The reason behind recent U.S.-China trade negotiation jitters -- potentially threatening the completion of a deal -- is the result of President Trump repeatedly criticizing the Federal Reserve and its chairman, Jerome Powell.
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China has interpreted recent pleas by Trump for the U.S. central bank to cut interest rates by at least 1 percent as a sign that the U.S. economy is actually more fragile than the president has otherwise claimed, according to The Wall Street Journal, which cited sources with knowledge.
Beijing believed that if the U.S. economy was weakening -- and the U.S.’s resolve alongside it -- the White House would be more willing to cut a deal, even if China pushed for harder terms, the Journal reported.
If anything, however, the opposite is true. In the first quarter of 2019, the U.S. economy expanded by 3.2 percent, largely pushing back any fears about an impending recession. Job growth, meanwhile, has been chugging along at a fairly steady pace, with an average monthly gain of 213,000 jobs over the past year.
In a tweet last week, Trump urged the Fed to lower interest rates ahead of its two-day meeting (in which it voted to keep rates steady), while also lauding China’s economy.
“China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening,” he wrote.
Although talks between the world’s two largest economies resumed on Thursday, the tone has shifted significantly compared to last week, when the assumption was that they would close a deal by the end of the week. Now, both the U.S. and China are threatening to sharply increase tariffs, rattling the markets.
The U.S. already imposes a 10 percent tariff -- which is set to rise to 25 percent on Friday, Trump said in a tweet -- on $200 billion of goods and a 25 percent tariff on $50 billion of tech products.
White House officials have stressed that both sides are eager to wrap up talks; last week, Treasury Secretary Steven Mnuchin told FOX Business that although they still had “more work to do,” enforcement mechanisms were “close to done.”
“If we get to a completed agreement it will have real enforcement provisions,” he said at the time.