Trump Issues Orders as China Escalates Tariffs
Donald Trump was already in a class by himself among U.S. Presidents in the category of being bombastic, but his now ordering U.S. companies to pull out of China sets a new standard.
Friday was supposed to be all about hearing Fed Chairman Jerome Powell speak about the economy during the central bank’s annual retreat. His remarks were all the market could hope for and more, as he made it clear that the goal going forward would be to keep inflation around the 2% mark, where the Fed would use their power to help this along as much as needed.
Just how far the other members of the Federal Reserve Open Market Committee are prepared to go remains to be seen, but Powell was presumably speaking on behalf of the committee here, and this does indeed bode very well for further rate cuts. With the goal being the inflation metric, the number of further cuts now becomes not a matter of any target rate or a certain amount of cutting but how much will be needed to bring inflation up enough.
To those who believed strongly that more cuts were coming anyway, this may not seem like much of a departure or even a departure at all, but it most certainly is. During the last meeting, the committee was pretty comfortable with where inflation is now and didn’t really set any floor on it, but we do have one now, and that does increase the likelihood of further cuts quite meaningfully.
Stock markets had sold off a bit in pre-market trading from the announcement of new tariffs from China, but this amount was quickly gained back during the first hour and a half of regular trading as Powell’s remarks soothed the nerves of the market.
President Trump quickly responded in his normal fashion, not by holding a press conference like other presidents would do, but by logging into his Twitter account and sharing a series of new tweets with the world.
The content of these tweets wasn’t really important, and they actually well crossed the line into the realm of the truly ridiculous. What really mattered here, and what message we can take from all this, is just how bellicose Trump really is in regard to negotiations with China on a trade deal.
The prospects of a quick resolution went down a bit with the announcement of China’s new tariffs, but we expected that. These prospects sank a lot more after the Trump tweets in response, and if China now thinks that the U.S. has a madman at the helm, they could certainly be forgiven.
These series of tweets by Trump were so over the top that we may wonder this ourselves. Trump has always demonstrated a lack of understanding about the limitations of presidential power but this time we have to wonder whether he sees himself not as president but as a dictator, as he is at least pretending to be one now.
Trump Spooks the Market Once Again
The Dow dropped over 500 points in the first hour of this exchange of fire between the two countries, and dropped even further as the market tried to digest all of this. Stocks with a lot of exposure to the Chinese market took a particular hit, as we would expect the new tariffs to cause, but the mood of the market was certainly upset by Trump’s tweets as well, and more so in fact.
Trump has now ordered U.S. companies to get out of China, as well as their now being ordered to bring their manufacturing “back home” to the U.S. This is way beyond the scope of power that he holds though and therefore has no practical impact upon things, other than this telling us that we may have to forget about a trade deal happening at all during his presidency.
He also accused China of stealing trillions of dollars from the U.S., and while these are remarks that we have heard before, this is not the sort of language that either promotes reconciliation nor perhaps even permits it.
Along the way, we learned that Trump will be increasing the tariff rate on new imports due to kick in on September 1 from 10% to 15%, further escalating the war. Given that this is a new addition, China may respond in turn soon, and we’re definitely moving further and further away from resolution as time goes on.
Perhaps the most ridiculous comment contained in his tweets is his asking who is the bigger enemy of the United States, President Xi of China or Chairman Powell of the Federal Reserve. The fact that this was made after Powell indicated that he is in much more agreement with Trump than we previously would have thought just makes this comparison all the more bizarre.
Perhaps comparing Xi with Powell indicates that the level of animosity with him may actually be on the more minor side, or on the other hand, given his harsh criticism of Powell, it may be that he genuinely sees both as big enemies. No other names were mentioned so perhaps these two gentlemen really are public enemy number one and two in his mind, and he can’t decide who is which.
This Indeed is Worrisome
We have been used to bombast of unprecedented degrees from President Trump, and some have seen their excesses as being related to tactics and surely not genuine, but these latest comments are so out there to be disturbing on a whole new level.
We would think that someone would have asked him how he plans on forcing companies out of China, and bringing all this manufacturing “back home,” but perhaps he just tweets in isolation with no real regard as to the sensibility of his remarks. There is little doubt that anger at the new Chinese tariffs played a role in his lapse of sensibility, but we would expect a more measured and thought out response than this, even from him.
One thing that we do know is that the trade negotiations with China has now turned into a schoolyard brawl, with Trump, having his shirt pulled over his head, now throwing wild punches into the air. This is not a good sign at all and as long as Trump keeps the fight on the playground, it’s hard to imagine a deal getting done without either a new president or China simply giving up.
China certainly won’t do that, so this probably leaves us with about a year and a half of more of this name calling and wrestling on the ground. The next time, perhaps he will simply order China around, should his already very large head grow even larger.
Luckily, the U.S. does not rest all power in their leader, and in reality, the leadership is shared between branches of government, and we also have a system of laws and regulations as well as the constitution to keep government power in check.
Trump’s new ambitions would require that he become promoted from president to king and absolute ruler, and that’s not something Congress or the Supreme Court would be willing to entertain, although he is still entitled to dream perhaps. This is not a good dream for us though, and we may prefer to have our presidents not only be more conciliatory but to be more connected with reality as well.
Editor, MarketReview.com
Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.
Contact Monica: monica@marketreview.com
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