“Who Is Our Bigger Enemy, Jay Powell or Chairman Xi?”
“Who is our bigger enemy, Jay Powell or Chairman Xi?”
We presume the president’s question is rhetorical in nature. But we are not certain.
First to the deep-dyed villainy of Chairman Xi…
China announced retaliatory tariffs on $75 billion of American imports this morning.
Many will enter force Sept. 1 — to coincide with United States tariffs on Chinese goods.
Goldman analysts blame Trump’s recent decision to delay some of these tariffs.
Why? Trump blinked, they argue. And Xi detected weakness.
The recent U.S. decision to delay some tariffs could even paradoxically prolong the trade war since it has been seen as a sign of weakness, at least by some in China, and could make the Chinese government less willing to soften its stance to reach a compromise.
And so Mr. Xi has backed Trump into a corner…
Many of the tariffed goods — soybeans, automobiles and automobile parts — come springing from Midwestern states.
Trump must carry these Midwestern states in the 2020 election.
Will they stand with him next November if their business wallows from Chinese tariffs?
President Trump’s reaction to China’s announcement was immediate. And President Trump’s reaction to China’s announcement was… harsh.
“We don’t need China and, frankly, would be far better off without them.”
Mr. Trump instructed “our great American companies… to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
He further demanded that “all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE, all deliveries of Fentanyl from China (or anywhere else!).”
Fentanyl is an opioid packing up to 100 times the wallop of morphine. It slays perhaps 100,000 Americans each year.
But the president was not through. He further announced plans to return to the warpath:
“I will be responding to China’s Tariffs this afternoon.”
The stock market took Mr. Trump’s comments on the chin… and went keeling over.
The Dow Jones was 500 points backward by 1 p.m. It was off 623 by the closing whistle.
The S&P shed 76 points today. And the trade-sensitive Nasdaq took a 240-point slating.
At writing, President Trump has not yet declared his counterblow. We will nonetheless speculate about the form it will take…
The dollar presently rises to record heights. The mighty dollar is a thorn in Trump’s flesh.
We suspect he will intervene directly to knock it down — with assistance from the United States Department of Treasury.
As our own Jim Rickards attests:
“If the White House and Treasury want a weaker dollar, they can achieve it on their own with no help from the Fed.”
By way of Treasury’s Exchange Stabilization Fund.
The president can instruct the Treasury to purchase Chinese yuan in the foreign exchange markets.
The purchases would push up the yuan… and drag down the dollar.
What is more, the president requires no congressional permission slip to act. Here is the royal road to a cheaper dollar — if the president follows it.
But to repeat, Mr. Trump has not revealed his battle plans (as of 5:30 Eastern).
But in the president’s telling, China is not the sole enemy that menaces America’s peace and happiness…
Another fee-fi-fo-fum appears in the person of Mr. Jerome Powell, 16th chairman of the United States Federal Reserve Bank.
Mr. Powell is currently camped down in Jackson Hole, Wyoming, for the Federal Reserve’s annual confabulation.
President Trump hoped Mr. Powell would clear the way for aggressive rate cutting.
But Powell’s comments this morning fell wide of the mark.
He announced the economy is in a “favorable place.”
He did allow that it confronts “significant risks.” He also babbled that the Federal Reserve would “act as appropriate to sustain the expansion.”
But he did not promise a punishing assault on interest rates.
And so the president seized him by the scruff… and gave him a good round piece of his mind:
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…
And the sting in the tail:
“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
We can offer the president no definitive answer.
But as says author Robert Jordan…
“A man falling off a cliff to certain death will stretch out a hand even to his worst enemy.”
Here is the irony before us:
To avoid falling to certain death in the 2020 election… President Trump may end up stretching out a hand to both of them.
Trade war or no trade war, the economy may be in for hard sledding ahead.
Managing editor, The Daily Reckoning