News of the week summary - 27/07/2025
US and EU reach trade deal
The United States and European Union have reached a broad trade agreement that imposes a 15% tariff on EU goods while securing large-scale purchases of American energy and military equipment. Announced after a brief meeting between President Donald Trump and European Commission President Ursula von der Leyen, the deal is designed to prevent a full-blown trade conflict across the Atlantic, which both sides had sought to avoid.
The agreement comes after months of intense negotiation. Trump framed the EU-U.S. trade relationship as “unfair” to America, highlighting the EU’s €200 billion goods surplus with the U.S. last year. As part of the deal, the EU will invest $600 billion in the U.S., buy an additional $750 billion in energy products, and purchase hundreds of billions of dollars’ worth of military equipment. In exchange, the U.S. will reduce its threat of higher tariffs, with a 15% rate applied to EU imports, including automobiles. Certain sectors, such as steel and aluminum, remain exempt for now.
While the deal represents a tactical victory for the U.S., it leaves open questions about future tariffs on sensitive industries like semiconductors, aerospace, and pharmaceuticals. Previous threats from Washington, including 30% tariffs if no agreement was reached, had pushed the EU to prepare retaliatory measures against $92 billion of U.S. exports. The final arrangement illustrates how strategic leverage and the threat of tariffs continue to shape international trade negotiations.
Economically, the deal is significant because it rebalances trade flows while avoiding the immediate disruptions of escalating tariffs, which can increase costs for consumers and producers on both sides. At the same time, the large-scale U.S. energy and defense purchases may stimulate American exports and support related domestic industries, even as uncertainties linger over future tariff policies.
Tensions surface in US-Japan trade agreement
A trade deal announced this week between Washington and Tokyo, initially presented as a diplomatic success, is already showing signs of strain. The core dispute revolves around how profits from joint investments will be shared. US officials claimed that American taxpayers would secure 90% of returns from Japanese-backed investments in key US sectors such as semiconductors, shipbuilding, and critical minerals. Tokyo, however, quickly pushed back, clarifying that profit-sharing would be proportional to each side’s financial contribution and the risks they assume.
The confusion highlights how hastily the agreement was put together. Negotiations lasted barely over an hour between Japan’s chief negotiator Ryosei Akazawa and Donald Trump, who was eager to clinch a deal after Japan’s ruling coalition lost its majority in the upper house of parliament. Analysts suggest Trump may have wanted to finalize an agreement before Japanese leadership became more uncertain.
For Japan, the concessions were notable but relatively contained. It accepted a reduction of US tariffs on automobiles from a threatened 25% to 15%, allowed US cars into its market without additional safety tests, and signaled reforms to subsidies favoring hydrogen fuel-cell vehicles over electric cars. It also agreed to buy more US rice, though existing import quotas remain untouched. Importantly, Tokyo emphasized that the much-publicized $550 billion in investments should not be seen as a fixed commitment, but rather as a ceiling including financing and loan guarantees.
The deal leaves many questions unresolved, particularly given the absence of a formal written agreement. For Japan, the outcome seems advantageous: it secured relief on tariffs at limited cost, and by framing its investment promises ambiguously, it avoided firm obligations. For the US, the rhetoric of “90% profits” risks creating expectations that may never materialize. As observers point out, the pact’s vagueness means it could serve more as political theater than an enforceable trade framework.
Russia cuts rates as war economy shows signs of strain
Russia’s central bank reduced its benchmark interest rate by two percentage points to 18%, its second cut in as many months, as slowing growth and easing inflation give policymakers room to act. Only last October, the rate had peaked at 21%, an exceptionally high level aimed at containing inflation that had surged into double digits.
The Russian economy, which proved surprisingly resilient to Western sanctions in 2023 and 2024 thanks to buoyant oil exports and massive wartime government spending, is now losing momentum. Inflation has eased to 9.4% in July, down from double-digit rates earlier in the year. The central bank said consumer prices were cooling faster than expected, while domestic demand was weakening, allowing it to bring rates lower without immediately reigniting inflationary pressures. Its official target remains 4% inflation by 2026.
For Russian businesses, borrowing costs have been prohibitively high, leading to mounting complaints from corporations and even other government agencies. Reports suggest a rise in non-performing loans (loans on which borrowers stop making payments) which could weigh on banks if tight monetary conditions persist. Economists warn that the pace of future rate cuts will be crucial: easing too slowly could worsen strains in the banking sector, while easing too quickly risks fueling a resurgence in inflation.
Although some analysts expect the central bank to continue lowering rates through the autumn, the situation remains precarious. Russia’s heavy wartime expenditures, especially if sustained or intensified, could once again stoke inflation. As one analyst put it, the war effort itself remains the biggest wild card for Russia’s economic trajectory.