12/04/2025 by Tony Redondo
It’s not pretty. Certainly not amicable but the US and China are getting a divorce with China already vowing to ‘fight to the end’.
At the time of writing, the latest tariff position is as follows. 145% duty on all goods from China, 25% tariffs targeting aluminium, autos and goods from Canada and Mexico not under the United States-Mexico-Canada Agreement, and 10% levy on all other imports with a 90-day stay of execution on all these countries.
On China, Trump said “At some point, hopefully in the near future, China will realize that the days of ripping off the USA, and other countries, is no longer sustainable or acceptable.”
At first, global stock markets rebounded on the news with the S&P 500 having its best day since 2008. But with China not in a conciliatory mood, sentiment soon soured. Having raised tariffs on US goods mid-week to 84%, China raised them to 125% on Friday in a further sign that a full-blown trade war could still worsen. Markets are closing in on their worst week in five years.
The UK has been slapped with the lowest tariff rate of 10% but will still suffer from a global trade war and economic slowdown. The threat of the slowdown spilling into an already weak UK economy has the markets anticipating more BoE (Bank of England) rate cuts with the markets now pricing in around 0.88% of interest rate reductions to the BoE benchmark rate by year end, up from 0.43% at the end of March. The likelihood of a 0.25% rate cut at the BoE’s next policy meeting on 8 May has also surged to 90%.
The Vix index, the so-called ‘fear gauge’ has reached its highest level since the onset of the Covid-19 pandemic. UBS (Union Bank of Switzerland) analysts branded the contortions in the Vix “worrisome” and said they were evidence of markets beginning to expect a US recession in the next six months.
Currency Exchange Rates Update
The Pound Sterling’s resilience to tariff risks has come to an end. The Pound shed 2.25% last week against the Euro. It’s now lost nearly 3.5% in the last month against the single currency.
The euro is in a tug of war between tariff pain and the release of Germany’s debt brake. A global trade war would typically weigh on the euro but capital flows from the US to the eurozone financial markets are buoying the Euro.
The Pound, like most currencies, is faring better against the US Dollar, up over 1.3% on the week and over 4.1% up on the last 12-months.
The US dollar index fell by nearly 5% last week, its worst weekly performance since November 2022.
CNBC do not expect China to aggressively devalue its Yuan currency to offset the impact of US tariffs as a sharp devaluation could trigger capital outflows and create financial market instability.
What’s in the news?
UK
Good news
The ONS (Office for National Statistics) published its provisional UK GDP figures for February showing a higher-than-expected economic growth rate of 0.5% due to a 0.3% expansion in the services sector that drove the surprise jump in UK economic growth.
Chancellor Rachel Reeves and Indian finance minister Nirmala Sitharaman met last Wednesday and agreed £128m worth of new export deals and investments with India. Businesses were told that a post-Brexit UK-India trade deal is 90% agreed with the remaining issues centred on cars, pharmaceutical drugs and the whisky trade. India is the largest overseas market for Scotch.
Not so good news
The Resolution Foundation reported that UK economic productivity has hit rock bottom, something last seen in the 1970s. It warned that Chancellor Rachel Reeves’ plans for growth in her Autumn Budget last October has stalled growth.
Professional services firm KPMG warned “Britain has the unenviable record of having both falling productivity and the G7’s biggest drop in working-age employment since before the pandemic.” It added that the US import tariffs is set to inflict a “material hit” to the UK economy with the global trade war expected to reduce economic growth by 0.8% over the next two years, leaving Britain £21.6bn worse off by 2027. Yael Selfin, KPMG’s chief UK economist, warned “Ultimately, the main worry is confidence. Trade disruption is bad, but uncertainty is the big unknown.”
A BCC (British Chambers of Commerce) survey shows 62% of UK companies trading with the US anticipate negative impacts from the tariffs. The BCC also warned that concern over the tax hikes targeting employers is set to become a “toxic reality” for British businesses, driving up costs and hitting income. Shevaun Haviland, director general of the BCC, said that the National Insurance hike has been “an impending concern” that will now become a “toxic reality for millions of businesses.”
Recruiters Reed reported that 46% of firms thought recruitment decisions would be impacted, with many reporting that they were already not hiring or postponing recruitment. Reed CEO James Reed said “Everyone understands that there are difficult decisions to be made given the state of the public finances, but we warned when the increase in employers’ NI was announced that it was a tax on jobs and so it has proved. The hole this tax increase has made in a million company balance sheets is regrettable. These are tough times for companies that want to hire and expand, and this will feed through into weaker economic growth”. Respondents to Reed’s poll (254 companies representing over 260,000 employees) estimated that their annual profits would decrease by 29% this tax year with the change to employers’ contributions was implemented.
The ASI (Adam Smith Institute) is warning scrapping the non-doms tax status could cost the UK up to £111 bn by 2035 and has asked the Treasury to reverse plans to abolish the non-domicile tax status in April and replace it with a residence-based regime that also ropes in non-domiciles’ overseas assets into UK inheritance tax. The ASI also estimate the UK could also lose some 44,000 jobs by 2030 if the government enacts its plans to abolish the scheme. Maxwell Marlow, director of public affairs at the ASI said “The scale and pace of the exodus of wealth-creators is extremely alarming. What has been a trickle has now become a flood. 67% tax rate will drive the last non-doms away from Britain. This is going to have a severe impact on the UK economy. Fewer non-doms will mean reduced investment, a lower tax take, worse public services and fewer jobs.”
The Halifax reported that UK house prices fell by 0.5% last month, the steepest decline since March 2024. The decline follows a record high in January, driven by a rush to complete deals before new stamp duty changes took effect.
Professional services firm Deloitte reported that UK consumer confidence has been dented over uncertainty about the UK economic outlook with sentiment towards the UK economy at its lowest level in over a year.
Celine Fenech, consumer insight lead at Deloitte said “The consumer recovery appears to have stalled despite continued strong wage growth, with uncertainty around the economy and other factors such as geopolitical tensions playing on the minds of consumers. As inflation persists, particularly on food and utilities, consumers are being more tactical in the way they spend, with a focus on essentials and looking for discounts and promotions when making purchases”.
USA
US Inflation came in lower than expected for March with the headline CPI rate down 0.05% month-over-month and core CPI rising just 0.06%.
The latest consumer sentiment numbers for April came in worse than expected.
The expected inflation level also surged to its highest level since 1981 according to the University of Michigan survey on consumers.
Visitors to the USA come mainly from Canada with over 20 million while the UK makes 4 million visits. CNN report that Europeans are cancelling trips en-masse concerned over the political situation in the USA. Something else for President Trump to consider as no less than 29 of the 50 US states list tourism in their top 3 employers.
The EU
Having voted mid-week to impose retaliatory tariffs on US exports, the EU has decided to hit the pause button instead. European Commission President Ursula von der Leyen announced that the European Union will put on hold for 90 days its first countermeasures against President Donald Trump’s tariffs. The EU was due to launch counter-tariffs on US imports from next week in response to Trump’s 25% tariffs on steel and aluminium.
Earlier in the week, Trump rejected an offer from von der Leyen of a “zero-for-zero” tariff deal on cars and industrial goods.
Others
Gold hit a new all-time record high amid the uncertainty wrought by the escalating US-China trade war. The price of gold rose by another 1.5% to break $3,200 per troy ounce for the first time on Friday.
FTAdviser Rise in gold prices is ‘screaming signal of market fear’ – FTAdviser
Global oil prices fell below $60 a barrel last week for the first time since February 2021 and a total drop of over 18% since the 2nd of April. Currently but for very different reasons, events plus supply resemble what happened to the oil market in 2020. Then, the economic slowdown was caused by the Covid pandemic and lockdown and Saudi Arabia maximized production. This time the unfolding and unpredictable global trade war is the market event together with the imminent supply event of the OPEC+ decision to increase production by 411,000 barrels per day.
Stranger than fiction
US scientists reported that global vegetation reached a new greening peak in 2020, continuing a long-term trend since 2000. The work helps confirm other recent scientific work that points to massive global plant growth directly related to recent increases in natural and human-caused carbon dioxide. The latest work on CO2, the ‘gas of life’ notes that the greening is linked to continuous growth in boreal and temperate vegetation. The scientists also suggest that the increase has been complemented by a tropical vegetation boost due to higher rainfall. Higher growth in northern regions would also have been helped by slightly warmer temperatures which have marginally increased growing seasons. The climate might be collapsing as far as the eco-warriors are concerned but nature continues to find ways to thrive.
In fact, the new greening of the planet is helping to feed the world. The authors of a recent science paper Charles Taylor and Wolfram Schlenker recently stated: “We consistently find a large fertilisation effect; 1 parts per million increases in CO2 equates to a 0.4%, 0.6%, 1% yield for corn, soybean and wheat respectively”.
Quote
Taylor Jenkins Reid, author of ‘The Seven Husbands of Evelyn Hugo, “Sometimes divorce isn’t an earth-shattering loss. Sometimes it’s just two people waking up out of a fog.”
