Category: Essential Economics for Business: Ch 10

Posted on

A single European market in banking

Large European banks call for further integration, but is it in consumers’ interests?

Those of a certain age may remember the fanfare which heralded the introduction of the Single European market (SEM) on 1 January 1993. It promised the removal of internal barriers to the movement of goods, services, capital and people. One sector that was noticeably absent from the single market, however, was banking.

Moves towards banking union only started after the global financial crisis in 2008. However, as a report published on the 2 September 2025 by the Association of Financial Markets in Europe (AFME) highlights, the institutional frameworks of banking in the EU are still deeply fragmented – the promised integration through the European Banking Union (EBU) is still incomplete. This has put European banks at a competitive disadvantage in global markets compared with rivals from the USA and Asia, thereby reducing their profitability and growth prospects. The report called on the European Central Bank (ECB) and national regulatory authorities to remove hurdles to cross-border banking services in the EU. This would enhance the strategic position of European banks.

In this blog we will trace the development of the EBU and analyse the current state of integration. We discuss the AFME proposals for achieving greater integration and highlight their benefits for large banks. We also analyse the barriers which limit full integration and examine the risks that retail customers might see few benefits from the proposed changes.

What is meant by European Banking Union (EBU)?

The 1993 Single European Market (SEM) in goods and services removed internal barriers to the movement of goods, services, capital and people within the EU. As part of this, there were harmonised standards and regulations for goods and services, no capital controls, mutual recognition of professional qualifications and common regulations on consumer protection, product safety, environmental protection and labour rights.

This integration of previously restricted domestic markets was designed to boost economic growth, employment and competitiveness by increasing trade and investment flows. Offering consumers greater choice would expose firms to greater competition. This would drive down prices and encourage greater efficiency and innovation. It has generally achieved these goals across many industries.

However, banking was excluded from integration. The 1985 White Paper, Completing the Internal Market, proposed the liberalisation of financial services, but banking remained regulated at the national level. This was influenced by interrelated economic, political and institutional forces, national sovereignty and political sensitivities, fragmented regulation and concerns about risk.

Even as the EU moved towards economic and monetary union (EMU) during the 1990s, there was no discussion of integration for the banking industry. However, that changed following the 2008 financial crisis and 2011 eurozone crisis. Both episodes exposed vulnerabilities in the EU banking system which required taxpayer support. It was proposed that deeper integration of the banking sector would ensure its stability and resilience. This stimulated moves towards European Banking Union (EBU), starting with the European Council agreeing its creation in 2012. There are three institutional pillars to the Union:

  1. The Single Supervisory Mechanism (2014) for systemically important financial institutions (SIFIs) ensures consistent oversight. SIFIs are banks with over €30 billion of liabilities or 20% of national GDP.
  2. The Single Resolution Mechanism (2016) manages the orderly resolution of failing banks with minimal costs to taxpayers. There is a central board for resolution decisions and a fund financed by the banking industry to support resolution actions.
  3. A European Deposit Insurance Scheme (still under negotiation) is proposed to protect depositors uniformly across the banking union against bank default.


The Union is intended to operate under a harmonised set of EU laws, known as the ‘Single Rulebook’, which includes implementing the BASEL III capital requirements, regulating national deposit insurance and setting rules for managing failing banks.

What is the state of integration at present?

Moves towards European Banking Union (EBU) have contributed to enhancing the resilience of the European banking system. This was one of its major objectives. European banks are much more secure having increased capital and liquidity levels, reduced credit risks and become less reliant on state-aid. They are also less profitable.

The AFME report points to remaining gaps in Banking Union which raise the cost for banks offering cross-border retail banking within the EU and limit the incentive to do so. The report identifies four such gaps.

1. Ring fencing.  Although there is a single supervisory mechanism for large systemically important institutions, since the financial crisis national regulators have implemented ‘ring-fencing’. This aims to protect retail banking activities from riskier investment banking. Ring-fencing retains liquidity, dividends and other bank assets within national borders to protect their retail banking sectors from contagion. The ECB estimates €225 billion of capital and €250 billion of liquidity is trapped by such national restrictions. Further, unharmonized and unpredictable use of capital buffers adds complexity for capital management at a multinational level. This particularly impacts large institutions. Banks’ cross-border activities are impeded since they are restricted in the way they can use capital and liquidity across the bloc.

The report argues that the stringent requirements of the ECB and the multiple layers of macroprudential requirements imposed at national level have led to an unnecessarily high level of capital. This disadvantages large European banks compared to their international competitors.

2. Impediments to cross-border M&As in banking within the EU.  This is due to cumbersome authorisation processes, involving multiple authorities at both national and supra-national level. Further, national authorities may interfere in the process of M&As in a bid to prevent domestic banks being acquired by ones from other parts of the EU. A recent example is UniCredit’s bid for Germany’s Commerzbank, which the German government opposes. These characteristics restrict opportunities for consolidation and efficiency gains for European banks.

The AFME report estimates that once eurozone banks grow beyond €450 billion in total assets, they suffer from negative synergies putting them at a competitive disadvantage to global competitors. Indeed, US banks are able to leverage scale economies from their domestic market to enter large EU markets. An example is JP Morgan’s entry into multiple EU markets through its Chase brand.

3. Contributions to the Single Resolution Fund (SRF) are complex and lack transparency.  This makes it difficult for banks to predict future commitments. The fund itself and its target level were determined at a time when banks had low buffers. Since then, European banks have raised their loss absorbing capacity and the AFME report proposes that further increases in contributions to the fund need to be carefully considered and reviewed.

4. The Deposit Guarantee Scheme remains unimplemented and there are still differences in national schemes.  This situation creates uncertainty for banks, which would like the European scheme for large systemically important institutions to be implemented fully.

These AFME proposals focus on the aspects of banking union which benefit large European institutions in their strategic competition with global rivals. These aspects would create ‘European’ banks as opposed to ‘national’ ones. This would give them the scale to be ‘champions’ in global competition. In particular, the large banks want lower capital requirements and the relaxation of national ring-fencing for retail banking to allow them greater freedom to achieve scale and scope economies across the bloc.

To what extent this will benefit retail customers, however, is debateable.

Will retail banking customers benefit?

Retail banking across Europe remains deeply fragmented, with significant price differentials from country to country. The following table illustrates pricing differentials for two retail products – loans and mortgages – across a sample of EU countries for July 2025.


The data show a range of average interest rates offered across the countries with a range of 5.03% for loans to households and 0.92% for new mortgages. These price differentials reflect a broad array of factors, not least the different institutional legal and risk characteristics of the national markets. They also reflect varying degrees of competition and the lack of cross-border trade in retail banking products. Retail banking remains a largely domestic industry within the EU. Cross-border banking services remain a marginal activity with non-domestic retail deposits rising by just 0.5% and non-domestic retail loans rising by just 0.3% between 2016 and 2024.

There are both natural and policy-induced barriers, which means that retail banking will remain largely segmented by nation.

On the demand-side, retail banking is largely a relational rather than a transactional service, with consumption taking place over a long time-period with significant financial risks attached. Even with deposit insurance and a lender of last resort (the central bank), consumers exhibit significant loss aversion in their use of retail banking services. Consequently, trust and confidence are important characteristics for consumers and that means they are likely to prefer to use familiar domestic institutions.

Further, perceptions about switching costs mean that consumers are reluctant to change suppliers. Such costs are exacerbated by language, cultural and legal differences between European countries, which can make the perceived costs of banking beyond national boundaries prohibitively expensive and create a preference for local institutions.

Consumer preferences can also create idiosyncratic market structures for retail banking services in particular countries. For instance, in several countries across the EU, notably Germany, mutualised credit unions account for significant shares of retail banking. This may limit the potential for foreign banks to penetrate Europe’s largest market.

There are also policy-induced obstacles to cross-border retail banking which operate on the demand-side. These include discriminatory tax treatment of foreign financial services which deters their purchase by consumers. Further, there are still eight different currencies used in the EU across the 27 member states (Denmark, Poland and Sweden are three significant examples). This creates costs and risks associated with currency exchange for consumers that may deter their use of cross-border deposits and loans. The full adoption of a single currency across the EU seems a long way off, which will limit the potential for a single banking market, particularly in the retail segment.

Retail banking as a public utility

Some argue that retail banking is a public utility and should be regulated as such. It has a simple business model, taking deposits, making payments and making loans. Like other utilities, such as water and energy, retail banking is an essential service for the smooth functioning of the economy and society. Like other utilities, bank failures create severe problems for the economy and society.

Since the financial crisis, stability in retail banking has been much more highly valued. In the period preceding the crisis, banks had used retail deposits to cross-subsidise their risky investment banking. The bank failures that resulted from this had severe economic consequences. The danger today is that by relaxing capital and liquidity restrictions too much, large banks may once again engage in risky behaviour, subsidised by retail banking – for example, by engaging in cross-border M&As. These may benefit their shareholders but provide little benefit to retail customers.

Further, allowing these large banks freedom to move funds around the bloc may lead to capital being concentrated in the most profitable markets, leaving less profitable markets / countries underserved. Retail banking, as a public utility, should be required to provide services there.

Who ultimately benefits?

The integration of banking services in the EU has progressed since the financial crisis, producing a more resilient system. However, there are features of retail banking which mean that integration which benefits consumers may be difficult to achieve.

Addressing the policy gaps identified by the AFME report may benefit large European banks by facilitating the scale economies to make them competitive internationally. However, until consumers are prepared, or able, to source banking services beyond national borders, they will see little benefit from European Banking Union (EBU) through lower prices and/or better service. The nature of retail banking in the EU suggests that this is unlikely any time soon.

Furthermore, since retail banking exhibits features of a public utility, regulators need to be wary of permitting the type of behaviour by large institutions which creates dangerous systemic risk. The worry is that, in the drive to create ‘European Champions’ in banking, regulators ignore the potential impact on retail customers.

Articles

Book

Report

Data and Information

Questions

  1. Using an average cost (AC) schedule, illustrate the efficiency benefits for large European banks from banking union.
  2. Analyse the sources of efficiency gains that European banks can gain from cross-border M&As.
  3. Explain how European retail banking customers could gain from such efficiency.
  4. Analyse why they may not.
  5. Analyse whether retail banking in Europe needs to be regulated as a public utility.
Posted on

Rising global uncertainty and its effects

In a blog in October 2024, we looked at global uncertainty and how it can be captured in a World Uncertainty Index. The blog stated that ‘We continue to live through incredibly turbulent times. In the past decade or so we have experienced a global financial crisis, a global health emergency, seen the UK’s departure from the European Union, and witnessed increasing levels of geopolitical tension and conflict’.

Since then, Donald Trump has been elected for a second term and has introduced sweeping tariffs. What is more, the tariffs announced on so-called ‘Liberation Day‘ have not remained fixed, but have fluctuated with negotiations and threatened retaliation. The resulting uncertainty makes it very hard for businesses to plan and many have been unwilling to commit to investment decisions. The uncertainty has been compounded by geopolitical events, such as the continuing war in Ukraine, the war in Gaza and the June 13 Israeli attack on Iran.

The World Uncertainty Index (WUI) tracks uncertainty around the world by applying a form of text mining known as ‘term frequency’ to the country reports produced by the Economist Intelligence Unit (EIU). The words searched for are ‘uncertain’, ‘uncertainty’ and ‘uncertainties’ and the number of times they occur as percentage of the total words is recorded. To produce the WUI this figure is then multiplied by 1m. A higher WUI number indicates a greater level of uncertainty.

The monthly global average WUI is shown in Chart 1 (click here for a PowerPoint). It is based on 71 countries. Since 2008 the WUI has averaged a little over 23 000: i.e. 2.3 per cent of the text in EIU reports contains the word ‘uncertainty’ or a close variant. In May 2025, it was almost 79 000 – the highest since the index was first complied in 2008. The previous highest was in March 2020, at the start of the COVID-19 outbreak, when the index rose to just over 56 000.

The second chart shows the World Trade Uncertainty Index (WTUI), published on the same site as the WUI (click here for a PowerPoint). The method adopted in its construction therefore mirrors that for the WUI but counts the number of times in EIU country reports ‘uncertainty’ is mentioned within proximity to a word related to trade, such as ‘protectionism’, ‘NAFTA’, ‘tariff’, ‘trade’, ‘UNCTAD’ or ‘WTO.’

The chart shows that in May 2025, the WTUI had risen to just over 23 000 – the second highest since December 2019, when President Trump imposed a new round of tariffs on Chinese imports and announced that he would restore steel tariffs on Brazil and Argentina. Since 2008, the WTUI has averaged just 2228.

It remains to be seen whether more stability in trade relations and geopolitics will allow WUI and WUTI to decline once more, or whether greater instability will simply lead to greater uncertainty, with damaging consequences for investment and also for consumption and employment.

Articles

Uncertainty Indices

Questions

  1. Explain what is meant by ‘text mining’. What are its strengths and weaknesses in assessing business, consumer and trade uncertainty?
  2. Explain how the UK Monthly EPU Index is derived.
  3. Why has uncertainty increased so dramatically since the start of 2025?
  4. Compare indices based on text mining with confidence indices.
  5. Plot consumer and business/industry confidence indicators for the past 24 months, using EC data. Do they correspond with the WUI?
  6. How may uncertainty affect consumers’ decisions?
Posted on

ISA Reform: Will it boost the London Stock Exchange (LSE)?

For a while now, debate has raged over how to revive the fortunes of the London Stock Exchange (LSE). Since the 2008 financial crisis, the market has suffered a lack of investment, poor liquidity and low performance. This has produced a moribund financial market which has become unattractive to both investors and companies. Returns from the UK market lag international competitors, particularly the USA (see the chart).


Investment in the S&P 500 Index over the period would have produced annualised rates of return of 14.35%, more than double that from the FTSE 100 Index. Part of this underperformance is due to the industrial mix of the listed companies: low-growth energy and mining compared to the high-growth technology sectors in the USA. This has led to the perception that London is not a place for firms to list, particularly those in high-growth sectors.

In 2024, 88 companies choose to delist or transfer their primary listing elsewhere. Only 18 took their place. Several big companies from a range of industries, including Ashtead, Flutter and CRH have transferred their primary listing to New York or have plans to do so.

The new Labour government views stimulating higher levels of investment though the London market as an important element in its drive to boost productivity and growth in the UK. Recently, it has been reported that investment institutions have been lobbying the UK government to reduce significantly the tax-free allowance for Cash Individual Savings Accounts (ISAs) as a way to encourage more of UK households’ savings to be channelled through the UK stock market.

Currently, UK savers can save up to £20 000 annually into ISAs without paying tax on the interest earned. This can be held solely in Cash ISAs, or in a combination of Cash plus Stocks and Shares ISAs. The tax-free instruments which were introduced by a Labour government in 1999 to encourage higher savings have proved immensely popular. Data from Paragon Bank indicate that over £350 billion are held in these accounts. However, under the new proposals, the amount which would be allowed to be saved as cash has been rumoured to be cut to £4000 per year, with the hope that some of it will be invested in the UK stock market.

The proposals have proved controversial, with high-profile figures voicing opposition. In this blog, we’ll analyse the reasons behind the proposal and discuss whether it will have the desired effect of stimulating higher levels of investment. We’ll also discuss other proposed policies for making the LSE a more effective channel for investment flows to boost economic growth.

Stock markets and the saving and investment channel

The main reason for the proposed ISA change is to encourage more investment in the UK stock market. By reducing the amount which can be saved in Cash ISAs, the government hopes to encourage savers to invest in Stocks and Shares ISAs instead, particularly ones linked to the UK market. This would increase the amount of finance capital in the market, thereby boosting its liquidity. This would then make it an attractive place for young, vibrant UK and foreign companies to list.

An active, liquid secondary market in shares is important to attract firms to list on stock exchanges by issuing shares to outside investors. Traditionally, this channel has been important to the growth and development of firms.

Existing savings in Cash ISAs are deposited with financial institutions such as banks and building societies. Through the credit-creation process such funds can be used to finance productive investment. In countries like the UK, lending by financial institutions is an important way that investment is financed, particularly for small and medium-sized enterprises. However, scale limits, regulatory restrictions and the need to diversify lending properly means that there are limits to the financing available for company investment through these institutions.

Capital markets like the LSE are intended to meet these larger-scale requirements. Financial claims, such as debt and equity, are divided into atomised instruments and sold to outside investors to fund investment and business growth.

Further, the desire for a capital injection to finance growth is not the only reason that firms seek stock market listings. Founders of companies may have a lot of wealth invested in the equity of their firms. Selling some of their equity to outside investors through a stock market listing is a way of diversifying their wealth. However, if they are to maximise the potential sale price, there must be an active, liquid secondary market to encourage investors to buy shares in the primary market.

Proponents of reform want to encourage a greater appetite for risk among UK investors, which will produce more savings being channelled through the LSE.

One issue is whether savers will respond in the way anticipated and channel more funds through the UK stock market. Many savers like the security of Cash ISAs. Such vehicles offer a low-risk/low-return combination, which savers like because the tax benefits boost returns. A survey by the Nottingham Building Society found that a substantial number of Cash ISA savers are concerned that the proposed changes could affect their ability to save for important financial goals, such as buying a house or building an emergency fund. Higher-risk Stocks and Shares ISAs are not suitable for such savings because of the potential to lose the initial amount invested. Many may not be prepared to do so and one-third suggested they would save less overall.

According to the survey, only 38% of Cash ISA holders said they would consider investing in Stocks and Shares ISAs if the Cash ISA allowance were reduced. It may be difficult to alter such risk-averse preferences given the average amount saved through ISAs and demographics. In 2022/23, the average amount subscribed to ISAs was £5000. This does not suggest that average households have a significant surplus of cash that they may want to investment at a high risk through the stock market. Indeed, many may want to have access to the cash at short notice and so are not prepared to forgo liquidity for the time needed to accrue the benefits of compounding which stock market investing produces.

Demographics may also play a role in this. Many of those who save more are now retired, or near retirement. They are less likely to see the appeal of compounding returns over long periods through investment in shares. Instead, with shorter investment horizons, they may only see the potential for losses associated with Stocks and Shares ISAs. Indeed, they will be starting to liquidate their long-term positions to draw income in retirement. Therefore, they may save less.

For others, who may be prepared to accept the additional risk, with the prospect of higher returns in the way that advocates of the reform hope for, the reduction in the Cash ISA allowance does not necessarily mean that they will invest in Stocks and Shares ISAs linked to the UK market. Since returns from the UK market have lagged international competitors, it may be that savers will channel their savings to those international markets, particularly in the USA, where the risk–return relationship has been more rewarding. Doing so has been made much easier and cheaper through a combination of economic forces including technological advances, regulatory changes and increased competition. This makes it much easier for UK savers to channel investment funds to wherever potential return is highest. At the moment, this is unlikely to be the UK, meaning that the anticipated boost to investment funds may not be as much as anticipated.

Critics of the proposal also question the motives of investment fund managers who have been lobbying government. They argue that the reforms will mean that many people who do now choose to save in Stocks and Shares ISAs will buy funds managed by fund managers who will receive fees for doing so. Critics argue that it is the prospect of higher fees which is the real motive behind the lobbying, not any desire to boost investment and growth.

What alternatives are available to boost the London Stock Exchange

The low valuations of LSE-listed companies compared to their international counterparts, particularly those in the USA, has discouraged growing firms from listing in London. To address this, there have been calls to enhance corporate governance standards and reduce regulatory burdens for listed companies.

This has already been recognised by the authorities. In 2024, UK regulators approved the biggest overhaul of rules regulating London-listed companies. The new listing rules will hand more power to company bosses to make decisions without shareholder votes. They will give companies more flexibility to adopt dual-class share structures used by founders and venture capital firms to give themselves stronger voting rights than other investors. This is particularly popular for founders who want to diversify their wealth without sacrificing control and is used frequently by tech companies and venture capitalists when listing in the USA. Such reforms may attract more companies in high-growth sectors to list in London.

Tax policies which provide the right incentives to buy and sell shares could also encourage more investment in the LSE. For instance, the repeal in the mid-1990s of the preferential tax treatment of dividend income for UK pension funds and insurance companies is seen as a major factor in discouraging those institutions from investing more funds in the London market. Since tax on capital gains is only liable when they are realised, this reduces their present value versus the equivalent amount on dividends.

As the following table illustrates, given the significantly higher percentage of total returns derived from dividends in the LSE compared to other exchanges, the equal tax treatment of dividend and capital gains provides an incentive to seek jurisdictions where capital gains predominate. This is what UK pension funds have done. Data from the Office of National Statistics show that in 2024, 77% of UK occupational pensions equity investments were overseas.

Reinstating this tax benefit could stimulate greater demand for UK equity from this significant sector, boosting liquidity in the London market. Allied to this are proposals from the UK government to consolidate the fragmented UK pension industry to achieve greater scale economies in that channel for investment. This can reduce financing costs, boosting the marginal return from UK investments for these funds, encouraging greater investment in the UK market (ceteris paribus).

Further, the 2.5% stamp duty on share purchases has been viewed as another disincentive for both retail and institutional investors to engage in security trading on the London Stock Exchange. The duty, which is much higher than in peer economies, effectively raises the expected rate of return on UK equites which depresses perceptions of their values and prices. Its removal may raise trading volumes, improving the liquidity of the market and be offset by increased tax revenues in the future. However, the Treasury suggests that the removal of stamp duty is doubtful, since it would create a significant hole in the UK government’s budget.

Ultimately, many of these reforms may have limited impact on investment. Efforts to boost confidence in the stock market will depend on improving the overall economic environment in the UK. Therefore, it will be the wider policies promoting growth in general which will increase the rates of return offered by London-listed firms and be more significant to attracting capital to London.

However, many of these are controversial themselves, such as relaxing laws around planning permissions and addressing business uncertainties around post-Brexit trading arrangements with the European Union. These broader economic measures could help make the UK generally, and the LSE specifically, more appealing to both domestic and international investors.

Conclusion

The UK government’s proposal to reduce the Cash ISA allowance is part of a broader strategy to boost investment in the stock market and stimulate economic growth. While this change could lead to more capital being directed towards productive investments, it also poses challenges for savers who like the security and simplicity of Cash ISAs.

The ultimate impact will depend on how savers respond to these changes. The potential reduction in overall savings rates could counteract some of the intended benefits. Further, the extent to which they are prepared to channel their savings into UK-listed companies will be important. If many seek higher returns elsewhere, the impact on the UK stock market may be limited. In any case, policies to address the problems of the UK stock market will only work if the wider issues associated with UK productivity and growth are addressed.

Articles

Data

Questions

  1. Explain how banks use cash ISAs to finance investment through credit creation.
  2. What do stock markets offer which may boost investment and economic growth?
  3. What are the issues with the London Stock Exchange which is making it unattractive for raising finance?
  4. How is the rumoured ISA reform intended to help address these issues?
  5. Analyse the extent to which it will do so.
  6. How might some of the broader reforms proposed by the UK government influence rate of return on UK equities and attract capital?
Posted on

Investment set to fall as business is baffled by Trump

Economic growth is closely linked to investment. In the short term, there is a demand-side effect: higher investment, by increasing aggregate demand, creates a multiplier effect. GDP rises and unemployment falls. Over the longer term, higher net investment causes a supply-side effect: industrial capacity and potential output rise. This will be from both the greater quantity of capital and, if new investment incorporates superior technology, from a greater productivity of capital.

One of the biggest determinants of investment is certainty about the future: certainty allows businesses to plan investment. Uncertainty, by contrast, is likely to dampen investment. Investment is for future output and if the future is unknown, why undertake costly investment? After all, the cost of investment is generally recouped over several months or year, not immediately. Uncertainty thus increases the risks of investment.

There is currently great uncertainty in the USA and its trading partners. The frequent changes in policy by President Trump are causing a fall in confidence and consequently a fall in investment. The past few weeks have seen large cuts in US government expenditure as his administration seeks to dismantle the current structure of government. The businesses supplying federal agencies thus face great uncertainty about future contracts. Laid-off workers will be forced to cut their spending, which will have knock-on effect on business, who will cut employment and investment as the multiplier and accelerator work through.

There are also worries that the economic chaos caused by President Trump’s frequent policy changes will cause inflation to rise. Higher inflation will prompt the Federal Reserve to raise interest rates. This, in turn, will increase the cost of borrowing for investment.

Tariff uncertainty

Perhaps the biggest uncertainty for business concerns the imposition of tariffs. Many US businesses rely on imports of raw materials, components, equipment, etc. Imposing tariffs on imports raises business costs. But this will vary from firm to firm, depending on the proportion of their inputs that are imported. And even when the inputs are from other US companies, those companies may rely on imports and thus be forced to raise prices to their customers. And if, in retaliation, other countries impose tariffs on US goods, this will affect US exporters and discourage them from investing.

For many multinational companies, whether based in the USA or elsewhere, supply chains involve many countries. New tariffs will force them to rethink which suppliers to use and where to locate production. The resulting uncertainty can cause them to delay or cancel investments.

Uncertainty has also been caused by the frequent changes in the planned level of tariffs. With the Trump administration using tariffs as a threat to get trading partners to change policy, the threatened tariff rates have varied depending on how trading partners have responded. There has also been uncertainty on just how the tariff policy will be implemented, making it more difficult for businesses to estimate the effect on them.

Then there are serious issues for the longer term. Other countries will be less willing to sign trade deals with the USA if they will not be honoured. Countries may increasingly look to diverting trade from the USA to other countries.

Video

Articles

Data

Questions

  1. Find out what tariffs have been proposed, imposed and changed since Donald Trump came to office on 20 January 2025.
  2. In what scenario might US investment be stimulated by Donald Trump’s policies?
  3. What countries’ economies have gained or are set to gain from Donald Trump’s policies?
  4. What is the USMCA agreement? Do Donald Trump’s policies break this agreement?
  5. Find out and explain what has happened to the US stock market since January 2025. How do share prices affect business investment?
  6. Which sector’s shares have risen and which have fallen?
  7. Using the Data link above, find out what has been happening to the US Policy Uncertainty Index since Donald Trump was elected and explain particular spikes in the index. Is this mirrored in the global Policy Uncertainty Index?
  8. Are changes in the Policy Uncertainty Index mirrored in the World Uncertainty Index (WUI) and the CBOE Volatility Index: VIX?