Trump threatens tariffs on all US$500B of Chinese imports

Ann Santiago
July 23, 2018

The dollar was on pace for its biggest single-session drop in three weeks against a basket of major currencies, stalling a rally that had driven the greenback to a year high.

American presidents have rarely criticized the US central bank in recent decades because the independence of the Fed is seen as important for economic stability.

"We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns", Powell said.

In a later statement to CNBC, the White House said Trump "respects the independence of the Fed" and "he is not interfering with Fed policy decisions".

The threat to place tariffs on all Chinese goods sent to the United States would effectively end the tit-for-tat trade battle between the two nations, as Chinese imports from the USA are a comparatively small $US129.9 billion.

So Clinton said that the Fed's independence was one of the things that actually made the USA economy look strong, according to Low. Testifying before Congress this week, Powell reiterated the US economy is humming along and should continue to do so. Chinese leader Xi Jinping could decide to boycott USA companies operating in China, sell US assets, or adjust its approach to geopolitical issues to pressure the change its course on tariffs.

Fed Chair Jerome Powell told the Senate earlier this week that it is best for the central bank to keep gradually rising interest rates, for now, since the job market is strong and inflation is near the Fed's target rate of 2 percent.

"The Fed has often faced political pressures - from Congress, presidents, Treasury secretaries and innumerable outside groups", said Kroszner, an economics professor at the University of Chicago. "That may lead to additional inflation and tighter labor markets". Higher interest rates mean higher borrowing costs for consumers and higher mortgage rates.

"I don't like all of this work that we're putting into the economy and then I see rates going up", he said.

The stock market and shares of most American companies also gained, and some hit record levels, before and after the cuts. With those nations nearly certain to retaliate, the result could be higher prices for Americans, diminished export sales and a weaker USA economy by next year.

He also doubled down on his trade fight with China, vowing in an interview with CNBC that aired Friday that he was ready to impose tariffs on US$500 billion worth of Chinese imports - roughly all the goods China sends to the United States each year.

"A lot of the stuff that he wants versus what is actually being implemented are inconsistent", said Mazen Issa, senior FX strategist TD Securities, in NY.

"I don't want them to be scared".

The impact on the dollar could be a little more lasting if Trump makes it a point to attack the dollar's strength repeatedly.

"Automobiles - that's the 800-pound gorilla", Brookings' Dollar said. -China trade war and a host of other conflicts that Trump has ignited between the United States and key trading partners, including Canada and the European Union.

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