President Donald Trump demanded US companies stop doing business with China and questioned whether the Federal Reserve chairman was a bigger enemy of the US than Beijing's leader Friday, capping one of the most extraordinary days in the long-running US-China trade war.
The president's Twitter tirades, in response to China's move to impose retaliatory tariffs on US$75 billion ($117.1b) in American goods, sent the Dow Jones Industrial Average tumbling 600 points, or nearly 2.4 per cent, by the end of trading and provoked an immediate negative reaction from the business community.
The extraordinary events began unfolding when China announced it would levy new tariffs on US$75b in goods, including reinstated levies on auto products.
Beijing's move, announced on the eve of the Group of Seven summit of industrialised countries in Biarritz, delivered a strategically timed blow as recession warning signs cast doubt on the strength of the global economy.
Trump initially directed his ire at Federal Reserve Chair Jerome H. Powell in Friday tweets, painting the Fed's lack of monetary easing as a greater threat to American workers and businesses.
But moments later, he said he would be responding to China's tariffs later Friday and demanded American companies cut ties with China.
"Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA," Trump tweeted.
The White House does not have the authority to force companies to follow such directives, and Trump's demand came under sharp and immediate criticism from the US business community, which warned that halting sales with such a large trading partner would hurt American companies and the broader economy.
"Trump may be frustrated with China, but the answer isn't for US companies to ignore a market with 1.4 billion consumers," said Myron Brilliant, executive vice president at the US Chamber of Commerce. "Escalating tensions is not good for market stability, investor confidence or American jobs."
Compounding the concern among industry groups was widespread uncertainty about the administration's next move.
Trump huddled with his economic advisers Friday afternoon, according to a person with direct knowledge of the meeting who was not authorised to speak publicly. Treasury Secretary Steven Mnuchin, who is on his way back from vacation, called in for the Oval Office meeting, which included the president's trade team, a senior administration official said.
Trump's tweets were not made with a specific retaliation the president had in mind, according to a person with direct knowledge of the discussion who spoke on the condition of anonymity to discuss internal deliberations.
As of late Friday, Trump was still deliberating on how to proceed with Robert E. Lighthizer, his top adviser on trade, but senior officials were uncertain how he would proceed.
Business lobbyists scrambled throughout the day on Friday to get answers about the White House's plans for retaliation, but many administration advisers were either in transit on their way out of the country to the G-7 meeting or already in France, according to two senior industry officials who spoke on the condition of anonymity to discuss the internal complications.
Business interests have been cautious not to denigrate Trump's trade moves with China too strongly, eager to support the president's goals of fairer trade practices and maintain a bridge to the administration.
But the president's stunning new directive for US companies to sever ties to China likely represents a new risk that could lead to more dire warnings and intense criticisms of the administration, these officials said, particularly for large US multinational corporations who have for years been planning to try to benefit from the growing Chinese consumer market.
"I have no idea how the president thinks he can order companies to stop working with China. I'm baffled," said Brian Riedl, a budget expert at the Manhattan Institute, a conservative think tank.
Senior Republicans on Capitol Hill were in the dark as of Friday afternoon about the administration's plans, according to two GOP aides who spoke on the condition of anonymity because they were not authorised to speak publicly.
While dozens of major companies including Google and Nintendo have already shifted supply chains out of China, most are rebuilding them abroad, primarily in Southeast Asia.
Trump's attacks could put him under intense pressure at the G-7 summit, where he has called a special session to discuss the global economy. He repeatedly lauds the nation's economic prowess, while saying economies elsewhere in the world are in trouble.
But the US economy's performance is much more intertwined with global pressures than Trump has acknowledged, and this entanglement is forcing White House officials to decide whether they need to recalibrate Trump's approach before the 2020 election or stick with the president's impulses.
The new import taxes range from 5 to 10 per cent and take effect September 1 and December 15 — the same dates Trump's latest tariffs on US$300b in Chinese goods are slated to kick in — the Chinese finance ministry announced. A 25 per cent tariff on automobiles and a 5 per cent levy on auto parts go into effect December 15.
"China's imposition of tariffs is a forced response to the unilateralism and trade protectionism of the United States," the Communist Party-run Global Times said. The outlet said it hoped the trade conflict would be resolved "on the premise of mutual respect and equality and trustworthiness in words and deeds."
In highly anticipated comments earlier Friday, Powell acknowledged the trade uncertainties were affecting the global economy.
"The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States," Powell said.
But Powell offered little by way of concrete assurance, saying the Fed would "act as appropriate to sustain the expansion" — a phrase he returns to frequently — and cautioned that there are "no recent precedents" to guide policy response to the trade war.
"While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade," Powell said.
Conservative groups were taken aback by the president's order for companies to cut ties to China, saying they did not expect such a significant escalation from the president.
"The instruction for US firms to leave China was quite stunning. I'm completely surprised by it," said Alison Acosta Winters, senior policy fellow at Americans for Prosperity, a conservative group. She said there was "tremendous concern" among lawmakers, including congressional Republicans, about the direction of the trade war, which has hogtied the world's two most powerful economic engines for more than a year.
The conflict has taken toll across the globe. China's economic growth has slowed to its lowest rate in 27 years, as factory output declines and unemployment rises. Central bank leaders in Europe, Asia and Australia have cut interest rates in recent weeks, citing the need for economic stimulus.
Domestically, the manufacturing sector contracted for the first time in a decade. The US manufacturing purchasing managers' index fell to 49.9 in August, from 50.4 in July, according to IHS Markit. It is the first time the closely watched indicator has fallen below 50 since September 2009.
Sales of US exports have decreased at the fastest pace since August 2009. When exports fall, manufacturers typically react by reducing inventories and cutting production, which can lead to job cuts. Airfreight volumes fell nearly 5 per cent in June, marking the eighth consecutive month of decline. Freight airlines cited the US-China standoff as a prime reason for slumping demand.
While American consumers, whose spending fuels about 70 per cent of the US economy, have largely been shielded from the trade war's carnage, that's poised to change. Earlier this week, JPMorgan Chase estimated that American families will absorb another US$1,000 in annual costs from all Chinese tariffs after the 10 per cent levies take hold. If the upcoming tariffs are raised to 25 per cent, as Trump has warned, that cost jumps to US$1,500, researchers estimated.
And last week, for the first time since the run-up to the Great Recession, the yields — or returns — on short-term US bonds eclipsed those of long-term bonds. This phenomenon, which suggests investor faith in the economy is faltering, has preceded every recession in the past 50 years.
Despite signs of a homegrown slowdown, Trump — at least publicly — maintains that the United States is immune to the weakening economic trends rattling other countries. In tweets Friday morning before China's tariffs announcement, Trump blamed the media and political foes for recession fears that have gripped the United States for the past week.
"The Economy is strong and good, whereas the rest of the world is not doing so well," Trump tweeted Friday morning, before China's retaliation was announced.
But even as he has touted the strength of the US economy, Trump has repeatedly attacked Powell for not providing enough stimulus through rate cuts, despite the fact that the central bank cut rates in July for the first time since the financial crisis.
"Trump has been publicly berating the Fed Chair for the last year but has really stepped up his attacks in recent months as the economy has weakened, recession warnings have started flashing red and the need for someone else to blame has intensified," Craig Erlam, an analyst with OANDA, wrote in a note to investors Friday. "The trade war is taking its toll and heading into an election year, Trump does not want fingers pointing at him."
In comments on Fox Business on Friday morning, Trump's chief trade adviser Peter Navarro downplayed the effect of the tariffs and echoed Trump's claims that the greatest threat to the American economy is the Fed's reluctance to follow other central banks in monetary easing.
"US$75b worth of tariffs in terms of, what, the combined US$30 trillion economy is not something for the stock market to worry about, and we're cool here, so why don't we talk about what matters," Navarro said, adding that the impact of the latest tariffs should "already have been baked into the market."
In private, Trump and his aides have been scrambling to avert an economic downturn, The Post has reported. Ideas that have been floated include imposing a currency transaction tax that could weaken the dollar and make US exports more competitive; creating a rotation among the Federal Reserve governors that would make it easier to check Powell — whom Trump has relentlessly castigated for not doing more to increase growth — and pushing to lower the corporate tax rate to 15 per cent in a bid to spur more investment. Some, if not all, of these steps would require congressional approval.