President Trump is in the midst of a public meltdown that is humiliating, scary, and banana republic–y even by Trumpy standards. The reason is that Trump started a trade war and China refuses to back down, having announced this morning that it is imposing retaliatory tariffs on $75 billion worth of U.S. goods.
Trump has picked fights with lots of countries. Usually they either placate him or try to give him a face-saving way of de-escalating (e.g., Mexico, which is never going to pay for the wall but doesn’t talk about the fact that it’s never going to pay for the wall anymore). Sometimes they get Trump to fold by stroking his ego (the North Koreans have carried out the most over-the-top version of this tactic).
China is playing it differently. Trump is pressuring China with tariff threats, on the theory that China, which is more export-dependent than the U.S., has more to lose from a trade war. China, apparently, calculates that it is Trump who has more to lose from a trade war, since he is facing reelection next year and Chinese president Xi Jinping is facing reelection … never. What’s more, China has little incentive to cough up permanent concessions in its trade relations with the U.S., given that there’s a better-than-even chance Trump will lose and it can just wait for the next president.
This has provoked one of Trump’s wilder public tantrums. First, he has lashed out at Federal Reserve chair Jay Powell, who has become Trump’s scapegoat for bad economic news despite the fact that it was Trump who appointed him to the job. (“Trump installed a Fed chair who is singlehandedly destroying the economy” sounds like an attack on Trump, but oddly enough it is Trump’s own argument.)
Trump wants Powell to aggressively, quickly, and smoothly reduce interest rates to mitigate the economic harm Trump is inflicting on the economy. As Powell has pointed out, this is hard. “Because the most important effects of monetary policy are felt with uncertain lags of a year or more, the committee must attempt to look through what may be passing developments and focus on things that seem likely to affect the outlook over time or that pose a material risk of doing so,” the Fed chairman said today. “But fitting trade-policy uncertainty into this framework is a new challenge.”
Translation: Monetary policy is always hard, but it’s really hard when the president is erratic.
Trump has accordingly added Powell to his list of Enemies of the People. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?,” he tweeted, a message that is unlikely to calm the waters.
Trump followed up that crazy tweet with a series of even crazier tweets, in which he ordered American firms to “immediately start looking for an alternative to China.”
He added a “hereby” to the order, giving it the ring of a presidential decree. Trump does not actually have the power to unilaterally order private firms to redesign their global business models at the drop of a hat just because he is mad online.
The stock market has indicated that businesses have not exactly been enjoying Trump’s anti-China bluster, but their panic has been bounded by the expectation that he will ultimately back down, as he has in his other international confrontations. Surely Trump won’t escalate the trade war to the point where he tips his own economy into recession, right?
The normal rule is that presidents who run for reelection in the midst of a recession lose. Trump may not believe the normal rule applies to him. The Washington Post reported that Trump has been briefed on the ominous economic news but “has told aides that he thinks he can convince Americans that the economy is vibrant and unrattled through a public messaging campaign.” Maybe he thinks his propaganda apparatus can convince voters the economy is good even if it’s bad?
If Trump does believe this, then he might actually continue escalating his trade war with China — not just with fake presidential decrees but with continued tariff increases. And maybe the assumption by business that this will all somehow end without too much collateral damage might turn out to be misplaced.