News of the week summary - 25/05/2025

Trump's threatens 50% tariff on the EU

Donald Trump has reignited transatlantic trade tensions by announcing plans to impose a sweeping 50% tariff on European Union exports starting in June. The former president cited stalled negotiations with EU officials as the reason behind the escalation, framing the move as necessary leverage to force faster progress in trade talks. However, this sudden and aggressive approach has rattled both European policymakers and global markets, which had just begun to stabilize after recent improvements in U.S.-China trade relations.

Trump’s latest tariff proposal marks a significant escalation from earlier suggestions of lower duties. According to economists, this could have far-reaching consequences for Europe’s largest economies, Germany in particular, which faces an estimated 1.7% GDP loss over the next three years if the tariffs are enacted. Export-heavy sectors like automobiles and machinery could be hit hardest, with broader consequences for employment and industrial investment.

Market reaction was swift. European equities declined, and U.S. indices also dipped, reflecting investors’ renewed concerns over trade uncertainty. The European Union, caught off guard by the announcement despite recent amicable exchanges at global finance summits, now faces the difficult choice between retaliating with tariffs of its own or seeking compromise under pressure.

The rhetoric is not confined to Europe. Trump has also threatened to slap a 25% import tax on Apple products assembled overseas, a move that could disrupt global technology supply chains and add inflationary pressures. Federal Reserve officials have already voiced concern, warning that such abrupt policy shifts pose serious risks to logistics networks and price stability.

The return of hardline trade tactics raises broader questions about economic nationalism and the role of the U.S. in global trade governance. Should these tariffs move forward, they would not only disrupt commerce but also test the resilience of transatlantic alliances, shifting the landscape of international trade in unpredictable ways.

US fiscal health under scrutiny amid tax cut push

The United States is facing renewed international pressure to rein in its growing fiscal deficit, as concerns mount over the long-term impact of Donald Trump’s proposed extension of major tax cuts. The International Monetary Fund (IMF) has warned that America's debt trajectory is unsustainable, calling on the country to adopt more disciplined budget policies before the situation worsens further.

Gita Gopinath, the IMF’s first deputy managing director, made the fund’s concerns explicit, stating that current U.S. budget deficits are “too large” and must be reduced. Her remarks follow a recent downgrade of the U.S. credit rating by Moody’s, which cited deteriorating debt dynamics and political gridlock as key reasons for stripping the country of its prized AAA rating. Investors have echoed these concerns, leading to a weakening dollar and rising yields in the Treasury market, a signal that the cost of U.S. borrowing is increasing.

Trump’s economic team argues that tax cuts, if made permanent, will boost growth enough to compensate for the initial loss in revenue. This claim, however, is not widely accepted among economists or credit agencies. Moody’s estimates that if Trump's proposed tax plan becomes law, it could push the federal deficit to 9% of GDP by 2035, up from 6.4% last year. That kind of fiscal gap implies the government will need to borrow significantly more, raising the risk of higher interest rates and potential instability in debt markets.

While the U.S. Treasury Secretary has blamed the deficit on prior Democratic spending and insists the administration can shrink it to 3% by the end of Trump’s term, markets are showing signs of doubt. On Monday, the yield on 30-year U.S. Treasury bonds climbed to over 5%, its highest level since 2023. Yields rise when bond prices fall, typically a sign that investors are demanding higher returns to compensate for increased risk.

Beyond debt concerns, the IMF also flagged that the U.S. still faces heightened trade policy uncertainty, despite recent tariff rollbacks. This lingering unpredictability continues to weigh on business investment and global confidence in U.S. economic policy. In April, the IMF revised down its growth forecast for the U.S. to 1.8% in 2025, partly due to anticipated economic damage from Trump’s previous tariff plans, even though some of those duties have since been softened.

Therefore, the debate over extending tax cuts is more than just a political issue; it cuts to the heart of America's fiscal credibility. With markets jittery and international institutions issuing red flags, the U.S. may soon be forced to reckon with the cost of prioritizing short-term stimulus over long-term financial sustainability.

UK and EU forge landmark post-Brexit trade reset

Prime Minister Keir Starmer has unveiled a sweeping new agreement with Brussels aimed at revamping trade and security ties, a move he claims could inject £9 billion into the British economy. However, the deal has sparked political controversy, particularly over a major concession that grants European fishing fleets access to UK waters for another 12 years.

Announced at a high-profile summit in London, the first such event since Britain formally exited the EU in 2020, the deal includes a wide-ranging security and defence partnership, the streamlining of energy trading, and a proposed veterinary framework to ease exports of British agricultural goods into the EU.

European Commission President Ursula von der Leyen called the deal “historic,” framing it as a fresh chapter in the two sides’ complex post-Brexit relationship. Starmer, meanwhile, emphasized the practical nature of the agreement, declaring it a "common-sense reset" designed to move beyond the entrenched Brexit battles of the past.

While the overall agreement has been welcomed in economic circles, Starmer is facing a backlash at home over the fisheries component. Critics accused the government of “surrendering” UK sovereignty by granting long-term fishing access to EU vessels. Nigel Farage, leader of Reform UK, went further, labeling the agreement “a betrayal of British interests,” particularly for domestic industries.

Yet, ministers have defended the trade-off, noting that while fishing is politically sensitive, it represents only 0.04% of the UK’s GDP. In contrast, food and drink exports, worth £14 billion last year, stand to gain significantly from the new veterinary alignment, which will allow smoother access to EU markets by harmonizing food safety standards.

The agreement also involves the UK accepting evolving EU food and animal health regulations, and contributing financially to European efforts in those areas. Business Secretary Jonathan Reynolds stressed that this alignment would be beneficial even to the fisheries sector by simplifying export requirements.

Despite progress on trade and security, one area where the two sides remain divided is youth mobility. The summit concluded with only a vague commitment to explore a future mobility scheme, with Starmer insisting any such initiative would be temporary and subject to strict limits.

Von der Leyen and Starmer framed the agreement as a constructive response to a more uncertain global landscape, with rising tensions in US-EU relations and increasing instability in regions like Ukraine. As a result, the deal is being interpreted not just as a trade pact, but as a political realignment in the face of evolving international challenges.

EU targets Chinese e-commerce with new import fee

The European Union is preparing to introduce a handling charge on incoming small parcels, targeting the rapid rise of budget online shopping platforms like Shein and Temu. The measure is aimed at addressing mounting logistical strain and ensuring a level playing field for European retailers.

Under the new proposal, a flat €2 charge would be imposed on packages shipped directly to consumers from outside the EU, a move that would disproportionately affect China-based e-commerce giants. For bulk deliveries sent to warehouses within the EU, the fee would be reduced to €0.50, encouraging retailers to shift toward consolidated shipping methods that allow for easier inspection and regulatory compliance.

EU Trade Commissioner Maroš Šefčovič announced the plan to the European Parliament, describing it as a necessary response to the overwhelming surge in small parcel imports. Last year alone, more than 4.6 billion such packages were delivered directly to homes across the EU, over 90% of which originated from China.

“This is not a tax,” Šefčovič emphasized, “but a practical measure to recover the cost of customs processing. Our systems weren’t designed to handle this volume of individual shipments.” Customs authorities in countries like the Netherlands and Belgium, which serve as major entry points, have reported processing over a billion parcels each in the past year.

The plan mirrors recent moves in the U.S., where President Trump eliminated the "de minimis" exemption for imports under $800, citing concerns over safety, market fairness, and enforcement challenges. Brussels is now planning to scrap its own exemption for goods valued under €150, a shift that would require foreign sellers to register for VAT and assume responsibility for product standards.

Critics argue that a flood of ultra-low-cost goods has overwhelmed inspection systems, allowing potentially unsafe or non-compliant items to slip through the cracks. European retailers have also accused online platforms of exploiting loopholes to undercut prices unfairly. While the fee is expected to generate only modest revenue, EU officials say the broader goal is to restore regulatory control and fairer trade dynamics. 

Temu recently halted shipments of low-cost goods to the U.S. in response to Washington's new trade restrictions, and Shein has reportedly delayed its planned London IPO due to regulatory restructuring in its American operations.

Member states are expected to incorporate the handling fee into a wider reform of customs procedures later this year. That overhaul will seek to boost coordination among EU countries and modernize the bloc’s import enforcement capabilities in the digital retail era.

Chinese investment in Europe rebounds 

After nearly a decade of decline, Chinese direct investment in Europe saw a sharp rebound in 2024, largely due to a wave of greenfield projects in Hungary’s fast-growing electric vehicle and battery sectors. However, the uptick comes against a backdrop of increasing political scrutiny and shifting geopolitical dynamics across the EU.

New figures from the Mercator Institute for China Studies and consultancy Rhodium Group reveal that combined Chinese investment in the EU and the UK rose 47% year-on-year to €10 billion. Despite this growth, the total remains a fraction of 2016’s peak levels and is heavily driven by a small number of Chinese giants, such as CATL, Envision, Tencent, and Geely.

While traditional targets like Germany, France, and the UK saw waning interest, Hungary captured nearly a third of all Chinese investment in the region last year. It marked the second consecutive year the country topped the leaderboard, buoyed by headline projects like CATL’s €7.5 billion battery factory in Debrecen and BYD’s upcoming €5 billion EV facility in Szeged.

This resurgence comes as Chinese businesses shift from high-profile acquisitions to greenfield expansions, building new operations from the ground up, as tighter EU regulations and geopolitical strains make mergers and takeovers more complex. Hungary, led by Prime Minister Viktor Orbán, remains a rare EU ally for China, actively welcoming foreign capital to counter sluggish domestic economic growth.

Meanwhile, political resistance in Western Europe has grown. The UK, France, and Germany, which together once attracted over half of all Chinese investment into Europe, now account for only 20%. Several major projects have been shelved, such as Svolt’s €4.2 billion battery plant plans in Germany.

Adding to the headwinds, EU-imposed tariffs of up to 45% on Chinese EV imports have pushed carmakers like BYD to prioritize local production inside the bloc. Yet, new investment announcements in this space fell dramatically, down 79% compared to 2022–2023, according to the same study.

While most new money is now going into manufacturing and infrastructure, some limited M&A activity persists. For instance, Chinese tech conglomerate Tencent completed a €1.5 billion acquisition of Polish video game developer Techland. However, as China’s domestic research and development capabilities improve, the incentive to acquire foreign technology assets has weakened, making such deals less frequent.

Regulatory scrutiny remains high, particularly for investments in sensitive industries like renewable energy. The European Commission is already conducting a preliminary investigation into foreign subsidies at BYD’s Hungarian site, which could cool investor enthusiasm further.

Still, analysts say there may be room for diplomatic recalibration. With EU member states wary of alienating both Beijing and Washington at the same time, and China extending conciliatory gestures toward Brussels, there could be a brief pause in escalating trade tensions—though the long-term outlook remains complex.