a global reorganization,

8:52

recalibration of the international trading system

8:54

is needed. And when you get

8:56

that... lack of a cohesive message

8:58

coming out of the Trump administration.

9:00

It just adds to this delicate

9:02

and messy nature in markets. Yeah,

9:05

it feels like not a good

9:07

sign when some of his top

9:09

economic advisors are disagreeing on what

9:11

he's actually doing, whether he's going

9:13

to pull these tariffs or not.

9:15

The rest of the world, meanwhile,

9:17

is watching on and weighing its

9:20

response, whether to reciprocate with their

9:22

own tariffs or not. China was

9:24

one of the number one targets

9:26

on that big board that Trump

9:28

was carrying in the Rose Garden

9:30

last week. How have they responded?

9:33

So China's been pretty robust in

9:35

saying that it would reciprocate directly

9:37

to the tariff rate that Trump

9:39

announced of 34% so it would

9:41

levy back. on US imports into

9:43

the Chinese market, a 34% tariff

9:45

in exchange. Yeah, you did this

9:48

to us, we'll do it back

9:50

to you. Yeah, exactly. We'll do

9:52

it completely back to you. They

9:54

are saying that they are prepared

9:56

to fight to the very end

9:58

to protect China's interests. Okay, Trump

10:00

responded to that on Monday by...

10:03

to slap even greater tariffs on

10:05

China. President Trump is now promising

10:07

a new 50% tariff on China

10:09

on top of the other new

10:11

tariffs, which are on top of

10:13

existing tariffs. Combined, this would make

10:16

U.S. tariffs on imports from China

10:18

a whopping 104 percent, and yet

10:20

despite all this tough talk, the

10:22

markets, they seem a little less

10:24

agitated this morning. just illustrate the

10:26

risks of China's tit-for-tat approach here,

10:28

that you just end up in

10:31

a trade war, and you think

10:33

that other countries will do the

10:35

same thing? I think... That is

10:37

probably going to be the negotiation

10:39

and tactic of many countries, particularly

10:41

the most powerful ones that have

10:44

the biggest leverage in negotiations with

10:46

the United States. We see a

10:48

similar approach from the EU, where

10:50

both the Chinese and the Europeans

10:52

have meaningful leverage with the US

10:54

because of the size of the

10:56

exports that they send to the

10:59

US market. But I think that

11:01

no one is going to want

11:03

to lose face in this. And

11:05

that's part of the danger for

11:07

the global economy at the moment

11:09

because there is a heightened chance

11:11

of miscommunication, of an accident, of

11:14

this posturing turning into something much

11:16

worse. Okay, so it's leverage in

11:18

trying to persuade the US to

11:20

back off, but not particularly good

11:22

leverage. The other school of thought

11:24

here is to hold off in

11:27

reciprocating, and just to do nothing,

11:29

keep your head down, swallow these

11:31

tariffs, and hope that Trump changes

11:33

his mind? What countries are taking

11:35

that approach, and is it a

11:37

good one? Some countries are taking

11:39

that approach that the UK has

11:42

probably been most notable. It's seeking

11:44

a quieter approach to dealing with

11:46

the terrorists a calm-headed approach, as

11:48

Kirst Alma talks about. That is

11:50

how we have acted and how

11:52

we will continue to act with

11:55

pragmatism, cool and calm heads focused

11:57

on our national security. The UK

11:59

perhaps has a better position than

12:01

most to do that in that

12:03

the... tariff rate that has been

12:05

applied on the United Kingdom of

12:07

10% is one of the lowest.

12:10

It's at the baseline that the

12:12

White House imposed. And then also

12:14

the UK has a relatively balanced

12:16

trade relationship with the United States

12:18

and that will help in negotiations

12:20

because Trump is really perceiving large

12:22

trade deficits as a harm to

12:25

the United States economy and if

12:27

the UK doesn't have such a

12:29

deficit for the US that's going

12:31

to help the UK's negotiating position.

12:33

You said that more than 50

12:35

countries according to Scott Bessen, one

12:38

of these Trump officials, had supposedly

12:40

reached out to the US for

12:42

emergency trade talks. What could those

12:44

trade talks look like? So, for

12:46

example, with the Europeans, Trump has

12:48

talked about your buying more US

12:50

energy, more oil, more liquid natural

12:53

gas from the United States. There's

12:55

talk about the tariff rates that

12:57

are applied on cars between the

12:59

US and the EU as well.

13:01

So, there will be some specific

13:03

issues that Trump has in mind

13:06

to negotiate with individual trade partners,

13:08

but there's also the... overarching question

13:10

of trade deficits and I think

13:12

he's looking for deals that could

13:14

bring down tariff rates for US

13:16

goods into partner markets and also

13:18

promises to purchase more American products.

13:21

getting these big international conglomerates to

13:23

move their factories and their manufacturing

13:25

bases back to America and providing

13:27

all of these new American jobs,

13:29

are there any businesses that are

13:31

saying, okay, this is the program,

13:33

we're going to get with it,

13:36

and making plans to shift some

13:38

of their supply chains to the

13:40

US? Trump is trying to talk

13:42

about companies that are shifting supply

13:44

chains back to the United States

13:46

and there is a possibility that

13:49

there will be manufacturers that are

13:51

looking to... locate more of their

13:53

activity within the US. However, this

13:55

comes at a high, high cost

13:57

for the American consumer, for the

13:59

American economy, that you're talking about.

14:01

large tax increases on businesses and

14:04

households to get relatively few jobs

14:06

back into the US, you're going

14:08

to see destruction to manufacturing capacity

14:10

because of the recession that is

14:12

likely to come in. There's a

14:14

big question as well about the

14:17

type of jobs that the White

14:19

House is attempting to prioritize. I

14:21

mean, in levying large tariffs on

14:23

trade partners like Cambodia and Vietnam,

14:25

where Companies like Nike have their

14:27

manufacturing bases, other clothes manufacturers, Levi's,

14:29

Wrangler, that are located outside of

14:32

the US. The idea that garment

14:34

manufacturing at the type of price

14:36

point that would be acceptable to

14:38

US consumers and at the type

14:40

of wage that would be acceptable

14:42

to American workers are going to

14:44

be located within the US economy

14:47

is pretty fanciful at this moment

14:49

in time. Yeah, yeah, it just

14:51

defies belief this idea that we're

14:53

going to see people hand-soing Nike

14:55

shoes in rural Pennsylvania. I mean,

14:57

does anybody want that? I don't

15:00

think so. I mean, it's not

15:02

exactly the vote winner that it

15:04

sounds to be, is it? We

15:06

can get you a sort of

15:08

below minimum wage job in tough

15:10

conditions, producing mass produced clothes for

15:12

other American consumers. It seems like

15:15

it's... bad for the people already

15:17

making these clothes in countries like

15:19

Vietnam and Laos, it's bad for

15:21

Americans, we'll have to pay more

15:23

for this stuff. And then it

15:25

all rests on the idea that

15:28

Americans will actually want to do

15:30

many of these jobs, which as

15:32

you said, does defy belief. Another

15:34

thing that I wonder is that

15:36

Trump's cabinet has the most billionaires

15:38

of any cabinet in history. He's

15:40

very close to Elon Musk, to

15:43

all of these tech billionaires, Jeff

15:45

Bezos, Mark Zuckerberg. Surely there in

15:47

his years saying, what are you

15:49

doing? This is costing us. so

15:51

much money. It's making it so

15:53

much harder to do business in

15:55

this country. We're definitely seeing some

15:58

of that kickback from Trump's billionaire

16:00

supporters, Bill Ackman, who's a notable

16:02

staunch backer of the president, had

16:04

started to warn of a economic

16:06

nuclear winter in recent days. And

16:08

you had the likes of Elon

16:11

Musk over in Italy at the

16:13

weekend saying that he saw a

16:15

path towards a zero tariff zone

16:17

between the US and the EU.

16:19

I hope. It is agreed that

16:21

both Europe and the United States

16:23

should move ideally in my view

16:26

to a zero tariff situation, effectively

16:28

creating a free trade zone between

16:30

Europe and North America. that drew

16:32

some pretty critical responses from other

16:34

people within the Trump camp saying

16:36

that that was fanciful but at

16:39

the same time there are splits

16:41

beginning to emerge and we've seen

16:43

some of the biggest losses in

16:45

financial markets of the past week

16:47

or so for technology companies for

16:49

firms that had backed the president

16:51

of people that had been at

16:54

the inauguration had lost billions of

16:56

dollars on paper in the past

16:58

week and when you have that

17:00

effect for the people around the

17:02

president there's going to be an

17:04

increasing. to pressure, to change course.

17:06

I think what is most striking

17:09

to me is that he seems

17:11

to think that this will cause

17:13

pain, but that that pain is

17:15

worth it. And that's something that

17:17

you so rarely see a political

17:19

leader do. Usually they're promising only

17:22

good things. Trump is kind of

17:24

fronting up to people and saying,

17:26

yeah, this is going to hurt,

17:28

but we need to stick with

17:30

it. And to me, that's extraordinary,

17:32

but it's also quite frightening. It's

17:34

frightening. I mean, it's unusual, as

17:37

you say, that you would have

17:39

a political leader that spoke in

17:41

that language. I mean, he's talked

17:43

about a patient taking medicine. I

17:45

mean, that sort of reminds you

17:47

a little bit of his talking

17:50

to the COVID pandemic about how

17:52

bleach was the greatest cure for

17:54

coronavirus. I mean, it just seems

17:56

completely ridiculous that you would take

17:58

this type of a medicine that

18:00

would... instill an economic nuclear winter.

18:02

I mean, it's kind of crazy,

18:05

really. If this does go bad,

18:07

if it tips into something that

18:09

looks like a US recession, a

18:11

global recession, do you think there's

18:13

any chance that Trump realizes this

18:15

was a bad idea and tries

18:17

to roll back? He will do

18:20

so. whilst blaming everyone but himself.

18:22

He may see that this is

18:24

not the right way to proceed.

18:26

He has in the past. been

18:28

highly attuned to losses in the

18:30

stock market, seeing as a real

18:33

virility indicator of the success of

18:35

his economic policies. And if there

18:37

is a continued route in global

18:39

markets, he's going to want to

18:41

reassess, but the people he will

18:43

blame will be the US Federal

18:45

Reserve, the chair there, Jerome Powell,

18:48

he'll be castigated by the president

18:50

for not having cut interest rates.

18:52

We're already beginning to see that

18:54

type of argument. He'll blame China,

18:56

he'll blame everybody but himself. Ryan

19:18

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20:03

20. Richard one thing you said

20:05

last week was that there was

20:07

a possibility that globalization

20:10

as we know it doesn't

20:12

die it continues but without

20:14

America is it possible that

20:17

China will step forward and

20:19

say we will play that

20:21

leadership role in this system

20:23

if the Americans no longer

20:25

want to. I think that's a definite

20:27

trend that we're likely to see

20:29

is the reassessment of China's role

20:32

in the global economy is one

20:34

outcome that could result from this

20:36

trade war, which is probably exactly

20:38

the opposite of what Donald Trump

20:40

would want to achieve to strengthen

20:42

the hand of what he sees

20:44

as the United States' greatest international

20:47

adversary. There certainly is talk of

20:49

that and China has began to

20:51

have conversations with South Korea and

20:53

Japan about closer economic ties, which

20:55

is... quite an unusual and interesting

20:57

step in recent times. The United

21:00

Kingdom as well, there had been

21:02

a real aversion to connectivity with

21:04

China under the last days of

21:07

the previous Conservative government, but under

21:09

labour there's been a reassessment. We

21:11

had Rachel Reeves, the Chancellor, flying

21:14

out to Beijing to talk with

21:16

her counterparts there, and Jonathan Reynolds,

21:18

the business secretary, was speaking just

21:21

two weeks ago about the need

21:23

to have an engagement. with the

21:25

world's second largest economy and calling

21:28

it naive to think that that

21:30

is something that can completely be

21:32

cut out as the last Conservative

21:34

administration did. Yeah, it's such a tone

21:36

shift from the way that China

21:39

was talked about under Trump's first

21:41

term as a country that felt

21:43

like it was being increasingly isolated

21:45

from the West, not anymore. Definitely.

21:48

But that said, I think it's

21:50

still a nuanced conversation. I think

21:52

there is still a high degree

21:54

of unease in Western capitals with

21:57

the involvement of China in certain

21:59

areas, so strategically. important sectors, defense,

22:01

energy, telecoms, there's definitely going to

22:03

be a sort of delicate relationship

22:06

that continues given several of the

22:08

issues that Western countries still have

22:10

around human rights, around environmental protections

22:13

and around defense and national security.

22:15

There's still a degree of trepidation

22:18

there, but certainly one result of

22:20

Trump waging a trade war with

22:22

all of the US's trade partners.

22:25

allies and enemies alike is that

22:27

there will be a reassessment between

22:29

the other countries, excluding the US,

22:32

about how to proceed with preserving

22:34

some degree of multilateral global trading.

22:36

Is there an argument here that

22:39

if everybody agrees, well not everybody,

22:41

but if lots of people seem

22:43

to think that globalisation and this

22:46

free trade system of the past

22:48

40 years is not... working. It's

22:50

leaving our societies maybe richer in

22:53

some pockets but like weaker overall

22:55

as communities. That maybe the answer

22:57

to it is something shocking like

23:00

Trump is doing and not the

23:02

kinds of tinkering around the edges

23:04

that we see in other countries

23:07

where people do think about economic

23:09

stability and you know political stability.

23:11

Well I think it's pretty clear

23:14

to a lot of people that

23:16

globalization is... at least if not

23:18

failing entirely, has serious challenges. We've

23:21

had this huge increase in inequality

23:23

since the 70s and 80s. We've

23:25

had the growth in the past.

23:28

decade or more of billionaires of

23:30

money being concentrated in ever fewer

23:32

hands. There's been a serious questioning

23:35

of capitalism and whether it is

23:37

working to deliver the prosperity that

23:39

the average community would want to

23:42

see. Yeah, from across the political

23:44

spectrum. Yeah, from absolutely. There's a

23:46

real questioning of how to structure

23:49

domestic and global economy to address

23:51

these concerns. And you know, that's

23:53

understandable. how Trump has kind of

23:56

come to pass, like he is

23:58

a symptom of this. The important

24:00

issue though in all of this

24:03

is that to change these things

24:05

is going to require bringing groups

24:08

of people together and ensuring that

24:10

there isn't a fracturing in society

24:12

and a fracturing in the economy

24:15

that is going to... block change.

24:17

Otherwise we're just going to have

24:19

these seemingly revolutionary moments that keep

24:22

running into failure and the restructuring

24:24

of the economy is a difficult

24:26

thing to do. It's going to

24:29

take time but it is something

24:31

that politicians everywhere really need to

24:33

grasp and ensure that despite the

24:36

muddling through that there is some

24:38

meaningful change in time for households

24:40

to grasp onto. pretty striking in

24:43

retrospect that that radical economic change

24:45

came in the end from the

24:47

right and not from the left,

24:50

but maybe we'll talk about that

24:52

on a different podcast. Richard, thank

24:54

you very much. Thank you. And

25:00

that was Richard Partington,

25:02

the Guardian's senior economics

25:05

correspondent. This episode was

25:07

produced by Eli Block

25:09

with Tom Glasser and

25:12

Priya Baradia. Sound design

25:14

was by Hannah Farrell.

25:16

The executive producer was

25:19

Courtney Yusuf. And we're

25:21

back with you tomorrow.