The Roundup – July 2025
Brace For Impact
Independence Day saw President Trump’s signature piece of legislation signed into US law. The controversial Big, Beautiful Bill, extends tax cuts from his first term and lifts military and immigration enforcement spending. The bill also increased the debt ceiling by $5 trillion - avoiding the near-term potential risk of the federal government defaulting on its debts.
However, nonpartisan projections estimate the tax cut and spending package will add over $3 trillion to the government’s debt burden over the next 10 years. The significant increase has resulted in some foreign investors viewing US Treasury securities as less attractive, while unease around the long-term risks from higher borrowing costs persisted.
During the month US Treasury Secretary Scott Bessent provided an update on another area of the President’s focus, advising that tariff revenues have generated around $100 billion to date. This compares to the approximate $80 billion annually in tariff revenue in recent years and could potentially reach $300 billion by the end of 2025.
The month was not without developments on the tariff front, as President Trump aggravated negotiations by ratcheting the rate of import duties against several trading partners higher. Japan and South Korea, America’s sixth and seventh largest trading partners, were the first to be notified of the increased rates.
Sharemarkets experienced a relatively measured lift in volatility in response to the trade advancements. US stock markets eased, while Asian bourses were more resilient. European sharemarkets were shaken as negotiations between the bloc and the US faltered, following Washington’s increase to the rate imposed on its key trading partner.
Trade representatives for the European Union warned that the newly proposed rate (30%) would make the $1.7 trillion two-way trade relationship unworkable, with analysis showing the increase would heavily impact the EU, draining growth and requiring further rate cuts from the European Central Bank to support its 27 member countries.
The changes to trade negotiations played out in currency moves. The Japanese yen took a knock as hopes of a Japan-US trade agreement by deadline, dwindled, and news of increased tariffs broke. In contrast, the US dollar rallied after higher tariff rates announced but has otherwise weakened against a range of currencies since the start of the year.
Risk-on currencies such as the Australian dollar and the NZD fell against the USD following the rate increases and as monetary policy decisions from the RBA and RBNZ were imminent. Australian interest rates were trimmed by 0.25%, while the Reserve Bank of New Zealand issued its first interest rate hold since it began lowering rates a year ago.
A research group has calculated that the average effective tariff rate for the US has now increased to around 20%, making it the highest level in nine decades. But the chaotic and haphazard approach to issuing the levies has compounded their impact, with businesses finding decision making immensely challenging, in the frequently changing environment.
US economic data has started to show early signs of the level of impact from policy changes. Growth in the US fell dramatically as businesses adjusted their behaviour by increasing imports to avoid higher rates at the border when they came into effect. GDP contracted to -0.5% in Q1, while a significant reduction in Q2 saw the GDP figure rebound to 3.0%.
The swings in the data add another layer of complexity for the US Federal Reserve. Headline inflation has also ticked up, as the price of some categories of goods has increased, but the extent of the increase has been softened by an easing of services inflation. Highlighting the challenges Central Banks (both at home and abroad) have of navigating policy uncertainty.