Trump threatens to slap tariffs on all $505bn of Chinese imports

Gladys Abbott
July 22, 2018

President Trump on Friday cited alleged currency manipulation by China and the European Union as a justification for not raising US interest rates as he doubled down on his criticism of the Federal Reserve.

"I'm ready to go to 500", Trump said the CNBC interview broadcast Friday. Still, they break with the long-standing tradition of United States presidents withholding comments on Fed policy to preserve the central bank's independence from political pressure.

Axios reports on Friday that "chances of a longer, wider, more damaging trade war with China are rising", with one possible scenario including China goading Trump into a trade war.

World stock markets fell dramatically early Friday following President Donald Trump's remarks about being prepared to slap new tariffs on Chinese imports.

During the 1960s, President Lyndon Johnson reportedly physically manhandled the then-Fed chairman, William McChesney Martin, for wanting to raise interest rates, which LBJ saw as a threat to his guns-and-butter fiscal spending.

After Trump's interview with CNBC was made public, Lindsay Walters, a White House spokeswoman, said the president "respects the independence of the Fed". But at the same time I'm letting them do what they feel is best, ' Trump said.

Much in the way that people were displeased when he seemed to kowtow to the tyrant running Russian Federation earlier in the week, people were again irked that Trump was attempting to influence the decision making at America's independent central bank.

In a bit of hyperbole, former Fed Gov. Frederic Mishkin, on CNBC, brought up the example of Turkey President Recep Tayyip Erdogan's recent move to take over interest-rate policy, including naming his son-in-law to oversee economic policy.

"I'm not thrilled", he said in the interview with USA business network CNBC.

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The Fed has raised interest rates twice in 2018, and is expected to issue at least two more rate hikes before the end of the year.

All things being equal, rate hikes have the effect of raising a value of a country's currency, because they mean investors can expect higher returns for investing in that country.

White House economic adviser Larry Kudlow blamed Chinese President Xi Jinping for a lack of progress in bilateral trade talks, saying that lower-ranking officials want a deal. As he said he considers the Federal Reserve Board Chair Jerome Powell a very good man and that he is not interfering with Fed policy decisions.

In a pair of tweets, Trump said China, the European Union and others had been "manipulating their currencies and interest rates lower" while the dollar gained in strength, eroding "our big competitive edge".

His comments drew concern that Trump was trying to put political pressure on the Fed.

The U.S. yield curve flattened, close to levels not seen in 11 years, as upbeat data on the jobs market and business activity reinforced the view of further interest rate increases from the Fed.

Presidents historically have refrained from criticizing the Fed, which is supposedly free from political interference.

"You have to take seriously that (imposing tariffs) is what he really wants to do", said Adam Posen, president of the Peterson Institute for International Economics.

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