It has become glaringly obvious that President Trump has no Plan B to win his trade war with China. That notion was observable for some time, but hope springs – err, sprung – eternal.
I think today will be remembered as the day that “all bets are off” regarding a trade deal between the U.S. and China, anytime soon. There are a few things to unpack here. President Trump:
tweeted an order for American companies to find alternative locations for their China operations. It’s hard to know if he has the authority to force private companies to move their operations. Plus, if it is in the form of a tweet, is it official? What could he do if they don’t move, take back their tax cuts? Does anyone think that this is confidence inspiring for CEO’s, who will most likely delay and/or cancel projects due to the costs of increased tariffs?
continues to attack Federal Reserve Chairman Jerome Powell. Today’s speech from Jackson Hole, Wyoming, was never a policy speech. Today was not a FOMC (Federal Open Market Committee) meeting to decide anything about interest rate moves. Trump tweeted “as usual the FED did nothing!” today.
labeled both Jerome Powell and Chinese President Xi Jinping an enemy. “Who is our bigger enemy, Jay Powell or Chairman Xi?" Trump tweeted. This is a major diplomatic faux pas, if in fact, Trump didn’t mean to really sound like he was calling China’s president our enemy. And to label another American who is in the spotlight as an enemy? It’s dangerous for our economy and to Powell personally. Plus, Powell isn’t going anywhere unless forced to do so, having said recently “I was appointed to serve a four year term and I intend to serve all four years”.
Mind you, these are all just from today.
Tariffs on Chinese imports are on the way on September 1
and later in December. Tariffs on American imports heading to China are on their way too, at the same time. That didn’t seem like such a certainty yesterday because there was hope that cooler heads would prevail, which is why the major averages are down over 2% today. The
China Trade Index
, a proprietary CNBC index which tracks companies with the biggest China revenue exposure and most imports from China, is down over 3.0% today.
Early this morning, I was speaking with a business journalist from NBC News about what to expect from Jerome Powell during the Federal Reserve’s annual gathering at Jackson Hole. My thoughts were that no matter what Powell says, Trump won’t stop browbeating him until he gives Trump what he wants, which is to be reelected in 11/2020. My exact comments were:
“The trade war Trump initiated is of his own making,” said Mitchell Goldberg, president of ClientFirst Strategy. “Trump wants the Fed to use low interest rates to help him in his battle with China. But the Federal Reserve is not in existence for political expediency,” he said.
Economists pointed out that Powell’s Fed already is a scapegoat in the eyes of the President, who has blamed it for market volatility and slowing growth. “I expect Trump’s next move would be to probably try to make a change that the top of the Fed,” Goldberg said, although he noted that any such attempt would likely backfire by triggering a negative market response.
This willingness to interfere in the Fed’s independence is reflective of an administration operating at cross purposes — a disconnect that is becoming increasingly clear, Goldberg said. “It basically shows you that the Trump administration has no true coherent economic plan. They tried to show a lot of bravado with China… Their credibility on the economy is starting to wane"
Surely China won’t give him an out as it could wait 15 months until the next election to start bargaining. Recession fears, in the meantime, will grow more intense. There’s still time for a trade deal, though. Trump will have to decide which is more palatable; relenting on trade tariffs with China or appearing like he lost the trade war. Investors just don’t know if he can do either, which is why they are worried that his default option is escalation.
Now, check out this video all about what the Inverted Yield Curve really means: