EU, Chinese stinging U.S., Trump tweets

He hits them on currencies, trade, keeps criticizing Fed

Posted: July 21, 2018 at 4:04 a.m.
Updated: July 21, 2018 at 4:04 a.m.

FILE - In this July 19, 2018 file photo, President Donald Trump speaks before signing an Executive Order that establishes a National Council for the American Worker during a ceremony in the East Room of the White House in Washington. (AP Photo/Andrew Harnik, File)

President Donald Trump on Friday accused China and the European Union of manipulating their currencies and continued to criticize the Federal Reserve for raising interest rates, saying those moves are putting the United States at a disadvantage.

In a flurry of early morning Twitter posts, Trump complained that the Fed's rate increases and a "stronger and stronger" U.S. dollar are "taking away our big competitive edge." He also said the Fed's plan to raise rates -- known as tightening because it makes borrowing more expensive -- "hurts all that we have done."

"The United States should not be penalized because we are doing so well," Trump wrote. "Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates -- Really?"

His comments are a break with long-standing White House norms, in which U.S. presidents tend to talk sparingly about the U.S. dollar and, when they do, generally reiterate that a strong dollar is in the national interest. On Thursday, Trump drew criticism for saying in an interview with CNBC that he did not like the Fed's interest-rate decisions, comments that also upend presidential protocol to respect the independence of the central bank.

Trump, along with Republican lawmakers, is trying to make a booming economy a big issue in the midterm elections. The president's $1.5 trillion tax cut, along with federal spending increases he has signed into law, have injected new stimulus into an economy that is finally shaking off the sluggish growth that has marked its recovery from recession. Unemployment is at an 18-year low and gross domestic product growth could hit 3 percent this year, which would be the best rate in more than a decade.

The Fed, meanwhile, is shifting away from a decade of ultralow rates that supported growth, and it is beginning to gently tap the brakes in order to prevent the economy from overheating.

Fed officials are gradually and steadily raising interest rates as the economy strengthens, a strategy that began under previous Chairman Janet Yellen and has continued under Chairman Jerome Powell, Trump's pick to replace her. The Fed has raised rates twice this year and is on track to raise them twice more by the end of the year, officials indicated after the Fed's June meeting.

While financial markets seemed to shrug off Trump's initial comments on the Federal Reserve on Thursday, his Twitter posts on Friday -- all of which seemed aimed at pushing the dollar lower -- drew a reaction.

The dollar, as measured by the U.S. Dollar Index, fell sharply, by roughly 0.6 percent. Prices of 30-year U.S. Treasury bonds, which are highly sensitive to changes in inflation expectations, also dropped, pushing yields -- which move in the opposite direction -- higher. Prices for gold, a traditional hedge against inflation risk, rose.

Aides said Trump was not trying to influence the Fed, but said that he would prefer if officials paused their plans for rate increases in order to avoid dampening economic growth.

Trump's sharp words come before a gathering this weekend of finance ministers of the Group of 20 countries in Argentina, where Steven Mnuchin, the Treasury secretary, is expected to participate in a dozen bilateral meetings and broader multilateral meetings. Powell also will be in attendance and will participate in a discussion on global economic risk, the Treasury Department said.

It will be the third such meeting of the world's top economic officials in recent months in which Mnuchin is expected to bear the brunt of the frustration of U.S. allies. Viewed as a voice of moderation on trade in the Trump administration, Mnuchin will be a sounding board for growing concerns about U.S. tariffs on steel and aluminum and the prospect of new tariffs on automobile imports.

In a slew of trade actions, the president has already imposed tariffs on roughly 4 percent of U.S. imports, including foreign steel, aluminum, washing machines and solar-power products, and a variety of goods from China. But he has threatened to greatly escalate that number, expanding tariffs to cover roughly a quarter of all U.S. imports.

A senior Treasury Department official who previewed the event said that Mnuchin does not have a meeting scheduled with Chinese officials in Buenos Aires. They are expected to interact during the multilateral discussions, but one-on-one negotiations are currently stalled.

The Treasury secretary will meet separately this weekend with counterparts from Group of Seven countries to discuss ways to coordinate "concrete action with regard to China and its economic aggression," the official said.

In an interview with CNBC that aired Friday, the president described the exchange of threats with China as a poker game and said he was ready to place tariffs on $500 billion worth of Chinese imports -- roughly all the goods China sends to the United States each year. He added that the trade conflict was "the right thing to do for our country."

Trump also has instructed the Commerce Department to investigate whether imported autos and auto parts threaten America's national security -- the same justification the president has invoked for other tariffs he has imposed or threatened, including on imported steel and aluminum. If the answer is yes, the administration says it could place 20 percent to 25 percent tariffs on $335 billion of auto imports. Higher car prices for American consumers would inevitably follow.

Analysts say they're becoming more convinced that Trump's multifront trade fights aren't merely a short-term negotiating ploy. Rather, he may be prepared to wait as long as he feels it necessary to force other countries to adopt trade rules more favorable to the United States.

"People are underestimating what we're headed for," said Rod Hunter, a lawyer who served as a White House economic adviser under President George W. Bush. "He's been saying since the '80s that trade deals are bad and we should have more tariffs, and that's what we're getting."

Moody's Analytics estimates that if the tariffs were imposed on autos and most Chinese imports and other countries retaliate as expected, annual U.S. growth would slow by 0.5 percentage point by mid-2019. It expects that 700,000 jobs would be lost.

Global markets have remained generally calm despite the outbreak of a full-blown U.S.-China trade war and the other conflicts Trump has ignited. On Friday, the Dow Jones industrial average closed down slightly.

"I've been surprised that up until now, markets seem overly sanguine about the risks" of a trade war between the world's two biggest economies, said David Dollar, senior fellow at the Brookings Institution and a former official at the World Bank and U.S. Treasury Department.

Investors as a whole appear to accept the argument of Trump economic advisers, notably Larry Kudlow and Kevin Hassett, that the president's threats likely will force China, the European Union, Canada and Mexico to eventually negotiate better trade deals.

Trump's trade actions have invited retaliation from Europe, Mexico, Canada and other countries, as well as China, taking a heavy toll on major U.S. exporters, including farmers. In another Twitter post Friday, Trump defended his strategy.

"Farmers have been on a downward trend for 15 years," he said. "The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers."

Farmers have been struggling with lower commodity prices in recent years, but the price of soybeans has plummeted sharply since the beginning of May, as China, the United States' biggest foreign buyer, threatened to curtail its purchases.

Though Trump has a strong base of support among U.S. farmers, many insist that exporting is vital for their livelihoods and that trade pacts like the North American Free Trade Agreement, which Trump has heavily criticized, have benefited them. U.S. agricultural exports have nearly tripled since NAFTA went into force in 1994, reaching $140.47 billion in 2017. They continue to outpace agricultural imports, which also have risen.

Ron Moore, chairman of the American Soybean Association and a farmer in Illinois, said that tariff threats had appeared to have caused the market to "collapse" in recent months. "There's extreme amount of volatility in the marketplace right now," he said. "That really makes farmers nervous. We've all got bills to pay."

Information for this article was contributed by Ana Swanson, Jim Tankersley and Alan Rappeport of The New York Times and by Christopher Rugaber and Paul Wiseman of The Associated Press.

Business on 07/21/2018