US tariffs impact on global economy: Economic Spotlight 04-11/08/2025

Introduction:

The global economy witnessed a wave of economic and political developments last week that directly impacted global markets. The US economy dominated the scene with a series of pivotal indicators, ranging from strong inflation data to GDP and labor market performance, to the controversial monetary and trade policy decisions announced by President Donald Trump. 

This was accompanied by the sudden resignation of a member of the Federal Reserve Board, which increased uncertainty surrounding the future of monetary policy in the country. 
 

Conversely, the European economy continued its slowdown, with limited growth in the eurozone and a contraction in the German economy, while southern European countries performed better, thanks to the services sector. 

In Japan, despite external challenges such as US tariffs, expectations indicate a relative improvement in growth and domestic spending, amid internal pressures that require the central bank to balance stimulating the economy and curbing inflation.

Main keywords:

•    The US economy is experiencing several conflicting economic events and indicators. 
•    The European economy is showing resilience despite all the economic pressures. 
•    Japan is trying to push for a reduction in auto tariffs in accordance with the trade agreement with the US. 
•    The Bank of England is meeting to decide on interest rates.
 

US tariffs impact on global economy. US Federal Reserve meeting with sensitive economic data

First, the US economy:

The US economy experienced a busy week of indicators and events, which had a significant impact on global economy and various financial markets. 
These included one of the most prominent inflation indicators, followed by indicators of the gross domestic product (GDP), the labor market, and the Federal Reserve's interest rate decision, all the way to the large tariffs announced by Trump on the day the tariff suspension period ended on August 1. 
Regarding inflation, American consumers continued their spending in June, pushing the Consumer Price Index (CPI) up 0.3% monthly and 2.6% on an annual basis. 
The US economy showed strength in the second quarter of this year, exceeding expectations, with GDP recording a 3% increase compared to the contraction in the first quarter of this year. 
The labor market provided positive indicators, which could give the Federal Reserve an opportunity to cut interest rates, ahead of the announcement of two separate inflation figures before its meeting on September 17. 
Consumer price readings are expected to be released on August 12 and September 19, and if they are lower, they will provide additional incentive to cut interest rates. 
Meanwhile, regarding significant developments regarding US tariffs, Trump announced various tariffs on 90 countries, ranging from 10% to 41%, confirming that they will take effect on August 7th, except for Canada, which he confirmed will be applied on August 1st. 
Among the most notable tariffs announced by Trump were 25% on India, 20% on Taiwan, 30% on South Africa, and 39% on Switzerland. He also gave Mexico a 90-day grace period before imposing tariffs, amid positive news regarding trade relations with China. 
This news regarding tariffs has raised concerns about the possibility of rising inflation, as companies will be forced to pay taxes to the government, a measure that will force companies to consider passing these costs on to consumers in the form of higher prices. The US economic developments did not stop there. 
The Federal Reserve announced that Governor Adriana Kugler will resign from her position on August 8, 2025, before her official term ends in January 2026. This increases fears of conflict within the US Federal Reserve amid ongoing tensions between US President Donald Trump and the Fed Chairman regarding Trump's demands for interest rate cuts. 
US President Donald Trump also ordered the dismissal of Erika L. McIntarver, Commissioner of the US Bureau of Labor Statistics, after data showed employment growth exceeding expectations last month. 
As for the current week, the US economy is set to experience a quiet week in terms of economic data, before heading into the following week, which will feature several inflation index readings. 
 

Second. European Economy:

Preliminary data showed that the eurozone economy grew by 0.1% in the second quarter of 2025 compared to the first quarter, while Germany, the eurozone's largest economy, contracted by 0.1% in the second quarter.
The decline in eurozone GDP growth was not surprising, as the boost from the earlier imposition of tariffs diminished, indicating relative resilience in light of the trade agreement reached with the US.
The trade agreement with the US remains a concern for major economies, even with the reduction to 15%, despite exemptions for some goods and a reduction in tariffs on cars. In a related context, southern European countries outperformed the rest of the eurozone, thanks to the service sector, with Spain emerging as the best performer. 
This has prompted Goldman Sachs analysts to predict that this improvement will continue for several years. They now forecast growth of 1.9% for 2026 and 1.7% in 2027, compared to the eurozone's projected economic growth of 0.1% currently to 1.2% next year.
The European Central Bank continues to maintain its independent view regarding the future of interest rates, especially with inflation remaining at the desired 2% level. Officials emphasized that this decision will be independent of any trade or political influence.
European Commission surveys also showed an improvement in economic sentiment in both the European Union and the eurozone in July, while the eurozone unemployment rate remained at an all-time low of 6.2%. 
The European economy awaits several economic data releases, including inflation figures for Switzerland and Sweden, retail sales figures for the eurozone, and the Bank of England's meeting to decide on interest rates, which remain at 4.25%.
 

Third: The Japanese Economy:

Japan's economy is expected to grow by 0.1% in the second quarter of this year compared to the first quarter, or 0.5% year-on-year, according to research center estimates. Exports are expected to stabilize despite the high tariffs imposed on Japan. Japan will release its GDP figures on August 15. 
Personal consumption, a pillar of the Japanese economy, is expected to rise, with consumer savings increasing due to rising food and other commodity prices, along with increased corporate capital spending. 
Despite the Bank of Japan's decision to hold interest rates steady at its last meeting and soften its pessimistic tone, the central bank remains in a difficult position, especially with inflation remaining high, which necessitates a rate hike. 
Furthermore, interest rates must remain low considering the turbulent economic situation. There are reports that Japan will continue to pressure the administration of US President Donald Trump to reduce auto tariffs to 15%, as promised in the trade agreement signed with the US, to ensure the continued presence of automakers in Japan. 
In a related development, Japan's unemployment rate stabilized at 2.5% in June, with job openings increasing. 
This decline suggests a possible cautious approach to hiring, prompting economists to be wary of a weak economy amid external pressures. The Japanese economy will be closely monitoring some key economic indicators, such as wages and household spending, which are key indicators for monitoring the domestic health of the Japanese economy.
 

Fourth: The Chinese Economy:

China's economy witnessed a contraction in manufacturing activity as exports declined. The manufacturing Purchasing Managers' Index (PMI) fell below the benchmark 50, indicating a deterioration in factory activity and a decline in new business growth. 
However, China unveiled new efforts to strengthen its pursuit of a unified and strong domestic market. A press conference was held to outline the government's priorities for the next phase of economic activity, providing the necessary guidance and policies to achieve this ambitious goal. 
The Director of China's Department of Institutional Reform emphasized the need to move forward with strengthening comprehensive coordination and consolidating key institutions, with the aim of opening domestic markets to foreign investment, enhancing social credit, and focusing on key sectors to support production and improve energy market conditions.
China also emphasized that it would address the issue of unregulated competition, especially considering the price war waged by some giant companies, such as BYD, to protect smaller companies, in addition to addressing the problem of excess production capacity. 
Despite these ambitious indicators and efforts, good news continues to circulate regarding the prospects for a final trade agreement with the US before the trade deadline expires on August 12, despite the Chinese government's condemnation of the tariffs announced by Trump against 69 countries.
 

Economy Spotlight. Economic Calendar and What to Expect in the Markets Next Week:

Global markets will be awaiting the following economic data: