Donald Trump escalated his attacks on China on Friday, bumping up tariffs on Chinese imports and ordering US companies to leave China.
Trump’s announcements on Friday – all on Twitter – came after the president launched another blistering criticism of the Federal Reserve chairman, Jerome Powell, asking: “Who is our bigger enemy, Jay Powell or [China’s] Chairman Xi?”
Moments after Powell warned the US central bank was facing a “new challenge” as it deals with the Trump administration’s seesaw trade policies and continuing dispute with China on Friday morning, Trump went on a Twitter rampage calling for a US boycott. “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.”
Trump said China had broken a promise to stop shipments of the synthetic opioid fentanyl from coming into the US and had ordered Amazon, FedEx and UPS to search shipments for the drug. “Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t,” he wrote on Twitter.
The president has no legal authority to compel US companies to leave China – one of the US’s largest markets and trading partners. It is as yet unclear how he will impose his “order”.
Later on Friday, Trump tweeted to say that his administration would increase tariffs on Chinese goods from 25% to 30% starting 1 October.
“In the spirit of achieving FAIR TRADE, we must Balance this unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30% … Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10% will now be taxed at 15%,” Trump tweeted.
“Thank you for your attention,” he added.
Trump’s statements came after China announced it was preparing to impose $75bn in additional tariffs on US products, the latest round of levies in an escalating trade war between the world’s two largest economies. Beijing’s move follows the US’s announcement that it will impose an additional $300bn in tariffs on Chinese goods starting later this year.
US stock markets all turned negative as they absorbed the news, the Dow Jones Industrial dropped over 600 points (2.3%).
The US dispute with China has shaken stock markets for months and now appears to be having wider ramifications for the US economy. While unemployment remains at a 50-year low ands inflation is under control, economic growth is slowing amd manufacturers are slowing production.
In July the Fed cut rates for the first time in a decade – in part in reaction to the trade dispute. Speaking at an annual gathering of central bankers in Jackson Hole, Wyoming, Powell signaled more cuts were on the cards.
Powell said the Fed should try to “look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives”.
But he warned the Fed had little experience in dealing with situations like the one it now finds itself in. “We have much experience in addressing typical macroeconomic developments,” he said. “But fitting trade policy uncertainty into this framework is a new challenge.”
“In principle, anything that affects the outlook for employment and inflation could also affect the appropriate stance of monetary policy,” Powell told other central bankers gathered for the Fed’s annual symposium.
“There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rulebook for international trade,” he said.
Trump, who has been a persistent critic of the Fed and Powell, once again lambasted the Fed chair after the speech was released.
The Fed has tried to balance that potential slowdown with the fact that the economy still expanding and job creation remains robust. If and when the next recession comes it will have little room to manoeuvre as its benchmark rate, a range of 2%-2.25%, is still historically low.
Powell has faced a blistering – and unprecedented – public assault from Trump over the Fed’s monetary policy. The Fed is supposed to be free to act independently, free from political interference, but the president has broken precedent by repeatedly calling on the central bank to ease monetary policy and stimulate the economy.
Trump has called Powell “clueless” and threatened to demote him. Powell has said he would not resign even if Trump asked him to.