China struck back with retaliatory tariffs on $75 billion in American goods and reinstated levies on auto products Friday, Aug. 23, delivering a strategically timed blow as recession warning signs cast doubt on the strength of the U.S. economy.
But Trump directed his ire squarely at Federal Reserve Chair Jerome Powell in Friday tweets, rather than lashing out at China, painting the Fed's lack of monetary easing as a greater threat to American workers and businesses."My only question is, who is our bigger enemy, Jay Powel or Chairman Xi," Trump tweeted, misspelling the Fed chair's name.
The import taxes range from 5 to 10% and take effect Sept. 1 and Dec. 15 - the same dates President Donald Trump's latest tariffs on $300 billion in Chinese goods are slated to kick in - the Chinese finance ministry said in a statement.
A 25% tariff on automobiles and a 5% levy on auto parts take hold Dec. 15.
"China's imposition of tariffs is a forced response to the unilateralism and trade protectionism of the United States," said the Communist Party-run Global Times. The outlet said it hoped the trade conflict would be resolved "on the premise of mutual respect and equality and trustworthiness in words and deeds."
Dow Jones industrial average futures, which had been predicting a 100-point gain at the market open, sank nearly 150 points after the announcement. After markets opened, the Dow rebounded slightly after Powell acknowledged "further evidence of a global slowdown" in comments at the Fed's annual symposium.
"The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States," Powell said.
But Powell offered little in way of concrete assurance, saying the Fed will "act as appropriate to sustain the expansion" -- a phrase he returns to frequently -- and cautioned that there are "no recent precedents" to guide policy response to the trade war.
"While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade," Powell said.
China's retaliation marks yet another escalation in the trade war that has hogtied two of the world's most powerful economic engines for more than a year, and the conflict is taking a toll across the globe. China's economic growth has slowed to its lowest rate in 27 years, as factory output declines and unemployment rises. Meanwhile, central bank leaders in Europe, Asia and Australia have cut interest rates in recent weeks, attributing the need for economic stimulus to the fallout from the trade war.
In the U.S., economists have become alarmed amid the burgeoning recession signals despite low unemployment and strong consumer spending. The manufacturing sector contracted for the first time in a decade. The U.S. manufacturing purchasing managers' index fell to 49.9 in August from 50.4 in July, according to IHS Markit. It is the first time the closely watched indicator has fallen below 50 since September 2009.
Sales of U.S. exports also decreased at the fastest pace since August 2009. When exports fall, manufacturers typically react by reducing inventories and cutting production, which could spur job cuts. Air freight volumes also fell nearly 5% in June, marking the eighth consecutive month of decline. Freight airlines cited the trade disputes between the U.S. and China as a prime reason for slumping demand.
While consumers, whose spending fuels about 70% of the U.S. economy, have been largely shielded from the trade war's carnage, American families will feel the pain of the impending rounds of tariffs on Chinese goods. Earlier this week, JPMorgan researchers calculated that after the 10% levies go into effect, American families will be facing about $1,000 in additional costs from all tariffs on Chinese goods annually. If the upcoming tariffs are raised to 25%, as Trump has warned, consumers' costs could go as high as $1,500 a year, researchers estimated.
And last week, for the first time since the run-up to the Great Recession, the yields - or returns - on short-term U.S. bonds eclipsed those of long-term bonds. This phenomenon, which suggests investor faith in the economy is faltering, has preceded every recession in the past 50 years.
Despite signs of a homegrown slowdown, Trump - at least publicly - maintains that the U.S. is immune to the weakening economic trends rattling other countries. In tweets Friday morning before China's tariffs announcement, Trump blamed the media and political foes for recession fears that have gripped the U.S. for the past week.
"The Economy is strong and good, whereas the rest of the world is not doing so well," Trump tweeted Friday morning, before China's retaliation was announced.
But even as he has touted the strength of the U.S. economy, Trump has repeatedly attacked Federal Reserve Chair Jerome Powell for not providing enough stimulus through rate cuts, despite the fact that the central bank cut rates in July for the first time since the financial crisis. Investors are awaiting Powell's comments at the Fed's annual economic symposium Friday morning, looking for clues to the Fed's next moves ahead of its mid-September meeting.
"Trump has been publicly berating the Fed Chair for the last year but has really stepped up his attacks in recent months as the economy has weakened, recession warnings have started flashing red and the need for someone else to blame has intensified," Craig Erlam, an analyst with OANDA, wrote in a note to investors Friday. "The trade war is taking its toll and heading into an election year, Trump does not want fingers pointing at him."
In comments on Fox Business Friday morning, Trump's chief trade adviser Peter Navarro downplayed the effect of the tariffs and echoed Trump's claims that the greatest threat to the American economy is the Fed's reluctance to follow other central banks in monetary easing.
"$75 billion worth of tariffs in terms of, what, the combined $30 trillion economy is not something for the stock market to worry about, and we're cool here, so why don't we talk about what matters," Navarro said, adding that the impact of the latest tariffs should "already have been baked into the market."
In private, Trump and his aides have been scrambling to avert an economic downturn, The Post has reported. Ideas that have been floated include imposing a currency transaction tax that could weaken the dollar and make U.S. exports more competitive; creating a rotation among the Federal Reserve governors that would make it easier to check the power of Powell, whom Trump relentlessly castigated for not doing more to increase growth; and pushing to lower the corporate tax rate to 15% in a bid to spur more investment. Some, if not all, of these steps would require congressional approval.
This article was written by Taylor Telford and Gerry Shih, reporters for The Washington Post.