Fed says trade war downturn could pose challenges

Posted July 23, 2018

A booming USA economy is strengthening the United States dollar against other currencies, and Mr Trump's tariffs are prompting some countries, like China, to take steps to protect their exporters.

The United States is now disputing retaliatory tariffs by China, the European Union, Canada, Mexico and Turkey, in response to new U.S. duties on steel and aluminum.

Trade discussions aimed at defusing tensions between the USA and China have stalled, and Treasury Secretary Steven Mnuchin said the US would only be willing to get back to the table if China agrees to deepen structural changes to its economy.

Shortly after taking office, Trump withdrew from the Trans-Pacific Partnership (TPP), which he said would steal millions of jobs from Americans, while the North American Free Trade Agreement (NAFTA), signed by Canada, Mexico, and the United States, is now being renegotiated.

U.S. Treasury Secretary Steven Mnuchin said Saturday that Donald Trump was not trying to put pressure on the Federal Reserve when he criticized its decision to raise interest rates. After Beijing announced retaliatory measures, the White House last week said it would consider introducing a 10% duty on imports of Chinese goods worth another $ 200 bn by than September, In this case, the American business had time to comment on imports included in the list.

Steady U.S. economic growth of around 2.0 percent in the first quarter of this year and rising interest rates, at a time when the European Central bank and the Bank of Japan are keeping their rates low, helped the U.S. dollar climb to its highest level in a year in July.

The White House later said in a statement that the president respects the US central bank´s independence and was not interfering with its policy decisions. "I'm not doing this for politics; I'm doing this to do the right thing for our country".

"A 25 percent tariff on imported autos and auto parts would only lead to fewer sales, which leads to fewer American jobs", warned Jennifer Adair, a quality team leader at Toyota Motor Manufacturing in Indiana. Earlier this year, he used national security as a justification for taxing imported steel and aluminum.

But Trump was back at it this morning in a tweet that again slammed the Fed's monetary policy: "Tightening now hurts all that we have done".

"The escalating trade war, if it goes badly, could be a risk for the US economy", Bullard said, adding he understands the policy's objective.

Trump's comments come after Fed Chairman Jerome Powell delivered an upbeat assessment this week to Congress on the domestic economy.

The chance inflation might accelerate has increased after the massive tax cut Trump championed previous year, which has raised the USA debt and budget deficit.

Mulvaney said Trump "absolutely respects the independence of the Fed, but that doesn't prevent him or previous presidents from voicing their opinions". "Debt coming due & we are raising rates - Really?", he asked rhetorically. "I want them to do well", Trump said.