The Weekly Echo (04/02/25)

Welcome back to The Weekly Echo, we’ve made it through the first month of 2025! 🎉 We hope the year is off to a great start for you, and as always, we’re here to keep you informed on the biggest global economic stories shaping the world.

This week, President Trump’s sweeping new tariffs have sent shockwaves through economies worldwide. As countries scramble to respond, stock markets have plunged, currencies have fluctuated, and European industries are bracing for impact. Meanwhile, the UK retail sector is facing mounting challenges, with major high-street chains announcing store closures amid economic uncertainty.

1. Trump’s Tariffs: A Trade War Reignited?

President Trump has announced a fresh wave of tariffs on imports from Canada, Mexico, and China, sending shockwaves through global trade. The new measures include:

• 25% tariffs on imports from Canada and Mexico

• 10% tariffs on Chinese goods

A tariff is essentially a tax on imported goods. When a country imposes tariffs, it makes foreign products more expensive. This is often done to protect domestic industries from cheaper international competition, encouraging consumers to buy locally produced goods instead. However, there’s a catch—higher import costs often get passed down to businesses and consumers, leading to increased prices.

Why Is Trump Doing This?

The main justification for these tariffs is to reduce the U.S. trade deficit (the difference between what the U.S. imports and exports). In theory, making foreign goods more expensive should push American consumers and businesses to buy more domestically produced products, strengthening the local economy.

However, trade history tells us that tariffs don’t always go as planned. Countries affected by them typically retaliate with their own tariffs, making exports more expensive and limiting global trade. Canada, Mexico, and China have already signalled potential countermeasures, raising fears of a full-blown trade war like the one sparked by Trump’s previous tariff hikes in 2018.

What Does This Mean for the Global Economy?

Tariffs aren’t just political tools; they affect global supply chains, investment decisions, and overall economic growth. The last major round of U.S. tariffs under Trump led to:

• Higher consumer prices as businesses passed increased import costs onto shoppers.

• Supply chain disruptions as companies scrambled to find alternative suppliers.

• Market volatility with businesses delaying investment decisions due to uncertainty.

• Weaker global growth, as trade tensions between the U.S. and China slowed business activity worldwide.

If history repeats itself, these tariffs could increase inflationary pressures at a time when many economies are still recovering from recent downturns. More expensive imports mean higher costs for companies, increasing prices for consumers. If inflation rises again, central banks may be forced to keep interest rates higher for longer, making borrowing more expensive and slowing down economic activity.

With retaliation from key trading partners on the horizon, the real question is: Are we heading toward another global trade war? The coming weeks will determine whether this is a short-term political play or the beginning of a prolonged economic battle.

2. Governments and Markets React: Tariffs Set Off Currency and Policy Shifts

The fallout from Trump’s new tariffs has gone beyond stock market jitters, already reshaping currency markets and government policies, as countries prepare for economic retaliation.

Currency Reactions: A Global Adjustment

• China’s Response: Beijing has signaled counter-tariffs on key U.S. exports, particularly agricultural goods and technology, two sectors heavily reliant on Chinese demand. In response, the Chinese yuan weakened against the U.S. dollar. A weaker yuan makes Chinese exports cheaper on global markets, partially offsetting the impact of Trump’s tariffs by making their products more competitive internationally. If China can pick up some of the declining global demand for US products caused by counter-tariffs, they could potentially benefit from the trade war.

• Mexico & Canada: Both countries have strongly condemned the tariffs and are exploring retaliatory measures. The Mexican peso and Canadian dollar both fell against the U.S. dollar as investors worried about trade disruptions between North America’s closely linked economies. A weaker currency can help boost exports by making products cheaper abroad, but it also increases the cost of imports, which could fuel inflation in these countries.

• U.S. Dollar Strengthens: As uncertainty grows, investors have flocked to the U.S. dollar, seen as a "safe haven" asset. A stronger dollar makes American exports more expensive for foreign buyers, potentially worsening the trade deficit that Trump is trying to reduce in the first place.

What Does This Mean for Interest Rates?

Central banks are watching closely. If tariffs slow economic growth, policymakers might consider cutting interest rates to stimulate borrowing and spending. However, if inflation rises due to higher import costs, central banks could be forced to keep rates higher for longer, making credit more expensive for businesses and consumers.

The coming weeks will be a critical test of how aggressively countries retaliate and whether economic policymakers will need to intervene. With major trade partners already hinting at countermeasures, the risk of an extended economic conflict is growing.

3. UK Retail Faces a Crisis: Store Closures and Shifting Consumer Habits

The UK high street is under immense pressure, with multiple major retailers announcing store closures in February as they struggle to navigate economic challenges:

• WHSmith is shutting down several locations, including Bournemouth, Luton, and Basingstoke.

• Sainsbury’s is closing all remaining in-store cafés.

• Homebase is shutting 13 stores due to falling demand.

Why Is This Happening?

The decline of physical retail isn’t new, but the combination of economic pressures and changing shopping habits has accelerated the trend.

• The Rise of Online Shopping: More consumers are opting for e-commerce, reducing foot traffic in physical stores. Convenience, competitive pricing, and fast delivery have made online retailers a dominant force.

• Rising Business Costs: High rents, increased wages, and soaring energy prices are making it harder for brick-and-mortar stores to stay profitable.

• The Cost-of-Living Squeeze: With inflation still eating into household budgets, consumers are cutting back on discretionary spending, impacting retail sales.

The Bigger Picture

Retail is a crucial part of the UK economy, employing millions of people and supporting supply chains across manufacturing, logistics, and commercial property. Store closures don’t just affect retailers, they ripple across industries, impacting landlords, suppliers, and local communities that rely on these businesses.

Some retailers, like Primark and Holland & Barrett, are still expanding, but the broader trend suggests that brick-and-mortar stores must evolve, or risk further decline. The future of the UK high street may depend on businesses finding new ways to integrate digital innovation, in-store experiences, and cost efficiencies to stay competitive in a rapidly changing landscape.

4. European Markets Sink as Trade War Fears Mount

The U.S. isn’t the only place feeling the impact of Trump’s tariffs. European markets have taken a major hit, logging their biggest single-day drop in over a month. The reasons?

• Fears of a global slowdown: With higher tariffs disrupting supply chains, businesses are scaling back growth expectations.

• Weak demand in key industries: Automakers and consumer goods companies highly dependent on global trade are struggling.

• Sticky inflation: Rising costs have made central banks hesitant to lower interest rates, limiting options for economic stimulus.

Who’s Feeling the Pain?

The STOXX 600 index, which tracks the largest companies in Europe, fell sharply. Some of the hardest-hit businesses include German and French car manufacturers, which rely on exporting vehicles to the U.S. and China for a huge portion of their revenues. With these two economies now caught in a trade standoff and the EU also involved, fears of large demand shortages are rising. If tariffs slow global trade, demand for European exports could drop sharply due to higher costs relative to domestic alternatives, further squeezing these industries.

A Tough Time for Europe’s Economy

This downturn couldn’t have come at a worse time. Europe has been struggling with slow economic growth for months, as weak global demand and inflation pressures limit recovery. If trade tensions escalate further, European businesses could face even tougher conditions, potentially forcing central banks to reassess their stance on interest rates.

With the global economy at a crossroads, investors will be watching closely to see if further trade escalations push Europe into deeper economic uncertainty.

Conclusion

This week's headlines highlight how interconnected the global economy is, from Trump’s trade war to a struggling UK retail sector and European stock market turmoil. A single policy shift in a major economy can ripple across industries, countries, and financial markets, creating uncertainty everywhere.

As always, The Weekly Echo is here to simplify the biggest economic stories and keep you informed. We’d love to hear your thoughts - whether it’s feedback, a topic suggestion, or just a discussion, please get in touch. If you found this edition valuable, feel free to share it with friends or colleagues who might enjoy it too. Your support means the world to us!

Best wishes,
Harry & Reika
Co-Founders, Echonomics