You try so hard to be optimistic about the outlook for the U.S. economy, and then President Donald Trump tweets again.
In a flurry of tweets on Friday, Trump alarmed stock investors by ratcheting up his anti-China talk to a new level of fury. “We don’t need China and, frankly, would be far better off without them,” he wrote.
The next bit was more worrisome. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” he tweeted. It wasn’t clear if he was using hyperbole or actually has some law or regulation in mind that would allow him to command American companies to withdraw from China.
Stocks fell and analysts struggled to make sense of the tweets. Stocks are “like a boxer being punched a 100th time,” Michael Antonelli, institutional equity sales trader and managing director at Robert W. Baird & Co., told Bloomberg.
“If you are one of those people looking for a prolonged trade war, this certainly plays into that narrative,” says Yousef Abbasi, global market strategist at INTL FCStone. “The only thing Trump can really hope for is that China comes back and says, ‘We’re willing to negotiate on some of the sticking points we have.”’
After U.S. markets closed on Friday, Trump said in a series of tweets that duties on the $250 billion of imports already in effect will rise to 30% from 25% on Oct. 1. He also said that the remaining $300 billion worth of goods will be taxed at 15% instead of 10% starting Sept. 1.
The background is that China said on Friday that it planned to impose additional tariffs on $75 billion of American goods, including soybeans, automobiles, and oil. That was intended as retaliation for Trump’s plan to put tariffs on nearly $300 billion in Chinese goods, some in September and some in December.
Stepping back from the tit-for-tat, the big picture is that China just might be able to doom Trump’s reelection chances—just as Russia helped put him in office in the first place by interfering in the 2016 presidential election in what the Mueller Report called “sweeping and systematic fashion.”
China is suffering more from the trade war than the U.S. is, as Trump has accurately observed. The difference is that Chinese President Xi Jinping does not have to worry about an upcoming election. His new strategy seems to be to outlast Trump and hope that the next occupant of the White House will be more reasonable.
It doesn’t say much for the U.S. that its fate can be so easily affected by two countries that are its biggest rivals, if not outright adversaries. The Russia story has been well hashed over, and is mostly about politics and geostrategic considerations, since Russia is an economic lightweight. The China story is very much about economics. China already has the world’s second-biggest gross domestic product and could soon have the biggest. The two countries’ economies have become so interwoven that they were once jointly dubbed Chimerica. But the relationship is unraveling at a breathtaking pace.
It’s understandable why Trump is picking a fight with Jerome Powell, his pick for chairman of the Federal Reserve. He wants Powell’s Fed to cut interest rates faster to give the economy a boost—which would help his reelection chances. Today, after Powell gave a speech in Jackson Hole, Wyo., that Trump regarded as insufficiently dovish, he tweeted, “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
It’s less understandable why Trump is picking a fight with Xi . Certainly China has a passel of unfair trade practices, such as forced technology transfer, restrictions on entry by foreign firms, and subsidies of domestic ones. But instead of focusing on those, Trump seems to object to the very idea that China is selling products to the U.S. In remarks to reporters on Aug. 21 describing revenue that China has received for the products it shipped, he said China “ripped it out of the United States.”
Trump then looked skyward, as if to heaven, and said he was “the chosen one” who was taking on China after his predecessors had failed to do so. It’s a fight he seems he feels he must wage, even if it does harm his chances for a second term. If the president has started regarding his trade war with China as a mission from God, prospects for ending it amicably are, to say the least, not good.
Source: Bloomberg