Welcome back to The Weekly Echo. With the UK just coming off a four-day bank holiday weekend, it’s been a quieter week for fresh economic developments. But even in slower weeks, the big trends never stop moving.

In this edition, we’re catching up on the latest in the U.S.-China economic standoff, where tensions continue to build. China has begun quietly pulling back its investments in the U.S., particularly in private equity and government bonds, raising eyebrows across financial markets. We’re also covering the IMF’s updated global growth forecast for 2025, which has been revised down as policymakers grapple with inflation, trade fragmentation, and tighter financial conditions.

Let’s get into it.

China Threatens Retaliation as U.S. Trade Talks Go Global

What started as a direct confrontation between the U.S. and China is now expanding into a broader geopolitical contest, with Beijing warning the rest of the world not to pick sides.

Following Trump’s surprise delay of universal tariffs (originally set to apply to all countries except China), the White House has pivoted to what it's calling the “90 Trade Deals in 90 Days” campaign, a strategy seemingly aimed at isolating China economically through building a web of bilateral trade agreements, agreements between 2 countries. To entice nations to lower trade barriers with the U.S., while implicitly, or in some cases explicitly, restricting trade with China.

So far, negotiations with the UK, Japan and South Korea are expected to begin in the coming weeks. However, Rachel Reeves has shown opposition to restricting trade with China as part of an agreement.

For a refresher on last week’s developments in the conflict:

Beijing Pushes Back

China has responded with blunt warnings to countries considering these U.S. trade agreements, especially those that could undermine Chinese economic interests, stating that any country entering trade deals that limit commerce with China will “face consequences.”

While vague, the threat is real. China has long used its economic leverage as a political tool, from banning imports of Australian coal and wine during a diplomatic spat, to slapping informal restrictions on South Korean goods in response to missile defence cooperation with the U.S. The message is clear: if you trade against China’s interests, you may lose access to its market altogether.

Why These Trade Deals Matter

Trade agreements are legal frameworks between nations that set the rules for buying and selling across borders. They often involve:

• Lowering tariffs - taxes on imported goods, which raise prices for consumers.
  

• Eliminating quotas - limits on the quantity of certain goods that can be traded.
  

• Setting product standards, investment protections, and dispute resolution mechanisms.
  

Done right, trade deals increase efficiency, lower costs, boost growth, and enhance foreign direct investment. They can also strengthen diplomatic alliances, which is likely part of Trump’s motivation here.

But they can also shift global trade patterns, leaving out nations that aren’t part of the agreement - and that’s what’s alarming Beijing.

China's Leverage

China still holds massive sway in global trade:

• It's the world’s largest goods exporter.
  

• It remains central to manufacturing supply chains, especially in electronics, chemicals, and textiles.
  

• It's a major lender and infrastructure partner across Africa, Southeast Asia, and Latin America.
  

Losing access to Chinese markets, or facing major restrictions on exports to China, could hit some countries harder than the gains from new trade deals with the U.S. That’s especially true for emerging economies reliant on Chinese investment, or European exporters dependent on Chinese demand.

A Global Trade Splinter?

What’s emerging is a major economic divide. The U.S. is trying to reassert dominance through bilateral deals, while China is signalling that cooperation with Washington may come at a steep price.

The risks of fragmentation are growing:

• Companies are being forced to choose sides, reshuffling supply chains to reduce exposure to either U.S. or Chinese policy shifts.
  

• Governments face difficult trade-offs: access to U.S. capital and markets, or continued integration with China’s vast production base.
  

• The WTO’s influence continues to erode, as trade increasingly becomes a tool of political alignment.
  

Where This Goes Next

While no new tariffs have been announced this week, the pressure campaign is intensifying. China’s warnings to U.S. partners show that the trade war is no longer bilateral; it’s becoming a global strategic realignment, with smaller nations caught in the crossfire.

How many countries will risk China's retaliation to align more closely with the U.S.? And how far is Beijing willing to go to protect its economic interests?

The next few weeks of trade negotiations will reveal just how many allies Washington can rally - and how much leverage Beijing is willing to use.

The U.S. Feels the Heat: Domestic Fallout from the Trade War

While the Trump administration frames its tariff strategy as a strategic push to re-industrialise America, the economic signals suggest the fallout at home is becoming increasingly difficult to ignore.

China Starts Pulling Its Money Out

One of the clearest signs of mounting tension came this week with reports that China is selling down its holdings of U.S. assets, including Treasury bonds and private equity investments. According to the Financial Times, Chinese institutions have quietly reduced exposure to U.S. government debt and are backing out of American private market funds. This is a move that signals deeper mistrust in U.S. economic stability and future returns.

This kind of capital reallocation is significant. China has long been one of the largest holders of U.S. Treasuries. When it sells, it can push bond prices down and raise yields, increasing borrowing costs for the U.S. government. On the private side, fewer Chinese commitments to U.S. venture and private equity funds could reduce capital availability in high-growth sectors, particularly in tech, where international backers have played a growing role.

However, 

U.S. Multinationals Brace for Volatility

Meanwhile, large U.S. corporations are moving to protect themselves from further economic turbulence. According to recent filings, many multinationals have extended their currency hedges - financial instruments that lock in exchange rates to protect against large currency swings. This suggests they are expecting more volatility ahead, particularly in FX markets tied to export and import flows.

It’s a sign that American firms aren’t just worried about tariffs, they’re preparing for second-order effects like unpredictable currency moves, supply chain dislocations, and falling foreign demand.

The Dollar Slides: Is That What Trump Wanted?

In a surprising shift, the U.S. dollar has fallen to a three-year low against a basket of major currencies. Part of this is driven by capital flight: with China and other countries diversifying away from dollar assets, demand for the greenback is softening.

But a weaker dollar also has mixed implications. On one hand, it makes American exports cheaper, potentially boosting competitiveness for U.S. manufacturers - something Trump has long pushed for. On the other hand, it raises import costs and fuels inflation, squeezing consumer purchasing power and putting further pressure on the Federal Reserve to intervene.

Moreover, a weaker dollar may also signal reduced investor confidence in U.S. macroeconomic management, particularly as the fiscal outlook darkens and bond markets absorb higher deficits and slower growth.

Bottom Line: Blowback Has Begun

From falling foreign investment to increased hedging costs and a sliding currency, the U.S. economy is no longer insulated from the global trade war it helped ignite. The question now is not whether there will be consequences, but how deep and long-lasting they’ll be. As corporate America braces and foreign capital retreats, Washington’s strategy may be tested by the very domestic markets it sought to protect.

The Economic Cost of Conflict: How the U.S.–China Trade War Is Reshaping the Global Outlook

The escalating trade tensions between the U.S. and China are no longer just a bilateral spat, they’re starting to reshape the entire global economy. What began as a series of targeted tariffs has now spilt into broader financial markets, supply chains, and central bank decision-making. As the world’s two largest economies drift further apart, the ripple effects are becoming harder to ignore.

Slower Global Growth: IMF Downgrades Outlook

In its latest World Economic Outlook, the International Monetary Fund revised its global growth forecast down by 0.25 percentage points for 2025 to 3.3%. That might sound small, but in an economy worth over $100 trillion, it’s a meaningful hit, amounting to hundreds of billions in lost output.

The IMF cited trade fragmentation, policy uncertainty, and weakening investor confidence as key drivers of the downgrade. The most immediate threat? The tit-for-tat tariffs between the U.S. and China, which are weighing on both trade volumes and business investment. As companies face higher input costs and disrupted supply chains, many are shelving expansion plans or passing rising costs onto consumers.

Even countries not directly involved are feeling the effects. Export-driven economies like Germany and South Korea are seeing lower demand for intermediate goods, while emerging markets face heightened currency volatility and reduced capital inflows.

Gold Surges as Investors Flee Risk

As confidence in the global economy wanes, investors are rushing toward traditional safe havens, and gold is the clear winner. Prices have climbed above $2,340 per ounce, marking a new all-time high in mid-April.

Why gold? In times of uncertainty, especially when inflation and geopolitical instability are both rising, gold is seen as a store of value. Unlike bonds, gold doesn’t depend on interest rates or monetary policy. And unlike equities, it’s not vulnerable to profit warnings or trade disruption.

This flight to safety also reflects a growing belief that markets may remain volatile for some time. With tech stocks swinging wildly and economic forecasts becoming more cautious, capital is shifting into assets that offer insulation from broader systemic shocks.

ECB Cuts Rates Amid Trade Turmoil

The European Central Bank (ECB) has responded to the economic headwinds by cutting its benchmark interest rate by 25 basis points to 2.25%, marking the seventh reduction in a year. This move aims to support the struggling eurozone economy amid mounting pressure from U.S. tariffs and deteriorating global trade conditions. ECB President Christine Lagarde emphasised the unprecedented uncertainty and dismissed conventional policy indicators like the neutral rate during such disruptions.

Market reactions were swift: the euro weakened, and eurozone government bond yields dropped significantly. Traders now see a high probability of another rate cut in June and expect up to three cuts by year-end. Inflation concerns have abated, with long-term expectations aligned with the ECB's 2% target, assisted by a stronger euro and lower oil prices. Nevertheless, uncertainty persists, with diverging views among ECB policymakers and analysts on the magnitude of future cuts.

The Bigger Picture: Fragmentation over Integration

What we’re witnessing may be more than just a temporary slowdown. The world economy has long benefited from a highly integrated, rules-based trading system. But with rising tariffs, regulatory divergence, and investment restrictions becoming the norm, that model is under serious strain.

Global supply chains are being reconfigured. Countries are rethinking reliance on single partners for key materials, and multilateral institutions like the WTO are struggling to keep up. The IMF’s downward revision is just the start of what could be a more structural shift.

If the trade war persists or escalates, 2025 may not just be a year of slower growth. It could be a turning point in how the world does business for the coming years.

That’s a wrap for this week’s edition of The Weekly Echo.

While the news cycle may have quietened slightly after last week’s flurry, the economic aftershocks are still unfolding. From the IMF’s global downgrade to rising gold prices and the ECB’s shift in tone, it’s clear the trade war is moving beyond headlines and into boardrooms, balance sheets, and policy meetings.

As always, thanks for reading. If you’ve got feedback, questions, or just want to share a story you think we should be covering, hit reply - we always love hearing from you.

Until next week,
Harry & Reika
Co-Founders, Echonomics

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