Trump Says "Fed Didn't Listen to Me", Now Seeks "Level Playing Field" With China


Trump complains the Fed isn't listening to him. A chicken and egg question surfaces.

Trump Complains On Squawk Box

Trump Wants Level Playing Field

Trump says the US needs a ‘Fair Playing Field’ against China’s weaker currency as yuan hits lows of the year.

  • President Trump says the U.S. needs a “fair playing field” against China’s weaker currency, which is nullifying the impact of tariffs.
  • Trump, in an interview on CNBC, says China’s president essentially heads the Chinese “Fed” and can directly impact monetary policy.
  • Trump comments come as the yuan falls near its low of the year versus the dollar.

“We should be entitled to have a fair playing field ... because our Fed is very, very disruptive to us,” he said. “Even without a fair playing field, we’re winning because the tariffs are putting us at a tremendous competitive advantage.”

“Don’t forget, the head of the Fed in China is President Xi. He’s the president of China. ... He can do whatever he wants. They devalue, they loosen or you would just say they pump a lot of money into China, and it nullifies to an extent, not fully, it nullifies the tariffs,” Trump said.

Chicken or Egg?

Clearly the Fed reacted to the markets.

Is it possible Trump manufactured a tariff crisis just to get what he wanted from the Fed?

Trump's 5D-believing fans will give Trump credit for getting the rate cuts he wants, but it's likely happenstance.

Trump was a "tariff man" decades ago, literally.

Perfect Timing, By Accident

I talked about currencies this morning, before this story broke, in Currency War or Trade War? Two-Edged Dilemma for US and China

Trump's Dilemma

  1. Trade wars are not easy to win or the US would have won already.
  2. Soybean exports to China have collapsed. Trump even begged China, Please Shift Soybean Tariffs to Something Else. China agreed to shift tariffs, but that agreement collapsed in the more recent escalation.
  3. In trade hardball, China Threatens to Cut Off US Supply of Rare Earth Elements. Many dismiss this threat because rare earths are not that rare. That's a true statement, but this is not about the long term, it's about the short term.
  4. Trump's Trade Lies So Preposterous No One Can Seriously Believe them.
  5. Tariffs rate to strengthen the US dollar, the last thing Trump wants.
  6. Trump has an election to win, China doesn't.

China's Dilemma

  1. China would love for the yuan to sink to counteract Trump's tariffs except for one thing: China needs those reserves to stop capital flight.
  2. Whereas the Fed bailed out (recapitalized) US banks over time by paying interest on excess reserves, Chinese banks and State-Owened Enterprises (SOEs) are in as bad a shape as ever.

Question on Reserves

Q: A reader asked "I understand how a weaker currency would lead to capital flight, but what reserves are you talking about? Wouldn't a yuan depreciation lead to MORE dollar reserves? Thanks!"

A: When China had periods of capital flight, China sold dollar reserves to buy yuan (to strengthen the yuan). China does not want a strong yuan, but it does not want capital flight either. If China devalued the yuan, it would lead to currency speculation and capital flight. It wants the yuan to sink slowly.

Currency Wars US Style

Bear in mind that currency pegs and depreciation by cutting interest rates are tantamount to the same thing: currency wars.

Both have the same impact: both artificially lower a currency.

What If?

Trump wants China to float the yuan. But what if it did?

I speculate the yuan might crash. Why?

Five Reasons Yuan Might Crash

  1. Capital Flight, Capital Flight, Capital Flight.
  2. Chinese banks are in worse shape than US banks.
  3. China's GDP is enormously overstated.
  4. Chinese SOEs are bankrupt.
  5. No property rights

Nuclear Dumping Not An Option

China won't float the yuan because it might crash. China needs the yuan to sink to offset US tariffs, but it does not want the yuan to do so disorderly so as to cause capital flight.

That is the irony of all this alleged nuclear "dumping" of treasuries option by Peter Schiff and others.

China does not want and is incapable of having the world's reserve currency as many propose.

US Winning?

Those who suggest the US can win the war because of the above are also mistaken.

Please understand the inherent irony: The more tariffs one places, the bigger the losses.

Trump is thus in a position to damage the US far more than China can retaliate the foolishness.

Bottom Line

It's far too late to reverse this nonsense. A global recession looms.

Currency wars by any name will not stop the next recession.

Mike "Mish" Shedlock

Comments (7)
No. 1-5

"A global recession looms."

Most likely. For a whole host of issues with a trade war being just one of them.

However, will a US recession loom? Very debatable.


I'm just wondering, if the tariffs cause the yuan to go lower then the price of imports in dollars goes down by that much. So a widget which used to cost $100 now costs $90, but with $10 in tariffs. The price is the same except that China only gets $90 and the US Treasury gets $10. What's not to like?



What's Not to Like?

Supply chain disruptions, plus tariffs only partially cause a currency reaction. Finally, note that Chinese exports rose, imports fell. That is not winning.


If not for the cheap money and corporations borrowing money to buy stock the market would already have tanked by 30%.

A recession can be prevented until 2020. But not long enough for trump to win in November of 2020.


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