This is an audio transcript of the Unhedged podcast episode: ‘The UK’s trade deal’
Katie Martin
There’s no shame in admitting these days that in relation to trade tariffs or frankly anything else in finance and economics, you have no idea what on earth is going on. The tariffs on imports to the US are on, then they’re full fat, then they are off, then there’s deals kicking around. It’s a mess. Now, when I want to sound clever and authoritative on this stuff, there’s only one thing for it. I get up from my desk, walk along the corridor, and pick the brains of Alan Beattie, the FT’s very own massive trade nerd. We’ve been nerding out on this stuff since way before it was cool.
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Today on the show, guess what? We have Alan Beattie. Alan has a service. Listeners, he’s gonna tell us all what we need to know so that you too can at the very least pretend you understand what’s going on. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist here at FT towers in London, where it’s suddenly unbelievably cold again. What the hell? Alan is here with me in the studio. Alan, welcome. Welcome back. You’ve done this before. You still came back.
Alan Beattie
I have. I’d never been on it before, and now I’ve been on it two times in three months.
Katie Martin
Rock ’n’ roll.
Alan Beattie
I’m now being stopped in the street, asked for autographs, all sorts of stuff. This is everything I’ve always dreamed of.
Katie Martin
(Laughter) Now, I know what you’re gonna say. You’re gonna say nobody knows anything, aren’t you?
Alan Beattie
That is my trademark saying. And let me just tell you why nobody knows anything. When I say nobody knows anything, it’s just not people watching don’t know anything. The people in charge don’t know what they’re doing either, or at least they have a whole bunch of different motives. They have pretty much one instrument to do it with, which is tariffs, and the result is chaos. So there is no massive fundamental plan. Anyone who says, fundamentally what he’s doing is this; at heart, what he’s doing is this, it cannot be right because he doesn’t really know either.
Katie Martin
So we’ve got, like, this kind of kaleidoscope hall of mirrors that just are reflecting nonsense back on to each other pretty much constantly, but we’re gonna try and make some sense of it. So I’m gonna propose we don’t start at the beginning here because Mr Donald J Trump has been banging on about trade tariffs since the 1980s when even you and I were still quite small.
So let’s start at the end, which is at the weekend in Geneva, the US and China held some trade talks that resulted in a massive drop in the level of tariffs on trade with China. To the extent that you can, tell us what is going on here. What did the US extract as a concession from China to take the tariffs down from, what is it, 145-ish per cent to 30-ish per cent?
Alan Beattie
Basically said, we don’t cut our tariffs, you cut yours. So, you know, China had retaliated. The US, I think, was a bit more scared by retaliation or the market reaction than it thought. And so they said, fine, you know, we all cut ours and you cut yours. So essentially, it returned it to the status quo before. So instead of being insanely, ludicrously high, they were merely insanely high.
Katie Martin
Right. That’s an important thing to remember, right? So the markets are celebrating this, like, pullback to 30-ish per cent tariffs on China as if this is like, you know, party time. And, you know, like the boring, miserable people like me and you and also lots of fund managers are saying, OK, but 30 per cent on China and a 10 per cent baseline on the rest of the world and loads of other things here and there for steel and God knows what else, still leaves the US with the highest taxes on imports since the mid-’40s, am I right?
Alan Beattie
Depending on how you measure it, yes, I mean, certainly for a long, long time. Far be it for me to try and guess what the markets are thinking. If I could do that, I would have arrived here in a jet. But as far as I can tell, they’re just sort of thinking the complete madness has gone. We’re not gonna have an administration that’s actually trying to decouple the US from China because, you know, if you have, and part of these ideas are sort of embedded in different people. So you have Peter Navarro, who’s in the White House, the out-and-out trade warrior. He really thinks that the US should not run deficits, full stop. He really thinks if necessary, the US should just not be trading with China, full stop.
So I presume what’s happened — and I agree with you, it’s kind of remarkable how optimistic people are given where we are — is that they think, OK, we’re now just in a different regime. We’re now in a regime of trying to manage trade, of trying to protect particular sectors in the economy. We’re not in a completely mad system of trying to break the world economy apart.
Katie Martin
Right. What do you think motivated . . . Again, as you say, that the Trump administration seems to have a million different motivations at once and not all of them make sense on the same piece of paper. But what do you think motivated him to take this massive step back against China?
Alan Beattie
I suspect it was just that there was a big hole where the imports should come. There were going to be empty shelves, the ships just weren’t coming across the Pacific. The markets don’t like this anyway and of course, earlier on the fact that he stepped back from the huge tariffs he announced on April 2 and stepped back a week later was to do with the markets. So although people say Trump II is different from Trump I, he’s not obsessively looking at the markets, he is prepared to absorb some pain, I think something in his judgment was actually cutting Americans off from their stuff even though he was talking about, you know, all the children have to go down to two dolls and so forth.
Katie Martin
Yeah. Five pencils each, kids.
Alan Beattie
(Laughter) Five pencils and two dolls. I think at some level he just thought, that’s actually not sustainable, I need to move back.
Katie Martin
Yeah. So he is very clearly in dealmaking mode, right, because this isn’t the only deal that he’s struck. He also struck a deal with the UK. I use the term deal fairly loosely.
Alan Beattie
When I was . . . Literally the day that this came out — this is true — I was sitting in a law firm in London with this guy and I said, what’s the legal status of this deal, when he was sort of sitting at a conference table and there was this little screwed up napkin on the table and he just pointed at the napkin and said, this is the legal status of the deal.
Katie Martin
So the deal with the UK literally says on the first page of the legal docs this is not a legally binding deal.
Alan Beattie
So yeah, you know, so often with Donald Trump, a lot of what he’s doing with tariffs is not legal anyway. It’s supposed to be done through Congress. He’s just asserting things. He’s using all sorts of emergency powers and so on. And so this has no legal binding status whatsoever, but then a lot what he does doesn’t have much of a legal status either.
Katie Martin
So the deal with the UK — again, deal in little bunny-ear speech marks — seems to have been pulled together extremely quickly. I’m not sure who it was that was reporting that Keir Starmer, UK prime minister, didn’t know that a deal was coming until the night before and he was at a football match or something. Like, they really cobbled this thing together at high speed and I’m not clear why. Are you clear why?
Alan Beattie
No. I think, as I understand it — again, you know, this is from other people’s reporting — Trump himself just said I feel like doing a deal today and so then it got done. And obviously, if Trump is in a dealmaking mode you move extremely quickly before he changes his mind. So I think that explains the speed at which it got done and the fact that it concentrated really only on a small number of things.
Katie Martin
So the deal means . . . So the 10 per cent baseline applies to all countries at all times. There is no moving below that point, right?
Alan Beattie
That’s what they say at the moment, yes. I mean, you know. But other countries think they’re not happy with that. But that’s what they have fundamentally said, that we’re not gonna negotiate over that.
Katie Martin
But what the UK got is lower rates on cars and steel.
Alan Beattie
Yeah, so these were separate tariffs. They’re called Section 232 after the parts of the US tax code, US law, and they were special sectoral things designed obviously to protect the US steel and car sectors. They’ve been in there a long time. Now, the UK is not a massive steel exporter, but it is a steel exporter, and steel is politically very important. It’s not a huge car exporter and only I think about a fifth of its cars go to the US. However, Jaguar Land Rover is one of them. That’s big and symbolic.
Katie Martin
Very British.
Alan Beattie
Very British. I was actually up in Coventry, where traditionally these things are made, recently and you forget the extent to which this is a car city and these are just, even though it’s not owned by a British company any more. So that was really what they were kind of very narrowly focused on for, you know, PR as much as overall economic impact, and that’s what they got.
Katie Martin
As I was saying at the top of this discussion, you’re a big trade nerd. So where does this fit into broader trade negotiations? It looks like Trump is bobbing around looking for deals.
Alan Beattie
Yeah. I mean, this was basically an escape. This was basically an escape. Get out, you know, presumably try and exploit the fact that Trump is relatively well-disposed to the UK. The UK doesn’t have a big surplus with the US. He’s been invited to meet with King Charles and he likes that. So quickly get in first, get your deal and get out.
Katie Martin
For the UK though, there is a school of thought that the UK should not be holding any sorts of discussions with this administration. Firstly, because agreements are not really necessarily worth the paper they’re written on, but also, shouldn’t we have, like, linked arms with our friends and neighbours in the EU rather than taking whatever agreement it is from the US? Are we being bad global citizens by signing this thing?
Alan Beattie
I’m afraid so. The thing that is worrying, that worried a lot of people is the UK in return for this gave actually not some massive concessions on access to the UK market for beef and ethanol. It caused everyone in Britain to look at each other and go, what do we do with ethanol?
Katie Martin
What’s ethanol?
Alan Beattie
What’s it for? So I don’t think that was . . . You know, ethanol is quite a big deal in the US because it’s a big industry and so on. But I don’t think that had very much resonance in the UK at all. The point here is that it gave these things unilaterally and it gave access to the US that it hadn’t given to everyone else in the World Trade Organization. That violates the principle that’s known as most favoured nation, where you have to treat everybody equally and, you know, supposedly the only exception to that is if you sign a full preferential trade deal which covers substantially all the trade, quote unquote. And this was clearly not that. In fact, it wasn’t any kind of binding trade deal at all.
So there was a sense that the UK had sort of let the side down. If the US is able to bully countries into giving them non-most-favoured-nation access, then the whole system falls apart. I mean, what the defenders of the deal would tell you was like, come on, it wasn’t very big. It’s not that important. One or two countries have sort of done something quite similar. In the past, you know, the UK is a relatively small trader. This buy-in of itself is not gonna pull the global trading system apart.
Katie Martin
Yeah. The other thing is that the messaging is a bit difficult, a bit different from one side to the other, right? So the US is talking about how the UK has agreed to open up its food markets to US produce. And the UK is saying, we’re still not gonna eat your chlorinated chicken, guys. So there’s a bit of . . . The two sides don’t quite match up, right?
Alan Beattie
Yes, indeed, but it depends who’s gonna get hold of this from the US point of view. So the aforementioned Peter Navarro, who apparently had nothing to do with this deal, came out the next day and started talking about chemical-washed chicken. By the way, I’m conditioned to call it chemical-washed chicken. If you call it chlorine-washed, you get people on the phone from the US trade representative’s office painfully explaining to me that they actually use something called peracetic acid, which is basically vinegar, etc. They are very sensible.
Katie Martin
Yum. I love peracetic acid. Sounds great. I look forward very much to getting their phone calls and emails (inaudible).
Alan Beattie
So, the issue here is who do you let run US trade policy? If it’s, you know, the American Farm Bureau, who are very aggressive, export-oriented farmers, then yes, they’ll make a big deal about it. If they’re prepared to let that go and focus on other things, then you don’t. And the thing about the UK deal is it’s just open, because there’s no legal basis to it anyway. It’s open. I mean, the other, you know, thing in it which is entirely open is they vaguely agreed that they’re gonna gang up on China. But it doesn’t really say how they’re gonna gang up on China.
Katie Martin
And China’s not happy about that, right?
Alan Beattie
China is very much not happy about that and has very publicly said we do not like this part of the deal. Now, again, whether the US actually tries to bounce the UK into doing that, what the point is at which the UK says we can’t go that far, who knows, but this is all left open because it’s such an open deal.
Katie Martin
You are not making me less confused, Alan Beattie, but tell me. So we’ve got this China agreement. We’ve got the UK agreement. What does that tell us about what the talks are likely to look like between the US and the EU? Because the EU are like super ninjas at trade talks. They massively know what they’re doing with trade. So the US is coming up against a kind of army of mega-nerds who have put even you into the shade. What’s this gonna look like? What on earth can the EU offer as a concession to the US to come up with some sort of agreement?
Alan Beattie
So this is probably gonna be one of the longer-lasting ones, not least because the EU is digging its heels in and saying on principle we don’t agree with this, we don’t agree with that. They’re saying we’re not going to accept there being the 10 per cent baseline tariff that we discussed before. And the EU way of things, they use transparency as a weapon so they’ve got this massive list of US things they’re going to retaliate against and they’re sure they’re going to retaliate before. You know, there are a tonne of things they could do. I mean, they could drop their food rules as well, right, and accept peracetic acid-washed chicken, but they’re emphatically not going to because there would be a massive crisis.
Katie Martin
I literally can’t see peracetic-washed chicken flying.
Alan Beattie
No, it’s just, I can’t imagine marketing it. It would be quite hard to, wouldn’t it? (Laughter)
Katie Martin
What’s the French for . . .? “Peracetique”. (Laughter)
Alan Beattie
Now what they could do, what they’ve done in the past, and this is also what China have done to the US, is make a bunch of basically bogus promises: we’re going to buy US exports. And they say, we’ll buy this and we’ll buy that. And they’re hoping that will buy him off. But, you know, part of the EU thing is, when they start to retaliate, they need to get all the member states on side. And it’s a slow, iterative process. You won’t quite know how much stomach they have for the fight and for escalating until it starts.
Katie Martin
I just think it’s gonna be interesting to see the incredibly methodical, serious, trade-talk-pro Europeans in a room with whoever it is that the US puts forward. Maybe it’s Peter Navarro, maybe it’s Scott Bessent, the Treasury secretary, who knows?
Alan Beattie
Indeed, and if there’s any weakness the EU has, I think it’s that they’re assuming they’re dealing with a more rational interlocutor. One thing I know that EU people have said is they’ve assembled this list of retaliation, and it’s done the traditional way people do retaliation, which is you choose products which are going to hurt politically. And in the US, that means you go after particular products from particular states. They always used to go after bourbon because that was Kentucky, because that was Mitch McConnell, who was Senate leader for a long time. And I think this time they’ve said they’re gonna go after soyabeans because that’s Mike Johnson, who’s from Louisiana, and soyabeans are from Louisiana.
The problem with this, I think, is I’m not sure Trump really cares what anyone in Congress thinks. I mean, he’s making trade policy from the hip using these emergency powers and completely ignoring anyone, anything that anyone from Congress says.
Katie Martin
On his nice new plane from Qatar.
Alan Beattie
On his nice new plane, so is he really gonna sit there going, oh no, (Katie laughs) the soyabean farmers of Louisiana are slightly angry, I had better stop my trade war. It’s just that seems to me slightly improbable, so I’m not convinced the EU is on the right track if it’s trying to use the old playbook on it.
Katie Martin
One last thing is at the moment, unless I’m very much mistaken, the “liberation day” tariffs on those famous flip chart-type things on the Rose Garden, they are just paused, right? They’re not cancelled, they’re paused. What happens at the end of that pause period? Does anybody know?
Alan Beattie
So, you know, they’re paused for 90 days. The idea was that all of these deals will be done by then, right? So it was a 90-day period to get all of these deals done. If they get to the end of 90 days and some of them are not done, then obviously the US has a choice about whether it’s going to snap back and put the so-called reciprocal, and I will call them so-called reciprocal, tariffs back.
From what we were saying before about the markets, it would assume that the markets aren’t expecting the US to do that, or they would be a lot more upset than they are. So, you know, it remains to be seen what gets down between now and then.
If I had to guess, I would say, there will be a whole string of deals of different kinds. Some of them will be meetings of equals or close equals, like the EU and US. Some will be, you know, a much smaller, weaker partner trying to escape, like the UK. And one thing that appears not to be the case, unfortunately, is you don’t appear to see a bunch of countries banding together and saying, we’re going to negotiate collectively. That’s not happening.
Katie Martin
Well, so listeners, I don’t necessarily think we’ve got you to the point where you fully understand what’s going on. But I think we have got you to the point where you understand why no one else knows what’s going on either. So that is the sort of service you get from the Unhedged podcast. You are welcome. We will be back in a sec with Long/Short.
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Alrighty, now it’s time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Alan, you remembered to bring a long/short, what you got?
Alan Beattie
I did. I’m going to go long supply chains because there’s a lot of talk about, oh, during Covid supply chains all screwed up. Everything was a mess, it didn’t really work, which I kind of think is unfair. What actually happened was there was a big drop-off in trade and then a massive surge back in trade in durables and the west coast ports in the US were completely overwhelmed. They were handling record amounts of cargo, but they were totally overwhelmed. And that’s where you got that congestion from.
You know, when that died down then the world trading system reasserted itself. Supply chains reorganised themselves, but they didn’t collapse. We didn’t have the end of globalisation. And so, you know, we’ve now got this huge shortage of stuff coming across the Pacific because of the tariffs. So the ports are empty, but I’m pretty sure once it starts, if and when it starts coming again, you know the supply chains will be OK handling it and things will be fine. Well, not fine, but it won’t be the end of globalisation.
Katie Martin
Alan Beattie. Never, never challenge the supremacy of globalisation in front of Alan Beattie because he will take you down. I am long rain dances. Alan, I’m sure you have noticed along with farmers, growers, gardeners and cyclists, it is just not raining in the UK at the moment.
Alan Beattie
It just totally hasn’t for years.
Katie Martin
It’s just not raining!
Alan Beattie
No. I cut the grass the other day and then it just it was brown within two days. It looked like a sort of the Africans (inaudible). It was just, you know.
Katie Martin
My garden is crying out for a good soaking. Apparently, story in the FT today, driest start to any year in decades, running 29 per cent below long-term averages in England and Wales. What the hell? Is this some sort of like Russian space mirrors pointing the rain clouds away from us or something?
Alan Beattie
I don’t know, but use it quickly because your ban on using hosepipes is clearly going to come in, isn’t it, so . . .
Katie Martin
Yes. Well, I’ve got my water butts and I cannot lie. (Laughter)
Alan Beattie
I believe you. I believe you.
Katie Martin
American listeners, I have an editor shouting into my ear right now saying, what the hell is a water butt? (Laughter) Apparently, you don’t call them that. But it’s like when you have, like, the gutters on your house drain the rainwater off of your roof and into a big container. We call them butts.
Alan Beattie
It’s just occurred to me why Americans wouldn’t call them water butts.
Katie Martin
Yes, me too. (Laughter) All right, listeners, we are going to be back in your ears on Tuesday. In the meantime, make sure you stock up on your non-chlorinated chicken and lovely ethanol-infused beverages, because we will be back then.
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Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer.
I’m Katie Martin. Thanks for listening.
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