Politics, Moderate

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Politics

Trump's two worst economic ideas collide

Catherine Rampell on

At 12:01 a.m. Friday, President Trump's two worst economic ideas finally collided -- and made each other even worse.

To be sure, there are a lot of terrible economic theories espoused by this president (tax cuts pay for themselves, government shutdowns are fun, scam artists should roam free, etc.). But the specific bad ideas I'm referring to are:

1.Trade wars are good and easy to win; and

2.It's smart for the president to publicly bash the Federal Reserve.

Last fall, Trump began loudly complaining about the Fed's interest-rate hikes, in defiance of a multidecade-long policy for the White House to never comment on Fed decisions. The reason for this norm is clear: Central banks must be politically independent in both practice and perception in order to credibly commit to stable prices. If the public believes that politicians rather than independent technocrats control the printing press, inflation can easily spiral out of control. Lots of other countries throughout history (Venezuela, Argentina, pre-euro Italy) have served as cautionary tales.

But none of that mattered to Trump. He has been throwing tantrums about the Fed's modest interest-rate increases, claiming that they threaten both the U.S. economy and his presidency. At one point, there were even reports that Trump was considering taking the unprecedented and cataclysmic step of firing the Fed chair whom he appointed, Jerome H. Powell.

 

Markets paid attention. As it turns out, China did, too.

According to the Wall Street Journal, Beijing noticed Trump's latest Fed-related outbursts and interpreted them as evidence that the president was freaked out about the underlying health of the U.S. economy. They suggested that he might be secretly desperate to make a deal, any deal, with China.

In other words, our dealmaker in chief failed to realize that berating the Fed not only harms the long-run credibility of the central bank; it also hurt his near-term negotiating position with China.

After previously expressing a willingness to make serious concessions, China started playing hardball. Negotiations broke down, and then Trump responded by more than doubling existing tariffs on $200 billion of Chinese imports, from 10 percent to 25 percent, on Friday. He has also threatened to add tariffs to an additional $325 billion in Chinese goods that aren't currently taxed.

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