How 2025 is unfolding: a global economic shift and the US facing challenges

 

Oscar Ugarteche[1], OBELA^[2]

 

The year began with a forecast of stagnation in inflation for the United States, while Asian countries expect to continue growing.  The IMF forecast for the world was that the US would grow at a rate of 2.7%, while the global economy would expand at 3.3%, dragged down by Asia and emerging countries. However, early data from the Bureau of Economic Analysis (BEA) indicated that the US economy contracted by 0.2% in the first quarter, a concerning sign for the global economic situation.  BEA readjusted this estimate to -0.5% on June 27 2025.  At the same time, the inflation rate was 2.4% due to sluggish consumer demand.  The impact of the tariff hike will be felt only in the second half of the year.  The price of the dollar fell against major world currencies and almost all Latin American currencies.  The US Congress was unable to reduce the fiscal deficit significantly after a major political confrontation.  The uncertainty created by President Trump's speech weakened the price of US Treasury bonds, pushing their yields to very high levels.   The consequences are evident in the booming commodities market, with positive effects for growth in Latin America and Africa, and negative ones for the US, the EU, and Japan.  Asia has been affected, but China's first-quarter data show that despite all this, GDP grew by 5.4% in the first quarter of 2025. (Https://www.stats.gov.cn/english/PressRelease/202504/t20250421_1959377.html) 2024 grew at 5% according to the Financial Times (https://www.ft.com/content/45c3f4ee-2825-45f3-aa4f-1d3615d06e3e).

 

President Trump's speeches on tariffs and migration have altered the economy and created adverse expectations for 2025.  Initially appearing to be a policy of import substitution with high tariffs, a strategy that aims to promote domestic industries by reducing competition from foreign products, it became apparent that the disparity in tariffs does not aim at reindustrialisation, but rather at reducing competition from Chinese products and achieving political objectives linked to the existing industry.   For example, threatening to impose high tariffs on Spain if it does not increase its defence spending to 5% of GDP. This shift in economic strategy and the use of tariffs for political objectives have significant implications for the global trade dynamics and the US economy, raising concerns about the future of international trade.

 

On the one hand, in NATO, the US government's position is that Europe should allocate 5% of its GDP to public defence spending.  The German and British stock markets welcomed it because their military industries would receive a significant boost.  Some argue that part of that spending will go to the US as a purchase of military hardware.  Frankfurt's DAX rose from 21,223 points on January 20 to 24,078 on June 24 2025.  Similarly, London's FT100 rose from 8,548 to 8,718 on the exact dates.  The other stock exchanges are stagnating, a sign that US war-mongering will not strengthen their industries.  The New York Stock Exchange itself stagnated.  The S&P 500 index remained at 6,092 points between January 20 and June 24.  Elsewhere, the logic of increasing military spending to import more from the US may apply, but from the US perspective, it does not seem to affect the expectation of good stock market returns.

 

The US Congress approved the US government budget on July 1, 2025, which is based on collecting fewer direct taxes, spending less on social programs, and reducing public employment.  In other words, it is a budget to concentrate income further.  Cutting public spending and civilian public investments, as well as mass unemployment of civil servants, will have a negative impact, according to the Penn Wharton Budget Monitor (https://budgetmodel.wharton.upenn.edu/issues/2025/7/1/senate-reconciliat...).  They estimate that the budget bill passed by the Senate in Washington increases primary deficits by $3.1 trillion over 10 years.  The dynamic cost, including changes in the economy, will be higher by $3.5 trillion.  The projection indicates a 0.3% decline in GDP over 10 years and a 4.6% decline over 30 years.  In other words, it is a budget that will induce economic stagnation, which, coupled with rising tariffs, ensures a poor performance for the US and Mexican economies accordingly.  The growth of public debt, already at levels of 130% of GDP, will not be used to fuel growth in a counter-cyclical Keynesian manner, but rather to concentrate the country's income.

 This budget approval is expected to have significant implications on the US and western economies, leading to economic stagnation and poor performance, a worrying prospect for the future economic conditions.

            The international impact of President Trump's speech is evident in the depreciation of the US dollar's value, which has declined since January 2025.  Confidence in that currency has deteriorated, pushing up the price of commodities in general and gold, in particular, to record levels as a haven of value.

Between January 20 and June 24 2025, gold rose from $2,727 per ounce to $3,317 per ounce.  A disinvestment in US Treasury bonds in China and Japan has accompanied the 18% increase in gold value.  China ceased to be the largest holder of US Treasuries in June 2019, and Japan replaced it.  In 2025, Britain overtook China and became the second-largest creditor.  China continues to reduce its holdings of Treasury bonds.  However, it is unlikely to eliminate them, given the currency's use in international trade transactions and the economic relationship that exists between the two great powers.  

 

	USD 20.1.2025	USD 30.6.2025	change
Yen	155.3625	143.9170	-7.37%
Yuan	7.3145	7.1641	-2.06%
Euro	1.037406	1.178700	13.62%
Colombian Peso	4301.4022	4080.2146	-5.14%
Mexican Peso	20.5044	18.755	-8.53%
Chilean Peso	1007.8254	931.5137	-7.57%
Peruvian sol	3.7441	3.5442	-5.34%

Source: https://www.exchangerates.org.uk/historical/USD/20_01_2025

 

The economic impact of the persecution of migrants is seen first of all in the crop fields left unharvested.  ( https://www.reuters.com/business/immigration-raids-leave-crops-unharvest...).  The consequence of this will be seen in food prices and stagnation in the agricultural sector.  The construction sector will also be affected.  According to the New York Times, the deportation of 19% of construction workers is a possibility.  The immediate effect is the absence of workers on construction sites, resulting in a subsequent shortage of finished homes and a rise in housing prices. (https://www.nytimes.com/2025/03/09/business/economy/immigrant-workers-de...) Finally, there are the hotel and restaurant services, where their absence will also impact these economic activities. 

An unintended consequence has been to deter all foreigners who normally visit the US for tourism, family reasons, or simply for pleasure, and who have decided not to travel.  The impact on hotels, restaurants, and airlines is significant, as well as the economic dynamics of cities that normally attract large volumes of tourists, such as Miami, San Francisco, New York, Washington D.C., and Chicago, for example.  A study by Tourism Economics forecasts an 8.5% decline in international tourism to the United States by 2025.  It is an optimistic projection. (https://www.fastcompany.com/91341658/us-tourism-decline-report-travelers-staying- away-in-2025.) A similar situation is unfolding for students who were considering attending the US, with the potential negative impact on the income of private universities.

A final component that could be affected is the volume of ships and cargo passing through major ports and paying tolls.  International trade is likely to be affected by the policies of the incoming US government, particularly in cargo shipping, which could impact revenue from port infrastructure fees that ships pay when they enter ports. 

            The disaster for the US economy and the Caribbean Basin is not a disaster for South America, a commodity exporter to China, which is growing at steadily high rates despite the forecasts of the Western press.  The fracture of globalisation is evident, with the West stagnating while the East grows, dragging down South America's exports and increasingly placing them within China's sphere of economic influence.  Mexico, closely aligned with Washington, does not benefit from the high-growth Eastern market and the wave of investment that originates from it.  The Caribbean Basin seems destined for long-term stagnation unless it disengages from Washington, opens its doors to Eastern capital and trade, and redefines its productive policies.