Tariffs, tariffs, tariffs!

Summary

Marketplace Morning Report: "Tariffs, Tariffs, Tariffs!"
Release Date: February 3, 2025
Host: Liana Byrne

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Introduction: Escalating Trade Tensions

In this episode of the Marketplace Morning Report, host Liana Byrne delves into the significant developments surrounding President Donald Trump's recent imposition of tariffs on Canada, Mexico, and China. The move has not only stirred global markets but also sparked a series of retaliatory actions and strategic responses from the affected nations.

Trump's Tariff Implementation and Rationale

The episode opens with Byrne outlining President Trump's decision to enforce tariffs on Canada, Mexico, and China, citing it as a measure against "illegal immigration and drug trafficking" from these countries (00:17). Additionally, Trump has targeted the European Union, highlighting the substantial U.S. trade deficit with the bloc—$213 billion last year—as an "atrocity." This stance indicates a broader strategy to address perceived imbalances in international trade relationships.

European and Allied Responses

Poland's Foreign Minister, Radek Sikorski, offers a nuanced perspective on the U.S.-EU trade dynamics. He emphasizes that when considering both goods and services, as well as capital flows, the trade relationship is relatively balanced. Sikorski states, "Roughly it's in overall balance" (01:10), suggesting that despite the existing deficit, both the U.S. and EU benefit mutually. However, he acknowledges that retaliation from the EU is "inevitable," though it remains the last preferred option.

Impact on Canada and Mexico

The tariffs have immediate repercussions for Canada and Mexico, prompting swift retaliatory actions. Jairo Yunus, Director of Policy at the Business Council of British Columbia, highlights the deep economic ties between Canada and the U.S., noting that "The US is by far our largest trading partner with Canada, exporting half a trillion dollars in goods between January and November of last year" (01:58). Yunus expresses concern over the tariffs jeopardizing decades of "mutually beneficial trade relationship" and the shared prosperity it has fostered (02:26).

In Mexico, Sophie Avernan, owner of Grandes Vianerdos—a wine and spirits importer and exporter—discusses the proactive measures her company has taken. "We knew this was coming, so we prepared ahead," Avernan explains (02:34). Her company has diversified its export markets to Asia and Europe to mitigate the impact of the tariffs, although she acknowledges the complexities and time required for such adjustments (03:00).

Market Reactions: Global Stock and Commodity Fluctuations

The announcement of the tariffs has led to immediate volatility in global markets. European stocks experienced declines, with the region-wide Stoxx 600 index falling by 1.4%. Automakers were particularly hard-hit; for instance, Volkswagen shares plummeted over 6% in Asian markets. Japan's Nikkei 225 also closed down by 2.6% (03:00). Commodity markets saw a downturn in copper, aluminum, and iron ore prices, while oil prices surged. Notably, Chinese markets were closed for the Lunar New Year but are expected to reopen on Wednesday.

China's Strategic Countermoves

China has not remained passive in the face of U.S. tariffs. The Chinese Foreign Ministry has issued a stern warning to President Trump, declaring that "a trade war has no winners." Locally, businesses are adapting by relocating production to evade tariffs. Laura Bicker, BBC's China correspondent, provides an on-the-ground report illustrating the challenges faced by Chinese manufacturers.

At a leather boot factory in China, long-time worker Peng expresses concern over dwindling orders: "In the end, it is the workers at the bottom suffer. With higher tariffs, we have higher costs. With higher costs, we have fewer orders. The workers' income will decrease" (04:35). The factory is shifting production to French military boots to sustain operations, highlighting the broader economic strain.

Conversely, some Chinese companies are capitalizing on the situation by moving production to Southeast Asia, particularly Cambodia. Huang Zhaodong, a factory owner in Phnom Penh, notes, "A lot of our customers, especially American clients, have asked us to make their products overseas. They suggested that if I produce their orders overseas, it will be less risky" (06:12). This strategic relocation not only helps Chinese firms bypass U.S. tariffs but also strengthens China's economic influence in the region, as evident from the increasing prevalence of Chinese businesses and investments in Cambodia.

Conclusion: The Broader Implications of Tariffs

The episode underscores the intricate web of global trade and the far-reaching consequences of tariff policies. While the U.S. aims to address trade imbalances and security concerns, the ripple effects are causing significant adjustments across international markets and supply chains. Businesses in Canada, Mexico, and China are navigating the challenges by diversifying markets and relocating production, respectively. These developments reflect the ongoing struggle for economic supremacy and the delicate balance of international relations in a highly interconnected world.

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Notable Quotes

• Radek Sikorski (Poland's Foreign Minister):
  "Roughly it's in overall balance." (01:10)

• Jairo Yunus (Business Council of British Columbia):
  "The US is by far our largest trading partner with Canada." (01:58)

• Sophie Avernan (Grandes Vianerdos, Mexico City):
  "We knew this was coming, so we prepared ahead." (02:34)

• Chinese Factory Worker:
  "In the end, it is the workers at the bottom suffer." (04:35)

• Huang Zhaodong (Factory Owner, Cambodia):
  "A lot of our customers, especially American clients, have asked us to make their products overseas." (06:12)

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This comprehensive summary captures the key discussions and insights from the episode, providing readers with a clear understanding of the complex dynamics introduced by the recent tariff implementations and their global repercussions.

Transcript

[MultiCare Representative]

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[Liana Byrne]

Canada, Mexico and China get hit with more tariffs and Europe could be next. Live from BBC World Service, this is the Marketplace Morning Report. I'm Liana Byrne. Good morning. We're starting this week with global stocks in the red after President Trump followed through with his promise to slap tariffs on Canada, Mexico and China. He says it's a response to illegal immigration and drug trafficking from those countries. And it's not just them in the firing line, the European Union is also facing pressure. Trump is zeroing in on the US Trade deficit with the eu. That's when a country imports more from a country, or in this case, a trading bloc that then it exports. Last year, the US ran a deficit of $213 billion. He's now calling that an atrocity. But Radek Sikorski, Poland's foreign minister, says that despite that deficit, both sides benefit from their trading relationship.

[Radek Sikorski]

Remember that you should take into account not only the trade in visible goods, where indeed Europe has a trade surplus, but also in services. We consume Hollywood movies and we are addicted to social media, which are American. And where the United States has a huge surplus, we also export vast amounts of capital to the United States. So roughly it's in overall balance. We'll do what it has always done, which is to answer in kind. It's the last thing we want. But a response is inevitable.

[Liana Byrne]

Urdek Sikorsky there. The measures against Canada, Mexico and China are set to come in tomorrow. Canada and Mexico are hitting back. Jairo Yunus is director of Policy at the Business Council of British Columbia in Vancouver.

[Jairo Yunus]

The US Is by far our largest trading partner with Canada, exporting half a trillion dollar in goods between January and November of last year. That's 76% of our total exports and 20% of our economy. So of course, they are our single largest trading partner. And many Canadians are disappointed because these tariffs are putting at risk this mutually beneficial trade relationship which has been built over decades of cooperation and which has proven to be a key pillar of our shared prosperity.

[Liana Byrne]

That was Jairo Yunus. Sophie Avernan owns Grandes Vianerdos, a wine and spirits importer and exporter in Mexico City.

[Sophie Avernan]

We knew this was coming, so we prepared ahead. We imported some goods from the United States, from wines in my company. And concerning the exports, we started looking for other markets, Asia and Europe, especially because we knew this was coming because, well, it's Trump. It's complicated. It's complicated because you can't do it overnight. It's a long negotiation. It takes time.

[Liana Byrne]

Sophie Avernan there. Now. Let's get the market's reaction to the story and do the numbers. We'll start with European stocks. The region wide Stoxx 600 index is down 1.4%. Automakers were the biggest losers. Volkswagen shares are down more than 6% in Asia. Japan's Nikkei 225 closed, down 2.6%. Chines markets are closed for the lunar New year and will reopen on Wednesday. Then in commodity news, copper, aluminum and iron ore are also trading lower. And oil prices are up. Okay, let's get back to tariffs now. China's Foreign Ministry has warned Donald Trump that a trade war has no winners. And companies there have been getting ready. Thousands of businesses have moved their production abroad to flee Trump's tariffs. As the BBC's China correspondent Laura Bicker reports.

[Laura Bicker]

This is the sound of an all American cowboy boot taking shape. They were once crafted to conquer the Wild west, but these carefully stitched designs are now made in China.

[Factory Worker]

When things get busy, the whole factory gets packed with people shoulder to shoulder. But these days, there are fewer staff at each process.

[Laura Bicker]

Mr. Peng has worked at the factory since he was 15. But more than 20 years on, he's worried about dwindling orders. US buyers don't want to risk more of Donald Trump's tariffs on Chinese made goods.

[Factory Worker]

In the end, it is the workers at the bottom suffer. With higher tariffs, we have higher costs. With higher costs, we have fewer orders. The workers income will decrease.

[Laura Bicker]

This leather boots factory can make, when it's busy, 70,000 pairs of handcrafted leather boots in a month. But right now, I'm looking at lots and lots of empty tables. They're actually having to make French military boots to try to keep the factory going. Each shoe is handy polished at the end of a hundred different processes. The owners have thought about moving production to Southeast Asia, but they would lose their skilled workforce.

[Factory Worker]

As you can see, the workers here are like family to each other. If we were to move, they'd lose their jobs and end up unemployed. Therefore, our boss chooses not to give up on them.

[Laura Bicker]

Other Chinese companies, however, are on the move. Parts of Cambodia have given itself to Beijing. Half the country's investment now flows from China. You can tell me a bit about your factory. So what are we seeing here?

[Huang Zhaodong]

The factory has only been running for a few months, so I only have these workers here. For now, once we are fully staffed, there will be 1,500 workers. All of our products are for export, 100%.

[Laura Bicker]

Huang Zhaodong makes clothes for US firms like Walmart and Costco, and he's getting ready for more orders. His factory and his workers are in Cambodia, but most of the materials still come from China.

[Huang Zhaodong]

A lot of our customers, especially American clients, have asked us to make their products overseas. They suggested that if I produce their orders overseas, it will be less risky.

[Laura Bicker]

Successes like this one increase China's influence across Southeast Asia. Here on the streets of Phnom Penh, the flashing neon signs are not just in Khmer, they are mostly in Chinese, offering everything from duck noodles to milk tea. Trump's tariffs have not stopped China's rise. Beijing has simply gone elsewhere to do business. China may lose some money in this battle, but it's still gaining power and influence in Cambodia. I'm the BBC's Laura Bicker for Marketplace.

[Liana Byrne]

And that's it from the Marketplace Morning Report from the BBC World Service. James Graham is our producer today. Naomi Rainey is the editor and I'm Liana Byrne. Have a great day. Thanks for listening.

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