Trump raises tariffs on China and threatens Fed chairman; markets tumble

WASHINGTON —  President Trump ratcheted up tariffs on $550 billion of Chinese imports, told American companies doing business in China to find alternatives and denounced the head of the Federal Reserve as an “enemy” in a dizzying array of angry tweets Friday that sent markets reeling.

By day’s end, the trade war with China, which was already buffeting the U.S. and global economies, had significantly escalated, and many analysts had abandoned hopes of a near-term deal. Trump appeared to have worsened the economic turbulence that his administration says it is trying to reduce.

The day began with China announcing tariffs of 5% to 10% on $75 billion of U.S. products, a step designed to retaliate against a previous round of tariffs that Trump had announced earlier this month.

Trump called the the retaliation “politically motivated” and a mistake. By sunset, he struck back with an additional 5% hike on previous and upcoming tariffs on all Chinese imports — equivalent to a $27.5-billion annual tax increase on consumers of Chinese goods.

“Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen!” Trump tweeted in announcing the new tariffs.

Earlier in the day, Trump lit into Jerome H. Powell — whom he chose as chairman of the U.S. central bank in 2017 — after Powell stopped short of committing to make more interest rate cuts, which Trump has demanded as a way to stimulate a slowing economy.

“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Trump said in a remarkable message on Twitter, comparing Powell to Chinese President Xi Jinping.

Trump and his economic team have been increasingly concerned about the economy, which is weakening and could foil Trump’s reelection bid if it were to fall into recession. Trump has repeatedly sought to blame the Fed. He has also said he is considering tax cuts and other ways to bolster growth, but his own actions, including the increasingly costly trade war with China, have been a principal cause of economic turbulence, according to economic analysts from both parties.

Trump also tweeted that he had “ordered” American companies “to immediately start looking for an alternative to China.”

The statement goes far beyond a president’s authority, although Trump could potentially take steps to retaliate against some businesses that continue to do business in China. The “order” indicated the depth of Trump’s agitation over his failure to prevail in a trade war with China that he had once predicted would be “easy.”

“We don’t need China and, frankly, would be far better off without them,” Trump tweeted.

The belligerent remarks combined with China’s announcement of counter-tariffs — a show of resolve on Beijing’s part — marked a notable worsening of the trade dispute, which has gone on for more than a year.

Analysts said that although Trump has often pulled back from impulsive threats in the past, the day’s events had dashed remaining hopes for a near-term resolution to the trade conflict.

“These further tariffs only indicate there is not going to be a solution to the tariff and trade issues for the remainder of the Trump administration,” said David Bachman, an expert on U.S.-China relations at the University of Washington. “The uncertainty whether there will be a deal or not has been answered at least for the next two years,” he said.

U.S. and Chinese negotiators are scheduled to meet next month, but Riley Walters, a Heritage Foundation policy analyst, said Trump’s outburst “could blow that out of the water.”

“By the end of the year, we could have tariffs on every single thing we buy from China,” Walters said.

Sensing the pivotal significance of Friday’s events, the U.S. Chamber of Commerce said in a statement: “Time is of the essence. We do not want to see a further deterioration of U.S.-China relations. We urge the administration and the government of China to return to the negotiating table.”

One of Trump’s key Senate allies, Finance Committee Chairman Charles E. Grassley (R-Iowa), said in a statement that he supports Trump’s goal of a fairer trade relationship with China, but worries that farmers “are at risk of permanently losing an export market.”

“Tariffs cannot be the only negotiating tool. Tariffs are not a long-term solution,” he said.

Other business leaders responded coldly to Trump’s demand that they stop doing business with China, some calling the edict “ridiculous” and “crazy.”

“It is unrealistic for American retailers to move out of the world’s second-largest economy, as 95% of the world’s consumers live outside our borders,” said David French, senior vice president of government relations at the National Retail Federation. “Our presence in China allows us to reach Chinese customers and develop overseas markets. This, in turn, allows us to grow and expand opportunities for American workers, businesses and consumers.”

“It’s a free country and I can certainly do business where I want to,” said Russell Johnson, president of China Array Plastics, which has been manufacturing in China for the last 14 years.

With Friday’s announcement, as of Oct. 1, Trump’s tariffs would rise to 30% on $250 billion of Chinese imports now taxed at 25%. Furthermore, Trump said the 10% tariffs he planned on the remaining $300 billion of Chinese imports starting Sept. 1 would be raised to 15%.

Markets plunged immediately after Trump began his Twitter storm with the attack on Powell. All the major U.S. stock indexes ended sharply lower, with the Dow Jones industrial average falling 623 points, down 2.4% for the day. Government bond yields also sank, along with oil and other commodities.

“The other shoe keeps dropping on America’s economic war with China, and as China and Trump ramp up the rhetoric and put on new tariffs, stock investors have had enough and want out,” said Christopher Rupkey, chief economist at MUFG Union Bank in New York.

Powell, in a highly anticipated speech Friday morning at the Fed’s annual conference in Jackson Hole, Wyo., pledged to do whatever the Fed could to sustain U.S. economic growth. But the Fed, which made a small cut in a key interest rate last month, is divided on how aggressively it should respond in the face of economic crosscurrents that include strong domestic consumer spending and significant trade policy uncertainty.

Trump has demanded the Fed cut a full percentage point in its benchmark interest rate and take other steps to lower the value of the dollar to spur exports.

Not hearing the message he wanted, Trump tweeted Friday: “As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work ‘brilliantly’ with both, and the U.S. will do great.”

Soon after, Trump went on to attack China, which had announced additional tariffs of 5% to 10% on $75 billion of U.S.-made goods, to take effect on Sept. 1 and Dec. 15 — the same dates that Trump’s new tariffs on $300 billion of Chinese products are set to go into effect.

Beijing didn’t identify what U.S. goods would face higher tariffs, saying only that they would affect a total of 5,078 products. In addition, China said it would resume imposing additional tariffs of up to 25% on American-made vehicles and auto parts starting Dec. 15.

“We hope China and the United States will resolve differences in a manner acceptable to both sides on the premise of mutual respect, equality, good faith, and consistency of words and deeds,” said a statement attributed to the Customs Tariff Commission of China’s State Council.

China’s state-run news agency reported the tariffs just before Powell’s speech and as Trump was preparing to leave for the annual G-7 summit, where the leaders of Germany, Japan and five other advanced economies are meeting in France and where Trump is likely to feel heat on his trade policies.

“This probably amplifies the earful that the U.S. is going to get from the rest of the G-7 on how trade wars are dragging down the global economy,” said David Loevinger, an analyst for TCW Emerging Markets Group in Los Angeles and a former senior Treasury Department official for China affairs.

Given Trump’s desire to look tough going into the election year, analysts said they did not expect to see an easing of trade tensions until after next year’s election.

Chinese domestic politics also make a near-term resolution extremely difficult. With the 70th anniversary of the founding of the People’s Republic approaching in October, and Hong Kong boiling over, the Chinese leadership can’t be seen as weak, said Loevinger.

Trump is banking on a strong U.S. economy to carry him to a victory in 2020, but he has become more strident about taking on China. In the past, he has described Xi as a great friend, but that, too, seemed to have ended Friday.

“It looks to Trump like Xi’s not going to play ball in the way he wanted, and this ‘great relationship’ between the two of them is clearly souring,” Bachman said.

In a series of tweets. Trump lashed out at the Chinese: “Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them.