News of the week summary - 14/09/2025

US Pushes G7 to Target China and India Over Russian Oil

The United States has urged its G7 partners to impose steep tariffs on China and India for continuing to buy Russian oil, arguing that these purchases help finance Moscow’s war in Ukraine. Washington’s proposal calls for tariffs as high as 100 percent on Chinese and Indian imports, described as “secondary tariffs,” meaning penalties not on Russia itself but on third countries that support its energy trade. The US position is that without cutting this flow of money, Russia has little incentive to negotiate peace.

So far, China and India have been the largest buyers of Russian oil since Western nations restricted their own imports. By purchasing this crude, they provide Russia with a vital source of revenue that helps keep its economy afloat despite sanctions. Washington believes hitting these “enablers,” as it calls them, would squeeze the Kremlin financially. The Trump administration has already raised tariffs on some Indian and Chinese goods earlier this year, but European governments are more hesitant. The EU fears retaliation from Beijing, which is a crucial trade partner, and is also trying to finalize a trade deal with India.

Instead of blanket tariffs, the UK and some European officials are suggesting more targeted measures, such as sanctions against specific companies or ships involved in transporting Russian oil. London, for example, has already blacklisted 100 Russian oil tankers and related businesses.

Alongside the tariff push, the US also wants G7 countries to go further with Russian assets frozen abroad. Western governments immobilized hundreds of billions of dollars belonging to Russia’s central bank after the invasion. While the EU has agreed to use the profits generated from these frozen funds to support Ukraine, Washington wants to seize the assets themselves. Many European capitals resist this idea, citing legal uncertainties and the risk of undermining financial stability if sovereign assets are no longer seen as safe in Western banks.

If adopted, sweeping tariffs on China and India could reshape global trade. They would likely trigger retaliation and risk escalating into a broader trade war, particularly with China. At the same time, they would test Western unity: Washington is pressing for tough measures, while Europe remains cautious, balancing the desire to pressure Moscow with the need to protect its own economic interests.

ECB Holds Rates Steady Amid Trade Deal Uncertainty

The European Central Bank (ECB) left its main interest rate at 2 percent for a second meeting in a row, signaling caution as policymakers assess how the recent EU-US trade deal will affect the economy. This “wait-and-watch” stance follows eight consecutive rate cuts over the past year aimed at stimulating growth.

Interest rates are a key tool for central banks: lowering them makes borrowing cheaper, encouraging spending and investment, while raising them cools demand and helps control inflation. By holding rates steady, the ECB is pausing to evaluate whether further easing is necessary or whether it risks overheating the economy.

The new trade agreement between Brussels and Washington complicates the picture. The deal introduced 15 percent tariffs on most EU exports to the US, which could have two opposing effects. On one hand, tariffs make European goods more expensive abroad, hurting demand and slowing growth. On the other, tariffs push up prices, which could add to inflation inside the eurozone. This split explains why ECB officials disagree: some see the deal as inflationary, others as a drag on both growth and prices.

Recent data underline the dilemma. Eurozone growth remains weak, at just 0.1 percent in the second quarter, but inflation has ticked slightly above target at 2.1 percent in August. Markets currently see only a modest chance of further rate cuts this year. Meanwhile, the ECB raised its growth forecast for 2024 from 0.9 to 1.2 percent, reflecting slightly improved prospects, while projecting inflation to remain below target in the longer run, at 1.7 percent by 2026.

US Inflation Edges Higher as Fed Faces Weakening Job Market

US inflation rose to 2.9 percent in August, slightly above July’s 2.7 percent and in line with forecasts, highlighting the Federal Reserve’s difficult balancing act ahead of its interest rate decision next week. Inflation refers to the general increase in consumer prices over time, and at 2.9 percent it remains above the Fed’s 2 percent target.

Core inflation, which excludes volatile categories like food and energy to give a clearer view of underlying price pressures, held steady at 3.1 percent. This suggests that while tariffs introduced by President Donald Trump are nudging prices upward, they have not caused a sharp acceleration.

The real concern is the labor market. Weekly jobless claims, a measure of how many people are newly filing for unemployment benefits, climbed to 263,000, the highest since October 2021. Job growth is also losing momentum: only 22,000 new positions were added in August, and earlier data was revised down by nearly a million jobs, pointing to a softer employment picture stretching back through 2024. A weaker labor market usually reduces consumer demand, which in turn cools inflation, but it also signals slower economic growth.

Markets widely expect the Fed to cut rates by a quarter of a percentage point in September, with traders betting on additional easing later in the year. Lowering interest rates makes borrowing cheaper for households and businesses, aiming to support spending and investment. However, cutting too aggressively could reignite inflation if price pressures remain sticky.

Bond markets reflected this delicate balance. The yield on the two-year Treasury note, which closely tracks Fed policy expectations, dipped slightly, signaling investor anticipation of rate cuts.

The Fed has already lowered rates by a full percentage point last year but has held them steady in a range of 4.25–4.5 percent since. With inflation proving persistent but the jobs market clearly cooling, Chair Jay Powell has hinted that September’s decision will prioritize supporting employment, even if it means tolerating modestly higher inflation in the short run.

Mexico Slaps 50% Tariff on Chinese Cars to Protect US Trade Deal

Mexico has announced a steep 50 percent tariff on Chinese-made cars, more than doubling the current rate, in a move widely seen as an effort to align with US pressure and safeguard its privileged access to American markets. The decision is significant because Mexico is currently the world’s largest buyer of Chinese cars, ahead of the UAE and Russia, making this tariff a major setback for Beijing.

The measure is part of a broader package of tariffs covering around 1,400 products, from textiles to steel, that applies to countries without a free trade deal with Mexico. Cars stand out as the most important target. The new levy represents the maximum Mexico can impose under World Trade Organization rules, underscoring how central US concerns were in shaping the policy.

At the heart of the issue is North America’s free trade pact, which binds the US, Mexico, and Canada into a 500-million-person trade bloc covering roughly a third of global GDP. Mexico sends nearly 90 percent of its exports to the US tariff-free, a benefit President Claudia Sheinbaum is determined to preserve ahead of the deal’s scheduled review next year. Washington has repeatedly accused China of using Mexico as a “back door” to funnel goods into the US and bypass high American tariffs. By raising duties on Chinese imports, Sheinbaum aims to remove a key source of friction with Washington.

Domestically, the government has framed the tariff as part of its “Plan Mexico” strategy to boost local production and reduce reliance on imports. While the move will likely generate some additional tax revenue, economists warn it comes at a cost: higher import prices will feed through into inflation, squeezing consumers and manufacturers who rely on competitively priced inputs.

The decision reflects Mexico’s delicate balancing act. On one side, it must prioritize its trade relationship with the US, its most important economic partner. On the other, it cannot afford to fully alienate China, which remains a growing source of investment and has political support within Sheinbaum’s coalition. For now, however, securing US goodwill appears to outweigh the risks of higher costs and potential frictions with Beijing.

China Slips Back Into Deflation as Export Growth Weakens

China’s economy showed fresh signs of strain in August as consumer prices fell back into deflation, raising concerns about faltering momentum in the world’s second-largest economy. The consumer price index (CPI) dropped 0.4 percent year-on-year, sharper than expected and a reversal from July’s flat reading. Deflation means prices are falling rather than rising, a signal that demand in the economy is too weak to sustain growth.

At the same time, producer prices — what factories charge for goods leaving the factory gate — also remained negative, down 2.9 percent from a year earlier. Although this was a smaller decline than July’s 3.6 percent fall, it marked the 35th straight month of producer deflation, reflecting persistent overcapacity in manufacturing and weak demand both at home and abroad.

One driver of this weakness is slowing exports. China’s overseas shipments grew at their slowest pace in six months in August as the trade war with the US took a toll. For years, strong exports have helped Beijing offset sluggish domestic consumption and a struggling property sector. But with foreign markets resisting Chinese goods and households still cautious about spending, the government faces a narrowing path to sustain its 5 percent growth target.

Beijing has responded with measures to boost consumption, such as subsidies for replacing old appliances and partial interest coverage on consumer loans. It is also pushing its so-called “anti-involution” campaign, encouraging industries to reduce excess production and avoid destructive competition that drives down prices. However, research groups warn that these policies risk discouraging investment and slowing growth further, and so far, they have done little to lift prices.

Still, there are glimmers of resilience. Core CPI, which excludes volatile food and energy, rose 0.9 percent year-on-year in August, marking four consecutive months of increases. Producer prices also stopped falling month-on-month for the first time in eight months, hinting at stabilization.

Overall, the data highlight the dual challenge Beijing faces: reviving domestic demand without adding to already heavy industrial overcapacity, while managing the drag from trade tensions with Washington. Falling prices may benefit consumers in the short term, but prolonged deflation risks eroding company profits, reducing investment, and entrenching economic stagnation.

US Jobs Data Revised Sharply Down, Pointing to Labor Market Weakness

The US labor market looks weaker than previously thought after the Bureau of Labor Statistics (BLS) cut its estimate of job growth in the year to March 2025 by 911,000. The revision, the largest on record, effectively halved the previously reported gain of 1.8 million jobs, suggesting that the employment slowdown began earlier and was more severe than monthly data indicated.

This adjustment matters because jobs data are central to understanding the health of the economy. The BLS initially bases its monthly reports on business surveys, but once tax records from employers are available, it recalculates the figures. Such revisions are routine, but the size of this one is exceptional. Economists pointed to flaws in the so-called “birth-death model,” which estimates jobs created by new companies and lost from closures, as a likely cause of the overstatement.

The findings reinforce signs that the labor market cooled significantly in 2024, the final stretch of Joe Biden’s presidency, raising questions about the resilience of the post-pandemic recovery. For President Donald Trump, who has faced criticism that his tariff and immigration policies are undermining growth, the new numbers provide political ammunition. His administration quickly seized on the report to argue that the Biden-era economy was far weaker than advertised.

Economically, the revision adds weight to calls for the Federal Reserve to cut interest rates. A softer labor market implies less upward pressure on wages and inflation, giving the central bank more room to ease borrowing costs without stoking price growth. With inflation still running above target but trending modestly lower, the Fed now faces even stronger pressure to support a cooling economy.

The scale of the adjustment also raises concerns about the reliability of official data, which investors, policymakers, and businesses rely on for decisions. While revisions are normal, the magnitude of this one has few precedents and will spark debate about how accurately job growth has been captured in real time. Ultimately, the downgrade underscores that the US economy may have entered 2025 on a weaker footing than many had believed.

Indonesia’s Markets Slide After Finance Minister Ousted

Indonesia’s financial markets fell sharply after President Prabowo Subianto dismissed long-serving finance minister Sri Mulyani Indrawati, raising doubts about the government’s commitment to fiscal discipline. The Jakarta stock index dropped 1.8 percent and the rupiah weakened 1 percent to 16,470 per dollar, reflecting investor concerns that Prabowo could loosen spending limits and expand debt.

Sri Mulyani, respected internationally for her credibility and prudence, had been a central figure in maintaining Indonesia’s fiscal rule that caps the budget deficit at 3 percent of GDP. This limit, introduced after the Asian financial crisis, has been crucial in helping the country retain its investment-grade credit rating and attract foreign capital. Her removal is seen as a turning point, given Prabowo’s populist agenda and previous remarks questioning the need for strict deficit rules.

The new finance minister, Purbaya Yudhi Sadewa, is an experienced economist who has pledged to keep fiscal policy stable while supporting growth. Still, his appointment comes at a turbulent time. Prabowo has already launched costly social programs, including free meals for all schoolchildren, with an annual price tag of $28 billion. To fund this, his government has cut budgets for infrastructure and education, sparking public anger and widespread protests that even led to the looting of Sri Mulyani’s home.

Investors fear a shift toward looser fiscal policy as Prabowo tries to address rising inequality and weak job creation with more welfare and stimulus measures. Economists warn this could widen deficits, raise borrowing costs, and risk Indonesia’s hard-earned fiscal credibility.

In the near term, markets are likely to remain volatile until Purbaya demonstrates that he can balance Prabowo’s expansionary goals with the discipline needed to keep debt sustainable. While his appointment may reassure some once his policies become clearer, Sri Mulyani’s exit has underlined the fragility of investor confidence in Indonesia’s economic path.