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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the BlueBag Day Baker podcast, available every morning

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Speaker 2: on Apple, Spotify or wherever you listen. It's Monday, the

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Speaker 2: third of February in London. I'm Caroline Hepkit.

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Speaker 1: And I'm Stephen Carroll. Coming up today, the US President

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Speaker 1: slaps tariffs on Mexico, Canada, and China.

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Speaker 2: Trump reiterates plans to impose tariffs on the EU as

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Speaker 2: the bloc's leadership vows to respond.

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Speaker 1: Plus could the UK escape the worst of it? Trump

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Speaker 1: says a positive relationship with Starmer means the country may

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Speaker 1: avoid tariffs.

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Speaker 2: Let's start with a roundup of our top stories.

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Speaker 1: Global leaders and markets are reacting to Donald Trump announcing

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Speaker 1: tariffs of twenty five percent on goods from Canada and

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Speaker 1: Mexico and ten percent duties on products from China. Speaking

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Speaker 1: to reporters next to Air Force one last night, Trump

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Speaker 1: conceded that US consumers would be affected.

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Speaker 3: We may have.

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Speaker 4: Short term sum a little pain, and people understand that,

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Speaker 4: but long term, the United States has been ripped off

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Speaker 4: by virtually every country in the world.

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Speaker 3: We have deficits with almost.

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Speaker 4: Every country, not every country, but almost, and we're going

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Speaker 4: to change it.

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Speaker 3: It's been unfair.

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Speaker 4: That's why we owe thirty six trillion dollars. We have

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Speaker 4: deficits with everybody. We help everybody. We've been helping everybody

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Speaker 4: for years, and to be honest, I don't think they

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Speaker 4: appreciate it.

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Speaker 3: So we're going to change that. We're going to change

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Speaker 3: it bad.

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Speaker 1: Trump says he will have separate calls this morning with

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Speaker 1: Canadian Prime Minister Justin and Trudeau, as well as the

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Speaker 1: Mexican leadership. The Canadian leader has already pledged twenty five

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Speaker 1: percent retaliatory tariffs on one hundred and six billion dollars

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Speaker 1: worth of US goods. TUDO says the US president's action

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Speaker 1: now risks job losses and price rises for Americans.

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Speaker 5: If President Trump wants to usher in a new golden

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Speaker 5: age for the United States, the better path is to

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Speaker 5: partner with Canada, not to punish US.

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Speaker 1: Trudeau's comments came as the Canadian dollar sank to its

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Speaker 1: weakest level since two thousand and three on the news,

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Speaker 1: while the peso fell to its lowest level in almost

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Speaker 1: three years. Mexico's President Claudia Scheinbaum says she will set

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Speaker 1: out her response later today and that she hopes a

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Speaker 1: resolution can be found quickly.

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Speaker 5: That little bit onion noise and will.

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Speaker 6: Sovereignty is not negotiable. To this end.

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Speaker 1: Yesterday in my statement, I proposed to President Trump that

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Speaker 1: we establish a working group. It is not with the

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Speaker 1: imposition of tariffs that the problems are resolved, but speaking

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Speaker 1: and dialoguing as we did Mexico's president. They're speaking through

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Speaker 1: a translator. The tariffs announced by Trump are due to

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Speaker 1: take effect first thing on Tuesday. According to Bloomberg Economics,

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Speaker 1: the new levies and retaliation by trade partners with tariffs

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Speaker 1: at the same level could shave one point two percent

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Speaker 1: off USGDP and to add around zero point seven percent

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Speaker 1: to core PCEE, which is the Federal Reserve's favored inflation gauge.

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Speaker 2: China's reaction to Trump's tariffs, which in the middle of

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Speaker 2: the Lunar New Year holiday celebrations, has been more muted.

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Speaker 2: The country's Commerce Ministry issued a statement expressing strong dissatisfaction

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Speaker 2: and vowing corresponding countermeasures without elaborating. Chetan Aya, who is

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Speaker 2: chief for Asia economist at Morgan Stanley, says that further

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Speaker 2: US measures against the country could come soon.

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Speaker 7: We are still keeping in our base case, additional twenty

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Speaker 7: five percent tariff going up on China and rated average

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Speaker 7: tariff increase will be fifteen percent because that is under

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Speaker 7: a separate channel under Section three zero one. So when

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Speaker 7: you think about all of these factors, we are very

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Speaker 7: concerned on the global trade outlook Asia's exports and therefore

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Speaker 7: implications of trade oriented economies in the region.

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Speaker 2: Morgan Stanley's chet and Aya speaking there Trump's levees are

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Speaker 2: due to take effect just after midnight on Tuesday. President

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Speaker 2: shi Jinping has a range of tools to respond, including

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Speaker 2: as certain powers granted by laws passed since Trump's first term,

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Speaker 2: giving Chinese authorities greatest way over domestic business deals in

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Speaker 2: the name of national security.

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Speaker 1: Meanwhile, Chinese manufacturing activity unexpectedly declined for a second straight

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Speaker 1: month in January as tariff's loom. According to a new report,

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Speaker 1: the Kaishan Manufacturing Purchasing Managers Index fell to fifty point one,

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Speaker 1: the lowest in four months, from fifty point five in December.

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Speaker 1: That's well below the median forecast of economists surveyed by Bloomberg.

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Speaker 1: The decline was attributed to a drop in employment, sluggish

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Speaker 1: external demand, and weak price levels.

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Speaker 2: After announcing a raft of levies on Canada, Mexico, and China.

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Speaker 2: Donald Trump has also ramped up threats to the European Union.

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Speaker 2: Speaking to reporters, the President reiterated his warning, citing a

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Speaker 2: large trade deficit with the block.

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Speaker 4: It will definitely happen with the European Union. I can

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Speaker 4: tell you that because it really taken advantage of it.

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Speaker 4: And you know, we have over three hundred billion dollar deficit.

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Speaker 4: They don't take our cars, they don't take our farm products,

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Speaker 4: they take almost nothing.

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Speaker 3: Can we take everything from them?

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Speaker 4: Millions of cars, tremendous amounts of food and farm products.

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Speaker 2: The remarks come after an EU spokesperson said on Friday

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Speaker 2: that quote, the EU would respond firmly to any trading

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Speaker 2: partner that unfairly or arbitrarily imposes tariffs on EU goods.

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Speaker 2: President Trump didn't specify a level or timeline for EU actions. However,

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Speaker 2: according to estimates from City Group strategists, tariffs of ten

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Speaker 2: percent on European goods would shay between one and two

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Speaker 2: percent of earnings per share.

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Speaker 1: The UK seems to be one of the few countries

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Speaker 1: to be spared Trump tariffs for now. Ministers have previously

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Speaker 1: said they don't believe the US will impose tariffs on

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Speaker 1: the UK as it does not have a trade deficit

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Speaker 1: with Britain. But the latest data shows the UK turned

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Speaker 1: its small goods deficit with the US into a surplus

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Speaker 1: in twenty twenty three. Here's what some of what President

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Speaker 1: Trump had to say.

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Speaker 3: Kay is adam line, but I'm sure that one. I

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Speaker 3: think that one can be worked out. Prime Minister Starmer

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Speaker 3: has been very nice. We've had a couple of meetings,

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Speaker 3: We've had numerous phone calls.

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Speaker 4: We're getting along very well and we'll see whether or

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Speaker 4: not we can balance out our budget.

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Speaker 1: Some of more of the comments from President Trump Ker Starmer. Meanwhile,

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Speaker 1: I was in Brussels today for an informal meeting of

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Speaker 1: the European Council and is expected to urge European leaders

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Speaker 1: to take on a greater share of defense and security responsibilities.

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Speaker 1: He'll also pitch an ambitious UK EU defense and security partnership.

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Speaker 2: Now, the rapid escalation in trade tensions has filled a

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Speaker 2: flight to haven assets as investors brace for the knock

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Speaker 2: on effect of Trump's moves. Yield on two year US

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Speaker 2: treasuries rose whilst the tariffs barked to global market sell off.

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Speaker 2: European and US DOT futures have slumped, and index of

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Speaker 2: Asia Pacific shares has dropped the most in nearly six months.

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Speaker 2: The tariff announcements also sparked a surge in the price

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Speaker 2: of US benchmark WTI oil, as levies on imports from

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Speaker 2: Canada and Mexico threatened to disrupt North America's tightly integrated

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Speaker 2: oil market and push up gasoline prices for American motorists.

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Speaker 1: Panama has promised free passage for US warships through the

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Speaker 1: Panama Canal and says it will withdraw from China's Belt

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Speaker 1: and Road initiative. The concessions to the US come after

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Speaker 1: a Secretary of State, Marco Rubio, visited the country over

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Speaker 1: the weekend.

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Speaker 8: Over time, it's the relationship had its ups and downs,

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Speaker 8: and today it's one of our strongest economic partners, certainly

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Speaker 8: in the hemisphere, and an important catalyst for so much

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Speaker 8: trade and commerce that happens in the United States that

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Speaker 8: affects and impacts so many people both going out and

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Speaker 8: coming in.

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Speaker 1: Marco Rubio, speaking on his first foreign trip as the

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Speaker 1: top US diplomat, Panama's President, Jose rol Molino, played down

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Speaker 1: the tensions with the US, but reiterated his country won't

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Speaker 1: give up the Panama Canal.

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Speaker 2: Those are our top stories for you this morning. A

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Speaker 2: look at the market shows you the impact of the

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Speaker 2: new US policies. MSCI Asia Pacific Index slumping two point

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Speaker 2: seven percent. STOP futures for Europe are also down two

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Speaker 2: point four percent, NOWS that features down two point four percent,

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Speaker 2: S and P five hundred EVENI futures down one point

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Speaker 2: nine percent. The dollar has surged against a basket of

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Speaker 2: other currencies. Been a big dollar A Spot indexes up

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Speaker 2: by one point one percent this morning. The Mexican pay

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Speaker 2: so one of the hardest hit currencies, down two point

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Speaker 2: two percent. You've also had the treasure yield to curve

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Speaker 2: flattening markets now pricing in only seventy percent chance of

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Speaker 2: two more FED rate cuts this year, and oil prices

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Speaker 2: also jumped. WI creed futures now up by one point

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Speaker 2: eight percent, so some fairly immediate responses in markets.

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Speaker 1: Well in a moment, more on Trump's tariffs and what

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Speaker 1: they mean for the various parts of the world where

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Speaker 1: he has threatened to impose them. But another story that

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Speaker 1: Potter I this morning to do with shoplifting and the huge,

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Speaker 1: huge effect that it's having on retailers around the world,

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Speaker 1: and the lengths to which some shop owners are going

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Speaker 1: to to try and combat us.

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Speaker 2: Yeah, were you surprised by the sheer scale of shoplisting

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Speaker 2: as it was outlined last week by the British Retail Consortium.

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Speaker 2: I think I was almost two billion pounds worth of

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Speaker 2: goods being such a stone in between September twenty two

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Speaker 2: and August twenty twenty three, a huge jump the British

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Speaker 2: Retail Consortium saying it's spiraling out of control. We've sort

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Speaker 2: of had a bit of this politically as well. But

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Speaker 2: blueboas Clara Hanan's Litha Raga has been writing about this

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Speaker 2: apparently a real boom in mystery shoplifting. Are you companies

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Speaker 2: that offer this service?

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Speaker 1: Waitit have a change from the mystery shopper he used

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Speaker 1: to commit the rat customer service.

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Speaker 2: Yeah, they come in and test, you know, whether your

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Speaker 2: security is good enough. But look, the other thing that's

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Speaker 2: interesting is not just the UK. It's not just the

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Speaker 2: UK having this shoplifting issue. You know, we've had this

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Speaker 2: cost of living pricis inflation has gone up and since

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Speaker 2: the pandemic. A number of countries have seen this issue. Anyway,

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Speaker 2: one of the pieces that we've read on the terminal today.

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Speaker 1: Well, let's go back to our main story today in

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Speaker 1: the tariffs that Donald Trump has threatened on Canada, Mexico

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Speaker 1: and China from tomorrow. He's also worn the tariffs on

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Speaker 1: the EU will definitely happen, that he'll be seeking something

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Speaker 1: very substantial. Trump do to speak to Claudia Scheinbaum and

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Speaker 1: Justin Trudeau today. We've got Blomberg TV anchor Crittie could

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Speaker 1: do with us for more on this these you know,

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Speaker 1: the deadline is counting down very quickly, CRITTI to where

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Speaker 1: we're expecting these tariffs. This is a major shift in

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Speaker 1: US policy towards Mexico and Canada.

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Speaker 6: This is a massive shift.

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Speaker 9: I mean, these are two of America's physically closest allies

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Speaker 9: and of course the biggest trade partners of the United States.

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Speaker 9: To the point that you were talking about within twenty

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Speaker 9: four hours, these massive tears getting here, and they're just

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Speaker 9: the opening salvo for both of these countries as well.

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Speaker 9: That's something that Donald Trump has made very clear that

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Speaker 9: if this border issue, this fentanyl issue, the drug trafficking

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Speaker 9: issue isn't brought under wraps, and also things like how

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Speaker 9: the Mexican government's going to deal with things like Cartel's

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Speaker 9: all of a sudden, you are going to see even

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Speaker 9: bigger tariffs on this at a time when Canada and

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Speaker 9: Mexico are far more exposed to the kind of downside

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Speaker 9: than the United States.

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Speaker 3: Is Yeah.

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Speaker 2: I mean, if you listen to Claudia Schambaum, you know

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Speaker 2: the speech that she gave to the country wich to Justine,

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Speaker 2: you can hear that there's real anger and frustration the

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Speaker 2: economic impact.

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Speaker 9: Yeah, well, Deutsche Bank, I'll start off as by saying

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Speaker 9: this some pretty important words this morning, saying that Canada

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Speaker 9: and Mexico go into recession in the matter of weeks

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Speaker 9: as a function of these tariffs, even though they have

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Speaker 9: the reciprocal tariffs as well. There is a larger cushion

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Speaker 9: within the United States, but that doesn't mean the US

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Speaker 9: consumer is by any means immune to the effects.

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Speaker 2: Here.

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Speaker 9: There are things like just goods in their everyday pocketbooks

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Speaker 9: that get affected.

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Speaker 6: Avocados, for example.

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Speaker 9: I read a stat that Medello beer is makes up

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Speaker 9: four out of five beers in the United States Tequila

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Speaker 9: those all come from Mexico. Car parts, lumber steal all

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Speaker 9: come from Canada, in addition to energy exports as well.

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Speaker 9: There's an estimate here this is going to hit consumers

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Speaker 9: by about a drop of nine hundred and thirty dollars

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Speaker 9: a year year for household incomes in just the next

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Speaker 9: twelve months alone. But even for the Federal Reserve inflation

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Speaker 9: estimates as high as three percent in the next twelve

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Speaker 9: months alone. That really goes far and above the progress

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Speaker 9: that the Federal Reserve has made in the last couple

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Speaker 9: of years, and certainly far and above the two percent

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Speaker 9: long term target.

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Speaker 1: Is there any hope for a de escalation before the

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Speaker 1: deadline passes?

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Speaker 6: There certainly hoped for it.

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Speaker 9: And I think if you go back and look at

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Speaker 9: the kind of spat with Columbia as a roadmap for

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Speaker 9: how this is going to go, is that within a week,

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Speaker 9: for example, in the Columbia story, they had a week

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Speaker 9: until the deadline was going to get hit.

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Speaker 6: They were able to use.

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Speaker 9: That as a negotiating tactic to really avoid some of

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Speaker 9: the effects on things like crude imports, for example, among

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Speaker 9: many many others.

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Speaker 6: This is a shorter timeframe.

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Speaker 9: We're talking about less than twenty four hours to go

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Speaker 9: before these tariffs actually kick in, so there may be

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Speaker 9: some negotiation. We know that Canadian and Mexican officials, despite

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Speaker 9: Justin Trudeau and Claudia Shinbaum's comments over the weekend, have

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Speaker 9: been trying to lobby in Washington, DC and have been

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Speaker 9: meeting with Trump officials, But we don't know what that

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Speaker 9: actually looks like or whether or not these terriffs at

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Speaker 9: the end of the day may be pulled out at

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Speaker 9: the eleventh hour.

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Speaker 2: What about China, we mentioned that the reaction there was

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Speaker 2: more muted. I mean, they have filed this wto case

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Speaker 2: and now in the middle of a holiday.

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Speaker 6: But interesting their vis bombs it is an interesting one.

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Speaker 9: It's also met with a little bit of an olive branch,

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Speaker 9: I thought, which was interesting, whereas Justin Trudeau and Mexico

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Speaker 9: President Claudia Scheinbaum came out and said, we're going to

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Speaker 9: do the exact same thing to you that you're doing

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Speaker 9: to us. China has been reported, and again these are

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Speaker 9: just reports at the moment, no official statements that perhaps

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Speaker 9: as a kind of alive branch the time of reinstating

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Speaker 9: the Phase one trade deal under the first Trump administration,

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Speaker 9: that includes things like quotas for farm imports for example.

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Speaker 6: Corn, soy, etc. That coming out of the Wall Street Journal.

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Speaker 9: So we'll see if that actually sticks or if that's

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Speaker 9: something that is appealing enough to Donald Trump. Remember, these

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Speaker 9: are the three countries connected with the fedsinal trade and

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Speaker 9: the immigration trade, and those things take time to solve.

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Speaker 5: Crazy.

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Speaker 1: Just a brief word on the market reaction, big moves,

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Speaker 1: particularly on FX.

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Speaker 9: Massive moves, the Canadian dollar tanking, the Mexican peso tanking.

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Speaker 9: This is really again on the ideas that you are

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Speaker 9: going to potentially see these two countries hit recession in

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Speaker 9: just a couple of weeks. This is where the focus

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Speaker 9: really shifts on the Bank of Mexico and the Bank

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Speaker 9: of Canada.

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Speaker 6: The Bank of Canada, by the way, due to have

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Speaker 6: a rate.

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Speaker 9: Decision this week, so we'll see how they can tackle

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Speaker 9: it and whether they can create a roadmap for other

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Speaker 9: countries around the world that may be about to go

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Speaker 9: through the same thing.

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Speaker 2: Yeah, the looney currently down one point three percent. CRITTI,

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Speaker 2: thank you so much for being with us this morning.

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Speaker 2: That is Bloomberg TV anchor Kritty Gupta.

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Speaker 1: Meanwhile, the European Union has promised to respond firmly to

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Speaker 1: any tariffs imposed by the United States. A spokesperson for

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Speaker 1: the EU Commission said they weren't aware of any additional

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Speaker 1: levies being imposed for now. Our correspondent Oliver Crook is

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Speaker 1: in Hamburg this morning, Germany's largest port and the third

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Speaker 1: largest in.

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Speaker 6: The EU, a key point for trade. Oliver, good morning.

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Speaker 1: How seriously will European leaders be taking these threats?

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Speaker 10: Yeah, I think they have no choice but to take

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Speaker 10: it extremely seriously, and frankly, I think they were taking

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Speaker 10: it pretty seriously even for these sort of a terrorists

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Speaker 10: were announced over the weekend. I mean, he's repeatedly taken

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Speaker 10: the EU into his sight, saying that basically the EU

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Speaker 10: takes greater advantage of the United States than even the

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Speaker 10: United States's enemies. But the problem is that the serverted

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Speaker 10: these European leaders. Everybody was being very very diplomatic. No

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Speaker 10: one wanted to talk retaliation. Nobody wanted to say anything

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Speaker 10: negative about Donald Trump. But we know that they've got

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Speaker 10: their list of retaliatory measures if this does come to pass.

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Speaker 10: He was sort of highlighting in the sort of speaking

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Speaker 10: over the weekend that you know, he's upset that the

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Speaker 10: europe doesn't take American cars, he says doesn't take farm products.

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Speaker 10: The question for European leaders is going to be what

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Speaker 10: does Donald Trump need from them in order to avoid

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Speaker 10: those terrorists?

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Speaker 5: Are they willing to do it?

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Speaker 10: What he has indicated in the past is more purchases

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Speaker 10: of fossil fuel imports from the United States. He wants

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Speaker 10: to see NATO spending go up to about five percent.

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Speaker 10: You know, no country in Europe is even close to that,

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Speaker 10: except for about Poland was about four point seven percent.

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Speaker 10: But presumably he also wants these European spending on defense

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Speaker 10: to be with US companies. He also probably wants this

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Speaker 10: elleng and this fossil fuel bought from the US.

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Speaker 5: Is that as do they have as much.

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Speaker 10: To export if they have these sort of tariffs with

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Speaker 10: Canada where their own sort of imports of FOSIP veels

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Speaker 10: are constricted. These are going to be some of the

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Speaker 10: fundamental questions going into these negotiations.

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Speaker 2: How important is the EU US trade relationship? Then who

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Speaker 2: loses more if there is a trade war?

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Speaker 10: Yeah, so it depends on how you look at it

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Speaker 10: from a sort of strictly goods perspective. The European Union

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Speaker 10: has a large surplus with the United States, and that

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Speaker 10: is basically what Donald Trump wants to address. And we

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Speaker 10: should just talk about the scale of trade here between

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Speaker 10: the EU and the United States. We're talking about one

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Speaker 10: point five trillion one point five trillion euros worth of

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Speaker 10: trade every single year. That is bigger than virtually every

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Speaker 10: single European economy on its own, apart from you know, Germany, UK,

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Speaker 10: France and Italy, and they are doing that trade with

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Speaker 10: about a three percent tariff. There is no free trade

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Speaker 10: agreement between these two blocks, so that is basically how

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Speaker 10: those goods are flowing back and forth. I mean, we've

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Speaker 10: had a lot of different estimates of what tariffs could

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Speaker 10: mean for the European economy. I mean, Golden Sacks a

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Speaker 10: while back said, you know, ten percent tariffs could mean

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Speaker 10: basically shaving off one percentage point of growth on European GDP.

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Speaker 5: But there's also the other side of the equation.

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Speaker 10: There's also services, it's not just goods, and there the

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Speaker 10: United States runs a surplus of about one hundred billion euros.

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Speaker 10: So again, are these different categories where you may be

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Speaker 10: able to exert some pressure. I mean, the one place

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Speaker 10: where the u US runs a good surplus is on energy,

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Speaker 10: and I think that that is very unlikely for the

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Speaker 10: Europeans to hit that because you cannot really try to

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Speaker 10: drive prices higher, particularly with the war going between Ukraine

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Speaker 10: and Russia and all of those imports from Russia being

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Speaker 10: basically canceled.

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Speaker 1: And indeed we're seeing the movements on oil markets just

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Speaker 1: one reflection of the energy story and the importance of

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Speaker 1: the US to that as well. WTI one point nine

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Speaker 1: percent higher this morning, Oliver. How might this play into

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Speaker 1: Germany's election campaign? We're less than three weeks away from

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Speaker 1: polling day there, and you know this is going to

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Speaker 1: be central to the economic future of Germany as.

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Speaker 5: Well, completely, Steve.

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Speaker 10: And there is no country that has hurt more in

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Speaker 10: Europe by a trade war with the United States than Germany,

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Speaker 10: hands down.

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Speaker 5: We talk about this budget of the trade surplus.

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Speaker 10: Of Europe with the United States, more than half of

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Speaker 10: that is due to the Germany. Germany has a trade

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Speaker 10: surplus with about eighty five billion euros with the United States,

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Speaker 10: and Germany has basically been de risking from China. The

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Speaker 10: US is now its single biggest trading partner. It is

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Speaker 10: hugely exposed and I mean you mentioned we're in Hamburg here.

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Speaker 10: This has been an operational port within Europe since eleven

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Speaker 10: eighty nine AD.

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Speaker 5: This is how long.

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Speaker 10: This has been absolutely central to trade within Europe.

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Speaker 5: And that has been the great wealth generator.

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Speaker 10: That is what has made the German economy so strong

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Speaker 10: for the last few decades.

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Speaker 5: Is basically globalization and an interconnected world.

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Speaker 10: If you start to see tariffs being erected, this could

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Speaker 10: reduce German exports to the United States by fifteen percent.

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Speaker 5: This is some research that EFO put out.

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Speaker 10: It could hit the automotive sector by more than thirty percent,

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Speaker 10: pharmaceuticals similarly thirty five percent. And what's really interesting is

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Speaker 10: that for these German companies like Mercedes Benz take them

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Speaker 10: for example, all of their SUVs, even that they sell

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Speaker 10: in Europe, these are built over in the United States.

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Speaker 10: So this is an economy that has been fundamentally designed

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Speaker 10: to basically rely on global trade and low trade barriers.

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Speaker 10: And this is coming at a time when we got

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Speaker 10: GDP last week out from Germany, another contry last year.

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Speaker 10: If you get tariffs, I can basically guarantee you you

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Speaker 10: will have a third year of contraction in the German economy.

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Speaker 10: That would mean three years consecutively of contraction that has

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Speaker 10: never happened since the Berlin wallfell in nineteen eighty nine.

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Speaker 10: So this is absolutely crucial for this election, which in

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Speaker 10: Germany has only gotten more and more chaotic and it's

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Speaker 10: hard to see someone coming out as a really strong winner.

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Speaker 10: But they're going to have to deal with this, and

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Speaker 10: this is going to be central to the election campaign.

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Speaker 1: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 6: I'm Caroline Hepka and.

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Speaker 1: I'm Stephen Carroll. Join us again tomorrow morning for all

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Speaker 1: on Bloomberg day Break Europe.