Trump Blasts Fed, China and Europe for Putting U.S. Economy at a Disadvantage

WASHINGTON — President Donald Trump accused China and the European Union on Friday of manipulating their currencies to gain an edge in global trade and escalated his criticism of the Federal Reserve for raising interest rates, saying those moves were putting the United States at a disadvantage.

Trump appears ready to blame the Fed for trying to slow down a booming economy that he wants to make a centerpiece of the midterm elections. The president’s $1.5 trillion tax cut, along with federal spending increases, have injected new stimulus into an economy that is finally shaking off the last vestiges of the recession. In a flurry of early morning Twitter posts, Trump complained that the Fed’s pattern of rate increases “hurts all that we have done” and that a “stronger and stronger” dollar was “taking away our big competitive edge.”

He also doubled down on his trade fight with China, vowing in an interview with CNBC that aired Friday that he was ready to impose tariffs on $500 billion worth of Chinese imports — roughly all the goods China sends to the United States each year.

But behind Trump’s criticism is an economic paradox of his own making: The very policies he has pushed, like tax cuts, increased government spending or protectionist tariffs, are fueling many of the global changes he finds so troubling.

A booming U.S. economy is strengthening the dollar against other currencies, and Trump’s tariffs are prompting some countries, like China, to take steps to protect their exporters. The Fed, concerned about too rapid an expansion that is fueled in part by the enormous fiscal stimulus ushered in by the White House, is slowly raising rates to keep the economy from overheating.

White House aides said Trump was not trying to influence the Fed, the nation’s central bank, but added he would prefer if officials paused their plans for rate increases to avoid dampening economic growth. The Fed has raised rates twice this year and is on track to raise them twice more by the end of the year, officials indicated after the Fed’s meeting in June.

Eswar Prasad, an economist at Cornell University, said the president’s tweets displayed “a breezy ignorance of facts and limited understanding of basic principles of economics.”

“The dollar is strengthening against other currencies because the U.S. economy is doing well and is implementing a fiscal expansion through a massive tax cut, both of which Mr. Trump has claimed credit for,” Prasad said. He added that condemning rate increases as “implicitly aiding the enemy in U.S. trade wars is a dangerous and destructive strike against the Fed’s independence.”

While financial markets seemed to shrug off Trump’s initial comments on the Federal Reserve, which came Thursday, his Twitter posts on Friday — all of which seemed aimed at pushing the dollar lower — drew a reaction.

The dollar, as measured by the U.S. dollar index, fell sharply. Prices of 30-year U.S. Treasury bonds, which are highly sensitive to changes in inflation expectations, also dropped, pushing yields — which move in the opposite direction — higher. Prices for gold, a traditional hedge against inflation risk, rose.

“Trump clearly doesn’t accept that a strong dollar and a widening trade deficit are the natural result of his own fiscal expansion,” said Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations.

Larry Kudlow, the chairman of the White House’s National Economic Council, said in an interview the president strongly believed that his policies would increase investment and draw workers into the labor force.

“The United States is the hottest economy and investment destination in the world right now,” thanks largely to Trump’s policies, Kudlow said. “Money is flowing in from everywhere, and that’s terrific.”

Trump’s sharp words come ahead of a gathering in Argentina this weekend of finance ministers of the Group of 20 countries, where Steven Mnuchin, the Treasury secretary, is expected to participate in a dozen bilateral meetings and broader multilateral meetings. The chairman of the Fed, Jerome H. Powell, will also attend and will participate in a discussion on global economic risk, the Treasury Department said.

It will be the third such meeting of the world’s top economic officials in recent months in which Mnuchin is expected to bear the brunt of the frustration of U.S. allies. Viewed as a voice of moderation on trade in the Trump administration, Mnuchin will once again try to do damage control and will be a sounding board for growing concerns about U.S. tariffs on steel and aluminum and the prospect of new tariffs on automobile imports.

In a slew of trade actions, the president has already imposed tariffs on about 4 percent of American imports, including foreign steel, aluminum, washing machines and solar-power products, and a variety of goods from China. But he has threatened to greatly escalate those measures, expanding tariffs to cover about a quarter of all U.S. imports.

A senior Treasury official who previewed the event said Mnuchin does not have a meeting scheduled with Chinese officials in Buenos Aires. They are expected to interact during the multilateral discussions, but one-on-one negotiations are stalled.

The Treasury secretary will meet separately this weekend with counterparts from G-7 countries to discuss ways to coordinate “concrete action with regard to China and its economic aggression,” the official said. In the interview with CNBC, the president described the tit-for-tat threats on China as a poker game, saying the trade conflict was “the right thing to do for our country.”

“I raised 50, and they matched us,” he said. “I said, ‘You don’t match us. You can’t match us because otherwise we’re always going to be behind the eight ball.'”

China’s currency has weakened in recent months, though economists debate whether the change has been propelled by markets turning more cautious or whether Beijing has sought to weaken its currency to bolster its exporters. Trump’s own Treasury Department declined to label either the European Union or China a “currency manipulator” in an April report.

Derek M. Scissors, a resident scholar at the American Enterprise Institute, said China could offset the effect of Trump’s tariffs through changes to its currency. However, any changes would have to be made gradually to avoid alarming investors and prompting capital flight, which could destabilize Chinese markets.

Trump’s trade actions have invited retaliation from Europe, Mexico, Canada and other countries, as well as China, taking a heavy toll on major U.S. exporters, including farmers. In another Twitter post Friday, Trump defended his strategy.

“Farmers have been on a downward trend for 15 years,” he said. “The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers.”

Farmers have been struggling with lower commodity prices in recent years, but the price of soybeans has plummeted sharply since the beginning of May, as China, the United States’ biggest foreign buyer, threatened to curtail its purchases. Though Trump has a strong base of support among American farmers, many insist that exporting is vital for their livelihoods and that trade pacts like the North American Free Trade Agreement, which the president has heavily criticized, have benefited them. U.S. agricultural exports have nearly tripled since NAFTA went into force in 1994, reaching $140.47 billion in 2017. They continue to outpace agricultural imports, which have also risen.

“Trade has been the one bright spot for farmers,” said Joseph W. Glauber, a senior research fellow at the International Food Policy Research Institute. “Until the tariffs were put on, farm exports have been near record highs in value.”

Ron Moore, the chairman of the American Soybean Association and a farmer in Illinois, said that tariff threats had appeared to have caused the market to collapse in recent months. “There’s extreme amount of volatility in the marketplace right now,” he said. “That really makes farmers nervous. We’ve all got bills to pay.”