Stay cool, man. It’s not that bad…
The President started the day by roasting his Federal Reserve chairman, Jerome Powell:
That’s because Powell made a public appearance, and while he did say the Fed is moving to “sustain the expansion” in the U.S. economy, which would normally be interpreted to mean lower interest rates ahead, he didn’t say what Trump wanted: that he would cut interest rates by 100 basis points, as the President has been demanding. 100 basis points is one full percent, which is something you do in an emergency. So is it?
Of course, Powell didn’t hire himself. He was hired by Trump (but since the Federal Reserve is designed to operate mostly outside the influence of the President and, politics in general, he can’t easily fire him until his term is up, which wouldn’t come until Trump’s second term, if he’s re-elected). Trump didn’t have to hire Powell, he could’ve just kept on Janet Yellen as Fed Chair, but at the time he commented: “you like to make your own mark”. So one of our friends suggested if he really feels Powell is an irredeemable disaster, it would be far more accurate for Trump to post this:
(OK that’s juvenile but it rings true and again emphasizes that Trump never takes responsibility for anything that he doesn’t like happens under his watch, and anyone who disagrees with him is an instant “enemy”).
Powell, in his own understated Fed Chair-like way, gave as good as he got: emphasizing that we’re in (literally) uncharted territory because things like Trump’s trade wars are making it virtually impossible to use tried-and-true economic models.
“While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, and public confidence, it cannot provide a settled rule book for international trade.”
Here’s a link to the full transcript of Powell’s speech, which is far more interesting and less cryptic than these things tend to be. (And also we wanted you to be able to judge for yourselves if he’s the nut Trump makes him out to be.)
So in a sense, Trump’s behavior is forcing everyone to improvise based on what’s in front of them at any given moment, just as Trump does. While a slowing economy does argue for lower rates, that lack of visibility or preponderance of unpredictability (depending on how you want to look at it), argues for a high level of caution at the central bank, which probably makes it even less likely Trump’s desires will be fulfilled.
Then came China:
First of all, Trump is not King (except according to his Retweets, of Israel). He can’t “hereby proclaim” U.S. companies do much of anything, especially If it’ll hurt profitability, their shareholders, and their ability to keep people employed. (Especially not on Twitter, for God’s sake!) This almost seems a plaintive wish, rather than a reality.
This was our favorite response to the President’s Tweet:
“You don’t ‘hereby order’ anything via Twitter. Except if it’s Dominos.”
(Sorry for the lack of credit. We can’t find where we found that anymore.)
Which demonstrates the absurdity of this whole situation. But at the same time we can’t help feeling this is nothing to laugh about. Because Trump seems dead serious.
Without context, which is part of the problem of not doing regular media briefings, we can’t tell if it’s an admission on Trump’s part that China’s not going to roll over as he assured us they would when he told us winning a trade war would be so “easy”. Or if it’s a heavy handed last-ditch attempt to bludgeon China’s government into accepting terms. And does the U.S. really “not need China”? Right now, according to the U.S. Trade Representative’s Office, which is part of the White House, more than 20% of all U.S. imports come from there. Not to mention China holds more than $1-trillion in U.S. debt. Although that could also equally mean China needs the U.S.
We do continue to be surprised at how surprised and angry Trump seems to get when foreign leaders don’t immediately give in to his demands. These recent Tweets came after China announced it will retaliate and slap higher duties on $75-billion of U.S. goods, on a parallel schedule to the new or increased tariffs Trump announced earlier this month virtually all goods manufactured in China. Whether it’s China’s leader or Denmark’s, he starts an economic or diplomatic war and then seems appalled if his target has the gall to fight back. (At least he isn’t calling China’s President Xi “nasty”. Probably because Xi’s not a woman).
And we actually agree with Trump on the egregious theft of intellectual property by the Chinese government, which has cost U.S. companies billions over the years. And that something needs to be done about it, and something that China will stick to or pay consequences. Want to try tariffs to force a deal? OK. They’ve never worked before, but yeah, it’s something new (at least for the 21st Century). Especially if they’re an indicator of what you’re willing to do if a new intellectual property deal isn’t stuck to. But Trump’s now repeatedly accelerated tariffs just to try to force a deal, and it hasn’t happened. Maybe it will. And maybe he’s bungled this so badly right now, with the bigger problem that he’ll never admit he’s bungled it.
Also while we’re at it, Trump’s narrative that if the U.S. is hated overseas that means he’s doing a good job (although personally, he’s always loved), just isn’t working. It doesn’t mean the U.S. is respected. It means the U.S. is increasingly despised and ridiculed. Companies will continue to do business with the U.S. if they have to, not because they want to. That’s a big difference. And could lead to a lot less investment by multi-national corporations in this country simply because they can’t predict how stable those investments will be. Or even slow, not accelerate the investment by U.S. companies in the U.S. that Trump wants to see.
Funny thing is, the U.S. economy right now is still doing better than OK, especially compared to the rest of the world. Trump complains that Germany is able to issue bonds at negative interest rates. But that’s a negative for Germany’s economy, not a positive. It means institutions there are willing to pay the government to hang on to their money because they see no other safe place to invest it. The fact that yields on U.S. bonds are still positive means other U.S. investments are still viewed as competitive. That’s good, not bad. Similarly, while U.S. economic growth seems to be slowing, the economy’s still growing, unlike Germany, unlike the U.K. And even though job growth in the U.S. had slowed, again it’s still growing, and unemployment is still low.
So the real question today is: is Trump overly alarmed? Or does he know something we don’t? Are his “I hereby order” orders reflective of Trump’s normal erratic behavior (and perhaps megalomania)? Or a deep-seated fear? Let’s hope Wall Street doesn’t decisively decide it’s the latter, because then things could go real bad real fast, especially after people get back from their summer vacations in a little over a week.
Meanwhile, no way it’ll be a quiet weekend, with Trump going to France to attend a meeting of major global economic leaders. And we all know how much Trump likes to stomp around at those things. And this time, he may have a bro to stomp around with: Britain’s new Prime Minister Boris Johnson. It’ll be his first change to very publicly confront other European leaders, and Trump doesn’t like to be upstaged.