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Trump Pretends to Be Winning the Trade War

weaken the dollar,


United States Trump wants the 'Fed' to weaken the dollar, as China did with the yuan. He operates increasingly solo and ignores his advisers.

Washing machines are among the top 5 Chinese products that have taxed the US.
Investors worldwide see the extension of the trade dispute between the United States and China to a dispute over currency as a dangerous escalation. The market is shocked: investors are wondering if the American president Donald Trump is exaggerating the conflict too much, and with a possible currency war risking an economic crisis.

Stock prices have fallen sharply since China let the yuan weaken on Monday for the first time in more than eleven years to below the limit of 7 yuan per dollar. That happened in response to the sudden announcement of import taxes on $ 300 billion of Chinese goods by Trump last week. For the first time since 1994, the United States has designated China as a currency manipulator.
From the White House, the pressure on the Federal Reserve is increasing to also weaken the US dollar by reducing interest rates more aggressively. "Are you listening, Federal Reserve?" Trump wrote on Twitter. But if the trade dispute overflows into a currency war, observers threaten a downward spiral.
"With the devaluation, China is trying to minimize the impact of the taxes," said Robert Halver, head of capital market analysis at Baader Bank, to Reuters. "The problem is that the Federal Reserve will be forced to further lower interest rates in response to China's steps to weaken the dollar."

 

Fed under pressure

Trump has not made a secret of his desire to see lower interest rates. He has been heavily criticized for weeks at the Federal Reserve, which he believes has been raising interest rates too quickly in recent years. Although the US central bank is independent, and monetary policy is not directly determined by the government, the president has shown willingness to press President Jerome Powell to take steps to weaken the dollar.

That is a dangerous development, according to four former presidents of the Federal Reserve. In a joint opinion piece in The Wall Street Journal , Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen argued this week for the preservation of Fed independence. "It is very important to maintain the ability of the Federal Reserve to make decisions that are in the interest of the country, not of a small group of politicians," they wrote.

Winning hand

Meanwhile, the president himself acts as if he is winning in his conflict with Beijing. Although he is sensitive to large losses on Wall Street, which he considers a barometer of his economic success, he seems to believe that pain is worth tackling China in the short term. He estimates that the Chinese economy suffers more than the American economy. "We are in a very strong position," he wrote on Twitter on Tuesday.

Trump seems to believe that his strategy works in trade disputes: in his relations with other trading partners, including Mexico, Canada and the European Union, he often unexpectedly threatens with import duties. When he suddenly announced import duties against Mexico in June to pressurize the neighboring country to do something about migration from Central America, it led to a deal.
 
In addition, according to The Washington Post , he is increasingly sailing under his own steam in his relations with China and ignoring the advice of employees. Lack of moderating voices opens the door to impulsive escalations and increasing pressure on the Fed. The president, who uses import duties in diplomatic disputes, may also not shy away from using currency as a weapon in his trade war. He said last month that he could personally intervene in the exchange rate of the dollar. "I could do that in two seconds if I wanted to," he said, which is not true.

Meanwhile, Trump ignores that import duties on Chinese products are not paid by China, but by American buyers. The business community is becoming increasingly worried. Henry Paulson, former finance minister, warned Monday of economic damage on the American side. "The levies imposed on Chinese goods are beginning to devour US economic growth and prosperity."

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